1. Power Purchase Agreements — Deallocation of coal blocks due to subsequent notification of a wildlife buffer zone — Claim for compensation under Change in Law provisions. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 , 13 , 14 )
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2023 Supreme(SC) 386
SUPREME COURT OF INDIA
B.R. GAVAI, VIKRAM NATH, JJ.
Maharashtra State Electricity Distribution Company Limited – Appellant
Versus
Adani Power Maharashtra Limited And Others – Respondents
Civil Appeal Nos. 687-688 of 2021
Decided on : 20-04-2023
Important Points
A notification or order by an Indian Governmental Instrumentality can constitute a 'Change in Law' event under a Power Purchase Agreement if it impacts contractual obligations.
Subject
Civil Law - Electricity
Act Referred
Headnote
Electricity - Power Purchase Agreement - Section 38(V) of the Wild Life (Protection) Act, 1972; Electricity Act, 2003, Section 107; MoEF’s Notification dated 14th September 2006; MERC MYT Regulations, 2011 - The court discussed the events leading to the deallocation of Lohara Coal Blocks and whether it constituted a 'Change in Law' event under the Power Purchase Agreement (PPA). The court analyzed the definition of 'Law' under Article 1.1 of the PPA and concluded that the notification issued by the Government of Maharashtra on May 5, 2010, which included the area where Lohara Coal Blocks were situated as a Buffer Zone, amounted to a 'Change in Law'. The court also upheld the methodology for calculating compensation based on an Expert Committee's report and dismissed the appeals.
Fact of the Case:
The case involved a dispute between Maharashtra State Electricity Distribution Company Limited (MSEDCL) and Adani Power Maharashtra Limited (APML) regarding the deallocation of Lohara Coal Blocks and its impact on their power purchase agreement.Finding of the Court:
The court held that deallocation of Lohara Coal Blocks constituted a 'Change in Law' event under the PPA. It also upheld the methodology for calculating compensation based on an Expert Committee's report and dismissed the appeals.Issues:
Whether deallocation of Lohara Coal Blocks was a 'Change in Law' event; Methodology for calculating compensation.Ratio Decidendi:
The notification issued by the Government of Maharashtra on May 5, 2010, including Lohara Coal Blocks as a Buffer Zone constituted a 'Change in Law'. The court also upheld the methodology for calculating compensation based on an Expert Committee's report.Final Decision:
The appeals were found to be without merit and were dismissed.Legal Category Hierarchy
Table of Contents
2. Whether deallocation of coal blocks constitutes Change in Law — Responsibility for fuel arrangement — Validity of compensation methodology based on bid-identified fuel source. (Para 23 , 24 , 26 , 27 )
3. Notification of buffer zone after bid cut-off date constitutes Change in Law — Restitution requires compensating based on the bid-identified fuel source cost. (Para 37 , 38 , 39 , 40 , 41 , 43 , 44 , 45 , 46 , 47 , 48 , 49 , 50 )
4. A government notification issued after the bid cut-off date that prevents the use of a bid-identified fuel source constitutes a Change in Law. (Para 42 , 45 , 48 )
5. Appeals dismissed — Concurrent findings of the regulatory commission and tribunal upholding Change in Law and the compensation methodology affirmed. (Para 51 )
6. Does the deallocation of coal blocks due to a subsequent environmental notification constitute a Change in Law?
Yes, if a notification issued by a governmental instrumentality after the bid cut-off date prevents the use of a bid-identified fuel source, it constitutes a Change in Law under the PPA. (Para 42 , 45 , 48 )
7. What is the principle for calculating compensation under a Change in Law event in Power Purchase Agreements?
The restitutionary principle applies, aiming to restore the affected party to the same economic position as if the change had not occurred by compensating for additional costs incurred in procuring alternate coal. (Para 49 )
8. Should the base cost for compensation be the linkage coal cost or the bid-identified source cost?
The compensation should be calculated using the cost of the bid-identified fuel source as the base, rather than linkage coal, to ensure the affected party is fully restituted to its original economic position. (Para 49 )
9. To what extent should courts interfere with the findings of expert regulatory bodies like APTEL or CERC?
Courts should be slow to interfere with decisions of expert bodies unless the decisions are ex facie arbitrary, illegal, based on extraneous considerations, or fail to consider mandatory statutory provisions. (Para 37 )
10. Does the landed cost of coal for compensation purposes include transportation costs?
Yes, landed cost of coal necessarily includes transportation costs from the source to the project site, regardless of the mode of transport used. (Para 49 )
JUDGMENT :
B.R. GAVAI, J.
