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Uttar Haryana Bijli Vitran Nigam Ltd. & Anr. vs Adani Power (Mundra) Limited & Anr.

Civil Appeal · 2022 INSC 862Decided 24 Aug 2022
Civil Appeal No. 7129 of 2021

Background

Adani Power (Mundra) Limited supplies electricity to Haryana distribution licensees under long-term Power Purchase Agreements. After a 2010 environmental clearance forced Adani Power to install costly Flue Gas Desulfurization equipment, a "Change in Law" event under the agreements, a dispute arose over how much compensation, including interest, Adani Power was owed for the delay in being paid. The Central Electricity Regulatory Commission and then the Appellate Tribunal for Electricity gave partly conflicting answers on whether that interest ("carrying cost") should be simple or compound, and from which date.

Decision Breakdown

The sole issue before the Supreme Court was whether the Appellate Tribunal was right to award compound interest (interest on interest) on the carrying cost from 2014, when the Change in Law event occurred, rather than only simple interest from a later date. The Court held that the entire purpose of carrying cost is "restitution", putting the affected party back in the economic position it would have been in had the Change in Law event never happened, and since Adani Power itself had to pay banks interest on a monthly-compounding basis to fund the FGD installation, compensating it on anything less than a compounding basis would leave it undercompensated. The Court rejected the distribution companies' argument that the absence of an explicit compound-interest clause in the agreements barred such an award, holding this flows from the restitutionary principle embedded in the contract's Change in Law clause. The Appellate Tribunal's order was upheld and the appeal was dismissed as meritless.

Lesson Learnt

When a contract requires "restitution" for a Change in Law or similar unforeseen cost, courts will interpret that compensation broadly enough to make the affected party financially whole, including compound interest calculated the same way the affected party itself had to borrow and repay money, rather than reading the clause narrowly against the paying party.

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

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