Rise in Price of Coal Due to Change in Foreign Law is not Force Majuere

The Delhi High Court has in the case of Coastal Andhra Power Limited v. Andhra Pradesh Central Power Distribution Corporation Limited & Ors. passed a judgment dated 15.01.2019 and held that in Power Purchase Agreement (hereinafter referred “as PPA”), the clause of Force Majuere cannot be invoked, as it does not comprise of “the escalation of price of coal” and “change in law abroad”, which subsequently liberates the power generation company from its obligations under PPA.

 The Coastal Andhra Power Limited (hereinafter as “Appellant”) under PPA had agreed to supply power to Andhra Pradesh Central Power Distribution Co. Ltd. (APCDL). And further there was an import of coal from Indonesia for power generation by the Appellant. However, the price of coal escalated due to some changes in law that occurred in Indonesia. Therefore, the Appellant said that the viability of the power generation was not possible until renegotiation of the prices for the coal has been done with APCPDL. However, the negotiation failed as APCDL was unwilling to renegotiate the price of the coal. Subsequently, the contract was terminated by APCDL and it claimed damages for an amount of Rs. 400 Crores from the Appellant.

Therefore, the Appellant filed an application under Section 9 of Arbitration and Conciliation Act, in order to detain APCPDL from invoking the bank guarantee furnished by Appellant for the claim of damages, in which stay was granted by the Single Judge and later got relinquished. Aggrieved by the order, the Appellant filed an appeal under the Division Bench.

Meanwhile, Central Electricity Regulatory Commission(CERC) was also approached by the Appellant under the Electricity Act, since the disputes related to price tariff are to be submitted to CERC as given under the Agreement.

Hence, there were parallel proceedings going on, one before the CERC and other in Division Bench of High Court. However, the CERC terminated its proceeding as there was a pendency of the proceeding in the High Court.

Therefore, the main issue before the High Court was whether Force Majuere clause can be invoked due to rise in price of coal as a consequence of change in foreign law. However, this issue was rejected by the Division Bench of High Court, by relying upon the Supreme Court Case decision in Energy Watchdog v CERC (2017) SCC ONLINE SC 378. The Apex Court held that “”an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took”. Further, it was also held that, under the PPA the defense of Force Majuere clause cannot be invoked due to change in Foreign Law.

Therefore, in keeping with the precedent of the Supreme Court in above mentioned case, the High Court rejected the plea of the Appellant that mere change in Indonesian law which led to increase in price of coal does not come under the purview of the Force Majuere clause given under PPA.

Satyam Singh Pal

Associate

The Indian Lawyer