M/S SHREE CEMENT LIMITED vs KARNATAKA ELECTRICITY REGULATORY COMMISSION Ors on 16 March 2026

JUDGEMENT

PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON

1. The present Appeal No. 58 of 2020 has been filed by M/s Shree Cement Limited (hereinafter referred to as “Appellant”) under Section 111 of the Electricity Act, 2003 challenging the order dated 26.11.2019 (“Impugned Order”) passed by the Karnataka Electricity Regulatory Commission in O.P. No.22 of

2019 whereby the State Commission had dismissed the Petition filed by the Appellant herein while upholding the deduction of liquidated damages by the Respondent No.2.

2. The Appellant, M/s Shree Cement Limited, is a company registered under the Companies Act 1956, engaged in the business of manufacturers of cement and trading of electricity.

3. The Respondent No.1, i.e. Karnataka Electricity Regulatory Commission (hereinafter referred to as “KERC/State Commission”), is the Electricity Regulatory Commission for the State of Karnataka exercising jurisdiction and discharging functions in terms of the Electricity Act, 2003.

4. The Respondent No.2 i.e. Power Company of Karnataka Limited (hereinafter referred to known as “PCKL”), is the holding company of the Respondent Nos.3 to 7. Respondent Nos. 3 to 7 are the distribution licensees responsible for supplying electricity in the State of Karnataka.

Factual matrix of the Case:

5. On 29.08.2017, the Respondent No. 2 floated a tender for procurement of 500 MW Round-The-Clock (RTC) power for the distribution licensees for the period from 20.09.2017 to 31.05.2018 in which Appellant was declared the successful bidder (L1), and was allocated 100 MW of power at a tariff of Rs. 4.08/kWh at the KPTCL Periphery, and a letter of Award (LOA) dated 11.11.2017 was issued in favour of the Appellant.

6. On 16.11.2017, Appellant filed open access applications with SRLDC for supply of power to the Respondents from 16.11.2017 to 30.11.2017, and SRLDC

granted One Day Ahead open access approval for 16.11.2017 and FCFS approval for the period from 17.11.2017 to 30.11.2017. Appellant commenced supply of 100 MW RTC power to Respondent No. 2 with effect from 16.11.2017 from its generating unit situated in the State of Rajasthan.

7. Meanwhile, the Supreme Court of India, by order dated 17.11.2017, banned the use of Pet-coke in the National Capital Region and in the States of Uttar Pradesh, Rajasthan and Haryana with immediate effect. As the Appellant was using Pet-coke as the primary fuel for generation of electricity at its Rajasthan- based generating unit—the source from which power was being supplied to Respondents Nos. 3 to 7, the Appellant discontinued supply from 23:30 hours on 18.11.2017. Appellant, vide its letter dated 17.11.2017, intimated the said development to Respondent, and also stated that it would make its best efforts to arrange supply of power from an alternate source, to be confirmed in due course, which was said to be communicated by letter dated 20.11.2017, email dated 21.11.2017 and 22.11.2017.

8. On 21.11.2017 in compliance with the Letter of Award dated 11.11.2017, the Appellant furnished the requisite Contract Performance Guarantee at the rate of Rs. 2 lakh/MW/month in favour of Respondent Nos. 3 to 7.

9. On 24.11.2017, the Appellant executed a Power Purchase Agreement with Respondent Nos. 3 to 7 for sale of energy in terms of the agreed conditions.

10. The Appellant is aggrieved that notwithstanding the occurrence of a Force Majeure event and the Appellant’s offer to supply power from an alternate source, Respondent No. 2 raised a claim for compensation under Article 6.2 of the PPA amounting to Rs. 60,50,077/-, which was subsequently revised to Rs. 29,72,647/-

alleging short supply of power for the month of November 2017, vide bill dated 29.12.2017. Aggrieved thereby, the Appellant filed Petition being O.P. No. 22 of 2019 on 28.01.2019 before the State Commission, seeking directions to Respondent withdraw the advice of PKCL for recovery of liquidated damages of Rs. 29,72,647/- for November 2017, and to refund the amount withheld towards compensation along with interest.

11. The State Commission, passed the impugned order dated 26.11.2019, dismissing the Petition filed by the Appellant and held that though offer of supply from alternate sources between 24.11.2017 – 30.11.2017 can be considered as valid offer but for the days 22.11.2017 & 23.11.2017 cannot be construed as valid offer and Appellant is liable to pay Liquidated damages. In addition, The Appellant is also held liable for the payment of open access charges of about Rs 12,81,0101 to the extent power is not availed by the respondents. Aggrieved thereby, the Appellant has preferred the present Appeal on 09.01.2020.

