Supreme Court Upholds HP Govt Right To 18% Free Power From JSW, Says CERC Cap Doesn't Override Contractual Terms

Observing that regulations cannot override freely negotiated contracts, the Supreme Court on Wednesday (July 16) ruled in favour of the Himachal Pradesh Government, holding that JSW Hydro Energy Ltd. must supply 18% free electricity as per the 1999 agreement, despite the CERC regulations capping free power at 13% for tariff determination.

The bench comprising Justices PS Narasimha and Joymalya Bagchi set aside the Himachal Pradesh High Court's decision which upheld the JSW's action of limiting free power to 13% despite the Regulation not prohibiting supply of free power beyond 13% limit. The Court said that the 13% cap applies only to tariff calculations, not to contractual obligations.

“Once the Regulation does not prohibit the supply of free power beyond 13%, respondent no. 1 cannot rely on it to wriggle out of its contractual obligations. Such an interpretation is necessary to recognise and enforce the generating company's freedom of contract, which includes its choice of business dealings. The Regulatory Commissions, APTEL, and the Courts must enforce these contractual obligations and ensure that their interpretation of regulations does not allow the party to circumvent and breach its contractual undertakings when the same is not intended by the regulation itself.”, the court observed.

The dispute arose from an Implementation Agreement signed between the Himachal Pradesh Government and JSW Hydro in 1999, under which JSW agreed to supply 12% free power for the first 12 years and 18% thereafter until 2051. JSW later argued that CERC's 2019 regulations limited its obligation to 13%.

Rejecting this argument, the judgment authored by Justice Narasimha held that the contract remains binding, and that regulations cannot override freely negotiated agreements with the State. The Court also criticized JSW for approaching the High Court without challenging a previous CERC order through the proper legal forum, namely the Appellate Tribunal for Electricity (APTEL).

The Court added that Himachal Pradesh was not a power licensee but receives free electricity as royalty for allowing the use of natural resources, and such resource agreements are not governed by CERC's tariff regulations.

“The contractual obligation of respondent no. 1 to supply free power can be understood as a form of “royalty” payable to the State as compensation, in lieu of being allowed to utilise river water, which is a public and commons resource, for undertaking its commercial activity of power generation from which it derives benefits through sale of power. Perusal of Article 4 of the Implementation Agreement also shows that the appellant-State fulfilled various other obligations like acquiring land, granting permissions, and executing leases in favour of respondent no. 1 to enable it to set up its hydropower generating station. In return, respondent no. 1 undertook various obligations provided in Article 5 of the Implementation Agreement, including supplying free power at a certain percentage. Therefore, it is clear that the free power supply is a part of the consideration by respondent no. 1 under the Implementation Agreement.”, the court said.

In terms of the aforesaid, the court allowed the appeal, directing the JSW Hydro Power to provide 18% free electricity to the State of Himachal Pradesh as part of the implementation agreement.

Cause Title: THE STATE OF HIMACHAL PRADESH & ANR. VERSUS JSW HYDRO ENERGY LIMITED & ORS.

Citation : 2025 LiveLaw (SC) 716

Click here to read/download the judgment

Appearance:

For Appellant(s) : Mr. Kapil Sibal, Sr. Adv. (Arguing Counsel) Mr. Parag Tripathi, Sr. Adv.(Arguing Counsel) Mr. Anup Rattan, Sr. Adv. Mr. Vaibhav Srivastava, A.A.G. Ms. Sugandha Anand, AOR Mr. Bhargava Ravikumar, Adv. Mr. Puneet Rajta, Adv. Ms. Mishika Bajpai, Adv.

For Respondent(s) :Mr. P. Chidambaram, Sr. Adv. (Arguing Counsel) Dr. A.M. Singhvi, Sr. Adv.(Arguing Counsel) Mr. Mahesh Agarawal, Adv. Mr. Aman Anand, Adv. Mr. Shashwat Singh, Adv. Ms. Madhavi Agarwal, Adv. Mr. Chirag Nayak, Adv. Ms. Natasha Debroy, Adv. Mr. Shidharth Seem, Adv. Mr. E. C. Agrawala, AOR Mr. Anand K Ganesan, Adv. Mr. Amal Nair, Adv. Mr. Shivani Verma, Adv. Mr. Nitin Saluja, AOR Ms. Preetika Dwivedi, AOR (Arguing Counsel) Mr. Abhisek Mohanty, Adv., Adv. Mr. Gurminder Singh, Sr. Adv.(Arguing Counsel) Mr. Nikunj Dayal, AOR Mr. Jatinder Singh Gill, Adv. Mr. Nikhil Nayyar, Sr. Adv. (Arguing Counsel) Mr. T. V. S. Raghavendra Sreyas, AOR Mr. Siddharth Vasudev, Adv. Mr. Brahma Prakash Soni, Adv. Mr. Kshitij Maheshwari, Adv.