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Deal: Trilegal represented two Solar Projects of Stride Climate Investments in a petition challenging the default and termination notices issued by Punjab State Power Corporation Limited

12 Sep 2022

Trilegal successfully represented its clients, two 15 MW solar photovoltaic projects (Projects) of Stride Climate Investments (Stride) located in the State of Punjab, in a petition challenging the default & termination notices issued by Punjab State Power Corporation Limited (Punjab DISCOM).

Although, in line with global consensus, India has internationally pledged its commitment towards reaching 500 GW non-fossil energy capacity by 2030 and, achieving the coveted target of net zero emissions by 2070, investments in India’s Renewable Energy (RE) industry have been significantly stymied by certain actions of State-owned utilities. Regrettably, when one sets off to assess the risks involved in investing into India’s RE industry, examples are galore across the country whereby, state owned utilities have attempted to renege and wriggle out of their long-term power purchase commitments due to one reason or the other. As with any other challenge, there exists at least some silver lining. In this context, the silver lining is India’s robust & independent electricity-regulatory framework.

By way of its letters/memos dated 28.05.2021, Punjab DISCOM wrote to Stride’s Projects intimating them of alleged breach of contract due to purported excess installation of solar modules (in MW-DC capacity). Further, the Punjab DISCOM called upon Stride’s Projects to cure default within 60 days. Despite Stride’s timely response, multiple reminders and offer to abide by a joint inspection so as to demonstrate its continuous compliance with all contract terms, the Punjab DISCOM proceeded to issue termination notices on 15.09.2021. Aggrieved by the same, Stride’s projects approached the Punjab State Electricity Regulatory Commission (PSERC).

Appreciating the prima facie case made out on behalf of Stride’s Projects amongst others, PSERC was pleased to suspend the operation of PSPCL’s default & termination at the very threshold.

After hearing the parties in detail, PSERC quashed both the default & termination notices issued by Punjab DISCOM. Noting that the installed capacity of a solar project (in MWP-DC terms) can be ascertained only when the rating of each individual solar module is assessed, the Punjab DISCOM’s so-called ‘inspection’, carried out by merely noting the rating of solar modules in the corner of each row, has been held to be faulty & inaccurate. The very veracity of the Punjab DISCOM’s stand has been held to be not only questionable but also misleading. Apart from quashing of the default & termination notices, even the underlying inspection reports have been set-aside and declared to be arbitrary, improper and lacking in due process.

Coming down heavily on the Punjab DISCOM, PSERC held that it is constrained to observe that the Punjab DISCOM’s conduct was indeed arbitrary. PSERC held that such conduct was unbecoming of a public utility enjoying the status of a State Instrumentality as enshrined under Article 12 of the Constitution. In doing so, PSERC drew reference from the Supreme Court’s judgments which hold that conduct of public establishment ought to not smack of arbitrariness. The extreme step of terminating contracts to purchase RE, basis a vague report & without due diligence or verification, has been held to be avoidable. The Punjab DISCOM’s whole ‘inspection’ process has been declared to be arbitrary & unilateral.

The swift & proportionate action taken by PSERC in this case, in its capacity as an independent & just regulator, coupled with the techno-legal principles settled by it in its judgment, are likely to go a long way in re-assuring global investors that India is serious in its international commitments, including achieving net-zero emissions status by 2070, while at the same time ensuring that global investments are adequately protected against political uncertainty.

The matter was led by our head of the Dispute Practice and Partner Shankh Sengupta, who was assisted by Abhishek Kumar, Counsel; Nived Veerapaneni and Karan Arora, Associates.

For more information, please contact:

Sahil Wason
Mob: +91-8928008122 | BD@trilegal.com

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