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Rithwik Energy Generation Pvt. Ltd. v. Bangalore Electricity Supply Co. Ltd. & Ors.

Civil Appeal · 2018 INSC 108Decided 6 Feb 2018
Civil Appeal Nos. 5084-5085 of 2015
Justice Rohinton Fali Nariman · Justice Navin Sinha

Background

A power generating company set up a mini hydro-electric plant in Karnataka and entered into a Power Purchase Agreement (PPA) with Bangalore Electricity Supply Co. Ltd. (BESCOM) in 2007. Years of litigation followed over whether BESCOM had committed payment defaults, whether a 2011 letter from the generator qualified as a valid "default notice" under the PPA, and whether the generator could validly terminate the PPA in 2012 on that basis. The State Commission and the Appellate Tribunal for Electricity both ruled against the generator, holding the 2011 letter was not a proper default notice and the subsequent termination was invalid.

Decision Breakdown

The Supreme Court dismissed the generator's appeals. It held that the generator was estopped from now arguing that an issue it itself had asked the Tribunal to decide (based on subsequent events) was merely "collateral" and not binding, since the generator invited that very finding and lost on merits, it could not disown it later. On the substantive point, the Court held that Clause 9.3.2 of the PPA required a default notice to both specify the default in detail and expressly call upon BESCOM to remedy it within 30 days; the 2011 letter listed defaults but never called on BESCOM to cure them within a time limit, so it did not substantially comply with the clause. The cited precedents on "substantial compliance" were distinguished as dealing with directory, non-essential requirements, unlike this twin mandatory requirement. The termination notice built on that defective default notice was therefore invalid, and the Appellate Tribunal's judgment was upheld.

Lesson Learnt

When a contract specifies a precise procedure for issuing a default or termination notice (detailing the breach AND giving a defined cure period), courts will enforce it strictly: a notice that only complains of a breach without formally calling on the other party to remedy it within the stipulated time will not count as valid, and any termination based on it can be struck down.

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

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