Solar firm missed deadline by 56 days. Power company terminated PPA twice. High Court quashed both. Supreme Court now decides: was the contract statutory?

A power company terminated a solar PPA. The High Court said: you can't. The power company terminated again. The High Court said: you still can't. Now the Supreme Court is asking: was this contract even subject to writ jurisdiction?

On a November morning in 2022, a bench of the Supreme Court — the courtroom silent save for the rustle of paper — sat down to answer a question that had been quietly haunting government contracting for decades. A state-run power company in Madhya Pradesh had signed a deal to buy solar power at Rs.5.109 per unit. The developer missed a deadline by 56 days. The company terminated the agreement. Twice. The High Court reversed both terminations. And now the power company was before the Supreme Court, arguing something radical: that the courts had no business interfering with this contract at all. A stack of PPAs sat on the counsel's table, their pages dog-eared from repeated reference.

When the 56-day delay became a legal war

In September 2015, the Madhya Pradesh Power Management Company Limited (MPPMCL) — a government company that buys bulk power for the state — signed a Power Purchase Agreement (PPA) with Sky Power Southeast Solar India Private Limited. The deal: Sky Power would set up a 50MW solar plant and sell electricity to MPPMCL at Rs.5.109 per unit for 25 years.

The PPA gave Sky Power 210 days to fulfil certain conditions — land acquisition, financial closure, environmental permits — with a possible extension of nine months, subject to a penalty. The final deadline was January 15, 2017.

Sky Power missed it. By 56 days.

On August 11, 2017, MPPMCL terminated the PPA. Sky Power rushed to the Madhya Pradesh High Court under Article 226 (the High Court's power to issue writs, or binding orders, to government bodies). The High Court quashed the termination, relying on a precedent from a similar case involving Renew Energy — where the delay was only 16 days.

MPPMCL tried again. On July 7, 2018, it issued a fresh termination order on substantially the same grounds. The High Court quashed that too, on February 27, 2020. MPPMCL filed a review petition, which was dismissed on December 28, 2020. Then it appealed to the Supreme Court. The file, by then, felt thick with procedural history.

The argument that could have ended everything

MPPMCL's lead argument was deceptively simple: this PPA was a non-statutory commercial contract. The High Court, it said, had no jurisdiction to interfere with a termination under a private contract — even if one party was a government company. Disputed facts existed. The proper remedy, MPPMCL argued, was a civil suit, not a writ petition.

Sky Power countered that the PPA was rooted in the Electricity Act, 2003. Section 63 of that Act (which governs tariff determination through competitive bidding) formed the basis of the entire bidding process. The bidding guidelines issued under Section 63 were incorporated into the PPA. This, Sky Power said, made the contract statutory — and therefore subject to writ jurisdiction.

The Supreme Court had to decide: was this PPA a statutory contract, immune from ordinary contractual principles and subject to public law remedies? Or was it a commercial contract, where the government company could terminate at will, subject only to civil suit?

Why the PPA was not a statutory contract

The bench — Justice K.M. Joseph and Justice Hrishikesh Roy — rejected the argument that the PPA was statutory. The test, the Court held, is whether entering into the contract with prescribed terms is mandatory under a statute. A mere reference to bidding guidelines under Section 63 of the Electricity Act does not transform a commercial agreement into a statutory one. As the Court put it in its ratio: "A PPA incorporating reference to bidding guidelines under Section 63 of Electricity Act does not become a statutory contract." The bench spoke these words with deliberate weight, the silence in the room amplifying their finality.

The Court drew a distinction: Section 62 of the Electricity Act (which deals with tariff determination by the regulatory commission) creates a statutory framework. Section 63, by contrast, merely provides an alternative route — competitive bidding — for tariff determination. The PPA itself remained a contract between two parties, not a creature of statute.

This was a significant clarification. Government companies across India — in power, telecom, infrastructure — routinely argue that their contracts are "statutory" to attract or avoid writ jurisdiction. The Court narrowed that door considerably.

The twist: even non-statutory contracts can be challenged

But the Court did not stop there. Even if the PPA was non-statutory, the Court held, there is no absolute bar on writ jurisdiction when the State or its instrumentality acts arbitrarily. The key question is not whether the contract is statutory — but whether the State's action in terminating it was arbitrary under Article 14 (the constitutional guarantee of equality before law).

The Court laid down a six-factor test to determine whether State contractual action is arbitrary: (1) whether the decision is based on principle, (2) whether it betrays caprice, (3) whether it is supported by rationale, (4) whether it is in good faith, (5) whether it involves application of mind, and (6) whether it is not wholly unreasonable under the Wednesbury doctrine (a legal standard that asks whether a decision is so unreasonable that no reasonable authority could have made it).

Exercising contractual rights for breach, the Court said, is ordinarily not arbitrary. But the State cannot hide behind contract law to act unreasonably or capriciously.

What the Court did with the public interest argument

MPPMCL also argued that public interest favoured termination. Solar power tariffs had crashed dramatically since 2015 — from Rs.5.109 per unit to around Rs.2.50 per unit. Keeping the old PPA alive, MPPMCL said, would burden the state's consumers with inflated power costs for 25 years.

The Court acknowledged this argument but did not accept it as a standalone ground for termination. The PPA was a binding contract. The fact that market conditions changed — even dramatically — does not give one party the right to walk away, unless the contract itself provides for renegotiation or termination on that ground.

This is a crucial point for every infrastructure project in India. Tariffs, land prices, input costs — all fluctuate. The Court's message: parties must live with their bargains, absent fraud, misrepresentation, or specific contractual provisions allowing adjustment.

The procedural trap MPPMCL fell into

The Court also examined whether MPPMCL had complied with Article 9.1 of the PPA — the pre-termination notice clause. The clause required the power company to give Sky Power a notice of default and a reasonable opportunity to cure the breach before terminating.

MPPMCL had issued termination orders without following this procedure. The High Court had noted this failure. The Supreme Court did not disturb that finding. Even if the contract was non-statutory, a termination that violates the contract's own procedural safeguards could still be arbitrary.

This is a practical lesson for every government company: follow your own contract. A termination that skips the notice-and-cure process will be vulnerable to challenge, regardless of whether the contract is statutory or commercial. A handwritten note on the termination letter — "no cure period given" — might have been the first sign of trouble.

THE PLAY: Before terminating any government contract, verify compliance with every procedural clause in the agreement — a single skipped notice can undo the entire termination, even if the contract is non-statutory.

What this means for every PPA in India

For practitioners advising solar developers and power companies, this judgment offers three clear takeaways.

First, a PPA that merely references Section 63 bidding guidelines is not a statutory contract. Do not assume writ jurisdiction is automatically available or barred based on the contract's statutory flavour. The test is whether the statute makes the contract mandatory, not whether the contract references the statute.

Second, even in non-statutory contracts, the State cannot act arbitrarily. If you are challenging a government company's termination, focus on arbitrariness — lack of reasons, capricious decision-making, procedural violations — not on the contract's statutory nature.

Third, the public interest argument — falling tariffs, changed market conditions — will not save a termination that breaches the contract. If you want to exit a PPA because prices have dropped, you need a contractual clause that allows it. The courts will not rewrite your bargain.

The Supreme Court's judgment in M.P. Power Management Company Limited v. M/s. Sky Power Southeast Solar India Private Limited & Others is not just a solar case. It is a map of where public law ends and private contract begins — and where they overlap.

The 56-day delay that started this fight was, in the end, the least important thing about it.