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M/s Adani Power (Mundra) Ltd. v. Gujarat Electricity Regulatory Commission and Ors.

Civil Appeal · 2019 INSC 711Decided 2 Jul 2019
Civil Appeal No. 11133 of 2011
Justice Arun Mishra · Justice B.R. Gavai · Justice Surya Kant

Background

Adani Power won a competitive bid to supply 1000 MW of electricity to Gujarat's power procurer (GUVNL) at Rs. 2.35/unit, on the stated basis that Gujarat Mineral Development Corporation (GMDC) would supply it indigenous coal from an allocated coal block; it later shifted the supply source to its Mundra plant. When GMDC failed to finalise the Fuel Supply Agreement despite years of correspondence involving the Gujarat Government, Adani Power issued a termination notice in December 2009 for non-fulfilment of a condition in the PPA, and deposited liquidated damages. The Gujarat Electricity Regulatory Commission and, on appeal, the Appellate Tribunal for Electricity both held the termination illegal and directed Adani Power to keep supplying power at the contracted rate, prompting this appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that Adani Power's bid documents themselves recorded that the project depended on GMDC's committed coal supply, so the Appellate Tribunal had erred in finding otherwise; once GMDC failed to execute the Fuel Supply Agreement, Adani Power was entitled under the PPA's own termination clause (Article 3.4.2, triggered by non-compliance with a condition in Article 3.1.2) to terminate the contract, and no separate mutual agreement between the parties was needed to invoke that right. The Court therefore declared the December 2009 termination notice legal and valid, with the PPA treated as having ended from January 2010, even though Adani Power had continued supplying power afterward under the regulators' orders. Recognising that Adani Power had incurred substantial costs completing and running the project after termination, the Court held it was entitled to a "compensatory tariff" reflecting those costs and interest, but rather than computing this itself, it allowed the appeal and directed Adani Power to approach the Central Electricity Regulatory Commission (CERC) to determine the actual compensatory tariff within three months, with the procurer to pay accordingly (adjusting earlier part-payments and its own liquidated-damages claim of Rs. 100 crore).

Lesson Learnt

A party to a long-term power supply contract can lawfully terminate it when a contractually anticipated condition (such as a committed fuel supply) genuinely fails through no fault of its own, and regulators cannot compel continued performance by effectively rewriting the contract's termination clause, though the specific financial consequences of such termination may still need to be worked out by the appropriate specialist regulator.

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

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