Legal Review and Analysis of Tamil Nadu Generation and Distribution Corporation Ltd vs Ms Penna Electricity Limited 2025 INSC 1439

Case Synopsis

Tamil Nadu Generation and Distribution Corporation Ltd. vs. M/s Penna Electricity Limited, 2025 INSC 1439.

Supremacy of statutory tariff regulations over unapproved power purchase agreements; unit-specific Commercial Operation Date (COD) determines entitlement to fixed charges for firm power.

An unapproved PPA must conform to regulatory definitions, and continuous power supply from a synchronized unit qualifies as firm power, mandating payment of fixed charges irrespective of contractual stipulations.

1. Heading of the Judgment
Case Name: Tamil Nadu Generation and Distribution Corporation Ltd.  vs. M/s Penna Electricity Limited 
Citation: 2025 INSC 1439; Civil Appeal No. 5700 of 2014
Court: Supreme Court of India
Judges: Justice J.B. Pardiwala and Justice K.V. Viswanathan
Date of Judgment: 16th December 2025

2. Relevant Laws and Sections
The judgment primarily interprets and applies the following statutory framework:

• Electricity (Supply) Act, 1948 – Particularly Section 43A(2) regarding tariff determination.

• Government of India Notification dated 30.03.1992 – Issued under Section 43A(2) of the 1948 Act, prescribing norms for tariff, including the date of commercial operation as the date of synchronization.

• Electricity Act, 2003 – Key provisions:
  Section 61 – Principles for tariff regulations.
  Section 62 – Determination of tariff by the Appropriate Commission.
  Section 63 – Tariff determined through bidding process.
  Section 86(1)(b) – Functions of State Commission to regulate electricity purchase and procurement.

• Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 (CERC Regulations) – Definitions of Date of Commercial Operation (COD), Unit, Infirm Power, and tariff components.

• Tamil Nadu Electricity Regulatory Commission (TNERC) Regulations, 2005 – Similar to CERC Regulations, guiding tariff determination.

3. Basic Judgment Details

Facts of the Case

• The dispute arose from a Power Purchase Agreement (PPA) originally dated 29.04.1998 and amended on 25.08.2004 between the Tamil Nadu Electricity Board (predecessor of the appellant) and M/s DLF Power (predecessor of the respondent).

• The respondent set up a combined cycle power project with a gas turbine (open cycle) and a steam turbine (combined cycle).

• The gas turbine was synchronized with the grid on 29.10.2005 and supplied power continuously until 30.06.2006. The combined cycle (with steam turbine) became operational only on 01.07.2006.

• The appellant treated power supplied from 29.10.2005 to 30.06.2006 as "infirm power" and paid only variable charges (fuel cost), contending that the Commercial Operation Date (COD) for the entire project was 01.07.2006.

• The respondent claimed that the gas turbine's synchronization date (29.10.2005) was the COD for that unit, making the power "firm" and entitling them to fixed charges for the period.

• Both the TNERC and the Appellate Tribunal for Electricity (APTEL) ruled in favor of the respondent, directing payment of fixed charges. The appellant appealed to the Supreme Court.

Issues in the Judgment

1. Whether the power supplied by the respondent from 29.10.2005 to 30.06.2006 was "infirm power" or "firm power"?

2. Whether the COD under the PPA should be determined with reference to the entire project or each individual unit as per the regulations?

3. Whether an unapproved PPA (not cleared under Section 86(1)(b) of the Electricity Act, 2003) must be aligned with statutory regulations?

4. Whether the CERC and TNERC Regulations override contradictory clauses in the PPA?

5. Whether the correspondence between parties created an estoppel or waiver against the respondent’s claim for fixed charges?

