Essar Power Limited vs Gujarat Electricity Regulatory Commission & Anr
- Court
- Appellate Tribunal For Electricity
IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
APPEAL No. 692 of 2023 & IA No. 1827 of 2023
Dated: 29.05.2026
Present: Hon’ble Ms. Seema Gupta, Officiating Chairperson
Hon’ble Mr. Virender Bhat, Judicial Member
In the matter of:
Essar Power Limited
Through its Authorized Signatory, Mrs. Shruti Verma
Essar House 11, Keshavrai Khadye Marg,
Mahalaxmi Mumbai – 400 034
Email: [email protected] … Appellant
Versus
1. Gujarat Electricity Regulatory Commission
Through its Secretary
th
6 Floor, Gift One, Road, 5C, Zone 5,
Gift City, Gandhinagar – 382355
Gujarat
Email: [email protected]
2. Gujarat Urja Vikas Nigam Ltd.
Through its Secretary
Sardar Patel Vidyut Bhavan,
Race Course Circle, Vadodara – 390007
Gujarat
Email: [email protected] … Respondent (s)
Counsel for the Appellant(s) : Buddy A. Ranganadhan, Sr. Adv.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 1 of 44
Mahesh Agarwal
Rishi Agarwala
Rohan Talwar
Shashwat Singh
Counsel for the Respondent(s) : Suparna Srivastava
for Res. 1
Anand K. Ganesan
Swapna Sehsadri
Kriti Soni
Ashabari Basu Thakur
Srishti Khindaria
for Res. 2
J U D G M E NT
PER HON’BLE MR. VIRENDER BHAT, JUDICIAL MEMBER
1. Challenge, in this appeal, is to the order dated 05.05.2023 passed
st
by the 1 respondent Gujarat Electricity Regulatory Commission
(hereinafter referred to as the Commission) in IA No.15/2022 in petition
no.1002 of 2010 whereby the appellant’s claim for compound interest as
Delayed payment Charge (DPS) has been rejected and instead, simple
interest has been granted while placing reliance upon article 5.3.4 of the
nd
PPA dated 30.05.1996 executed between the appellant and 2
respondent.
2. The appellant had filed the original petition no.1002 of 2010 before
the Commission for adjudication of disputes with respect to its certain
_________________________________________________________________________________
Appeal No.692 of 2023 Page 2 of 44
nd
monitory claims against 2 respondent Gujarat Urja Vikas Nigam Limited
(in short GUVNL) under the PPA dated 30.05.1996 executed between the
two. The petition was disposed of by the Commission vide order dated
22.10.2014 read with corrigendum dated 21.11.2014 thereby allowing the
claims of the appellants.
nd
3. Being aggrieved by the said order of the Commission, the 2
respondent GUVNL approached this Tribunal by way of appeal no.02 of
2015 which was disposed of vide judgment dated 07.04.2022, the relevant
portion of which is extracted hereinbelow: -
“ …….
THE RESULT
150. In view of the foregoing conclusions, the challenge
to the impugned order by the appeal at hand must fail.
The appellant will be obliged in law to pay the amounts
in terms of the principles that have been decided.
151. As noted earlier, the Commission had called upon
the parties to "evaluate the amount receivable" by the
second respondent Essar (petitioner before the
_________________________________________________________________________________
Appeal No.692 of 2023 Page 3 of 44
Commission) from the appellant GUVNL (respondent
before the Commission) "as per the principles decided
by the Commission" and "inform the Commission within
one month's time from the receipt of the Order". Ideally,
the Commission should have quantified the amount
payable in terms of the principles decided rather than
leaving it to another round of proceedings. Be that as it
may, it appears some calculations were submitted
before GERC in terms of the said directions. It is clear
from the submissions made before us that the parties
are not ad idem on the amount payable by the appellant
to the second respondent under this dispensation. In
order that the exercise is complete, we direct that the
State Commission shall now pass the necessary orders
on this score, after hearing both parties, expeditiously
and at an early date, not later than two months from the
date of this judgment. Needless to add the amount
already paid in terms of interlocutory order will be
adjusted. The Commission shall also ensure by taking
appropriate measures that the claims are duly satisfied
in a time-bound manner.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 4 of 44
152. The appeal is disposed of in above terms.
…….”
4. In pursuance to the said judgment of this Tribunal dated 07.04.2022,
the appellant filed IA No.15 of 2022 in original petition no.1002 of 2010
nd
before the Commission seeking directions to the 2 respondent GUVNL
to pay the amount worked out by the appellant up to April, 2022 as per the
calculation sheet and the summary of the claims annexed to the
application. The appellant had claimed an amount of Rs.1556 crores
which included Delayed Payment Charge to the tune of Rs.1296.33
crores. The said application was disposed of by the Commission vide
order dated 05.05.2023 which has been impugned in this appeal. The
Commission has referred to the Article 5.3.4 of the PPA and also placed
reliance upon its previous order dated 27.12.2019 in petition no.972 of
2009 filed by GUVNL against appellant and has computed the DPC
amount on the bank rate and on simple interest basis.
5. According to the appellant, grant of simple interest instead of
compound interest is contrary to the provisions of Article 5.3.4 of the PPA
dated 30.05.1996 executed between the parties and also in violation of
the order dated 07.04.2022 passed by this Tribunal in appeal no.02 of
_________________________________________________________________________________
Appeal No.692 of 2023 Page 5 of 44
nd
2015. On the contrary, the contention of the 2 respondent GUVNL is
that the appellant’s claim for compound interest is totally misconceived
and does not flow from either any of the previsions of the PPA or any
judgment of this Tribunal.
6. We have heard Shri Buddy A. Ranganadhan, learned senior
counsel appearing on behalf of the appellant and Shri Anand Ganesan,
nd
learned counsel for the 2 respondent. We have also perused the
impugned order as well as the written submissions filed by the learned
counsels.
