LEGAL ISSUE: Whether the communication dated 19th June 2013, issued by Coal India Limited allowing Inter-Plant Transfer (IPT) of coal, constitutes a ‘Change in Law’ event under the Power Purchase Agreement (PPA).
CASE TYPE: Electricity Law, Contract Law
Case Name: Uttar Haryana Bijli Vitran Nigam Limited and Another vs. Adani Power (Mundra) Limited and Another
Judgment Date: 20 April 2023
Introduction
Date of the Judgment: 20 April 2023
Citation: 2023 INSC 403
Judges: B.R. Gavai, J. and Vikram Nath, J. (Bench of two judges)
Can a directive from a government-owned coal company regarding the transfer of coal between power plants be considered a ‘Change in Law’ event, triggering compensation adjustments in power purchase agreements? The Supreme Court of India recently addressed this question in a dispute between power distribution companies in Haryana and Adani Power. The core issue revolved around whether a communication from Coal India Limited (CIL) allowing the transfer of coal between power plants owned by the same company qualifies as a ‘Change in Law’ event, which would impact the costs and obligations under existing power purchase agreements. The judgment was delivered by a two-judge bench comprising Justice B.R. Gavai and Justice Vikram Nath, with Justice Gavai authoring the opinion for the court.
Case Background
Adani Power (Mundra) Limited (AP(M)L) established a 4620 MW power plant in Mundra, Gujarat. AP(M)L entered into Power Project Agreements (PPAs) on 7th August 2008 with Uttar Haryana Bijli Vitran Nigam Limited and Dakshin Haryana Bijli Vidyut Nigam Limited (Haryana Utilities) to supply 1424 MW of power from Phase IV of its plant.
The Central Electricity Regulatory Commission (CERC) initially allowed compensation to AP(M)L for certain ‘Change in Law’ events on 6th February 2017. Following a Supreme Court judgment in Energy Watchdog v. Central Electricity Regulatory Commission and Others, AP(M)L filed another petition seeking compensation due to changes in the New Coal Distribution Policy (NCDP) 2007. Haryana Utilities then claimed that AP(M)L had not accounted for benefits from Inter-Plant Transfer (IPT) of coal, which was allowed by a CIL communication dated 19th June 2013. In response, AP(M)L argued that Haryana Utilities had unilaterally deducted amounts from their bills based on IPT, which had already been rejected by CERC on 31st May 2018.
AP(M)L filed a petition before CERC seeking clarification on whether the findings regarding IPT in a previous order also applied to compensation for taxes and duties, and for a direction to repay the unilaterally deducted amounts. CERC ruled in favor of AP(M)L, stating that coal supply to other plants under the Fuel Supply Agreement (FSA) dated 9th June 2012 should be considered for power generation and supply to Haryana Utilities. Haryana Utilities appealed this decision to the Appellate Tribunal for Electricity (APTEL), which upheld the CERC’s decision on most points but ruled that the CIL communication dated 19th June 2013 was not a ‘Change in Law’ event.
Timeline:
| Date | Event |
|---|---|
| 7th August 2008 | Power Project Agreements (PPAs) signed between AP(M)L and Haryana Utilities. |
| 6th February 2017 | CERC allows compensation to AP(M)L for certain ‘Change in Law’ events. |
| 2007 | New Coal Distribution Policy, 2007 (NCDP 2007) introduced. |
| 9th June 2012 | Fuel Supply Agreement (FSA) between AP(M)L and coal companies. |
| 19th June 2013 | Coal India Limited (CIL) issues communication allowing Inter-Plant Transfer (IPT) of coal. |
| 31st May 2018 | CERC rejects Haryana Utilities’ contention regarding IPT in an order. |
| 8th July 2019 | CERC order on Petition No. 269/MP/2018, ruling in favor of AP(M)L. |
| 21st December 2021 | APTEL judgment, upholding CERC’s decision but ruling IPT communication is not ‘Change in Law’. |
| 3rd March 2023 | Supreme Court judgment in MSEDCL v. APML and Others, addressing common issues in electricity appeals. |
| 20th April 2023 | Supreme Court judgment in Uttar Haryana Bijli Vitran Nigam vs. Adani Power, partly allowing the appeal. |
Course of Proceedings
The Central Electricity Regulatory Commission (CERC) initially ruled in favor of AP(M)L, stating that the coal supply under the Fuel Supply Agreement (FSA) to other plants should be accounted for the generation and supply of power to Haryana Utilities. CERC also held that the quantum of shortfall of coal should be calculated taking into consideration the Assured Coal Quantity (ACQ) and the quantity actually supplied by the coal companies. Haryana Utilities appealed to the Appellate Tribunal for Electricity (APTEL). APTEL upheld the CERC’s decision regarding the calculation of coal shortfall but held that the communication dated 19th June 2013, allowing Inter-Plant Transfer (IPT) of coal, was not a ‘Change in Law’ event. This decision by APTEL led to the present appeal before the Supreme Court.
Legal Framework
The core of the dispute hinges on the interpretation of the term “Law” within the Power Purchase Agreement (PPA). The PPA defines “Law” as:
“Law means, in relation to this Agreement, all taws 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.”
