# The State of Himachal Pradesh & Anr v. JSW Hydro Energy Limited & Ors

- **Citation:** 2025 INSC 857
- **Court:** Supreme Court of India
- **Decided:** 2025-07-16
- **Case number:** Civil Appeal No. 12883 of 2024
- **Bench:** Pamidighantam Sri Narasimha, Joymalya Bagchi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-state-of-himachal-pradesh-anr-v-jsw-hydro-energy-limited-ors-38449
- **Pages:** 40

## Headnote

The primary issues arising for consideration are: first, whether the
CERC Regulations, 2019 bar respondent no. 1 from supplying
free power to the appellant-State beyond 13%; and second,
whether respondent no. 1 could have invoked the High Court's
writ jurisdiction for aligning the Implementation Agreement with
the CERC Regulations, 2019.
Headnotes†
Electricity Act, 2003 - CERC (Terms and Conditions of
Tariff) Regulations, 2019 - Regulations 44 and 55 - Note 3
of Regulation 55 - Respondent no.1, a generating company,
installed and commissioned a hydroelectric power project
pursuant to a grant followed by an Implementation Agreement
with the appellant-State of Himachal Pradesh - Under
this agreement, respondent no. 1 undertook to supply as
consideration 18% of net generation free of cost (free power
supply of 12% of net generation for 12 years and 18% thereafter
for next 28 years) to the appellant-State - At the commencement
of the obligation to supply 18% free power, respondent no. 1
approached the High Court by way of a writ petition to align
the Implementation Agreement with the CERC (Terms and
Conditions of Tariff) Regulations, 2019, which provide for a
maximum of 13% free power to the State Government, on the
ground that contractual agreements, to the extent that they
are inconsistent with the applicable regulations, shall stand
overridden by their operation - The High Court directed for
modification of the Implementation Agreement - Correctness:
Held: 1. The purpose and intendment of Note 3 of Regulation 55
is for the State Commission to determine tariff by assuming that
* Author
[2025] 7 S.C.R.
1105
The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
FEHS is 13%, whenever it is higher in actuality, while calculating
the energy and capacity charges - Neither the language of Note
3 nor the context in which it appears in the CERC Regulations,
2019 supports respondent no. 1's contention that the legal effect of
this cap is to override its contractual obligations with the appellantState - On the other hand, use of the term "shall be taken as 13%
or actual, whichever is less" shows that the Regulations cover a
situation where the obligation to supply free power is higher than
13%, and in such an eventuality, allow only a certain portion of free
supply to be considered for tariff determination and payments by
beneficiaries for the saleable capacity - Once the Regulation does
not prohibit the supply of free power beyond 13%, respondent no. 1
cannot rely on it to wriggle out of its contractual obligations - The
Regulatory Commissions, APTEL, and the Courts must enforce
these contractual obligations and ensure that their interpretation
of regulations does not allow the party to circumvent and breach
its contractual undertakings when the same is not intended by the
regulation itself. [Paras 19, 20]
2. This Court holds that CERC Regulations, 2019 do not prohibit
respondent no. 1 from supplying free power beyond 13% to the
appellant-State, and the Implementation Agreement does not stand
overridden by the operation of these Regulations - Further, a writ
petition before the High Court for aligning the Implementation
Agreement with the CERC Regulations, 2019 and the CERC's order
dated 17.03.2022 is not maintainable - Once respondent no.1's
prayer for relief was rejected by the CERC and it specifically held
only the PPA and PSAs to stand overridden, which finding was
not further appealed, it would not be open for respondent no. 1
to seek modification of the Implementation Agreement by way of
a writ petition before the High Court. [Para 40]
Electricity Act, 2003 - Writ Jurisdiction of High Court -
Whether the writ petition before the High Court for aligning
the Implementation Agreement with the CERC Regulations,
2019 and the CERC's order dated 17.03.2022 is maintainable:
Held: Under the Electricity Act, the statutory regulator has been
entrusted with discharging the function of tariff determination,
including making re

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[2025] 7 S.C.R. 1104 : 2025 INSC 857
The State of Himachal Pradesh & Anr.
v.
JSW Hydro Energy Limited & Ors.
(Civil Appeal No. 12883 of 2024)
16 July 2025
[Pamidighantam Sri Narasimha* and
Joymalya Bagchi, JJ.]
Issue for Consideration
The primary issues arising for consideration are: first, whether the
CERC Regulations, 2019 bar respondent no. 1 from supplying
free power to the appellant-State beyond 13%; and second,
whether respondent no. 1 could have invoked the High Court's
writ jurisdiction for aligning the Implementation Agreement with
the CERC Regulations, 2019.
