Sanctity Of The Bidding Documents And The Tariff Incorporated In The Ppa In Cases Where Accelerated Depreciation Has Been Availed By The Generator
The dispute revolves around the nature of depreciation availed by Mokia Green Energy Pvt. Ltd. (“Appellant”) and its consequent impact on tariff charged as per the Power Purchase Agreement (“PPA”) which was executed following a Request for Proposal (“RfP”) and Competitive Bidding Process. The Hon’ble Appellate Tribunal vide its Judgement dated 08.01.2026 in Appeal 323 of 2025 has dismissed the appeal filed by the Appellant and held that tariff has to necessarily be reduced on availment of Accelerated Depreciation.
Background
In 2013, a RfP was issued by Punjab Electricity Development Agency (“PEDA”) where it was stipulated that if at any stage it is found that project availing normal rate of depreciation is claiming Accelerated Depreciation, then tariff would be revised as per the Punjab State Electricity Regulation Commission (“PSERC”) tariff applicable for Accelerated Depreciation, with effect from the date of commissioning.
The Appellant was one of the successful bidders and had declared that it will avail for normal rate of depreciation. Consequently, the Appellant and Punjab State Power Corporation Ltd. (“PSPCL”) entered into a PPA. However, later it was discovered that the Appellant was availing Accelerated Depreciation and, consequently PSPCL issued a notice of demand for reducing the applicable tariff. The Appellant had furnished a specific undertaking before signing the PPA that the Appellant will not avail Accelerated Depreciation.
Issues Framed by the Hon’ble Appellate Tribunal
- Whether the rate of depreciation, i.e. 80% claimed by the Appellant constitutes as Accelerated Depreciation?
- Assuming the Appellant had claimed accelerated depreciation, whether PSPCL can revise the tariff in the absence of a specific provision in the PPA?
- Whether PSPCL can direct the Appellant to pass on or refund any amount in the absence of any financial benefit having accrued to it?
Analysis
Issue 1: Accelerated Depreciation
The Hon’ble Appellate Tribunal examined the scheme of Section 32 of the Income Tax Act, 1961 (“IT Act”) and noted that it provides two alternative depreciation regimes. Depreciation under Section 32(1)(i), read with Appendix IA and Rule 5(1A) of the Income-tax Rules, 1962 (“IT Rules”), applies the straight-line method and prescribes a rate of 7.69% for solar power generating systems. In contrast, depreciation under Section 32(1)(ii), read with Appendix I and Rule 5(1) of the IT Rules, follows the written down value method and permits a substantially higher rate of depreciation of 80%/40%.
The Hon’ble Appellate Tribunal held that the depreciation regime yielding higher depreciation in the initial years necessarily constitutes “accelerated depreciation”, and the absence of the express term in Section 32(1)(ii) does not alter its substantive character. Since the Appellant admittedly claimed depreciation under Section 32(1)(ii) at the rate of 80%/40%, it was rightly held to have availed accelerated depreciation.
Issue 2: Entire Agreement Clause in the PPA
In so far as arguments of the Appellant concerning “entire agreement” clause in the PPA, theHon’ble Appellate Tribunal emphasised that tariff is not a standalone numerical figure and cannot be read in isolation. It is inextricably linked to the competitive bidding process conducted pursuant to the RfP, and is therefore inherently subject to the terms and conditions stipulated therein.
The Hon’ble Appellate Tribunal noted that the Preamble to the PPA expressly recognises the Implementation Agreement (“IA”), which unequivocally binds the Company to act in accordance with the terms of the RfP. In light of this contractual framework, it was held that the IA forms an inseparable part of the PPA, thereby binding the Appellant to the conditions of the RfP notwithstanding the presence of an “entire agreement” clause.
The Hon’ble Appellate Tribunal further rejected the Appellant’s contention that the Undertaking, whereby it committed to avail only normal depreciation, ought to be read down in the event of inconsistency with the PPA. It was held that such an undertaking cannot be rendered redundant merely because the consequences of its breach were not expressly restated in the PPA. In the event of such a lacuna, the consequences must necessarily be imported from the bidding documents, which constitute the foundation of the contractual relationship.
Issue 3: Benefit Accrued on account of Accelerated Depreciation
The Appellant contended that even if it were held to have availed accelerated depreciation, no benefit was required to be passed on since it was a loss-making entity and had derived no actual financial gain. This contention was rejected on the ground that the accrual of benefit was immaterial. The RfP and the tariff determined by PSERC expressly provided for differential tariffs depending on whether accelerated depreciation was availed, irrespective of the generator’s profitability. Consequently, the tariff was required to be revised in accordance with the RfP, and the question of whether the Appellant had actually benefited from accelerated depreciation was held to be irrelevant.
Conclusion
The Hon’ble Appellate Tribunal’s judgment underscores that generators are bound by their undertakings. It further reiterates the need for harmonious construction of contractual documents and affirms that tariff revision will follow in case the generators resile on their commitment to avail normal depreciation, independent of any actual benefit accrued by the generator.
