M.P. Power Management Company Limited vs M/s Sky Power Southeast Solar India Private Limited & Others
Background
M.P. Power Management Company Limited (MPPMCL), a Madhya Pradesh government company responsible for bulk power procurement, had entered into a Power Purchase Agreement (PPA) in 2015 with Sky Power Southeast Solar India Pvt. Ltd. for a 50 MW solar power project. After delays in Sky Power completing certain "conditions subsequent" (regulatory approvals, land documents, financing proof, etc.), MPPMCL terminated the PPA in July 2018, alleging non-fulfilment of these conditions and later also alleging fraud over inverter serial numbers. Sky Power challenged the termination before the Madhya Pradesh High Court by way of a writ petition, and the High Court quashed the termination; MPPMCL's review petition against that order was also dismissed, leading to these appeals before the Supreme Court.
Decision Breakdown
The Supreme Court first held that a writ petition can lie against a State entity's action under a non-statutory commercial contract like this PPA where the action is shown to be arbitrary and violates Article 14 of the Constitution, rejecting MPPMCL's argument that Sky Power should have been relegated to a civil suit or arbitration. On the merits, the Court found that MPPMCL had terminated the PPA without first issuing a proper "default notice" under Article 9.1 of the PPA, which required giving the seller a chance (typically three months) to cure any default before termination: a mandatory contractual safeguard MPPMCL bypassed both in 2017 and again in the final 2018 termination. The Court also examined evidence including a CEIG (Chief Electrical Inspector) certification of near-completion, disputed inverter theft/FIR reports, and MPPMCL's own attempt to negotiate a lower tariff, concluding these did not show Sky Power was incapable of curing any genuine default. It upheld the High Court's quashing of the termination (though for partly different reasons) and dismissed the appeals, with parties left to bear their own costs, while directing a fresh CEIG inspection/re-validation process to be carried out.
Lesson Learnt
Even in ordinary commercial contracts, a government or State-owned entity cannot terminate an agreement in a manner that is arbitrary or that bypasses mandatory contractual procedures (like a default-and-cure notice). Courts can and will intervene under writ jurisdiction to correct such unfair State action, not just in matters of purely statutory or public-law character.