Headnotes†
Electricity Act, 2003 - CERC (Terms and Conditions of
Tariff) Regulations, 2019 - Regulations 44 and 55 - Note 3
of Regulation 55 - Respondent no.1, a generating company,
installed and commissioned a hydroelectric power project
pursuant to a grant followed by an Implementation Agreement
with the appellant-State of Himachal Pradesh - Under
this agreement, respondent no. 1 undertook to supply as
consideration 18% of net generation free of cost (free power
supply of 12% of net generation for 12 years and 18% thereafter
for next 28 years) to the appellant-State - At the commencement
of the obligation to supply 18% free power, respondent no. 1
approached the High Court by way of a writ petition to align
the Implementation Agreement with the CERC (Terms and
Conditions of Tariff) Regulations, 2019, which provide for a
maximum of 13% free power to the State Government, on the
ground that contractual agreements, to the extent that they
are inconsistent with the applicable regulations, shall stand
overridden by their operation - The High Court directed for
modification of the Implementation Agreement - Correctness:
Held: 1. The purpose and intendment of Note 3 of Regulation 55
is for the State Commission to determine tariff by assuming that
* Author
[2025] 7 S.C.R.
1105
The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
FEHS is 13%, whenever it is higher in actuality, while calculating
the energy and capacity charges - Neither the language of Note
3 nor the context in which it appears in the CERC Regulations,
2019 supports respondent no. 1's contention that the legal effect of
this cap is to override its contractual obligations with the appellantState - On the other hand, use of the term "shall be taken as 13%
or actual, whichever is less" shows that the Regulations cover a
situation where the obligation to supply free power is higher than
13%, and in such an eventuality, allow only a certain portion of free
supply to be considered for tariff determination and payments by
beneficiaries for the saleable capacity - Once the Regulation does
not prohibit the supply of free power beyond 13%, respondent no. 1
cannot rely on it to wriggle out of its contractual obligations - The
Regulatory Commissions, APTEL, and the Courts must enforce
these contractual obligations and ensure that their interpretation
of regulations does not allow the party to circumvent and breach
its contractual undertakings when the same is not intended by the
regulation itself. [Paras 19, 20]
2. This Court holds that CERC Regulations, 2019 do not prohibit
respondent no. 1 from supplying free power beyond 13% to the
appellant-State, and the Implementation Agreement does not stand
overridden by the operation of these Regulations - Further, a writ
petition before the High Court for aligning the Implementation
Agreement with the CERC Regulations, 2019 and the CERC's order
dated 17.03.2022 is not maintainable - Once respondent no.1's
prayer for relief was rejected by the CERC and it specifically held
only the PPA and PSAs to stand overridden, which finding was
not further appealed, it would not be open for respondent no. 1
to seek modification of the Implementation Agreement by way of
a writ petition before the High Court. [Para 40]
Electricity Act, 2003 - Writ Jurisdiction of High Court -
Whether the writ petition before the High Court for aligning
the Implementation Agreement with the CERC Regulations,
2019 and the CERC's order dated 17.03.2022 is maintainable:
Held: Under the Electricity Act, the statutory regulator has been
entrusted with discharging the function of tariff determination,
including making regulations for the purpose and interpreting
the same - Constitutional courts must enable the regulator to
comprehensively regulate all aspects of the sector such that
remedies are not fragmented and certain issues are not left
1106
[2025] 7 S.C.R.
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outside the regulator's domain - The regulator has the expertise,
specialisation, and institutional memory to conduct such an
interpretative exercise to further the objective of the regulatory
regime and systematically lay down legal principles - In this light, the
High Court should not have entered into the domain of interpreting
these Regulations which deal with tariff determination, as the same
falls within the exclusive domain of the CERC - The Electricity
Act itself provides the appellate mechanisms by establishing a
specialised and permanent tribunal, namely the APTEL, and an
appeal before this Court, against the CERC's orders - In view
of the existence of a statutory regulatory forum, the High Court
should not have entertained the writ petition by interpreting the
CERC Regulations, 2019 - Therefore, a writ petition before the
High Court for aligning the Implementation Agreement with the
CERC Regulations, 2019 and the CERC's order dated 17.03.2022
is not maintainable. [Paras 38, 40]
Electricity Act, 2003 - A complete and comprehensive code:
Held: The Electricity Act, 2003 is a complete and comprehensive
code for regulating the generation, transmission, distribution, trading
and use of electricity - One of the core features of the Act is that
it unbundles the functions of electricity generation, transmission,
and distribution that were erstwhile performed by State Electricity
Boards into separate utilities, and provides for their regulation
through independent Regulatory Commissions. [Para 7]
Electricity Act, 2003 - Electricity Regulatory Commissions Act,
1998 - Need for an independent and transparent regulatory
mechanism:
Held: The need for an independent and transparent regulatory
mechanism was felt due to the regulatory failures under the erstwhile
legal regime, wherein SEBs constituted by the State Governments
were entrusted with regulation - It was experienced that various
problems plagued the power sector, including lack of rational retail
tariffs, high level of cross-subsidies, poor planning and operation,
inadequate capacity, neglect of consumer interest, and limited
involvement of the private sector's skills and resources - It is in this
context that the Electricity Regulatory Commissions Act, 1998 was
enacted to reform the governance of the sector by establishing an
independent and transparent regulatory mechanism - Thereafter,
the Electricity Act, 2003 was enacted as a comprehensive legislation
[2025] 7 S.C.R.