DISCUSSION AND ANALYSIS

12. We have heard Mr. Kumar Mihir, learned counsel on behalf of the Appellant and Mr V.M. Kanan, learned counsel for Respondents Nos 2,3,5,6 and 7 and perused written submission filed by the parties, the Impugned Order, and other related documents on record. In the Impugned Order, non-supply of power has been considered from the period 19.11.2017 to 23.11.2017 and deemed supply of power from 24.11.2017 to 30.11.2017, for working out the Liquidated damages. There is no issue with regard to non-supply of power during the period from 19.11.2017 to 21.11.2017, and the primary issue pertains to whether Appellant is liable for payment of liquidated damages for non-supply of power from alternate source for a period from 22.11.2017 to 23.11.2017, and liability affixed on Appellant for Open Access Charges.

13. It is not in dispute that in compliance to the order passed by the Supreme Court on 17.11.2017, prohibiting the use of Pet Coke in the NCR region and in the States of Uttar Pradesh, Rajasthan and Haryana, the Appellant did not supply power to the Respondents from its plant located in Rajasthan from 23.30 hrs on 18.11.2017.

14. It is submitted by the Appellant that vide its letter dated 17.11.2017, it informed the PCKL, that in view of the order passed by the Supreme Court, it shall not be in a position to supply power, citing force majeure condition and also informed that they are trying to arrange supply from alternate sources, which shall be informed in due course of time. Subsequently, vide its letter dated 20.11.2017 addressed to the Additional Director (Projects), KPTCL, the Appellant intimated the alternate source of supply of power from Sembcorp Gayatri Power Limited, which is connected to inter-State network in southern Region and sought permission to supply power from this project from 24.11.2017 to 30.11.2017 invoking clause 5.4 (Supply from alternate source) of the power purchase tender. Vide another e-mail dated 21.11.2017, the Appellant informed PCKL that it was in a position to arrange supply from the alternate source even for 22.11.2017 and 23.11.2017 and sought the consent of the Respondent in this regard. It has been contended on behalf of the Appellant that non-supply of power in the present case constitutes a Force Majeure event within the meaning of Clause 7.1 of the Power Purchase Agreement, thereby exempting the Appellant from the performance of its obligations under the Agreement to the extent such performance was affected by the said event.

15. Per contra, it has been contended on behalf of Respondents that, on one hand, the Appellant claims that non supply of power was due to ban on the use of pet coke in State of Rajasthan, where its power plant is located, that such circumstance constitutes a Force Majeure event but simultaneously, seeks to

supply power from an alternative source under article 5.1.4 of the PPA, wherein it is expressly provided that if the Seller is unable to supply power up to the Contracted Capacity from the Delivery Point, except due to a Force Majeure event, it shall supply power from an alternative generation source with the consent of the Procurer(s); by invoking Article 5.1.4, the Appellant has itself acknowledged that the situation does not fall within the scope of the Force Majeure clause and therefore the Appellant’s plea of Force Majeure is untenable, unsubstantiated, and evidently raised only to evade liability towards Liquidated Damages under the terms of the Agreement. In this context, it would be apposite to reproduce the relevant clauses of PPA: “7.1 Force Majeure : Force Majeure Events shall mean the occurrence of any of the following events-

(i) Any restriction imposed by RLDC/SLDC in scheduling of power due to breakdown of Transmission/Grid constraint shall be treated as Force Majeure without any liability on either side.

(ii) Any of the events or circumstances, or combination of events and circumstances such as act of God, exceptionally adverse weather conditions. lightning, flood, cyclone, earthquake, volcanic eruption, fire or landslide or acts of terrorism causing disruption of the system.

(iii) The contracted power will be treated as deemed reduced for the period of transmission constraint. The non/part availability of transmission corridor should be certified by the concerned RLDC/SLDC.

(iv) The procurer would return the CPG in case of non-availability of transmission corridor during the contract period. The Affected Party shall give intimation to the other Party of any event of Force, Majeure immediately but not later than 24 Hours. 7.2 Duty to Mitigate To the extent not prevented by a Force Majeure event, the Affected Party shall continue to perform its obligations pursuant to this Agreement. The Affected Party shall use its reasonable efforts to mitigate the effect of any event of Force Majeure as soon as practicable.

