APTEL BROADENS GRANT OF RELIEF IN CHANGE IN LAW EVENTS
Updated: Nov 10, 2022
[Shrestha Mathur is a graduate from National Law University, Jodhpur and is currently enrolled as an advocate with the Bar Council of India]
Recently, on 15.09.2022, the Appellate Tribunal for Electricity [“APTEL”] gave a judgment in the case of Parampujya Solar Energy Pvt. Ltd. v. Central Electricity Regulatory Commission (Appeal No. 256 of 2019) which broadened the grant of relief in case of events that qualify as change in law [“CIL”] as per Power Purchase Agreements [“PPAs”]. It was delivered in seven Appeals, each aggrieved by the various orders passed by the Central Electricity Regulatory Commission [“CERC”] mainly on account of declining the relief in the nature of carrying cost. For the sake of brevity, the author shall only lay down the facts of the main Appeal.
Parampujya Solar Energy Pvt. Ltd. [“Parampujya”], a company engaged in the business of setting up of solar power plants [“SPPs”] executed various PPAs with National Thermal Power Corporation Ltd. [“NTPC”] and Solar Energy Corporation of India [“SECI”].
The Parliament enacted the Central Goods and Services Tax Act, 2017 and the Integrated Goods and Services Tax Act, 2017. The States of Maharashtra, Karnataka and Telangana also brought in their own legislations in this regard. Parampujya issued CIL notices, as per their PPAs to NTPC and SECI with reference to these laws after they successfully commissioned their SPPs during the financial year 2017-18.
Parampujya and other Appellants filed petitions in 2018 seeking approval for CIL, claim for compensation and carrying cost being based on these new Goods and Services Taxes [“GST”] laws, invoking Article 12 of the PPAs. The said petitions were disposed of by the CERC, through an impugned order passed on 11.04.2019 acknowledging that the promulgation of GST laws constituted a CIL event and holding that the respective SPPs are facing additional burden which makes them entitled to compensation due to escalation in the cost of construction on account of levy of GST. However, the CERC also laid down that Parampujya is not entitled to carrying cost because the PPAs do not have a provision providing for restoration of the parties to same economic position or to compensation on account of consequential additional tax burden on Oppression & Mismanagement [“O&M”] expenses since outsourcing of the O&M services is not a mandate of the PPAs.
Reference to relevant PPA provisions
Article 12.1.1 of the PPAs defines “CIL” as the occurrence of any of the following events after the effective date resulting into any additional recurring/ non-recurring expenditure by the Solar Power Developer or any income to the Solar Power Developer.
Articles 12.2.1 and 12.2.2 discuss relief for CIL. It is stated that the aggrieved party shall be required to approach the CERC for seeking approval of CIL. The CERC shall provide relief in respect of the same and its decision shall be final and governing on both parties.
Contentions of the Parties
The counsels on behalf of Parampujya and other Appellants argued that the concept of CIL enshrined in the PPAs is based on the restitutionary principle whereunder they are entitled to restoration to the same economic position as if the CIL had not occurred. They further argued that once the imposition of the new tax regime has been declared as a CIL event, the consequential relief of carrying cost would also flow from the main relief of compensation for the purpose of time recognizing the time value of money.
The counsels on behalf of CERC and other Respondents contended that in the absence of such restitution clause, the claim for carrying cost arising out of CIL compensation plea is not admissible. Additionally, they put forth the argument that claim for compensation under the PPAs is contingent upon the decision in the first instance of the CERC on the admissibility and once such claim has crystallized upon approval of the claim of CIL, compensation from the date of such approval can be granted. In the present case, the CERC categorically denied the compensation on account of the expenses occurred due to the outsourcing of O&M expenses, despite the acknowledged of the new tax regime as CIL.
Judgement of the APTEL
The judgement of the APTEL has emphasized on the importance of restitution. The judgment stated that restitution is a principle of equity, which is generally invoked by the adjudicating authorities to render substantive justice. In the Adani case, the APTEL read the principle of restitution into the relevant provision of the PPA and held that the aggrieved party was entitled to carrying costs arising out of CIL. Interest is often a normal relief given in restitution. In Kavita Trehen v. Balsara Hygiene Products Ltd., it was held by the Supreme court that jurisdiction to make restitution is inherent in every court and can be exercised whenever justice of the case demands. The significance of time value of money has also been acknowledged by the judgment. The Supreme Court in the case of Indian Council of Enviro- Legal Action v. Union of India laid down that compensation must take into account inflation and the time value of money through calculation of compound interests.
The CERC, in its order excluded the expenditure arising on account of increase in tax liability attributable to O&M contracts from the relief granted on the basis that outsourcing of O&M activity was purely a commercial decision taken by the SPP Developers and it not being the requirement under the PPA. The APTEL disagreed with this view of the CERC and held that O&M expenses form part of the recurring expenditure within the meaning of CIL clause contained in Article 12. The judgment noted that the SPP Developers have availed of O&M services by outsourcing them as it is a standard industry practice. APTEL also laid down that since the burden of carrying cost is a consequence directly flowing from the CIL event, the relief cannot be complete unless it is granted.
APTEL directed the CERC to take up the claim cases of the SPP Developers for further proceedings and for passing orders consequent to the findings recorded, allowing CIL compensation (on account of GST laws and safeguard duty on imports) from the dates of enforcement of the new taxes for the entire period of its impact along with carrying cost.
This judgement acts as a boost to the renewable energy sector as it ensures more security to the SPP Developers and gives more way to compensation for possible losses incurred in their projects. The principle of restitution has also been taken note of and read into the PPA.
The acknowledgement of standard industry practice by the APTEL, while including outsourcing of O&M as part of recurring expenditure is a progressive view as tribunals are formed for such specialized purposes to recognize industry practices and provide reliefs accordingly.
Additionally, the APTEL does not override powers of the CERC and respects them in accordance with the Electricity Act, 2003. Section 79 of the Electricity Act, 2003 lays down that one of the functions of the CERC is to regulate the tariff of generating companies owned or controlled by the Central Government or those which have a composite scheme for generation. Additionally, Article 12.2.1 of the PPAs also recognize that SPP Developers must approach the CERC for grant of relief for a CIL event. In its judgment, APTEL directs the CERC to take up the claim cases again in view of its judgment and grant relief accordingly.