Supreme Court explains what qualifies as ‘Change in Law’; directs DISCOMS to compensate Power Generators for all additional charges levied by State instrumentalities

change in law

Supreme Court: In batch of electricity appeals filed against the orders of Appellate Tribunal for Electricity (‘APTEL’), the division bench of BR Gavai* and Vikram Nath, JJ. while dismissing the appeals, said that the findings of APTEL are not perverse and arbitrary. Further, the Bench held that additional charges payable on account of orders, directions, notifications, regulations issued by State instrumentalities, after the cut-off date, qualify as ‘Change in Law’.

The issues were whether various taxes/charges imposed by State Governments after the cut-off date specified in the PPAs, would fall under ‘Change in Law’ events? Further, whether the levy of Forest Tax and the MoEF Notification on coal quality be considered as ‘Change in Law’ events?

The Court construed the term “Law” and said that it means all laws including Electricity Laws in force in India and any statute, ordinance, regulation, Notification or code, rule, or any interpretation of any of them by an Indian Governmental Instrumentality and having force of law. Thus, it cannot be denied that Coal India Limited is an instrumentality of the Government of India and its orders, insofar as price of fuel are concerned, are binding on all its subsidiaries.

Further, after referring to Clause 9.0 of the Coal Supply Agreement (‘CSA’), the Court said that the price of coal includes the sum of base price, other charges and statutory charges as applicable at the time of delivery of coal.

The Court said that as the term “Law” includes all applicable rules, regulations, orders, Notifications by an Indian Governmental Instrumentality and shall also include all rules, regulations, decisions and orders of the CERC and the MERC. Thus, the Court held that all such additional charges which are payable on account of orders, directions, notifications, regulations, etc., issued by the instrumentalities of the State, after the cut-off date, will have to be ‘Change in Law’ events. The Generators would be entitled to compensation on the restitutionary principle on such changes occurring after the cut-off date.

Further, the Court gave the following findings:

Busy Season Surcharge, Development Surcharge and Port Congestion Surcharge

The Court said that as Railway Board is ‘State’ within the meaning of Article 12 of the Constitution of India, thus, there was no error in APTEL’s finding that the revision of charges to be paid on Busy Season Surcharge, Development Surcharge and Port Congestion Charges from time to time by the Railway Board would come within the ambit of Change in Law.

MoEF Notification on Coal Quality

The Court said that the Ministry of Environment, Forest and Climate Change (‘MoEF’) issued notification that mandated power projects to use beneficiated coal with ash content lower than 34%. However, prior to the cut-off date, the same was not a requirement. Thus, the said Notifications dated 11-07-2012 and 2-01-2014 would amount to Change in Law.

Shortfall in Linkage Coal due to Change in NCDP

Concerning the issue of shortfall in linkage coal due to changes in the NCDP issued by the Ministry of Coal, the Court said that this issue is no more res integra and was decided in Energy Watchdog v. CERC, (2017) 14 SCC 80, wherein, it was held that the change in NCDP would amount to Change in Law.

Forest Tax

After perusal of the material placed on record, the Court observed that on the cut-off date, there was no Forest Tax applicable on coal mines and transported from Southeastern Coalfields Limited (“SECL”) mines located in the Forest area. For the first time, vide Notification of the Chhattisgarh State Government, Department of Forest, under the provisions of Chhattisgarh Transit (Forest Produce Rule) 2001, a fee at the rate of Rs.7 per ton was levied. As the said Notification was issued by the Forest Department of the Government of Chhattisgarh, which is an instrumentality of the State. Thus, this would amount to Change in Law.

Similarly, in ‘Add on premium price’, ‘Evacuation Facility Charges’ the Court upheld the findings and reasonings of the APTEL.

Carrying Cost

The Court took note of the provisions of the Power Purchase Agreement (‘PPA’), and Uttar Haryana Bijli Vitran Nigam Ltd. v. Adani Power Ltd., (2019) 5 SCC 325 , wherein it was said that insofar as the “operation period” is concerned, compensation for any increase/decrease in revenues or costs to the seller is to be determined and effected from such date as is decided by the appropriate Commission. It has further been held that the compensation is only payable for an increase/decrease in revenue or cost to the seller if it is in excess of an amount equivalent to 1% of the Letter of Credit in aggregate for a contract year. It has also been held that an in-built restitutionary principle compensates the party affected by such ‘Change in Law’ and the affected party must be restored through monthly tariff payment to the same economic position as if such ‘Change in Law’ had not occurred

Further, after referring Uttar Haryana Bijli Vitran Nigam Ltd. v. Adani Power (Mundra) Ltd., (2023) 2 SCC 624, wherein the Court reiterated that once carrying cost has been granted, it cannot be urged that interest on carrying cost should be calculated on simple interest basis instead of compound interest basis.

In view of this consistent position of law and application of restitutionary principles and privity of contractual obligations between the parties as contained in the PPAs, the Court upheld the view taken by APTEL regarding carrying cost.

Moreover, the Court noted that the Standing Committee of Parliament, in its report, has recommended that there should be consistency and uniformity regarding orders emanating from the status of ‘Change in Law’

Further, referring Uttar Haryana Bijli Vitran Nigam Ltd. (Supra) (2019) 5 SCC 325, wherein it was observed that the ‘Change in Law’ events will have to accrue from the date on which rules, orders, notifications are issued by the instrumentalities of the State, the Court said that despite this, the DISCOMS (Distribution Companies) are pursuing litigations after litigations.

The Court said that when the PPA itself provides a mechanism for payment of compensation on the ground of ‘Change in Law’, unwarranted litigation, which wastes the time of the Court as well as adds to the ultimate cost of electricity consumed by the end consumer, ought to be avoided. As, ultimately, the huge cost of litigation on the part of DISCOMS as well as the Generators adds to the cost of electricity that is supplied to the end consumers. Thus, the Court opined that such unnecessary and unwarranted litigation needs to be curbed and requested the Union, through MoP, to evolve a mechanism to avoid unnecessary and unwarranted litigation, the cost of which is also passed on to the ultimate consumer.

Further, it said that non-quantification of the dues by the Electricity Regulatory Commissions and the untimely payment of the dues by the DISCOMS is also detrimental to the interests of the end consumers. If timely payment is not made by DISCOMS, under the clauses in the PPA, they are required to pay late payment surcharges, which are much higher. Even in the case of ‘Change in n Law’ claims, the same procedure is required to be followed.

The Court also noted that the appeal to this Court under Section 125 of the Electricity Act, 2003 is only permissible on any of the grounds as specified in Section 100 of the Code of Civil Procedure, 1908, and would be permissible only on substantial questions of law. However, even in cases where well-reasoned concurrent orders are passed by the Electricity Regulatory Commissions and APTEL, the same are challenged by the DISCOMS as well as the Generators.

Thus, the Court dismissed the appeals.

[GMR Warora Energy Limited v Central Electricity Regulatory Commission, 2023 SCC OnLine SC 464, decided on 20-04-2023]

Judgment by: Justice BR Gavai

Know Thy Judge- Justice Bhushan Ramkrishna Gavai

Advocates who appeared in this case :

Additional Solicitor General Balbir Singh, Senior Advocate M.G. Ramachandran, Senior Advocate V. Giri, Senior Advocate C.A. Sundaram, Senior Advocate Sajan Poovayya, Senior Advocate Vishrov Mukerjee, Senior Advocate Dr. A.M. Singhvi, Senior Advocate Maninder Singh, Senior Advocate Niranjan Reddy, Advocate Anushree Bardhan, Advocate Poorva Saigal, Senior Advocate Poonam Sengupta.

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