JSA Prism | Electricity and Power | July 2026

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Supreme Court of India holds that failure to demonstrate Declared Capacity attracts penalty on a strict liability basis independent of mens rea

The Hon’ble Supreme Court of India (“Supreme Court”), in Punjab State Power Corporation Limited vs. Talwandi Sabo Power Limited and Ors.^[1] has examined: (a) whether Talwandi Sabo Power Limited (“TSPL”), a generating station, would be liable on account of its inability to demonstrate its Declared Capacity (“DC”) upon notice from the State Load Despatch Centre (“SLDC”); and (b) whether such non-demonstration requires a finding of mens rea or intention to secure undue commercial gain for the imposition of penalty under the applicable Punjab State Grid Code, 2013 (“Grid Code”).

Brief facts

1. TSPL supplies electricity to Punjab State Power Corporation Limited (“PSPCL”) under a power purchase agreement providing for a 2 (two) part tariff: (a) fixed capacity charges based on the DC declared for each day in 15 (fifteen) minute time blocks; and (b) variable energy charges on the energy scheduled for supply.
2. In December 2016, the Punjab SLDC (“PSLDC”) detected a recurring pattern of generation below the scheduled declaration, with TSPL failing to deliver requisite generation in 387 (three hundred and eighty-seven) of 459 (four hundred and fifty-nine) time blocks (84.13%). Notices sent by PSLDC warned TSPL that this amounted to misdeclaration of DC in violation of the Grid Instead of improving generation, TSPL lowered its DC. This led to demonstration notices being issued by the PSLDC in January 2017.
3. TSPL failed to demonstrate its DC (within the mandated 4 (four) time blocks of 15 (fifteen) minutes each) upon receipt of those The PSLDC accordingly levied a penalty of INR 162,74,72,865[2] (Indian Rupees one hundred and sixty-two crore seventy-four lakh seventy-two thousand eight hundred and sixty-five) by memo dated March 15, 2017, of which INR 74,27,27,159 (Indian Rupees seventy-four crore twenty-seven lakh twenty-seven thousand one hundred and fifty-nine) was adjusted against TSPL’s pending bills.
4. At TSPL’s instance, the Punjab and Haryana High Court referred the matter first to the commercial and metering committee and then to the State grid code review committee, and thereafter to the Punjab State Electricity Regulatory Commission (“PSERC”). By an order dated February 26, 2018, the PSERC affirmed the PSLDC’s findings of misdeclaration in January 2017, while rejecting the finding in respect of August 2015.
5. On TSPL’s appeal, the Appellate Tribunal for Electricity (“APTEL”) by its order set aside the PSERC’s findings and reversed its order in entirety. Aggrieved, the PSLDC and PSPCL preferred civil appeals before the Supreme Court.

Issues

1. Whether mens rea is a necessary precondition for imposition of penalty for failure to demonstrate DC under Regulation 11.3.13[3] of the Grid Code?
2. Whether the 4 (four) time block rule applies to demonstration of DC under Regulation 11.3.13 of the Grid Code?

Findings and analysis

Re. Whether mens rea is a necessary pre-condition for imposition of penalty for failure to demonstrate DC under Regulation 11.3.13 of the Grid Code

1. The Supreme Court drew a clear distinction between 3 (three) separate regulatory concepts, namely, deviation, gaming, and failure to demonstrate DC, holding that:
   • deviation[4] pertains to the difference between scheduled and actual generation;
   • gaming involves intentional mis-declaration to secure undue commercial gain, and requires a finding of guilty intent and illegal enrichment following an inquiry under Regulations 11.3.4 and 11.3.12 of the Grid Code; and
   • failure to demonstrate DC under Regulation 11.3.13 of the Grid Code constitutes an independent regulatory breach attracting penalty irrespective of intent, thereby operating as a strict liability provision.
2. Regulation 11.3.13 has been interpreted as a standalone provision with a self-contained penalty mechanism. The obligation to declare and demonstrate generation capability is a civil obligation arising from the contractual and regulatory framework, and its breach attracts penalty under that framework, irrespective of the presence or absence of mens rea[5].
3. The Supreme Court further clarified that a deviation simpliciter would neither amount to gaming nor failure to demonstrate declared capability, although failure to demonstrate DC or gaming would in itself constitute a deviation.
4. TSPL’s reliance on the Central Electricity Regulatory Commission’s decision in TPDDL vs. Pragati Power Corporation Limited and Ors.[6] was rejected as misplaced. The observations there on fuel availability and plant condition were made in that case’s factual context and were not intended to lay down a universal test for misdeclaration of DC.
5. Accordingly, imposition of penalty under Regulation 11.3.13 of the Grid Code does not require proof of mala fide intent or wrongful gain, those being ingredients of gaming under a separate regulatory route.

Re. Whether the four time block rule applies to demonstration of DC under Regulation 11.3.13 of the Grid Code

1. The APTEL had held that Regulation 11.3.13 of the Grid Code specifies no specific time limit, so demonstration at any point during the day would suffice. The Supreme Court rejected this. The declared capability must be demonstrated within 4 (four) time blocks from issuance of the notice.
2. That mandate flows from Regulation 11.5(xi) of the Gride Code, under which a revision of schedule in the interest of better system operation becomes effective from the 4^th time block (each of 15 (fifteen) minutes, counting the block in which the instruction is issued as the first). The Supreme Court expressly rejected APTEL’s view that Regulation 11.5(xi) of the Gride Code is confined to schedule revisions. Thus, a generating station must demonstrate its DC within 4 (four) time blocks of the SLDC’s notice.
3. The requirement of demonstration is intrinsically linked to real-time grid discipline and operational efficiency, the promptness of response being a critical indicator of the integrity of the DC.
4. On the relevant dates in January 2017, TSPL either failed to achieve the DC within the specified 4 (four) time blocks or did not achieve it at all. On January 31, 2017, although the DC was eventually achieved, it was achieved only at a later time block and not within the prescribed 4^th Imposition of penalty was therefore valid in terms of Regulation 11.3.13 read with Regulation 11.5(xi) of the Grid Code.

Conclusion

The Supreme Court has authoritatively clarified the regulatory framework governing declaration and demonstration of DC, affirming that the obligation to demonstrate DC is a distinct, enforceable and time-bound requirement integral to grid discipline.

By delineating failure to demonstrate DC from gaming (which requires mens rea), and by reinforcing strict compliance with the time-block requirements, the judgment brings welcome certainty and accountability to scheduling and despatch practices.

This Prism has been prepared by:

Anupam Varma Partner

Rahul Kinra Partner

Aditya Ajay Principal Associate

Mahima Kaur Associate

For more details, please contact km@jsalaw.com.

[1] 2026 INSC 515 (Civil Appeal Nos. 7432 & 7436 of 2025) (decided on May 20, 2026)

[2] Being the original levy under memo no. 278 dated March 15, 2017, across 5 (five) dates, including August 10, 2015, the occasion in respect of which the misdeclaration finding was rejected by the PSERC and was not restored by the Supreme Court; the penalty ultimately upheld relates only to the 4 (four) January 2017 dates.

[3] Regulation 11.3.13 of the Grid Code requires generators to demonstrate DC when called upon by the SLDC, failing which escalating penalties on capacity charges are imposed.

[4] Governed by CERC (Deviation Settlement Mechanism and Related Matters) Regulations, 2014

[5] Reliance placed on Union of India vs. Dharamendra Textile Processors, (2008) 13 SCC 369 and Chairman, SEBI vs. Sri Ram Mutual Fund, (2006) 5 SCC 361

[6] Petition No.199/MP/2019