The Supreme Court has ruled that Gujarat Urja Vikas Nigam Ltd (GUVNL) is entitled not only to compensation but also reimbursement of fixed charges from Essar Power Ltd (EPL) for the wrongful diversion of electricity meant for GUVNL to Essar Steel Ltd (ESL). Delivering the judgement last month, a bench of justice Sanjay Kumar and justice Alok Aradhe upheld GUVNL’s claim, bringing clarity to a two-decade-long dispute that has traversed multiple regulatory and judicial forums.
"As the power diversion, for which GUVNL has to be paid compensation, is for the supply made by EPL to ESL, over and above its allocated share, and as it was at the behest of EPL itself that this half-hourly computation methodology was adopted, pursuant to the recommendation of the Central Electricity Authority (CEA), there is no reason why the very same methodology should not be used for computing the electricity diversion so as to quantify the compensation payable to GUVNL for the excess power supply made to ESL by EPL from out of GUVNL’s allocated share," the bench says.
The case stems from two power purchase agreements (PPAs) signed in 1996. Under the arrangements, EPL’s 515MW plant at Hazira was required to supply 300 MW to the Gujarat Electricity Board (later GUVNL) and 215MW to ESL, in a 58:42 ratio. GUVNL alleged that EPL diverted power beyond ESL’s allocation, effectively depriving the state utility of its entitled share. While EPL agreed in 2004 to pay Rs64 crore to settle diversions between 1998 and 2004, disputes continued over subsequent years.
In 2009, the Gujarat Electricity Regulatory Commission (GERC) held that EPL was obliged to adhere to the 58:42 allocation and compensate GUVNL at HTP-1 tariff (excluding variable costs) for wrongful diversion. Although the appellate tribunal for electricity (APTEL) partly overturned this in 2010, the Supreme Court in 2016 restored GERC’s order. Further proceedings before GERC in 2019 calculated compensation on a half-hourly basis, ordered a refund of Rs36.62 crore as deemed generation incentive and imposed delayed payment charges. APTEL in March 2025 partly disagreed, insisting on hourly computation, though upholding most findings.
In its latest verdict, the apex court clarified that earlier rulings had been misconstrued and reaffirmed GUVNL’s entitlement to both categories of relief. It held that GUVNL was entitled to compensation at the HTP-1 energy tariff for diverted electricity, excluding variable costs, and also reimbursement of fixed charges, since GUVNL had already paid for 300MW capacity but did not receive the full supply. The court stressed that EPL could not collect fixed charges from both GUVNL and ESL for the same generating capacity.
The bench also ruled that half-hourly computation should apply for diversions after February 2005, noting that EPL itself had requested such a mechanism from the CEA. It rejected EPL’s argument that the Rs64 crore settlement of 2004 was a full and final settlement, holding that it applied only to past diversions up to September 2004.
“The court cannot be a mute spectator when its judgments and findings are misconstrued or misunderstood by the parties and are projected erroneously in subsequent litigation,” the bench observed, invoking restitution principles to mandate refund of fixed charges proportionately.
The judgement modifies APTEL’s March 2025 order and GERC’s 2019 decision to include reimbursement of fixed charges along with compensation. Certain contested amounts, such as the precise quantum of deemed generation incentive refund and deductions made by GUVNL, have been remitted to GERC for verification.
The decision brings finality to one of the longest-running electricity disputes between a state utility and a private power producer, reinforcing the principle that contractual allocations under PPAs must be strictly honoured and that wrongful diversion of electricity attracts both compensation and restitution.
