Cancellation Of Coal Block Is 'Change In Law', Power Generator Entitled To Compensation From 2014: Supreme Court

The Supreme Court recently held that cancellation of the Ganeshpur coal block allotted to Adhunik Power & Natural Resource Ltd. as per the Court's 2014 judgment constituted a “Change in Law” under its power purchase agreement with West Bengal State Electricity Distribution Co. Ltd. The Court held that this entitled APNRL to compensation from that date.

A bench of Chief Justice of India Surya Kant, Justice BV Nagarathna and Justice Joymalya Bagchi, however, ruled that Adhunik Power cannot recover higher coal costs incurred before August 25, 2014, as the contract barred escalation in energy charges when coal was sourced from sources other than the captive mine.

The dispute arose from a power supply arrangement executed in 2011. On January 5, 2011, WBSEDCL entered into a Power Supply Agreement with PTC India Limited for supply of 100 MW of power for a period of 25 years. On March 25, 2011, Adhunik Power entered into a back-to-back Power Purchase Agreement with PTC for onward sale of 100 MW of power to WBSEDCL. The West Bengal Electricity Regulatory Commission approved the arrangement on December 15, 2011.

The agreement provided that the buyer would pay capacity charges, non-escalable energy charges and escalable energy charges as specified in the tariff schedule. It also stated that if the seller sourced coal from sources other than the captive source, it would not seek any separate escalation in energy charges on that ground.

The agreement had a “Change in Law” clause stating that a Change in Law would include events such as enactment, amendment, or repeal of a law in India; change in interpretation or application of law by a competent court or government authority, and changes in mining or environmental laws or taxes affecting input costs.

The clause provided that if such a change materially affected the project, the affected party would receive compensation through tariff payments so that it would be placed in the same economic position as if the change had not occurred.

Although the agreement did not expressly identify the coal source, minutes of a meeting held on January 3, 2011 recorded that Adhunik Power had a captive coal block at Ganeshpur in Jharkhand in joint venture with Tata Steel Ltd. On April 30, 2012, WBSEDCL wrote to PTC referring to the Ganeshpur coal block and sought the status of work relating to lifting and transporting coal from the mine.

The captive coal block did not become operational. Thus, Adhunik Power began supplying power by sourcing coal under tapering linkage from Central Coalfields Ltd. It also procured coal through e-auction and imports to meet the shortfall.

On August 25, 2014, the Supreme Court cancelled coal block allocations across the country, and the Ganeshpur block allotted to Adhunik Power stood cancelled.

The Appellate Tribunal for Electricity upheld compensation awarded by CERC for coal procured through e-auction and imports. It also held that cancellation of the coal block and the subsequent legislation constituted a Change in Law under the agreement. It directed that compensation be granted from August 25, 2014 along with carrying costs.

The Supreme Court upheld the Tribunal's finding that cancellation of the coal block following the August 25, 2014 judgment and the enactment of the Coal Mines (Special Provisions) Act, 2015 amounted to a Change in Law under the agreement.

“With regard to compensation payable on account of additional coal cost arising due to a Change in Law event i.e. cancellation of Ganeshpur captive coal block vide this Court's decision in Manohar Lal (supra) and the subsequent promulgation of the Coal Mines (Special Provision) Act, 2015, we are in wholesome agreement with APTEL that in Manohar Lal (supra), this Court interpreted the provisions of Coal Mines Nationalization Act, 1957 ('CMN Act') and Mines & Minerals Development and Regulation Act, 1957 ('MMDR Act') in a manner different from the interpretation adopted by the Government of India, and consequently cancelled the allotment of coal blocks made by the Screening Committee as well as through the Government dispensation route”, the Court stated.

The Court observed that this event materially affected Adhunik Power's ability to obtain coal from the captive block and therefore entitled it to compensation from August 25, 2014 along with carrying costs until payment.

“This change in interpretation of the CMN Act, 1957 and the MMDR Act, 1957 by this Court resulting in cancellation of the coal blocks and subsequent promulgation of the Coal Mines (Special Provision) Act, 2015 falls within Articles 10.1.1(b) and 10.1.1(f) of the PPA/PSA. There is no cavil that such Change in Law materially affected the right of APNRL to procure coal from the cancelled coal block, compelling it to source coal from other sources at a higher price. WBSEDCL cannot claim immunity under Article 2.5 of the PPA/PSA”, the Court held.

However, the Court set aside the Tribunal's direction granting compensation for coal procured through e-auction and imports before August 25, 2014. It held that under the agreement, the purchaser was protected from escalation in coal costs when coal was sourced from sources other than the captive block, and that protection continued until the Change in Law event occurred.

The Court also rejected the argument that the captive coal source was not identified in the agreement. It held that the minutes of the January 3, 2011 meeting and the subsequent correspondence clearly showed that the Ganeshpur coal block was the intended captive source for the project.

“Though the captive source is not expressly identified in Article 2.5, its identity is clearly discernible from the surrounding circumstances”, the Court observed.

The Court directed the Central Electricity Regulatory Commission to modify its consequential order within four weeks in terms of the judgment.

Case no. – Civil Appeal Nos. 2584-2585 of 2026

Case Title – West Bengal State Electricity Distribution Co. Ltd. v. Adhunik Power & Natural Resource Ltd. & Ors.

Citation : 2026 LiveLaw (SC) 213