NLA Insights
3 August 2026
The Supreme Court, in West Bengal State Electricity Distribution Co. Ltd. v. Adhunik Power & Natural Resources Ltd., 2026 INSC 202, examined whether a power generator was entitled to compensation for increased coal costs arising from the cancellation of its captive coal block and subsequent statutory changes governing coal allocation. The Court partly allowed the appeals filed by West Bengal State Electricity Distribution Company Ltd. (“WBSEDCL”), upholding Adhunik Power and Natural Resources Ltd.’s (“APNRL”) entitlement to Change in Law compensation with effect from 25 August 2014, together with carrying costs, while setting aside the grant of compensation for coal procured through e-auction/imports to meet the shortfall in tapering linkage prior to cancellation of the captive coal block.
The judgment is significant in distinguishing between ordinary commercial risk arising from procurement of coal from alternative sources and the consequences of a qualifying Change in Law event materially affecting contractual performance.
On 5 January 2011, a Power Supply Agreement (“PSA”) was executed between WBSEDCL and PTC India Ltd. (“PTC”) for supply of 100 MW of power for a period of 25 years. As a back-to-back arrangement, on 25 March 2011, a Power Purchase Agreement (“PPA”) was executed between APNRL and PTC for onward sale of 100 MW of power to WBSEDCL.
Article 10 of the PPA/PSA provided for compensation upon occurrence of specified Change in Law events, with the object of restoring the affected party to the same economic position as if the Change in Law had not occurred.
Article 2.5, on the other hand, provided that where APNRL procured coal from a source other than the contemplated captive source, it would not claim any separate escalation in the Escalable Energy Charges on that account.
Although Article 2.5 referred to a “captive source” without expressly identifying it as the Ganeshpur coal block, the surrounding documents demonstrated that Ganeshpur was the captive coal source contemplated by the parties. In particular, the Minutes of Meeting dated 3 January 2011 recorded that APNRL had a captive coal block at Ganeshpur, Jharkhand, in joint venture with Tata Steel Ltd. Further, by a letter dated 30 April 2012, WBSEDCL itself sought information regarding the status of lifting and transportation of coal from the Ganeshpur captive coal block.
Since the Ganeshpur coal block could not be operationalised, APNRL sourced coal under tapering linkage from Central Coalfields Ltd. and met the shortfall through e-auction and imported coal. APNRL sought pass-through of the additional coal costs incurred on account of such procurement. WBSEDCL and PTC rejected the claim by relying upon Article 2.5 of the PPA/PSA.
Meanwhile, by its judgment dated 25 August 2014 in Manohar Lal Sharma v. Principal Secretary & Ors., the Supreme Court cancelled coal block allocations made through the Screening Committee and Government dispensation route, which included the Ganeshpur captive coal block allocated to APNRL. The Coal Mines (Special Provisions) Ordinance, 2014 and thereafter the Coal Mines (Special Provisions) Act, 2015 introduced a new statutory framework governing allocation of coal blocks.
APNRL contended that these developments constituted Change in Law events within the meaning of Article 10 of the PPA/PSA.
APNRL approached the Central Electricity Regulatory Commission (“CERC”), seeking directions to permit pass-through of energy charges based on the actual fuel costs incurred by it.
CERC held that Article 2.5 was applicable where the captive coal source was operational. It nevertheless accepted APNRL’s entitlement to compensation for coal procured through e-auction/imports to meet the shortfall in tapering linkage pending operationalisation of the captive coal block.
However, CERC rejected APNRL’s contention that cancellation of the Ganeshpur coal block pursuant to Manohar Lal Sharma and the enactment of the Coal Mines (Special Provisions) Act, 2015 constituted Change in Law events under Article 10.
Both APNRL and WBSEDCL appealed to the Appellate Tribunal for Electricity (“APTEL”). APTEL upheld APNRL’s entitlement to compensation for procurement of coal through e-auction/imports to meet the shortfall in tapering linkage.
APTEL also reversed CERC’s finding on Change in Law and held that the cancellation of the Ganeshpur coal block and the subsequent statutory framework constituted Change in Law events under Articles 10.1.1(b) and 10.1.1(f) of the PPA/PSA. It accordingly held APNRL entitled to compensation with effect from 25 August 2014 and remanded the matter to CERC for determination of the appropriate compensation under Article 10.2, together with carrying costs until actual payment.
The principal issue before the Supreme Court was whether APNRL was entitled to compensation for increased coal costs notwithstanding Article 2.5 of the PPA/PSA.
The Court was also required to consider whether Ganeshpur could be treated as the captive coal source contemplated under the PPA/PSA even though it was not expressly identified in Article 2.5.
Further, the Court considered whether the cancellation of the Ganeshpur coal block and the subsequent legislative changes constituted Change in Law events and whether APNRL was entitled to compensation for coal procured through e-auction/imports prior to cancellation of the coal block on 25 August 2014.
WBSEDCL argued that the PPA/PSA did not expressly identify Ganeshpur as the captive source of coal. It contended that Article 2.5 protected WBSEDCL against any escalation in fuel costs arising from procurement of coal from a source other than the captive source and, therefore, APNRL could not seek pass-through of the additional costs incurred in procuring alternative coal.
WBSEDCL further contended that, in the absence of any express contractual stipulation identifying Ganeshpur as the coal source, cancellation of that particular coal block could not constitute a Change in Law event materially affecting APNRL’s obligations under the PPA/PSA.
