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Maharashtra State Electricity Distribution Company Limited vs Adani Power Maharashtra Limited

Civil Appeal · 2023 INSC 399Decided 20 Apr 2023
Civil Appeal Nos. 687-688 of 2021
B.R. Gavai · Vikram Nath

Background

Maharashtra State Electricity Distribution Company Limited (MSEDCL) and Adani Power Maharashtra Limited (APML) had entered into long-term Power Purchase Agreements under which APML was to supply power partly using coal from the Lohara Coal Blocks, which had been allocated to APML by the Ministry of Coal before the power-purchase bids were finalized. The Lohara Coal Blocks were subsequently deallocated for reasons unconnected to any fault of APML (related to wildlife/forest conservation restrictions near the Tadoba Tiger Reserve). This forced APML to source coal from alternate locations at higher cost, and it claimed compensation from MSEDCL under the "Change in Law" clause of the PPA. The Appellate Tribunal for Electricity (APTEL) upheld APML's claim and fixed a compensation formula based on the cost difference between alternate coal and the originally bid-for Lohara coal (including transportation cost), overturning a contrary finding of the Maharashtra Electricity Regulatory Commission. MSEDCL appealed to the Supreme Court.

Decision Breakdown

The Supreme Court upheld the APTEL's approach, holding that when a coal source assured to a power generator by a Government of India instrumentality is later deallocated through no fault of the generator, the generator must be restored to the same economic position it would have been in had the change in law not occurred. The correct compensation formula, following the Court's earlier ruling in the parallel Adani Rajasthan case, is the difference between the cost of alternate coal and the cost of coal from the originally bid-identified source (Lohara coal), not a cheaper substitute benchmark like generic "linkage coal," and the landed cost properly includes transportation costs, consistent with the Court's precedent in Nabha Power. Finding the Expert Committee's report (which included independent legal, financial, and auditing experts, and a MSEDCL representative) supported this methodology, and finding no fault in APTEL's reasoning, the Court dismissed MSEDCL's appeals and upheld the compensation as computed.

Lesson Learnt

Under a "Change in Law" clause in a long-term supply contract, compensation must restore the affected party to the same economic position it would have occupied but for the change. Courts and tribunals will use the specific, originally-contracted-for cost baseline (including all real costs like transportation) rather than a cheaper generic substitute, when computing what is owed.

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

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