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The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
for regulating the sector and it replaced the Electricity Act, 1910,
Electricity Supply Act, 1948 and the 1998 Act [Para 8]
Electricity Act, 2003 - Regulation of Electricity Generation
Under the Electricity Act - Discussed. [Paras 11 to 14]
Electricity Act, 2003 - CERC Regulations, 2019 - Interpretation
of - Discussed. [Para 15]
Case Law Cited
PTC India Ltd. v. Central Electricity Regulatory Commission [2010]
3 SCR 609 : (2010) 4 SCC 603; Transmission Corporation of A.P.
Ltd. v. Rain Calcining Ltd. [2019] 17 SCR 474 : (2021) 13 SCC
674; Ganga Retreat and Towers Ltd. v. State of Rajasthan [2003]
Supp. 6 SCR 1134 : (2003) 12 SCC 91; K.C. Ninan v. Kerala State
Electricity Board [2023] 9 SCR 637 : (2023) 14 SCC 431; W.B.
Electricity Regulatory Commission v. CESC Ltd. (2002) 8 SCC
715; Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission
[2014] 13 SCR 426 : (2014) 8 SCC 444; Dilip v. Satish, 2022 SCC
OnLine SC 810; Chameli Singh v. State of U.P. [1995] Supp. 6 SCR
827 : (1996) 2 SCC 549; Tata Power Co. Ltd. v. Reliance Energy
Ltd. [2009] 9 SCR 625 : (2009) 16 SCC 659; Indsil Hydro Power
& Manganese Ltd. v. State of Kerala [2021] 13 SCR 136 : (2021)
10 SCC 165; Reliance Infrastructure Ltd. v. State of Maharashtra
[2019] 1 SCR 886 : (2019) 3 SCC 352; Cellular Operators Assn. of
India v. Union of India [2002] Supp. 5 SCR 222 : (2003) 3 SCC 186;
U.P. Power Corpn. Ltd. v. NTPC Ltd. [2009] 3 SCR 1060 : (2009) 6
SCC 235; BSES Ltd. v. Tata Power Co. Ltd. [2003] Supp. 4 SCR
932 : (2004) 1 SCC 195; Maharashtra State Electricity Distribution
Co. Ltd. v. Adani Power Maharashtra Ltd. [2023] 7 SCR 648 :
(2023) 7 SCC 401; Jaipur Vidyut Vitran Nigam Ltd. v. MB Power
(M.P.) Ltd. [2024] 1 SCR 909 : (2024) 8 SCC 513 - referred to.
Books and Periodicals Cited
H.W.R. Wade and C.F. Forsyth, Administrative Law (11th edn,
Oxford University Press 2014), 116-117 - referred to.
List of Acts
Electricity Act, 2003; Electricity Regulatory Commissions Act,
1998; Electricity Act, 1910; Electricity (Supply) Act, 1948; CERC
Regulations, 2019; CERC (Terms and Conditions of Tariff)
Regulations, 2014.
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Supreme Court Reports
List of Keywords
Contractual obligation; Statutory regulator; Implementation
Agreement; Consideration; Free energy for home State; Writ
Jurisdiction of High Court; Aligning the Implementation Agreement;
Supplying free power beyond 13%; Interpreting cap under Note 3
of Regulation 55; Calculation and fixation of tariff; CERC as
statutory regulator.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 12883 of 2024
From the Judgment and Order dated 28.05.2024 of the High Court
of Himachal Pradesh at Shimla in CWP No. 7667 of 2023
Appearances for Parties
Advs. for the Appellants:
Vaibhav Srivastava, A.A.G., Kapil Sibal, Parag Tripathi, Anup
Rattan, Sr. Advs., Ms. Sugandha Anand, Bhargava Ravikumar,
Puneet Rajta, Ms. Mishika Bajpai.
Advs. for the Respondents:
P. Chidambaram, Dr. A.M. Singhvi, Gurminder Singh, Nikhil Nayyar,
Sr. Advs., Mahesh Agarawal, Aman Anand, Shashwat Singh, Ms.
Madhavi Agarwal, Chirag Nayak, Ms. Natasha Debroy, Shidharth
Seem, E. C. Agrawala, Anand K Ganesan, Amal Nair, Shivani
Verma, Nitin Saluja, Ms. Preetika Dwivedi, Abhisek Mohanty, Nikunj
Dayal, Jatinder Singh Gill, T. V. S. Raghavendra Sreyas, Siddharth
Vasudev, Brahma Prakash Soni, Kshitij Maheshwari.
Judgment / Order of the Supreme Court
Judgment
Pamidighantam Sri Narasimha, J.
Table of Contents*
I.
Introduction ............................................................................
2
II.
Facts .......................................................................................
4
* Ed. Note: Pagination as per the original Judgment.
[2025] 7 S.C.R.
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The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
III.
Impugned Order .....................................................................
14
IV.
Submissions ...........................................................................
16
V.
Issue .......................................................................................
29
VI.
Analysis ..................................................................................
29
VII.
Regulation of Electricity Generation Under the Electricity Act ...
33
VIII. Legal Effect of Note 3 of Regulation ......................................
36
i)
Interpretation of the CERC Regulations, 2019 ................
36
ii) CERC's Order dated 17.03.2022 .....................................