7. Having heard the learned counsels for both sides at considerable
length and having perused the written submissions filed by the parties, the
material placed on record and the judgments cited at the Bar, we proceed
to deal with the rival contentions.
Our Analysis:
8. The core question that arises for our determination in the present
Appeal is:
Whether Article 5.3.4 of the Power Purchase Agreement
dated 30.05.1996 (“ PPA ”) between Essar Power Limited
_________________________________________________________________________________
Appeal No.692 of 2023 Page 6 of 44
and Gujarat Urja Vikas Nigam Limited provides for the
payment of Delayed Payment Charges (“ DPC ”) on a
compound interest basis, or only simple interest is
payable thereunder.
9. Before addressing the rival contentions, it is apposite to extract
Article 5.3.4 of the PPA (as amended) in its entirety, which reads as under:
“5.3.4 Delayed Payment Charges: If payment in full is
not remitted on or before the close of business on Due
Date, delayed payment charge on the unpaid amount
due for each day overdue will be imposed by the
Company at the rate of 2% over the average interest rate
charged by Board's banks on working capital loans
during the preceding 12 months, from the 61st day of
day of the last day of the period to which the bill
pertains”.
10. With the above contractual framework in mind, we now proceed to
address the issues that arise for determination.
ISSUE No. I: WHETHER ARTICLE 5.3.4 OF THE PPA PROVIDES FOR
COMPOUND INTEREST
_________________________________________________________________________________
Appeal No.692 of 2023 Page 7 of 44
A. Submissions on behalf of the Appellant:
11. The learned senior counsel for the Appellant has advanced the
following principal contentions:
(a) That Article 5.3.4 of the PPA is based on the interest charged by
GUVNL's bankers, and since GUVNL's bankers charge interest on
a compound basis with monthly rests on working capital loans, the
DPC under Article 5.3.4 must also be on a compound interest basis;
(b) That the phrase “unpaid amount due for each day overdue” in
Article 5.3.4 necessarily contemplates that interest accrued and
remaining unpaid forms part of the “unpaid amount due,” thereby
mandating compounding;
(c) That the Hon'ble Supreme Court in T.N. Generation and
Distribution Corporation Ltd. v. PPN Power Generating Co. (P) Ltd. ,
(2014) 11 SCC 53 (“ PPN Power ”), while interpreting a substantially
similar clause (Article 10.6 of the PPA therein), held that compound
interest was payable;
_________________________________________________________________________________
Appeal No.692 of 2023 Page 8 of 44
(d) That RBI Circulars dated 14.08.2003 and 03.03.2016 mandate
that Scheduled Commercial Banks charge interest on advances on
“monthly rests” which has been explained by RBI to mean
compound interest;
(e) That the expression “rate” in Article 5.3.4 inherently incorporates
the manner of charging interest (i.e., simple or compound) and the
periodicity of rests, as held by various legal dictionaries and
authorities;
(f) That GUVNL itself, in its Affidavit dated 07.03.2018, had admitted
that it was discharging its debt on a compounding basis, and that
GUVNL's Working Capital Facility documents confirm that interest
is charged on "daily outstanding balance," which necessarily
includes both principal and interest;
(g) That the law laid down in D. Khosla & Company v. Union of India ,
(2024) 9 SCC 476 in fact supports the Appellant's case, since D.
Khosla holds that compound interest can be awarded where there
is a specific contract or authority under a statute for compounding,
_________________________________________________________________________________
Appeal No.692 of 2023 Page 9 of 44
and Article 5.3.4, by incorporating the practice of GUVNL's bankers,
constitutes such a specific contractual stipulation;
(h) That the decision of this Tribunal dated 21.03.2025 in Appeal No.
138/2021 did not render any finding on the interpretation of Article
5.3.4 with respect to appellant’s claim for compound interest,
inasmuch as the issue before this Tribunal in that appeal was
GUVNL's claim under Article 5.4, and the Review Order dated
17.07.2025 confirmed that the question of simple or compound
interest was "merely academic" in that context;
(i) That Dakshin Haryana Bijli Vitran Nigam Ltd. v. Adani Power
Mundra , (2023) 2 SCC 624 upheld a generator's entitlement to
Carrying Cost on a compound interest basis.
B. Submissions on behalf of Respondent No. 2 (GUVNL)
12. The learned counsel for the Respondent No. 2 (GUVNL) has
advanced the following contentions:
(a) That Article 5.3.4 of the PPA does not expressly provide for
compound interest, and the settled law as laid down in D. Khosla &
_________________________________________________________________________________
Appeal No.692 of 2023 Page 10 of 44
Company v. Union of India , (2024) 9 SCC 476 and State of Haryana
v. S.L. Arora & Company , (2010) 3 SCC 690 mandates that
compound interest can be awarded only if there is a specific contract
or authority under a statute for compounding;
(b) That when Article 5.3.4 is read harmoniously with Article 5.4 of
the PPA, it becomes evident that where the parties intended
compound interest, they expressly stated so by using the words
"compounded semi-annually" in the second paragraph of Article 5.4,
whereas no such expression appears in Article 5.3.4;
(c) That the principle laid down in LIC & Anr. v. Dharamvir , (1998) 7
SCC 348 applies, namely that when the same contract uses two
different expressions, those expressions must be accorded different
meanings, and the absence of the words “compounded” in Article
5.3.4, as against Article 5.4, is dispositive;
(d) That the word “rate” in Article 5.3.4 borrows only the percentage
of interest from GUVNL's banking facilities and not the manner of
payment (i.e., whether simple or compound);
_________________________________________________________________________________
Appeal No.692 of 2023 Page 11 of 44
(e) That “monthly rests” in banking parlance is distinct from
"compounding," since monthly rests merely denote the time period
when interest is calculated and becomes payable, and
compounding arises only when unpaid interest is capitalised;
(f) That this Tribunal in its Judgment dated 21.03.2025 in Appeal No.
