Rattan India Power Limited. vs Maharashtra Electricity Regulatory Commission. on 6 October 2023

ORDER

This Appeal has had a chequered history. While rejecting the petition filed by the appellant herein earlier in Case No. 84 of 2016, by its order dated 05.04.2018, the Maharashtra Electricity Regulatory Commission ("MERC" for short) had held that while the delay in payment, accruing on approval of the change in law event, attracted payment of Late Payment Surcharge ("LPS" for short) under the PPA, no compensation was due for the impact of the change in law event, referred to by the Appellant, during the period of preponement of supply of power.

Aggrieved by the afore-said order passed by the MERC, the Appellant filed an Appeal and, in its order in Appeal No. 263 of 2018 dated 18.10.2022, this Tribunal opined:- ".....9. In *Uttar Haryana Bijli Vitran Nigam Limited & Anr. v. Adani Power Ltd. & Ors.* (2019) 5 SCC 325, Hon'ble Supreme Court while construing similar PPA provisions had upheld the claim that a party affected by Change in Law is entitled to carrying cost. We need to quote only the following two paragraphs from the said decision:

"10..... Article 13.2 is an in-built restitutionary principle which compensates the party affected by such change in law and which must restore, through monthly tariff payments, the affected party to the same economic position as if such change in law has not occurred. This would mean that by this clause a fiction is created, and the party has to be put in the same economic position as if such change in law has not occurred, i.e., the party must be given the benefit of restitution as understood in civil law. Article 13.2, however, goes on to divide such restitution into two separate periods. The first period is the "construction period" in which increase/decrease of capital cost of the project in the tariff is to be governed by a certain formula. However, the seller has to provide to the procurer documentary proof of such increase/decrease in capital cost for establishing the impact of such change in law and in the case of dispute as to the same, a dispute resolution mechanism as per Article 17 of the PPA is to be resorted to. It is also made clear that compensation is only payable to either party only with effect from the date on which the total increase/decrease exceeds the amount stated therein.

16. Article 13 of the PPAs provides for payment of carrying costs, as held by us above. This judgment also turned on the interpretation of Regulation 79(2) of the Central Electricity Regulatory Commission (Conduct of Business) Regulations, 1999, and therefore, also has no manner of application to the facts of the present case."

10. In the case of this very appellant by appeal titled *Rattan India Power Limited v. Maharashtra Electricity Regulatory Commission & Anr.* (Appeal No.264/2018 decided by judgment dated 13.11.2020) this tribunal had ruled thus:

"75. We agree with the appellant that the impugned decision of MERC holding that the appellant is not entitled to carrying cost for the approved change in law events is unjust and wholly erroneous. The entitlement to carrying cost emanates from the principle of restitution closely connected to the Change of law clause in PPA. The ruling of Supreme Court in *Uttar Haryana Bijli Vitran Nigam Ltd. v. Adani Power Ltd.* (supra) as quoted earlier and reiterated in *Jaipur Vidyut Vitaran Nigam Limited* (supra) nails the argument of the contesting respondent.

76. The impugned decision falls foul of settled legal position on carrying cost. The same is, thus, set aside and the matter in this regard remanded to the MERC with direction that the benefit of carrying cost on account of impact of change in law resulting in additional burden of procuring coal from alternative sources be also given pass through .....

11. Again, in *Rattan India Power Limited v. Maharashtra Electricity Regulatory Commission and Anr.* (Appeal No.118/2021 decided by judgment dated 22.03.2022), while directing the State Commission *to determine the amounts payable by the distribution licensee (MSEDCL) we had also directed a revisit to the prayer for carrying cost bearing in mind the well settled principles on the subject in light of decisions in the cases of Uttar Haryana (supra), Energy Watchdog & Ors vs. CERC & Ors. (2017) 14 SCC 80 and Jaipur Vidyut Vitran Nigam Ltd. & Ors. vs. Adani Power Rajasthan Ltd & Anr. 2020 SCC Online SC 697.*

*12. Again, the learned counsel for the respondent distribution licensee fairly agreed with the request for remit for appropriate orders to be passed following the principles which are now settled on the subject of carrying cost and for the amount payable to be quantified and for regulating due compliance by the parties....."*

