NLA Insights
21 September 2026
Infrastructure projects are inherently exposed to regulatory risk because they are long-term ventures operating within a legal and policy framework that may change substantially over the currency of the project. There may be changes in taxation, environmental standards, labour regulations, licensing requirements, safety standards and judicial interpretations that can materially increase or decrease project costs and/or alter the economic assumptions on which the parties entered into the Contract Agreement.
The primary question of this article is therefore to identify whether the resulting burden should be borne by the private Contractor or the Public Authority. The answer ordinarily depends upon the contractual allocation of risk, particularly the scope of the Change in Law clause. Since a private Concessionaire/Contractor ordinarily has little control over legislative or sovereign regulatory action, Change in Law is frequently treated as a distinct contractual risk rather than as an ordinary commercial risk.
A Change in Law clause generally identifies the regulatory events that can trigger contractual relief, including enactment of a new law, repeal or modification of an existing law, changes in taxes or duties and, where expressly provided, relevant changes arising from judicial interpretation or government notifications. However, not every unforeseen increase in expenditure constitutes a Change in Law. Whether an event constitutes a Change in Law depends principally upon the contractual definition, the applicable cut-off date, and the causal connection between the regulatory change and the financial impact claimed.
In Energy Watchdog v. CERC, (2017) 14 SCC 80, the Supreme Court distinguished between a genuine Change in Law and an ordinary commercial risk. The Court held, in substance, that an increase in the price of imported coal arising from a change in Indonesian law did not amount to a Change in Law under a Power Purchase Agreement because the contractual provision of the Agreement contemplates changes in Indian law rather than a foreign law. At the same time, the Court acknowledged and recognized that a qualifying change in Indian law could trigger contractual relief. The decision therefore reinforces the principle that the contractual definition, rather than the mere fact of increased cost, determines whether relief is available.
Where a regulatory event falls within the contractual definition of Change in Law, the resulting financial burden is generally addressed through a compensation or adjustment mechanism. The objective is often to restore the affected party to substantially the same economic position it would have occupied had the Change in Law not occurred. This principle was reaffirmed in Jaipur Vidyut Vitran Nigam Ltd. v. Adani Power Rajasthan Ltd., (2021) 18 SCC 478, wherein the Supreme Court recognized that the subsequent modification of the domestic coal supply regime, including the dilution of the assurance available under the NCDP 2007, constituted a Change in Law event under the PPA and that the affected generating company was entitled to compensation in accordance with the PPA. Similarly, in Uttar Haryana Bijli Vitran Nigam Ltd. v. Adani Power Ltd., (2019) 5 SCC 325, the Court recognized contractual Change in Law relief arising from withdrawal of fiscal exemptions. These decisions demonstrate that where the Contract Agreement allocates subsequent regulatory consequences to the procurer or the Authority, the economic burden may have to be passed through rather than absolutely absorbed by the Contractor.
The jurisprudence also makes clear that Change in Law cannot be used to rewrite the parties’ bargain under the Contract Agreement. In Haryana Power Purchase Centre v. Sasan Power Ltd., 2023 INSC 326, the Supreme Court held that a regulatory adjudicatory body cannot, merely in its regulatory capacity, disregard the express terms of the contract and create a new bargain. The Court also rejected claims where the alleged regulatory event did not satisfy the contractual definition of Change in Law. The decision reinforces the primacy of contractual risk allocation: regulatory adjudication cannot be used to confer relief that the parties’ agreement does not provide.
Thus, a Concessionaire/Contractor must ordinarily establish that the specified regulatory event occurred after the contractual cut-off date, falls within the agreed definition, provides evidence for the claimed financial impact and satisfies the contractual procedure for seeking relief.
Financial thresholds are an important feature of Change in Law provisions. Many infrastructure Contract Agreements require the financial impact of the regulatory event to cross a specified monetary or percentage threshold before compensation becomes payable. Such thresholds prevent every minor regulatory cost from becoming a claim against the authority while ensuring that substantial regulatory burdens are addressed. The affected party must also generally establish the actual additional cost attributable to the regulatory change.
The Supreme Court’s decisions illustrate that compensation is not an automatic consequence of a change in circumstances. In Nabha Power Ltd. v. Punjab State Power Corporation Ltd., 2025 INSC 1002, the Supreme Court examined a claim founded on the alleged withdrawal of fiscal benefits. The Court held that the claimant had failed to establish that it was entitled to the relevant benefits in the first place and, consequently, declined to examine whether their subsequent withdrawal constituted a Change in Law event. The decision underscores that, before claiming compensation on account of Change in Law, the affected party must first establish the legal and contractual position existing as on the relevant cut-off date, apart from satisfying the contractual requirements governing such relief.
There is no such rule that the Authority must bear every cost arising from a subsequent regulatory change, nor can every such cost automatically be treated as a commercial risk of the Contractor. The governing principle is the allocation of risk agreed between the parties. A well-drafted Change in Law clause should clearly identify the relevant regulatory events, establish the applicable cut-off date and financial threshold, prescribe the procedure for notification and verification, and specify the mechanism through which the project’s economic equilibrium will be restored.
The jurisprudence therefore points to a consistent principle: regulatory risk is ultimately a matter of contractual allocation. Where the contract clearly protects the contractor against specified changes in law, the authority may have to bear or compensate for the resulting financial impact. Where the event falls outside the contractual definition, however, the resulting cost ordinarily remains with the party that assumed that risk. In long-term infrastructure projects, contractual clarity on Change in Law is consequently essential to ensuring that regulatory uncertainty does not become contractual uncertainty.
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