GUJARAT URJA VIKAS NIGAM LIMITED & ORS. versus RENEW WIND ENERGY (RAJKOT) PRIVATE LIMITED & ORS on 13 April 2023

SUPREME COURT REPORTS

[2023] 7 S.C.R.

AGUJARAT URJA VIKAS NIGAM LIMITED & ORS.

v.

RENEW WIND ENERGY (RAJKOT) PRIVATE LIMITED

& ORS.

(Civil Appeal Nos. 3480-3481 of 2020)

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APRIL 13, 2023

[SANJAY KISHAN KAUL, S. RAVINDRA BHAT ANDM.M. SUNDRESH, JJ.]

Electricity Act, 2003 – Central Electricity RegulatoryCCommission (Terms and Conditions for Recognition and issuanceof Renewable Energy Certificate for Renewable Energy Generation)Regulations, 2010 – Power Purchase Agreement (PPA) in terms ofthe REC Regulations 2010 was entered into between the parties, on29.03.2012, within the control period stipulated in the tariff orderDof 2010 – On 10.07.2013, Central Commission amended the RECRegulations 2010 (‘Second Amendment’), Explanation to Regulation5 was amended – The pre-existing clause that the power would be“at a price not exceeding pooled cost of the power purchase” wasaltered to “at the pooled cost of power purchase” – It was clarifiedthat PPAs executed prior to this amendment at a tariff lower thanEAPCC would not be affected – Respondents filed petition beforethe State Commission arguing that the terms of the PPA had to bechanged in view of the change in the REC Regulations – Allowed –Appellant filed appeal before APTEL, rejected – Review petitionalso dismissed – Held: There was never any provision whichFmandated prior approval by the State Commission, of PPAs enteredinto by parties, in exercise of their free choice, in relation torenewable energy sources – Findings of APTEL requiring approvalof the State Commission, unsustainable – Further, it is a matter ofrecord, that for the period between 29.03.2012 and 10.07.2013and indeed, after the Second Amendment, no difficulty wasGexperienced in the pricing mechanism agreed by the parties underthe PPA – It was on 10.12.2013 that the respondent wind powerdeveloper approached the State Commission for re-determinationof tariff – This was an opportunistic attempt to derive advantagefrom the change, brought about by the Second Amendment, andseek to have it applied to an existing contract, which cannot beH

countenanced – Thus, the reasoning of APTEL and the StateCommission cannot be upheld – PPAs entered into voluntarily bythe parties exercising equal bargaining power, before the SecondAmendment were not affected by its terms – Findings to the contraryin the impugned order set aside – Furthermore, APTEL in the mostcavalier fashion virtually rubber stamped the State Commission’sfindings on coercion, in regard to the entering into the PPA by theparties – There was no evidence or any pleadings beyond a bareallegation of coercion against the appellant – Findings regardingcoercion are wholly untenable and therefore, set aside – GujaratElectricity Regulatory Commission (Procurement of Energy fromRenewable Sources) Regulations, 2010 – Regulation 4(1), 9(1).

Electricity Act, 2003– Central Electricity RegulatoryCommission (Terms and Conditions for Recognition and issuanceof Renewable Energy Certificate for Renewable Energy Generation)Regulations, 2010 – Objective of – Discussed.

Electricity Act, 2003 – s.64 – Tariff Orders u/s.64 – Held: Arequasi-judicial in nature and ipso facto binding on the parties unlessamended or modified through law.

Electricity – Power Purchase Agreements, if statutory contracts– Held: Power Purchase Agreements are essentially not statutorycontract showever, certain terms contained in those contracts areregulated by law, i.e. applicable regulations, under the Act – ThePPA between a generating company or, as in the instant case, awind generator, and a distribution licensee, such as the appellant,is the outcome of a carefully considered decision, whereby theparties after due deliberations and negotiations agree on termsbased on existing law and regulations.

Pleadings – Standard of – Allegation of coercion/duress/fraud– Findings on, not to be rendered casually by APTEL – Held: It isincomprehensible how an allegation of coercion w.r.t entering intothe PPA by the parties could have been entertained and incorporatedas a finding, given that the respondents are established companieswho enter into negotiations and have the support of experts,including legal advisers, when contracts are finalized – Casualapproach of APTEL in not reasoning how such findings could berendered cannot be countenanced – As a judicial tribunal, dealing AB

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Awith contracts and bargains, which are entered into by parties withequal bargaining power, APTEL is not expected to casually renderfindings of coercion, or fraud, without proper pleadings or proof,or without probing into evidence – Electricity Act, 2003.

Allowing the appeals, the CourtBHELD: 1. Did the PPA in the present case, require priorapproval of the state commission RWE and the other respondents urge that the PPA wasunenforceable because it was not approved by the StateCommission. The argument is unmerited and insubstantial. FromCa reading of the State Commission’s regulations (RenewableSources Regulations) relating to procurement of energy fromRenewable Sources, it is evident that there was never anyprovision, which mandated prior approval by the state commission,of PPAs entered into, by parties, in exercise of their free choice,Din relation to renewable energy sources. As a matter of fact, inthe case of renewable power, the state commission had approveda model PPA. Further, the tariff terms and conditions to the extentdecided are by the Central Commission and not by the StateCommission. These are incorporated in the model PPA. Neitherthe commission, nor the contesting respondents, during theEhearings in the present appeals, were able to point out anyprovision in the PPA in the present case, which conflicted withany provision of the model PPA, or any express regulation.Furthermore, it was not established how in the absence of anyreference to the Multi Year Tariff Regulations, they wereFapplicable to PPAs relating to renewable energy sources. In theabsence of specific norms prescribing prior approval of PPAs likein the case of provisions of Regulation 21 of the MaharashtraElectricity Regulatory Commission (Multi Year Tariff)Regulations, 2019; Regulation 45 of the Delhi ElectricityRegulatory Commission Comprehensive (Conduct of Business)GRegulations 2001 and Regulation 36 of the Andhra PradeshElectricity Regulatory Commission (Distribution Licensee)Regulations, 2013, the respondent’s arguments on this aspectcannot be accepted. In these circumstances, the findings ofAPTEL, not based on any stipulated obligations under provisionsHof the state regulations, requiring approval of the state commission, for its operation, cannot be sustained. [Paras 45-48][699-F-G; 700-B-F]

2. Whether change in the REC Regulations obliged revisionof the PPA in this case

Section 61 of the Act enacts the basis for tariffdetermination. On the other hand, Section 62 is concerned withthe fixation of various other charges and tariffs. Section 64 liststhe manner and procedure for tariff determination by theCommission. Section 86 lists the functions of the Commissionand reiterates the determination of tariffs to be a prominent taskof the commission. Tariff determination no doubt, comprehendsthe exercise of regulatory function, including purchase, sourcing,procurement of electricity from generators, by distribution andother licensees, and their sales. This part involves generatingcompanies entering into PPA(s) with procuring entities orlicensees. Tariff fixation is a statutory function. Yet, by virtue ofSection 42, it is subject to open access determination of the priceof power, and subject to Section 63 wherever it involves openbidding. In the facts of this case, the PPA incorporated a tariffbetween the respondents and Gujarat Urja constituted the tarifffixed by the State Regulatory Commission in the exercise of itsstatutory powers. The issue and sale of RECs, constituted animportant part of that bargain, between the two parties, based onthe assessment of their commercial interest. The importantfeature of the REC Mechanism is that in it, WPDs (i.e.respondents) had to sell power to distribution licensees at amutually agreed price, not exceeding the Average Power PurchaseCost (‘APPC’) of the DISCOMs, (such as Gujarat Urja). TheWPDs were entitled to the additional benefit of Renewable EnergyCertificates issued to it which could be traded in Power Exchangefor a price. The consideration payable to WPDs consisted of firstly,a mutually agreed power Component and secondly a greencomponent through RECs traded in the Exchange. Thealternative to the WPDs was to sell to licensees at a preferentialtariff, determined by the state commission. In the latter event,WPDs were not entitled to the additional benefit of the greencomponent, which was the tradable RECs the sale of which wouldhave led to increased revenues. The respondent WPDs chose

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Athe REC mechanism, while entering into PPAs in these cases,with Gujarat Urja. The PPAs entered by WPDs provided for thefixed tariff of 2.64/kWh for the entire term (25 years), as mutuallyagreed (Article 5.2 of PPA). WPDs were entitled to and weretrading RECs in the power exchange, deriving extra monetarybenefits: which, at the relevant period was 1.50/kWh (floorBprice at the time of signing of PPA). The Preferential Tariffdetermined by the state commission, for WPDs not opting forthe REC Mechanism was 3.56/kWh. The WPDs were notentitled to any additional REC benefits, had they adopted thepreferential tariff route. Regulation 9 of the REC RegulationsC2010 prescribes the price determination mechanism for RECs inthe power exchange. Proviso to Regulation 9 (1) of the RECRegulations 2010 empowers the central commission, inconsultation with the Central Agency and the Forum ofRegulators, to provide the floor price and forbearance priceseparately for solar and non-solar certificates. This provision isDimportant because it enables regulatory intervention in the publicinterest: if the price went below a certain limit, the floor pricewas to be prescribed, to take care of the interests of generators-like the respondents; if the price went too high, a forbearanceprice could be fixed, to take care of the interests of the consumersEand distributors. By Regulation 9 (2) of the REC Regulations2010, the Central Commission, was to be guided, in determiningthe floor and forbearance price, by diverse factors, such as (a)variation in cost of generation of different renewable energytechnologies falling under solar and non-solar category, acrossstates in the country; (b) variation in the Pooled Cost of PurchaseFacross States in the country; (c) Expected electricity generationfor non-renewable energy sources [including (i) expectedrenewable energy capacity under preferential tariff (ii) expectedrenewable energy under mechanism of certificates] (d) Renewablepurchase obligation targets set by various State Commissions.GBy virtue of Explanation to Regulation 5 (1) of the RECRegulations, “the weighted average pooled price at which thedistribution licensee has purchased the electricity including cost ofself-generation, if any, in the previous year from all the energysuppliers long-term and short-term, but excluding those based onrenewable energy sources, as the case may be.” An important factorH

which cannot be lost sight of is that all the respondent’s WPDswere registered, under the REC Regulations, based on the statecommission’s tariff order, of 2010. It is undisputed, that to registerunder the REC Regulations 2010, an entity (such as WPDs) hadto be (a) accredited, with a State Agency [(defined by Regulation2 (n) of the REC Regulations as an agency “designated by theState Commission to act as the agency for accreditation andrecommending the renewable energy projects for registration”) andan entity “not having any power purchase agreement for thecapacity related to such generation to sell electricity at a preferentialtariff determined by the Appropriate Commission]. Furthermore,the state commission, in its tariff order, dated 30.01.2010 (whichwas operative for three years, with the control period beginningfrom 10.08.2009) while determining the preferential tariff, hadobserved that it would apply for 25 years. In the present case,the PPA was entered into by the parties on 29.03.2102, within thecontrol period stipulated in the tariff order of 2010. The change inthe REC Regulations 2010, whereby the Explanation toRegulation 5 was amended resulted in a change. The pre-existingclause that the power would be “at a price not exceeding pooledcost of the power purchase” was altered to “at the pooled cost ofpower purchase”. This change, was through the SecondAmendment (to the REC Regulations), carried out on 10.07.2013.It is a matter of record, that for the period between 29.03.2102and 10.07.2013 - and indeed, after the Second Amendment, nodifficulty was experienced in the pricing mechanism agreed bythe parties, under the PPA. It was on 10.12.2013 that therespondent WPD approached the state commission for re-determination of tariff. Clearly, this was an opportunistic attemptto derive advantage from the change, brought about by the SecondAmendment, and seek to have it applied to an existing contract,which cannot be countenanced. In view of these reasons, it isheld that the reasoning of APTEL, and the State Commissioncannot be upheld. [Paras 55-59][707-G; 708-A-H; 709-B-H; 710-A-B, E-G]

Transmission Corporation of Andhra Pradesh Ltd v SaiRenewable Power Private Limited (2010) 8 SCR 636;Gujarat Urja v. Solar Power Company India Pvt. Ltd.[2017] 14 SCR 115; Bangalore Electricity Supply Co.