41
IX.
Maintainability of the Writ Petition ..........................................
44
i)
CERC as an Expert and Specialised Regulator, and Extent
of Judicial Interference .....................................................
44
ii) Grant of Relief by the High Court ...................................
50
X.
Conclusion ..............................................................................
53
I.
Introduction:
1.
Respondent no. 1, a generating company, installed and commissioned
a 1045MW hydroelectric power project pursuant to a grant followed
by an Implementation Agreement with the appellant-State of Himachal
Pradesh. Under this Agreement, respondent no. 1 undertook to
supply as consideration 18% of net generation free of cost1 to the
appellant-State. At the commencement of the obligation to supply
18% free power, respondent no. 1 approached the High Court by
way of a writ petition to align the Implementation Agreement with the
CERC (Terms and Conditions of Tariff) Regulations, 20192, which
provide for a maximum of 13% free power to the State Government,
on the ground that contractual agreements, to the extent that they are
inconsistent with the applicable regulations, shall stand overridden by
their operation. Accepting the argument, the High Court entertained
1
The obligation to supply free power is 12% of net generation from 12.09.2011 to 12.09.2023, and 18%
thereafter till 12.09.2051.
2
Hereinafter "CERC Regulations, 2019".
1110
[2025] 7 S.C.R.
Supreme Court Reports
the writ petition and directed that the Implementation Agreement
stood modified.
2.
We have allowed the appeal by the State of Himachal Pradesh by
interpreting the provisions of the Electricity Act, 20033 and the CERC
Regulations, 2019 in the context of the subsisting and continuing
contractual relationship between the parties. We have held that
the Central Electricity Regulatory Commission4 shall give effect to
the Regulations and provide a pass-through to the extent of 13%
free power but the remaining part of the obligation is contractual in
nature and will be governed by the provisions of the Implementation
Agreement. On interpreting the cap under Note 3 of Regulation 55 of
the CERC Regulations, 2019, we have held that it does not restrain
or prohibit respondent no. 1 from supplying free power beyond 13%
but it is only meant for the calculation and fixation of tariff. Further,
considering the expertise and specialisation of the CERC as a
statutory regulator and the wide-ranging jurisdiction it exercises
under the Electricity Act, as well as respondent no. 1's conduct in
not seeking relief against the appellant before the CERC, we have
held that the present writ petition was not maintainable before the
High Court as the interpretation of the Regulations falls within the
exclusive domain of the regulator.
II.
Facts:
3.
The facts, to the extent necessary are as follows. By a Memorandum
of Understanding5 dated 28.08.1993, the appellant-State allotted the
Karcham Wangtoo Hydroelectric Project for an installed capacity of
900 MW to one Jaiprakash Industries Limited6, which is a power
generating company and the predecessor of respondent no. 1.
Under Clause 6 of the MoU, JIL agreed to supply 12% of the power
generated to the appellant-State free of cost.
3.1 Pursuant to the MoU, the appellant entered into an Implementation
Agreement with JIL for an enhanced capacity of 1000 MW. The
relevant clauses of the Implementation Agreement are as follows:
3
Hereinafter "Electricity Act".
4
Hereinafter "CERC".
5
Hereinafter "MoU".
6
Hereinafter "JIL".
[2025] 7 S.C.R.
1111
The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
i.
Article 1.2 is the definitions clause that defines "Law" as
any Act, rule, regulation, notification, order, or instruction
having the force of Law enacted or issued by any competent
legislature, government, or statutory authority in India.
ii.
Further, the Effective Date of the Agreement is defined
as the date of signing, and the Scheduled Commercial
Operation Date7 is defined as 120 months from the
Effective Date.
iii.
Article 3.2 stipulates that the Implementation Agreement
shall remain in force for a period of 40 years from the
Commercial Operation Date8 of the Project (Agreement
Period), unless terminated earlier as per its provisions.
It reads:
"3.2 Agreement Period
a) This Agreement shall remain in force up to a
period of forty (40) years from the Commercial
Operation Date of the Project (Agreement
Period), unless terminated earlier in accordance
with the provisions of the Agreement."
iv.
Article 4 delineates the obligations of the appellant-State
under the Agreement, which include the grant of various
consents and permissions to JIL to establish, operate,
and maintain the Project; to acquire land and prepare a
rehabilitation and resettlement plan for local residents;
to enter into leases for government land required for the
works; to upgrade roads and bridges for the Project; and to
provide necessary assistance to JIL as per the Agreement.
v.
Article 5 deals with the obligations of JIL, of which the
most relevant is the supply of power to the appellant-State
without any cost or charges under Article 5.1. Sub-clause
(a) stipulates the quantum of such supply as 12% of the
net generation for the first 12 years from the COD, and
18% of the net generation for the next 28 years. Further,
7
Hereinafter "SCOD".
8
Hereinafter "COD".
1112
[2025] 7 S.C.R.
