The Supreme Court of India held that judicial coal block cancellation and the 2015 Coal Mines (Special Provision) Act, 2015 qualify as “Change in Law” under PPAs. The Court also set aside compensation granted for tapering linkage shortfall.
NEW DELHI: In a significant ruling on the scope of “Change in Law” clauses in power purchase agreements, the Supreme Court comprising Surya Kant (CJI), B. V. Nagarathna, and Joymalya Bagchi partly allowed appeals arising from an order of the Appellate Tribunal for Electricity (APTEL) dated 04.09.2025.
The Court upheld compensation to Adhunik Power and Natural Resources Ltd. (APNRL) for “Change in Law” events following cancellation of its captive coal block, but set aside compensation for coal procured through e-auction/imports prior to such cancellation.
This judgment clarifies the interplay between indemnity clauses in PPAs and statutory “Change in Law” protections, especially in the aftermath of the landmark coal block cancellation decision in Manohar Lal Sharma v. Principal Secretary (2014) 9 SCC 516.
Facts of the Case
On 05.01.2011, a Power Supply Agreement (PSA) was executed between West Bengal State Electricity Distribution Company Ltd. (WBSEDCL) and PTC India Ltd. for supply of 100 MW power for 25 years. Subsequently, on 25.03.2011, a back-to-back Power Purchase Agreement (PPA) was entered into between APNRL and PTC India Ltd. for onward sale of the same 100 MW to WBSEDCL.
The West Bengal Electricity Regulatory Commission approved the PPA/PSA on 15.12.2011.
Although the PPA did not expressly name the source of coal, contemporaneous documents, including Minutes of Meeting dated 03.01.2011, recorded that APNRL possessed a captive coal block at Ganeshpur, Jharkhand, jointly with Tata Steel Ltd. WBSEDCL’s subsequent correspondence dated 30.04.2012 also referred to this Ganeshpur block.
However, the captive coal block could not be operationalized. APNRL began sourcing coal under tapering linkage from Central Coalfields Ltd., and met shortfalls through e-auction and imports.
Meanwhile, in Manohar Lal Sharma (2014), the Supreme Court cancelled all coal block allocations made by the Screening Committee, including APNRL’s Ganeshpur block. This was followed by promulgation of the Coal Mines (Special Provisions) Ordinance, 2014 and enactment of the Coal Mines (Special Provisions) Act, 2015.
APNRL claimed:
- Compensation for additional coal cost due to shortfall in tapering linkage.
- Compensation for “Change in Law” under Article 10 of the PPA, triggered by cancellation of the coal block and subsequent statutory changes.
The Central Electricity Regulatory Commission (CERC) partly allowed compensation for e-auction/import coal to meet tapering linkage shortfall, but rejected the “Change in Law” claim.
On appeal, APTEL reversed CERC on the “Change in Law” issue and granted compensation from 25.08.2014 along with carrying costs.
WBSEDCL challenged this before the Supreme Court.
Issues:
- Whether the Ganeshpur coal block formed the designated “captive source” under the PPA.
- Whether cancellation of the coal block and enactment of the 2015 Act constituted “Change in Law” under Article 10.
- Whether Article 2.5 barred compensation for procurement of coal from alternate sources.
- Whether APNRL was entitled to compensation for coal procured via e-auction/import prior to 25.08.2014.
Arguments of parties:
- Appellant (WBSEDCL)
Senior Advocate Kapil Sibal argued:
- The PPA did not expressly stipulate Ganeshpur as the coal source.
- Article 2.5 indemnified WBSEDCL against escalation in energy charges due to procurement from alternate sources.
- In absence of express contractual stipulation, cancellation of the coal block could not constitute a “Change in Law” materially affecting obligations.
He relied upon principles under Sections 91 and 92 of the Indian Evidence Act (now reflected in the Bharatiya Sakshya Adhiniyam, 2023) that written contracts must be interpreted strictly from the document itself.
- Respondent (APNRL)
Senior Advocate C.A. Sundaram contended:
- The PPA was executed in the backdrop of recorded minutes identifying Ganeshpur as captive source.
