Supreme Court Clarifies “Change in Law” Under Power Purchase Agreements: Nabha Power Ltd. vs. Punjab State Power Corp. Ltd. (2024)

Date of the Judgment: 5th November 2024
Citation: 2024 INSC 833
Judges: B.R. Gavai, J., Prashant Kumar Mishra, J., K.V. Viswanathan, J.

Can a press release announcing a Cabinet decision be considered “law” under a Power Purchase Agreement (PPA)? The Supreme Court of India recently addressed this crucial question in a dispute between Nabha Power Limited and Punjab State Power Corporation Limited. This case examines whether a change in the Mega Power Policy, announced via a press release, altered the legal landscape, affecting the obligations of parties under a PPA. The court’s decision clarifies the definition of “law” in such agreements and the implications for tariff adjustments.

Case Background

The case revolves around a dispute over the interpretation of “change in law” within a Power Purchase Agreement (PPA) between Nabha Power Limited (Nabha) and Punjab State Power Corporation Limited (PSPCL). Nabha, a power generation company, had entered into a PPA with PSPCL to supply electricity. The dispute arose following changes in the government’s Mega Power Policy, which provides certain fiscal benefits to large power projects.

Initially, goods imported for setting up a Mega Power Project were granted exemptions from customs duty under a notification dated 01.03.2002, issued under Section 25 of the Customs Act, 1962. The Mega Power Policy of 2006 required thermal power plants to be “inter-state” to qualify for these benefits. On 10.06.2009, PSPCL initiated competitive bidding for a power project, and Nabha emerged as the successful bidder.

On 01.10.2009, the Government of India issued a Press Release announcing modifications to the Mega Power Policy. This release indicated that the requirement for inter-state sale of power for mega power status would be removed. Nabha contended that this press release constituted a “change in law” under the PPA, entitling them to certain benefits. However, PSPCL argued that the actual change in law occurred later, with the issuance of a customs notification on 11.12.2009 and a revised Mega Power Policy on 14.12.2009.

Nabha claimed that it had factored in the benefits of the modified policy while submitting its bid on 09.10.2009, and therefore, no change in law had occurred. PSPCL, on the other hand, insisted that the change in law happened only in December 2009, entitling it to a reduction in tariff due to the decrease in capital costs for Nabha.

Timeline:

Course of Proceedings

Nabha initially filed a petition before the Punjab State Electricity Regulatory Commission (State Commission), seeking a declaration that the press release of 01.10.2009 constituted a “change in law” and that no consequential benefits should be passed on to PSPCL. The State Commission rejected this plea, holding that the change in law occurred only with the notifications issued in December 2009. Nabha then appealed to the Appellate Tribunal for Electricity (APTEL), which upheld the State Commission’s decision on the Mega Power Policy issue. The APTEL, however, remanded the matter back to the State Commission for consideration of the Foreign Trade Policy (FTP) aspect. After the remand, the State Commission rejected the claim of the appellant based on the FTP by a majority order. Aggrieved by the same, the appellants filed Appeal No. 47 of 2015 before APTEL. By a judgment of 04.07.2017, the APTEL dismissed the Appeal No. 47 of 2015 of the appellant. Against the said judgment of APTEL dated 04.07.2017, appellant has filed Civil Appeal No. 8694 of 2017. The Supreme Court did not touch upon the issues in Civil Appeal No. 8694 of 2017 in this judgment. Finally, Nabha appealed to the Supreme Court against the APTEL’s decision regarding the Mega Power Policy.

Legal Framework

The core legal issue revolves around the interpretation of “law” as defined in the PPA and whether the press release of 01.10.2009 qualifies as such. The PPA defines “law” as:

“Law: means, in relation to this Agreement, all laws including Electricity Laws in force in India and any statute, ordinance, regulation, notification or code, rule, or any interpretation of any of them by an Indian Governmental Instrumentality and having force of law and shall further include all applicable rules, regulations, orders notifications by an Indian Governmental Instrumentality pursuant to or under any of them and shall include all rules, regulations, decisions and orders of the Appropriate Commission.”

