Supreme Court Restores GERC Order In Gujarat Urja–Essar Power Dispute

Introduction

The Supreme Court in Gujarat Urja Vikas Nigam Limited v. Essar Power Limited[1] resolved a two-decade dispute by restoring GERC’s 2009 order. In its decision dated 25 September 2025, the Court set aside the Appellate Tribunal for Electricity’s (APTEL) March 2025 judgment and restored the earlier 2009 order of the Gujarat Electricity Regulatory Commission (GERC).

The case arose from the diversion of electricity in breach of a Power Purchase Agreement (PPA) signed in 1996. The agreement required EPL to supply 300 MW to GUVNL and 215 MW to Essar Steel Limited (ESL), its sister company, in a 58:42 ratio. Instead, EPL supplied more than the agreed share to ESL, reducing GUVNL’s allocation. The Supreme Court has now held that GUVNL is entitled to both compensation for the diverted electricity and reimbursement of fixed charges it paid for capacity it never received.

Facts

In 1996, the Gujarat Electricity Board, predecessor of GUVNL, entered into a PPA with EPL for the purchase of 300 MW out of EPL’s 515 MW plant at Hazira. A separate PPA was signed between EPL and ESL for the remaining 215 MW. This arrangement fixed the supply ratio at 58:42. Over time, EPL diverted electricity to ESL beyond its 42% share. GEB and later GUVNL raised objections, arguing that the diversion should be treated as deemed supply from GUVNL and that it was entitled to recover dues. In 2004, GEB quantified dues of ₹64 crores for diversion between 1998 and 2004, and EPL accepted this figure, though without final settlement of the issue.

In 2005, GUVNL filed a petition before GERC under Section 86(1)(f) of the Electricity Act, 2003. By its order in 2009, GERC ruled that EPL was bound by the PPA to supply electricity on a proportionate basis and that GUVNL was entitled to compensation for diverted electricity. It also held that GUVNL could recover fixed charges if its allocation was wrongly sold to ESL. EPL and GUVNL both appealed before APTEL, which partly reversed GERC’s findings in 2010. The matter reached the Supreme Court, which in 2016 set aside APTEL’s decision and restored GERC’s 2009 order. However, the quantification of dues was left to GERC, which passed a fresh order in December 2019.

In its 2019 order, GERC held that GUVNL was entitled to compensation based on the HTP-1 tariff for diverted electricity but denied reimbursement of fixed charges. It also awarded GUVNL delayed payment charges and refund of a deemed generation incentive. EPL and GUVNL both challenged this decision before APTEL, which in March 2025 upheld the denial of fixed charges reimbursement but otherwise confirmed GERC’s approach.

Judgment:

Hearing GUVNL’s appeal, the Supreme Court clarified the distinction between compensation and reimbursement. Compensation refers to making good the loss caused by breach of contract, while reimbursement arises from the contractual arrangement itself. Since GUVNL had paid fixed charges for 300 MW of capacity, which was diverted to ESL, those charges were not lawfully due and had to be refunded.

The Court held that APTEL and GERC erred in treating fixed charges as part of compensation claims and rejecting reimbursement. It reasoned that EPL could not collect fixed charges from both GUVNL (for diverted capacity) and ESL (for excess allocation), as this would amount to double recovery. Thus, reimbursement of fixed charges had to be made independently of compensation.

On the issue of methodology for calculating diversion, the Court noted that while the PPA originally provided for hourly computation, EPL itself had sought advice from the Central Electricity Authority (CEA) in 2003. Following CEA’s recommendation in 2005, the parties adopted half-hourly recording for metering and acted upon it. The Court ruled that EPL could not later reject this method when it came to calculating diverted supply, since it had itself initiated the change. Therefore, compensation should be computed on a half-hourly basis.

The Court directed GERC to recompute the dues payable to GUVNL by applying these clarified principles: (a) GUVNL is entitled to reimbursement of fixed charges paid for diverted capacity, and (b) GUVNL is entitled to compensation for diverted electricity based on HTP-1 tariff energy charge, calculated using half-hourly data.

Conclusion

The Supreme Court of India has finally settled a long-standing electricity supply dispute between Gujarat Urja Vikas Nigam Limited (GUVNL) and Essar Power Limited (EPL). It held that EPL was bound to supply electricity in the 58:42 ratio and that diversion entitled GUVNL to both compensation and reimbursement. The Court distinguished compensation as arising from breach, while reimbursement flows from contractual terms and restitution. The ruling ensures accountability, prevents unjust enrichment, and reinforces contractual discipline in power purchase agreements, setting a clear precedent for future electricity sector disputes.

[1][1] CIVIL APPEAL NOs. 6581- 6582 OF 2025.