Doctrine of Strict Contractual Adherence in Renewable-Energy PPAs:
Supreme Court curtails Regulatory Re-writing of Contracts – Commentary on CHAMUNDESHWARI ELECTRICITY SUPPLY COMPANY LTD. v. SAISUDHIR ENERGY (2025 INSC 1034)

1. Introduction

The rapid expansion of renewable energy in India has produced a large body of Power Purchase Agreements (PPAs) whose performance is dependent upon multiple State agencies – distribution licensees, transmission utilities and regulators. CESC v. Saisudhir Energy is the first Supreme Court ruling squarely addressing whether, and to what extent, regulatory forums (State Electricity Regulatory Commissions and the Appellate Tribunal for Electricity, APTEL) may rewrite or modify duly executed PPAs when unforeseen grid-readiness delays occur.

The dispute arose from a 10 MW solar plant in Karnataka. The developer failed to achieve the Conditions Precedent (CPs) and Commercial Operation Date (COD) because the KPTCL 220 kV evacuation lines were delayed. The distribution licensee CESC encashed the performance bank guarantee (PBG) of ₹24.9 crore. Both the Karnataka Electricity Regulatory Commission (KERC) and APTEL treated the transmission delay as Force Majeure, ordered restoration of the PBG, granted time extensions and directed tariff renegotiation. The Supreme Court, however, reversed these findings, holding that:

2. Summary of the Judgment

• The Court allowed CESC’s appeal, setting aside the orders of KERC (2015) and APTEL (2018).
• It upheld CESC’s encashment of the PBG because:
  • Saisudhir failed to meet CP and COD timelines.
  • No extension was sought under Article 5.7 of the PPA.
  • No valid Force Majeure notice was issued under Article 14.5.
• The delay caused by KPTCL does not ipso facto constitute Force Majeure under the PPA.
• Regulatory bodies exceeded jurisdiction by:
  • Ordering refund of amounts lawfully realised under Article 4.4.
  • Directing renegotiation of tariff contrary to the bid-discovered rate.
• Therefore, the contractual allocation of risk stands; no equitable modification is permissible absent express contractual basis.

3. Detailed Analysis

3.1 Precedents Cited & Considered

1. Venkataraman Krishnamurthy & Anr. v. Lodha Crown Buildmart Pvt. Ltd., (2024) 4 SCC 230 – re-affirmed the rule that explicit contractual terms govern over equitable considerations. The Supreme Court imported this reasoning to emphasise that regulatory authorities cannot ‘rewrite’ PPAs.
2. Although not expressly cited, the Court’s approach aligns with earlier commercial-law cases:
   • Energy Watchdog v. CERC, (2017) 14 SCC 80 – limited regulatory alteration of contracts in the power sector.
   • PSU Oil Co. v. Pop­ular Construction line on sanctity of bank guarantees.
   The judgment synthesises these lines to emphasise pacta sunt servanda in renewable PPAs.

3.2 Court’s Legal Reasoning

1. Textual Primacy of the PPA – Articles 4, 5, and 14 lay down a complete code:
   • Article 5.7 allows extension only if requested and granted.
   • Article 14 treats Force Majeure as an opt-in defence, triggered by a written notice within 7 days.
   • Article 4.4 gives an automatic right to encash the PBG for delay absent contractual relief.
2. Mandatory Nature of Notice – The word “shall” in Article 14.5 renders notice a condition precedent. Without it, Force Majeure relief is unavailable.
3. No Automatic Extension for Inter-Agency Delays – Although KPTCL and CESC are both State entities, their distinct corporate personalities keep their contractual responsibilities separate. Delay by KPTCL does not translate into CESC’s contractual default.
4. Limits on Regulatory Jurisdiction – KERC/APTEL may adjudicate disputes but cannot:
   • Override risk allocation mutually agreed upon.
   • Grant restitution that contradicts explicit contractual remedies.
   • Impose tariff renegotiation post competitive-bidding.
5. Characterisation of the PPA – Court rejects the “contingent contract” argument: performance depended on an uncertain event, yet the parties knowingly addressed that risk through Articles 5.7 & 14. Hence, ordinary rules of contingent contracts under the Contract Act, 1872 were inapplicable.
6. Timing of Invocation vs. Regulatory Injunction – Encashment was effected prior to the interim order; thus, no contempt or illegality could arise.

3.3 Impact of the Judgment

• Regulatory Restraint: SERCS/APTEL must operate inside contractual boundaries when granting relief.
• Developer Risk Allocation: Renewable developers now bear clearer responsibility to:
  • Monitor transmission readiness.
  • Diligently seek extensions within contractual timelines.
  • Issue timely Force Majeure notices.
• PBG Encashment Litigation: Utilities can confidently invoke PBGs if contractual prerequisites are met; subsequent equitable pleas are unlikely to succeed.
• Bid Discipline: Competitive-bid tariffs gain enhanced sanctity; post-award tariff “renegotiations” owing to external delays are curtailed.
• Transmission Planning: Developers may now insist on clearer transmission milestones in bid documents or factor greater risk premiums into tariffs.

4. Complex Concepts Simplified

Performance Bank Guarantee (PBG)

A standby bank guarantee submitted by project developers as security for timely completion; encashable on default without court intervention.

Force Majeure

Contractual clause excusing parties from liability for extraordinary events beyond control (e.g., natural disasters). Relief typically requires prompt notice and evidence that the event prevented performance.

Conditions Precedent (CPs)

Checklist of approvals and milestones (land, finance, grid connectivity) to be achieved before project construction/operation proceeds.

Commercial Operation Date (COD)

The agreed last date for commencing supply of contracted capacity; critical for tariff applicability and penalties.

Distribution Licensee vs. Transmission Utility

Distribution Licensee (CESC): Purchases and supplies electricity to end-consumers.
Transmission Utility (KPTCL): Builds and operates high-voltage lines that evacuate power from generators to the grid.

5. Conclusion

The Supreme Court’s ruling in CESC v. Saisudhir Energy re-asserts the principle that the contractual bargain – not post-hoc equity – governs commercial relationships in the power sector. Force Majeure and extension clauses are self-executing only when their procedural batteries are complied with. Regulatory bodies remain important forums for dispute resolution, but their authority ends where the parties’ freely-negotiated text begins. For future renewable-energy projects, the judgment signals harder scrutiny of delay-based relief and reinforces the discipline of competitive-bid PPAs.