The Supreme Court ruled that CERC’s 13% tariff cap does not nullify Himachal Pradesh’s contractual right to 18% free power from JSW Hydro. Contractual obligations prevail over regulatory limits, the Court emphasized.
New Delhi: Today, on July 16, the Supreme Court of India has clarified that the tariff regulations issued by the Central Electricity Regulatory Commission (CERC) cannot override the terms of a contract between a state and a private power company when it comes to the supply of free electricity beyond the regulatory limit.
This judgment came in where the Court ruled in favour of the State and restored the terms of an agreement that required the company to provide 18% of the electricity generated free of cost.
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A Bench of Justices PS Narasimha and Joymalya Bagchi delivered the verdict while allowing an appeal filed by the State of Himachal Pradesh against a 2024 order passed by the Himachal Pradesh High Court.
The case began when JSW Hydro Energy Limited filed a writ petition before the High Court, requesting a modification of its Implementation Agreement with the State. The company wanted to reduce its free power supply obligation from 18% to 13%, citing the CERC’s 2019 tariff regulations.
However, the Supreme Court overturned the High Court’s decision and made it clear that the contract between the State and the company must be honoured as originally agreed.
The Bench firmly held:
“We hold that CERC Regulations, 2019 do not prohibit respondent no. 1 from supplying free power beyond 13% to the appellant-State, and the Implementation Agreement does not stand overridden by the operation of these Regulations.”
The dispute began because JSW Hydro argued that as per CERC’s latest tariff regulations, it should not be made to supply more than 13% of the power free of cost.
But under the Implementation Agreement signed earlier with the Himachal Pradesh government, the company had committed to supply 18% of the net power generated without any charge from 2023 until 2051.
The High Court had accepted JSW’s argument and directed that the agreement be brought in line with the CERC regulations.
However, the Supreme Court disagreed and said that the High Court had gone beyond its powers in entertaining the matter in the form of a writ petition. According to the Apex Court, this was an issue that fell within the exclusive domain of the CERC, which is the expert authority to decide on such matters.
The top court also pointed out that CERC had already passed an order in 2022 and refused to increase the tariff benefit for the free power beyond 13%. But importantly, CERC had not said anything about the validity of the underlying contractual agreement.
The Supreme Court said that the High Court should not have interfered in interpreting CERC’s regulations.
The Bench said:
“The High Court should not have entered into the domain of interpreting these Regulations which deal with tariff determination, as the same falls within the exclusive domain of the CERC.”
It further noted that,
“Judicial interference in regulatory interpretation must be minimal.”
The Court also addressed the argument raised by JSW that the free power obligation is a part of tariff determination.
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The Court firmly stated that this obligation is not a tariff matter, but rather a type of compensation for using public resources such as river water and land.
The Bench remarked:
“The free power supply is a part of the consideration….for undertaking its commercial activity of power generation.”
The Court further dismissed JSW’s argument that the State should be treated as a “deemed licensee” under the Electricity Act, 2003, and therefore fall within the regulatory powers of the CERC. The Apex Court ruled that this interpretation was incorrect and did not apply to the facts of the case.
Another crucial point in the Supreme Court’s ruling was the conduct of JSW Hydro. The company did not challenge the 2022 CERC order before the Appellate Tribunal for Electricity (APTEL).
Instead, it filed a writ petition before the High Court, which the Supreme Court found unacceptable.
The judgment observed:
“It cannot be allowed to approbate and reprobate, or blow hot and cold at the same time to secure relief under the law.”
In conclusion, the Supreme Court set aside the High Court’s direction to amend the Implementation Agreement and ruled that JSW Hydro Energy Limited is still bound by its contractual duty to supply 18% of the generated power to the State of Himachal Pradesh for free.
The Court strongly reiterated that matters involving regulations under the Electricity Act should first be addressed through expert regulatory authorities like the CERC and APTEL.
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The State of Himachal Pradesh was represented by Senior Advocates Kapil Sibal, Parag Tripathi, and Anup Rattan, along with Additional Advocate General Vaibhav Srivastava and Advocates Sugandha Anand, Bhargava Ravikumar, Puneet Rajta, and Mishika Bajpai.
JSW Hydro Energy was represented by Senior Advocates P Chidambaram and AM Singhvi, assisted by Advocates Mahesh Agarwal, Aman Anand, Shashwat Singh, Madhavi Agarwal, Chirag Nayak, Natasha Debroy, Sidharth Seem, and EC Agrawala.
Case Title:
State of Himachal Pradesh v. JSW Hydro Power
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