2026 INSC 515 Page 1 of 34

Civil Appeal No.7432 of 2025 etc.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No. 7432 of 2025

Punjab State Power

Corporation Limited

...Appellant

Versus

Talwandi Sabo Power

Limited & Ors.

...Respondents

with

Civil Appeal No. 7436 of 2025

J U D G M E N T

K. VINOD CHANDRAN , J.

The appeals are filed by the Punjab State Load Despatch Centre

(PSLDC) and the Punjab State Power Corporation Limited (PSPCL)

against the judgment of the Appellate Tribunal for Electricity (APTEL)

reversing the order of the Punjab State Electricity Regulatory

Commission (SERC). The impugned order sets aside the finding of

‘misdeclaration of Declared Capacity’ as found by the PSLDC on four

days in January 2017. Initially, misdeclaration was found for five days

i.e. on 10.08.2015, 15.01.2017, 17.01.2017, 24.01.2017 and 31.01.2017

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leading to a levy of penalty coming to Rs.162,74,72,865/- by Memo

No. 278 dated 15.03.2017, out of which a penalty of Rs.74,27,27,159/-

stood deducted from the pending bills. At the instance of the State

Generating Station, Talwandi Sabo Power Limited (SGS or TSPL,

alternatively) directions were issued by the High Court referring the

matter, first to the Commercial and Metering Committee and then to

the State Grid Code Review Committee. Dissatisfied with the

proceedings thereat, again on the directions of the High Court, the

matter was referred to the SERC which affirmed the findings of the

PSLDC that the SGS had failed to demonstrate its capacity on four

occasions in the month of January 2017 but rejected the finding of

misdeclaration in the month of August 2015. The APTEL reversed the

said order and deleted the findings of misdeclaration, and the

resultant penalty.

Appellants; in support of the SERC: -

2. Shri M.G. Ramachandran, appearing for the PSLDC at the outset

pointed out that the energy requirement in the State varies with the

demand, being high during May to September; the paddy season,

and comparatively lower for the remaining months of the year.

Reference was made to Schedule-7 of the Power Purchase

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Agreement (PPA) which provides for a two-part tariff, one; on the

capacity based on the Declared Capacity/Capability (DC), a fixed

charge, and a variable charge on the energy scheduled for supply.

The SGS, the generator, is required to declare the electricity

generation capacity in megawatts (MW) for every given day, the

scheduling of which is decided by the PSLDC based on the

anticipated requirements of PSPCL, equal to or below the declared

capability. Even if the scheduling required by the PSPCL is lower it

has an obligation to pay the fixed charges, the difference being

termed as deemed generation, subject to incentives and

disincentives based on the percentage of declared availability as

determined annually. The PSLDC exercises statutory functions under

Section 32 of the Electricity Act, 2003 (the Act of 2003) to oversee,

monitor and control the availability schedule and despatch of

electricity as generated by the SGS and supplied to PSPCL.

3. The Punjab State Grid Code, 2013 (SG Code) provides for

detailed steps for declaration of capability, scheduling and despatch

as also enables revision of injection and drawal schedule on a real

time basis relatable to the requirements, subject to forced outages,

bottlenecks etc. The PSLDC has overriding powers insofar as calling

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upon the SGS at any point of time to revise the schedule which has to

be effective from the 4

th

time block, the first being counted as that in

which the revised schedule is issued, each of such time blocks being

of 15 minutes duration. The SGS is also required to declare the

possible ramping up/ramping down of generation in every time

block which in the present case has been declared as 1% per minute.

The very purpose behind the regulatory measure as provided in the

SG Code ensures that the SGS faithfully declares its capability and

maintains it throughout, subject to revisions, despite the schedule

being lower and its readiness to ramp up or down being occasioned

at every revision sought for, by the PSPCL through the PSLDC.

4. The PSPCL being unable to draw the full capacity of the

declared availability enables the generator to have the benefit of

deemed generation of the declared availability with significant

consequences on the capacity/fixed charges. This unwittingly gives

an opportunity to the generator to declare far more than its capacity,

on an estimation of the drawal requirements of the procurer and also

in certain instances, make undue gain at the cost of the procurer and

the consumers at large. To curb such unfair practices the SG Code

provides for steps to curb misdeclarations by way of issuing warning

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notices and then show-cause notices against any indulgence in

gaming as per Regulation 11.3.12 or for imposition of penalty for

misdeclaration in the event of failure to demonstrate the declared

capacity as required by the PSLDC. Regulation 11.3.13 brings in a

strict liability which is the penalty imposed in the present case.