APNRL, on the other hand, submitted that the commercial arrangement between the parties was premised upon coal being sourced from the Ganeshpur captive coal block. It relied upon the Minutes of Meeting dated 3 January 2011 and WBSEDCL’s own subsequent correspondence to establish that all parties understood Ganeshpur to be the contemplated captive source.
APNRL further contended that cancellation of the coal block by the Supreme Court and the subsequent statutory changes governing coal allocation fell within the Change in Law provisions of Article 10.
The Supreme Court partly allowed the appeals.
First, the Court rejected WBSEDCL’s contention that Ganeshpur could not be treated as the captive coal source merely because it had not been expressly identified in Article 2.5.
The Court reiterated that, ordinarily, where a contract has been reduced to writing, its terms must be determined from the document itself. However, this principle does not preclude consideration of surrounding circumstances which establish a link between contractual terms and existing facts, or impart meaning to a contractual term which may otherwise be meaningless or unworkable.
Reading Article 2.5 together with the Minutes of Meeting dated 3 January 2011 and WBSEDCL’s letter dated 30 April 2012, the Court concluded that the “captive source” contemplated under Article 2.5 was the Ganeshpur coal block.
Secondly, the Supreme Court upheld APTEL’s finding that the cancellation of the Ganeshpur captive coal block and the subsequent promulgation of the Coal Mines (Special Provisions) Act, 2015 constituted Change in Law events.
The Court observed that in Manohar Lal Sharma, the Supreme Court had interpreted the provisions governing coal allocation differently from the interpretation previously adopted by the Government of India, resulting in cancellation of the relevant coal block allocations. Such change in interpretation, followed by the new statutory allocation regime, fell within Articles 10.1.1(b) and 10.1.1(f) of the PPA/PSA.
The Court further held that Article 2.5 and Article 10 operated in different fields. Article 2.5 protected WBSEDCL against escalation in coal costs where coal was procured from sources other than the Ganeshpur captive coal block. Article 10, however, was attracted where a Change in Law materially affected APNRL’s right to procure coal from the captive coal block and consequently affected its performance under the PPA/PSA.
WBSEDCL could, therefore, not rely upon Article 2.5 to defeat APNRL’s entitlement to Change in Law compensation arising from cancellation of the Ganeshpur coal block.
However, the Supreme Court disagreed with APTEL insofar as it had awarded compensation for coal procured through e-auction/imports to meet the shortfall in tapering linkage before cancellation of the coal block on 25 August 2014.
The Court noted that APNRL had represented that the Ganeshpur captive coal block would be operational by the time supply of power to WBSEDCL commenced. It rejected APTEL’s reasoning that Article 2.5 became inapplicable merely because the delay in operationalisation was attributable to the lead miner, Tata Steel Ltd., and/or the “go-no-go” policy of the Ministry of Environment and Forests.
The Court held that adopting such a restrictive interpretation of Article 2.5 would expose WBSEDCL to fluctuations in coal costs arising from unforeseen events notwithstanding the contractual allocation of that risk, except where a qualifying Change in Law event under Article 10 occurred.
Accordingly, for the period prior to 25 August 2014, the additional costs incurred by APNRL in procuring coal through e-auction/imports remained governed by Article 2.5 and could not be passed on to WBSEDCL.
The judgment is significant for the interpretation of Change in Law provisions in long-term power contracts for three principal reasons.
First, it reiterates that although the terms of a written contract must ordinarily be determined from the document itself, surrounding circumstances may be considered to connect contractual language with existing facts or to impart meaning to a term which may otherwise be meaningless or unworkable. On that basis, the Court identified Ganeshpur as the captive coal source contemplated under Article 2.5 despite the coal block not being expressly named in that provision.
Secondly, the judgment draws a clear distinction between the contractual allocation of ordinary fuel-procurement risk and an independent contractual mechanism providing compensation for the consequences of a qualifying Change in Law event. Article 2.5 allocated to APNRL the risk of escalation arising from procurement of coal from alternative sources in the ordinary course. Once the cancellation of the Ganeshpur coal block and the subsequent statutory changes triggered Article 10, however, Article 2.5 could not be invoked to exclude the compensation payable under the Change in Law mechanism.
Thirdly, the judgment makes clear that increased fuel costs do not become compensable merely because the contemplated fuel source becomes unavailable or is delayed. The event causing the additional expenditure must fall within the contractual Change in Law framework. For the period prior to 25 August 2014, the Court held APNRL to the risk allocation agreed under Article 2.5 and declined to pass the additional cost of e-auction/imported coal on to WBSEDCL.
The decision therefore reinforces the importance of examining the precise contractual allocation of risk while determining Change in Law claims, particularly where a PPA separately addresses fuel procurement risks and consequences arising from subsequent legal or regulatory intervention.
The Supreme Court upheld APNRL’s entitlement to Change in Law compensation with effect from 25 August 2014, together with carrying costs until actual payment, arising from the cancellation of the Ganeshpur captive coal block and the subsequent statutory changes governing allocation of coal blocks.
At the same time, the Court set aside APTEL’s order insofar as it granted compensation for coal procured through e-auction/imports to meet the shortfall in tapering linkage prior to cancellation of the Ganeshpur coal block.
The judgment thus preserves the contractual allocation of ordinary fuel-procurement risk while recognising the separate compensatory mechanism agreed between the parties for a qualifying Change in Law event.
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