Supreme Court Reports
sub-clause (b) stipulates that JIL shall ensure that any
Power Purchase Agreement9 entered into by it shall not be
detrimental to the rights of the appellant-State envisaged
in this clause. It reads:
"5.1 Government Supply
(a) The Company shall supply to the Government
or its Agent, during the Agreement Period, at
the Interconnection Point without any cost or
charges to the Government, the quantum of
electrical energy generated as specified below
(Government Supply):
i) Commencing from the date
of synchronisation of the first
Unit and for the first twelve
(12) years from Commercial
Operation Date (COD)
Twelve (12)
percent of Net
Generation
ii) For the next twenty eight (28)
years after expiry of the period
specified in (i) above.
Eighteen (18)
percent of Net
Generation
This quantum of Government Supply is
applicable in case the Project achieves
Commercial operation on Scheduled Commercial
Operation Date. In the event of early or delayed
commissioning of the Project, the same shall
be as per provision specified in Clause 5.19
and 5.20 respectively.
In case the Government levies any duty/tax
on generation and supply of power, the same
shall be borne by the Government in respect
of Government Supply. Further modalities for
providing the Government Supply shall be
mutually agreed between the Company and
the Board.
9
Hereinafter "PPA".
[2025] 7 S.C.R.
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The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
(b) The Company shall ensure that any Power
Purchase Agreement entered into by it shall not
be detrimental to the rights of the Government
envisaged in this Clause."
vi.
Article 9 provides that the rights and obligations under
or pursuant to the Agreement shall be governed by and
construed according to Law.
vii. Article 10 provides for dispute resolution through mutual
discussions, and in case of failure of the same, arbitration.
3.2 By an addendum to the Implementation Agreement dated
24.05.2001, the time-period for commencing construction was
extended from 36 to 48 months from the Effective Date, but
the COD was unamended.
3.3 Subsequently, by a tripartite agreement dated 30.12.2002
between the appellant, JIL, and one Jaypee Karcham Hydro
Corporation Limited10 that was incorporated by JIL as per
Clause 8 of the MoU, the rights and liabilities of the Project
were transferred from JIL to JKHCL.
3.4 JKHCL entered into a PPA dated 21.03.2006 with respondent
no. 4, i.e., PTC India Limited, which is an inter-state trading
licensee, for sale of 704 MW of power. PTC then entered into
Power Sale Agreements11 with respondent nos. 5 to 10, which are
distribution companies in the States of Punjab, Haryana, Uttar
Pradesh and Rajasthan, to sell the power which it purchased
from JKHCL. In the PPA as well as the PSAs, "free power" is
defined in the same manner as Article 5.1 of the Implementation
Agreement.
3.5 The appellant and JKHCL entered into a Second Supplementary
Implementation Agreement on 20.12.2007 to extend the SCOD
to 144 months from the Effective Date, i.e. 18.11.2011.
3.6 The Project achieved commercial operation on 12.09.2011,
i.e., within the extended SCOD. It is relevant to note that
this is the date from which JKHCL's obligation to supply free
10
Hereinafter "JKHCL".
11
Hereinafter "PSAs".
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[2025] 7 S.C.R.
Supreme Court Reports
power to the appellant-State commenced as per Article 5.1
of the Implementation Agreement. For the first 12 years from
12.09.2011, the quantum of free power to be supplied is 12%,
and 18% thereafter for the next 28 years.
3.7
By a tripartite agreement dated 29.08.2015, the rights and
liabilities in the Project were transferred from JKHCL to
Himachal Baspa Power Company Limited12, which is the
predecessor of respondent no. 1, with effect from 01.09.2015.
As per clause 3 of this agreement, HBPCL agreed to be bound
by and liable for the contractual undertakings as specified
in the Implementation Agreement, Addendum, tripartite
agreement dated 30.12.2002, and the Second Supplementary
Implementation Agreement.
3.8
In 2018, HBPCL changed its name to JSW Hydro Energy
Limited, which is the present respondent no. 1 company.
The parties signed the Third Supplementary Implementation
Agreement dated 21.10.2019 for effecting the change in name
while also agreeing that the other contractual undertakings
would remain unamended.
3.9
During this time, the CERC (Terms and Conditions of Tariff)
Regulations, 2014 governed the field with respect to tariff
determination of generating stations, including the specific
provision with respect to free power supply under Note 3 of
Regulation 42. This provided that "FEHS = Free energy for
home State, in percent and shall be taken as 13% or actual
whichever is less." Respondent no. 1 sought for relaxation of
this cap in its tariff petition for the 2014-2019 period. This was
decided by the CERC's order dated 30.03.2017, wherein it
did not consider this issue as the free power supply obligation
during this period was only 12%, which is below the 13%
cap prescribed in the CERC Regulations, 2014. However,
respondent no. 1 was given liberty to claim this relief at an
appropriate time.
3.10 In 2019, the CERC framed the CERC Regulations, 2019
determining tariffs for generating stations and transmission
12
Hereinafter "HBPCL".
[2025] 7 S.C.R.