138/2021 has already interpreted Article 5.3.4 to provide for simple
interest only, and the Hon'ble Supreme Court in its Judgment dated
25.09.2025 ( GUVNL v. Essar Power , 2025 INSC 1160) understood
this Tribunal’s finding in the same manner;
(g) That the Remand Order dated 07.04.2022 in Appeal No. 2/2015
directed payment of DPC on the “principal amount outstanding”
which confirms that only simple interest was contemplated;
(h) That the PPN Power case is distinguishable on facts, since the
clause therein (Article 10.6) was based on restitutionary principles
and pegged interest to the rate charged by the bank of the party to
whom the payment was due, whereas Article 5.3.4 is pegged to a
specific rate of “2% over” the average interest rate charged by the
Board's banks.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 12 of 44
13. We have heard the learned counsel for the parties at length and
have perused the written submissions as well as the material placed on
record. We now proceed to deal with the issues arising therefrom.
(I) The Legal Framework Governing Compound Interest
14. At the outset, it is well settled that ordinarily, courts do not grant
compound interest unless there is a specific contractual stipulation or
statutory provision to that effect. This position is settled by a catena of
decisions of the Hon'ble Supreme Court. In D. Khosla & Company v.
Union of India , (2024) 9 SCC 476, the Hon'ble Supreme Court held (at
para 24):
"In the light of the above legal provisions and the case law
on the subject, it is evident that ordinarily courts are not
supposed to grant interest on interest except where it has
been specifically provided under the statute or where
there is specific stipulation to that effect under the terms
and conditions of the contract. There is no dispute as to
the power of the courts to award interest on interest or
_________________________________________________________________________________
Appeal No.692 of 2023 Page 13 of 44
compound interest in a given case subject to the power
conferred under the statutes or under the terms and
conditions of the contract but where no such power is
conferred ordinarily, the courts do not award interest on
interest."
15. Similarly, in State of Haryana v. S.L. Arora & Company , (2010) 3
SCC 690, the Hon'ble Supreme Court had held (at para 12):
"Compound interest can be awarded only if there is a
specific contract, or authority under a statute, for
compounding of interest."
16. The Constitution Bench of the Hon'ble Supreme Court in Central
Bank of India v. Ravindra
, (2002) 1 SCC 367, after an exhaustive
consideration of the law, summarised the position at paragraph 36:
"The English decisions and the decisions of this Court and
almost all the High Courts of the country have noticed and
approved long-established banking practice of charging
interest at reasonable rates on periodical rests and
_________________________________________________________________________________
Appeal No.692 of 2023 Page 14 of 44
capitalising the same on remaining unpaid. Such a
practice is prevalent and also recognised in non-banking
moneylending transactions. The legislature has stepped
in from time to time to relieve the debtors from hardship
whenever it has found the practice of charging compound
interest and its capitalisation to be oppressive and hence
needing to be curbed. The practice is permissible, legal
and judicially upheld excepting when superseded by
legislation."
And further at paragraph 49:
"A creditor can charge interest from his debtor on
periodical rests and also capitalise the same so as to
make it a part of the principal. Such a course can be
justified by stipulation in a contract voluntarily entered into
between the parties or by a practice or usage well
established in the world to which the parties belong. Such
practice is to be found already in vogue in the field of
banking business."
_________________________________________________________________________________
Appeal No.692 of 2023 Page 15 of 44
17. The legal position is, therefore, not in doubt: while compound
interest is not the default, it is permissible and enforceable where the
contract specifically provides for it, either expressly or by incorporating a
well-established practice that involves compounding.
18. The question that falls for our consideration, accordingly, is whether
Article 5.3.4 of the PPA constitutes such a "specific stipulation" or "specific
contract" within the meaning of the law laid down by the Hon'ble Supreme
Court.
(II) The Textual Construction of Article 5.3.4
19. We have carefully perused Article 5.3.4 of the PPA. Two aspects of
the clause require close attention:
First, DPC is to be imposed on "the unpaid amount due for each day
overdue". On a plain reading, this phrase contemplates that what is
" unpaid " and " due " on any given day includes not merely the original
principal but also any accrued but unpaid interest. Had the PPA
intended DPC to be levied only on the original principal, it would
naturally have referred to " the principal amount " or " the amount
_________________________________________________________________________________
Appeal No.692 of 2023 Page 16 of 44
originally billed ", which is the formulation used in the Order dated
07.04.2022 when it referred to " all the principal amount
outstanding ". The use of the composite phrase " unpaid amount due
for each day overdue " is therefore significant. We do not, however,
rest our conclusion solely on this phrase, which is linguistically
capable of more than one reading. What is decisive is its cumulative
effect when read with the incorporation of GUVNL's banking practice
through the words " at the rate of ... interest rate charged by Board's
banks on working capital loans ". It is this contractual mechanism of
incorporating banking norms, identical in structure to that upheld in
PPN Power , that distinguishes Article 5.3.4 from a mere simple-
interest provision.
Second, Article 5.3.4 does not prescribe a standalone rate of
interest. It provides that DPC shall be imposed " at the rate of 2%
over the average interest rate charged by Board's banks on working
capital loans during the preceding 12 months ". The clause thereby
incorporates, by reference, the interest rate practice of GUVNL's
own banks on working capital facilities. The phrase " interest rate
charged by Board's banks " is a composite expression: it refers not
merely to a numerical percentage but to the rate as actually
_________________________________________________________________________________
Appeal No.692 of 2023 Page 17 of 44
"charged" by the banks, which, as the uncontroverted evidence on
record establishes, includes charging compound interest on daily
outstanding balances with monthly rests.