(emphasis supplied)

In Rattan India Power Limited Vs. Maharashtra State Electricity Distribution Company Ltd. (Order in Appeal No. 118 of 2021 dated 22.03.2022), reference to which was made in its order in Appeal No. 263 of 2018 dated 18.10.2022, this Tribunal had observed:

*".....16. It is a settled position of law that carrying cost is payable as per the provisions of PPA to compensate the affected party for time value of funds deployed on account of Change in Law events. The LPS provision in the PPA is also meant for compensation towards time value of money on account of delayed payments. Therefore, the rate prescribed for LPS in Article 11.3.4 of the PPA (i.e., SBI PLR plus 2%) ought to be considered for the recovery of carrying cost. The appellants cannot be restored to the same economic position, as it was prior to the occurrence of the Change in Law events, unless the rate of interest applicable for LPS is granted....."*

After so holding, this Tribunal, in Rattan India Power Limited Vs. Maharashtra State Electricity Distribution Company Ltd. (Order in Appeal No. 118 of 2021 dated 22.03.2022), had remanded the matter back to the MERC to pass orders in the light of the observations in its order.

Consequent on the matter being remanded, the MERC, in its order in Misc Application No. 76 of 2022 in Case No. 227 of 2018 dated 08.07.2022, took note of the earlier orders passed by this Tribunal which appear to have drawn a distinction between carrying cost and Late Payment Surcharge. The observations of the MERC, at para 18.5 to 18,7 of its order dated 08.07.2022, read thus:- *".....18.5 In view of above, in spite of MSEDCL raising the issue on the interest rate as ruled by the APTEL in its earlier orders, the Commission is well aware of the scope of limited remand and the necessity of judicial discipline to be maintained by lower courts/tribunals. The Commission is also not aware as to whether MSEDCL (issue is being raised in the remand matter- this petition), RPL and APML had apprise the Hon'ble APTEL about following judgments:*

*a. APTEL in its Judgment in Appeal No. 155 of 2019 & Appeal No. 116 OF 2019 & IA No. 505 of 2019 dated 28 September, 2020 in APML case (Change in Law due to Shortfall in domestic coal under NCDP and Shakti Policy) has upheld the decision of the Commission for the rate of carrying cost equal to rate of working capital as specified in the MYT Regulations. Relevant extract is as follows: -*

*"14.1 Learned counsel for MSEDCL, in its Note of Arguments submitted on 02.07.2020 and in its final Written Submissions has contended that the issue of claim of carrying cost at the rate of Late Payment Surcharge (hereinafter referred to as "LPS") has not been raised by APML in the instant appeal and therefore, rejection of carrying cost by the MERC must be deemed as final.*

*14.2 Learned counsel for APML, in response, submitted that in the Impugned Order, MERC has allowed APML to levy carrying cost from the date the Change in Law became effective. Relevant paragraph from the Impugned Order is extracted below:*

*"28. In view of above and considering settled position of Law regarding carrying cost, the Commission allows APML to claim carrying cost from the date the Change in Law events have affected it to the date of the present Order. Further the rate of interest for the payment of carrying cost shall be as specified for the interest on working capital in the MYT Regulations applicable to the relevant periods."*

*Therefore, APML had no reason to challenge the Impugned Order on the issue of carrying cost.*

*14.3 We find that the allowance of carrying cost is a settled position of law and MERC has accordingly allowed the same to the Appellant, APML. Moreover, there is no contest on this issue by any party on this issue."*

b. Further, APTEL in its judgment dated 27 April, 2021 in Appeal No. 77 of 2018 (MEDCL Vs MERC, APML, RPL, JSW, GMR) has clarified difference between carrying cost and LPS rate stipulated in PPA as follows:

*"21. In order to be so termed as unjust enrichment, benefit gained by a party must be such as to have been retained having no legal foundation. The purpose of LPS primarily being to compensate the generators for losses incurred on account of delay in payment, it cannot be said that recovery thereof results in the generators being thereby unjustly enriched. The payment of LPS, along with interest calculated on the prime lending rate, has authorisation in the express terms of the PPAs. The amount claimed as LPS does not represent any benefit accruing to the respondent generating companies but is compensatory in nature. LPS is not economic restitution but is a disincentive. It is wrong to equate LPS with carrying cost or actual cost incurred. The interest paid for finances raised cannot have any nexus with levy of LPS. The payment of LPS is not same as loan advanced but is a penalty suffered on account of default." (Emphasis added)*

c. Above ruling of the APTEL has already been upheld by the Hon'ble Supreme Court in judgment dated 8 October, 2021 in Civil Appeal No. 1843 of 2021 filed by MSEDCL challenging above ruling. Relevant part of judgment of Hon'ble Supreme Court is reproduced below:

*"175. The object of LPS is to enforce and/or encourage timely payment of charges by the procurer, i.e. the Appellant. In other words, LPS dissuades the procurer from delaying payment of charges. The rate of LPS has no bearing or impact on tariff. Changes in the basis of the rates of LPS do not affect the rate at which power was agreed to be sold and purchased under the Power Purchase Agreements. The principle of restitution under the Change in Law provisions of the Power Purchase Agreements are attracted in respect of tariff.*

176. LPS cannot be equated with carrying cost or actual cost incurred for the supply of power. The Appellant has a contractual obligation to make timely payment of the invoices raised by the Power Generating Companies, subject, of course, to scrutiny and verification of the same. Mr. Mukul Rohatgi has a point that if the funding cost was so much lesser than the rate of LPS, as contended by the Appellant, the Appellant could have raised funds at a lower rate of interest, made timely payment of the invoices raised by the Power Generating Companies, and avoided LPS.

.....

179. The argument that the Power Generating Companies are availing loans at a lesser rate of interest, but charging LPS on the basis of a higher rate of interest, leading to unjust enrichment, is untenable in law. LPS under the Power Purchase Agreements do not correspond to the actual interest paid by the Power Generating Companies for funds raised by them. The payment of Late Payment Surcharge LPS penalty suffered by the Procurer, that is, the Appellant, on account of default in timely payment."

(Emphasis added)

d. Further in case of Renewable Energy generators, Hon'ble APTEL in its Judgment dated 16 November, 2021 in Appeal No. 163 of 2020 and 171 of 2020 has ruled that LPS cannot be used for allowing carrying cost on Change in Law compensation. Relevant part of said judgment is reproduced below:

"41. The State Commission has failed to bear in mind that Late Payment Charge or Late Payment Surcharge ("LPS") is for limited purposes i.e. delay in payment under the PPA. This cannot be read into provision of 'Change in Law' which provides for full restitution of actual costs.

.....

44. It needs to be borne in mind that carrying cost is the value for money denied at the appropriate time and is different from LPS which is payable on non-payment or default in payment of invoices by the Due Date."

(Emphasis added)

*The Commission has already implemented above judgment of the APTEL in remand proceeding and revised rate of interest for carrying cost from LPS to Working capital rate of interest.*

*18.6 Out of above, judgments highlighted at 'a' to 'c' above are in respect of parties involved in present matter and against same PPAs which are subject matter of present proceedings. Hence, the Commission is of the opinion that the advocates could have bought these rulings to the notice of the Hon'ble APTEL. It is also very important that the parties involved should have appraised the Hon'ble APTEL about the judgment of Hon'ble Supreme Court which has upheld ruling of APTEL in contractual dispute between the same parties.*

*18.7 Earlier judgment of APTEL in respect of same PPAs has already been implemented by parties and carrying cost on compensation for already approved Change in law events is being allowed at rate of interest on Working Capital stipulated in respective MYT Regulations. Same has also attained finality. Now with judgment of Hon'ble APTEL in present remand matter, two separate rates of carrying cost (interest on Working Capital as stipulated in MYT Regulations and LPS as stipulated in PPA) is required to be considered for allowing compensation for Change in Law events in the same PPAs. However, limited to this petition, as stated earlier, this Commission is bound to maintain judicial discipline in the remand matter and hence rules that the rate of interest shall be that of LPS as is stipulated by Hon'ble APTEL....."*

After holding that, in spite of MSEDCL raising the issue on the interest rate as ruled by APTEL in its earlier orders, they were well aware of the scope of limited remand, and the necessity of judicial discipline to be maintained by the lower court/tribunal. The MERC directed that carrying cost, on the compensation amount till the date of its order, should be computed at rate of LPS stipulated in the PPA; however, the said rate of interest for carrying cost was applicable only to the cases under the present remand matter, and not for other matters which had already attained finality.

