Sole Liability Falls on Lead Developer Under Connection Agreement; No Privity Exists With Co-Generators: Supreme Court Clarifies Contractual Obligations in Bay Cost Dispute

“Doctrine of Privity Must Prevail – A Party Cannot Be Made Liable Without Being a Signatory to the Contract”: - In a landmark decision Supreme Court of India ruled in favour of HP Power Transmission Corporation Ltd. (HPPTC Ltd.) in a contractual dispute involving shared transmission infrastructure. The Court overturned the Appellate Tribunal for Electricity’s (APTEL) judgment, restoring the decision of the Himachal Pradesh Electricity Regulatory Commission (State Commission) which had held M/s Brua Hydrowatt Pvt. Ltd. (BHP Ltd.) solely liable for the construction cost of a 66kV Bay at Urni.

“This Court cannot dilute the doctrine of privity merely because the performance of a contract benefits third parties,” observed a Bench comprising Justices Abhay S. Oka and Augustine George Masih, emphatically reiterating the importance of contract law fundamentals in infrastructure and energy sector agreements.

The case arose from a transmission infrastructure agreement between HPPTC Ltd. and BHP Ltd., who was developing the Brua Hydro Electric Project along with two other private generators: Darjeeling Power Pvt. Ltd. and Roura Non-Conventional Energy Pvt. Ltd..

Initially, the power evacuation was to occur via a 33kV line at Karcham but was later rerouted to a jointly-used 66kV Bay at Urni, constructed by HPPTC Ltd. A Connection Agreement (CA) was signed on 02.07.2021 exclusively between HPPTC Ltd. and BHP Ltd., designating the latter as the sole applicant.

Though the three generating companies had earlier entered into an Internal Tripartite Agreement (ITA) on 27.12.2019 for sharing Bay costs, HPPTC Ltd. was not a party to this agreement. When HPPTC Ltd. raised a demand of ₹3.42 crore towards Bay construction, BHP Ltd. sought to divide the cost, which HPPTC Ltd. rejected.

The State Commission, in its order dated 27.12.2022, upheld the demand against BHP Ltd., noting its lead role and exclusive contractual responsibility. On appeal, APTEL reversed the ruling on 17.03.2023, holding that costs should be shared. This prompted HPPTC Ltd. to approach the Supreme Court.

“Contractual Privity Is Not a Mere Technicality but the Foundation of Enforceable Obligations”

The Supreme Court examined the Connection Agreement (CA) dated 02.07.2021, particularly Clause 2, which details payment liabilities for construction, operation and maintenance of Bay infrastructure.

“The applicant shall pay charges to the STU on mutually agreed terms,” reads Clause 2.4, with “applicant” being BHP Ltd. alone.

The Court decisively held:

“These terms make it clear that the sole liability was that of BHP Ltd., not only in its individual capacity but also on behalf of Respondent No. 2 and Respondent No. 3.”

The Bench emphasized that the other generators—Darjeeling Power and Roura Energy—were not signatories to the CA and hence not contractually bound to HPPTC Ltd.

“HPPTC Cannot Enforce a Private Internal Arrangement It Was Not Party To”

BHP Ltd. argued that the Internal Tripartite Agreement (ITA) established shared responsibility among the three generators. The Supreme Court rejected this, stating:

“The HPPTC Ltd… cannot place reliance on the said ITA for its benefit without being a party therein… nor does it govern the payment of Bay charges.”

Reinforcing this, the Court invoked the Doctrine of Privity, citing Tweddle v. Atkinson (1861) and the Indian precedent in Essar Oil Ltd. v. Hindustan Shipyard Ltd. (2015):

“If the contentions of BHP Ltd. are accepted, HPPTC Ltd. would technically have no legal remedy to recover its dues or charges from Respondent No. 2 and 3, as they are not under any contractual obligation.”

“Lead Developer Must Bear Liability and Recover Internally”

The Court recognized the internal arrangement among the three generators but maintained it was irrelevant to HPPTC Ltd.’s rights:

“BHP Ltd. had taken up the responsibility to be the joint nominee… and thereafter recover the proportionate amount… from the other two generating companies.”

It concluded that:

“The right, if any, of claim and recovery… from Respondent No. 2 and 3 would be only with BHP Ltd. The HPPTC Ltd. has rightly put forth its claim to BHP Ltd.”

The Court restored the State Commission’s order dated 27.12.2022, holding BHP Ltd. solely responsible for:

• Construction cost of Bay: ₹3.42 crore

• Operation and Maintenance Charges

• Compliance with Connection Agreement obligations

The Supreme Court declared the APTEL judgment unsustainable, observing:

“The Impugned Judgment of the APTEL is based upon wrong assumptions and misreading of the terms of agreement ignoring the basic principle that a party not privy to the agreement cannot be made liable.”

The appeal by HPPTC Ltd. was allowed, and the APTEL’s ruling was set aside.

The Supreme Court’s decision affirms a vital tenet of contract law: “Only parties to a contract can enforce or be held accountable under it.” It sends a clear message to infrastructure and energy sector stakeholders to ensure precise and inclusive drafting of contracts, particularly when joint use or shared facilities are involved.

In a sector increasingly reliant on collaborative development, the ruling underscores the risks of informal or internal agreements without ensuring proper contractual safeguards with third parties.

Date of Decision: May 14, 2025