20. The interest rate applicable to Delayed Payment Charges under
Article 5.3.4 of the Power Purchase Agreement is benchmarked to the
average interest rate charged by GUVNL's own banks on working capital
loans during the preceding twelve months, with an additional premium of
two percent thereover, for sound commercial and equitable reasons. The
underlying rationale is that when GUVNL fails to remit payment in full by
the Due Date, Appellant is effectively denied the use of funds that are
contractually owed to it and is consequently compelled — or would
reasonably be compelled — to service its own working capital
requirements through borrowings from its lenders. By pegging the
Delayed Payment Charge to the rate at which GUVNL itself borrows from
its banks for working capital purposes, the clause ensures that Appellant
is compensated on terms that reflect the actual cost of money in the hands
of the defaulting party, thereby avoiding any unjust enrichment on
GUVNL's part. This is a commercially fair and equitable mechanism:
GUVNL is held to pay, as a consequence of its own default, no more and
no less than what it would itself pay its banks for equivalent working capital
_________________________________________________________________________________
Appeal No.692 of 2023 Page 18 of 44
finance, plus the contractual premium — a standard that neither inflates
Appellant’s recovery beyond a recognisable commercial measure nor
permits GUVNL to profit from the delay. Critically, by incorporating the
periodicity and compounding practice applicable to GUVNL's working
capital facilities — which, as mandated by the Reserve Bank of India's
circulars and confirmed by GUVNL's own banking documents, involves
the charging of interest on daily outstanding balances with monthly rests
— the clause creates a powerful and self-calibrating incentive for timely
payment: the longer GUVNL delays, the greater the accumulating charge,
computed precisely on the same compounding basis that GUVNL itself
bears as a borrower. This alignment ensures that GUVNL derives no
economic advantage from withholding payment and that the cost of delay
to the payee is made whole in a manner consistent with prevailing
commercial and banking practice.
(III) The PPN Power Judgment and Its Direct Applicability
21. In this context, it would be gainful to refer to the decision of the
Hon'ble Supreme Court in PPN Power . The relevant clause therein (Article
10.6 of the PPA, as quoted in the underlying Commission judgment)
provided as under:
_________________________________________________________________________________
Appeal No.692 of 2023 Page 19 of 44
“Late Payments shall bear interest accrued from the Due
Date they became overdue at a rate equal to the rate charged
from time to time on cash credits extended to the Party to
whom such payment is due plus one half percent (0.5%) per
annum, to the extent permitted by law or if such facilities are
not available at the cash credit rate offered by State Bank of
India for comparable Independent power producers plus one
half percent (0.5%).”
22. The Hon'ble Supreme Court, in interpreting the above clause, held
at paragraph 75:
“The late payment clause only captures the principle that a
person denied the benefit of money, that ought to have been
paid on due dates should get compensated on the same
basis as his bank would charge him for funds lent together
with a deterrent of 0.5% in order to prevent delays. It is
submitted by Mr Salve and Mr Bhushan that bankers of the
respondents have applied quarterly compounding or monthly
compounding for cash credits during different periods on the
_________________________________________________________________________________
Appeal No.692 of 2023 Page 20 of 44
basis of RBI norms. Article 10.6 of the PPA has followed the
norms of the bank. This cannot be said to be unfair as the
same principle would also apply to the appellants.”
23. We note that Article 5.3.4 of the PPA in the present case and Article
10.6 in the PPN Power case are materially analogous in their operative
mechanism. Both clauses peg DPC/late payment charges to the interest
rate charged by banks on credit facilities, with a specified premium. Both
incorporate banking norms rather than prescribing a flat percentage. The
comparison is as under:
Article 10.6 ( PPN Power ): “ at a rate equal to the rate charged
from time to time on cash credits extended to the Party to
whom such payment is due plus one half percent (0.5%) ”
Article 5.3.4 (Present PPA): “ at the rate of 2% over the
average interest rate charged by Board's banks on working
capital loans during the preceding 12 months ”
24. The mechanism is substantially the same. In both clauses, DPC or
late payment charges are pegged to the rate as actually charged by
banks, with a premium thereover. The Hon'ble Supreme Court in PPN
_________________________________________________________________________________
Appeal No.692 of 2023 Page 21 of 44
Power held that such incorporation of banking norms necessarily includes
the compounding practice followed by banks.
(IV) GUVNL's Attempt to Distinguish PPN Power is Without Merit
25. GUVNL has sought to distinguish PPN Power on two grounds,
which we now proceed to address.
First, it is argued that PPN Power was decided on restitutionary
principles and not on the contractual clause per se. We do not find
merit in this submission. A careful reading of paragraph 75 of PPN
Power makes it evident that the Hon'ble Supreme Court decided the
issue of compound interest on the basis of the contractual clause
itself (in that case, Article 10.6 of the PPA), and not on equitable or
restitutionary principles. The Court's reasoning was grounded in the
observation that "Article 10.6 of the PPA has followed the norms of
the bank" and that compensating the injured party "on the same
basis as his bank would charge him" was the contractual
mechanism. This is a finding on the construction of the PPA clause,
not an exercise of equitable discretion.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 22 of 44
Second, GUVNL contends that Article 10.6 in PPN Power pegged
the interest to the rate charged by the bank of “the Party to whom
such payment is due” whereas Article 5.3.4 pegs the rate to the
“Board's banks”. This distinction does not, in our view, make a
material difference. The operative mechanism remains identical: the
DPC clause incorporates the banking practice of the relevant entity.
Whether the reference is to the bank of the payee (as in PPN Power )
or the bank of the payor (as in the present case) does not alter the
fact that the clause mandates interest to be charged in accordance
with banking norms, which, as the evidence establishes, involve
compounding.