Following its earlier order in Appeal No. 118 of 2021 dated 22.03.2022, this Tribunal, by its order in Appeal No. 263 of 2018 dated 08.10.2022, had set aside the order passed by the MERC and remitted the matter back for its fresh decision bearing in mind the observations recorded in the order. The MERC was directed to pass all consequential orders including on quantification of the amounts payable by MSECL to the Appellant; to first ascertain the calculations from the appellant and then take the views of MSECL before determining the actual liability; and then pass necessary orders in the wake of such determination, including by taking appropriate measures so that the claims were duly satisfied in a time bound manner, expeditiously and at an early date, not later than three months from the date of the judgment.

It is useful to note, at this stage, that, by the time MERC took up the matter pursuant to the order of remand passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022, the earlier order passed by this Tribunal, in Appeal No. 118 of 2021 dated 22.03.2022, was carried in Appeal to the Supreme Court; and an interim order of stay was passed therein.

As a result MERC, in the impugned order in miscellaneous application in Dairy No. 257 of 2022 in Case No. 84 of 2016 dated 06.03.2023, observed, relying on the earlier orders of APTEL, that it had approved carrying cost at LPS rate, pursuant to the order of remand in Appeal No. 118 of 2021 dated 22.03.2022, since it was limited to the remand matter only, and they had made it clear that the same could not be used as a precedent for other matters; further the judgment of APTEL, in Appeal No. 118 of 2021 dated 22.03.2022 allowing carrying cost at LPS rate, had been stayed by the Supreme Court; and, in this background, the Appellant could not rely on the judgment, in Appeal No. 118 of 2021 dated 22.03.2022, for claiming carrying cost at LPS rate in the present matter.

The MERC, therefore, directed that the Appellant was entitled for carrying cost to be computed at the rate of interest on working capital as per the relevant MYT regulations or actuals whichever was minimum on simple interest basis; and such carrying cost needed to be computed from the date of incurring such additional expenses on account of the Change in Law event till the date of the Order. Aggrieved thereby, the present appeal.

During the pendency of the present Appeal before this Tribunal, the Appeal preferred against the earlier order of this Tribunal (Order in Appeal No. 118 of 2021 dated 22.03.2022) was taken up for hearing by the Supreme Court, along with other appeals, in GMR Warora Energy Limited Vs. CERC, (2023) SCC online SC 464, and Civil Appeal No. 4089 of 2022, (preferred against the order of this Tribunal in Appeal No. 118 of 2021 dated 23.02.2022), was dismissed. With regards carrying cost, the Supreme Court observed:

*".....129. In view of this consistent position of law and application of restitutionary principles and privity of contractual obligations between the parties as contained in the PPAs, we do not find that the view taken by the learned APTEL with regard to carrying cost warrants interference....."*

Mr. Vishrov Mukerjee, Learned Counsel for the Appellant, would submit that, since the remand order passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022 had relied on its earlier judgment in Rattan India Power Limited Vs. Maharashtra State Electricity Distribution Company Ltd. (Order in Appeal No 118 of 2021 dated 22.03.2022) which has since been affirmed by the Supreme Court in GMR Warora Energy Limited Vs. CERC, (2023) SCC online SC 464, the Appellant must be held to be entitled to carrying cost at LPS rate; the MERC should be held to have erred in limiting the Appellant's entitlement, for carrying cost, to the interest on working capital as stipulated in the MYT Regulations; and, in the light of the law declared by the Supreme Court in Uttar Haryana Bijli Vitran Nigam Limited and Another Vs. Adani Power (Mundra) Limited and Another (2023) 2 SCC 624, the Appellant should be extended the benefit of interest on carrying cost at LPS rates, that too on compounding basis.