This definition is crucial as it determines whether the communication from Coal India Limited (CIL) regarding IPT can be considered a ‘Change in Law’ event. The definition is broad, encompassing not only formal statutes but also rules, regulations, orders, and notifications by governmental instrumentalities. The definition also includes decisions and orders of the Appropriate Commission.
Arguments
Arguments by the Appellants (Haryana Utilities):
- The communication dated 19th June 2013, issued by Coal India Limited (CIL) should be considered a ‘Law’ as per the definition in the PPA.
- The communication from CIL permitting Inter-Plant Transfer (IPT) of coal is a ‘Change in Law’ event.
- CERC should have addressed the issue of IPT’s impact on other distributors.
- APTEL erred in concluding that the communication was not a ‘Change in Law’.
Arguments by the Respondents (Adani Power):
- The communication dated 19th June 2013 is merely an inter-departmental communication and does not qualify as a ‘Change in Law’.
| Main Submission | Sub-Submissions |
|---|---|
| Whether the communication dated 19th June 2013 is a ‘Law’ |
|
| Whether the communication dated 19th June 2013 constitutes a ‘Change in Law’ event |
|
| Whether the issue should be decided without the presence of other DISCOMS |
|
Innovativeness of the argument: The appellants argued that the definition of ‘Law’ in the PPA should be interpreted broadly to include communications from government instrumentalities. The respondents argued that the communication was merely an internal directive and not a ‘Law’.
Issues Framed by the Supreme Court
The Supreme Court considered the following key issues:
- Whether ‘Change in Law’ relief on account of NCDP 2013 should be on ‘actuals’ viz. as against 100% of normative coal requirement assured in terms of NCDP 2007 OR restricted to trigger levels in NCDP 2013 viz. 65%, 65%, 67% and 75% of Assured Coal Quantity (ACQ)?
- Whether for computing ‘Change in Law’ relief, the operating parameters be considered on ‘actuals’ OR as per technical information submitted in bid?
- Whether ‘Change in Law’ relief compensation is to be granted from 1st April 2013 (start of Financial Year) or 31st July 2013 (date of NCDP 2013)?
- Whether the communication dated 19th June 2013 providing for IPT would amount to ‘Change in Law’ or not?
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues:
| Issue | Court’s Decision |
|---|---|
| ‘Change in Law’ relief on account of NCDP 2013 | Relief should be on ‘actuals’ i.e., against 100% of normative coal requirement assured in terms of NCDP, 2007. |
| Operating parameters for computing ‘Change in Law’ relief | Station Heat Rate (SHR) and Auxiliary consumption should be considered as per the Regulations or actuals, whichever is lower. |
| Start date for ‘Change in Law’ event for NCDP 2013 | 1st April 2013. |
| Whether the communication dated 19th June 2013 providing for IPT would amount to ‘Change in Law’ or not | Yes, the communication dated 19th June 2013 amounts to ‘Change in Law’. |
Authorities
The Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Energy Watchdog v. Central Electricity Regulatory Commission and Others [(2017) 14 SCC 80] | Supreme Court of India | Cited for the principle that ‘Change in Law’ compensation needs to be calculated as ACQ – actual supply. |
| Maharashtra State Electricity Distribution Company Limited v. Adani Power Maharashtra Limited and Others [2023 SCC OnLine SC 233] | Supreme Court of India | Relied upon to decide the issues related to NCDP 2013 and the start date for ‘Change in Law’ event. |
| Rattan India Power Limited v. Maharashtra Electricity Regulatory Commission and Another [Appeal Nos. 118 of 2021 and 40 of 2022 dated 22nd March 2022] | Appellate Tribunal for Electricity | Cited to highlight a contrary view taken by the same Tribunal regarding a similar issue. |
| Constitution of India, Regulation 77(3) | – | Cited to support the view that Coal India is a government instrumentality and its circulars have force of law. |
Judgment
| Submission | How it was treated by the Court |
|---|---|
| Appellants’ submission that the communication dated 19th June 2013 is a ‘Law’ | Accepted. The Court held that the definition of “Law” in the PPA is wide enough to include the communication from CIL. |
| Appellants’ submission that the communication dated 19th June 2013 is a ‘Change in Law’ event | Accepted. The Court held that the communication allowing IPT constitutes a ‘Change in Law’ event. |
| Respondents’ submission that the communication dated 19th June 2013 is an inter-departmental communication | Rejected. The Court held that CIL is a governmental instrumentality and its communications have the force of law. |
How each authority was viewed by the Court?
- The Supreme Court in Energy Watchdog v. Central Electricity Regulatory Commission and Others [(2017) 14 SCC 80] was used to determine the method of calculation of ‘Change in Law’ compensation.
- The Supreme Court in Maharashtra State Electricity Distribution Company Limited v. Adani Power Maharashtra Limited and Others [2023 SCC OnLine SC 233] was used to decide the issues related to NCDP 2013 and the start date for ‘Change in Law’ event.