(V) The Article 5.4 Argument: Presence of “Compounded Semi-
Annually” Does Not Negate Compounding in Article 5.3.4
26. GUVNL places considerable reliance on the fact that Article 5.4
(second paragraph) of the PPA expressly uses the phrase "compounded
semi-annually" while incorporating the practice of GUVNL's bankers,
whereas Article 5.3.4 contains no such express mention. Relying on LIC
v. Dharamvir , (1998) 7 SCC 348, GUVNL argues that this differential
drafting shows that the parties intended compound interest only
_________________________________________________________________________________
Appeal No.692 of 2023 Page 23 of 44
under Article 5.4 and not under Article 5.3.4.
27. We have considered this argument carefully and do not find merit
therein, for the following reasons:
(a) The ratio of LIC v. Dharamvir is inapplicable on facts. That
judgment dealt with two different expressions used within the same
clause of the same policy, namely, “date of the policy” and “the date
on which the risk under the policy has commenced”. The Court held
that these two different expressions, used in the same clause, must
convey different meanings. In the present case, the comparison is
not between two expressions within the same clause, but between
two entirely different clauses (Article 5.3.4 and Article 5.4) dealing
with different situations entirely. Article 5.3.4 pertains to delayed
payment charges for unpaid invoices, whereas Article 5.4 pertains
to interest on amounts wrongly deducted by Appellant from letters
of credit issued by GUVNL. The contexts are materially different.
(b) In our view, the more plausible explanation is that in Article 5.4
the draftsman wished to specify a particular periodicity of
compounding, namely semi-annual, irrespective of what GUVNL's
_________________________________________________________________________________
Appeal No.692 of 2023 Page 24 of 44
bankers were following at any given time. In Article 5.3.4, by
contrast, the periodicity of compounding was left to be determined
by whatever practice GUVNL's bankers were actually following
(which, as the RBI Circulars and banking documents establish, is
monthly rests). The express reference to " compounded semi-
annually " in Article 5.4 thus specifies the periodicity of
compounding; it does not introduce compounding for the first time.
The absence of the word "compounded" in Article 5.3.4 does not
negate compounding; it leaves the periodicity to the banking
practice incorporated by reference.
(VI) D. Khosla does not negate, rather supports the Appellant's Case
28. Learned counsel for GUVNL has placed reliance on D. Khosla &
Company v. Union of India , (2024) 9 SCC 476 to contend that compound
interest cannot be implied. We do not agree, for the reasons that follow.
29. D. Khosla does not hold that compound interest can never be
awarded. On the contrary, it acknowledges that compound interest is
permissible where it is "specifically provided under the statute or where
there is specific stipulation to that effect under the terms and conditions of
_________________________________________________________________________________
Appeal No.692 of 2023 Page 25 of 44
the contract." The question is whether Article 5.3.4 constitutes such a
"specific stipulation."
30. In our view, it does. Article 5.3.4 does not require compound interest
to be implied from silence. It expressly incorporates, by reference, the
interest rate "charged by Board's banks on working capital loans" . The
uncontroverted evidence demonstrates that:
(a) GUVNL's working capital loan documents (Statutory Form for
Creation of Charge) specify that interest is charged on “ daily
outstanding balance ,” which includes both principal and accrued
interest.
(b) Clause 5 of the Hypothecation Agreement confirms the practice
of charging interest with monthly rests.
(c) The RBI Circulars dated 14.08.2003 and 03.03.2016 mandate
that interest on advances by Scheduled Commercial Banks shall be
charged on “monthly rests”, which the RBI itself has explained to
mean compound interest. Clause 1.2 read with Clause 11(i) of the
Circular dated 14.08.2003 leaves no room for doubt on this score.
(d) GUVNL's own Affidavit dated 07.03.2018 admits that GUVNL
has been discharging its debt on a compounding basis.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 26 of 44
31. Thus, Article 5.3.4, by incorporating the practice of GUVNL's
bankers, constitutes a "specific stipulation" for compound interest within
the meaning of D. Khosla . The clause does not leave compounding to
implication; it pegs DPC to the actual interest rate as charged by GUVNL's
banks, which is, and has been, on a compounding basis. To hold
otherwise would be to read the words "interest rate charged by Board's
banks" as meaning something different from what those banks in fact
charge, which would amount to rewriting the contract.
(VII) The Judgment Dated 21.03.2025 in Appeal No. 138/2021 Does
Not Constitute a Binding Finding on Article 5.3.4 Vis-a-vis the
Appellant
32. It is contended on behalf of GUVNL that this Tribunal's Judgment
dated 21.03.2025 in Appeal No. 138/2021 has already interpreted Article
5.3.4 as providing for simple interest only. We are unable to accept this
contention in light of the facts of this case. Moreover, the Judgment dated
21.03.2025 in fact nowhere mentions that simple interest has been
granted pursuant to Article 5.3.4 of the PPA.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 27 of 44
33. We have carefully perused the Judgment dated 21.03.2025 passed
in Appeal No. 138/2021 and, having considered its scope, context and
operative findings, are of the opinion that it does not constitute a binding
or conclusive determination of the question now before us. Our reasons
are as under:
(a) In Appeal No. 138/2021, the issue of compound interest arose in
the context of GUVNL's claim that it was entitled to compound
interest on account of payments required from HT Consumers. It
was not the Appellant herein who was claiming compound interest
under Article 5.3.4 in that appeal. GUVNL's claim was of a
fundamentally different character.
(b) In that judgment, at paragraph 72, this Tribunal recorded
GUVNL's submission " that as per settled principle of law ordinarily
courts are not supposed to grant interest on interest, except where
it has been specifically provided under the statute or where there is
specific stipulation to that effect under the terms and conditions of
the contract ". The Tribunal then rejected GUVNL's claim for
compound interest on the footing that " GUVNL has not made any
submissions that as per Article 5.4.3 of PPA, the DPC is meant to
be on compound interest basis rather than simple interest ". The
_________________________________________________________________________________
Appeal No.692 of 2023 Page 28 of 44
rejection was thus based on the nature of GUVNL's own
submissions in support of its claim, not on a definitive construction
of Article 5.3.4.
