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Haryana Power Purchase Centre vs. Sasan Power Ltd. & Ors.

Civil Appeal · 2023 INSC 326Decided 6 Apr 2023
Civil Appeal No. 11826 of 2018
K.M. Joseph · B.V. Nagarathna

Background

Sasan Power Ltd. (the first respondent) was the special-purpose vehicle set up to build the Sasan Ultra Mega Power Project, an integrated coal-fired power project with its own captive coal mines, selling power to several state distribution utilities ("procurers," including Haryana Power Purchase Centre) under a long-term Power Purchase Agreement. Sasan Power had to import mining equipment for its captive coal mines because such equipment was not available in India, and initially expected a nil rate of customs duty available to mega power projects. However, an Office Memorandum (OM) issued by the Ministry of Power on 17.06.2011 clarified that the customs duty exemption applied only to power-generation equipment, not mining equipment, causing Madhya Pradesh's Energy Department to refuse the recommendation letter Sasan Power needed to claim the exemption; Sasan Power ended up paying substantial customs duty (over Rs. 361 crore) on the mining equipment. Sasan Power claimed this OM amounted to a "Change in Law" under Article 13.1.1 of the PPA, entitling it to pass the extra cost on to the procurers; the Central Electricity Regulatory Commission and the Appellate Tribunal for Electricity had partly ruled in its favour, prompting the procurers to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court undertook a detailed analysis of the PPA's definitions of "Law," "Project," "power station" and "captive coal mine," and of the original 2002 customs notification exempting mega power project equipment. It held that the 2011 OM did not itself change any law. It merely clarified the Ministry of Power's pre-existing understanding that the customs exemption was confined to power-generation equipment and never covered mining equipment for captive coal mines. Since there was no proof that mining equipment had ever actually been exempted before the OM, there was no "change" in the legal position at all, and therefore the conditions for invoking the Change in Law clause under Article 13.1.1 were not met. The Court allowed the procurers' appeals, set aside the Tribunal's order, and extended the benefit of its ruling even to three respondent distribution companies that had not filed their own appeals, since the litigation and the PPA were common to all of them.

Lesson Learnt

A "Change in Law" clause in a commercial contract is triggered only by an actual change in the legal or regulatory position after the contract is signed: a government clarification that simply restates or explains an exemption's pre-existing scope, without altering it, does not qualify, and a business cannot use such a clause to shift costs arising from its own mistaken assumption about the law.

Official source (sci.gov.in)View Judgment (PDF)

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