On the other hand, Mr.B.P. Patil, Learned Senior Counsel appearing on behalf of the second respondent-MSEDCL, would submit that carrying cost and Late Payment Surcharge (LPS) are not the same; they are conceptually different; LPS is payable when an invoice is raised and payment is delayed beyond the period stipulated for such payment; it is in the nature of a penalty imposed as a disincentive for belated payment; LPS does not get translated into tariff; carrying cost is based on restitutionary principles; it is payable only after it is determined that there is a change in law, and an invoice is raised pursuant to such a determination; it is only for belated payment of such an invoice can late payment surcharge be imposed; for the period, prior to the determination of the change in law event and an invoice being raised pursuant thereto, LPS is not attracted; the PPAs, in the present case, do not prescribe any rate for carrying cost; in the absence of any such provision in the Power Purchase Agreement, MYT regulations would apply; these regulations specify carrying cost, for a change in law event, to be equivalent to the interest on working capital; the Appellant did not even contend before the MERC, or before this Tribunal, that they should be paid carrying cost at LPS rates; the order of remand passed by this Tribunal, in Appeal No. 263

of 2018 dated 18.10.2022, should be understood in the light of the pleadings and prayer; the order of remand cannot be understood as requiring MERC to compute and pay carrying cost to the Appellant, on account of Change in Law, at LPS rates; even in the rejoinder filed in Appeal No. 263 of 2018, the Appellant had itself drawn a distinction between LPS and carrying cost; on the very same day, on which the Supreme Court passed the order in GMR Warora Energy Limited vs CERC & ors. 2023 SCC online SC 464, it had also passed another order, in MSEDCI vs. Adani Power Maharashtra Limited andOrs (Order in Civil Appeal Nos. 687 and 688 of 2021 dated 20-04-2023), holding that carrying cost is payable only as per the Regulations; the Supreme Court, in MSEDCI vs. MERC (2022) 4 SCC 657, has drawn a distinction between carrying cost and late payment surcharge; MERC must, therefore, be held to be justified in concluding that the Appellant was entitled for payment of carrying cost only in terms of the MYT Regulations and not at LPS rates; the Appellant's claim, for payment of carrying cost at LPS rates on a compounding basis, is not even in terms of the remand order passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022; and this Tribunal had, in several earlier orders passed between the very same parties and with respect to very same PPA, held that the entitlement of the Appellant was only for payment of carrying cost in terms of the MYT Regulations, and not at LPS rates.

The remand order passed by this Tribunal, in Appeal No. 263 of 2018 dated 18.10.2022, has not been carried in appeal to the Supreme Court, and has attained finality. Consequently, the parties to the present appeal, as also the MERC, are bound by the said remand order. As has been rightly observed by the MERC, in the order passed by it pursuant to the remand order passed by this Tribunal in Appeal No. 118 of 2021 dated 22.03.2022, judicial discipline requires it to adhere to the Appellate Order passed by APTEL remanding the matter, notwithstanding that a different view had been expressed in the earlier orders of APTEL.

Likewise, in the present case also, MERC was bound by the remand order passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022 (which has attained finality), notwithstanding the possibility of a different view having been expressed by APTEL in some other orders. We may not be understood to have expressed any opinion on the other orders of APTEL on this aspect. All that we have held is that it is not open either to MERC, or to this Tribunal in an appeal preferred against the order of MERC (passed consequent on the matter being remanded to it by this Tribunal earlier), to examine such contentions, for it is settled law that a subordinate court is bound by the directions of the Appellate Court, and the same Appellate Court, hearing the matter on a second occasion, cannot discard the earlier holding/finding in a remand order. The remand order passed by the Appellate Court is a finding in an intermediate stage of the same litigation, and when it comes to the trial court and escalates to the Appellate Court, it remains the same litigation. (Jasraj Inder Singh v. Hemraj Multanchand, (1977) 2 SCC 155).

We are as much bound, as is the MERC, by the remand order passed by this Tribunal earlier in Appeal No. 263 of 2018 dated 18.10.2022. Consequently, all that we are required to examine is whether the said remand order of this Tribunal required MERC to compute and direct payment of carrying cost to the Appellant at LPS rates. As noted herein above, this Tribunal, in para 11 of its order in Appeal No. 263 of 2018 dated 18.10.2022, noted what it had earlier held in its order in Appeal No. 118 of 2021 dated 22.03.2022 wherein payment of carrying cost was directed to be made at LPS rates and not on the interest on working capital rate as prescribed in the MYT Regulations.

