A. Introduction
The Indian power sector, structured around liberalization, delicately balances private enterprise with governmental control in times of exigency. Section 11 of the Electricity Act, 2003 is a statutory embodiment of this balance. It empowers the Appropriate Government to direct generating companies to operate their generating stations in accordance with specific directions during "extraordinary circumstances". At the same time, it entrusts the Appropriate Commission with the responsibility to offset the adverse financial impact such directions may have on the generating company.
This article examines the legal architecture, operational implications, and interpretative evolution of Section 11, supported by decisions of regulatory commissions and appellate forums.
B. Textual Overview and Legislative Intent
Section 11(1) authorizes the Appropriate Government to intervene in "extraordinary circumstances", including threats to national security, public order, natural calamities, or other public interest situations, and direct a generating company to operate and maintain its generation facilities as per such governmental directions. These powers are to be sparingly used and justified by compelling public interest. Sub-section (2) is critical, it ensures that the generating company is not unduly prejudiced and enables the Appropriate Commission to offset financial losses arising from such directions.
While the statute appears straightforward, its practical application has raised issues concerning what constitutes a Section 11 "direction", the nature of compensation, and the procedural burden on generators seeking relief.
C. Governmental Directions and Their Binding Nature
Governmental directions issued under Section 11(1) of the Electricity Act, 2003 have a binding and overriding character. Once issued, these directions become mandatory and override commercial contracts and the generator's right to operate freely in the electricity market. The statutory scheme enables the Appropriate Government, either the Central or State Government depending on jurisdiction, to act decisively in the public interest, particularly during energy shortages, security threats, or natural calamities.
These directions typically take the form of executive notifications or government orders. A common use case has been when states face power deficits and direct generators to supply power exclusively to the state grid or state distribution licensees, often at rates determined through state processes rather than by bilateral contract.
In a recent instance, the Government of India invoked Section 11 in May 2025 to direct gas-based power plants to operate in order to meet growing demand during peak summer loads. The measure was aimed at ensuring uninterrupted electricity supply amid coal shortages and higher temperatures. The direction was issued to address an emergent public interest need and represents a textbook invocation of Section 11. Courts and tribunals have upheld the legitimacy of such directions, observing that once Section 11(1) is triggered, compliance is mandatory, and generators must route supply in accordance with state priorities1.
Importantly, the invocation of Section 11 is not merely a matter of form. It must be underpinned by circumstances that satisfy the statutory standard of "extraordinary circumstances" and must be clearly documented. Once such direction is issued, it activates the compensatory provisions under Section 11(2), requiring the Appropriate Commission to assess and mitigate financial hardship suffered by the generator.
These examples affirm that governmental directions under Section 11 are not discretionary advisories, but statutory mandates backed by public interest objectives and enforceable through regulatory and legal machinery.
D. Scope of Compensation under Section 11(2)
The term "offset the adverse financial impact" in Section 11(2) provides regulatory commissions with broad discretion. However, this discretion must be exercised judiciously, grounded in a factual assessment of economic loss caused by the enforced operation conditions.
In several regulatory proceedings, generators submitted that they were compelled to sell power at lower state-notified tariffs or could not sell at all due to the cessation of their commercial contracts. The regulatory commissions, however, have varied in their approach. In some cases, they declined compensation on technical grounds, including perceived withdrawal of claims, lack of detailed financial substantiation, or failure to demonstrate causation.
It is well established in law that the issuance of a direction under Section 11(1) gives rise to a corresponding statutory right for the affected generator to seek compensation under Section 11(2)2. The regulatory commission is duty-bound to consider such claims and cannot dismiss them on narrow procedural or technical grounds alone. Where the actions of the state result in practical barriers to market access or disrupt the generator's ability to perform under existing contracts, the commission must undertake a pragmatic and economically rational assessment of the adverse financial impact.
The proper approach, as clarified by appellate tribunals and courts, is to determine the compensation by reference to the revenue the generator could reasonably have realised in the short-term market, had the Section 11(1) direction not been issued, subject always to the condition that such compensation should at least cover the cost of generation so as to prevent the generator from incurring a loss3. The assessment must be grounded in prevailing market conditions, supported by objective data, and must ensure that the generator is restored, as far as possible, to the financial position it would have occupied but for the government's intervention. This ensures both fairness to the generator and the integrity of the regulatory process.
E. Power Injected Without Explicit Approval: Still Compensable?
While Section 11 offers protection to generators against economic loss arising from governmental compulsion, courts have drawn a sharp line when it comes to voluntary or inadvertent injection of power into the grid without an explicit government directive or a subsisting contractual relationship.