16. In terms of clause 7.1 of the PPA, transmission constraints, restrictions imposed by RLDC as well as events including acts of God, terrorism, and other occurrences affecting the supply has been identified as force majeure conditions, whereas impact of judicial order has not been specifically identified as a force majeure event, however as non- supply of power from the identified source of generation in view of the order passed by the Supreme Court can be considered beyond the control of Appellant and even if it construed to be a Force Majeure event, the effect of such an event, under the provision of Force Majeure provisions, would be that the parties are only absolved of their responsibility to fulfill the obligation under the contract and in some extreme situations, the procurer can even return the CPG. Therefore, under the event of force majeure, the Appellant may not be required to supply the power. The Clause 7.2, mandates that parties shall continue to perform its obligation to the extent it is not prevented by Force Majeure and take action to mitigate the effect of Force majeure as soon as practicable. Thus, in case of some part of generation, which is not affected by Force Majeure, the Appellant shall continue to supply power and take measures to mitigate the impact of Force Majeure for the balance and in case of complete breakdown, shall take measures to mitigate the impact. In the present case, the Appellant did not restrict its claim/ provisions available under Force Majeure, but invoking the Clause 5.1.4 of PPA, proposed to supply power from the alternate source. Clause 5.1.4 of the PPA, is reproduced hereunder: “5.1.4 Alternate source of power supply If the Seller is unable to provide supply of power to the Procurer(s) up to the Contracted Capacity from the Delivery Point except due to a Force Majeure Event, the Seller shall supply power up to the Contracted Capacity from an alternative generation source to meet its obligations under this Agreement with the consent of Procurer(s). Such power shall be supplied to the Procurer(s) at the same Tariff as per the terms of this Agreement. If the power is being supplied through alternate source, additional charges and losses if any, due to cancellation of existing corridor and booking of new corridor etc., shall be to the account of Seller.”

17. From the reading of Clause 5.1.4 and Clause 7, it is inferred that these clauses operate in distinct spheres. Clause 5.1.4 is a contractual mechanism designed to ensure continuity of supply in circumstances where performance is impeded for reasons other than Force Majeure. Clause 7, conversely, is a protective provision excusing performance when extraordinary, unforeseeable events beyond the control of the parties occur. By their very wording, the two clauses are mutually exclusive: clause 5.1.4 presupposes the absence of Force Majeure, whereas Clause 7 is attracted only upon the occurrence of such an event. Under established jurisprudence, when a party elects to invoke a contractual remedy that is inconsistent with another available remedy, it is deemed to have waived the latter. Here, the Appellant’s reliance on Clause 5.1.4 of the PPA and seeking to arrange supply of power from an alternate source, has effectively elected to proceed on the footing that the prevailing circumstances did not constitute Force Majeure. Having made such an election, the Appellant cannot subsequently resile and claim Force Majeure under Clause 7. In our view by invoking Clause 5.1.4, the Appellant has effectively waived its right to plead Force Majeure. Waiver may be either express or implied, and in this case, the conduct of invoking a clause that excludes Force Majeure is an implied waiver. Clause 5.1.4 ensures that supply obligations are met through alternate arrangements in ordinary disruptions, thereby protecting the commercial interests of the counterparty. Clause 7, on the other hand, suspends obligations altogether in extraordinary circumstances. Allowing a party to invoke both simultaneously would defeat the commercial balance of the contract, permitting unjust enrichment or avoidance of obligations without proper justification. Accordingly, we find no infirmity in the Impugned Order insofar as it denies the relief claimed by the Appellant under the Force Majeure provisions, and the same is hereby upheld in this regard.