(c) The Review Order dated 17.07.2025 in R.P.9/2025 confirms this.
This Tribunal there held that " the question whether the PPA
stipulates simple or compound interest is merely academic, and
academic issues do not necessitate adjudication even in a
substantive appeal, much less in a review petition ." The Judgment
dated 21.3.2025 did not contain any decision on the interpretation
of Article 5.3.4 of the PPA and has no relevance to the present
appeal.
34. We now deal with paragraph 74 of the said Judgment, where this
"no infirmity in the Impugned Order
Tribunal observed that it found
regarding the applicability of DPC as per the PPA on simple interest" .
GUVNL relies on this observation to claim that Article 5.3.4 provides for
simple interest. It is worth noting here that this Tribunal made this
observation while rejecting GUVNL's prayer that the DPC rate applicable
to HT consumers should be applied. This Tribunal was upholding the
State Commission's choice of Article 5.3.4 as the governing provision (as
_________________________________________________________________________________
Appeal No.692 of 2023 Page 29 of 44
opposed to HT consumer rates) and noting that DPC had been computed
"as per the PPA" . The reference to "simple interest" describes what the
State Commission had in fact done; it is not a binding pronouncement that
Article 5.3.4 mandates simple interest only. This is reinforced by the fact
that the simple-versus-compound question under Article 5.3.4 was neither
the core issue in Appeal No. 138/2021 nor the subject of Appellant’s claim
therein. In fact, this Tribunal specifically rejected GUVNL’s ground
seeking parity with Appellant at paragraph 71 when it states that “ … we
do not find merit in the submissions of GUVNL that DPC should be on
compound interest because another Appeal challenging the simple
interest payable under Article 5.3.4 by Essar Power is on the file of this
Tribunal and for parity, in case that appeal is decided in favour of
Essar Power, GUVNL should also be given compound interest … ”
35. Furthermore, this Tribunal's Review Order dated 17.07.2025 in R.P.
9/2025, which was filed by Appellant seeking clarification that the
Judgment dated 21.03.2025 would not affect its rights in the present
appeal, is dispositive of this argument. In that order, this Tribunal
specifically held: “Since the Petitioner herein is not aggrieved by the
directions passed by us in Appeal No. 138 of 2021 dated 21.03.2025
whereby simple interest was granted to the Appellant therein, the question
_________________________________________________________________________________
Appeal No.692 of 2023 Page 30 of 44
whether the PPA stipulates simple or compound interest is merely
academic, and academic issues do not necessitate adjudication even in a
substantive appeal, much less in a review petition.”
36. This observation unambiguously confirms that the question whether
the PPA stipulates simple or compound interest was not decided in the
Judgment dated 21.03.2025 and remains open for adjudication in the
present appeal. GUVNL's submission that the earlier Judgment
constitutes a binding finding on Article 5.3.4 is therefore directly
contradicted by this Tribunal's own subsequent order, which was passed
on EPOL's Review Petition specifically seeking this clarification.
(VIII) There is no anomaly if Appellant is granted compound interest
in this Appeal:
37. We now turn to GUVNL's argument that the Hon'ble Supreme Court,
in its Judgment dated 25.09.2025 ( GUVNL v. Essar Power , 2025 INSC
1160), (i) understood this Tribunal's Judgment in Appeal 138/2021 as
rejecting compound interest and upholding simple interest under Article
5.3.4, and (ii) added a caveat regarding parity if Appellant secured
compound interest; and that this understanding is binding and precludes
_________________________________________________________________________________
Appeal No.692 of 2023 Page 31 of 44
the Appellant from contending otherwise. GUVNL further submits that
accepting Appellant’s claim would create an anomaly whereby GUVNL,
as a State entity, would receive only simple interest while Appellant would
receive compound interest under the same provision.
38. We have carefully considered the aforesaid submissions and do not
find merit therein, for the following reasons:
(a) The issue before the Hon’ble Supreme Court was GUVNL’s
entitled to the fixed charge reimbursement and the interest payable.
The issue of the interpretation of Article 5.3.4 could never have arisen
before the Supreme Court given GUVNL’s own statement before this
Tribunal (recorded in the order dated 21.3.2025) that it was not
relying on the PPA for its case on compound interest. Contrary to
GUVNL assertions, the facts in the Hon’ble Supreme Court’s
judgment, have no connection whatsoever to the present case.
(b) The content of paragraph 28 of the Hon'ble Supreme Court's
Judgment is a narration of factual and procedural history and cannot
be construed to be a finding as contended by GUVNL. It is worth
reiterating that the Hon’ble Supreme Court was neither called upon
_________________________________________________________________________________
Appeal No.692 of 2023 Page 32 of 44
to, nor did it ever interpret Article 5.3.4 of the PPA. It is also significant
that GUVNL's own written submissions before the Supreme Court
drew attention to this Tribunal's Review Order dated 17.07.2025 in
R.P. 9/2025, which clarified the scope of the earlier observations as
academic. We reject the attempt by GUVNL to use a factual narration
as a finding by the Hon’ble Supreme Court when the record clearly
shows otherwise.
39. Applying this principle, the recital of facts at paragraph 28 of the
Supreme Court's Judgment is plainly not its ratio decidendi , nor even
obiter dicta on the interpretation of Article 5.3.4. The ratio of GUVNL v.
Essar Power concerns GUVNL's entitlement to HTP 1 fixed charges and
the basis thereof; it does not concern the construction of Article 5.3.4 vis-
à-vis compound interest. A factual narration reciting a caveat recorded in
an earlier order of this Tribunal cannot be elevated to a binding
determination on a contractual question never argued before or decided
by the Supreme Court.