In such scenarios, generators often seek compensation on grounds of equity or unjust enrichment. However, the consistent judicial view is that unless the injection was pursuant to a valid directive under Section 11(1) or was otherwise scheduled and accepted through contractual or open access arrangements, compensation cannot be claimed as a matter of right.
The injection of power into the grid, unless backed by a statutory directive, valid contract, or approved scheduling mechanism, does not independently confer a right to compensation. Regulatory authorities have uniformly maintained that power supplied voluntarily, without requisition or mandate, is not entitled to commercial remuneration even if the energy is accepted and utilized by the grid. The legal framework prioritizes formal arrangements and explicit approvals over unilateral action by generators.
Where power is injected prior to the execution of open access agreements or before necessary clearances are granted, such injection is treated as unauthorized. Even in situations where utilities delay execution of agreements or fail to respond to generators' requests in a timely manner, the injection of electricity in anticipation of such approvals has not been deemed sufficient to warrant full compensation. Regulatory commissions have refused claims for commercial or contracted rates in these circumstances, limiting compensation, if awarded at all, to nominal or cost-based amounts4.
Likewise, when generators inject power into the grid prior to the grant of formal open access approval or before the commencement of a third-party supply arrangement, tribunals have consistently held that such injection, regardless of whether it is prompted by bona fide intent or economic compulsion, cannot be equated with a legally binding transaction. The mere fact that energy was injected and subsequently consumed does not, in itself, entitle the generator to payment at commercial tariffs. In such circumstances, claims for payment have frequently been denied5.
A similar approach has been taken where generators inadvertently inject power due to scheduling errors, or without having secured transmission corridor access. Even where generators sought to retrospectively regularize such injections, the regulatory commissions and appellate forums have declined to award compensation at the desired tariff, limiting it instead to the lowest applicable energy charge or denying it entirely. The view adopted is that power transactions must comply with the regulatory framework governing scheduling, contracting, and system operations, and any deviation from that framework must be treated with strict consequences6.
The consistent message emerging from these decisions is that compensation for injected electricity arises only from a recognized legal basis, be it through a directive under Section 11, a valid contract, or approved scheduling under open access. In the absence of such basis, injections, even if utilized, do not give rise to enforceable claims7. Generators must therefore proceed with caution and ensure legal clarity before supplying electricity to the grid.
The lesson from these rulings is that compensation cannot be based solely on the fact that the grid received and utilized power. Inadvertent injection, even if caused by regulatory or procedural delays, must be distinguished from statutory compulsion under Section 11. Without such compulsion or agreement, compensation claims are not sustainable.
F. Conclusion
Section 11 of the Electricity Act, 2003 serves a dual function: it permits state intervention to secure public interest during crises, while protecting private generators from disproportionate losses. However, the practical realization of this safeguard depends heavily on how regulatory commissions interpret and implement Section 11(2).
The trend of jurisprudence supports the following key takeaways:
- A formal directive under Section 11(1) triggers a corresponding regulatory duty to assess compensation under Section 11(2).
- Compensation must be proportionate to the loss suffered due to compelled deviation from contractual or market-based operations.
- Mere inadvertent or unauthorized injection without government directive does not create a right to commercial compensation.
As electricity markets evolve, the integrity of emergency provisions like Section 11 will be tested by the dual imperatives of public welfare and market fairness. Judicial and regulatory sensitivity to both dimensions will be crucial in preserving this delicate balance.
Footnotes
1. G.M.R. Energy Limited vs Karnataka Electricity Regulatory Commission, APTEL Appeal nos. 37 of 2013
2. Ibid
3. Power Company Of Karnataka Ltd & Ors vs M/s Himatsingka Seide Ltd; APTEL Appeal No. 373 of 24
4. Lalpur Wind Energy Pvt. Ltd. v. Karnataka Power Transmission Corporation Ltd. & Ors, APTEL Appeal No. 37 of 2016
5. OPG Power Generation Pvt. Ltd. v. Tamil Nadu Electricity Board & Ors., APTEL Appeal No. 68 of 2014; Saheli Exports Pvt. Ltd. v. Tamil Nadu Electricity Board, TNERC's Order in D.R.P.No.5 of 2011
6. Indo Rama Synthetics (India) Ltd. v. Maharashtra Electricity Regulatory Commission & Ors., APTEL Appeal No. 123 of 2010
7. Tamil Nadu Generation and Distribution Corporation Ltd. VS Malco Energy Limited & Ors, Order dated 18.03.2025 in APTEL Appeal No 439 of 2024
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