Legal Battle Over Solar Power Agreement: M.P. Power Management Co. vs. Sky Power Southeast Solar

The case between M.P. Power Management Company Limited (MPPMCL) and M/s Sky Power Southeast Solar India Private Limited revolves around the termination of a Power Purchase Agreement (PPA) and whether such termination was legally justified. The Supreme Court judgment delves into the obligations of both parties, the impact of delayed fulfillment of conditions, and the broader implications of contract law in public power procurement.

The appellant, MPPMCL, a government-owned entity responsible for electricity procurement in Madhya Pradesh, entered into a PPA with the respondent, Sky Power Southeast Solar, for the supply of 50 MW of solar power. The agreement, dated 18.09.2015, set a deadline of 15.04.2016 for fulfilling pre-commissioning obligations, extendable by nine months upon payment of penalties.

The respondent failed to meet the original deadline and was ultimately delayed by 54 days beyond the extended period. This led to a termination notice issued by the appellant on 11.08.2017. The respondent challenged the termination in the High Court, which ruled in its favor, citing that a similar case involving Renew Clean Energy had resulted in relief for the petitioner. The court found that termination based on delay alone was unjustified, especially when commissioning of the project was still feasible.

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Arguments by the Appellant

• The writ petition filed by the respondent was not maintainable, as the PPA was not a statutory contract and should have been challenged through a civil suit or arbitration.
• The conditions subsequent were time-bound and essential; failure to meet them gave MPPMCL the right to terminate the contract.
• Sky Power Southeast Solar had misrepresented its compliance status, failing to provide essential documents such as land ownership proofs and financing closure.
• The High Court’s reliance on the Renew Clean Energy case was misplaced, as Renew Clean had commissioned its project within time, unlike the respondent.
• Public interest was at stake, as MPPMCL would be compelled to buy power at Rs. 5.109 per unit for 25 years while cheaper alternatives were available.

Arguments by the Respondent

• The respondent had fulfilled the conditions subsequent before the extended deadline and was prepared to commission the project.
• MPPMCL acted arbitrarily by preventing commissioning after CEIG approval on 09.08.2017.
• The termination was unjustified, as the project was ready before the 24-month commissioning deadline, and any delay was due to procedural bottlenecks and theft of installed equipment.
• The appellant failed to issue a default notice as per Article 9.1 of the PPA, depriving the respondent of an opportunity to rectify any shortcomings.
• The investment of Rs. 350 crores in the project would be lost if termination was upheld, causing substantial harm to renewable energy expansion.

Judgment and Observations

The Supreme Court examined whether the PPA was a statutory contract, concluding that it was not, as it was not mandated by law but entered into through competitive bidding. However, it held that public authorities must adhere to fairness and non-arbitrariness even in non-statutory contracts.

The Court found that MPPMCL had acted arbitrarily by terminating the contract without following the mandatory notice provisions under Article 9.1. The Court observed that:

• The High Court’s ruling in the first round of litigation had already settled the issue of delayed fulfillment of conditions subsequent.
• The project was certified as ready by the CEIG on 09.08.2017, yet MPPMCL terminated the contract without allowing commissioning.
• The theft of equipment from the site occurred due to lack of security following the termination order, and the respondent had replaced the missing items.
• MPPMCL’s decision to terminate was influenced by market fluctuations rather than genuine contractual breaches.
• Public interest was not served by terminating the contract, as the power procurement process had undergone competitive bidding and the rate agreed upon was considered reasonable at the time.

Consequently, the Court ruled in favor of the respondent, setting aside the termination order and allowing the respondent to proceed with commissioning.

Petitioner Name: M.P. Power Management Company Limited.
Respondent Name: M/s Sky Power Southeast Solar India Private Limited.
Judgment By: Justice K.M. Joseph.
Place Of Incident: Madhya Pradesh.
Judgment Date: 15-11-2022.

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