The submission urged by Mr. B.P. Patil, Learned Senior Counsel appearing on behalf of MSEDCL, that, besides the order in Appeal No. 118 of 2021 dated 22.03.2022, this Tribunal had, in the remand order passed in Appeal No. 263 of 2018 dated 18.10.2022, also considered other judgements in Uttar Haryana Bijli Vitran Nigam Limited and Anr. vs Adani Power Limited and Anr; Energy Watchdog vs CERC: 2017 14 SCC 80; and Jaipur Vidjut Vitran Nigam Limited vs. Adani 2022 SCC online SCC 697, may not be entirely correct since what has been noted, in para 11 of the order in Appeal No. 263 of 2018 dated 18.10.2022, is the earlier order of this Tribunal in Appeal No. 118 of 2021 dated 22.03.2022 wherein the aforesaid three judgements were noted.

While the order passed by this Tribunal, in Appeal No. 118 of 2021 dated 22.03.2022, was no doubt stayed by the Supreme Court, when MERC passed the order impugned in this appeal, the fact remains that, during the pendency of the present appeal, the Supreme Court has passed a final order affirming the order passed by this Tribunal in Appeal No. 118 of 2021 dated 22.03.2022. Further, the Review Petition filed there-against by MSEDCL, in RP(C) No. 840 of 2023 in CA No. 4089 of 2022, was also dismissed by the order of the Supreme Court dated 26.07.2023.

As noted herein above, the remand order passed in Appeal No. 263 of 2018 dated 18.10.2022 not only binds the MERC, but also this Tribunal while hearing the appeal preferred against the order passed by the MERC consequent on remand. As the order of this Tribunal, in Appeal No. 263 of 2018 dated 18.10.2022, required MERC to follow the earlier order passed by this Tribunal in Appeal No. 118 of 2021 dated 22.03.2022, MERC was obligated in law to determine the amounts payable towards carrying cost strictly in terms of the order passed in Appeal No. 118 of 2021 dated 22.03.2022 which required it to compute and determine carrying cost, payable to the Appellant, at LPS rates. Both MERC and this Tribunal (in an appeal preferred against the said order of MERC) are bound by the said order in Appeal No. 263 of 2018 dated 18.10.2022 whereby MERC was required to compute and pay the Appellant carrying cost at LPS rates, whatever may have been the opinion expressed in other judgements even if, as is contended by Mr. B.P. Patil, Learned Senior Counsel, the view taken in such judgements is contrary to the opinion expressed by this Tribunal in Appeal No. 118 of 2021 dated 22.03.2022. It is unnecessary for us, therefore, to consider and examine the judgements cited by Mr. B.P. Patil, Learned Senior Counsel, on whether carrying cost can be paid at LPS rates.

The submission put forth by Mr. Vishrov Mukherjee, Learned Counsel for the Appellant, that the Appellant is entitled to be paid carrying cost at LPS rates on a compounding basis, also necessitates rejection for the very same reason. There is nothing in the order of remand, passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022, requiring MERC to compute carrying cost at LPS rates on a compounding basis. As the remand order passed by this Tribunal binds both MERC and this Tribunal, the appellant, not having chosen to prefer an appeal to the Supreme Court thereagainst and having permitted the remand order passed by this Tribunal to attain finality, cannot claim such a relief. We, however, make it clear that it is always open to the MERC to pass consequential orders which fall within the ambit of the remand order passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022.

The order under Appeal is set aside, and the matter is remanded to enable the MERC to compute and direct payment, of carrying cost to the Appellant at LPS rates, in terms of the order of remand passed by this Tribunal in Appeal No. 263 of 2018 dated 18.10.2022. Needless to state that it is open to MERC, if need be, to pass consequential orders strictly in terms of the order in Appeal No. 263 of 2018 dated 18.10.2022. The Appeal stand disposed of with the aforesaid directions.

(Sandesh Kumar Sharma) Technical Member

(Justice Ramesh Ranganathan) Chairperson

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