Legal Review and Analysis of Gujarat Urja Vikas Nigam Limited vs Essar Power Limited and another 2025 INSC 1160
1. Heading of the Judgment
Gujarat Urja Vikas Nigam Limited vs. Essar Power Limited and another
Citation: Civil Appeal Nos. 6581-6582 of 2025, Supreme Court of India, decided on September 25, 2025.
(2025) INSC 1160 (Reportable)
2. Related Laws and Sections
The judgment primarily interprets and applies the following legal provisions and principles:
The Electricity Act, 2003:
Section 86(1)(f): Jurisdiction of the State Electricity Regulatory Commission to adjudicate upon disputes between generating companies and licensees.
Section 125: Provides for appeals to the Supreme Court from the orders of the Appellate Tribunal for Electricity (APTEL).Indian Contract Act, 1872:
Section 73: Provides for compensation for loss or damage caused by a breach of contract.Central Legal Principles:
Interpretation of Contracts: The judgment revolves around the true interpretation of a Power Purchase Agreement (PPA).
Doctrine of Restitution: The principle of restoring a benefit received for which no payment was due.
Binding Nature of Precedents: The importance of correctly understanding and applying the ratio of a prior judgment of the Supreme Court between the same parties.
3. Basic Judgment Details
Parties:
Appellant: Gujarat Urja Vikas Nigam Limited (GUVNL), the electricity distribution company ( successor to Gujarat Electricity Board - GEB).
Respondents:
Essar Power Limited (EPL), the power generating company.
Another respondent.Subject Matter: These appeals were filed by GUVNL under Section 125 of the Electricity Act, 2003, challenging the common judgment of the Appellate Tribunal for Electricity (APTEL). The APTEL's judgment had partly modified the order of the Gujarat Electricity Regulatory Commission (GERC) concerning the compensation payable by EPL for wrongfully diverting GUVNL's allocated share of power to its sister concern, Essar Steel Limited (ESL).
Courts/Tribunals Involved:
Adjudicatory Authority: Gujarat Electricity Regulatory Commission (GERC).
First Appellate Tribunal: Appellate Tribunal for Electricity (APTEL).
Final Appellate Court: Supreme Court of India.
4. Core Principle and Legal Analysis
This judgment represents the culmination of a two-decade-long dispute. The core issue involves the correct interpretation of the Supreme Court's prior judgment in the same case [(2016) 9 SCC 103] and its application to determine the final liabilities between the parties.
The Central Issue: Correct Application of the "Proportionate Principle" and Distinction Between 'Compensation' and 'Reimbursement'
The factual foundation dates back to a 1996 Power Purchase Agreement (PPA) between GEB (GUVNL's predecessor) and EPL. EPL's 515 MW plant was to supply 300 MW to GUVNL and 215 MW to Essar Steel Limited (ESL), establishing a 58:42 proportionate share. The dispute arose when EPL started supplying power to ESL beyond its 42% share, effectively diverting power from GUVNL's allocated 58% share.
The Supreme Court, in its 2016 judgment, had set aside the APTEL's order and restored the GERC's original 2009 order. The 2009 GERC order established two key principles:
EPL was obligated to operate on a "proportionate principle" for power allocation.
GUVNL was entitled to compensation for wrongfully diverted power, calculated as the HTP-1 Tariff Energy Charge (minus variable costs), a methodology derived from an earlier partial settlement between the parties.
In the subsequent rounds before GERC and APTEL (the orders impugned in this appeal), the forums held that GUVNL was only entitled to this "compensation" and was not entitled to a separate reimbursement of the fixed charges it had paid for the power it never received.
The Supreme Court's Analysis and Clarification
The Supreme Court allowed the appeals, modifying the orders of GERC and APTEL. The Court's reasoning provides a crucial clarification on the nature of claims arising from a breach of a PPA.
A. Clarifying the 2016 Precedent: Two Distinct Entitlements, Not One
The Supreme Court critically analyzed how the lower forums had interpreted its 2016 judgment. It held that GERC and APTEL committed a fundamental error by conflating two distinct concepts:
Compensation for Wrongful Diversion (HTP-1 Charge): This is the monetary remedy for the breach of contract. It is governed by the methodology approved in the GERC's 2009 order (para 9.13), which was based on the parties' past conduct. This compensates GUVNL for the loss of opportunity to use/sell the power.