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ALtd. vs. Konark Power Projects Ltd. & Ors. (2016) 13SCC 515 – referred to.

3. Applicability of the Second Amendment to pre-existingcontracts- the general law In the present case, the PPAs were entered into in theBexercise of equal bargaining power, after due negotiation by theparties, and within the framework of existing regulations: bothcentral and state. Therefore, unless any later amendmentexpressly overrides existing contracts, the terms of suchagreements bind the parties. Thus, agreements such as the PPAsCin the present case, entered into, voluntarily by the parties, beforethe Second Amendment, were not affected, by its terms. Thefindings to the contrary in the impugned order, are set aside.[Paras 63, 66][714-C; 715-G; 716-A]

PTC India Ltd. v. CERC [2010] 3 SCR 609 –Ddistinguished.

Purbanchal Cables & Conductors (P) Ltd. v. Assam StateElectricity Board & Ors. [2012] 6 SCR 905;Commissioner of Income Tax v Vatika Township (P) Ltd.[2014] 12 SCR 1037 – relied on.

E4. Were the respondents coerced into entering into PPAs

Analysis

APTEL, in the most cavalier fashion, virtually rubberstamped the State Commission’s findings on coercion, in regardto the entering into the PPA by the parties. There was no shredof evidence, nor any particularity of pleadings, beyond a bareFallegation of coercion, alleged against Gujarat Urja. It isincomprehensible how such an allegation could have beenentertained and incorporated as a finding, given that therespondents are established companies, who enter intonegotiations and have the support of experts, including legaladvisers, when contracts are finalized. The findings regardingGcoercion are, therefore, wholly untenable. The casual approachof APTEL, in not reasoning how such findings could be rendered,cannot be countenanced. As a judicial tribunal, dealing withcontracts and bargains, which are entered into by parties withequal bargaining power, APTEL is not expected to casually renderH

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findings of coercion, or fraud, without proper pleadings or proof,or without probing into evidence. The findings of coercion aretherefore, set aside. [Para 71][717-F-G; 718-A-B]

Shanti Budhiya Vesta Patel &Ors. v. NirmalaJayprakash Tiwari & Ors. [2010] 4 SCR 958;BishundeoNarain v. Seogeni Rai [1951] 1 SCR 548;New Indian Assurance Co. Ltd v. Genus PowerInfrastructure Ltd [2014] 12 SCR 360 – relied on.

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Gujarat Urja Vikas Nigam Limited v. EMCO Limited[2016] 1 SCR 857; Gujarat Urja Vikas Nigam Limitedv. ACME Solar Technologies (Gujarat) Pvt Ltd & Others[2017] 16 SCC 498; Central Bank of India v. HartfordFire Insurance Co. Ltd AIR 1965 SC 1288; HerHighness Maharani Shantidevi P Gaikwad v. SavjibaiHaribai Patel & Ors 2001 (5) SCC 101: [2001] 2 SCR590; Hindustan Zinc Ltd. v. Rajasthan ElectricityRegulatory Commission [2015] 7 SCR 1104; GujaratUrja Vikas Nigam Ltd. v. Tarini Infrastructure Ltd.[2016] 5 SCR 990; Union of India v. Indusind BankLtd. [2016] 11 SCR 700; Kerala State Electricity Board& Anr v. Principal Sir Syed Institute for TechnicalStudies [2020] 7 SCR 885; Gujarat Urja Vikas NigamLimited v. Solar Semi-Conductors Power LimitedCompany (India) Private Limited [2017] 14 SCR 115 –referred to.

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From the Judgment and Order dated 06.12.2018 in AN No.209 ofD2015 and dated 24.07.2020 in RP No.3 of 2019 of the Appellate Tribunalfor Electricity at New Delhi.

C. A. Sundaram, M. G. Ramachandran, Sr. Advs., Ms. HemantikaWahi, Anand Ganesan, Ms. Swapna Sesadri, Ms. Jesal Wahi, Ms. SrishtiKhindaria, Advs. for the Appellants.

EShyam Divan, Basava P. Patil, Dhruv Mehta, Sr. Advs., Venkatesh,Ms. Kanika Chugh, Nitin Saluja, Siddharth Joshi, Suhael Buttan, PunyamBhvtani, Ms. Nishtha Kumar, Apoorva Misra, Shri Venkatesh, VishalGupta, Ms. Suparna Srivastava, Tushar Mathur, Nikilesh Ramachandran,Advs. for the Respondents.

FThe Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. The current civil appeals,[1] under Section 125 of the ElectricityAct, 2003, (hereafter, “the Act”) challenge orders of the AppellateTribunal for Electricity (hereafter, “APTEL”), dated 06.12.2018 (“firstGimpugned order”)[2] and order dated 24.07.2020 (“second impugnedorder”)[3]. The APTEL had, by those orders, rejected the appeals preferredby the present appellant, and the review petition, as well. Resultantly, 1 Civil Appeals Nos. 3480 and 3481 of 2020

2 in Appeal No 209/2015

H3 in Review Petition No 03/2019

the order of the Gujarat Electricity Regulatory Commission (hereafter“the State Commission”), dated 01.07.2015[4] was affirmed.

2. The first appellant – Gujarat Urja Vikas Nigam Limited(hereafter “Gujarat Urja”) had approached this court previouslychallenging the order of APTEL, which was disposed of by this court[5]granting liberty to it, to seek review/rectification. Gujarat Urja thenpreferred a review petition, which was rejected by APTEL, by the secondimpugned order. When this appeal was taken up for hearing, on14.10.2020, this court had issued notice and stayed the impugned orderof APTEL.

Background

3. Gujarat Urja procures power in bulk on behalf of distributionlicensees in the state of Gujarat; it is an authorized licensee within themeaning of the term under the Act. The second, third, fourth and fifthappellants are distribution licensees in the State of Gujarat. The firstrespondent, Renew Wind Energy (Rajkot) Pvt Ltd (hereafter “RWE”)is a wind generator which had set up 25.2 MW Wind Turbine Generatorsat District Rajkot, Gujarat under the Renewable Energy Certificationscheme notified by the Central Electricity Regulatory Commission(hereafter, “Central Commission”). The second respondent is the WindIndependent Power Producers Association (hereafter “Association”).The Respondent No 3, Gujarat Electricity Regulatory Commission(hereinafter “the State Commission”) is the regulatory commission underthe Act, for the State of Gujarat. The fourth respondent, Wish WindInfrastructure LLP (“Wish Wind” hereafter) is a wind generator.

4. By Section 86 of the Act[6 ], State Commissions discharge severalfunctions- which include the determination of tariff “for generation, 4 in petition No 1363/2013

5 Civil Appeal No 1253/2019 by order dated 15.02.2019

6 The relevant extract of Section 86 is as follows:

“86. Functions of State Commission.-(1) The State Commission shall dischargethe following functions, namely:- (a) determine the tariff for generation, supply, transmission and wheeling ofelectricity, wholesale, bulk or retail, as the case may be, within the State:

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(b) regulate electricity purchase and procurement process of distribution licenseesincluding the price at which electricity shall be procured from the generating companiesor licensees or from other sources through agreements for purchase of power fordistribution and supply within the State; AB

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Asupply, transmission and wheeling of electricity, wholesale, bulk orretail, as the case may be, within the State”. The tariff determinationprocess should accord with Sections 62 and 64 of the Act. Section 62,requires “the Appropriate Commission” (in this case, the StateCommission) to determine tariffs in accordance with the provisions ofthe Act for – among other purposes, retail supply of electricity. TheBState Commissions are also empowered to frame regulations, underSection 181 of the Act. That power includes the formulation of the “termsand conditions for determination of tariff Under Section61”.[7]Additionally, the tariff order can be modified or imposed withconditions under Section 64(3). The State Commission is guided by theCprinciples specified in Section 61 of the Act while formulation of thetariff regulations. This court has held that state commissions as expertbodies have to strike a balance between various competing concernsand interests while framing such regulations.[8] The Gujarat StateCommission, for a Multi-Year period (also called the “control period”),frames Regulations for determination of tariff. The state commissionDthen determines the Multi-Year Tariff Order based on the data available.Furthermore, Section 64 (6) prescribes that tariff orders “shall continueto be in force for such period as may be specified in the TariffOrder unless amended or revoked”. If any party is aggrieved by any

(c) facilitate intra-State transmission and wheeling of electricity;E …..

(c) facilitate intra-State transmission and wheeling of electricity;E …..

(e) promote co-generation and generation of electricity from renewable sources ofenergy by providing suitable measures for connectivity with the grid and sale of electricityto any person, and also specify, for purchase of electricity from such sources, a percentageof the total consumption of electricity in the area of a distribution licensee; …. [..]”

7 Clause 181(2)(zd) of the Act.F8 Kerala State Electricity Board & Anr v. Principal Sir Syed Institute for TechnicalStudies, 2020 7 SCR 885:

7. [..] “While fixing tariff, the Commission cannot show undue preference to anyconsumer of electricity. The Commission, however, is vested with the power to prescribedifferential rates according to the consumers’ load factor, power factor, voltage, totalconsumption of electricity during any specified period of time at which supply is required.So far as fixing different rates for these two categories of the educational institutions,Gthese factors did not come into play. The other permissible differentiating factorsare geographical position of any area, the nature of supply and the purpose for whichthe supply is required. As regards this set of differentiating factors, the tariff advantagefor government run and aided educational institutions do not appear to be based ongeographical position or nature of supply. The Commission however has justified theclassification of the aforesaid two sets of tariffs on the basis of purpose for which supplyHis required by the consumers.”

conditions of a given Tariff Order, it can seek its amendment or revocation.Orders are also appealable under Section 111 to APTEL, and thereafterto this court under Section 125 of the Act. Tariff Orders under Section64 of the Act are quasi-judicial in nature and ipso facto binding on theparties unless amended or modified through law.

5. On 29.01.2010, the Central Electricity Regulatory Commission(Terms and Conditions for Recognition and issuance of RenewableEnergy Certificate for Renewable Energy Generation) Regulations, 2010(hereafter “REC Regulations 2010”) were framed by the CentralCommission for the development of a power market for non-conventionalsources of energy by the issuance of tradable and saleable creditcertificates (hereafter “RECs”). Regulation 5 of the said RECRegulations 2010 provides for the required eligibility for the renewablegenerators for participating in the RE Certificates:

“5. Eligibility and Registration for Certificates:

(1) A generating company engaged in generation of electricityfrom renewable energy sources shall be eligible to apply forregistration for issuance of and dealing in Certificates if itfulfills the following conditions:

a. it has obtained accreditation from the State Agency;

b. it does not have any power purchase agreement for thecapacity related to such generation to sell electricity at apreferential tariff determined by the Appropriate Commission;and

c. it sells the electricity generated either

(i) to the distribution licensee of the area in which the eligibleentity is located, at a price not exceeding the pooled cost ofpower purchase of such distribution licensee, or

(ii) to any other licensee or to an open access consumer at amutually agreed price, or through power exchange at marketdetermined price.

