CERC Declines To Step in For Change In Law Petition From Mahindra Renewables

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In a recent judgement, the Central Electricity Regulatory Commission (CERC) rejected Mahindra Renewables Private Limited’s arguments in its petition regarding Change of Law (CIL) rules with respect to a power purchase agreement (PPA) signed with Solar Energy Corporation of India Limited (SECI) in December 2018.

Mahindra Renewables petitioned CERC, seeking that the imposition of safeguard duty on the import of solar cells, whether or not assembled in modules or panels, by the Department of Revenue, Ministry of Finance, in July 2020 be declared an event of “Change in Law‟ (CIL) with regards to the firm’s 2018 PPA with SECI. It further sought approval of the quantum and mechanism of compensation (along with interest) in line with the methodology provided by CERC in August this year.

According to the petitioner, unlike its own case, the CIL rules are applicable only in cases where the expression “Change in Law‟ is not defined in the agreement between the parties, as the said rules specifically exclude “otherwise defined in the agreement‟.

Since its PPA with SECI itself provided detailed provisions on CIL, the latter would continue to apply, said Mahindra Renewables. Thus, the formula for compensation as specified in the CIL rules cannot be imposed on the petitioner as the CIL provisions cannot supersede the PPA provisions, concluded the firm.

The CIL rules have only prospective application and that the CIL event relating to imposition of safeguard duty occurred prior to the notification of the said rules, Mahindra Renewables further contended .

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After considering the petitioner’s submissions, CERC noted the following observations:

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• In any PPA, CIL rules apply unless the agreement states otherwise. “The phrase “unless otherwise defined in the agreement” has been used in the context of the definition of Change in Law and not in the context of applicability of the Change in Law Rules,” said the commission while declaring the petitioner’s argument that CIL rules apply only to those agreements which do not have CIL provisions to be ‘misplaced’.
• As a general rule, no law operates retrospectively unless it has been provided differently in the law itself or with exceptions specified by the Supreme Court. Further, wherever a particular provision operates in the future, it cannot be said to be retrospective merely because within the sweep of its operation all existing rights are included. “We observe that the Petitioner has not pointed out any specific provision in the Change in Law Rules which prevents it from recovery of safeguard duty under Change in Law,” CERC thus said.
• CIL rules were framed to provide a methodology and facilitate timely recovery of costs due to CIL events. Since Mahindra Renewables has no objection in approaching the procurers with computations and details in terms of CIL rules to claim relief, the firm needs first to approach SECI/procurers for tariff adjustment as per CIL rules, said the commission.
• “Regarding the submissions of the Petitioner that provisions of the Change in Law Rules cannot supersede the provisions of the PPA and whether the process to be followed as per the provisions of the Change in Law Rules and the methodology/ formula for compensation as specified therein get imposed on the Petitioner, the same are required to be raised in the appropriate forum for adjudication,” CERC opined.

Thus the commission directed Mahindra Renewables to approach SECI/procurers for the settlement of Change in Law claims among themselves in terms of the Change in Law Rules and to approach CERC only in terms of Rule 3(8) of the Change in Law Rules.