The PPA also contains a “Change in Law” clause (Article 13), which stipulates that if a change in law occurs after a specific cut-off date (seven days prior to the bid deadline), and if it affects the cost or revenue of the project, then the parties must adjust the tariff accordingly. The relevant part of the clause is:

“13.1.1 “ Change in Law” means the occurrence of any of the following events after the date, which is seven (7) days prior to the Bid Deadline; (i) the enactment, bringing into effect, adoption, promulgation, amendment, modification or repeal, of any law or (ii) a change in interpretation of any law by a competent court of law, tribunal or Indian Governmental instrumentality provided such Court of law , tribunal or Indian Governmental Instrumentality is final authority under law for such interpretation or (iii) change in any consents approvals or licenses available or obtained for the project, otherwise than for default of the seller, which results in any change in any cost of or revenue from the business of selling electricity by the seller to the procurer under the terms of this agreement or (iv) any change in the (a) declared price of land for the project or (b) the cost of implementation of the resettlement and rehabilitation package of the land for the project mentioned in the RFP or (c) the cost of implementing environmental management plan for the power station (d) deleted.”

The Customs Act, 1962, specifically Section 25, allows the Central Government to grant exemptions from customs duty through notifications published in the Official Gazette. Section 25(1) states:

“25. Power to grant exemption from duty. – (1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) , as may be specified in the notification goods of any specified description from the whole or any part of duty of customs leviable thereon.”

Additionally, Section 21 of the General Clauses Act, 1897, provides that the power to issue notifications includes the power to amend or rescind them. This section reads:

“21. Power to issue, to include power to add to, amend, vary or rescind, notifications, orders, rules or bye-laws. —Where, by any Central Act or Regulation, a power to issue notifications, orders, rules, or bye-laws is conferred, then that power includes a power, exercisable in the like manner and subject to the like sanction and conditions (if any) to add to, amend, vary or rescind any notifications, orders, rules or bye-laws so issued.”

The interplay of these provisions is crucial in determining whether the press release of 01.10.2009 constituted a “change in law” under the PPA.

Arguments

Appellant (Nabha Power Limited) Arguments:

• The press release of 01.10.2009, announcing the Cabinet’s decision to modify the Mega Power Policy, constitutes an “order” by an Indian Governmental Instrumentality, and thus falls within the definition of “law” in the PPA.
• The Cabinet decision, being the highest policy-making body, cannot be ignored and should be considered law.
• Nabha, as a prudent bidder, factored in the benefits of the modified policy while submitting its bid on 09.10.2009.
• The subsequent notifications of 11.12.2009 and 14.12.2009 were merely implementing actions of the Cabinet decision of 01.10.2009.
• For a “change in law” to trigger a tariff adjustment, there must be a change in cost or revenue. Since Nabha had already factored in the benefits, no such change occurred.
• The respondent did not issue any notice for change in law as per Article 13.3.2.
• The Mega Power Policy of 2006 was an executive decision, and the Cabinet decision is also issued under Article 77 of the Constitution of India, and no Presidential assent is a prerequisite for the same.
• As per Rule 50(13) of the Central Secretariat, Manual of Office Procedure, the Press Communique/Note is the approved formal procedure of communication.

Respondent (Punjab State Power Corporation Limited) Arguments:

• The press release of 01.10.2009 was merely an intent or proposal and not a legally binding instrument.
• The actual change in law, regarding customs duty, occurred with the issuance of the notification on 11.12.2009 under Section 25 of the Customs Act, 1962.
• The Cabinet decision required further implementation through notifications, rules, or regulations, and it was not self-executing.
• The definition of “law” in the PPA limits the expression “Decision” only with regard to the decision by the Appropriate Commission and not an Indian Governmental Instrumentality.
• The Cabinet decision did not specify the distribution reforms to be undertaken by the states, which were later laid down by the Ministry of Power on 03.12.2009.
• The Mega Power Policy was issued on 14.12.2009 with further additions, making it the effective date of change.
• The appellant ought to have considered only the applicable law as per clauses 2.7.2.1 and 2.7.2.2 of the RFP.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

“Whether the press release of 01.10.2009 announcing the decision of the Union Cabinet about approval of certain modifications envisaged in the then existing mega power policy, is covered within the meaning of the expression “law as defined in Clause 1.1 of the RFP/PPA and if so did the extant legal regime as on 01.10.2009 undergo a change from the said date?”

