Supreme Court restores GERC order in Gujarat Urja-Essar Power dispute

The Supreme Court has ruled in favour of Gujarat Urja Vikas Nigam Ltd (GUVNL), holding that the company is entitled to both compensation and reimbursement of fixed charges for the wrongful diversion of its allocated share of electricity by Essar Power Ltd (EPL) to its group company, Essar Steel Ltd (ESL).

 

A Bench of Justices Sanjay Kumar and Alok Aradhe set aside the Appellate Tribunal for Electricity’s (APTEL’s) March 2025 order and restored the Gujarat Electricity Regulatory Commission’s (GERC’s) 2009 decision, which had upheld GUVNL’s claim.

 

The dispute arises from a 1996 Power Purchase Agreement (PPA) between GUVNL’s predecessor, the Gujarat Electricity Board, and EPL. Under the agreement, EPL was to supply 300 MW of power to GUVNL from its 515 MW plant, while the remaining 215 MW was to go to ESL, maintaining a 58:42 supply ratio.

 

 

However, EPL was found to have diverted a greater share of power to ESL, reducing GUVNL’s allocation.

 

The Supreme Court had in 2016 already held that EPL must follow the proportionate sharing principle, compensate GUVNL for any diverted power based on the HTP-1 energy charge method, and reimburse fixed charges if GUVNL’s share was wrongly supplied to ESL.

 

When the case returned to GERC and APTEL for quantification, both denied GUVNL reimbursement of fixed charges and adopted an hourly computation method. GUVNL challenged these findings before the Supreme Court, leading to the present ruling.

 

In its latest judgment of September 25, authored by Justice Sanjay Kumar, the apex court reaffirmed that EPL was bound by the terms of the PPA to maintain the agreed ratio of supply and that any deviation amounted to a breach of contract.

 

The court observed that GUVNL, having paid fixed charges for capacity that was ultimately supplied to ESL, was entitled to reimbursement of those charges in addition to compensation for the shortfall.

 

“The finding of GERC and APTEL that GUVNL is not entitled to reimbursement of fixed charges is, therefore, unsustainable,” the Bench said.

 

“Once GUVNL did not receive the electricity for which such fixed charges had been computed and paid on a monthly basis, it was entitled to reimbursement thereof, not as compensation but on the principle of restitution, as such payment was not at all due from it.”

 

Restoring GERC’s February 18, 2009 order, the court faulted APTEL for misinterpreting the contract and overlooking the regulator’s reasoning. It clarified that “where a purchaser has paid fixed charges for capacity that was wrongfully diverted, principles of restitution demand that the amount be reimbursed.”

 

The judgment also clarified the distinction between compensation and reimbursement.

 

“The very connotation of ‘compensation’ implies payment to make good a loss suffered due to a breach. Reimbursement of fixed charges flowed from the provisions of the PPA itself and was not traceable only to the breach by EPL,” the court explained.

 

The Bench further questioned the computation method adopted by the lower tribunals. It noted that since EPL itself had earlier supported the half-hourly computation method for energy supply to avoid installing a circuit breaker, it could not now object to the same method being applied for quantifying diverted power.

 

“Having invited that methodology for supply of power so as to avoid installation of a circuit breaker, EPL cannot fight shy of the same methodology being adopted for computation of the excess power diverted to ESL,” the court said.

 

The matter has now been remanded to GERC for fresh computation of the total dues payable to GUVNL, in line with the legal principles clarified by the Supreme Court. 

Reacting to the judgment, Essar spokesperson said, “The Hon’ble Supreme Court’s order provides an interpretation of its earlier ruling, pursuant to which GERC will determine if any amount is payable. Based on our records and assessment, we are confident that no such amount will arise. The matter remains sub judice.”