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Tamil Nadu Generation and Distribution Corporation Ltd. vs. M/s Penna Electricity Limited

Not available · 2025 INSC 1439Decided 16 Dec 2025
Not available
Justice J.B. Pardiwala · Justice K.V. Viswanathan

Background

A power generating company (respondent) supplied electricity to the Tamil Nadu state electricity distributor from its gas turbine (open cycle mode) starting 29.10.2005, before its combined cycle plant (with steam turbine) became fully operational on 01.07.2006. The distributor argued this early-period power was merely "infirm power" (entitling the generator only to variable/fuel-cost charges), while the generator argued it was continuously-supplied "firm power" entitling it to full fixed charges too. Both the state regulator (TNERC) and the Appellate Tribunal for Electricity ruled in favour of the generator.

Decision Breakdown

The Supreme Court examined the Power Purchase Agreement (PPA), the Electricity Act 2003, and Central/State tariff regulations, and found that the PPA's definition of "Commercial Operation Date" tied to the whole "Project" (both turbines) was in conflict with the regulations, which measure the Date of Commercial Operation separately for each generating "unit". Since the PPA was never approved by the regulator as required by law, it had to be read in alignment with the regulations rather than its own terms. Because the gas turbine had been synchronized to the grid and supplied continuous power from 29.10.2005 onward, that power was "firm power," and the generator was entitled to fixed charges for that period, not just variable charges. The Court rejected arguments based on waiver, estoppel, and the appellant's own settlement letters, and dismissed the appeal, affirming that the balance amount was payable to the generator.

Lesson Learnt

Contracts between power generators and distribution utilities cannot override the terms of the applicable statutory tariff regulations. Where a Power Purchase Agreement was never approved by the regulator and conflicts with the regulations, the regulations prevail, and courts will look at the substance (continuous, reliable power delivery) rather than a contractual label like "infirm power" to decide entitlement to payment.

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

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