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Uttar Haryana Bijli Vitran Nigam Ltd. (UHBVNL) & Anr. v. Adani Power Ltd. & Ors.

Civil Appeal · 2019 INSC 261Decided 25 Feb 2019
Civil Appeal No. 5865 of 2018
Justice Rohinton Fali Nariman · Justice Navin Sinha

Background

Adani Power Ltd. set up a large coal-fired power plant in a Special Economic Zone (SEZ) in Gujarat and had signed Power Purchase Agreements (PPAs) with Haryana and Gujarat electricity distribution companies to supply power at agreed tariffs. The PPAs originally benefited from customs and excise duty exemptions available to SEZ developers, but the central government later withdrew these tax exemptions. Adani Power approached the Central Electricity Regulatory Commission (CERC) claiming this withdrawal was a "change in law" under the PPAs entitling it to additional compensation, and the CERC ruled in its favour; the distribution companies (appellants) challenged this before the Supreme Court.

Decision Breakdown

The Supreme Court examined Article 13 of the PPAs, which provided for compensation when a "change in law" increased or decreased the cost of supplying power, with the underlying restitutionary principle of restoring the affected party to the economic position it would have been in had the change not occurred. The Court held that the withdrawal of the SEZ-linked customs/excise exemptions did qualify as a change in law under the PPA, distinguishing the facts from its earlier ruling in Energy Watchdog v. CERC (which concerned a different scenario involving foreign coal-law changes). Finding no infirmity in the CERC's approach of compensating Adani Power for the increased costs, the Court dismissed the distribution companies' appeals and upheld the CERC's order.

Lesson Learnt

Contractual "change in law" clauses in long-term agreements are interpreted according to their specific restitutionary purpose, to restore the affected party's economic position, and withdrawal of a tax exemption that was built into the contract's cost structure can validly trigger compensation under such a clause.

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

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