18. Learned Counsel for the Appellant has contended that Respondent No. 2, in its Reply, has expressly admitted that vide email dated 21.11.2017 the Appellant had sought approval to supply power from an alternate source for the period from 22.11.2017 and 23.11.2017, and has further acknowledged that no liquidated damages were levied for the period from 22.11.2017 to 30.11.2017, which has not been considered by State Commission; therefore, if the aforesaid period from 22.11.2017 to 30.11.2017 is excluded from consideration, the monthly availability works out to 79.40%, with a deviation of only 20.60%, which is below the threshold limit of 25% stipulated under Clause 6.2.5 of the PPA, and consequently no liability could have been fastened upon the Appellant. It is further submitted that State Commission failed to appreciate that the Appellant, vide email dated 20.11.2017, had sought consent of the respondents for supply of power from an alternate source to Respondent No. 2, to which no response was ever furnished by the Respondents and due to unavailability of the consent, the Open Access application could not be punched for 22.11.2017 & 23.11.2017. In such circumstances, any contention that the Appellant’s offer was invalid on the ground that open access approval had not been obtained for the said two days is untenable and liable to be rejected. It has also been contended on behalf of the Appellant that even for the subsequent period from 24.11.2017 to 30.11.2017, Respondent No. 2 did not grant its consent and consequently the Open Access application could not be punched; nevertheless, the State Commission has accepted deemed supply for the period from 24.11.2017 to 30.11.2017, and therefore there is no justification to deny similar treatment for the period from 22.11.2017 and 23.11.2017.

19. Per contra, it has been contended on behalf of Respondent No. 2 that under Article 5.1.4 of the PPA, Appellant can supply power from an alternative generation source, subject to the consent of the Procurer, i.e., the Distribution

Companies (DISCOMs), which was sought by appellant, vide its letter dated 20.11.2017, from Sembcorp Gayathri Power Limited (SGPL), for the period 24.11.2017 to 30.11.2017, and furnished a copy of its Open Access application made to the Southern Regional Load Despatch Centre (SRLDC), thereby demonstrating its readiness and ability to supply power for the said period. This constituted a valid and substantiated offer and, consequently, the period from 24.11.2017 to 30.11.2017 can be treated as deemed supply.

20. We take note that in its letter dated 20.11.2017, addressed to Additional Director, KPTCL, the alternate source of power has been indicated and Appellant has sought the consent to supply power from 24.11.2017 to 30.11.2017, however in email dated 21.11.2017, whereby the Appellant sought to supply power on 22.11.2017 & 23.11.2017 also, no alternate source has been identified as well as no open access application was processed to supply power on these dates. It is a fact that under Article 5.1.4, invoked by the Appellant, consent of procurer is a re-requisite, and responsibility of booking of new transmission corridor is on the Seller i.e. on the Appellant. The Open Access application attached by the Appellant, is from 24.11.2017 to 30.11.2017, which establishes Bona fide of the Appellant to arrange supply power from alternate source during this period. Without even identifying the source for Alternate Power for 22.11.2017 the communication sent by the Appellant cannot be construed as a valid or substantiated offer for supply of power for the said dates. We take note that, Respondents before giving consent for supply of power from alternate source in response to the offer made on 20.11.2017, it had asked appellant to submit performance guarantee and sign the PPA. It is interesting to note that Power Purchase Agreement, has been signed on 24.11.2017, considering scheduled delivery date as 16.11.2017, however, the Appellant has agreed to the condition for prior consent of procurer for supplying power from alternate source, inspite of

being aware that the consent for supplying power from alternate source on 22.11.2017 & 23.11.2017 is not available with them from the Respondents.

21. With regard to the contention that Respondents, in their reply, has admitted for non-levy of LD for the period from 22.11.2017 to 30.11.2017, we take note that Respondents, in their reply to the petition filed by the Appellant, at para (k) &

(m) has submitted that Liquidated damages are payable only for the period 19.11.2017 to 21.11.2017, and that no LD is being levied from 22.11.2017 onwards, as the Appellant has offered supply from alternate source. In para (n) & (o) it has contested the contention of Appellant with regard to supply of contracted energy from 22.11.2017 to 30.11.2017. The respondents have excluded the entire period from 22.11.2017 to 30.11.2017, from the availability calculation, whereas Appellant in its calculation has considered deemed availability of generation for the entire period from 22.11.2017 to 30.11.2017, which is not in line with submissions of Respondents in the Reply. In these circumstances, the reliance placed by the Appellant on the statements made in the Reply of the Respondents is misplaced and of no assistance to the case of the Appellant.

