Judicial Reinterpretation Resulting In Coal Block Cancellation Is ‘Change In Law’ Under Power Purchase Agreement: Supreme Court

The Court clarified that while commercial risk may be contractually allocated, an indemnity clause cannot operate where a valid Change in Law event is triggered.

In the matter, though the PPA did not expressly name the Ganeshpur coal block in its indemnity clause, the Court held that contractual terms must be read in light of attending circumstances. Referring to negotiation minutes dated 03-01-2011 and subsequent correspondence, the Bench concluded that the Ganeshpur block was the intended captive source for coal supply.

A Bench comprising CJI Surya Kant, Justice B.V. Nagarathna and Justice Joymalya Bagchi partly allowed appeals filed by West Bengal State Electricity Distribution Company Ltd. (WBSEDCL) arising from disputes over compensation following cancellation of the Ganeshpur captive coal block pursuant to the landmark decision in Manohar Lal Sharma v. Principal Secretary (2014) 9 SCC 516.

The Court noted, “…this Court interpreted the provisions of Coal Mines Nationalization Act, 1957 (‘CMN Act’) and Mines & Minerals Development and Regulation Act, 1957 (‘MMDR Act’) in a manner different from the interpretation adopted by the Government of India, and consequently cancelled the allotment of coal blocks made by the Screening Committee as well as through the Government dispensation route. This change in interpretation of the CMN and the MMDR Act, 1957 by this Court resulting in cancellation of the coal blocks and subsequent promulgation of the Coal Mines (Special Provision) Act, 2015 falls within Articles 10.1.1(b) and 10.1.1(f) of the PPA/PSA. There is no cavil that such Change in Law materially affected the right of APNRL to procure coal from the cancelled coal block, compelling it to source coal from other sources at a higher price. WBSEDCL cannot claim immunity under Article 2.5 of the PPA/PSA. We say so as Article 2.5 and Article 10 operate in different fields”.

“While Article 2.5 indemnifies WBSEDCL against escalation in coal price beyond the levelized price9 where coal is procured from sources other than the captive source i.e. the Ganeshpur captive coal block, Article 10 is triggered when a Change in Law event materially affects the right of APNRL to operate the coal block and meet its obligation under the PPA/PSA. Given this situation, APTEL had rightly reversed the findings of CERC vis-à-vis Change in Law event and awarded compensation with effect from 25.08.2014, along with carrying costs until the date of actual payment”, the Bench observed.

Senior Advocate Kapil Sibal appeared for the appellant and Senior Advocates CA Sundaram, Maninder Singh appeared for the respondent.

For the facts, APNRL had entered into a back-to-back Power Purchase Agreement in 2011 to supply 100 MW of electricity to WBSEDCL, premised on coal from its captive Ganeshpur coal block in Jharkhand. When the block could not be operationalised and was later cancelled pursuant to the Court’s decision in Manohar Lal Sharma, APNRL began sourcing coal through tapering linkage, e-auction, and imports, and sought compensation for the increased fuel costs under the “Change in Law” clause of the PPA, leading to regulatory and appellate proceedings before CERC and APTEL.

Therefore, the Bench in the matter was of the opinion that such judicial reinterpretation and legislative intervention, squarely fall within Articles 10.1.1(b) and 10.1.1(f) of the PPA. Since the cancellation materially affected APNRL’s right to mine coal from its captive block, the generator was entitled to compensation from 25-08-2014, along with carrying costs until actual payment.

The Court drawing a clear distinction between statutory intervention and project-level delay, held that prior to cancellation of the coal block, delays in operationalisation, whether due to joint venture issues or environmental constraints could not be shifted onto the buyer.

Accordingly, compensation granted by APTEL for coal procured through e-auction/imports prior to 25-08-2014 was set aside. The Court held that until a Change in Law event occurred, Article 2.5 insulated WBSEDCL from escalation in fuel costs arising from alternative procurement.

Cause Title: West Bengal State Electricity Distribution Co. Ltd. v. Adhunik Power & Natural Resource Ltd. & Ors. [Neutral Citation: 2026 INSC 202]

Appearances:

Appellant: Kapil Sibal, Sr. Adv., Amit Kapur, Pukhrambam Ramesh Kumar, AOR, Akshat Jain, Avdesh Mandloi, Sayan Ghosh, Karun Sharma, Anupama Ngangom, Rajkumari Divyasana, Advocates.

Respondent: CA Sundaram, Sr. Adv., Maninder Singh, Sr. Adv., Deepak Khurana, Vineet Tayal, Monalika Chaudhary, Prateek Yadav, AOR, Advocates.

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