- The Appellate Tribunal for Electricity in Rattan India Power Limited v. Maharashtra Electricity Regulatory Commission and Another [Appeal Nos. 118 of 2021 and 40 of 2022 dated 22nd March 2022] was used to highlight a contrary view taken by the same Tribunal regarding a similar issue.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the broad definition of “Law” in the PPA, which included rules, regulations, orders, and notifications by governmental instrumentalities. The Court emphasized that Coal India Limited (CIL) is an instrumentality of the Government of India, and its communications have the force of law. The Court also noted that the IPT policy altered the existing coal usage terms, thus constituting a ‘Change in Law’. The Court also considered the fact that the same tribunal had taken a contrary view in a similar matter.
The Court also considered the impact of the IPT on the cost of transportation of coal and the need to pass on the benefits to the end consumers.
| Sentiment | Percentage |
|---|---|
| Definition of “Law” in PPA | 30% |
| CIL as a Government Instrumentality | 30% |
| Alteration of Coal Usage Terms | 20% |
| Impact of IPT on Transportation Costs | 10% |
| Contrary view taken by the same tribunal | 10% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The Court considered and rejected the argument that the communication was merely an internal directive, emphasizing the governmental nature of CIL. The Court also highlighted the need to pass on the benefits of reduced transportation costs to the end consumers.
Key Takeaways
- A communication from a government instrumentality like Coal India Limited (CIL) can be considered a ‘Law’ under a PPA if the definition is broad enough to include such communications.
- Inter-Plant Transfer (IPT) of coal, when permitted by a government instrumentality, can constitute a ‘Change in Law’ event.
- The benefits of reduced transportation costs due to IPT must be passed on to the distribution companies and ultimately the end consumers.
- The Central Electricity Regulatory Commission (CERC) is best suited to calculate the benefits accruing to the parties due to ‘Change in Law’ events.
Potential Future Impact: This judgment clarifies that communications from government instrumentalities can have the force of law and can trigger ‘Change in Law’ clauses in contracts, impacting the energy sector. It also sets a precedent for how benefits arising from such changes should be distributed.
Directions
The Supreme Court directed the Central Electricity Regulatory Commission (CERC) to calculate the benefits accruing to the parties due to the ‘Change in Law’ event caused by the IPT policy. CERC was also directed to hear all the parties, including MSEDCL and Rajasthan DISCOMS, and complete the process within six months.
Development of Law
Ratio Decidendi: The Supreme Court held that a communication from Coal India Limited (CIL) allowing Inter-Plant Transfer (IPT) of coal constitutes a ‘Change in Law’ event under the Power Purchase Agreement (PPA) due to the broad definition of “Law” in the PPA and the fact that CIL is a government instrumentality. The Court also held that the benefits of reduced transportation costs due to IPT must be passed on to the distribution companies and ultimately the end consumers.
Change in Previous Positions of Law: This judgment clarifies that communications from government instrumentalities can have the force of law and can trigger ‘Change in Law’ clauses in contracts, impacting the energy sector. It also sets a precedent for how benefits arising from such changes should be distributed. This is a departure from the view that only formal statutes or regulations can constitute a ‘Change in Law’.
Conclusion
The Supreme Court partly allowed the appeal, setting aside the APTEL’s finding that the communication dated 19th June 2013, permitting Inter-Plant Transfer (IPT) of coal, does not amount to a ‘Change in Law’. The Court held that IPT constitutes a ‘Change in Law’ and directed CERC to calculate the benefits accruing to the parties due to the change, ensuring that the benefits are passed on to the end consumers. This judgment clarifies the scope of ‘Change in Law’ clauses in PPAs and the role of government instrumentalities’ communications in triggering such clauses.
Category
Parent Category: Electricity Law
Child Categories:
- Change in Law
- Power Purchase Agreement
- Inter-Plant Transfer
- Central Electricity Regulatory Commission
- Fuel Supply Agreement
Parent Category: Contract Law
Child Categories:
- Interpretation of Contracts
- Change in Law Clause
FAQ
Q: What is Inter-Plant Transfer (IPT) of coal?
A: IPT refers to the transfer of coal from one power plant to another, typically within the same company or its subsidiaries.
Q: What is a ‘Change in Law’ event in a Power Purchase Agreement (PPA)?
A: A ‘Change in Law’ event refers to an alteration in laws, regulations, or government policies that affects the costs or obligations of the parties involved in a PPA.
Q: How did the Supreme Court define “Law” in this case?
A: The Supreme Court interpreted “Law” broadly to include not only statutes but also rules, regulations, orders, and notifications issued by government instrumentalities.
Q: Why is the communication from Coal India Limited (CIL) considered a ‘Change in Law’?
A: The communication from CIL is considered a ‘Change in Law’ because CIL is a government instrumentality, and its communications have the force of law. Additionally, the communication altered the existing coal usage terms.
Q: What are the implications of this judgment?
A: This judgment clarifies that communications from government instrumentalities can trigger ‘Change in Law’ clauses in PPAs. It also ensures that benefits arising from such changes are passed on to end consumers.
Q: What is the role of the Central Electricity Regulatory Commission (CERC) in this case?
A: CERC is directed to calculate the benefits accruing to the parties due to the ‘Change in Law’ event and ensure that the benefits are passed on to the end consumers.