Explanation. - for the purpose of these regulations ‘PooledCost of Purchase’ means the weighted average pooled priceat which the distribution licensee has purchased the electricityincluding cost of self generation, if any, in the previous year A

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Afrom all the energy suppliers long-term and short-term, butexcluding those based on renewable energy sources, as thecase may be.”

6. The objective of the REC Regulations 2010 was to separatethe physical electrical component and the environmental (renewable)Bcomponent of the energy for issuance of RECs. This was an alternatemechanism developed for the sale of renewable energy at a preferentialtariff to any licensee or directly to any consumer. The REC Regulations2010 aimed at selling the renewable component through the RECertificates containing promotional benefits of renewable energy whilethe physical electrical component was sold as any other conventionalCelectricity. The REC Regulations 2010 also provided that generatorsbased on the REC mechanism had the option to sell physical energy tothe distribution licensee at a “price not exceeding the Average PooledPower Purchase Cost” (hereinafter as “APPC”) of the distributionlicensee[9]. This was to ensure that generators did not benefit twice over,Dby selling RECs and also selling physical energy at higher promotionaltariffs or taking concessional benefits from the concerned distributionlicensee.

7. Under the REC Regulations 2010, distribution licensees werenot obliged to purchase the physical component of electricity fromErenewable energy generators set up under the REC mechanism sincesuch REC based generators had alternative options with regard to thephysical component of electricity, namely, (i) sale of electricity powerexchanges (ii) wheeling of power for sale to third parties at mutuallyagreed rates or (iii) wheeling of power for their own consumption. In thecase of the sale of the physical component of electricity, the price forFthe electrical component could not exceed average pooled cost of thedistribution licensees. The regulations also provided that the generators(of renewable energy) were not eligible for any benefits including bankingfacilities, exemption from payment of cross subsidy surcharge etc.amongst other things. The stated promotional benefits were applicableGonly in terms of trading and selling of the RE Certificates.

8. The REC Regulations 2010 provided for floor price andforbearance price i.e. minimum price and maximum price respectivelyat which RECs could be traded in the power exchange. Those prices 9 Regulation 5(1)(c) of REC Regulations 2010.H

i.e. floor price and the forbearance prices were to be determined by thecentral commission for the entire country.

9. In the present case, the State Commission by its order[10]determined the tariff for procurement of power by distribution licenseesfrom wind energy generators and also ruled on other commercial issuesfor wind energy generators set up under a preferential tariff mechanism.The order provided for a preferential levelized tariff of 3.56 per kWhfor the supply of energy to the distribution licensee for meeting it’sRenewable Power Purchase Obligation (RPO). The “control period” ofthe Order [dated 30.1.2010] was for the period 11.08.2009 to10.08.2012[11]. The order, inter alia, also provided the followingpromotional benefits for wind generators set up for third party sale undera preferential mechanism:

(a) Exemption from cross subsidy charges for the sale of windenergy to open access users in the State.

(b) Payment for excess (over and above that set off againstmonthly consumption in the 15 minutes time block) would betreated as a sale to the distribution licensee concerned at a rate of85% of the preferential tariff determined by commission for suchrenewable energy sources.

10. On 17.04.2010, the State Commission notified Gujarat ElectricityRegulatory Commission (Procurement of Energy from RenewableSources) Regulations, 2010 (hereafter “State Regulations”). The StateRegulations provided for the percentage of total consumption thatdistribution licensees were to purchase from RPOs and furtherrecognized that RPO could be fulfilled by the purchase of such RECs.Further, obligated entities could fulfil their renewable purchase obligationthrough two sources:

10 Dated 30.01.2010 in Order No 1/2010

11 The relevant provision of the Order reads as follows:

“2.2 Control period The Commission had, vide its Order No.2 of 2006 dated11th August,2006, determined the Wind Energy Tariff for a period of three years, i.e.upto 10th August,2009. The draft for the present order was published on 17.05.2009and it was proposed to be effective from 1st July, 2009.However, some of the objectorssuggested that the present order be made effective from the end of previous controlperiod. Since the previous control period expired on 10th August, 2009, the Commissiondecides that the control period for this order will be 3 (three) years w.e.f. 11th August,2009.”

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A(a) Purchase of renewable energy directly (at preferential tariffdetermined by State Commission); and (b) Purchase of RECs at a market price between Floor Price andForbearance price determined by Central Commission

11. A Power Purchase Agreement (hereafter “PPA”) in terms ofBthe REC Regulations 2010, was entered into between the Gujarat Urjaand the wind power developers (hereafter, “WPDs”) including respondentRWE on 29.03.2012. The agreement provided for a ceiling on tariff at 2.64 per unit for 25 years. In addition to the tariff, WPDs were eligiblefor the issue of RECs for each unit of electricity generated and suppliedCby them to the appellants. The alternate route available for the WPDs(such as RWE, Wish Wind etc.) at the time of entering into the PPA wasto sell electricity at a promotional tariff of 3.56 per unit - as determinedby the State Commission. By choosing the option, the WPDs wereensured tariff at 2.64 per unit plus tradable RECs whose price wasdetermined on the basis of the “weighted average pooled price”[12].DDistribution licensees were enabled to adjust such quantum of powerpurchased towards RPO specified under Section 86(1)(e) of the Act.Thus, the interests of both segments of the industry were taken care of.

12. The State Commission by its order dated 08.08.2012[13]determined the tariff at which the power could be procured by theEdistribution licensees and others from wind power projects commissionedin the control period from 11.08.2012 to 31.03.2016.

13. On 11.07.2013, Central Commission amended the RECRegulations 2010 (hereafter “Second Amendment”) and replaced “at aprice not exceeding pooled cost of the power purchase “with” atFthe pooled cost of power purchase”[14 ]along with the relevant statement 12 See Explanation to Regulation 5 of the REC Regulations 2010 which defines averagepooled price as follows:

“the weighted average pooled price at which the distribution licensee has purchasedthe electricity including cost of self-generation, if any, in the previous year from all theenergy suppliers long-term and short-term, but excluding those based on renewableGenergy sources, as the case may be.”13 in Order No. 2/2012

14 The relevant amendment to Regulation 5 (c), reads as follows:

“(2) In sub-clause (c) of clause (1) of Regulation 5 of the Principal Regulations, thewords “at price not exceeding the pooled cost of the power purchase of such distributionlicensee” shall be substituted with the words “at the pooled cost of power purchase ofHsuch distribution licensee as determined by the Appropriate Commission”.”

of reasons for the said amendment. It was clarified in the amendmentthat PPAs already executed prior to this amendment at a tariff lowerthan APCC would not be affected. The first two respondents wereaggrieved by the order of the Central Commission. They filed a petition[15]before the State Commission arguing that the terms of the PPA had tobe changed in view of the change in the REC regulations. This petitionwas allowed by the State Commission directing that the order of theCentral Commission was general and was therefore applicable to allsimilarly situated wind power generators. Aggrieved by the order of theState Commission, Gujarat Urja had preferred an appeal[16] beforeAPTEL. This appeal was rejected by APTEL by order dated 06.12.2018.The appellants preferred review petition against APTEL’s order rejectingtheir appeal against State Commission’s order; that too was dismissedby APTEL vide order dated 24.07.2020.

Arguments of the Appellant

14. The learned senior counsel for the appellant, Mr. C.A.Sundaram submitted that governing regulations for the PPAs in questionwere the CERC Regulations 2010. Therefore, the State Commissionhad no jurisdiction to decide the tariff contrary to the agreement. Further,counsel argued that Central Commission itself has clarified by the SecondAmendment that in respect of PPAs entered into prior to 11.07.2013,tariffs mutually agreed upon between the parties would be valid for theentire duration of the PPA (i.e. 25 years) and they could not be substitutedor re-determined by the State Commission. It was further argued thathad the appellants known about the APPC on year-on-year basis at thetime of signing the agreement, they would not have adopted the RECmechanism but instead would have availed a different method wherebyprices were fixed and appellants would have been entitled to RPO benefitsas well.

15. Reliance was placed on this court’s judgment in Gujarat UrjaVikas Nigam Limited v. Solar Semi-Conductors Power LimitedCompany (India) Private Limited[17] to argue that if the State Commissionre-determines the tariff amongst the parties, then the aggrieved partycannot be compelled to continue the said agreement or enter into a newagreement on such increased tariff.

15 Petition No. 1363 of 2013

16 Appeal No. 209/2015

17 (2017) 14 SCR 115

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A16. The appellants further submitted that State Commission hadno jurisdiction to reopen the PPA as the same was entered into in termsof the REC Regulations 2010 that was framed by the Central Commissionand was within its exclusive jurisdiction. Moreover, it was argued thatthe appellants would fail in their duty towards their consumers if theycannot negotiate for a lower tariff or if they agree to purchase power atBa higher tariff despite the availability of power at a lower tariff. In suchan event, the higher cost of procurement of power so imposed would beultimately passed on to the consumers which would be contrary to aspecified public interest, under the Act.

17. The learned senior counsel argued that the definition of theC“APPC” cannot be relied upon in the present case[18] and the PPA inquestion provided for a tariff. There was consequently no bar in any lawor regulations for the parties to agree to such tariff and in fact, RECRegulations 2010 itself recognized that the PPA can be “at a price notexceeding the pooled purchase cost”. Likewise, for the sale of suchDpower to customers or the licensees, reference is made to “mutuallyagreed price” and therefore reference to “mutually agreed price”can mean that price can also be a fixed price and need not mean that ithas to be dynamic and varying every year.

18. It was argued that the interpretation placed by APTEL is notEfounded on any express provision in the regulations, or anything arisingout of necessary implication. The change in regulations, unless madespecifically operable for a prior period, cannot be construed to beretrospective. Thus, contracts concluded prior to the entered into priorto the amendment [in 2013] cannot be governed by amended provisions.Doing so would not only be contrary to the express terms of the amendedFregulations but would also be contrary to the terms of the PPA which donot accommodate or provide for such change in regulations.

19. The appellants further urged that the PPA was consciouslyentered into by the respondents on 29.03.2012, which was before the G18 APPC as clause 1.1 of the PPA is defined as:

“Average Power Purchase Cost” means the weighted average pooled price atwhich the distribution licensee has. Purchased the electricity including cost of self-generation, if any, in the previous year from all the energy suppliers long-term andshort-term; but excluding those based on renewable energy sources, as the case may be.Further, for this agreement, Average Power Purchase Cost for the term of the agreementshall be as per Article No. 5.2H

state commission’s tariff order dated 08.08.2012. The PPAs weresigned by the respondents before 11.07.2013, (when the amendmentwas made to the REC regulations) voluntarily without any reservation.The terms of the PPA were binding and enforceable, unaffected by theSecond Amendment, which applied prospectively. Learned counsel reliedon the clarification by the CERC in the Statement of Reasons publishedin this regard.[19]

20. It is argued that the National Action Plan on Climate Changeand the Union Ministry of Power resolution dated 28-01-2016 and TariffPolicy underline the necessity of the co-generation of renewable sourcesof energy, progressively, so that it reaches a greater proportion. Thepolicy aims at increasing investment, and ensuring that viable unitsgenerating renewable energy are set up.

