Summary and Analysis The State of Himachal Pradesh & Anr. vs. JSW Hydro Energy Limited & Ors. (2025 INSC 857)

1. Heading of the Judgment

Civil Appeal No. 12883 of 2024
The State of Himachal Pradesh & Anr. (Appellants) vs. JSW Hydro Energy Limited & Ors. (Respondents)
Decided on: July 16, 2025
Judges: Pamidighantam Sri Narasimha and Joymalya Bagchi, JJ.
Core Issue: Whether contractual obligations to supply free power override electricity tariff regulations.

2. Relevant Laws & Sections

The judgment interprets:

• Electricity Act, 2003:
  Section 61: Tariff regulations guided by commercial principles, consumer interests, and cost recovery.
  Section 79: Functions of the Central Electricity Regulatory Commission (CERC).
  Section 178: CERC’s power to frame regulations.

• CERC (Terms and Conditions of Tariff) Regulations, 2019:
  Regulation 55, Note 3: Caps "Free Energy for Home State" (FEHS) at 13% or actual, whichever is less for tariff calculation.

• Contract Law:
  Validity of the Implementation Agreement (1999) requiring 18% free power to Himachal Pradesh.

3. Basic Case Details

Background

• 1993/1999: Himachal Pradesh (HP) allotted the Karcham Wangtoo Hydroelectric Project (1,045 MW) to JSW’s predecessor via an Implementation Agreement.

• Contractual Obligation: JSW agreed to supply 12% free power for the first 12 years (2011–2023) and 18% thereafter (2023–2051) as "royalty" for resource use.

• 2019: CERC Regulations capped FEHS at 13% for tariff calculations. JSW sought to limit its free power supply to 13%, arguing the regulations override the contract.

• High Court Ruling (2024): Directed HP to align the contract with CERC’s 13% cap. HP appealed to the Supreme Court.

Parties’ Arguments

• HP:
  The 18% obligation is contractual consideration, not regulated by CERC.
  CERC’s cap applies only to tariff computation, not actual supply.

• JSW:
  CERC regulations override "inconsistent" contracts under the PTC India Ltd. precedent.
  Supplying 18% free power reduces its Return on Equity (RoE), harming financial viability.

• CERC:
  Regulations govern tariff fixation only; actual free power supply is a contractual matter.

4. Judgment Explanation

Key Findings

1. CERC Regulations Do Not Prohibit >13% Free Power
   Regulation 55, Note 3 caps FEHS at 13% for tariff calculations only (e.g., billing beneficiaries).
   It does not restrict generating companies from supplying more free power under contracts.
   Example: If JSW supplies 18% free power, only 13% is factored into tariffs; the extra 5% cost is borne by JSW.

2. Implementation Agreement Remains Valid
   The 18% free power is legally enforceable as:
   Consideration for HP’s resources (land, water, permits).
   A binding contract unaffected by tariff regulations.
   Precedent: Contracts inconsistent with regulations are overridden only where regulations expressly apply (PTC India Ltd. distinguished).

3. High Court Erred in Entertaining Writ Petition
   Specialized Regulators (CERC/APTEL) must decide tariff-related disputes, not constitutional courts.
   JSW should have:
   Challenged the CERC’s 2022 tariff order before the Appellate Tribunal for Electricity (APTEL).
   Sought contractual remedies (arbitration) instead of a writ petition.
   Conduct of JSW: It took contradictory positions—first seeking CERC’s relaxation of the cap, then filing a writ petition.

4. State’s Status as "Deemed Licensee" Irrelevant
   Whether HP is a "deemed licensee" under the Electricity Act need not be decided, as the free power obligation arises from contract, not tariff regulation.

Final Ruling

• Allowed HP’s appeal; set aside High Court’s order.

• JSW must supply 18% free power per the Implementation Agreement.

• No costs awarded.

5. Simplified Takeaway

• For Companies: Tariff regulations limit cost recovery from beneficiaries, but contracts with states for higher free power remain valid.

• For Governments: Resource-use contracts (e.g., hydropower) can legally mandate free power beyond regulatory caps.

• Legal Strategy: Disputes involving technical regulations must first go to expert bodies (CERC/APTEL), not courts.

Impact: Ensures states receive contracted royalties for resources, balancing investor commitments and public interest.