Delayed Payment Charges Benchmarked to Banking Norms Mandate Compound Interest with Monthly Rests.

The Appellant (Essar Power) and Respondent No. 2 (GUVNL) entered into a Power Purchase Agreement (PPA) on 30.05.1996. Following disputes regarding monetary claims, the Commission allowed the Appellant’s claims in 2014, a decision upheld by the Tribunal in 2022

On remand for quantification, the Appellant claimed ₹1556 crores, including ₹1296.33 crores as Delayed Payment Charges (DPC)

By an order dated 05.05.2023, the Commission rejected the claim for compound interest, granting only simple interest based on Article 5.3.4 of the PPA and a previous order in Petition No. 972/2009

The Appellant challenged this, asserting that the contractual mechanism implies compounding.

1. Whether Article 5.3.4 of the PPA provides for the payment of Delayed Payment Charges (DPC) on a compound interest basis or only simple interest

2. Whether the Tribunal’s earlier judgment in Appeal No. 138/2021 precluded the Appellant from claiming compound interest under the principle of binding precedent

The Tribunal applied the principle that compound interest is granted only upon specific contractual stipulation or statutory authority, as established in State of Haryana v. S.L. Arora Company

The principle was recently reaffirmed in D. Khosla Company v. Union of India

It relied on Central Bank of India v. Ravindra, which recognizes banking practices of "periodical rests" and capitalization of unpaid interest as valid compounding

Furthermore, it followed T.N. Generation and Distribution Corporation Ltd. v. PPN Power Generating Co. (P) Ltd., which held that PPA clauses pegging interest to banking "rates charged" incorporate the compounding norms of those banks

The Tribunal found that Article 5.3.4 was not a standalone interest rate but a "specific stipulation" incorporating the actual "rate charged" by GUVNL’s banks on working capital

Evidence, including GUVNL’s banking documents and RBI Circulars, proved that these banks charge interest on "monthly rests," which entails compounding

The Tribunal distinguished Article 5.4, noting that the express mention of "semi-annual" compounding there merely fixed a specific frequency, whereas Article 5.3.4 adopted whatever frequency the banks used (monthly)

The Tribunal rejected GUVNL’s reliance on Appeal No. 138/2021, noting that the "simple interest" observation there was academic and not a conclusive interpretation of Article 5.3.4

Finally, the Tribunal held GUVNL to its own prior admissions in affidavits where it acknowledged discharging debt on a compounding basis

It set aside the Commission’s order dated 05.05.2023 to the extent it granted only simple interest

The Commission was directed to recompute the DPC amounts in accordance with this finding within one month