21. It was argued that the PPA was a commercial transaction,freely entered into between the parties. Neither the appellants nor thefirst Respondent was obliged to enter into the PPA nor agree to anyspecific terms or conditions. In case the terms were not acceptable,both parties had the freedom to reject the transaction and seek to sell orbuy power through other alternative available options as provided underthe REC Regulations 2010. Further at the time of signing the PPA, andeven thereafter till the filing of the Petition before the State Commissionin the month of December 2013 (i.e. more than one and half years afterthe execution of the PPA), the first respondent did not raise any objectionsor protest on being allegedly coerced or placed under duress to agree tothe terms and conditions of the PPA. The terms of the PPA were fully incompliance with the provisions of the REC Regulations 2010 as therestriction in those regulations was for the price not to exceed the PooledPower Purchase Cost. The price agreed to between the appellant andRespondent No. 1 was 2.64/- per unit or Pooled Power PurchaseCost of the subsequent year, whichever was lower.

19 Dated 10.07.2013, which inter alia, stated that

19 Dated 10.07.2013, which inter alia, stated that “Some of the stakeholders have suggested to clarify as to whether the PPAs executed atprice lower than APPC would become ineligible under REC Mechanism. It is felt that thetariff for electricity component lower or higher than APPC may lead to avoidable loss orprofit to RE generator. The Commission would like to clarify that the intention is not todebar the projects that have executed PPA at tariff lower than APPC. This amendmentwill apply prospectively and as such will not affect the” already executed PPAs at lowerthan APPC.”

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A22. The appellants argue that till 11.07.2013 none of the WPDs/respondents raised any issue on the tariff of 2.64/kWh for the entireduration of the PPA. It was only on 10.12.2013, the first two respondentsfiled Petition No.1363/ 2013 before the State Commission claiming thatthe tariff should be the APPC cost year-on-year basis instead of a fixed 2.64/kWh. This was contrary to the decision by CERC on theBapplication of Second Amendment only prospectively -which is, for PPAsentered on or after 11.07.2013. The state commission by its order (dated01.07.2015) allowed the respondent’s petition and further directed thatthe order is generic in nature and applicable to all similarly placed WPDs-which was affirmed by the first impugned order. The appellants argueCthat the governing Regulations for PPAs adopting the REC Mechanismare 2010 REC Regulations and the state commission cannot decide ontariff contrary to the same. When the Central Commission clarified thatfor PPAs entered into prior to 11.07.2013, the tariff mutually agreed isvalid for the entire duration of the PPA (25 years), the state commissionand APTEL fell into error in substituting a new tariff at the instance ofDthe WPDs/Respondents. It is pointed out that Rule 8[20] of the ElectricityRules, 2005, notified by the Central Government, is binding, andspecifically provides that tariff determined by the Central Commission(CERC) shall not be subject to re-determination by the GERC/StateCommission.E

23. Learned senior counsel argued that if at the time of signingthe PPAs WPDs-Respondents had sought for tariff at APPC on year-on-year basis, the appellants would not have entered into PPAs underthe REC mechanism route and would have only adopted the alternateroute where the price was fixed and in addition, the appellants wouldFhave been entitled to RPO benefits. This is also clear as the appellantsdid not sign any PPAs after the Second Amendment for procuring powerunder the REC mechanism. The appellants urge that the Impugned Orderis contrary to the decision of this court in Gujarat Urja Vikas Nigam 20 Rule 8 reads as follows: “8. Tariffs of generating companies under section 79. –The tariff determined by theGCentral Commission for generating companies under clause (a) or (b) of subsection (1)of section 79 of the Act shall not be subject to redetermination by the State Commissionin exercise of functions under clauses (a) or (b) of sub section (1) of section 86 of the Actand subject to the above the State Commission may determine whether a DistributionLicensee in the State should enter into Power Purchase Agreement or procurementprocess with such generating companies based ,on the tariff determined by the CentralHCommission.”

Limited v Solar Semi-Conductors Power Company (Pvt) Ltd (Supra)holding that if the state commission re-determines the tariff, it cannotforce the appellants to continue the PPAs or enter into a contract basedon such increased tariff. Furthermore, it is argued that the principle thatWPDs having validly executed the PPAs cannot seek a modification tothe tariff terms and conditions contained in the PPAs under a prevalentdispensation for an increase in the tariff or for any other terms andconditions: counsel referred to Transmission Corporation of AndhraPradesh Ltd v Sai Renewable Power Private Limited (hereafter“Transmission Corporation of Andhra Pradesh Ltd”)[21]; Gujarat UrjaVikas Nigam Limited v EMCO Limited (hereafter “Emco Ltd”)[22];and Gujarat Urja Vikas Nigam Limited v ACME Solar Technologies(Gujarat) Pvt Ltd & Others[23 ]in support of the above contention.

24. Mr. Sundaram argued – for the appellants that the plea ofcoercion or duress or unequal bargaining etc, raised by the WPDs waspatently erroneous for the following reasons: (a) the petition before thestate commission was filed only by the first two Respondents; therefore,it cannot be a ground for alleging coercion against all WPDs; (b) theallegations by the said two Respondents were vague and unsubstantiated,and an afterthought as no such plea was raised till December 2013, i.e.,till after the amended CERC Regulations; and (c) as held by this Courtsuch plea of coercion had to be specifically pleaded and proved. In thisregard, reliance was placed on Transmission Corporation of AndhraPradesh Ltd (Supra).

25. It is further argued that there is no Regulation of the state orcentral commissions prohibiting a term being incorporated in PPA whichpermits an option to either party to switch from REC mechanism toPreferential Tariff Mechanism. The impugned order had not consideredjudgments referred to by the appellants on clauses granting power toone party to cancel the contract. In this regard, reliance is placed onCentral Bank of India v Hartford Fire Insurance Co. Ltd[24]; and HerHighness Maharani Shantidevi P Gaikwad v Savjibai Haribai Patel& Ors[25].

21 (2010) 8 SCR 63622 (2016) 1 SCR 85723 (2017) 16 SCC 49824 AIR 1965 SC 128825 2001 (5) SCC 101

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ARespondents’ Submissions

26. Mr. Shyam Divan and Mr. Dhruv Mehta, learned seniorcounsels appearing for the first two respondents urged that StateCommission had jurisdiction in the present case. Reliance was placedon the definitional clause of the PPA (Article 1.1) to submit thatBcommission meant ‘State Commission’. It was urged that in terms ofthe extant regulatory framework, (which provided for regulatory oversight by the appropriate commission), PPAs executed by generating companiesand distribution licensees necessarily required approval by the appropriatecommission. Firstly, Section 86(1)(b) of the Act specifically vests theState Commission with the power to regulate the electricity purchaseCand procurement process of distribution licensees including the price atwhich electricity shall be procured from the generating companies. Thisprovision empowers the state commission to modify, alter or vary theterms of PPAs, to ensure their compliance in accordance with theregulatory framework. Secondly, under the Multi Year Tariff Regulations,D2011 (hereafter “GERC (Multi Year Tariff) Regulations”) notified bythe State Commission, , PPAs are to be mandatorily approved in orderfor them to be considered effective and enforceable. Learned counselrelied on provisions of the Maharashtra Electricity RegulatoryCommission (Multi Year Tariff) Regulations, 2019, (Regulation 21); DelhiElectricity Regulatory Commission Comprehensive (Conduct ofEBusiness) Regulations 2001 (Regulation 45) and Andhra PradeshElectricity Regulatory Commission (Distribution Licensee) Regulations,2013 (Regulation 36) to support the contention that prior filing and approvalof PPAs is necessary and was not undertaken in this case, whichundermines its legal efficacy.F

27. It was submitted that pooled purchased cost of power to betaken into consideration under the REC mechanism has to be the APPCof the previous financial year- which has to be modified / increased on aregular basis. When pooled purchase cost increases, the floor price ofREC will decrease as the floor price and forbearance price of RECs areGsubject to fluctuation, at the end of each control period. Thus, wind powerprojects under the REC mechanism will be viable, only when therealization from the power component increases to compensate for thereduction in prices of RECs. It was submitted that if the APPC computedis lower than what has been taken by the CERC for the determination ofthe REC price band, there could be a viability gap problem for REH

generators under the REC mechanism, especially in cases where theprice discovered in the power exchange is closer to the floor price.

28. It was further submitted that the Second Amendment to RECregulations specifically replaced the words “at a price not exceeding” to“at the pooled cost”, which meant that the cost of electricity purchasedcould neither be lower nor higher than the power purchase cost. Counselfurther placed reliance on Statement of Reasons dated 10.07.2013 issuedby the Central Commission regarding the Second Amendment to contendthat REC contracts cannot be fixed price contracts as they would affectthe viability of REC projects as the price band (floor price / forbearanceprice) are subject to periodic revision. Relevant extracts of the saidstatement of reasons are reproduced below:

“4.3 Analysis and decision

Some of the stakeholders have suggested to clarify as towhether the PPAs executed at price lower than APPC wouldbecome ineligible under REC Mechanism. It is felt that thetariff for electricity component lower or higher than APPCmay lead to avoidable loss or profit to RE generator. TheCommission would like to clarify that the intention is not todebar the projects that have executed PPA at tariff lower thanAPPC. This amendment will apply prospectively and as suchwill not affect the already executed PPAs at lower than APPC.

Regarding suggestion received that PPA of electricitycomponent should be a fixed price long term contract (withoutescalation) since Commission has assumed fixed price whiledetermining REC price bands in its methodology, it is clarifiedthat the price band is subject to periodic revision; hence fixedAPPC or long-term contract without escalation might affectviability of RE Projects. In any case proposed amendmentprovides that APPC would be determined by the AppropriateCommission”

29. Counsel appearing for the association submitted that in termsof the regulatory framework, PPAs executed by generating companiesand distribution licensees have to be approved by the appropriatecommission; and that the PPA in question was never approved by StateCommission nor did the appellants approach the State Commission forsuch approval. It was further submitted that floor price and forbearance A

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Aprice are to be determined guided by various principles, inter alia,variations in APPC across the states, (which is revised on an annualbasis). Hence, the APPC cannot be a static concept else variation infloor price or forbearance price would lead to under recovery togenerators.B30. It was further contended that APPC along with REC pricing,together, are the tariff determined and approved for the supply of power.That is to say that APPC and REC pricing are two halves of the samewhole which constitutes the overall tariff which a generating companyregistered under the REC mechanism is entitled to receive. APPC alongwith REC pricing is what was intended to be incorporated as part of theCtariff clause in the PPA. If either of the components is pegged or cappedartificially, and without the approval of the State Commission, it wouldlead to a skewed application of the REC mechanism to the detriment ofgenerating company, leading to under-recovery and unviability of theRE generator.D31. It was argued that Regulation 9(2) of REC Regulations 2010provides for the determination of the floor price (minimum price) andthe forbearance price (maximum price) within which the RECs can betraded in power exchanges. The floor price and the forbearance are tobe determined by CERC for the entire country guided by variousprinciples, inter alia, variations in APPC across the States, which isErevised on an annual basis. Therefore, if APPC is made static thenvariation in Floor Price/ Forbearance price would lead to under recoveryto generators.

32. The APPC to be taken into consideration under the RECmechanism must be dynamic and must be revised on a regular basis.FWhen APPC is increased, the floor price of REC comes down and viceversa and the same is subject to change every year. The APPC alongwith REC pricing, together, are the tariff determined and approved forthe supply of power. In other words, the APPC and REC pricing aretwo halves of the same whole, which constitute the overall tariff whicha generating company registered under the REC mechanism is entitledGto receive. APPC along with REC pricing is what was intended to beincorporated as part of the tariff clause in the PPA. If eithercomponent is pegged or capped artificially, and that too without approvalfrom GERC, the same would lead to a skewed application of the RECmechanism to the detriment of the generating company, leading to under-Hrecovery and unviability of the RE Generator.