Learned Senior Counsel also took us through the findings of the SERC

which have been reversed by the APTEL on misconstruing the

provisions of the Act and the Grid Code. Reliance was placed on

Union of India vs. Dharamendra Textile Processors

1 to distinguish

a penalty arising on a civil liability from one arising in a criminal

liability, the requirement of mens rea being absent in the former.

5. Shri Shubham Arya appearing for the PSPCL adopts the

arguments addressed by the PSLDC and points out that though the

penalty is payable to the PSPCL, the ultimate beneficiary is the

consumer since the PSLDC has an obligation to account for the entire

penalty which would be reflected in the tariff, based on the profit or

income generated by the PSPCL, passed on to the consumer by

reduction in tariff. A portion of the penalty imposed having been

deducted, the same was paid with applicable interest/payment

1

(2008) 13 SCC 369

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surcharge as per the PPA so as to ensure that PSPCL does not suffer

any further liability of surcharge/interest, but under protest and

subject to the final decision in the above civil appeals. It is pointed

out that the demonstration of capability has to be either in the four-

time blocks or as per the 1% ramp up per minute, also declared by

the SGS of which the former gives the SGS a better elbow room by

way of more time being available for the demonstration by achieving

the declared capability. The 1% ramp up per minute is also a

declaration made by the SGS which too has to be strictly adhered to.

Regulation 5.3.8 is pointed out to contend that the ramp up/ramp

down percentage is prescribed by the SG Code itself.

Respondents; in support of the APTEL: -

6. Shri Sajan Poovayya commenced with the declaration of fidelity

of the SGS he represents, vouched by the fact that it had not once run

into rough weather in the last nine years of the relationship. On the

discord now alleged, even according to SLDC and PSPCL, the

demonstration of its declared capacity had to be done within four-

time blocks from the receipt of the notice and the CERC also

adjudicated the issue as to whether such demonstration was achieved

in the 4

th

time block. Hence, the ramp up rate of 1% is

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inconsequential insofar as Regulation 11.3.13 of the SG Code is

concerned. In fact that regulation does not specify a time in which the

demonstration had to be carried out and, in such circumstances,

neither 4

th

time block nor the 1% ramp up can be determinative of

the factum of demonstration. Further, since no time was specified,

even in the notice issued, demonstration could be at any time of the

day on which it is required. It is argued that what is alleged is gaming

as a consequence of the misdeclaration, which required a finding of

deliberate intention with the motive of making money; ie: to earn

undue capacity charges, without which finding, there can be no

misdeclaration alleged or penalty imposed.

7. Reliance is placed on TPDDL v. PPCL

2 dated 29.11.2023 of the

CERC wherein an identical issue was considered. Misdeclaration of

the declared capability is established only when the generating

station lacks the necessary fuel or coal to generate power upto its

declared capability or its power plant is shutdown or under repair

due to faulty machinery, thus causing restriction in the generating

capacity of the station. On all the four days of the alleged

2

“Tata Power Delhi Distribution Limited v.

Pragati Power Corporation Limited and Others” in Petition No.199/MP/2019

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misdeclaration, the TSPL’s plant had generated power on multiple

time blocks as per the declared capacity and this demonstrates that

the SGS had the necessary coal stock and was technically capable of

generating power up to its declared capacity: putting to peril any

allegation of misdeclaration.

8. Reliance was also placed on the judgment dated 11.12.2007 of

the APTEL in PSEB v. CERC

3 wherein less than 1% deviation was

found to be within practical limits; not necessarily justifying an

allegation of gaming by the generating unit. The 1% ramp up rate is

merely a normative value and has no relation to the actual operation

of the generation capability of the SGS and even regulation 5.3.8

provides only for a possible generation as per the ramping up/down

rate as declared by the SGS. The decision of this Court in Excel Crop

Care Ltd. v. CCI

4

is relied on to argue that if two possible

interpretations are possible, both being reasonable, especially while

considering a penal provision, the Court should lean towards the

interpretation which exempts the penalty rather than one which

imposes it.

3

“Punjab State Electricity Board v. CERC” in Appeal No. 79 of 2007

4

(2017) 8 SCC 47

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9. Allegation of discrimination is raised citing the case of Nabha

Power Limited, another generating station of the State of Punjab,

which too injected power less than its declared capacity on multiple

occasions, but was absolved from any imposition of penalty. It is

asserted, on the strength of the words employed in the provisions of

the SG Code that there should be an enquiry with appropriate

hearing afforded, to the generating station to find gaming and that

conclusion of misdeclaration leading to gaming can be arrived at

only when there is a mala fide intention found on the generating

station, to earn undue profits, by the measure employed of

misdeclaration. It was specifically pointed out that the CERC despite

finding in its order that the act of the generating station has to be

‘deliberate or intentional’ and there should be ‘motive found to make

money’ either as undue capacity charges or to benefit from deviation;

the principle was lost sight off while the penalty was affirmed. There

is also an alternate contention taken that the finding in the present

case is only of a deviation which is regulated by the CERC (Deviation

Settlement Mechanism and Related Matters) Regulations, 2014

5

.