1. The present appeals challenge the judgment and order dated 5th October 2020 passed by the Appellate Tribunal for Electricity (hereinafter referred to as ‘APTEL’), in cross appeals being Appeal No. 340 of 2019, filed by Maharashtra State Electricity Distribution Company Limited (hereinafter referred to as ‘MSEDCL’), the appellant herein, and Appeal No. 354 of 2019, filed by Adani Power Maharashtra Limited (hereinafter referred to as ‘APML’), respondent No. 1 herein, thereby challenging the order dated 6th September 2019, passed by Maharashtra Electricity Regulatory Commission (hereinafter referred to as ‘MERC’).
2. APML and MSEDCL had entered into four long term Power Project Agreements (hereinafter referred to as ‘PPA’) dated (a) 8th September, 2008 for 1230 MW (hereinafter referred to as ‘1230 MW PPA’); (b) 21st March, 2010 for 1200 MW (hereinafter referred to as ‘1200 MW PPA’); (c) 9th August, 2010 for 120 MW (hereinafter referred to as ‘120 MW PPA’) and (d)16th February, 2013 for 440 MW (hereinafter referred to as ‘440 MW PPA’), pursuant to the competitive bidding process conducted by MSEDCL.
3. Prior to the signing of the PPAs between the parties, APML had applied to the Ministry of Coal, Government of India (for short, “MoC”) for allotment of Lohara Coal Blocks on 10th January 2007. Thereafter, on 6th November 2007, the MoC issued a Letter of Allocation (LoA) to APML conveying the allocation of Lohara (West) and Lohara Extension (E) Coal Blocks as the allocated source of fuel. Subsequently, on 23rd November 2007, APML applied to the Standing Linkage Committee (Long-Term) (hereinafter referred to as “SLC (LT)”) for grant of coal linkage for balance capacity to cover the coal requirement of Units 1, 2 and 3 of the Tiroda Thermal Power Station (TPS).
4. On 27th December 2007, the Government of Maharashtra issued a statutory Notification under Section 38 (V) of the Wild Life (Protection) Act, 1972, classifying 625.82 sq. km. of the Tadoba National Park and Andheri Wildlife Sanctuary as a Critical Tiger Habitat (CTH). It is pertinent to note that, at this point in time, the area demarcating the CTH, did not include the area of Lohara Coal Blocks and as such, there were no restrictions on coal mining in the allotted mining lease area. As per the revised Request for Proposal (RFP), the bid deadline was 21st February 2008 and the cut-off date was 14th February 2008, being seven days before the deadline. APML submitted its bid for supply of 1320 MW Power to MSEDCL, wherein it specified that the fuel source for a portion of the contracted capacity, viz. 800 MW capacity out of 1320 MW, would be the Lohara Coal Blocks. A copy of the MoC’s allocation letter dated 6th November 2007 was appended to the bid, as per the bid requirements.
5. Thereafter, on 21st February 2008, i.e., seven days after the bid cut-off date, the Conservator of the Tadoba Andheri Tiger Reserve (for short, “TATR”) approved the constitution of an Expert Committee for the creation of a Buffer Zone surrounding the core area of TATR under Section 38(V) of the Wildlife (Protection) Act.
6. Twenty-four days after the bid cut-off date, the Conservator, TATR submitted a proposal to the Chief Conservator of Forest, Maharashtra for creation of the aforesaid Buffer Zone. During the pendency of this proposal, the Ministry of Environment, Forests and Climate Change, Government of India (for short, “MoEF”), in exercise of its powers in terms of Regulation 7 of MoEF’s Notification dated 14th September 2006, granted the Terms of Reference (ToR), to APML for mining in the Lohara Coal Blocks, on the basis of the recommendation made by the Expert Appraisal Committee, MoEF (for short, “EAC”) in its 21st Meeting.
7. Thereafter, the 1320 MW PPA was executed between the parties on 8th September 2008, for supply of the contracted capacity from Units 2 and 3 of the Tiroda TPS. In pursuance of APML’s application for coal linkage, the SLC(LT) issued a Letter of