33. It was submitted that the tariff in the PPA was in violation ofthe principal regulation, which does not contemplate a fixed long-termprice/ tariff. It is, therefore, illegal and had to be aligned with theregulation. The APTEL correctly aligned the tariff to the regulation. Theregulation has not been challenged and it has the force of statute and itmandates that PPAs should be aligned to the regulations. Reliance isplaced on PTC India Ltd. v. CERC (hereafter “PTC India”)[26].

34. Counsel for the third respondent argued that there could notbe a tariff between a generating company and a distribution licensee ina PPA which was not in line with the CERC Regulations and tarifforders issued by the State Commission. It was further contended thatthe court cannot enforce a contract where unequal bargaining powerexists amongst the parties. It was further submitted that State Commissionhas rightly observed that the fixed tariff of 2.64/unit for a period of 25years by the parties violates not only the provisions of the Act but alsothe National Electricity Policy and tariff policy as notified under Section3 of the Act which promotes renewable energy sources throughpreferential pricing.

35. Counsel for Wish Wind submitted that it cannot be bound bythe onerous terms of the PPA as it was never approved by the StateCommission and thus not in consonance with the statutory procedureprescribed under the Act. Learned counsel also submitted that presentproceedings are not a case where a contract has been interdicted by theState Commission but rather where a contract has been aligned with therelevant regulatory regime in the exercise of the regulatory power vestedby the Act. In response to Gujarat Urja’s argument that State Commissionhas no jurisdiction to reopen the PPA, it was submitted that Section86(1)(b) of the Act places an obligation upon distribution licensees to getPPAs (executed by them) approved by the State Commission and in thepresent case, state commission never had the opportunity to verify/regulate such PPAs in accordance with the law.

36. It was also submitted that Section 86(1)(b) of the Act empowersthe state commission to modify, alter or vary the terms of the agreementof PPAs, to ensure their compliance in accordance with the regulatoryframework established under the Act. It was further submitted that takinginto consideration the definition of APPC, it is evident that floor price AB

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Aand forbearance price are dynamic in nature and APPC being associatedwith the floor price and the forbearance price is also required to bedetermined on a year-to-year basis so that the guaranteed return to thegenerators is not affected.

Analysis and FindingsB

37. The crisis arising out of, and the enormous environmental costinvolved in the continued use of fossil fuels has led governments, worldover, to promote alternative and renewable sources of energy. The rapidgrowth of renewable energy over the decade and a half has witnessedthat solar and wind power are now the cheapest sources of energy inCmany countries in the world. Once green energy was an expensivealternative, however, it is now helping to reduce energy bills.

38. The rapidly changing economics of such sources has led, theUnion government to realize that solar and other renewables canpotentially transform the energy landscape, increase access and helpDIndia meet its climate change objectives. Grid transmission capacity hasbeen a barrier; however, distributed and off-grid solar solutions providea viable solution for increasing energy access. Being dependent primarilyon cheap coal-based power generation, traditional thinking on energyhas been that increase in renewable energy’s share of electricitygeneration would further impair local distribution companies’ poorEfinancial situation. Over the years, India has established a comprehensivepolicy and regulatory frameworks to encourage renewable energydevelopment. India began its development of wind power in the 1990sand has significantly increased its capacity over the last few years.Compared to established countries with wind energy capacities like theFUSA or Denmark, India is a latecomer. Yet, its support for wind power,through its policies has resulted in India becoming the producer with thefourth largest installed wind power capacity, in the world; wind poweraccounts for 10% of India’s total installed power capacity. As of February2023, the installed capacity of wind power in India was 42,015 megawatts(MW).[27]G

39. Section 86 of the Act enumerates the functions of statecommissions; Section 86 (1)(e) reads as follows:

27 Physical Progress (Achievements) Ministry of New and Renewable Energy, Govt. ofIndia. https://mnre.gov.in/the-ministry/physical-progress, visited on 06.04.2023 at 20:30hours.H

“Section 86(1): The State Commission shall discharge thefollowing functions, namely:

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(e) promote cogeneration and generation of electricity fromrenewable sources of energy by providing suitable measuresfor connectivity with the grid and sale of electricity to anyperson, and also specify, for purchase of electricity from suchsources, a percentage of the total consumption of electricityin the area of a distribution licensee;”

40. State Commissions have placed significant emphasis on thelast part of this important clause while developing regulations forDistribution Licensees under their jurisdiction. The National Tariff Policy,issued by the Central Government in terms of Section 3 of the Act statesas follows:

“Clause 6.4: Non-conventional sources of energy generationincluding co-generation:

(1) Pursuant to provisions of section 86(1)(e) of the Act, theAppropriate Commission shall fix a minimum percentage forpurchase of energy from such sources taking into accountavailability of such resources in the region and its impact onretail tariffs. Such percentage for purchase of energy shouldbe made applicable for the tariffs to be determined by theSERCs latest by April 1, 2006.”

By virtue of Regulation 4 (1) of the REC Regulations 2010, thereare two categories of RECs: solar and non-solar. Regulation 4 (2)mandates that “non-solar certificate shall be sold to the obligatedentities to enable them to meet their obligation for purchase fromrenewable energy sources other than solar.” Regulation 5 (1) of theREC regulations (extracted earlier) spells out the eligibility conditionsfor renewable energy generating companies to apply and seek registrationfor certificates; these are that the company should have: (a) obtainedaccreditation from the State Agency; (b) it does not have any powerpurchase agreement for the capacity related to such generation to sellelectricity at a preferential tariff determined by the AppropriateCommission; and (c) it sells the electricity generated either-(i) to thedistribution licensee of the area in which the eligible entity is located, ata price not exceeding the pooled cost of power purchase of such A

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Adistribution licensee, or (ii) to any other licensee or to an open accessconsumer at a mutually agreed price, or through power exchange atmarket determined price. What is meant by “pooled cost or purchase” iselaborated in the Explanation (to Regulation 5) to mean “the weightedaverage pooled price at which the distribution licensee haspurchased the electricity including cost of self-generation, if any,Bin the previous ·year from all the energy suppliers long-term andshort-term, but excluding those based on renewable energy sources.as the case may be.”

41. The objectives of the REC Regulations 2010 were describedin the judgment of this court, reported as Hindustan ZincCLtd. v. Rajasthan Electricity Regulatory Commission,[28]

“44. [..] Regulations have been enacted in order to effectuatethe object of promotion of generation of electricityfrom renewable sources of energy as against the pollutingsources of energy which principle is enshrined in the Act, theDNational Electricity Policy of 2005 and the Tariff Policy of2006. The provisions requiring purchase of minimumpercentage of energy from renewable sources of energy havebeen framed with an object of fulfilling the constitutionalmandate with a view to protect environment and preventEpollution in the area by utilising renewable energy sources asmuch as possible in larger public interest.[..]”

42. The approach of this court, therefore, has to consider theobjective of the policy of promoting non-renewable sources of energy,the purpose of introducing RECs, and the progressive obligations placedFupon licensees, to ensure that they purchase energy from such “green”or “clean” sources, in a viable manner. In the present case, the obligationto procure renewable energy, is located in the Gujarat ElectricityRegulatory Commission (Procurement of Energy from RenewableSources) Regulations, 2010 (hereafter the “Renewable SourcesRegulations”). Regulation 4 (1) of the said Renewable sources RegulationsGreads as follows:

“4. Quantum of Renewable Purchase Obligation (RPO)

4.1 Each distribution licensee shall purchase electricity (inkWh) from renewable energy sources, at a defined minimum H28 (2015) 7 S.C.R. 1104

percentage of the total consumption of its consumers includingT&D losses during a year. Similarly, Captive and Open Accessuser(s) / consumer(s) shall purchase electricity (in kWh) fromrenewable energy sources, at a defined minimum percentageof his/her total consumption during a year.

The defined minimum percentages are given below in the Table1.

If the above-mentioned minimum quantum of power purchasefrom solar and other renewable energy sources is not availablein a particular year, then in such cases, additional wind orother energy, over and above that shown in column 3 and 5,shall be utilized for fulfillment of the RPO in accordance withcolumn 2.

Provided further that such obligation to purchase renewableenergy shall be inclusive of the purchases, if any, fromrenewable energy sources already being made by the obligatedentity concerned:

Provided also that the power purchases under the powerpurchase agreements for the purchase of renewable energysources already entered into by the distribution licensees shallcontinue to be made till their present validity, even if the totalpurchases under such agreements exceed the percentage asspecified hereinabove.”

43. In terms of Regulation 9 (1) of the Renewable SourcesRegulations, if an obligated entity[29] (such as the present appellant) doesnot fulfil the renewable purchase obligation as provided in the regulations 29 An “obligated entity” is defined in Regulation 2 (k) as “the entity mandated underclause (e) of subsection (1) of section 86 of the (Electricity) Act to fulfil the renewablepurchase obligation and identified under clause 3 of these Regulations.

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Aduring any year and also does not purchase the certificates, the StateCommission may direct the obligated entity to deposit into a separatefund, to be created and maintained by such obligated entity, such amountas the State Commission may determine. Thus, obligated entities,(distribution licences included) had to take steps to progressively increasethe purchase of power from renewable energy sources. To incentivizeBthis, flexibility was granted; the power generators could either have thetariff fixed, according to the State Commission’s Tariff determinationorder, or adopt another mechanism, i.e., the one contemplated in theREC Regulations.

44. The relevant conditions and stipulations set out in the PPA inCthis case, are extracted below:

“RATES AND CHARGES

5.1 Monthly energy charges: the GUVNL shall pay for thedelivered energy as certified by the SEA of Gujarat SLDC,Dfor the term of this agreement from the commercial operationdate of signing of power purchase agreement whichever islater, to the power producer every month. The tariff payableby GUVNL for energy purchased shall be as per clause 5.2herein.

E5.2. GUVNL shall pay a fixed rate of Rs. 2.64 per KWh(average power purchase cost for previous FY i.e. 2010-11)during the term of this agreement for delivered energy certifiedby Gujarat SLDC in the monthly State energy Account (SEA):

a) In case in any subsequent FY the APPC goes below theFAPPC goes below the APPC of FY 2010-11, the applicabletariff for ensuring. FY shall be such lower APPC of theprevious year.

b) Power producer and power procurer both have option toswitch over from REC mechanism to preferential tariff after10 years from commissioning of the 23.10 MW WTGS. In caseGeither party exercises the option, the tariff shall be Rs. 3.56per KWh (as determined by GERC through order no. 1 of2010 dated 30.1.2010) for balance term of the agreement.Further, power producer shall submit documentary evidenceto GUVNL for de-registration of wind project from REC

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mechanism in case either party ·exercise. Option to switchover from REC to preferential tariff.

5.3 For each KVRAH drawn from the grid, the Company shallpay at the rate of as determined by the Commission to GETCOfrom time to time for each KARH drawn.

5.4 Till the intra-State ABT is implemented, the certificate issuedby GEDA for generation share of wind turbine shall beacceptable for monthly energy bill. The other provisions ofintrastate ABT and Open access regulations appearing in thisagreement shall also be applicable only after the intra-StateABT is implemented.

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ARTICLE 9

TERM, TERMINATION AND DEFAULT

9.1 Term of the agreement: This agreement shall becomeeffective upon the executive and delivery thereof by the partieshereto and unless terminated pursuant to other provisions ofthe agreement, shall continue to be in force for such timeuntil the completion of a period of 25 (twenty five) years fromthe commercial operation date.”

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Did the PPA in the present case, require prior approval of thestate commission

45. RWE and the other respondents urge that the PPA wasunenforceable because it was not approved by the State Commission.This court is of the considered view that the argument is unmerited andinsubstantial.

