A power company thought it had a deal. The Supreme Court said: not so fast.

The government said 'yes' to the tariff. The company called it a contract. The regulator called it nothing. The Supreme Court just picked a side.

On a May afternoon in 1999, the Karnataka government issued an order approving the purchase of electricity from Jindal Thermal Power Company at Rs 2.60 per unit. The paper bore the official seal. The company believed it had a deal. The state electricity board believed it had a deal. But when the newly created Karnataka Electricity Regulatory Commission looked at the same papers, it saw something else entirely: a negotiation that had never quite finished. No signed Power Purchase Agreement existed. No agreed terms beyond the price sat in the file.

The question that would take twenty-three years to answer: When does a handshake on price become a binding contract—and who gets to decide?

The captive plant with nowhere to go

Jindal Thermal Power Company (later JSW Energy) built a 2x130 MW thermal power plant in Bellary, Karnataka. The plant was designed as a captive unit—meant to supply electricity exclusively to a sister steel company. But when the steel plant's demand dropped, Jindal found itself with surplus power and no buyer.

The company approached the Karnataka Electricity Board (KEB), the state-owned utility, offering to sell the excess electricity. Months of negotiation followed. Tariffs were discussed. Volumes were proposed. The government of Karnataka, acting through its energy department, finally issued an order dated 12.05.1999. The order approved the purchase of power at Rs 2.60 per unit, with a 5% annual escalation for five years.

To Jindal, this was acceptance. To KEB, this was a green light to finalise the paperwork. But the paperwork—the formal Power Purchase Agreement (PPA)—was never signed. Drafts sat in the files, each page blank where signatures should have been.

Twenty days that changed everything

On June 1, 1999—just twenty days after the government order—the Karnataka Electricity Reforms Act, 1999 came into force. This law created the Karnataka Electricity Regulatory Commission, an independent body with the power to set electricity tariffs. From that day forward, the government could no longer unilaterally decide what a power company would be paid. The Commission would determine the tariff.

But the Act contained a crucial exception. The proviso to Section 27(2) stated that if a contract had been 'concluded' before June 1, 1999, the Commission could not alter the tariff already agreed. The old deal would stand.

Jindal argued that the government order of May 12, 1999 had created exactly such a concluded contract. The Commission disagreed. In May 2002, the Commission reduced the tariff and approved a PPA with modified terms. Jindal had lost the premium it thought it had locked in.

What the Commission saw that the company missed

The core legal dispute was deceptively simple: under the proviso to Section 27(2) of the Karnataka Electricity Reforms Act, 1999, had a 'concluded contract' been formed before June 1, 1999? If yes, the Commission had no power to touch the tariff. If no, the Commission was free to set its own rate.

The Commission held that no concluded contract existed because the parties were not ad idem—a Latin phrase meaning they had not agreed on all essential terms of the PPA. Price alone, the Commission said, was not enough. A power purchase agreement involves dozens of interdependent terms: payment security, force majeure, termination rights, dispute resolution, metering standards, and more. None of these had been finalised.

Jindal appealed to the Karnataka High Court under Section 41 of the Act (which allows an appeal only on a question of law). The High Court reversed the Commission. It held that the government order of May 12, 1999 constituted acceptance, creating a concluded contract on tariff, quantum, and tenure—the three pillars of any power deal.

The Karnataka Power Transmission Corporation Ltd (KPTCL) and the Commission appealed to the Supreme Court.

The bench that looked behind the price tag

A three-judge bench—Justice K.M. Joseph, Justice Aniruddha Bose, and Justice Hrishikesh Roy—examined the case in November 2022. The Court applied the basic principles of contract formation under Sections 2 and 10 of the Indian Contract Act, 1872: a contract requires a proposal, acceptance, and consideration (something of value exchanged between the parties). But the Court also looked at the specific nature of a PPA.

The bench observed that a power purchase agreement is not a simple sale of goods. It is a long-term, capital-intensive arrangement where the generating company commits to building and operating a plant, and the buyer commits to purchasing electricity for years. Such an agreement cannot consist only of a rate, a term, and a quantum. Other interdependent terms—payment mechanisms, performance guarantees, termination clauses—are equally essential. Without agreement on these, the parties are not truly ad idem.

The Court also noted that the parties themselves had contemplated a formal PPA as a prerequisite. The government order had directed KEB to "enter into a PPA" with Jindal. This language, the Court held, indicated that the order was an authorisation to negotiate and finalise, not a final contract itself. Where parties intend a formal document to be the contract, the absence of that document strongly suggests no concluded contract exists.