5

The DSM Regulations

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10. Mr. Vishrov Mukerjee, learned Counsel for the respondent,

follows up with the assertion that misdeclaration and deviation are

distinct, the former being a misdemeanour while, to find deviation,

there need not be any inquiry into the intent or obtainment of illegal

gain. Misdeclaration can be found only by an inquiry into the intent

and the monetary gain achieved by such misdemeanour. Insofar as

the demonstration of the declared capability in a time block is

concerned, the notice issued by the SLDC did not specify the time

frame in which it had to be achieved and hence the SERC ought not

to have found misdeclaration without an inquiry into the intent behind

such alleged misdemeanour. The table relating to scheduling,

despatch and net drawal, as extracted by the SERC is specifically

pointed out to show that demonstration was achieved within the

required time blocks or at least in the same day; which we will deal

with a little later.

The Order of the SERC: -

11. The SERC by Annexure A50 order found that as and when notice

is issued by the SLDC to demonstrate the DC, the SGS has to comply

with it as per the ramp up/ramp down rate under Regulation 11.3.10

of the SG Code and on failure it would be liable for penalty on the

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ground of misdeclaration. However, it was also found that in the

instant case, the PSLDC had allowed the petitioner to implement the

directions from the 4

th

time block and hence no literal interpretation

could be adopted. The SERC found that gaming in Regulation 11.3.4

and deliberate over/under declaration of plant availability in

Regulation 11.3.12 has the same connotation and that the act of the

generator has to be deliberate or intentional and there should be a

motive to make illegal enrichment. As far as the monitoring

procedure delineated under Regulation 13.5 of the SGCRC, it was

found to be distinct from Regulation 11.3.12 and 11.3.13, dealing with

only monitoring and evaluation of the performance of the generating

plants. A 12% margin as provided by the DSM Regulations is to

ensure maintenance of grid discipline and grid security as envisaged

under the Grid Code. The intention of providing deviation volume

limit is to curb tendency of users to deviate drastically from the

schedule, under threat of deviation charges. The DSM Regulations

were found to be not applicable in the case of demonstration of DC

governed by the provisions of the SG Code.

12. On the basis of the above interpretation, the factual matrix was

examined, and it was found that in December 2016, the SLDC noticed

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a regular pattern of generation, below the scheduled declaration, for

which notices were issued pointing out that this would tantamount to

misdeclaration of declared capability resulting in SG Code violation.

On 19.12.2016, on receipt of such communication through email, the

SGS was found to have lowered its declared capability. Again on

30.12.2026, a pattern was detected with a maximum under injection

of 27% recorded under one time log, when again warning notices

were issued. Yet again, rather than increasing the generation, the

SGS lowered its declared capability. The SERC specifically

emphasised the analysis of injection in December 2016 as projected

by the PSLDC, wherein the SGS failed to deliver requisite generation

in 387 time blocks out of the total 459-time blocks, taking the under

generation to 84.13% of the time blocks corresponding to the

declared capability. This led to notices being issued on the times

specified on the four dates in January 2017. The declared capability,

the scheduled generation, actual injection and the deviation in

various time blocks after the notice period were tabulated. The SERC

analysed it to find a misdeclaration for reason of failure of SGS to

demonstrate the declared capability on it being sought by the SLDC;

the details of which will be dealt with by us in our own analysis. The

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SERC found misdeclaration on the four specified dates in the month

of January 2017 for which the penalty was imposed, as per the

corresponding monthly capacity charge payment; the computation

of which we need not go into.

The Impugned Order: -

13. The APTEL noticed Regulation 11.3.10; which mandates

declaration of generation capability, Regulation 11.3.12 ;

empowering SLDC to issue a notice alleging gaming and Regulation

11.3.13; enabling SLDC to require demonstration of declared

capability, to find that there is no time limit specified for

demonstrating the declared capability. It was found that the SERC

had erroneously relied on the ramp rate as the measure for

demonstration of capability and declined the contention of the

appellants herein that the SGS is required to demonstrate generation

on the 4

th

time block on receipt of notice. It was held that Regulation

11.5 (xi) is in a totally different context of revision of schedule and

does not govern demonstration of DC. As far as the misdeclaration

of declared capability, reliance was placed on the order of the CERC

in TPDDL

2, which according to the APTEL held that misdeclaration

can be found only when there is absence of adequate coal stock or

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when the plant is under shutdown or repair due to faulty machinery.