46. The State Commission’s regulations (Renewable SourcesRegulations) relating to procurement of energy from Renewable Sources,provides, inter alia, pertinently, as follows:

“3. Applicability of Renewable Purchase Obligation: TheseRegulations shall apply to: (1) Distribution licensee (2) Anyother person consuming electricity A

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A(i) generated from conventional Captive Generating Planthaving capacity of 5 MW and above for his own use and / or(ii) procured from conventional generation through openaccess and third party sale.”

47. From a reading of the above provision, it is evident that thereBwas never any provision, which mandated prior approval by the statecommission, of PPAs entered into, by parties, in exercise of their freechoice, in relation to renewable energy sources. As a matter of fact, inthe case of renewable power, the state commission had approved amodel PPA. Further, the tariff terms and conditions to the extent decidedCare by the Central Commission and not by the State Commission. Theseare incorporated in the model PPA. Neither the commission, nor thecontesting respondents, during the hearings in the present appeals, wereable to point out any provision in the PPA in the present case, whichconflicted with any provision of the model PPA, or any express regulation.Furthermore, it was not established how in the absence of any referenceDto the Multi Year Tariff Regulations, they were applicable to PPAsrelating to renewable energy sources.

48. This court is also of the considered view, that in the absenceof specific norms prescribing prior approval of PPAs like in the case ofprovisions of Regulation 21 of the Maharashtra Electricity RegulatoryECommission (Multi Year Tariff) Regulations, 2019; Regulation 45 of theDelhi Electricity Regulatory Commission Comprehensive (Conduct ofBusiness) Regulations 2001 and Regulation 36 of the Andhra PradeshElectricity Regulatory Commission (Distribution Licensee) Regulations,2013, the respondent’s arguments on this aspect cannot be accepted. InFthese circumstances, the findings of APTEL, not based on any stipulatedobligations under provisions of the state regulations, requiring approvalof the state commission, for its operation, cannot be sustained.

Whether change in the REC Regulations obliged revision ofthe PPA in this case G

G49. In Emco Ltd (supra), the parties had entered into a PPA on09.12.2010 for the sale and purchase of solar power. The PPA wasmodified on 07.05.2011 in view of certain difficulties in the location ofthe unit. When the PPA was entered into, the tariff order was applicable.The PPA was thus entered into during the control period of the firsttariff order. The second tariff order came into force on 27.01.2012. ItH

granted certain concessions to purchase and availing of the benefit ofaccelerated depreciation under the income tax and did not grant suchbenefits to purchasers and tariff payable to power purchasers which didnot avail of the benefit of accelerated depreciation. The respondent Emcohad not availed accelerated depreciation. Despite that, it approachedthe Gujarat State Commission, seeking a determination of the tariff afresh,contending that the position had changed. This court noticed that thepower purchaser had contended that notwithstanding that it entered intoa PPA during the control period, it was not obliged to sell power to thedistributor for a price specified in the PPA and was legally entitled toseek fixation of separate tariff. The Court rejected the contention afternoticing the arguments. The relevant extracts of the judgment (In EmcoLtd.) are as below:

“11. The case of the first respondent is that notwithstandingthe fact that it entered into a PPA during the “control period”specified in the First Tariff Order, it is not obliged to sell powerto the appellant for the price specified in Article5.2 of thePPA and is legally entitled to seek (from the secondrespondent) fixation of a separate tariff. It is the further caseof the first respondent that under the PPA, the appellant isunder an obligation to procure the power from the firstrespondent for a period of 25 years if the first respondentcommences the generation of power within the “controlperiod” and is also obliged to pay for the power procured byit at the rates specified in Article 5.2 of the PPA. But theobligation of the first respondent to sell power generated byit to the appellant at the rates specified in Article 5.2 of thePPA comes into existence only on the happening of the twocontingencies i.e. the first respondent (i) commencing thegeneration of power within the “control period” stipulatedunder the First Tariff Order; and (ii) choosing to avail the“benefit of accelerated depreciation” under the Income TaxAct. According to the first respondent, the stipulation underthe First Tariff Order that the tariff fixed there under is notapplicable to those Projects which “do not get such benefit,the Commission would on a petition in that respect determinea separate tariff taking into account all the relevant factsfrom not” would only imply that tariff fixed under the FirstTariff Order is not applicable to those Projects/power ABC

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producers which do not avail the “benefit of accelerateddepreciation” under the Income Tax Act.

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13. We have already noticed that the first respondent did notcommence generation of power within the “control period”stipulated under the First Tariff Order and also did not availthe “benefit of the accelerated depreciation” under the IncomeTax Act. It is admitted on all hands that the “benefit ofaccelerated depreciation” mentioned in the First Tariff Orderand the PPA is the stipulation contained in Section 32(1)(i) ofthe Income Tax Act read with Rule 5(1-A) of the Income TaxRules. They provide for the method and manner in whichdepreciation of the assets of an assessee is to be calculated.

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26. Apart from that, the conclusion of the Tribunal in the instantcase is wrong. First of all the PPA does not give any option tothe respondent to opt out of the terms of the PPA. It onlyvisualises a possibility of the producer not commissioning itsProject within the “control period” stipulated under the FirstTariff Order and provides that in such an eventuality whatshould be the tariff applicable to the sale of power by thefirst respondent. Secondly, the PPA does not “entitle” the firstrespondent to the “tariff as determined by the” secondrespondent by the Second Tariff Order. On the other hand,the PPA clearly stipulates that in such an eventuality:

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“Above tariff shall apply for solar projects commissioned onor before 31-12-2011. In case, commissioning of solar powerproject is delayed beyond 31-12-2011, GUVNL shall pay thetariff as determined by the Hon’ble GERC for solar projectseffective on the date of commissioning of solar power projector abovementioned tariff, whichever is lower.”

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(emphasis supplied)”

50. In Transmission Corporation of Andhra Pradesh Ltd(Supra), the state commission had, by an order dated 20.06.2001 directedgenerators of non-conventional energy to supply power exclusively tothe A.P. Transmission Corporation. Energy developers were not permittedHto sell power to third parties. The Commission also approved the rate prevailing earlier for supply @ 2.25/- per unit with a 5% escalation perannum from 1994-1995 being the base year. The parties entered intoPPA after the passing of the Regulatory Commission’s order. The PPAembodied or reflected the tariff @ 2.25/- per unit with escalation @5% per annum having 1994 as the base year to be revised annually upto2003-04. After that, the purchase price was to be decided by the statecommission. The stipulation also provided that further review of thepurchase price on the completion of 10 years from the commissioning ofthe project would be made.

51. The A.P. Transmission Corporation’s functions devolved upondiscoms by operation of law. In this background, the state commissionexercised suo motu powers to revise non-conventional energy purchasetariffs. The APTEL rejected the appeal of the A.P. TransmissionCorporation. This court held that once agreements were signed and wereenforceable in law, such enforceable obligations could not be frustrated.The court also negatived the arguments on behalf of the power generatorthat they had been subjected to coercion or duress. The observations ofthis court in this regard are pertinent in this regard and are extractedbelow:

“39. [..] In the present case the order dated 20-6-2001 wasfully accepted by the parties without any reservation. Afterthe lapse of more than reasonable time of their own accordthey voluntarily signed the PPA which contained a specificstipulation prohibiting sale of generated power by them tothird parties. The agreement also had a renewal clauseempowering TRANSCO/ APTRANSCO/Board to revise thetariff. Thus, the documents executed by these parties and theirconduct of acting upon such agreements over a long period,in our view, bind them to the rights and obligations stated inthe contract. The parties can hardly deny the facts as theyexisted at the relevant time, just because it may not beconvenient now to adhere to those terms. Conditions of acontract cannot be altered/avoided on presumptions orassumptions or the parties having a second thought that aterm of contract may not be beneficial to them at a subsequentstage. They would have to abide by the existing facts,correctness of which, they can hardly deny. Such conduct,would be hit by allegans contraria non est audiendus.”

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42. Now, we will proceed to examine the merits or otherwiseof the findings recorded by the Tribunal that the PPAs executedby the parties were result of some duress and thus, it will notvest the authorities with the power to review the tariff andother granted incentives. PPAs were executed prior andsubsequent to the issuance of the order dated 20-6 2001.Different persons executed the contracts at different times infull awareness of the terms and conditions of such PPAS. Tofrustrate a contract on the ground of duress or coercion, therehave to be definite pleadings which have to be substantiatednormally by leading cogent and proper evidence. However,in the case where summary procedure is adopted like thepresent one, at least some documentary evidence or affidavitought to have been filed raising this plea of duress specifically.

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43. [..] From the record before us, nothing was brought toDour notice to state the plea of duress and to prove the allegedfacts which constituted duress, so as to vitiate and/or evenpartially reduce the effect of the PPAs. On the one hand, theTribunal appears to have doubted the binding nature of thecontracts stating that they contained unilateral conditionsintroduced by virtue of order and approval of the RegulatoryECommission, while on the other hand, in para 53 of the order,it proceeded on the presumption that PPAS are final andbinding and still drew the conclusion that the RegulatoryCommission could not revise the tariff. Even in the order, nofacts have been pointed out which, in the opinion of the D

FTribunal, constituted duress within the meaning of the ContractAct so as to render the contract voidable.”

52. In Gujarat Urja v. Solar Power Company India Pvt.Ltd.[30](hereafter “Solar Power Company India Pvt. Ltd”), the issueinvolved was whether the State Commission could extend the controlperiod. One of the arguments made was that having regard to the termsGof the PPA, the exercise of such power to extend the control period wasnot available under the statute. The Court (per Kurian Joseph, J) referredto Gujarat Urja Vikas Nigam Ltd. v. Tarini Infrastructure Ltd.[31]wherein it was held that:

30 (2017) 14 S.C.R. 115H31 (2016) 5 S.C.R. 990

“10. While Section 61 of the Act lays down the principles fordetermination of tariff, Section 62 of the Act deals withdifferent kinds of tariffs/charges to be fixed. Section 64enumerates the manner in which determination of tariff isrequired to be made by the Commission. On the other hand,Section 86 which deals with the functions of the Commissionreiterates determination of tariff to be one of the primaryfunctions of the Commission which determination includes,as noticed above, a regulatory power with regard to purchaseand procurement of electricity from generating companies byentering into PPA(s). The power of tariff determination/fixationundoubtedly is statutory and that has been the view of thisCourt expressed in paras 36 and 64 of A.P. TRANSCO v. SaiRenewable Power (P) Ltd. This, of course, is subject todetermination of price of power in open access (Section 42)or in the case of open bidding (Section 63). In the presentcase, admittedly, the tariff incorporated in PPA between thegenerating company and the distribution licensee is the tarifffixed by the State Regulatory Commission in exercise of itsstatutory powers. In such a situation it is not possible to holdthat the tariff agreed by and between the parties, though findsmention in a contractual context, is the result of an act ofvolition of the parties which can, in no case, be altered exceptby mutual consent. Rather, it is a determination made in theexercise of statutory powers which got incorporated in amutual agreement between the two parties involved.*********************

This Court in Solar Power Company India Pvt. Ltd (Supra)further observed that:

35. This Court should be specially careful in dealing withmatters of exercise of inherent powers when the interest ofconsumers is at stake. The interest of consumers, as anobjective, can be clearly ascertained from the Act. ThePreamble of the Act mentions “protecting interest ofconsumers” andSection61 (d) requires that the interests ofthe consumers are to be safeguarded when the appropriateCommission specifies the terms and conditions fordetermination of tariff. Under Section 64 read with Section AB

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62, determination of tariff is to be made only after consideringall suggestions and objections received from the public. Hence,the generic tariff once determined under the statute with noticeto the public can be amended only by following the sameprocedure. Therefore, the approach of this Court ought to becautious and guarded when the decision has its bearing onthe consumers.