The Commission, as an expert regulatory body, had made findings of fact on whether the parties had agreed on all essential terms. The Court held that under Section 41, the High Court could interfere with those findings only if they were perverse—completely unreasonable—or if the Commission had violated a clear statutory provision. The High Court had substituted its own view for the Commission's without identifying any perversity. That was an error.

The Court's own words: 'ad idem' and the proviso

The Supreme Court's reasoning turned on a single, precise point. The bench held that "a contract is concluded only when parties are ad idem on all essential terms; where the contract is a PPA, it cannot consist only of rate, term and quantum—other interdependent terms must also be agreed upon." The proviso to Section 27(2) uses the phrase "contracts concluded" without qualification. It does not mean "contracts concluded as regards tariffs alone." The Court held that for the proviso to apply, all essential PPA terms must be agreed—not just the rate, the quantum, and the tenure.

The bench also addressed the argument that a contract can be formed without a written document. While writing is not essential under general contract law, the Court said, where the parties themselves contemplated a formal PPA as a prerequisite, the absence of that PPA indicates no concluded contract. The unsigned drafts spoke louder than the signed government order.

THE PLAY: A government approval of price and quantity does not create a concluded PPA unless every essential term is agreed—and if the parties intended a formal document, that document must exist before the regulatory cut-off date.

The procedural journey: from Commission to Supreme Court

The case travelled through three forums over two decades. First, the Karnataka Electricity Regulatory Commission issued its order on May 22, 2002, reducing the tariff and approving the PPA with modifications. The Commission followed up with a second order on July 8, 2002, approving the draft PPA with the modified tariff and terms. Jindal appealed under Section 41 of the Act, which permits an appeal to the High Court only on a question of law. The High Court of Karnataka at Bengaluru allowed the appeal on April 8, 2004, setting aside both Commission orders. It held that a concluded contract existed. KPTCL and the Commission then appealed to the Supreme Court. The Supreme Court heard the matter and delivered its judgment on November 22, 2022—more than eighteen years after the High Court's decision, and twenty-three years after the government order that started it all.

The Commission's reasoning, step by step

The Commission had examined the negotiations in detail. It found that while the government order specified the rate, the quantum, and the tenure, the parties had never finalised dozens of other terms essential to a PPA. These included payment security mechanisms—how and when Jindal would be paid; force majeure provisions—what happened if the plant or the grid failed; termination rights—who could walk away and under what conditions; dispute resolution clauses—how disagreements would be settled; and metering and testing standards—how the electricity would be measured and verified. The Commission noted that the parties had exchanged multiple drafts of the PPA, each version containing changes and counter-proposals. No single draft had been accepted by both sides. The Commission concluded that the parties were not ad idem on all essential terms, and therefore no concluded contract existed before June 1, 1999.

The High Court, in reversing the Commission, had taken a different view. It held that the government order constituted a final acceptance of the essential commercial terms—rate, quantum, and tenure—and that the remaining terms were standard boilerplate that could be filled in later. The Supreme Court disagreed. It held that the Commission's findings on the absence of agreement on essential terms were findings of fact, made by an expert body. Under Section 41, the High Court could interfere only if those findings were perverse—that is, completely unreasonable or unsupported by any evidence. The High Court had not identified any perversity. It had simply substituted its own view. That, the Supreme Court held, was not permitted.

The precedents that guided the bench

The Supreme Court drew on several precedents. In West Bengal Electricity Regulatory Commission v. CESC Ltd., the Court had held that regulatory commissions have the expertise to determine tariffs and that courts should defer to their findings unless they are clearly wrong. In India Thermal Power Ltd. v. State of M.P. & Ors., the Court had examined the nature of PPAs and held that they are complex, long-term arrangements requiring agreement on multiple terms. In All India Power Engineer Federation v. Sasan Power Ltd., the Court had reiterated that the regulatory commission's jurisdiction to determine tariffs is the norm, and any exception—such as the proviso to Section 27(2)—must be strictly construed. The Court also applied general principles of contract law from Kollipara Sriramulu v. T. Aswatha Narayana and Ram Narain Sons Ltd. v. Asstt. Commissioner of Sales Tax, which held that a contract is formed only when parties are ad idem on all essential terms.

The deal that never was

The government said 'yes' to the tariff. The company called it a contract. The regulator called it nothing. The Supreme Court just picked a side—and in doing so, reminded every power company in India that a handshake on price is not the same as a deal on paper. The file on the regulator's desk, once thin and incomplete, had finally found its answer.