Summary and Analysis of Chamundeshwari Electricity Supply Company Ltd CESC vs Saisudhir Energy Chitradurga Pvt Ltd & Anr

1. Heading of the Judgment

The Supreme Court of India allowed the appeal filed by Chamundeshwari Electricity Supply Company Ltd. (CESC) and set aside the orders of the Appellate Tribunal for Electricity (APTEL) and the Karnataka Electricity Regulatory Commission (KERC). The Court held that the encashment of the performance bank guarantee by CESC was lawful under the Power Purchase Agreement (PPA) and that the regulatory commissions exceeded their jurisdiction by altering the contractual terms.

Citation: Chamundeshwari Electricity Supply Company Ltd. (CESC) vs. Saisudhir Energy (Chitradurga) Pvt. Ltd. & Anr., Civil Appeal No. 6888 of 2018, Supreme Court of India, decided on August 25, 2025.

2. Related Laws and Sections

• Electricity Act, 2003: Governs the functioning of electricity regulatory commissions, licensees, and generating companies.

• Indian Contract Act, 1872: Specifically, the concept of contingent contracts (Sections 31–36) and force majeure.

• Articles of the PPA:
  Article 4: Conditions Precedent (CPs) to be fulfilled by the developer.
  Article 4.4: Right of CESC to encash the performance bank guarantee in case of default.
  Article 5.7: Mechanism for extension of timelines due to delays attributable to CESC.
  Article 14.5: Procedure for invoking force majeure, including mandatory notice within 7 days.

3. Basic Judgment Details

• Parties:
  Appellant: Chamundeshwari Electricity Supply Company Ltd. (CESC), a distribution licensee.
  Respondent No. 1: Saisudhir Energy (Chitradurga) Pvt. Ltd., the solar power developer.
  Respondent No. 2: Karnataka Power Transmission Corporation Ltd. (KPTCL), the state transmission utility.

• Background: The developer was selected through competitive bidding to set up a 10 MW solar power project. A PPA was executed between CESC and the developer with a tariff of ₹8.49/kWh. The project could not be commissioned due to delays in the completion of evacuation infrastructure by KPTCL.

• Procedural History: The KERC and APTEL had ruled in favor of the developer, directing CESC to refund the encashed bank guarantee, extend timelines, and renegotiate the tariff. The Supreme Court reversed these decisions.

4. Explanation of the Judgment

a. Nature of the Agreement and Obligations

The PPA was a commercially negotiated contract through competitive bidding. The developer was obligated to achieve the Conditions Precedent (CPs) within 240 days and the Commercial Operation Date (COD) within 12 months. The developer failed to meet these deadlines due to delays in the evacuation infrastructure by KPTCL.

b. Encashment of Bank Guarantee

Article 4.4 of the PPA explicitly permitted CESC to encash the performance bank guarantee if the developer failed to commence supply by the scheduled COD. The Supreme Court held that since the developer did not seek an extension under Article 5.7 or issue a force majeure notice under Article 14.5, CESC was contractually entitled to encash the guarantee. The encashment occurred before any interim restraint order was passed, making it lawful.

c. Force Majeure and Notice Requirement

The Court emphasized that force majeure under Article 14.5 required a mandatory notice within 7 days of the event. The developer never issued such a notice. Therefore, the KERC and APTEL erred in characterizing the delay as a force majeure event. The correct recourse for the developer was to seek an extension under Article 5.7 for delays attributable to CESC or its instrumentalities (like KPTCL).

d. Contingent Contract Argument

The developer argued that the PPA was a contingent contract since the project was dependent on the completion of the evacuation system. The Court rejected this, stating that the PPA itself provided specific mechanisms (Articles 5.7 and 14) for dealing with delays. The developer’s failure to use these mechanisms meant that the contractual timelines remained binding.

e. Role of Regulatory Commissions

The Supreme Court held that regulatory commissions like KERC and APTEL do not have the power to rewrite contractual terms or grant relief outside the framework of the agreement. Their jurisdiction is limited to ensuring compliance with the law and the contract. Directing restitution of the bank guarantee, extending timelines, and ordering tariff renegotiation amounted to altering the risk allocation freely agreed upon by the parties.

f. State Instrumentality Argument

The fact that both CESC and KPTCL were state instrumentalities did not merge their identities. Each had distinct contractual and statutory obligations. The developer’s failure to comply with the PPA’s terms could not be excused on this ground.

5. Conclusion and Directions

The Supreme Court allowed the appeal and set aside the orders of the APTEL and KERC. It held that CESC’s encashment of the bank guarantee was valid under the PPA. The developer’s failure to seek contractual remedies precluded it from claiming relief. The regulatory bodies were not permitted to override the explicit terms of the commercially negotiated PPA.