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36. Regulation 85 provides for extension of time. It may beseen that the same is available only in two specified situations- (i) for extension of time prescribed by the Regulations, and(ii) extension of time prescribed by the Commission in its orderCfor doing any act. The control period is not somethingprescribed by the Commission under the Conduct of BusinessRegulations. The control period is also not an order by theCommission for doing any act. Commissioning of a project isthe act to be performed in terms of the obligation under theDPPA and that is between the producer and the purchaser viz.Respondent 1 and appellant. Hence, the Commission cannotextend the time stipulated under the PPA for doing any actcontemplated under the agreement in exercise of its powersunder Regulation 85. Therefore, there cannot be an extensionof the control period under the inherent powers of theECommission.

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37. The Commission being a creature of statute cannot assumeto itself any powers which are not otherwise conferred on it.In other words, under the guise of exercising its inherent power,as we have already noticed above, the Commission cannottake recourse to exercise of a power, procedure for which isotherwise specifically provided under the Act.”

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53. The concurring view expressed by Banumathi J, crucially held that:

“Sanctity of power purchase agreement

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22. It is contended that Section 86(1)(b) of the Act empowersthe State Commission to regulate the price of sale and purchaseof electricity between the generating companies anddistribution licensees and the terms and conditions of the PPAcannot be set to be inviolable. Merely because in PPA, tariff H

rate as per Tariff Order, 2010 is incorporated that does notempower the Commission to vary the terms of the contract tothe disadvantage of the consumers whose interest theCommission is bound to safeguard. Sanctity of PPA enteredinto between the parties by mutual consent cannot be allowedto be breached by a decision of the State Commission to extendthe earlier control period beyond its expiry date, to theadvantage of the generating company, Respondent 1 anddisadvantage of the appellant. Terms of PPA are binding onboth the parties equally.

66. In Gujarat Urja Vikas Nigam Ltd. v. EMCO Ltd., factswere similar and the question of law raised was whether bypassing the terms and conditions of PPA, the respondent canassail the sanctity of PPA. This Court held that power producercannot go against the terms of the PPA and that as per theterms of the PPA, in case, the first respondent is not able tocommence the generation of electricity within the “controlperiod” the first respondent will be entitled only for lower ofthe tariffs.”

54. Similarly, in Bangalore Electricity Supply Co. Ltd. vs.Konark Power Projects Ltd. & Ors[32 ]this court held as follows:

“13. The contention that Under Regulations 5.2, 5.3, 5.4 ofthe 2004 Regulations as well as Sections 61 and 62 of theElectricity Act, power is vested with the Commission to varythe tariff is concerned, such power specifically provided forin the said Regulations will only operate prior to fixing of thetariff once the concerned Power Purchase Agreements areultimately concluded and the terms are agreed between theparties under the Power Purchase Agreements, thereafter, inour considered opinion, Regulation 5.1 of the 2004Regulations alone would apply in the case of the parties beforeus. Consequently, there was no scope for the Commission tovary the tariff agreed between the parties under the approvedPower Purchase Agreement.”

55. Section 61 of the Act enacts the basis for tariff determination.On the other hand, Section 62 is concerned with the fixation of various AB

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Aother charges and tariffs. Section 64 lists the manner and procedure fortariff determination by the Commission. Section 86 lists the functions ofthe Commission and reiterates the determination of tariffs to be aprominent task of the commission. Tariff determination no doubt,comprehends the exercise of regulatory function, including purchase,sourcing, procurement of electricity from generators, by distribution andBother licensees, and their sales. This part involves generating companiesentering into PPA(s) with procuring entities or licensees. Tariff fixationis a statutory function. Yet, by virtue of Section 42, it is subject to openaccess determination of the price of power, and subject to Section 63wherever it involves open bidding. In the facts of this case, the PPACincorporated a tariff between the respondents and Gujarat Urjaconstituted the tariff fixed by the State Regulatory Commission in theexercise of its statutory powers. The issue and sale of RECs, constitutedan important part of that bargain, between the two parties, based on theassessment of their commercial interest.

D56. The important feature of the REC Mechanism is that in it,WPDs (i.e. respondents) had to sell power to distribution licensees at amutually agreed price, not exceeding the Average Power Purchase Cost(‘APPC’) of the DISCOMs, (such as Gujarat Urja). The WPDs wereentitled to the additional benefit of Renewable Energy Certificates issuedto it which could be traded in Power Exchange for a price. TheEconsideration payable to WPDs consisted of firstly, a mutually agreedpower Component and secondly a green component through RECstraded in the Exchange. The alternative to the WPDs was to sell tolicensees at a preferential tariff, determined by the state commission.In the latter event, WPDs were not entitled to the additional benefit of Fthe green component, which was the tradable RECs the sale of whichwould have led to increased revenues. The respondent WPDs chosethe REC mechanism, while entering into PPAs in these cases, with GujaratUrja. The PPAs entered by WPDs provided for the fixed tariff of 2.64/kWh for the entire term (25 years), as mutually agreed (Article 5.2of PPA). WPDs were entitled to and were trading RECs in the powerGexchange, deriving extra monetary benefits: which, at the relevant periodwas 1.50/kWh (floor price at the time of signing of PPA). ThePreferential Tariff determined by the state commission, for WPDs notopting for the REC Mechanismwas 3.56/kWh. The WPDs were notentitled to any additional REC benefits, had they adopted the preferentialHtariff route.

57. The respondents successfully complained before the StateCommission, and APTEL, that the PPA, which they had entered intowith Gujarat Urja, whereby the tariff was fixed at 2.64/kWh (with theprice of RECs sold by them) was, in the long run, less beneficial than 3.56/kWh. During the hearing, it was sought to be urged that the cost ofRECs in the exchange, had been decreasing, whereas the preferentialtariffs had risen. On this aspect, Regulation 9 of the REC Regulations2010 prescribes the price determination mechanism for RECs in thepower exchange. Proviso to Regulation 9 (1) of the REC Regulations2010 empowers the central commission, in consultation with the CentralAgency and the Forum of Regulators, to provide the floor price andforbearance price separately for solar and non-solar certificates. Thisprovision is important because it enables regulatory intervention in thepublic interest: if the price went below a certain limit, the floor price wasto be prescribed, to take care of the interests of generators- like therespondents; if the price went too high, a forbearance price could befixed, to take care of the interests of the consumers and distributors. ByRegulation 9 (2) of the REC Regulations 2010, the Central Commission,was to be guided, in determining the floor and forbearance price, bydiverse factors, such as (a) variation in cost of generation of differentrenewable energy technologies falling under solar and non-solar category,across states in the country; (b) variation in the Pooled Cost of Purchaseacross States in the country; (c) Expected electricity generation for non-renewable energy sources [including (i) expected renewable energycapacity under preferential tariff (ii) expected renewable energy undermechanism of certificates] (d) Renewable purchase obligation targetsset by various State Commissions. By virtue of Explanation to Regulation5 (1) of the REC Regulations, “the weighted average pooled price atwhich the distribution licensee has purchased the electricityincluding cost of self-generation, if any, in the previous year fromall the energy suppliers long-term and short-term, but excludingthose based on renewable energy sources, as the case may be.” Animportant factor which cannot be lost sight of is that all the respondent’sWPDs were registered, under the REC Regulations, based on the statecommission’s tariff order, of 2010. It is undisputed, that to register underthe REC Regulations 2010, an entity (such as WPDs) had to be (a)accredited, with a State Agency [(defined by Regulation 2 (n) of theREC Regulations as an agency “designated by the State Commissionto act as the agency for accreditation and recommending the AB

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Arenewable energy projects for registration”) and an entity “not havingany power purchase agreement for the capacity related to suchgeneration to sell electricity at a preferential tariff determined bythe Appropriate Commission].

58. Furthermore, the state commission, in its tariff order, datedB30.01.2010 (which was operative for three years, with the control periodbeginning from 10.08.2009) while determining the preferential tariff, hadobserved that it would apply for 25 years:

“The Commission, therefore, determines the tariff forgeneration of electricity from wind energy projects at Rs.3.56C(constant) for its entire project life of 25 years i.e. from thefirst year to the twenty fifth year. This tariff shall be applicablefor purchase of wind energy by Distribution Licensees/ otherentities for complying with the renewable power purchaseobligations specified in the regulation by commission fromtime to time. This tariff is applicable to wind energy projectsDwhich commission brand new wind energy plants andequipments on 11th August, 2009 onwards.”

59. In the present case, the PPA was entered into by the partieson 29.03.2102, within the control period stipulated in the tariff order of2010. The change in the REC Regulations 2010, whereby the ExplanationEto Regulation 5 was amended resulted in a change. The pre-existingclause that the power would be “at a price not exceeding pooled costof the power purchase”was altered to “at the pooled cost of powerpurchase”. This change, was through the Second Amendment (to theREC Regulations), carried out on 10.07.2013. It is a matter of record,Fthat for the period between 29.03.2102 and 10.07.2013 - and indeed,after the Second Amendment, no difficulty was experienced in the pricingmechanism agreed by the parties, under the PPA. It was on 10.12.2013that the respondent WPD approached the state commission for re-determination of tariff. Clearly, this was an opportunistic attempt to deriveadvantage from the change, brought about by the Second Amendment,Gand seek to have it applied to an existing contract, which cannot becountenanced. In view of these reasons, it is held that the reasoning ofAPTEL, and the State Commission cannot be upheld.

Applicability of the Second Amendment to pre-existingcontracts- the general lawH

60. Power Purchase Agreements are essentially not statutorycontracts; however, certain terms contained in those contracts, areregulated by law, i.e. applicable regulations, under the Act. The PPAbetween a generating company or, as in this case, a wind generator, anda distribution licensee, such as Gujarat Urja, is the outcome of a carefullyconsidered decision, whereby the parties, after due deliberations andnegotiations, agree on terms, which are based on existing law andregulations. Aside from contending that the PPA had to be approved,(which this court has rejected in a previous part of this judgment) butwas not, the respondents also urge, independently, that the SecondAmendment had necessitated re-visiting of the terms of the PPA, relatingto the payment of average pooled power purchase cost, given that theamendment mandated that the power would be at the pooled powerpurchase cost, as opposed to the previous provision, which stated thatthe cost would not exceed the pooled power purchase cost.

61. Regulation 1 (2) of the Second Amendment clearly providesthat the amendments were to come into force from the date of theirpublication in the Official Gazette, which is 10[th] July, 2013. Furthermore,the Statement of Reasons, accompanying the Second Amendment,clarified that existing PPAs were not affected:

“Some of the stakeholders have suggested to clarify as towhether the PPAs executed at price lower than APPC wouldbecome ineligible under REC Mechanism. It is felt that thetariff for electricity component lower or higher than APPCmay lead to avoidable loss or profit to RE generator. TheCommission would like to clarify that the intention is not todebar the projects that have executed PPA at tariff lower thanAPPC. This amendment will apply prospectively and as suchwill not affect the already executed PPAs at lower than APPC.”

