Court Upholds Decision on Late Payment Surcharge in Power Purchase Agreements

The court dismissed the appeal, upholding the decisions of MERC and APTEL. The Appellant is obligated to pay Late Payment Surcharge (LPS) as per the terms of the Power Purchase Agreements (PPAs), and the RBI notifications do not constitute a change in law affecting the PPAs. The court emphasized that contractual terms must be honored, and financial difficulties or changes in interest rate systems do not alter the obligations under the PPAs.

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Issues Involved:
1. Whether the change in interest rate system by the RBI from Prime Lending Rate (PLR) to Base Rate and then to MCLR amounts to Change in Law under the Power Purchase Agreements.
2. Whether the notifications dated 01.07.2010 and 03.03.2016 issued by the Reserve Bank of India are an event of change in law in terms of the Power Purchase Agreements.
3. Whether Late Payment Surcharge (LPS) can be determined on the basis of the Prime Lending Rate (PLR) methodology.
4. Whether LPS, which is compensatory in nature, can be awarded without any evidence of actual loss.
5. Whether LPS can be awarded in a manner that results in unjust enrichment of the Power Generators.
6. Whether the claim of the Appellant is time-barred.
7. Whether the Appellant can resile from its contractual commitment due to financial hardship caused by the COVID-19 pandemic.

Detailed Analysis:

1. Change in Interest Rate System as Change in Law:
The court determined that the change in interest rate system by the RBI from Prime Lending Rate (PLR) to Base Rate and then to MCLR does not amount to Change in Law under the Power Purchase Agreements (PPAs). The RBI notifications are instructions to banks and financial institutions and do not apply to the Appellant or Respondent-Power Generating Companies engaged in the business of electricity. The definition of SBAR in the PPAs is not linked to any RBI guidelines or circulars.

2. RBI Notifications as Change in Law:
The court held that the RBI notifications dated 01.07.2010 and 03.03.2016 do not constitute a change in law under the PPAs. The notifications are not laws relating to the PPAs and thus do not attract the provisions of Article 13 of the Stage 1 Agreements or Article 10 of the Stage 2 Agreements.

3. Determination of LPS Based on PLR Methodology:
The court found that LPS is to be calculated at the rate of 2% in excess of the SBI notified Prime Lending Rate (PLR) as per the PPAs. The definition of SBAR is clear and has been correctly applied by both the forums below. The Appellant's contention that the PLR has been replaced and should not be used was rejected.

4. LPS as Compensatory in Nature:
The court concluded that LPS is compensatory in nature and is payable only when there is a delay in payment of bills. The LPS rate does not have to correspond to the actual interest rate paid by the Power Generating Companies for funds raised by them. The agreed rate of LPS is a genuine pre-estimate of damages.

5. Unjust Enrichment of Power Generators:
The court rejected the argument that LPS results in unjust enrichment of the Power Generators. LPS is a penalty for delay and is intended to enforce timely payment of charges. The Power Generating Companies are not unjustly enriched as LPS is a part of the contractual obligations agreed upon by the parties.

6. Time-Barred Claims:
The court held that the Appellant's claim is time-barred. The Appellant issued notices of Change in Law more than six years after the RBI introduced the Base Rate system, which is beyond the reasonable time frame to claim such a change.

7. Financial Hardship Due to COVID-19:
The court found that the Appellant's financial hardship due to the COVID-19 pandemic does not justify resiling from its contractual commitments. The default in payment occurred before the pandemic, and the Appellant cannot use the pandemic as an excuse for non-performance of its contractual obligations.

Conclusion:
The court dismissed the appeal, upholding the decisions of MERC and APTEL. The Appellant is obligated to pay LPS as per the terms of the PPAs, and the RBI notifications do not constitute a change in law affecting the PPAs. The court emphasized that contractual terms must be honored, and financial difficulties or changes in interest rate systems do not alter the obligations under the PPAs.

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