If a power purchase agreement (PPA) is not valid, but the generator supplies electricity to a utility — can the utility refuse to pay?
In an interesting case involving Section 70 of the Contract Act, the Appellate Tribunal for Electricity directed Southern Power Distribution Company of Andhra Pradesh (APSPDCL) to pay Vibrant Greentech for its supplied power.
The Andhra Pradesh Electricity Regulatory Commission passed an order in July 2021 that the PPAs between Vibrant Greentech and another company, Chaitanya Projects, were “unenforceable” and not binding on APSPDCL since the commission had not approved the PPAs. However, it ordered the utility to pay the companies for electricity supplied, at ₹2.93 a kWhr (the PPA rate was ₹4.84).
Vibrant filed an application for interim relief. Here the question was whether, when the PPA was not valid, the utility was bound to pay for the electricity supplied.
Section 70 of the Contract Act says, “where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the thing so done or delivered.”
APTEL’s chairperson Justice Ramesh Ranganathan and technical member Sandesh Kumar Sharma distilled three points from Section 70 — the act should be lawful, it should not have been done gratuitously, and it should have been accepted and enjoyed. In the present case, the second and third conditions are beyond dispute. So, the question remained whether the supply of electricity was lawful, given the invalid PPA.
They noted: “APSPDCL, despite receiving the electricity generated by the respondents-petitioners for three long years, has not made any payment to them. They, in turn, supplied the electricity, received from the respondents-petitioners, to their consumers, and must have received payment for such supply. As failure to compensate them for the supplies made would result in APSPDCL unjustly enriching itself at their cost, the balance of convenience certainly lies in favour of the respondents-petitioners.”
The larger question over whether the PPAs are unenforceable and whether the lower rate of payment is acceptable “must await final adjudication”.