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Supreme Court restrains Punjab Government from taking any coercive action against GVK Power

The Supreme Court today restrained the Punjab government  from taking any coercive action against GVK Power.

The three-judge bench of Chief Justice N.V. Ramana, Justices A.S. Bopanna and Hima Kohli heard a Petition filed by GVK Power (Goindwal Sahib) Ltd. by Advocate Pukhrambam Ramesh Kumar seeking directions to the Punjab Government (Respondent No.1 ) and Punjab State Power Corporation Ltd:-

(a) To quash the Default Notice dated 29.10.2021 issued by Punjab State Power Corporation Ltd. (Respondent No.2 ) at the behest of State of Punjab purporting to terminate the Amended and Restated power purchase agreement (PPA) dated 26.05.2009 executed with GVK, 

(b)  to comply with its obligations to procure power generated at Petitioner’s 540 MW Thermal Power Project located in Goindwal Sahib, Punjab in terms of the Amended and Restated PPA.  

It is submitted that the actions of Respondent No.1 and Respondent No.2 are violative of provisions of the Electricity Act, 2003, Constitution of India and settled principles of law laid down by the Supreme Court.

The petition stated that  the claim of frustration of contract is belied by the fact that after issuing the notice on 29.10.2021, Respondent No. 2 has again requested Petitioner (GVK Power (Goindwal Sahib) Ltd. ) to generate and supply power with effect from 08.12.2021. This conclusively establishes that the Amended and Restated PPA has not been frustrated, continues to be in effect and the parties are bound to perform their respective obligations thereunder.

It is submitted that the Impugned Notice and actions of Respondent No.2 are pursuant to and upon instructions and directions of Respondent No.1 in terms of the following:- 
(a) On 18.09.2021, the incumbent Chief Minister of Punjab, Captain Amrinder Singh resigned from the post of the Chief Minister. Thereafter, on 20.09.2021,  Charanjit Singh Channi was sworn in as the new Chief Minister of Punjab. 
(b) With an eye on the upcoming State Elections, Respondent No. 1 decided to terminate and cancel all power purchase agreements with Independent Power Producers (IPPs) such as Petitioner . 
(c) On 28.10.2021, Respondent No.1 took the decision to terminate the Amended and Restated PPA. Accordingly, Respondent No. 2 issued the Impugned Notice on 29.10.2021. The fact that this action was upon the direction and decision of Respondent No. 1 is evident from newspaper reports dated 29.10.2021 as well. 
(d) On 09.11.2021 the Punjab Vidhan Sabha passed the Punjab Renewable Energy Security, Reform, Termination and Redetermination of Power Tariff Bill, 2021 (Punjab RE Tariff Bill) and The Punjab Energy Security, Reform, Termination and Redetermination of Power Tariff Bill, 2021 (Punjab Energy Bill) pursuant to which identified power purchase agreements with private companies are sought to be terminated.

The Petitioner challenged the Impugned Notice on the following grounds: 

(a) The actions of Respondent Nos. 1 and 2 amount to malice in law, done with the sole aim and objective of furthering the agenda of the State Government in light of the upcoming elections. The actions are a classic example of regime revenge with Respondent Nos. 1 and 2 seeking to cancel PPAs including the Amended and Restated PPA which was entered into in 2009 and under which Petitioner No.1 has been supplying power since 2016. 

(b) The malice in law is evident from the fact that the purported event of frustration being cancellation of the captive coal block pursuant to Coal Judgment which occurred in 2014. Thereafter Respondent No. 2 had already given its consent to Petitioner No. 1 for procuring coal under Shakti Scheme. Moreover, Petitioner No. 1 has been supplying power since 2016 and Respondent No. 2 has been accepting the power and paying tariff without protest. 

(c) The allegation of commercial impracticability and high tariff is belied by the fact that tariff for the Project is determined by Ld. PSERC under Section 62 read with Section 86 of the Electricity Act. These tariff orders have been implemented by Respondent No.2. No appeal has been filed by Respondent No.2 challenging the tariff orders passed by Ld. PSERC. 

(d) When the Amended and Restated PPA itself provides for tariff determination and relief for change in law and force majeure events, claiming frustration on the ground of cancellation of the Captive Coal Mines which is a change in law and force majeure event is contrary to law. This is a deliberate and calculated attempt by Respondent No.1 and Respondent No.2 to accumulate political mileage and gains at the cost of the Petitioners. 

(e) The Impugned Notice and actions of Respondent No.1 and Respondent No.2 are manifestly arbitrary and discriminatory. The Impugned Notice has been issued for ulterior motives indicated above, without following due process and in complete and utter contravention of the provisions of the Electricity Act and the Amended and Restated PPA. 

(f) The decision to terminate the Amended and Restated PPA is premeditated and pre-judged as the decision to terminate the said PPA was that of the Respondent No. 1 in the Meeting dated 28.10.2021. 

(g) Premature termination of the Amended and Restated PPA amounts to deprivation / expropriation of the property of Petitioner  in contravention of the constitutional safeguards under Article 300A


(h) Issuance of the Impugned Notice is contrary to Petitioner’s right to carry on its business under Article 19(1)(g) of the Constitution. Article 19(1)(g) guarantees Petitioner No.1 right to carry on its profession in a fair, reasonable and equitable treatment especially with regard to a regulated sector. 

(i) Mere incidence of expense or delay or commercial onerousness in performance of the Contract is not valid ground to claim frustration. Therefore, merely because Respondent No.2 is of the view that tariff claimed by Petitioner  is excessive does not create a valid ground for termination of the PPA. 

(j) After citing frustration of the Amended and Restated PPA, from 08.12.2021 onwards, Respondent No. 2 has scheduled power from Petitioner . Therefore, by accepting performance in accordance with the, Respondent No. 2 has accepted by conduct that the PPA is not frustrated. 

(k) Termination of a Power Purchase Agreement solely on the ground of initiation or admission of insolvency proceedings against a corporate debtor is impermissible. 

(l) Respondent No.2 is not entitled to unilaterally terminate the Amended and Restated PPA which has been approved by the Ld. Punjab State Electricity Regulatory Commission under Section 62 read with Section 86 of the Electricity Act. Once approved, the PPA becomes a statutory contract and cannot be unilaterally altered/rejected by either party. 

(m) The tariff charged by Petitioner  is computed and approved by Ld. PSERC in accordance with Section 61 and 62 of the Electricity Act, the Amended and Restated PPA dated 26.05.2009 and the applicable Tariff Regulations notified by Ld. PSERC. Since the Orders of Ld. PSERC determining tariff have not been challenged by Respondent No.2, the same have attained finality qua Respondent No.2. Therefore, Respondent No.2 is precluded from contending that Petitioner ’s tariff is excessive having accepted Ld. PSERC’s finding.

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