22. The State Commission, in the Impugned Order, considering grant of Open Access application submitted by the Appellant before SRLDC for supply of 100 MW power from alternate source, which established valid offer of supply of power from alternate source, has allowed deemed availability for the period 24.11.2017 to 30.11.2017, the Appellant has, however, contended that the same principle ought to have been applied for two days 22.11.2017 & 23.11.2017 as for the entire period from 22.11.2017 to 30.11.2017, explicit consent of Respondents was not available. In view of the fact, that Respondents have not objected to the offer of supply of power from alternate source, from 24.11.2017 to 30.11.2017, conveyed by Appellant vide letter dated 20.11.2017, as valid offer, it can be

construed as their acceptance and state Commission has considered it as a valid offer of supply. For two days, i.e 22.11.2017 & 23.11.2017, neither the alternate source was indicated, nor the Open Access application processed, leave alone availability of corridor to supply power from alternate source, we therefore do not feel it necessary to interfere with the Impugned Order on this account and upheld the Liquidated damages worked out for the month of November considering non supply of energy from 19.11.2017 to 23.11.2017 and deemed supply of energy for the period from 24.11.2017 till 30.11.2017, which in the Impugned Order has been calculated as Rs 2489412 .

23. With regard to the issue of liability of open access Charges on the Appellant, we take note that in the petition filed by Appellant (OP No 22 of 2019), before State Commission, in which Impugned Order has been passed, Appellant has prayed for withdrawal of liquidated damages of Rs. 29,72,647 levied by the Respondents. The State Commission, besides adjudicating the issue of liquidated damages, in the impugned order has worked out a liability of Rs 12,81,0101 upon Appellant, for the open access charges, to the extent energy not made available in terms of Article 6.2.5 of the PPA. In the Impugned Order, it has been held that, since the total amount of compensation payable by the Appellant, considering the liquidated damages of Rs 24,89,412 and open access charges of Rs. 12,81,0101, would exceed the deduction made of Rs. 2972647, the Appellant is non-entitled to the relief sought in the petition and accordingly, dismissed the same.

24. Learned counsel on behalf of the Appellant has contended that in terms of Regulation 5(4) of the Central Electricity Regulatory Commission (Sharing of Inter-State Transmission Charges and Losses) Regulations, 2010, as amended from time to time, the PoC charges for Short-Term Open Access transactions are specified in paisa per unit and are applicable strictly for the duration of Short-

Term Open Access as approved by the RLDC/NLDC. The short-term Open Access charges are leviable only on schedules duly approved and implemented and therefore levy of additional Open Access charges by State Commission is improper and unacceptable.

25. From the operative portion of the Impugned Order, it is evident that there is no specific or categorical direction issued to the Appellant to pay the Open Access charges so calculated. The denial of relief to the Appellant was premised only on the reasoning that the aggregate liability, when liquidated damages and open access charges are considered together, exceeded the deductions already effected by the Respondents. It is further noted that the Respondents had not raised any claim towards Open Access charges for the relevant period either prior to the passing of the Impugned Order or subsequent thereto. Neither Respondents nor the Appellant has drawn our attention towards pending claim for levy of open access charges for the period under consideration. Thus, it is evident that no independent demand or assertion of liability on account of Open Access charges was ever made by the Respondents against the Appellant. The Appellant has, in fact, confined its prayer to seeking withdrawal of the finding in the Impugned order relating to the levy of Open Access charges.

26. In view of the foregoing, and particularly in the absence of any operative direction fastening liability upon the Appellant, coupled with the Respondents’ own conduct in not raising any claim for Open Access charges during the period under consideration, we hold that the levy of Open Access charges cannot be sustained. The Appellant cannot be burdened with a liability which has neither been claimed by the Respondents nor specifically directed in the operative part of the Order. Accordingly, the prayer of the Appellant seeking withdrawal of the direction of levy of Open Access charges merits acceptance.

Conclusion

27. In view of the above deliberation, the calculation of liquidated damages as determined in the Impugned Order is hereby upheld. However, the Impugned Order stands modified to the extent of the liability worked out upon the Appellant towards Open Access Charges, which is set aside.

28. It is further directed that any extra amount withheld by Respondent No. 2 on account of liquidated damages, over and above the amount so upheld herein, shall be refunded to the Appellant together with simple interest at the prevailing SBI Prime Lending Rate (PLR) calculated up to the date of actual payment. For this aforesaid purpose, the Appellant shall raise an invoice within a period of four weeks from the receipt of this Order, and Respondent No. 2 shall make payment within four weeks thereafter.

29. The appeal is partly allowed in the above terms. All pending IAs, if any, stands disposed of in above terms of this order. PRONOUNCED IN THE OPEN COURT ON THIS 16TH OF MARCH, 2026.

(Virender Bhat) Judicial Member (Seema Gupta) Officiating Chairperson

REPORTABLE / NON-REPORTABLE

pr/dk/ag