Regulatory Commissions Cannot Rewrite Contractual Terms: Supreme Court Restores Invocation of Bank Guarantee Under PPA in Solar Energy Dispute

“KERC and APTEL cannot, under the guise of equity, override the terms agreed by parties through competitive bidding”— Supreme Court of India emphatically held that State Electricity Regulatory Commissions and the Appellate Tribunal for Electricity have no jurisdiction to rewrite or modify binding contractual obligations between parties, especially in agreements concluded through competitive bidding.

A Bench of Justices Sanjay Kumar and Satish Chandra Sharma reversed the orders of both the Karnataka Electricity Regulatory Commission (KERC) and the Appellate Tribunal for Electricity (APTEL), which had restrained the State electricity distribution company—Chamundeshwari Electricity Supply Company Ltd. (CESC)—from invoking the performance bank guarantee furnished by the private solar developer for failing to commission a 10 MW power project within the stipulated period.

“Delay by Another Government Entity Does Not Excuse the Obligation to Perform Without Invoking Force Majeure”

The case revolved around a Power Purchase Agreement (PPA) dated 30 August 2012, executed between CESC and the respondent-developer, Saisudhir Energy, for supply of power from a 10 MW solar plant. The PPA required commissioning within 12 months and included specific conditions precedent and timelines for obtaining connectivity, land, and other approvals.

According to the developer, the delay in evacuation infrastructure—the 220 kV line to be constructed by KPTCL, another government entity—was the sole reason for its failure to commission the plant on time. This, it argued, constituted a force majeure event, and hence, CESC’s action of invoking the performance bank guarantee was illegal.

Rejecting this, the Supreme Court observed:

“Even if the delay in completion of the evacuation system was beyond the developer’s control, the appropriate provision for relief was Article 5.7. But crucially, no Force Majeure notice was issued as required under Article 14.5.”

The Court underlined that the contract mandated a written notice within 7 days of becoming aware of the force majeure event, which the developer failed to comply with:

“This requirement is not merely directory; it is a condition precedent.”

“Regulators Cannot Reallocate Risk Contrary to What the Parties Have Agreed in the PPA”

The Karnataka Electricity Regulatory Commission had, in 2015, directed CESC to refund the encashed bank guarantee and allow the developer to operate at the higher tariff originally agreed in the PPA (Rs. 8.49/unit), rather than the reduced rate applicable to delayed projects (Rs. 2.39/unit). The APTEL upheld this in 2018.

However, the Supreme Court held that such directions amounted to judicial rewriting of the contract, observing:

“To permit otherwise would be to allow the State Commission or the APTEL to override the parties' own allocation of risk under the contract.”

The judgment reaffirmed the principle that State Commissions and tribunals cannot exercise equitable jurisdiction to override express contractual terms:

“The directions of the State Commission, affirmed by the APTEL, requiring restoration of the performance security, extension of contractual timelines, and renegotiation of tariff, transgress the limits of that jurisdiction.”

The Court added that the PPA had been executed pursuant to a competitive bidding process and received regulatory approval, making it binding in both letter and spirit.

“The PPA Must Be Enforced As It Stands—Not As Regulators Wish It Had Been Drafted”

The Court firmly restored the commercial sanctity of the contract, clarifying that the obligation to achieve commissioning by the Scheduled Commissioning Date (SCD) was not contingent upon evacuation readiness unless parties had provided for such interdependence in the agreement.

“The PPA being the product of a competitive bidding process and having received regulatory approval, must be construed and enforced strictly in accordance with its express stipulations.”

On the issue of CESC’s invocation of the bank guarantee, the Court held:

“CESC was fully justified in invoking the performance security under Article 4.4 of the PPA. To deny such invocation would be to disregard the allocation of risk embodied in the PPA.”

The Court also clarified that the invocation took place prior to any restraining order, making it procedurally lawful.

“Judicial Interference in Contractual Enforcement Is Impermissible in Commercial Agreements Approved by Regulators”

Ultimately, the Court declared the orders passed by the KERC on 28 January 2015 and by APTEL on 21 March 2018 to be unsustainable in law and fact. Both were accordingly set aside.

The appeal was allowed, with the Supreme Court reinstating CESC’s contractual remedies as originally agreed under the PPA.

Date of Decision: 25 August 2025