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

The court relied on Section 25 of the Customs Act, 1962, and Section 21 of the General Clauses Act, 1897, to emphasize that exemptions from customs duty must be notified in the Official Gazette. The court also followed the principle laid down in Babu Verghese and Others vs. Bar Council of Kerala and Others [1999] 3 SCC 422, that if a certain thing has to be done in a certain manner, it must be done in that manner or not at all. The court distinguished several cases cited by the appellant, including GMR Warora Energy Limited vs. Central Electricity Regulatory Commission [2023] 10 SCC 401, Energy Watch dog vs. Central Electricity Regulatory Commission [2017] 14 SCC 80, and Lloyd Electric and Engineering Limited vs. State of Himachal Pradesh [2016] 1 SCC 560, stating that these cases involved statutory instruments or specific notifications, unlike the press release in the present case. The court relied on Maharashtra State Electricity Distribution Company Limited vs. Adani Power Maharashtra Limited [2023] 7 SCC 401, to support its view that a press release cannot be the basis for assuming a change in law.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that law must be certain, accessible, and predictable. The court emphasized that a press release, being a summary of a Cabinet decision, did not possess the legal characteristics of a notification or a statutory instrument. The court held that the press release was merely a proposal and not a legally binding instrument that altered the existing legal regime. The court also noted that the PPA’s definition of “law” required a formal legal instrument, such as a statute, regulation, notification, or order, to constitute a change in law. The court was also influenced by the fact that the change in law resulted in a reduction of customs duty, which should be passed on to the consumer. The court also considered the fact that the definition of “law” in the PPA limited the expression “Decision” only with regard to the decision by the Appropriate Commission and not an Indian Governmental Instrumentality.

Logical Reasoning:

The court rejected the appellant’s argument that the press release of 01.10.2009 constituted a change in law. The court reasoned that the press release was merely an announcement of a proposal and not a legal instrument that altered the existing legal regime. The court also emphasized that the definition of “law” in the PPA required a formal legal instrument, such as a statute, regulation, notification, or order, to constitute a change in law. The court noted that the press release was not self-executing and required further action through notifications and policy documents. The court also rejected the appellant’s argument that it had factored in the benefits of the press release while bidding, stating that this did not alter the fact that a change in law had occurred later. The court held that the change in law occurred with the notification of 11.12.2009 and the policy document of 14.12.2009, which modified the conditions for Mega Power Projects and provided for the removal of the inter-state requirement. The court also held that the change in law resulted in a reduction of customs duty, which should be passed on to PSPCL.

The court considered alternative interpretations, but rejected them. The court reasoned that accepting the appellant’s argument would create uncertainty in the law and would contradict the principle that law must be certain and predictable. The court also rejected the appellant’s argument based on promissory estoppel, stating that the respondent was not the promisor and that no steps had been taken to enforce the promise.

The court concluded that the press release of 01.10.2009 did not constitute a “change in law” under the PPA and that the change in law occurred with the notification of 11.12.2009 and the policy document of 14.12.2009. The court held that the respondent was entitled to the benefits of the change in law, which ultimately will go to the consumers. The court also held that the words of clause 13.1.1 read with the definition of law in Clause 1.1 are plain and clear.

The court quoted the following from the judgment:

“The press release of 01.10.2009 certainly does not fulfil the meaning of the word “order” as understood in legal parlance.”

“The press release announcing the cabinet approval of certain modifications envisaged in the existing Mega Power Policy is not law as defined in Clause 1.1 of the PPA.”

“Certainty is the hallmark of law. It is one of its essential attributes. It is an integral component of the rule of law.”

There were no majority or minority opinions in this case.

Key Takeaways

• A press release announcing a Cabinet decision does not automatically constitute “law” under a Power Purchase Agreement (PPA).
• The definition of “law” in a PPA must be strictly interpreted, requiring formal legal instruments such as statutes, regulations, notifications, or orders.
• Changes in law that affect the cost or revenue of a project must be passed on to the procurer to maintain the economic position of the parties as if the change had not occurred.
• The principle of legal certainty requires that law be accessible, intelligible, clear, and predictable.

Directions

No specific directions were given by the Supreme Court in this judgment.

Development of Law

The ratio decidendi of the case is that a press release announcing a Cabinet decision is not “law” under a PPA. The court clarified that the definition of “law” in a PPA requires a formal legal instrument, such as a statute, regulation, notification, or order. This decision reinforces the principle of legal certainty and clarifies the interpretation of “change in law” clauses in power purchase agreements. There is no change in thelaw as a result of this judgment. The law in this area remains the same as it was before this judgment. The judgment clarifies the position of law and ensures that the parties to a contract are bound by the express terms of the contract and not by any other document which is not a formal legal instrument. The judgment also clarifies that a press release is not a formal legal instrument. This judgment will be useful in future cases involving interpretation of “change in law” clauses in power purchase agreements and in other contracts. The judgment also emphasizes that the parties to a contract must act as prudent businessmen and must not try to take advantage of any ambiguity in the contract. The judgment also emphasizes that the principle of legal certainty requires that law be accessible, intelligible, clear, and predictable.