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Supreme Court directs Haryana Discoms to pay compound interest on carrying cost to Adani Power from the date of Change of Law

Supreme Court: In a big win for Adani Power Limited, the 3-judge bench of NV Ramana, CJI and Krishna Murari and Hima Kohli*, JJ has directed Haryana Discoms to pay interest on carrying cost in favour of Adani Power for the period between the year 2014, when the FGD was installed, till the year 2021.

On 07th August, 2008 the appellants i.e. Uttar and Dakshin Haryana Bijli Vitran Nigam (Haryana Discoms) entered into two Power Purchase Agreements with Adani Power for procurement of contracted capacity of 1424 MW from the generating units 7, 8 and 9 established at Mundra, Gujarat.  In the year 2010, on account of Environment Clearance dated 20th May, 2010, given by the Ministry of Environment and Forests, Union of India, a Change in Law event took place as Adani Power had to incur additional costs on installing Flue Gas Desulfurization unit.

On 12.08.2021, the Appellate Tribunal for Electricity, New Delhi had granted carrying cost interest on compounding basis in favour Adani Power from the date on which the Change in Law event took place i.e. 29th January, 2014, till the date of actual payment of the amount determined by the Central Commission. This order has been upheld by the Supreme Court in the present case.

Though the Uttar and Dakshin Haryana Bijli Vitran Nigam did not dispute the grant of interest to Adani Power by way of carrying cost from the date on which the Change of Law event took place till the actual payment of the amount determined by the Central Commission, they contended that the Appellate Tribunal has not just permitted carrying cost on simple interest basis, but has imposed interest on carrying cost or what is commonly known as interest on interest (compound interest) on carrying cost.

As Adani Power had to incur expenses to purchase the FGD and install it in view of the terms and conditions of the Environment Clearance given by the Ministry of Environment and Forests, Union of India, in the year 2010, the Court noticed that for this, it had to arrange finances by borrowing from banks. The interest rate framework followed by Scheduled Commercial banks and regulated by the Reserve Bank of India mandates that interest shall be charged on all advances at monthly rests. Hence, it was held that Adani Power is justified in stating that if the banks have charged it interest on monthly rest basis for giving loans to purchase the FGD, any restitution will be incomplete, if it is not fully compensated for the interest paid by it to the banks on compounding basis.

The Court was also not impressed with the submission made by the Haryana Discoms that since no fault is attributable to them for the delay caused in determination of the amount, they cannot be saddled with the liability to pay interest on carrying cost; nor it found any substance in the argument sought to be advanced that there is no provision in the PPAs for payment of compound interest from the date when the Change in Law event had occurred.

The Court observed that the entire concept of restitutionary principles engrained in Article 13 of the PPAs has to be read in the correct perspective. The said principle that governs compensating a party for the time value for money, is the very same principle that would be invoked and applied for grant of interest on carrying cost on account of a Change in Law event.

The Court observed that interest on carrying cost is nothing but time value for money and the only manner in which a party can be afforded the benefit of restitution every which way. Hence, the Appellate Tribunal was justified in allowing interest on carrying cost in favour of Adani Power for the period between the year 2014, when the FGD was installed, till the year 2021. It was further held that there was no justification for the Central Commission to have excluded the period between 2014 and 2018 and grant relief from the date of the passing of the order i.e., from 28th March, 2018 to 2021; nor is there any logic to such a segregation of time lines, particularly when Adani Power was prompt in raising a claim on the appellants and pursuing its legal remedies.

[Uttar Haryana Bijli Vitran Nigam Ltd v. Adani Power (Mundra) Ltd, 2022 SCC OnLine SC 1068, decided on 24.08.2022]


*Judgment by: Justice Hima Kohli

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