Bangalore Electricity Supply Company Ltd. vs. Hirehalli Solar Power Project LLP [August 27, 2024]
Bangalore Electricity Supply Company Ltd. vs. Hirehalli Solar Power Project LLP (2024)
Background:
This case involves a dispute between Bangalore Electricity Supply Company Ltd. (BESCOM), a power distribution company in Karnataka, and Hirehalli Solar Power Project LLP, a solar power developer. The core issue was about delays in commissioning a solar power project and whether such delays could be excused under the force majeure clause of their Power Purchase Agreement (PPA).
Facts:
Hirehalli Solar Power Project LLP entered into a PPA with BESCOM to develop and supply solar power at a fixed tariff rate.
The PPA included a Scheduled Commissioning Date (SCD) by which the solar project had to become operational.
However, the project was delayed beyond the SCD.
The reasons for delay included external factors beyond the developer’s control, such as:
Delays in obtaining government approvals for land use conversion.
Delays in securing necessary permissions for grid connectivity and power evacuation.
The project developer invoked the force majeure clause in the PPA, asking for an extension of the SCD without penalty.
BESCOM disputed this claim and reduced the tariff payable, arguing the delay was the developer’s responsibility.
Legal Issues:
Is the delay in commissioning the project covered under the force majeure clause?
What is the correct interpretation of force majeure in the context of PPAs?
What role does the appellate tribunal and the courts play in deciding disputes between power developers and distribution companies?
Proceedings and Decisions:
The Karnataka Electricity Regulatory Commission (KERC) initially rejected the developer's claim of force majeure, stating the delays were within the developer’s control. Consequently, it reduced the tariff from ₹8.40 per unit to ₹4.36 per unit.
The developer appealed to the Appellate Tribunal for Electricity (APTEL).
APTEL overturned KERC’s decision, holding that:
The delays were indeed caused by external government actions and regulatory delays, which qualified as force majeure.
The developer was entitled to an extension of the SCD.
The original tariff of ₹8.40 per unit should be restored.
BESCOM then appealed to the Supreme Court of India.
Supreme Court’s Ruling:
The Supreme Court upheld the decision of APTEL, emphasizing several key points:
Strict and Narrow Interpretation of Force Majeure:
Force majeure clauses are to be interpreted strictly and narrowly.
However, when delays are caused by events beyond the control of the developer (such as government or regulatory delays), these qualify as force majeure.
The developers must prove that the cause of delay was outside their control and was not due to their own negligence.
Recognition of External Regulatory Delays as Force Majeure:
Delays in land conversion, grid connectivity, or permissions caused by government authorities or agencies fall within force majeure.
Such external factors prevent timely commissioning despite the developer’s reasonable efforts.
Limited Scope of Judicial Interference:
The Supreme Court reiterated that its jurisdiction to interfere with decisions of specialized regulatory bodies and tribunals is limited to substantial questions of law.
The Court should not lightly interfere with the technical and factual determinations of sector-specific regulators and tribunals, who have the expertise to deal with such matters.
Restoration of Tariff and Compensation:
The original tariff rate fixed under the PPA must be honored.
BESCOM was directed to pay the difference between the reduced tariff and the original tariff, including any applicable late payment surcharges.
Implications of the Judgment:
The ruling clarifies that force majeure in renewable energy PPAs covers government and regulatory delays, not just natural disasters or unforeseen events.
It strengthens the protection for renewable energy developers by providing a clear framework to claim relief from penalties for delays caused by circumstances outside their control.
The decision reinforces the autonomy of electricity regulators and tribunals, emphasizing that courts should defer to their expertise unless there is a significant legal error.
It provides greater certainty and encourages investment in renewable energy projects by affirming that developers will not be unfairly penalized for uncontrollable delays.
This judgment serves as an important precedent in disputes involving PPAs and force majeure claims in the energy sector.
Summary:
In essence, the Supreme Court upheld that the delays in the Hirehalli Solar Power Project, caused by government-related issues, were a valid force majeure event under the PPA with BESCOM. Therefore, the project developers were entitled to an extension of the commissioning deadline and restoration of the original tariff rate. The ruling protects renewable energy developers from bearing the risk of uncontrollable regulatory and administrative delays and limits excessive judicial intervention in specialized regulatory matters.
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