The SGS on 17.01.2017 raised technical issues of the coal handling

plant which necessitated downward revision and shutdown, duly

communicated to the PSLDC. Finding that ramp rate or the 4

th

time

block, does not apply insofar as demonstration of DC is concerned it

was observed that the notices issued also did not specify any time

block within which the declared capability had to be demonstrated,

which in any event, was demonstrated on the very same day.

14. On facts, it was found that on each of the days complained of,

the DC was demonstrated on 15.01.2017, within 4

th

and 6

th

time

blocks with a slight deviation and on 24.01.2017, on the 7

th

and 8

th

time blocks with deviation of 1.02% and 0.34% respectively. The

order dated 11.12.2007 in PSEB v. CERC

3 was relied on to hold that

the deviation of less than 1% of DC is within the practical limits and

shall not be considered as gaming by the generating company. The

APTEL set aside the findings on misdeclaration on the four dates in

January 2017 and directed refund of the penalty amounts adjusted in

the bills payable. The APTEL however concurred with the findings of

the SERC that the DSM Regulations do not govern the demonstration

of declared capability.

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Adjudication: -

15. At the outset we have to notice that the argument put forth, by

the SGS of force majure conditions having impeded demonstration of

DC was hastily resiled from, on our querying on the specifics. We are

also not impressed by the assertion of fidelity in the last 9 years of

relationship with the Distribution Company, which the SGS swears

by, which also has to be continued for another 16 years. Morality in

past conduct, though attractive by itself, can seldom be a justification

for deviation from express terms of a contract especially when there

is a strict liability enforced without reference to a guilty mind; the

mens rea. The PPA admittedly provides for fixed capacity charges

and variable energy charges as is seen from Annexure A1 produced

along with Civil Appeal No.7436 of 2025 (the documents from which

appeal is referred to, by us in this judgment).

16. The fixed capacity charges are to be paid based on the

contracted capacity at normative availability, specified as equal to

80%, subject to incentives and disincentives, dependent on the

percentage of availability achieved, annually. For an availability

beyond 85%, as per Clause 1.2.4 of Schedule 7 of the PPA, an

incentive at the rate of 40% of the Quoted Non Escalable Capacity

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Charges (QNECC) for the contract year, subject to a maximum of that

corresponding to the availability in excess of 85% is payable. This is

applicable on an annual basis and included in the monthly tariff

demand in the first month of the next contract year. A disincentive in

the nature of a penalty is determined as per Clause 1.2.5 of the

Schedule when the availability for a contract year is less than 75%,

inviting a penalty at the rate of 20% of the simple average capacity

charge for all months in the contract year applied on the energy

corresponding to the difference between 75% and the availability

during such calendar year, also a civil liability. The fixed charges

being applicable to the contracted capacity, the incentives and

disincentives will depend upon the availability which would be

determined on the basis of the Regional Energy Accounts (REA)

maintained for the year.

17. The ‘Scheduling and Despatch’ are regulated by Part IV of the

SG Code which has that nominal heading. As is clear from the

objectives Regulation - 11.2, the SG Code delineates the procedure

for scheduling of the net injection/drawals of the State Entities on a

day-ahead basis, streamlining the flow of information between the

SLDC and the State Entities, herein being the SGS; the generator-

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TSPL, and the PSPCL; the procurer. The SGS in the instant case as per

the PPA, is obliged to maintain three units, each having the capability

of generation of 660 MW. The SG Code provides for a procedure of

submission of capability/capacity declaration by the SGS and the

drawal requisition by the procurer of power, who carries out

distribution to the consumers. Regulation 6.3.8 of the ‘Operational

Planning’ mandates that all distribution licensees/users shall provide

to SLDC their estimated demand for each 15-minute block for the

ensuing day with estimates of load in discrete blocks, a day ahead at

11.00 hours of each day. ‘Steps in Scheduling’ in Part IV, Section 11

by sub-clause (i) under Regulation 11.4 requires the SGS to intimate

the station-wise ex-power plant MW and MWh capabilities, foreseen

for the next day between 00.00 to 24.00 hrs in time blocks of 15

minutes interval to the SLDC. Similarly, sub-clause (ii) requires the

distribution licensees to intimate the overall requirement in MW and

MWh for the next day on 15 minutes interval to the SLDC by 11.00

hours of the previous day after receipt of information as provided

under sub-clause (i). The SLDC also is required to finalise by 15.00

hours of the previous day the generation schedule of the SGS and the

drawal schedule of each distribution licensee for the next day, for

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each 15 minute time blocks. The variable energy charges are

payable on the scheduled generation, this being capable of revision

on a real time basis, within the declared capacity. The deviations

from that scheduled and actually injected is dealt with by the

Unscheduled Interchange (UI) charges.