40. We further note that in the proceedings before the Hon'ble Supreme
Court, GUVNL did not advance any claim for compound interest on the
basis of Article 5.3.4. Its claim for compound interest rested solely on the
_________________________________________________________________________________
Appeal No.692 of 2023 Page 33 of 44
interest rate applicable to HT Consumers. Having neither raised nor
argued compound interest under Article 5.3.4, GUVNL cannot now
contend that the Hon’ble Supreme Court rendered a finding on a point that
was never put in issue before it. A court cannot be said to have decided a
question that was not in issue.
41. As regards GUVNL's argument that accepting EPOL's claim would
create an anomaly whereby GUVNL receives only simple interest while
Appellant receives compound interest under the same provision, we find
the submission misconceived. First, the present Appeal concerns
appellant's contractual claim under Article 5.3.4 and must be decided on
its own merits. An earlier order in different proceedings, involving different
issues and submissions, cannot foreclose the interpretation of a
contractual clause. Second, GUVNL's claim for compound interest in
Appeal No. 138/2021 was rejected because “ the DPC applicable to HT
consumers is inapplicable ” to the present case and not on the applicability
(or otherwise) of Article 5.3.4 of the PPA, which had been given up by
GUVNL. In fact, it was clearly held by this Tribunal that GUVNL has not
made any submissions under Article 5.3.4 in Appeal 138/2021. The
rejection by this Tribunal thus stemmed from GUVNL's own stance and
_________________________________________________________________________________
Appeal No.692 of 2023 Page 34 of 44
not from any concluded interpretation of Article 5.3.4. The two situations
are therefore not comparable.
42. In view of the foregoing discussion, we are not constrained from
deciding the issue on its merits in the captioned Appeal. We proceed to
do so.
(IX) “Monthly Rests” and “Compounding”: The Distinction sought
to be drawn by GUVNL is Unsustainable
43. GUVNL has argued that "monthly rests" in banking parlance is
distinct from "compounding", contending that monthly rests merely denote
the period for calculating interest and that compounding arises only upon
default in payment of interest. We do not accept this submission, for the
following reasons.
44. The Constitution Bench of the Hon'ble Supreme Court in Central
Bank of India v. Ravindra
, (2002) 1 SCC 367, specifically addressed the
practice of banks charging interest with periodical rests. The Court
held, at paragraph 49:
_________________________________________________________________________________
Appeal No.692 of 2023 Page 35 of 44
"A creditor can charge interest from his debtor on
periodical rests and also capitalise the same so as to
make it a part of the principal. Such a course can be
justified by stipulation in a contract voluntarily entered into
between the parties or by a practice or usage well
established in the world to which the parties belong."
45. Furthermore, the RBI Circular dated 14.08.2003, Clause 1.2 read
with Clause 11(i), mandates that interest on advances shall be charged
on "monthly rests". RBI has explained that this means interest calculated
at the end of each month, if remaining unpaid, is added to the principal for
the next period — which is, by definition, compound interest. We accept
that, in the abstract, there may be loan products where interest is
computed periodically but serviced without capitalisation. The question
here, however, is the actual practice of GUVNL's bankers on the specific
working capital facilities referenced in Article 5.3.4. On this, the evidence
is unambiguous: the Statutory Form for Creation of Charge and Clause 5
of the Hypothecation Agreement show interest charged on "daily
outstanding balance" with monthly rests, and GUVNL has produced no
contrary evidence. GUVNL's Affidavit dated 07.03.2018 further admits
that it has been "discharging its debt on compounding basis". In these
_________________________________________________________________________________
Appeal No.692 of 2023 Page 36 of 44
circumstances, the distinction GUVNL seeks to draw is untenable on the
facts.
46. The submission of GUVNL that compounding arises "only when
there is default in payment of interest on monthly basis, and the
Agreement specifically provides for capitalisation of interest" does not
advance its case. In the present context, where GUVNL has defaulted in
making timely payments under the PPA (which is the very premise for the
application of Article 5.3.4), the interest charged on monthly rests with the
consequent capitalisation of unpaid interest is precisely the banking
practice that the clause incorporates by reference.
(X) The Word “Rate” Incorporates the Manner of Charging
47. GUVNL's contention that the word "rate" in Article 5.3.4 borrows
only the numerical percentage of interest from GUVNL's banking facilities,
and not the manner of charging, is also unsustainable, for the following
reasons:
(a) Even on GUVNL's own reading, this argument is directly contrary
to the law laid down in PPN Power, where the clause also used the
at a rate equal to the rate charged
word "rate" (" "), and the Hon'ble
_________________________________________________________________________________
Appeal No.692 of 2023 Page 37 of 44
Supreme Court nonetheless held that compound interest was
payable.
(b) The word “rate” does not exist in a vacuum. As the Bouvier Law
Dictionary defines it: "An interest rate is a charge made for the use
of money for a period of time, the rate itself being a designated
percentage of the principal owed, calculated by the means by which
the percentage is assessed and the means by which the interest is
itself added to the principal as it is assessed." Thus, a “rate”
inherently carries with it the means of computation, including
whether interest is simple or compound.
(c) Article 5.3.4 does not refer to the "rate" in the abstract; it refers
to the "interest rate charged by Board's banks". The word "charged"
is significant. It points to the rate as actually levied, which includes
the practice of compounding with monthly rests. Reading "rate" as
only a percentage, divorced from the manner in which it is charged,
would do violence to the language of this Article.
(XI) GUVNL's Admission and Approbate-Reprobate
48. It is also pertinent that GUVNL itself, when claiming compound
interest under Article 5.3.4 in the proceedings leading to the Judgment
_________________________________________________________________________________
Appeal No.692 of 2023 Page 38 of 44
dated 21.03.2025, took the position that this clause provides for
compound interest. Its Affidavit dated 07.03.2018 expressly states that
"GUVNL has been discharging its debt on compounding basis." GUVNL
cannot now be permitted to adopt an inconsistent stand on the
interpretation of the same provision. The doctrine of approbate and
reprobate, firmly embedded in Indian law, bars such conduct. In its
Counter Affidavit in the present proceedings, GUVNL has not denied that
it incurs compound interest on its working capital facilities.