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The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
units from 01.04.2019 to 31.03.2024. At this stage, it is
relevant to refer to Note 3 of Regulation 55 that provides that
free energy to home State (FEHS) shall be taken as 13% or
actual, whichever is lesser. Further, Regulation 44 deals with
the computation and payment of capacity and energy charges
for generating station, and Regulation 55(2) provides for billing
and payments. The relevant portions of these provisions are
extracted hereinbelow:
Regulation 44:
"44. Computation and Payment of Capacity Charge
and Energy Charge for Hydro Generating Stations:
(1) The fixed cost of a hydro generating station shall be
computed on annual basis, based on norms specified
under these regulations, and shall be recovered on
monthly basis under capacity charge (inclusive of
incentive) and energy charge, which shall be payable
by the beneficiaries in proportion to their respective
allocation in the saleable capacity of the generating
station, i.e., in the capacity excluding the free power
to the home State:...
***
(4) The energy charge shall be payable by every
beneficiary for the total energy scheduled to be
supplied to the beneficiary, excluding free energy,
if any, during the calendar month, on ex-bus basis,
at the computed energy charge rate. Total energy
charge payable to the generating company for a
month shall be:
Energy Charges = (Energy charge rate in Rs. / kWh) x
{Scheduled energy (ex-bus) for the month in kWh} x
(100 - FEHS) / 100
(5) Energy charge rate (ECR) in Rupees per kWh on
ex-power plant basis, for a hydro generating station,
shall be determined up to three decimal places based
on the following formula, subject to the provisions of
clause (7) of this Regulation:
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[2025] 7 S.C.R.
Supreme Court Reports
ECR = AFC X 0.5 x 10 / {DE x (100 - AUX) x (100 -
FEHS)}
Where,
DE = Annual design energy specified for the hydro
generating station, in MWh, subject to the provision
in clause (6) below.
FEHS = Free energy for home State, in per cent, as
mentioned in Note 3 under Regulation 55 of these
regulations..."
Regulation 55:
"55. Billing and Payment of charges:
***
(2) ... Payment of capacity charge and energy charge
for a hydro generating station shall be shared by the
beneficiaries of the generating station in proportion
to their shares (inclusive of any allocation out of
the unallocated capacity) in the saleable capacity
(to be determined after deducting the capacity
corresponding to free energy to home State as per
Note 3 herein.
***
Note 3 FEHS= Free energy for home State, in percent
and shall be taken as 13% or actual whichever is
less..."
3.11 In 2019, respondent no. 1 filed a petition before the CERC for
approval of its tariff between 2019-2024, as well as truing up
the tariff for 2014-2019 period. In the tariff petition, respondent
no. 1 inter alia prayed for relaxation of the 13% cap on free
power under Note 3 of Regulation 55 of the 2019 Regulations,
since its free power obligation under the Implementation
Agreement is 18% of net generation after the completion of
12 years from COD.
3.12 This was decided by the CERC's order dated 17.03.2022
wherein it rejected the prayer for relaxation of the 13% cap on
free power supply. The CERC held that it was bound by the
[2025] 7 S.C.R.
1117
The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
CERC Regulations, 2019 while determining the tariff and that
the regulations will override inconsistent contractual provisions
in the PPA and PSAs executed by respondent no. 1 in respect
of free power to the appellant-State. We will be dealing with
the findings of the CERC in more detail in our analysis.
3.13 In the meanwhile, the Central Electricity Authority approved an
increase in the Project capacity from 1000MW to 1091MW in
two stages by a letter dated 29.04.2021. Pursuant to this, the
capacity of the Project was enhanced to 1045 MW by the Fourth
Supplementary Implementation Agreement dated 08.07.2021.
It was further agreed that respondent no. 1 would be required
to supply an additional 3% free power to the appellant-State
on the enhanced 45MW capacity.
3.14 In 2022, the present dispute arose between the parties as
respondent no. 1 issued various letters to the appellant that
Note 3 of Regulation 55 of the CERC Regulations, 2019 caps
the free power supplied to the State at 13%. Further, that
the CERC's order dated 17.03.2022 requires inconsistent
contractual provisions to be aligned with the Regulations.
Relying on these, respondent no. 1 requested the appellant
to align the Implementation Agreement with the CERC
Regulations, 2019 and the order dated 17.03.2022 such that its
free power supply obligation is confined to 13%. On the other
hand, the appellant-State replied that the quantum of free power
must be determined as per the Implementation Agreement
and the Supplementary Implementation Agreements, which
comes to 18.46% commencing from 13.09.2023. The appellant
also issued a notice to respondent no. 1 dated 13.09.2023 to
adhere to the contractual terms, failing which consequential
action would be initiated against it. It also issued a notice dated
16.09.2023 to the Northern Regional Load Dispatch Centre to
schedule 18.46% free power to the appellant.
3.15 This led respondent no. 1 to file the present writ petition before
the High Court to direct the appellant to align the provisions
of the Implementation Agreement and Supplementary
Implementation Agreements on free power with the CERC
Regulations, 2019 and the CERC's order dated 17.03.2022,
as well as to quash the notices issued by the appellant.
1118
[2025] 7 S.C.R.
Supreme Court Reports
III.
Impugned Order:
4.
By the order 28.05.2024, which is impugned before us, the High
Court allowed the writ petition and directed the appellant to align
the Implementation Agreement and Supplementary Implementation
Agreements in respect of the quantum of free power with the
provisions of the CERC Regulations, 2019 till they remain in force.