18. The general conditions under Part IV, Section 11 deals with the

measure of gaming and the demonstration of declared capability (or

‘capacity’; alternatively used herein). Regulation 11.3.2 requires the

SLDC to issue despatch instructions as delineated hereinabove to

regulate all generation and imports from SGS, in accordance with the

15-minute day ahead generation schedule as finalised by the SLDC.

As per Regulation 11.3.4, the SLDC is responsible for; (i) coordinating

the scheduling of all generating stations within the State (ii) real time

monitoring of the station’s operations (iii) checking that there is no

gaming in its availability declaration, or (iv) in any other way revision

of availability declaration and injection schedule, switching

instruction, meter data processing, collections/disbursement of UI

payments, outage planning etc.; each of these being separate and

distinct aspects/obligations.

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19. ‘Gaming’ is defined as an intentional misdeclaration of a

parameter related to commercial mechanism in order to make an

undue commercial gain; clearly requiring a finding of a guilty intent

and illegal enrichment. Regulation 11.3.4 while emphasising that the

SLDC shall ensure that there is no gaming in scheduling, in the event

of a suspicion enables the SLDC to disallow the energy

corresponding to suspected gaming from UI account till a final

decision is taken. Regulation 11.3.12 obliges the SGS to declare the

plant capability faithfully, in accordance with their best assessment.

Over/under declaration of plant capability resulting in deviation

from schedules, given on the basis of their capability declarations,

requires the SLDC to serve notice of gaming and affording an

opportunity to the SGS to explain the situation with necessary backup

data. The deviation in injection from the scheduled or capability

declared also should have resulted in monetary gain either as undue

capacity charge or as the charge for deviations from schedule. We

fully concur with the respondent’s contention that gaming requires

mens rea coupled with illegal enrichment which requires an inquiry

fully complying with the principles of natural justice.

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20. However, the SERC, according to us, in its order mistook the

present allegation as one of gaming and erroneously found

imperative - ‘intention and a motive to make money’, to impose

penalty for the misdeclaration alleged. True, despite the above

finding, though in this case, there was no enquiry into a deliberate

attempt to profiteer, the penalty was upheld; rightly so as we would

presently demonstrate. We are in favour of the contention of the

appellant that demonstration of declared capability and deviation

from the despatch schedule are quite distinct and different in

themselves and more so from gaming.

21. Demonstration of the declared capability of a generating

station is provided for in Regulation 11.3.13, which, for its relevance,

is extracted hereunder: -

“11.3.13 The SGS shall be required to demonstrate the

declared capability of its generating station as and when

asked by the SLDC. In the event of the SGS failing to

demonstrate the declared capability, the capacity charges

due to the generator shall be reduced as a measure of

penalty. The quantum of penalty for the first mis-

declaration for any duration/block in a day shall be the

charges corresponding to two days fixed charges. For the

second misdeclaration the penalty shall be equivalent to

fixed charges for four days and for subsequent mis-

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declarations, the penalty shall be multiplied in the

geometrical progression over a period of a month.”

22. The demonstration as required by Regulation 11.3.13 is a stand-

alone provision, the penalty for which is ingrained therein. There is

no reason to intermingle the concepts of gaming and demonstration

of declared capability, even though both can be found literally to be

misdeclarations leading to two different consequences, the former,

requiring mens rea and the latter inviting strict liability. We are also

of the opinion that the responsibilities of the SLDC as listed under

Regulation 11.3.4 are also distinct in nature. While checking on

gaming; having the ingredients of intention and illegal enrichment, is

one of the responsibilities, coordination of scheduling and real time

monitoring of the generating station’s operations are matters which

fall under ‘better system operation’ the responsibility to ensure which

is also cast on the SLDC by Regulation 11.5 (xi); extracted here under,

for emphasis : -

“(xi) If, at any point of time, SLDC observes that there is

need for revision of the schedules in the interest of better

system operation, it may do so on its own and in such cases,

the revised schedules shall become effective from the 4th

time block, counting the time block in which the revised

schedule is issued by SLDC to be the first one.”

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23. We cannot accept the finding of the APTEL that the above

Regulation applies only to revision of schedules, which is governed

by Regulation 11.5.(vii) enabling revision of schedules/declared

capability to become effective from the 6

th

time block. The notice to

demonstrate declared capacity is to ensure due adherence to time

blocks in the event of revision which could be sought as high as the

declared capacity itself and to meet specified contingencies.