(XII) The Order Dated 07.04.2022 of this Tribunal
49. GUVNL has argued that the Order dated 07.04.2022 in Appeal No.
2/2015, which directed payment of "DPC on all the principal amount
outstanding" , confirms that only simple interest was contemplated. We do
not agree. That order merely reiterated the terms of Article 5.3.4 by
directing computation "at the rate of 2% over average interest rate
charged by Board's banks on working capital loans during the preceding
12 months" . As explained above, this formulation incorporates, rather than
excludes, compounding by reference to banking practice. The language
of the Order does not expressly direct compound interest, but equally
does not exclude it. It adopted the contractual formula of Article 5.3.4 and
_________________________________________________________________________________
Appeal No.692 of 2023 Page 39 of 44
left open, for the State Commission on remand, the question whether that
formula yields simple or compound interest. That is the very question
which now arises in this Appeal.
(XIII) A Final Observation
50. Before summarising our findings, we reiterate that the general law
disfavours compound interest in the absence of express contractual
provision, as established by D. Khosla , S.L. Arora and earlier authorities.
Nor do we hold that every PPA clause referencing bank rates necessarily
imports compounding. Our conclusion is confined to the specific language
of Article 5.3.4 of this PPA, read with the uncontroverted banking
documents showing that GUVNL's bankers charge compound interest
with monthly rests on the working capital facilities that Article 5.3.4
incorporates by reference. It is this combination of contractual language
and factual banking practice that satisfies the threshold of "specific
stipulation" required by law. We are conscious that this conclusion departs
from the simple-interest computation adopted by the State Commission
and described in earlier proceedings, but for the reasons already set out,
those proceedings do not foreclose our present determination.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 40 of 44
CONCLUSION
51. We hereby summarize our conclusion as under:
(a) Article 5.3.4 of the PPA dated 30.05.1996 constitutes a "specific
stipulation" for compound interest within the meaning of the law laid
down in D. Khosla & Company v. Union of India , (2024) 9 SCC 476
and State of Haryana v. S.L. Arora & Company , (2010) 3 SCC 690,
inasmuch as it incorporates, by reference, the practice of GUVNL's
bankers on working capital loans, which practice involves the
charging of compound interest with monthly rests.
(b) The judgment of the Hon'ble Supreme Court in T.N. Generation
and Distribution Corporation Ltd. v. PPN Power Generating Co. (P)
Ltd. , (2014) 11 SCC 53, which interpreted a clause employing an
analogous mechanism of incorporating banking norms for
computing late payment charges, provides strong persuasive
guidance and supports the construction we adopt. While the two
clauses are not textually identical, the operative principle underlying
PPN Power — that a clause pegging DPC to the interest rate as
charged by banks necessarily incorporates the compounding
practice inherent in such charges — applies equally here.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 41 of 44
(c) GUVNL's reliance on D. Khosla , S.L. Arora , LIC v. Dharamvir ,
and the drafting distinction between Articles 5.3.4 and 5.4 is
misplaced for the reasons elaborated above.
(d) The Judgment dated 21.03.2025 in Appeal No. 138/2021 does
not constitute a binding precedent on the issue of compound interest
under Article 5.3.4 vis-à-vis the Appellant.
(e) GUVNL's attempt to distinguish "monthly rests" from
"compounding" is unsustainable in law in view of Central Bank of
India v. Ravindra , (2002) 1 SCC 367, and the RBI Circulars on the
subject.
(f) The Impugned Order dated 05.05.2023 of the Gujarat Electricity
Regulatory Commission, insofar as it rejected the Appellant's claim
for compound interest and granted only simple interest under Article
5.3.4, is vitiated by an error of law.
ORDER
52. In view of our analysis above, the Impugned Order dated
05.05.2023 passed by the Gujarat Electricity Regulatory Commission in
_________________________________________________________________________________
Appeal No.692 of 2023 Page 42 of 44
I.A. No. 15/2022 in Petition No. 1002/2010 is set aside to the extent that
it denied compound interest to the Appellant under Article 5.3.4 of the PPA
and wrongly computed DPC on a simple interest basis.
53. We hereby hold that Article 5.3.4 of the Power Purchase Agreement
dated 30.05.1996, entered into between Appellant Essar Power Limited
nd
and 2 Respondent Gujarat Urja Vikas Nigam Limited, constitutes a
specific contractual stipulation for the levy of Delayed Payment Charges
on compound interest basis, computed with monthly rests;
54. Accordingly, the Impugned Order dated 05.05.2023 stands modified
to the extent that the Appellant, Essar Power Limited, is entitled to
Delayed Payment Charges under Article 5.3.4 of the Power Purchase
Agreement (as amended), computed on a compound interest basis with
monthly rests. The Gujarat Electricity Regulatory Commission is hereby
directed to recompute the Delayed Payment Charges payable to the
Appellant in accordance with the directions set out herein, after affording
both parties a reasonable opportunity of hearing on the question of
computation, within one month from the date of receipt of this judgment.
_________________________________________________________________________________
Appeal No.692 of 2023 Page 43 of 44
55. The Appeal is accordingly allowed in the above terms. All pending
Interlocutory Applications, if any, stand disposed of in terms of this order.
th
Pronounced in the open court on this the 29 day of May, 2026.
(Virender Bhat)
Judicial Member
(Seema Gupta)
Officiating Chairperson
✓
REPORTABLE / NON-REPORATBLE
_________________________________________________________________________________
Appeal No.692 of 2023 Page 44 of 44