Reimbursement of Proportionate Fixed Charges (Restitution): This is not a claim for damages but a claim for restitution. The Court emphasized that fixed charges under the PPA are paid to secure the right to a certain capacity. If GUVNL paid fixed charges for 58% of the capacity but EPL did not supply the corresponding power, then the fixed charges paid for the shortfall were never due. EPL cannot unjustly enrich itself by retaining these charges. This entitlement flows directly from the PPA's adjustment mechanism and the principle of restitution, independent of the breach.
The Court stated, "GUVNL was entitled to reimbursement of the fixed charges... not as compensation, but on the principle of restitution as such payment was not at all due from it." It further condemned the idea of EPL claiming "fixed charges twice over"—once from GUVNL for power not supplied and again from ESL for the extra power supplied.
B. Upholding the Half-Hourly Computation Method Based on Conduct
The second major issue was whether the diversion of power should be computed on an hourly basis (as per the original PPA) or a half-hourly basis (as was later practiced). The APTEL had reversed GERC's order, insisting on hourly computation because the PPA was never formally amended.
The Supreme Court rejected this technical view. It noted that EPL itself had requested the Central Electricity Authority (CEA) to recommend half-hourly metering, and all parties (GUVNL, EPL, ESL) had subsequently acted upon this recommendation for years. The Court held that EPL cannot "secure, at its own behest, such a modification, act upon it, and then argue that... it ought not to be adopted for computing the excess electricity." This underscores the principle that parties are bound by their consistent conduct, which can effectively modify contractual terms through implied agreement.
Conclusion on the Core Principle
The Supreme Court established that in cases of breach of a long-term PPA involving capacity allocation:
A clear distinction must be drawn between a claim for compensation for the breach and a claim for reimbursement of charges paid for services not rendered.
The principle of restitution applies to prevent unjust enrichment, and it operates as a distinct head of claim.
The conduct of the parties can establish a mutually agreed methodology for computation, even if it deviates from the original contract, and a party cannot resile from such a mutually adopted practice.
5. Final Outcome
The Supreme Court:
Allowed the appeals filed by GUVNL.
Set aside the impugned judgments of the APTEL and the order of the GERC to the extent they denied GUVNL's claim for reimbursement of proportionate fixed charges.
Held that GUVNL is entitled to:
Reimbursement of Fixed Charges: For the fixed charges paid on the quantum of power from its 58% share that was diverted to ESL, on the principle of restitution.
Compensation: Calculated on the HTP-1 Tariff Energy Charge basis (minus variable costs) for the wrongful diversion.
Half-Hourly Computation: The calculation of diverted energy is to be on a half-hourly basis, as practiced by the parties.Remanded the matter to GERC for a fresh computation of the amounts due to GUVNL in accordance with these findings.
6. MCQs Based on the Judgment
Question 1 In the case of Gujarat Urja Vikas Nigam Ltd. vs. Essar Power Ltd., what was the Supreme Court's primary reason for allowing GUVNL's claim for reimbursement of fixed charges, in addition to compensation?
A. The PPA explicitly provided for a penalty in case of diversion of power.
B. It was a punitive measure against EPL for breaching the contract.
C. The fixed charges were paid for power not supplied, and retaining them would amount to unjust enrichment.
D. The Electricity Act, 2003, mandates such reimbursement in all cases of breach.
Answer: C. The fixed charges were paid for power not supplied, and retaining them would amount to unjust enrichment.
Question 2 The Supreme Court upheld the use of the half-hourly computation method for calculating diverted power, despite the PPA specifying an hourly basis, because?
A. The Central Electricity Authority has the supreme authority to override PPAs.
B. The parties had mutually adopted and acted upon the half-hourly method in practice.
C. The hourly method was too complex to implement.
D. The GERC has the discretionary power to change the computation method.
Answer: B. The parties had mutually adopted and acted upon the half-hourly method in practice.