Regulation 11.5 of Part IV, Section 11 has the nominal heading of

‘Revision in injection/drawal schedule on real time basis’, providing

for revision of injection or drawal schedule by the SLDC on the

various conditions delineated thereunder. Demonstration of DC is a

measure of ensuring that the SGS has the ability to generate the

capacity declared on a real time basis and that the declaration is

made faithfully, especially when fixed charges are paid on the

declared capability and incentives earned for annual generation in

excess of 80% of the declared capability. Sub clauses (i) to (v) of

Regulation 11.5 though do not regulate the demonstration of

declared capability, it definitely has a bearing on that aspect.

Ensuring better system operation is to ensure its efficacy and

functionality as juxtaposed with the integrity of the declaration made,

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Civil Appeal No.7432 of 2025 etc.

which is not akin to a normal revision as contemplated under

Regulation 11.5(vii). The demonstration of capability checks the

efficiency of the system to respond to every contingency, including

that provided under Regulation 11.5 (i) to (v), on a real time basis,

which response has to be materialized within four-time blocks. Thus,

the fourth time block is relevant for demonstration, which mandate is

as per sub-clause (xi) of Regulation 11.5, extracted herein above.

The alacrity and expedition with which the SGS responds, is the hall

mark of the integrity of its declaration.

24. Demonstration of declared capability we reiterate, stands on a

different footing from gaming. On notice being issued by the SLDC,

the same has to be demonstrated within the 4

th

time gap, the first

being the one in which the notice is received. In so far as deviation

is concerned, it is governed by the DSM Regulations, which term has

been defined as the total actual injection minus total scheduled

generation in a time block, for a seller, and for a buyer, total actual

drawal minus its total scheduled drawal, again in a time block. In

fact, Regulation 6.1 of the DSM Regulations specifies that the

provisions of the Grid Code and that of the Central Electricity

Regulatory Commission (Open Access in Inter-State Transmission)

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Regulations, 2008 as amended from time to time shall be applicable

for declaration of capacity, scheduling and elimination of gaming.

The DSM Regulations as found by the SERC and the APTEL hence, do

not govern a measure adopted to curb either demonstration of the

declared capacity or gaming.

25. A conspectus of the above, according to us, would indicate that

a deviation simplicitor would neither amount to gaming nor

misdeclaration for failure to demonstrate declared capability. But a

failure to demonstrate DC and a measure employed of gaming would

definitely constitute a deviation. Likewise, a failure to demonstrate

declared capability, on notice issued, would not necessarily lead to

an allegation of gaming, which if raised, as we have already found,

should be commenced with a notice, proceeded with an inquiry,

affording a reasonable opportunity to the SGS.

26. Insofar as the ramp up or ramp down is concerned, we cannot

but notice from the SGS that it is provided under the nominal heading

of ‘Governor Action’. Thermal generating units having

electrohydraulic governor system as per the SG Code is to be

operated under restricted governor mode of operation, the features

of which are delineated under the SG Code itself. Ramp up/ramp

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Civil Appeal No.7432 of 2025 etc.

back is a recommended rate for changing the governor setting as per

Regulation 5.3.8 of the SG Code, which is not applicable herein.

27. From the above discussion what comes to fore is that the SG

Code in its operation and scheduling and despatch contemplates

breach by the SGS on four facets : (i) over-injection and under-

injection, covered in UI Regulations (ii) deviation, reckoned by the

DSM Regulations (iii) gaming, contemplated under Regulation 11.3.4

read with 11.3.12 and 11.3.20 (iv) demonstration of declared

capability, specified under Regulation 11.3.4 read with Regulation

11.3.13 and 11.5 (xi). Gaming in relation to the SG Code contemplates

an intentional misdeclaration of capacity by a generating station in

order to make an undue gain through UI charges or otherwise. We

reiterate that the notice issued in the instant case is not one for

gaming; for which the finding of mens rea and illegal enrichment is

mandatory, that too in pursuance of an inquiry in compliance of

principles of natural justice.

28. The decision in TPDDL

2, according to us, has been misread

both by the respondent and the APTEL. Therein, the TPDDL, the

procurer of electricity sought for holding respondent No.1, the SGS,

liable for misdeclaration of declared capacity on the ground that at

Page 26 of 34

Civil Appeal No.7432 of 2025 etc.

various instances it had failed to supply power, despite claiming a

higher capability. It was argued by the SGS that this was caused due

to frequent tripping during the winter months, for reason of the filters

of the generating units getting chocked due to combination of fog and

dust. In paragraph 22, APTEL only emphasized that the availability/

capability of a generating station is primarily declared based on the

availability of fuel and the plant’s machinery. This was only in the

nature of an observation that the stock of fuel and the functionality of

the plant are the perceivable grounds on which declaration of

capacity is made and not that these should be the subject of enquiry

when an allegation of misdeclaration is raised. It was also observed

that in the said case there was no reported instances of unavailability

of fuel or the machinery being under shutdown or repair, causing

restriction to the generating station’s capacity. There were only a few

technical issues reported like choking of filters which, as noticed in

paragraph 27 was verified and confirmed by the SLDC as not

amounting to misdeclaration. The deviation between the scheduled

and the actual generation was to be addressed under the DSM

Regulations, was the finding.

