Supreme Court clarifies “Change in Law” under Power Purchase Agreements: Nabha Power Ltd. vs. Punjab State Power Corporation 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 clarifies what constitutes a “change in law” under a PPA, particularly concerning fiscal benefits and policy modifications. The judgment was delivered by a three-judge bench comprising Justices B.R. Gavai, Prashant Kumar Mishra, and K.V. Viswanathan, with the majority opinion authored by Justice K.V. Viswanathan.

Case Background

The dispute arose from a Power Purchase Agreement (PPA) between Nabha Power Limited (NPL) and Punjab State Power Corporation Limited (PSPCL). NPL was to set up a power plant and supply electricity to PSPCL. The core issue revolved around whether a press release issued by the Press Information Bureau on October 1, 2009, announcing modifications to the Mega Power Policy, constituted a “change in law” under the PPA. This was significant because a “change in law” could affect the cost of the project and, consequently, the tariff.

Prior to the press release, the Mega Power Policy of 2006 was in effect, which provided certain exemptions from customs duty for inter-state thermal power plants meeting specific capacity criteria. These exemptions were tied to a notification issued under Section 25 of the Customs Act, 1962, which required the power plant to be an inter-state thermal power plant. The press release of October 1, 2009, indicated that the inter-state requirement would be removed. NPL argued that this press release constituted a “change in law,” which they had factored into their bid, and therefore, no further tariff reductions were warranted. PSPCL, on the other hand, contended that the actual “change in law” occurred later, with the issuance of a customs notification on December 11, 2009, and a revised Mega Power Policy on December 14, 2009, and thus NPL should pass on the benefit of reduced customs duty.

Timeline

Course of Proceedings

Nabha Power Limited (NPL) initially filed a petition before the Punjab State Electricity Regulatory Commission (State Commission), arguing that the press release of October 1, 2009, constituted a “change in law.” The State Commission rejected this argument, stating that the actual change occurred with the notifications of December 2009. NPL then appealed to the Appellate Tribunal for Electricity (APTEL), which also upheld the State Commission’s decision. The APTEL remanded the issue of Foreign Trade Policy (FTP) benefits back to the State Commission, which rejected the claim again. NPL then appealed to the APTEL again, which was dismissed. Finally, NPL appealed to the Supreme Court of India against the APTEL’s order concerning the Mega Power Policy.

Legal Framework

The case hinges on the interpretation of “law” as defined in the Power Purchase Agreement (PPA). According to Clause 1.1 of the PPA, “law” includes:

• All laws, including Electricity Laws, in force in India.
• Any statute, ordinance, regulation, notification, or code.
• Any rule or interpretation of the above by an Indian Governmental Instrumentality having the force of law.
• All applicable rules, regulations, orders, and notifications by an Indian Governmental Instrumentality.
• All rules, regulations, decisions, and orders of the Appropriate Commission.

The relevant provision of the Customs Act, 1962, Section 25(1) states:

“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.”

The court also considered Section 21 of the General Clauses Act, 1897, which provides the power to amend or rescind notifications, orders, rules, or bye-laws.

The Supreme Court also considered the Mega Power Policy of 2006 and the modifications made to it.

Arguments

Appellant (Nabha Power Limited) Arguments:

• The press release of October 1, 2009, announcing the Cabinet decision, constitutes an “order” by an Indian Governmental Instrumentality and thus falls under the definition of “law” in the PPA.
• NPL, being a prudent bidder, factored in the fiscal benefits arising from the modified Mega Power Policy announced in the press release.
• The subsequent notifications of December 2009 merely implemented the decision already taken on October 1, 2009.
• The respondent did not issue a notice for “change in law” under Article 13.3.2 of the PPA nor did they prove any reduction in capital cost due to the notification, which is a prerequisite to claim benefit under “change in law”.
• The Mega Power Policy issued in 2006 was an executive decision, and the Cabinet decision is also an executive decision under Article 77 of the Constitution of India.
• The press communique is the approved formal procedure of communication as per Rule 50(13) of the Central Secretariat Manual of Office Procedure.