Ratio Decidendi (Court’s Reasoning)

• The Supreme Court affirmed the findings of TNERC and APTEL, holding that:
  The amended PPA dated 25.08.2004 was effectively a new agreement executed after the Electricity Act, 2003 came into force. It was not approved by the State Commission under Section 86(1)(b), making it subject to regulatory oversight.
  Under the CERC Regulations, 2004 and TNERC Regulations, 2005, COD is defined per unit, not per project. The gas turbine unit achieved COD on its synchronization date (29.10.2005) after successful commissioning and continuous supply.
  The definition of "Infirm Power" in the regulations means electricity generated prior to commercial operation of a unit. Since the gas turbine unit was commercially operational from 29.10.2005, the power supplied was "firm", attracting fixed charges.
  Unapproved PPAs must be aligned with statutory regulations where conflicts exist. The PPA’s clause defining COD for the entire project (requiring 47.52 MW capacity) conflicted with the unit-based approach in the regulations and was thus overridden.
  The exchange of letters did not create estoppel or waiver, as the core issue was the legal determination of COD under regulations, not contractual consent.
  The continuous supply of 153 million units at 30 MW constituted firm power, and denying fixed charges would be unjust and contrary to Section 61(d) of the Electricity Act, 2003, which mandates reasonable cost recovery.

4. Core Principle of the Judgment

Title: Alignment of Power Purchase Agreements with Statutory Tariff Regulations

Sub-title: Judicial Supremacy of Regulatory Framework Over Unapproved Contracts

Main Issue Addressed
The Supreme Court examined whether a Power Purchase Agreement (PPA) that was not approved by the State Electricity Regulatory Commission could deviate from the tariff and operational definitions prescribed under the Electricity Act, 2003 and its subordinate regulations.

Body of Analysis:

• The Court emphasized that the Electricity Act, 2003 established a robust regulatory regime to ensure transparency, competition, and reasonable tariff determination.

• Section 86(1)(b) mandates State Commission approval for all PPAs. The amended PPA dated 25.08.2004, being unapproved, did not enjoy sanctity over the regulations.

• The CERC and TNERC Regulations provided clear definitions: COD is unit-specific, and infirm power is pre-COD supply. The gas turbine unit, having synchronized and supplied continuously, was commercially operational from 29.10.2005.

• The Court rejected the appellant’s reliance on contractual autonomy, citing precedents like Tata Power Company Limited vs. Reliance Energy Limited (2009) 16 SCC 689 and KKK Hydro Power Limited vs. Himachal Pradesh State Electricity Board Limited (2025 SCC Online SC 1847), which held that tariff and procurement are not purely contractual matters but subject to regulatory review.

• The judgment reinforces that regulations operate as subordinate legislation and can modify existing contracts, as held in PTC India Limited vs. Central Electricity Regulatory Commission (2010) 4 SCC 603.

• The principle of "firm power" entails an obligation to pay capacity (fixed) charges to ensure generators recover capital costs, promoting investment and stability in the power sector.

Conclusion
The Supreme Court upheld the regulatory approach, ensuring that statutory definitions and principles override conflicting clauses in unapproved PPAs. This safeguards the regulatory intent of the Electricity Act, 2003 and prevents distribution licensees from availing continuous power without compensating for fixed costs.

5. Final Outcome

• The appeal was dismissed.

• The TNERC and APTEL orders directing payment of fixed charges for the period 29.10.2005 to 30.06.2006 were upheld.

• The appellant was directed to pay the balance dues within 12 weeks.

• No costs were awarded.

6. MCQs Based on the Judgment

Question 1: According to the Supreme Court in Tamil Nadu Generation and Distribution Corporation Ltd. vs. M/s Penna Electricity Limited (2025 INSC 1439), what is the decisive factor for determining the Commercial Operation Date (COD) of a generating unit under the CERC Regulations, 2004?
A. The date specified in the Power Purchase Agreement.
B. The date of synchronization of the unit with the grid after successful commissioning.
C. The date when the entire project achieves the contracted capacity.
D. The date mutually agreed upon by the parties through correspondence.

Question 2: In the same judgment, why did the Supreme Court hold that the unapproved amended PPA dated 25.08.2004 must be aligned with the tariff regulations?
A. Because both parties consented to such alignment.
B. Because the regulations, as subordinate legislation, override conflicting clauses in unapproved contracts.
C. Because the State Commission explicitly ordered the alignment.
D. Because the PPA was void ab initio.