62. The Constitution Bench of this Court, in PTC India (supra)had indicated that state commissions possess the power to vary existingcontracts, especially PPAs:

“40. [..] To regulate is an exercise which is different frommaking of the regulations. However, making of a regulationunder Section 178 is not a precondition to the CentralCommission taking any steps/measures under Section 79(1).As stated, if there is a regulation, then the measure under AB

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Section 79(1) has to be in conformity with such regulationunder Section 178. This principle flows from various judgmentsof this Court, which we have discussed hereinafter. Forexample, under Section 79(1)(g), the Central Commission isrequired to levy fees for the purpose of the 2003 Act. An orderimposing regulatory fees could be passed even in the absenceof a regulation under Section 178. If the levy is unreasonable,it could be the subject-matter of challenge before the appellateauthority under Section 111 as the levy is imposed by an order/decision-making process. Making of a regulation underSection 178 is not a precondition to passing of an orderlevying a regulatory fee under Section 79(1)(g). However, ifthere is a regulation under Section 178 in that regard thenthe order levying fees under Section 79(1)(g) has to be inconsonance with such regulation.

40. [..] One must keep in mind the dichotomy between thepower to make a regulation under Section 178 on the onehand and the various enumerated areas in Section 79(1) inwhich the Central Commission is mandated to take suchmeasures as it deems fit to fulfil the objects of the 2003 Act.Applying this test to the present controversy, it becomes clearthat one such area enumerated in Section 79(1) refers tofixation of trading margin. Making of a regulation in thatregard is not a precondition to the Central Commissionexercising its powers to fix a trading margin under Section79(1)(j), however, if the Central Commission in an appropriatecase, as is the case herein, makes a regulation fixing a capon the trading margin under Section 178 then whatevermeasures the Central Commission takes under Section 79(1)(j)have to be in conformity with Section 178. One mustunderstand the reason why a regulation has been made inthe matter of capping the trading margin under Section 178of the Act. Instead of fixing a trading margin (includingcapping) on a case-to-case basis, the Central Commissionthought it fit to make a regulation which has a generalapplication to the entire trading activity which has beenrecognised, for the first time, under the 2003 Act. Further, it is important to bear in mind that making of a regulation underSection 178 became necessary because a regulation madeunder Section 178 has the effect of interfering and overridingthe existing contractual relationship between the regulatedentities. A regulation under Section 178 is in the nature of asubordinate legislation. Such subordinate legislation can evenoverride the existing contracts including power purchaseagreements which have got to be aligned with the regulationsunder Section 178 and which could not have been doneacross the board by an order of the Central Commission underSection 79(1)(j).

43. [..] While deciding the nature of an order (decision) vis-à-vis a regulation under the Act, one needs to apply the testof general application. On the making of the impugned 2006Regulations, even the existing power purchase agreements(PPA) had to be modified and aligned with the saidRegulations. In other words, the impugned Regulations makean inroad into even the existing contracts. This itself indicatesthe width of the power conferred on CERC under Section178 of the 2003 Act. All contracts coming into existence aftermaking of the impugned 2006 Regulations have also to factorin the capping of the trading margin. This itself indicates thatthe impugned Regulations are in the nature of subordinatelegislation. Such regulatory intervention intothe existing contracts across the board could have been doneonly by making regulations under Section 178 and notbypassing an order under Section 79(1)(j) of the 2003 Act.Therefore, in our view, if we keep the above discussion inmind, it becomes clear that the word “order” in Section 111of the 2003 Act cannot include the impugned 2006 Regulationsmade under Section 178 of the 2003 Act.”

63. Whilst there cannot be any doubt that regulations framed underthe Act can be made applicable to existing contracts, what is discerniblefrom PTC India (supra) is that in that case, the applicability of the TradingMargin Regulations which for the first time, compelled persons engagedin trading of electricity, in terms of Section 2 (17) of the Act, to register,obtain licenses, and operate within the margin limits indicated in the AB

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Aregulations. These provisions introduced a new regime, regulating anarea, or activity which had hitherto been unregulated. The entire edificeof prescribing general standards for application to all those operatingwithin its sweep, is to ensure that they are universal and constitute acode. The observations in PTC India (supra), therefore, are to be seenin this context. Being regulations of general application, dealing with aBrange of commercial activity, there could have been no question of existingcontracts, operating in isolation, through separate silos, outside of theirframework. In the present case, however, the PPAs were entered intoin the exercise of equal bargaining power, after due negotiation by theparties, and within the framework of existing regulations: both centralCand state. Therefore, unless any later amendment expressly overridesexisting contracts, the terms of such agreements bind the parties.

64. That amendments to laws, or regulations, unless expresslyretrospective, are always prospective, is a settled proposition. InPurbanchal Cables & Conductors (P) Ltd. v. Assam State ElectricityDBoard & Ors.[33], the position was articulated in this manner:

“39. [..] This Court, time and again, has observed that anysubstantive law shall operate prospectively unless retrospectiveoperation is clearly made out in the language of the statute.Only a procedural or declaratory law operates retrospectivelyEas there is no vested right in procedure.

40. In the absence of any express legislative intendment ofthe retrospective application of the Act, and by virtue of thefact that the Act creates a new liability of a high rate of interestagainst the buyer, the Act cannot be construed to haveFretrospective effect. Since the Act envisages that the supplierhas an accrued right to claim a higher rate of interest in termsof the Act, the same can only be said to accrue for saleagreements after the date of commencement of the Act i.e. 23-9-1992 and not any time prior.”

G65. In Commissioner of Income Tax v Vatika Township (P)Ltd.[34], this court observed, in this context, that:

“31. Of the various rules guiding how a legislation has to beinterpreted, one established rule is that unless a contrary 33 (2012) 6 S.C.R. 905H34 (2014) 12 S.C.R. 1037

intention appears, a legislation is presumed not to be intendedto have a retrospective operation. The idea behind the rule isthat a current law should govern current activities. Law passedtoday cannot apply to the events of the past. If we do somethingtoday, we do it keeping in view the law of today and in forceand not tomorrow’s backward adjustment of it. Our belief inthe nature of the law is founded on the bedrock that everyhuman being is entitled to arrange his affairs by relying onthe existing law and should not find that his plans have beenretrospectively upset. This principle of law is known as lexprospicit non respicit : law looks forward not backward. Aswas observed in Phillips v. Eyre [Phillips v. Eyre, (1870) LR6 QB 1], a retrospective legislation is contrary to the generalprinciple that legislation by which the conduct of mankind isto be regulated when introduced for the first time to deal withfuture acts ought not to change the character of pasttransactions carried on upon the faith of the then existinglaw.

32. The obvious basis of the principle against retrospectivityis the principle of “fairness”, which must be the basis of everylegal rule as was observed in [L’Office Cherifien desPhosphates v. Yamashita-Shinnihon Steamship Co. Ltd., (1994)1 All ER 20 (HL)] Thus, legislations which modified accruedrights or which impose obligations or impose new duties orattach a new disability have to be treated as prospective unlessthe legislative intent is clearly to give the enactment aretrospective effect; unless the legislation is for purpose ofsupplying an obvious omission in a former legislation or toexplain a former legislation. We need not note the cornucopiaof case law available on the subject because aforesaid legalposition clearly emerges from the various decisions and thislegal position was conceded by the counsel for the parties.In any case, we shall refer to few judgments containing thisdicta, a little later.”

This proposition was again explained and applied in Union ofIndia v. Indusind Bank Ltd [35].

66. In view of the above discussion, it is held that agreements,such as the PPAs in the present case, entered into, voluntarily by the 35 (2016) 11 S.C.R. 700

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Aparties, before the Second Amendment, were not affected, by its terms.The findings to the contrary in the impugned order, are set aside.

Were the respondents coerced into entering into PPAs

67. The State Commission had concluded that the PPAs werealso unenforceable, to the extent of being in non-conformity with theBpre-amended Rule 5, of the REC Regulations, as the contracts wereentered into by parties with unequal bargaining power. This aspect wasnoted by APTEL, which held as follows:

“9.19 [..] The State Commission after careful considerationof the submissions made by both the parties and after dueCanalysis of the available material on record has recorded itsfindings in the impugned order that the conditions envisagedin the PPA relating to the tariff and other associated conditionsappeared to be one sided in favour of the Appellant andaccordingly concluded the case of coercion or duress andunequal bargaining power between the parties beingDresponsible for executing an Agreement full of unjustness andperversity. In view of these facts, we hold that the StateCommission has analysed this issue rightly in accordance withlaw and passed the order assigning cogent reasoning. Thus,we do not find any material case or ground for ourinterference in the matter.E10. SUMMARY OF OUR FINDINGS:

Having regard to the careful consideration and criticalanalysis of the facts and submissions of the learned counselfor the Appellants as well as the Respondents, we hold thatthe findings of the State Commission are just and right inFaccordance with law.”

68. In Transmission Corporation of Andhra Pradesh Ltd(supra), this court observed, in the context of a contention of coercion,as follows:

“42. [..] To frustrate a contract on the ground of duress orGcoercion, there have to be definite pleadings which have tobe substantiated normally by leading cogent and properevidence. However, in the case where summary procedure isadopted like the present one, at least some documentaryevidence or affidavit ought to have been filed raising thisHplea of duress specifically.[..]”

69. In Shanti Budhiya Vesta Patel & Ors. v. Nirmala JayprakashTiwari& Ors.[36] , this court held that to establish fraud or coercion, thereshould be”(a) an express allegation of coercion or fraud, and (b)all the material facts in support of such allegations must be laid outin full and with a high degree of precision. In other words, if coercionor fraud is alleged, it must be set out with full particulars.” Thecourt had cited and applied the principle enunciated in BishundeoNarain v. Seogeni Rai[37]where it was held that:

“ […] Now if there is one rule which is better establishedthan any other, it is that in cases of fraud, undue influenceand coercion, the parties pleading it must set forth fullparticulars and the case can only be decided on the particularsas laid. There can be no departure from them in evidence.General allegations are insufficient even to amount to anaverment of fraud of which any court ought to take notice,however strong the language in which they are couched maybe, and the same applies to undue influence and coercion.[See Order 6 Rule 4 of the Civil Procedure Code.]”

70. In New Indian Assurance Co. Ltd v Genus PowerInfrastructure Ltd[38 ]this court dealt with the standard of pleadings andevidence, needed in cases, where coercion or duress is alleged:

“8. It is therefore clear that a bald plea of fraud, coercion,duress or undue influence is not enough and the party whosets up a plea, must prime facie establish the same by placingmaterial before the Chief Justice/his designate.”

71. In the present case, this salutary rule was thrown to the wind,by the State Commission. In this court’s opinion, APTEL, in the mostcavalier fashion, virtually rubber stamped the State Commission’s findingson coercion, in regard to the entering into the PPA by the parties. Therewas no shred of evidence, nor any particularity of pleadings, beyond abare allegation of coercion, alleged against Gujarat Urja. It isincomprehensible how such an allegation could have been entertainedand incorporated as a finding, given that the respondents are establishedcompanies, who enter into negotiations and have the support of experts,including legal advisers, when contracts are finalized. The findings 36 (2010) 4 S.C.R. 958

37 (1951) 1 SCR 548

38 2014 (12) SCR 360

A

B

C

D

E

F

G

H

Aregarding coercion are, therefore, wholly untenable. This court is also ofthe opinion that the casual approach of APTEL, in not reasoning howsuch findings could be rendered, cannot be countenanced. As a judicialtribunal, dealing with contracts and bargains, which are entered into byparties with equal bargaining power, APTEL is not expected to casuallyrender findings of coercion, or fraud, without proper pleadings or proof,Bor without probing into evidence. The findings of coercion are therefore,set aside.

Conclusions

72. In view of the foregoing discussion, it is held that the concurrentCfindings and orders of the State Commission and APTEL cannot besustained. They are accordingly set aside. The appeals are allowed,with costs payable to the appellants.

D

Divya Pandey

(Assisted by : Shevali Monga, LCRA)

Appeals allowed.

E

F

G

H