The Supreme Court of India (“Supreme Court”) in its recent ruling in Chamundeshwari Electricity Supply Company Limited v. Saisudhir Energy (Chitradurga) Private Limited, (Civil Appeal No. 6888 of 2018, decided on 25 August 2025), delivered a judgement on the sanctity of commercial contracts, particularly power purchase agreements entered into pursuant to competitive bidding. The Supreme Court set aside concurrent findings of the Karnataka Electricity Regulatory Commission (“KERC”) and the Appellate Tribunal for Electricity (“APTEL”) and upheld the right of the distribution licensee to invoke and encash the performance bank guarantee (“PBG”) of the solar project developer. This decision clarifies the scope of regulatory jurisdiction and reinforces that contractual risk allocation cannot be overridden on equitable considerations.

Factual Background

The case concerns a dispute between Chamundeshwari Electricity Supply Company Limited (“CESC”), a distribution licensee wholly owned by the State of Karnataka, and Saisudhir Energy (Chitradurga) Private Limited, a private developer (“Developer”), arising out of a Power Purchase Agreement (“PPA”) executed in 2012 for procurement of power from a 10 MW solar project. The tariff under the agreement was fixed at ?8.49/kWh, with specific timelines for fulfilling conditions precedents (“CPs”) and achieving commercial operation date (“COD”). A supplementary PPA was executed in 2013 to align timelines with regulatory approvals.

The Developer’s ability to supply power depended on the completion of evacuation infrastructure (220 kV transmission lines), to be constructed by Karnataka Power Transmission Corporation Limited (“KPTCL”), another State entity. These works were delayed, making synchronisation and power supply technically impossible within the stipulated time. Owing to this, CESC encashed the PBG furnished by the Developer. The Developer approached the KERC, which treated the delay as a force majeure event and directed restoration of the encashed PBG, extension of contractual timelines, and renegotiation of tariff. On appeal, the APTEL upheld KERC’s findings. Thus, CESC challenged these orders before the Supreme Court.

CESC’s Arguments

CESC contended that the PPA was a self-contained commercial arrangement that clearly allocated risks and remedies. The Developer was required to fulfil CPs and achieve COD within fixed timelines. Article 4.4 of the PPA expressly authorised CESC to encash the performance bank guarantee if supply did not commence as per stipulated schedule or upon non fulfilment of the CPs, subject to contractual reliefs namely, extensions of timeline and notification of a force majeure event, available under the PPA.

CESC argued that the Developer neither invoked the relevant provisions of PPA dealing with extension in case of delays attributable to CESC nor issued a force majeure notice, both of which were preconditions for relief available to the Developer. In their absence, the invocation of the PBG by CESC was valid. CESC also submitted that the delay caused by KPTCL could not be treated as force majeure event, as the PPA contained specific provisions for such eventualities. Lastly, CESC argued that regulatory authorities had no jurisdiction to modify contractual terms or order restitution of amounts lawfully realised under the PPA.

Developer’s Arguments

The Developer argued that its performance under the PPA was inextricably dependent on the timely completion of KPTCL’s evacuation system, which was entirely outside its control. Without the transmission lines, synchronization and power supply were impossible. Hence, the delay should have automatically justified extension of time and prevented invocation of the PBG.

It was contended that the delay by KPTCL constituted a force majeure event, and the absence of a formal notice could not defeat a substantive defence when the facts, including KPTCL’s own admission of delay, were undisputed. The developer also highlighted CESC’s conduct that it entertained requests for extension, discussed tariff revisions, and acknowledged the dependency on KPTCL’s works. According to the Developer, this amounted to tacit acceptance that delays could not be attributed to the Developer alone.

Regarding the PBG, the Developer claimed that encashment of PBG was unlawful as it was done despite KERC’s interim restraint order. Further, it was argued that the encashment mechanism was intended for operational phase defaults and not for delays directly caused by another State agency.

Findings of the Court

The Supreme Court noted that while the project was dependent on KPTCL’s transmission lines, the PPA did not provide for automatic extensions. Relief could only be availed by invoking extension of timeline under Article 5.7 or sending a force majeure event notification under Article 14 of the PPA, neither of which the Developer pursued. It held that the contractual framework must be strictly followed, and equity could not override express terms.

The Supreme Court rejected the finding of force majeure, reasoning that Article 14.5 required a timely notice, as the phrasing of the Article, “the Affected Party shall give notice to the other Party of any event of Force Majeure…” made it a condition precedent, which was not issued. Moreover, delays in evacuation works did not fall within the defined scope of force majeure in the PPA. The proper course for the Developer was to seek extension under Article 5.7 (extension of timeline), which it failed to do.

On the encashment of the PBG, the Court held that since the Developer failed to achieve COD within time and did not secure contractual relief, CESC was entitled to invoke the PBG, as per the terms of the PPA. The invocation was carried out on 12 November 2014, prior to KERC’s interim restraint order dated 14 November 2014, and was therefore valid.

The Supreme Court further held that KERC and APTEL exceeded their jurisdiction by directing restoration of the PBG, extension of timelines, and tariff renegotiation, as these amounted to rewriting the contract. The PPA, being the outcome of a competitive bidding process and regulatory approval, had to be enforced strictly as per its terms. It relied on Venkataraman Krishnamurthy v. Lodha Crown Buildmart Private Limited, (2024) 4 SCC 239, wherein it was observed that the intention of the parties is truly reflected in the explicit terms of a contract, thereby every contract must be construed strictly as per the terms.

The Supreme Court allowed CESC’s appeal, set aside the orders of KERC and APTEL, and upheld the invocation of the PBG as lawful.

Analysis

The judgment underscores the principle that power purchase agreements, once concluded and approved, must be strictly interpreted in line with their express stipulations. Regulatory or adjudicatory bodies cannot alter contractual allocation of risks or grant relief outside the four corners of the agreement under the guise of equity or fairness. The Supreme Court reaffirmed its earlier rulings which recognize that the true intention of the parties is reflected in the terms of the contract they have entered. Accordingly, adjudicatory authorities must refrain from exceeding their jurisdiction when granting relief, and contracts are to be interpreted and enforced strictly in line with the terms mutually agreed upon by the parties.

Please find attached a copy of the Judgement, here.

This update has been contributed by Aayush Kumar (Partner) and Srishti Solanki (Associate).

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