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Mangalore Electricity Supply Company Ltd. v. M/s. AMR Power Pvt. Ltd. & Anr.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 1665 of 2015)Decided 15 Sept 2016
Civil Appeal No. 1665 of 2015
Justice Anil R. Dave · Justice L. Nageswara Rao

Background

Mangalore Electricity Supply Company (MESCOM), a power distribution licensee, had a 2006 Power Purchase Agreement with AMR Power, a mini-hydel renewable generator, to buy power at a fixed rate of Rs. 2.80 per unit for the first ten years. MESCOM repeatedly delayed payments and failed to open a required Letter of Credit, prompting AMR Power to issue a Default Notice and then a Termination Notice under the PPA's default-and-cure provisions. The Karnataka Electricity Regulatory Commission and, on appeal, the Appellate Tribunal for Electricity (APTEL) both upheld the termination as valid and recognized AMR Power's entitlement to sell its power elsewhere via "open access," leading MESCOM to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that MESCOM had admittedly delayed multiple monthly payments, failed to pay interest on those delayed payments, and never opened the Letter of Credit required under the PPA, all of which squarely constituted a continuing "event of default" under the agreement's Article 9.2.1/9.2.2, regardless of MESCOM's excuse about delayed grid inter-connection approval. It rejected MESCOM's argument that the generator's continued supply of power after the termination notice (made necessary by a regulatory status-quo order) amounted to condoning the default, and it upheld the APTEL's finding that inter-connection approval was not a precondition for timely tariff payment. Finding no error in the concurrent findings of the Commission and APTEL, the Supreme Court dismissed MESCOM's appeal and confirmed that the termination of the PPA and the generator's right to open access were valid.

Lesson Learnt

A power distribution company that repeatedly fails to pay on time and does not fulfil contractual financial safeguards like a Letter of Credit cannot later claim the resulting termination of its supply contract was improper, continuing to receive power under a regulator's interim status-quo order does not erase or excuse the underlying default.

Official source (sci.gov.in)View Judgment (PDF)

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