Supreme Court Upholds Compensation for Adani Power Under Change in Law Clause

The case of Uttar Haryana Bijli Vitran Nigam Ltd. & Anr. vs. Adani Power (Mundra) Limited & Others is a landmark ruling that reaffirms the principle of compensating power generators when unforeseen government policies impact fuel supply. The Supreme Court upheld the decision of the Appellate Tribunal for Electricity (APTEL), which granted Adani Power compensation for increased coal costs under the ‘Change in Law’ clause of its Power Purchase Agreement (PPA). This judgment has far-reaching implications for India’s electricity regulatory framework and the enforcement of contractual obligations.

Background of the Case

The dispute arose from two PPAs signed on August 7, 2008, between Adani Power Mundra Limited (APML) and Haryana power distribution utilities—Uttar Haryana Bijli Vitran Nigam Ltd. and Dakshin Haryana Bijli Vitran Nigam Ltd. The contracts involved the supply of 1,424 MW of power from Adani’s Mundra power plant in Gujarat.

APML had based its tariff bid on coal supply under the National Coal Distribution Policy, 2007 (NCDP 2007). However, the revised coal supply framework under the NCDP 2013 reduced coal availability, significantly increasing the cost of power generation. Adani Power sought compensation under the ‘Change in Law’ provisions of the PPA.

In a prior ruling in Energy Watchdog vs. Central Electricity Regulatory Commission, the Supreme Court held that only changes in Indian law (not foreign regulations like Indonesian coal price hikes) qualified as ‘Change in Law.’ Adani Power, however, continued to press for compensation due to reduced coal supply under Indian policies.

Legal Issues Before the Court

Whether Adani Power’s bid was based solely on domestic coal availability and if it was entitled to compensation for coal supply shortfalls.
Whether the Central Electricity Regulatory Commission (CERC) erred in determining the compensation methodology.
Whether Adani Power was entitled to compensation from April 1, 2013, the start of the financial year, or from the date of policy change, July 31, 2013.

Arguments by the Petitioner (Haryana Utilities)

The power distribution utilities argued:

“Adani Power’s bid was based on a mix of domestic (70%) and imported (30%) coal. Therefore, it cannot claim full compensation for domestic coal shortfalls.”
“The CERC and APTEL wrongly assumed that Adani Power had planned for 100% domestic coal usage.”
“Compensation should be limited to the difference between assured and actual domestic coal availability under NCDP 2013.”
“The start date for compensation should be July 31, 2013, and not April 1, 2013.”

Arguments by the Respondent (Adani Power Mundra Limited)

Adani Power countered:

“Our bid was based entirely on domestic coal, and the government’s failure to ensure full supply constitutes a ‘Change in Law.’”
“The CERC correctly determined that compensation must be calculated based on actual shortfall, restoring us to our original economic position.”
“Compensation must begin from April 1, 2013, when the financial impact of reduced coal supply began.”
“The methodology used by the CERC aligns with prior cases, including the GMR Kamalanga judgment.”

Supreme Court’s Analysis and Judgment

The Supreme Court ruled in favor of Adani Power and upheld the APTEL judgment. It made the following key observations:

“The entire coal linkage provided under NCDP 2007 was intended for fulfilling PPA obligations. Any shortfall caused by NCDP 2013 qualifies as ‘Change in Law.’”
“There is no conclusive evidence that Adani Power planned to rely on 30% imported coal; therefore, it is entitled to full compensation for domestic coal shortfall.”
“The compensation calculation methodology used by CERC and upheld by APTEL is fair and aligns with industry standards.”
“Compensation must commence from April 1, 2013, as it marks the financial impact date.”

The Court ruled:

“Adani Power is entitled to relief under ‘Change in Law’ provisions for the full shortfall in domestic coal supply. The compensation methodology determined by CERC and upheld by APTEL is confirmed.”

Key Takeaways from the Judgment

‘Change in Law’ provisions in PPAs must be interpreted to protect power generators from government policy shifts.
Utilities cannot dispute compensation when the original coal allocation under NCDP 2007 was clearly intended for full power generation.
Compensation must be calculated based on actual shortfall rather than arbitrary assumptions about imported coal reliance.
Regulatory bodies like CERC and APTEL play a crucial role in ensuring fair electricity pricing under unforeseen regulatory changes.

Impact of the Judgment

This ruling strengthens the enforceability of ‘Change in Law’ clauses in power contracts, ensuring that power producers remain financially viable despite government-induced coal supply disruptions. The Supreme Court’s decision prevents state utilities from using technicalities to evade contractual obligations and reinforces India’s commitment to a stable electricity regulatory framework.

For investors in the power sector, this judgment provides assurance that legitimate claims for compensation will be upheld, making long-term power generation investments more secure.

Petitioner Name: Uttar Haryana Bijli Vitran Nigam Ltd. & Anr..
Respondent Name: Adani Power (Mundra) Limited & Others.
Judgment By: Justice B.R. Gavai, Justice Vikram Nath.
Place Of Incident: Haryana.
Judgment Date: 20-04-2023.

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