Force Majeure strictly construed; increased cost/non-availability no ground for contract alteration.

The Appellant, M/s Simbhaoli Power Private Limited, a renewable power producer in Uttar Pradesh, entered into a Power Purchase Agreement (PPA) dated April 26, 2007, with Respondent No. 2, Uttar Pradesh Power Corporation Ltd. (UPPCL), for the export of 19 MW from two generating units (12 MW and 19 MW) commissioned in 2007.

A supplementary PPA dated August 27, 2013, covered the export of 16 MW from another 18 MW unit.

The 12 MW unit, being old and inefficient, was isolated and dismantled by the Appellant to avoid frequent repairs and high fuel consumption.

This reduced the surplus capacity for export under the 2007 PPA from 19 MW to 7 MW.

The Appellant informed Respondent No. 4 (Chief Engineer, Power Purchase Directorate) of this reduction via letter dated September 16, 2019, requesting amendments to the PPA.

Receiving no response, the Appellant filed Petition No. 1557 of 2020 before the 1st Respondent (Uttar Pradesh Electricity Regulatory Commission) under Section 86(1)(e) and (f) of the Electricity Act, 2003, seeking permission to reduce its export capacity to 23 MW (7 MW + 16 MW) and suitable amendments to the PPAs.

The Commission dismissed the petition by order dated January 25, 2021, holding that the dismantling was a commercial decision not covered by Force Majeure and that the PPA did not permit reduction of contracted capacity.

1. Whether the isolation and dismantling of the 12 MW generating unit by the Appellant constituted a Force Majeure event under the Power Purchase Agreement (PPA) dated April 26, 2007?

2. Whether the Appellant is entitled to a reduction in its contracted export capacity under the PPA and Supplementary PPA due to increased operating costs and reduced fuel availability?

The court primarily applied the principles governing the sanctity of contracts, particularly Power Purchase Agreements (PPAs), as established in Gujarat Urja Vikas Nigam Ltd. v. Solar Semi-Conductors Power Company (Pvt.) Ltd., (2017) 16 SCC 498, which emphasized that PPAs are sacrosanct and binding.

The court also relied on the interpretation of Force Majeure clauses and the doctrine of frustration under Section 32 and Section 56 of the Indian Contract Act, 1872.

The doctrine of frustration as elucidated in Satyabrata Ghose v. Mugneeram Bangur Co., 1954 SCR 310, stated that "impossible" includes "impracticability of performance" impacting the contract's foundation.

Key principles for applying Force Majeure as laid down in Energy Watchdog v. CERC (2017) 14 SCC 80 were applied, stressing that performance is not discharged simply if it becomes onerous, a mere rise in cost does not lead to frustration, and the doctrine must be applied narrowly.

The court also referenced Halliburton Offshore Services v. Vedanta Limited, 2020 SCC Online DEL 2068, highlighting that Force Majeure clauses are to be interpreted narrowly, and non-performance is excused only in exceptional situations with a 'real reason' and 'real justification'.

The court analyzed the Appellant's claim that the dismantling of the 12 MW unit was due to unforeseen circumstances, framing it as a Force Majeure event.

However, the court found the Appellant's stated reasons, notably the increase in bagasse cost and its non-availability, were primarily economic and commercial considerations.

Applying the principles from Energy Watchdog and Halliburton Offshore Services, the court reasoned that a contract becoming financially or commercially difficult to perform, or a mere rise in costs, does not automatically trigger the Force Majeure clause or the doctrine of frustration.

The court noted that these factors were "usual and natural events which could have been easily foreseen and taken into consideration" at the time of the PPA's execution.

The Appellant's decision to dismantle the unit was unilateral and based on its inefficient operational performance, which the court deemed a purely commercial decision and not an event beyond the Appellant's exclusive control as required by PPA Clause 26.

Furthermore, the court highlighted that the Appellant installed a new 18 MW generating unit, indicating an "alternate mode of performance" and negating any claim of impossibility to perform its obligations under the PPAs.

Thus, the court concluded there was no "real reason" or "real justification" to invoke Force Majeure.

The court concluded that the Appellant failed to make a case for seeking reduction in contracted capacity by way of amendments in the PPAs.

The Appellant's unilateral decision to dismantle the 12 MW unit, driven by commercial and economic considerations, did not qualify as a Force Majeure event.

Consequently, the Appellant remains bound by the terms and conditions of its PPAs dated April 26, 2007, and August 27, 2013, and is liable for any inability to supply the contracted capacity of power to the 2nd Respondent.