Page 27 of 34

Civil Appeal No.7432 of 2025 etc.

29. The observations made in paragraph 22 definitely cannot be

taken as the National Electricity Regulatory Commission (NERC)

having found that a misdeclaration can be raised only if there is

absence of sufficient stock of coal or when the machineries in the

plant were under repair or shutdown, warranting a verification on

that count. A misdeclaration could also occur when, despite the

availability of coal or the plant being ship-shape, higher capability is

declared, with an intention to profiteer which practice is termed as

gaming. Again, a higher capability could be declared despite non-

availability of coal or repair or shutdown of plant, the veracity of

which declaration could be verified by demanding a demonstration

of capability; the measure incorporated to take in such situations. The

availability of coal and the due functionality of the plant, as per the

PPA, is the obligation of the SGS. Any problems surfacing on running

of the generation unit, in the course of the day, could be brought to

the notice of the SLDC and the procurer, enabling also a revision of

declared capacity as per the SG Code. The respondent as we

observed had attempted to raise a contention of force majure which

was hastily abandoned on our query to substantiate it, which

contention was also not raised before the SERC or the APTEL.

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Civil Appeal No.7432 of 2025 etc.

30. In the present case on 15.01.2017 one of the plants of the SGS

was shut down and the same was communicated to the SLDC.

However notice was issued to demonstrate the declared capability as

emanating from the two operational units, which the SGS was unable

to demonstrate. No consequence arose to both parties even when

there was shut down of one among the three plants, since the

procurer scheduled their necessity below that possible of generation

from the two functional plants. The consequence arose when the SGS

was not able to demonstrate even that capability declared on the

strength of the functional plants.

31. The demonstration of declared capability invites strict liability

if the declared capability is not achieved within four time-blocks,

treating the time block in which the notice of demonstration is

received as the first block. This is also a measure of ensuring that the

SGS has declared its capability faithfully and in accordance with the

SG Code, since the procurer has the liability to pay in accordance

with the generation schedule as formulated by the SLDC as per the

‘Steps in Scheduling’ in the SG Code, even if the drawal of the

procurer is lesser than the scheduled generation and the declared

capability. The procurer is liable to pay fixed charges in accordance

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Civil Appeal No.7432 of 2025 etc.

with the declared capability and variable charges as per the

generation schedule. The SLDC who has finalized the generation

schedule of the SGS and the drawal schedule of the procurer hence

is empowered to seek demonstration, to verify the veracity of the

capability declared. The failure of the SGS would be because of

absence of sufficient stock of coal, repair of machinery or any other

reason which the SGS should have reckoned before intimating the

station-wise power plant capabilities, as per the SG Code, or seek

revision if a reduction of capability is occasioned on a real time basis.

32. Dharamendra Textile Processors

1 considered the issue as to

whether Section 11-AC of the Central Excise Act, 1944 imposes a

mandatory penalty on evasion of duty and whether mens rea is an

essential ingredient in levying penalty; thus, clothing the authority

with a discretion in the matter of the quantum of penalty imposed.

The dictum in Chairman, SEBI v. Sri Ram Mutual Fund and Anr.

6

was approved wherein it was held that mens rea though sine qua non

for criminal or quasi criminal proceedings, it cannot result in a

straitjacket formula without looking at the language and scheme of

the Act. If the imposition of penalty arises from a breach of civil

6

(2006) 5 SCC 361

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Civil Appeal No.7432 of 2025 etc.

obligation, then the mere use of the word ‘penalty’ would not be

determinative of whether the nature of proceedings is criminal or

quasi criminal. The contravention, whether it be with a guilty intent

or not if it leads to breach of a civil obligation, the absence of mens

rea will not be of any consequence. The penalty as coming out from

Regulation 11.3.13 of the SG Code is a civil liability since the

obligation of the SGS to generate power in accordance with its

declared capability flows from the contract, a civil obligation. A

default therein as coming out from a failure to demonstrate declared

capability attracts penalty, without anything more, making its

imposition imperative, as per the statutory scheme. The said measure

of imposition of penalty does not call for any finding of mens rea or a

finding of illegal profiteering as would be required when there is an

allegation of gaming.