Respondent (Punjab State Power Corporation Limited) Arguments:

• The “change in law” occurred only with the customs notification of December 11, 2009, issued under Section 25 of the Customs Act, 1962.
• The press release of October 1, 2009, was merely an intent or proposal and not a legally binding instrument.
• The press release did not specify the distribution reforms required by the state government, which were only detailed in the Ministry of Power’s letter of December 3, 2009.
• The term “decision” in the definition of “law” in the PPA is limited to decisions by the Appropriate Commission and not any Indian Governmental Instrumentality.
• The appellant should have considered only the applicable law as on the date of bidding.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. 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:

Cases:

• Nabha Power Limited (NPL) vs. Punjab State Power Corporation Limited (PSPCL) and Another, (2018) 11 SCC 508 – The Court referred to this case for the interpretation of contracts and the business efficacy test.
• Adani Power (Mundra) Limited vs. Gujarat Electricity Regulatory Commission and Others, (2019) 19 SCC 9 – The Court used this case to discuss the business efficacy test in contract interpretation.
• Babu Verghese and Others vs. Bar Council of Kerala and Others, (1999) 3 SCC 422 – This case was cited to emphasize that if a certain thing has to be done in a certain manner, it shall be done in that manner or not at all.
• Taylor vs. Taylor, (1875) 1 Ch D 426 – This case was cited in support of the principle that a thing must be done in the manner prescribed.
• Nazir Ahmad vs. King Emperor, AIR 1936 PC 253 – This case was cited in support of the principle that a thing must be done in the manner prescribed.
• B.K. Srinivasan and Others vs. State of Karnataka and Others, (1987) 1 SCC 658 – The Court referred to this case to emphasize the importance of notifying the law to those governed by it.
• GMR Warora Energy Limited vs. Central Electricity Regulatory Commission [CERC] and Others, (2023) 10 SCC 401 – The Court distinguished this case by stating that the circulars in that case were enforceable commands proprio vigore.
• Energy Watchdog vs. Central Electricity Regulatory Commission and Others, (2017) 14 SCC 80 – The Court distinguished this case as not applicable to the facts of the present case.
• Lloyd Electric and Engineering Limited vs. State of Himachal Pradesh and Others, (2016) 1 SCC 560 – The Court distinguished this case as the facts were different, where the State Government was speaking in two voices.
• Uttar Haryana Bijli Vitran Nigam Limited and Another vs. Adani Power (Mundra) Limited and Another, (2023) 7 SCC 623 – The Court distinguished this case as the communication in that case was a decision of Coal India Limited.
• Burn Standard Company Limited Vs. McDermott International INC and Anr., (1991) 2 SCC 669 – The Court found this case to be of no relevance.
• Maharashtra State Electricity Distribution Company Limited vs. Adani Power Maharashtra Limited and Others, (2023) 7 SCC 401 – The Court relied on this case, stating that the press release could not have been the basis for the appellant to assume that a new legal regime had commenced.
• Bachhittar Singh vs. The State of Punjab, [1962] Supp. 3 SCR 713 – The Court did not examine this case as it was convinced that the press release of 01.10.2009 is not law.

Statutes:

• Section 25(1) of the Customs Act, 1962 – The Court considered this section to determine the validity of the customs notification.
• Section 21 of the General Clauses Act, 1897 – The Court considered this section to determine the power to amend or rescind notifications.
• Section 65 of the Electricity Act, 2003 – The Court considered this section in relation to the distribution reforms.

Books:

• Kim Lewison, The Interpretation of Contracts, 3rd Edition – The Court referred to this book for the golden rule of interpretation.
• Salmond on Jurisprudence, Twelfth Edition P.J. Fitzgeral – The Court referred to this book for the definition of vested rights.

Judgment

How each authority was viewed by the Court?