- Cancellation of the coal block and subsequent legislative changes squarely fell under Article 10.1.1(b) and (f).
- The “Change in Law” clause required restoration of economic position.
- Article 2.5 operated independently and could not override Article 10.
Reliance was placed on the Supreme Court’s interpretative principles in Anglo American Metallurgical Coal Pty. Limited v. MMTC Limited (2021) 3 SCC 308, where the Court held that surrounding circumstances may be examined to link contractual language with existing facts.
Analysis of the Court:
(1) Whether Ganeshpur was the Captive Source?
The Court rejected WBSEDCL’s contention. It held that Article 2.5 referred to a “captive source” and Minutes of Meeting (03.01.2011) explicitly recorded Ganeshpur as APNRL’s captive block. It said that WBSEDCL’s own letter dated 30.04.2012 acknowledged the Ganeshpur allocation.
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Relying on Anglo American Metallurgical Coal (2021), the Court observed that while written contracts govern rights, external evidence is permissible to clarify contextual meaning.
The Court invoked the principles underlying Sections 92 and 95 of the Evidence Act, permitting evidence to explain how language relates to existing facts when ambiguity exists.
Thus, Ganeshpur was conclusively held to be the captive source under the PPA.
(2) Whether Coal Block Cancellation Constituted “Change in Law”?
Article 10 defined “Change in Law” to include:
- Change in interpretation of law by competent court.
- Change in mining laws affecting input cost.
The Court held that in Manohar Lal Sharma (2014), the Supreme Court reinterpreted the Coal Mines (Nationalisation) Act, 1957 and MMDR Act, 1957, resulting in cancellation of allocations.
This judicial reinterpretation constituted a “change in interpretation of law” under Article 10.1.1(b). Further, enactment of the Coal Mines (Special Provisions) Act, 2015 amounted to change in mining law under Article 10.1.1(f). The Court emphasized that these events materially affected APNRL’s ability to procure coal from the captive source, compelling procurement at higher cost.
Accordingly, APTEL rightly held that “Change in Law” was triggered from 25.08.2014.
(3) Interaction Between Article 2.5 and Article 10
The Court drew a crucial distinction:
- Article 2.5: Protects WBSEDCL from cost escalation if seller voluntarily sources coal from alternate sources.
- Article 10: Applies when a statutory or judicial event materially alters contractual equilibrium.
These clauses operate in different fields.
Article 2.5 cannot immunize WBSEDCL against consequences of a statutory change affecting mining rights. Thus, compensation under Article 10 was justified.
(4) Compensation for Pre-Cancellation E-Auction Coal
However, the Court disagreed with APTEL’s grant of compensation for procurement of coal through e-auction/import prior to 25.08.2014.
The Court noted that APNRL had assured operationalization of Ganeshpur by commencement of supply and delay was attributable to internal or administrative factors, not statutory change. It said Article 2.5 squarely barred escalation claims for alternate sourcing prior to any Change in Law.
The Court distinguished APTEL’s earlier ruling in GMR Kamalanga Energy Ltd. v. CERC, observing that the PPA in that case lacked an indemnity clause similar to Article 2.5. Therefore, compensation prior to 25.08.2014 was impermissible.
Final Order:
The Supreme Court set aside APTEL’s order insofar as it granted compensation for coal procured through e-auction/import prior to 25.08.2014 and upheld compensation for “Change in Law” events from 25.08.2014 onwards.
It upheld that carrying costs till date of actual payment and directed CERC to modify its consequential order dated 11.02.2026 within four weeks.
Accordingly disposed pending applications without costs.
The ruling strikes a balance between contractual certainty and equitable restitution. While it shields distribution companies from commercial risk unrelated to statutory intervention, it ensures generators are restored to economic position when legislative or judicial shifts fundamentally alter the regulatory landscape.
In the evolving framework of India’s power sector, this decision reinforces that “Change in Law” clauses serve as stabilizing instruments against sovereign or judicial disruptions but not as insurance against commercial inefficiencies.
Case Title: West Bengal State Electricity Distribution Company Ltd. (WBSEDCL) vs Adhunik Power & Natural Resouce Ltd
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