Further, it directed that if respondent no. 1 supplied any free power
above the maximum ceiling limit under the Regulations, the same
shall be adjusted. For arriving at this conclusion, the High Court
adopted the following reasoning:
4.1 First, it held that the writ petition is maintainable inspite of the
arbitration clause in Article 10.1 of the Implementation Agreement
as the issues of whether the CERC Regulations, 2019 will
override the Implementation Agreement and whether the
contractual provisions need to be aligned pertain to enforcement
of statutory regulations. Hence, the arbitration clause does not
stand in the way of invoking writ jurisdiction.
4.2 The High Court then took note of various provisions of the
Electricity Act, the CERC Regulations, 2019, and the CERC's
order dated 17.03.2022 and rejected the appellant's argument
that these do not affect the obligations under the Implementation
Agreement and held that the CERC's order has a direct bearing
on the supply of free power by respondent no. 1 to the appellant.
Noting that the appellant-State was a party before the CERC
and did not contest respondent no. 1's prayer for relaxing the
cap on free power, the Court held that such cap is not only to
determine the tariff but is relevant for every other incidental
and connected purpose.
4.3 While the CERC in its order dated 17.03.2022 held that
inconsistent provisions in the PPA and PSAs stand overridden
by the Regulations, the High Court observed that these
provisions are the same as in the Implementation Agreement
and Supplementary Implementation Agreements. In a composite
scheme for generation and sale of electricity, it held that there
cannot be any mismatch in respect of the quantum of supply
of free electricity. Hence, the corollary of the CERC's order that
the PPA and PSAs stand overridden is that the Implementation
Agreement becomes unworkable and must be aligned with the
CERC Regulations, 2019.
[2025] 7 S.C.R.
1119
The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
4.4 Further, since the appellant-State accepted the CERC's order,
respondent no. 1 was within its right to seek alignment of the
Implementation Agreement with the CERC Regulations, 2019
and the CERC's order.
4.5 The High Court also relied on this Court's decision in PTC India
Ltd. v. Central Electricity Regulatory Commission13 where it
was held that statutory regulations under the Electricity Act will
override existing contracts between regulated entities. On this
basis, the High Court concluded that the CERC Regulations,
2019 will have supremacy over contractual undertakings and
the provisions of the Implementation Agreement must be aligned
accordingly.
IV.
Submissions:
5.
We have heard Mr. Kapil Sibal and Mr. Parag Tripathi, learned
senior counsel for the appellant, and Mr. P. Chidambaram and
Dr. A.M. Singhvi, learned senior counsel for respondent nos. 1
and 2. We also heard Mr. Nikhil Nayyar, learned senior counsel for
respondent no. 11 (CERC), Ms. Preetika Dwivedi, learned counsel
for respondent nos. 7-9 (distribution companies operating in the State
of Rajasthan), and Mr. Gurminder Singh, learned senior counsel for
respondent no. 10 (distribution company operating in the State of
Punjab). Their submissions can be recapitulated as follows:
5.1 Mr. Tripathi and Mr. Sibal appearing for the appellant-State
have broadly submitted that the quantum of free power to be
supplied under the Implementation Agreement is not regulated
or curtailed by the CERC Regulations, 2019 or the CERC's
order dated 17.03.2022. While taking us through the sequence
of events, the following submissions have been made:
i.
Regulation 2 provides the scope and extent of application
of the CERC Regulations, 2019, which is to determine the
tariff for generating and transmission companies.
ii.
The purport of Note 3 of Regulation 55, which stipulates
the 13% cap on free power, is for calculating the bill
amount that the generating company can recover from
13
(2010) 4 SCC 603.
1120
[2025] 7 S.C.R.
Supreme Court Reports
beneficiaries. It does not prohibit respondent no. 1 from
supplying free power beyond this cap. The effect of the
cap is that the CERC Regulations, 2019 provide a passthrough to the extent of 13% free power while determining
the tariff. Any further supply of free power must be borne
by the generating companies from their resources.
iii.
Further, that the Regulations govern agreements between
the generation and distribution companies but do not
extend to the Implementation Agreement, which was
executed even prior to the commencement of generation.
In the written submissions, it is further submitted that
the Implementation Agreement is a contract for natural
resources, and not a tariff agreement. It hence falls outside
the ambit of the CERC Regulations, 2019.
iv.
In this vein, the learned senior counsel have also
referred us to the relevant portions of the CERC's order
dated 17.03.2022 wherein respondent no. 1 prayed for
relaxation of the 13% cap while calculating tariff in view
of its contractual obligations under the Implementation
Agreement. This was rejected by the CERC and it held
that the PPA and PSAs executed by respondent no. 1
are overridden by the Regulations. The learned senior
counsel submit that respondent no. 1 did not appeal this
order before the Appellate Tribunal for Electricity14 and
instead filed a writ petition in 2023 seeking amendment
of the Implementation Agreement.
v.