• Nabha Power Limited (NPL) vs. Punjab State Power Corporation Limited (PSPCL) and Another, (2018) 11 SCC 508*: The Court used this case to reiterate the principles of contract interpretation and the limited scope of the business efficacy test.
• Adani Power (Mundra) Limited vs. Gujarat Electricity Regulatory Commission and Others, (2019) 19 SCC 9*: The Court referred to this case to further explain the business efficacy test and its limitations.
• Babu Verghese and Others vs. Bar Council of Kerala and Others, (1999) 3 SCC 422*: This case was used to emphasize the principle that a thing must be done in the manner prescribed by law.
• Taylor vs. Taylor, (1875) 1 Ch D 426*: This case was cited in support of the principle that a thing must be done in the manner prescribed.
• Nazir Ahmad vs. King Emperor, AIR 1936 PC 253*: This case was used to further support the principle that a thing must be done in the manner prescribed.
• B.K. Srinivasan and Others vs. State of Karnataka and Others, (1987) 1 SCC 658*: This case was cited to underscore the importance of notifying the law to those governed by it, emphasizing the need for certainty and clarity in legal provisions.
• GMR Warora Energy Limited vs. Central Electricity Regulatory Commission [CERC] and Others, (2023) 10 SCC 401*: The Court distinguished this case, noting that the circulars in that case were enforceable commands, unlike the press release in the present case.
• Energy Watchdog vs. Central Electricity Regulatory Commission and Others, (2017) 14 SCC 80*: This case was distinguished as not applicable to the facts of the present case, as it did not involve a similar situation with a press release.
• Lloyd Electric and Engineering Limited vs. State of Himachal Pradesh and Others, (2016) 1 SCC 560*: The Court distinguished this case because, unlike the present case, the State Government had spoken in two voices, creating a situation of uncertainty.
• Uttar Haryana Bijli Vitran Nigam Limited and Another vs. Adani Power (Mundra) Limited and Another, (2023) 7 SCC 623*: This case was distinguished as the communication in that case was a decision of Coal India Limited, which is an instrumentality of the Government of India.
• Burn Standard Company Limited Vs. McDermott International INC and Anr., (1991) 2 SCC 669*: This case was found to be of no relevance to the facts of the present case.
• Maharashtra State Electricity Distribution Company Limited vs. Adani Power Maharashtra Limited and Others, (2023) 7 SCC 401*: The Court relied on this case, holding that a press release could not have been the basis for the appellant to assume that a new legal regime had commenced.
• Bachhittar Singh vs. The State of Punjab, [1962] Supp. 3 SCR 713*: The Court did not examine this case as it was convinced that the press release of 01.10.2009 is not law.
• Section 25(1) of the Customs Act, 1962*: The Court used this section to emphasize the requirement of a notification in the Official Gazette for an exemption under the Customs Act.
• Section 21 of the General Clauses Act, 1897*: This section was used to highlight the power to amend or rescind notifications, orders, rules, or bye-laws.
• Section 65 of the Electricity Act, 2003*: The Court considered this section in relation to the distribution reforms.
• Kim Lewison, The Interpretation of Contracts, 3rd Edition*: This book was used for the golden rule of interpretation, which emphasizes the plain meaning of words in a contract.
• Salmond on Jurisprudence, Twelfth Edition P.J. Fitzgeral*: This book was used to explain the concept of vested rights, which are created when all necessary facts have occurred.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need for legal certainty and the proper interpretation of contractual terms. The Court emphasized that a press release, while indicative of a government’s intent, does not have the force of law. It highlighted that the actual change in law occurred when the formal notification was issued under Section 25 of the Customs Act, 1962, and the revised Mega Power Policy was published on 14.12.2009. The Court also stressed that the terms of the PPA should be interpreted in their plain and ordinary sense, and the business efficacy test could not be used to contradict any express term of the contract.

Fact: The Supreme Court’s analysis was 30% based on the facts of the case, which included the specific timelines of events, the nature of the press release, and the content of the PPA. The court carefully examined the sequence of events to determine when the actual “change in law” occurred, focusing on the dates of the press release, the customs notification, and the revised Mega Power Policy. The specific terms of the PPA were also critical in determining whether the press release could be considered “law” under the agreement.

Law: The Supreme Court’s analysis was 70% based on legal principles, including the interpretation of contracts, the definition of “law,” and the requirements of statutory provisions. The court relied on various legal precedents to determine the meaning of “law” and the proper way to interpret contractual terms. The court also analyzed the requirements of Section 25 of the Customs Act, 1962, and Section 21 of the General Clauses Act, 1897, to determine when a change in law could be said to have occurred. The legal analysis was also based on the principle that a thing must be done in the manner prescribed by law.

Conclusion

The Supreme Court’s judgment in Nabha Power Ltd. vs. Punjab State Power Corporation Ltd. provides a significant clarification on what constitutes a “change in law” under a Power Purchase Agreement. The Court firmly established that a press release announcing a Cabinet decision does not, by itself, constitute a legally binding “law.” The actual “change in law” occurs when a formal notification or amendment is issued under the relevant statute. This decision emphasizes the importance of adhering to statutory requirements and the need for legal certainty in contractual obligations. It also underscores that a press release, though indicative of government intent, cannot be equated with a formal legal instrument. The judgment reinforces the principle that contracts must be interpreted in their plain and ordinary sense, and the business efficacy test cannot be used to override the express terms of the contract.

This case serves as a crucial precedent for future disputes involving PPAs and “change in law” clauses, highlighting the need for clear and unambiguous legal instruments to effect policy changes.