33. In considering the failure to demonstrate the declared capacity

on each day, we have looked at the spread sheets of ‘Summary of

Declared Capacity, Schedule Generation, Actual Generation and

Deviation’ for each of these days, as produced before us across the

Bar by the respondent. On 15.01.2017, one of the three units were on

reserve shutdown, and the day started with a declared capacity of

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Civil Appeal No.7432 of 2025 etc.

1563.80 MW, and scheduled generation of 616 MW. The deviation, as

per the SLDC was minimal, though existing. On the time block

between 5:45 to 06:00, the SGS sent a revision of declared capability,

hiking it up to 1841.40 MW. The SLDC at 07:50 and 08:23 revised the

schedule generation and a demonstration notice was sent in the time

block of 09:30 to 09:45. The declared capability revised by the SGS,

in the course of the day to 1841.40 MW was not at all achieved on the

said day, much less on the 4

th

time block from the time block in which

the notice was received.

34. On 17.01.2017 only one unit was running, the second being

under reserve shutdown and the third on scheduled shutdown due to

fault in the plant. The declared capacity as on the start of the time

blocks of the day was 1229.80 MW, which was revised by the SGS in

the time block 02:30 to 02:45. The SLDC sought the first revision of

scheduled generation and a second revision. respectively at 03.43 &

05:23. A demonstration notice is admitted to be received at 8:15

hours and based on it the declared capacity of 922.80 MW, as

reduced in the course of the day, was to be achieved in the 4

th

time

block from then. However, on the second time block from the

issuance of demonstration notice, the SGS sought a downward

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Civil Appeal No.7432 of 2025 etc.

revision of the declared capacity at 08:58 hours and revised it to 250

MW. The SGS not only failed to demonstrate the declared capacity

but sought the declared capacity to be reduced after the

demonstration notice was issued. Yet again, the declared capacity

was revised to 150 MW on the same day.

35. On 24.01.2017, the declared capacity commenced with 1600

MW and the schedule generation was 924 MW which was revised on

a total of nine occasions in the course of the day, by the SLDC.

Obviously, finding no positive response, a demonstration notice was

issued by the SLDC received by the SGS at 14:48 hours. The declared

capacity and the scheduled generation, both at 1650 MW was neither

achieved at the 4

th

time block nor at any time after that.

36. The situation was slightly better on 31.01.2017 when the

declared capacity commenced with 1473.12 MW and the scheduled

generation was 924 MW. Two demonstration notices were issued;

one received by the SGS at 08:20 hours and the other at 09:23 hours.

The declared capacity was not achieved at the 4

th

time block from the

first notice. However, at the 3

rd

time block from the first notice, that

is the 7

th

time block from the first notice it was achieved. The finding

of misdeclaration insofar as the failure to demonstrate the declared

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Civil Appeal No.7432 of 2025 etc.

capacity, on each of these days thus stands established

unequivocally.

37. PSEB

3 was in the context of the generating stations using both

gas and liquid, to fire their plants; the use of gas being more

economical. The allegation was of substitution of fuel, thus receiving

more than the due share of variable charges by under-declaring the

generation capacity on gas, while declaring more on liquid fuel. The

excess generation alleged by use of gas came to 1% of the declared

capacity on gas, which was found to be within practical limits,

relatable to gross calorific value of gas received on a day-to-day

basis, totally inapplicable to the instant case.

38. On the above reasoning, we set aside the order of the APTEL

and restore the order of the SERC. We also modify the restored order

to the extent of interfering with the finding that Regulation 11.3.13

provides the procedure to deal with the measure of gaming under

Regulation 11.3.4 & 11.3.12; which we have found to be distinct

misdemeanors and the finding that on imposing penalty based on a

failure to demonstrate the declared capability, ‘deliberate intention

and motive to make money’ are necessary ingredients; which we have

found otherwise. The consequences of such reversal insofar as the

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Civil Appeal No.7432 of 2025 etc.

affirmation of the penalty imposed and the resultant interest liability

if any, shall necessarily follow. Any surcharge paid on the bills only

for reason of deductions made of the penalty imposed, based only on

the reversal of the order of the SERC shall also be refunded to the

PSPCL, with interest/surcharge at the same rate since the SGS had the

benefit of such amounts in the ensuing period after the order of

APTEL.

39. The appeals are allowed with the above directions.

40. Pending applications, if any, shall also stand disposed of.

.………………………… …... J.

(SANJAY KUMAR)

..………… .…………………. J.

(K. VINOD CHANDRAN )

NEW DELHI;

MAY 20, 2026.