Coming to the impugned order of the High Court, they
submit that the High Court has proceeded on the basis
that the appellant-State is a regulated entity under the
Electricity Act, and thereby relied on PTC (supra) where this
Court held that contracts between regulated entities stand
overridden by statutory regulations under the Electricity
Act. They submitted that this is incorrect as the State
Government is not a deemed licensee under the third
proviso of Section 14 as it is not engaging in transmission,
distribution, or trading of electricity.
14
Hereinafter "APTEL".
[2025] 7 S.C.R.
1121
The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
vi.
They also submitted that contractual terms could not have
been amended in exercise of writ jurisdiction, and the only
remedy available to respondent no. 1 was to challenge
the validity of the Regulation itself, which it had not
done. Regarding the exercise of writ jurisdiction to align
the contractual terms with the Regulations, it is further
contended in the written submissions that the High Court
has rewritten the Implementation Agreement by relying on
the PPA and PSAs being overridden as per the CERC's
order dated 17.03.2022. However, the High Court ignored
that these agreements are not on the same footing and
Article 5.1(b) of the Implementation Agreement provides
that it shall not be affected by the PPA.
vii. In the written submissions, the appellant submitted that
the quantum of free power was arrived after a series of
negotiations with JIL, which was awarded the Project
through the MoU route rather than through competitive
bidding. In order to avoid competitive bidding, JIL agreed
to supply 18% free power during a certain portion of the
Agreement period.
viii. The learned senior counsel further submitted that despite
a similar cap on free power in the Hydroelectric Policy,
1998 @ 12%, respondent no. 1 knowingly agreed to
supply 18% free power in the Implementation Agreement
that was executed in 1999. Further, this obligation has
been reiterated in all the Supplementary Agreements.
Moreover, the Fourth Supplementary Implementation
Agreement was executed in 2021 for additional free
power on the enhanced capacity, which was executed
after the CERC Regulations, 2019 came into force.
Hence, once respondent no. 1 consented to supplying
free power @ 18% despite a similar cap existing all
through, the same cannot be avoided by filing a writ
petition.
5.2 Mr. Chidambaram, learned senior counsel for respondent
no. 1 submitted that the Implementation Agreement, which
was negotiated prior to the CERC Regulations, 2019 stands
overridden by the Regulations.
1122
[2025] 7 S.C.R.
Supreme Court Reports
i.
Referring to Article 9 of the Implementation Agreement,
he submitted that the rights and obligations under the
Agreement are subject to "Law", which has been widely
defined as including regulations. The regulations in this
case are framed under the Electricity Act, which was
enacted in 2003, after the Implementation Agreement
was executed. Prior to this, there was no law restricting
the quantum of free power at the time of execution of the
Implementation Agreement.
ii.
The State Government is a regulated entity under the
Electricity Act as it is a deemed licensee as per the
third proviso of Section 14. He referred us to certain
portions of the writ petition before the High Court, where
respondent no. 1 contended that the appellant-State is a
deemed licensee and the same was not denied by the
appellant in its reply. He also referred to Section 10(2) of
the Electricity Act to submit that generating companies
can supply electricity to licensees only. On this basis, he
submitted that respondent no. 1 is supplying electricity
to the appellant-State as a licensee, albeit free of cost.
iii.
Relying on the decisions of this Court in PTC (supra) as well
as Transmission Corporation of A.P. Ltd. v. Rain Calcining
Ltd.15, he submitted that even concluded contracts between
regulated entities are overridden by regulations. Since
the State Government is a licensee, the Implementation
Agreement stands overridden by the Regulations. Further,
he submitted that performance of a contract must be in
conformity with the law in force at the time.16
iv.
He then referred us to Regulation 30 of the CERC
Regulations, 2019 that provides for Return on Equity17 to
hydro-electric generating companies @ 16.5%, which the
generating company earns through tariff on saleable power.
The tariff is calculated by considering the free power cap
@ 13% as per Note 3 of Regulation 55. However, if the
15
(2021) 13 SCC 674.
16
Relied on Ganga Retreat and Towers Ltd. v. State of Rajasthan, (2003) 12 SCC 91.
17
Hereinafter "RoE".
[2025] 7 S.C.R.
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The State of Himachal Pradesh & Anr. v.
JSW Hydro Energy Limited & Ors.
actual free power supply is 18% as per the Agreement,
this will negatively impact the RoE. Further, to ensure that
RoE is maintained, respondent no. 1 will be required to
sell the remaining 82% of power at a higher rate to PTC
and the distribution companies, which will ultimately be
passed on to the consumers thereby affecting consumer
interest. In the written submissions, respondent no. 1
also contended that the cost of generation and supply of
electricity must be recovered through tariff as per Section
61 of the Electricity Act. However, if it is required to supply
18% free power despite the 13% cap in the Regulations, it
will not recover revenue for 5% of the power it generates
and supplies, and this will negatively impact its RoE.
5.3 Dr. Singhvi supplemented these submissions with the following
arguments:
i.
The consequence of a change in law (i.e., the cap on free
power supply) must be borne by both parties, and cannot
be unilaterally imposed on the generating company.
ii.
The State Government is a regulated entity as per the third
proviso to Section 14 as well as under Section 10(2) of
the Electricity Act.