The Supreme Court upholds Adani Power’s right to compensation under “Change in Law” in Power Purchase Agreement, dismissing JVVNL’s appeal and reinforcing key legal principles for power sector regulations in India.

Supreme Court Upholds Adani Power’s Right to Compensation Under “Change in Law”

On May 27, 2024, the Supreme Court of India affirmed that power generators are entitled to compensation, including Late Payment Surcharge (LPS), under Power Purchase Agreements (PPAs) for cost escalations arising from regulatory changes.

Background: Dispute Between JVVNL and Adani Power Rajasthan Ltd.

The case involved a dispute over a PPA between Jaipur Vidyut Vitran Nigam Ltd. (JVVNL) and Adani Power Rajasthan Ltd. (APRL) for the supply of 1200 MW of electricity at a fixed tariff. A key point of contention emerged after a notification issued by Coal India Limited (CIL) on December 19, 2017, imposed a ₹50/tonne coal charge under “Evacuation Facility Charges” (EFC).

This new cost burden led APRL to seek compensation under the “Change in Law” clause of the PPA.

Supreme Court Dismisses JVVNL’s Appeal, Upholds APTEL Ruling

After the Appellate Tribunal for Electricity (APTEL) ruled in favor of APRL, JVVNL challenged the decision in the Supreme Court. However, the bench comprising Justices M.M. Sundresh and Rajesh Bindal upheld APTEL’s order.

The Court emphasized the principle of restitution, which mandates restoring the affected party to its original economic condition as if the regulatory change had not occurred.

Evacuation Facility Charges Recognized as “Change in Law”

The Supreme Court found that CIL’s ₹50/tonne EFC represented a legal modification. Hence, APRL was rightfully entitled to compensation due to increased operational costs.

The Court also cited the case of GMR Warora Energy Ltd., where compensation was granted following similar regulatory changes. The ruling reaffirmed that any financial burden resulting from post-cutoff-date government directives must be treated as a “change in law” event.

Late Payment Surcharge (LPS) Validated by the Court

Justice Sundresh ruled that APRL was entitled to LPS at 2% above the State Bank Advance Rate (SBAR), starting from the EFC notification date of December 19, 2017. The LPS functions as compound interest with monthly rests, meant to offset financing costs due to delayed recovery.

Restitution Principle Reinforced in PPA Interpretation

The judgment reiterated that Article 10.2.1 of the PPA was crafted based on the restitution principle. This clause obligates a return to the pre-change economic state of the generator, ensuring fairness and financial stability in power sector contracts.

Final Verdict: APRL Entitled to Full Compensation and LPS

The Supreme Court concluded by dismissing JVVNL’s appeal and affirming the right of APRL to both compensation and LPS from the date of regulatory imposition. The Court’s decision strengthens legal clarity for power generators impacted by government-imposed cost escalations.