WEST BENGAL STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED v. ADHUNIK POWER AND NATURAL RESOURCES LIMITED
Interpretation of "Change in Law" versus Contractual Indemnity Clauses in Power Purchase Agreements following Judicial Cancellation of Captive Coal Block Allotments.
Court: Supreme Court of India
Citation: 2026 INSC 202
Decision Date: 27-02-2026
List of Laws
The Electricity Act, 2003; The Indian Evidence Act, 1872 (Sections 91, 92, 94, and 95); The Coal Mines (Special Provision) Act, 2015; Law of Contract - Interpretation of Indemnity and Change in Law Clauses; Mines and Minerals (Development and Regulation) Act, 1957
- Facts: Adhunik Power and Natural Resources Ltd. ("APNRL") entered into a Power Purchase Agreement ("PPA") to supply power to West Bengal State Electricity Distribution Co. Ltd. ("WBSEDCL"). Although the PPA did not explicitly name the coal source, internal minutes and correspondence established the Ganeshpur Captive Coal Block as the intended source. APNRL was unable to operationalize the block initially and used "tapering linkage" coal, later procuring expensive coal via e-auctions. On 25.08.2014, the Supreme Court cancelled several coal block allotments, including Ganeshpur, in the "Manohar Lal Sharma" case. APNRL sought compensation for the higher cost of alternate coal, citing "Change in Law" provisions under Article 10 of the PPA. WBSEDCL resisted, relying on Article 2.5, which indemnified the buyer against price escalations when the seller sourced coal from alternative sources instead of the designated captive source.
- Procedural Posture: The Central Electricity Regulatory Commission ("CERC") initially allowed compensation for coal shortfall during the tapering linkage period but denied the "Change in Law" claim. On appeal, the Appellate Tribunal for Electricity ("APTEL") modified this, holding that both the tapering linkage shortfall and the post-cancellation period (after 25.08.2014) entitled APNRL to compensation. WBSEDCL appealed this decision to the Supreme Court.
- Issue: 1. Does the cancellation of coal blocks by the Supreme Court and subsequent legislation constitute a "Change in Law" event under the PPA? 2. Is the seller entitled to compensation for coal cost escalations occurring prior to the judicial cancellation of the coal block, despite an indemnity clause in the PPA?
- Holding: 1. Yes, the judicial cancellation and subsequent Coal Mines (Special Provision) Act, 2015, constitute "Change in Law" events. 2. No, the seller is not entitled to compensation for costs incurred due to delays in operationalizing the mine prior to the "Change in Law" event, as these are covered by the indemnity clause in Article 2.5 of the PPA.
- Reasoning: The Court reasoned that Article 2.5 and Article 10 operate in different spheres. Article 2.5 protects the buyer from price hikes if the seller fails to operationalize its captive source due to commercial or administrative delays. However, Article 10 is triggered when a "Change in Law"—including a change in legal interpretation by a Competent Court—materially affects the seller's rights. The 2014 judgment fundamentally altered the legal landscape, making it impossible for APNRL to use its captive source. Regarding the identification of the mine, the Court applied Sections 92 and 95 of the Evidence Act, ruling that "attending circumstances" and correspondence can be used to clarify a term (like "captive source") that is plain but needs reference to existing facts to be workable. Therefore, compensation was valid only from the date of the "Change in Law" (25.08.2014).
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