The Supreme Court of India, in a reportable judgment delivered on February 27, 2026, has held that the cancellation of coal blocks by the judiciary and the subsequent enactment of the Coal Mines (Special Provision) Act, 2015, qualify as “Change in Law” events under Power Purchase Agreements (PPAs). However, the Court partially allowed the appeal by the West Bengal State Electricity Distribution Co. Ltd. (WBSEDCL), setting aside the compensation previously awarded to the generator for coal procured through e-auctions to meet shortfalls in tapering linkage prior to the cancellation of the coal block.
A three-judge Bench comprising Chief Justice Surya Kant, Justice B.V. Nagarathna, and Justice Joymalya Bagchi modified the order passed by the Appellate Tribunal for Electricity (APTEL). While upholding the generator’s right to compensation for “Change in Law” from the date of the coal block cancellation (August 25, 2014), the Court ruled that the generator must bear the risks associated with the operationalization of its captive source before that date.
Background of the Case
The dispute arose from a Power Supply Agreement (PSA) executed on January 5, 2011, between WBSEDCL and PTC India Limited for 100 MW of power. Consequently, a back-to-back Power Purchase Agreement (PPA) was signed between Adhunik Power and Natural Resources Ltd. (APNRL) and PTC.
Though the PPA did not explicitly name the coal source, internal minutes and correspondence established that the power was to be generated using coal from the Ganeshpur captive coal block in Jharkhand. As the block was not yet operational, APNRL sourced coal under “tapering linkage” and met shortfalls through expensive e-auctions and imports.
On August 25, 2014, the Supreme Court, in Manohar Lal Sharma v. Principal Secy. & Ors., cancelled numerous coal block allotments, including Ganeshpur. Subsequently, the Government enacted the Coal Mines (Special Provision) Act, 2015. APNRL sought compensation for the increased fuel costs, claiming these events constituted a “Change in Law.”
Arguments of the Parties
For the Appellant (WBSEDCL): Senior Counsel Mr. Kapil Sibal argued that the PPA did not expressly stipulate the Ganeshpur block as the exclusive source. He further contended that Article 2.5 of the PPA indemnified the buyer against any price escalation if the seller sourced coal from alternative sources. He argued that the cancellation of a block not specifically mentioned in the contract could not be a “Change in Law” materially affecting obligations.
For the Respondent (APNRL): Senior Counsel Mr. C.A. Sundaram submitted that both the Central Electricity Regulatory Commission (CERC) and APTEL correctly identified the Ganeshpur block as the intended source through surrounding circumstances. He argued that the cancellation was a “Change in Law” under Article 10 of the PPA, which entitles the affected party to be restored to the same economic position.
The Court’s Analysis
1. Identification of the Captive Source The Court rejected WBSEDCL’s argument that the source was undefined. Referring to the Indian Evidence Act, the Court noted that while written terms are primary, facts that link contract terms to existing circumstances can be proven.
“In the present context… though the captive source is not expressly identified in Article 2.5, its identity is clearly discernible from the surrounding circumstances… it does not lie in the mouth of WBSEDCL to contend that the PPA/PSA did not prescribe Ganeshpur Coal Block as the captive coal source.”
2. Change in Law vs. Indemnity The Bench clarified the distinction between Article 2.5 (Indemnity) and Article 10 (Change in Law). Article 2.5 prevents a generator from asking for higher rates simply because they chose to buy coal elsewhere. However, Article 10 is triggered when a legal event “materially affects” the right to operate the source. The Court observed that the judicial interpretation in the Manohar Lal Sharma case, which led to the cancellation of blocks, fell within the definition of “Change in Law” under Articles 10.1.1(b) and 10.1.1(f).
3. Tapering Linkage Shortfall The Court disagreed with APTEL on compensation for coal procured before the cancellation. It noted that APNRL had assured that the block would be operational by the time supply commenced.
“Such restrictive interpretation of Article 2.5… is untenable, as it would expose WBSEDCL to the vagaries of coal cost escalation due to unforeseen events, save and except a Change in Law event under Article 10.”
The Decision
The Supreme Court partly allowed the appeals, holding:
- Change in Law Upheld: The cancellation of the coal block on August 25, 2014, and the 2015 Act are “Change in Law” events. APNRL is entitled to compensation and carrying costs from August 25, 2014.
- Tapering Linkage Claim Rejected: APNRL is not entitled to compensation for coal purchased through e-auction/imports to meet shortfalls in tapering linkage prior to the cancellation.
- Direction to CERC: The CERC was directed to modify its consequential order dated February 11, 2026, in line with these findings within four weeks.
- Case Name: West Bengal State Electricity Distribution Co. Ltd. v. Adhunik Power & Natural Resource Ltd. & Ors.
- Case Number: Civil Appeal Nos. 2584-2585 of 2026
