Tariff dispute under power purchase agreements: jurisdiction, force majeure limits, and narrow change-in-law relief for coal costs.

Tariff disputes under composite inter-State power purchase arrangements fall within the Central Commission's jurisdiction under the Electricity Act, 2003 where generation and sale extend to more than one State. Force majeure is construed narrowly in such PPAs, and a rise in imported coal cost or commercial hardship does not by itself amount to frustration, especially where alternative performance remains available. Change-in-law relief is confined to the legal system contemplated by the contract: Indian coal policy and tariff-related governmental communications may trigger limited adjustment, but foreign law changes do not. Relief was therefore required to be reassessed only within that limited scope on remand.

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Issues: (i) Whether the Central Commission had jurisdiction under the Electricity Act, 2003 to deal with tariff-related disputes arising from the power purchase agreements; (ii) Whether the rise in cost of imported coal caused by the Indonesian law changes constituted force majeure or frustration so as to justify compensatory tariff; (iii) Whether the Indian Government's coal policy changes and revised tariff policy amounted to a change in law giving rise to tariff adjustment.

Issue (i): Whether the Central Commission had jurisdiction under the Electricity Act, 2003 to deal with tariff-related disputes arising from the power purchase agreements

Analysis: Section 79(1)(b) of the Electricity Act, 2003 applies where a generating company has a composite scheme for generation and sale of electricity in more than one State. Reading Sections 79 and 86 together, the statutory scheme distinguishes inter-State from intra-State generation and supply. The expression "composite scheme" was held to mean no more than a scheme for generation and sale in more than one State, and not a scheme requiring uniform tariffs or any additional element. Section 64(5) was also construed consistently with this position.

Conclusion: The Central Commission had jurisdiction; this issue was decided against the appellants.

Issue (ii): Whether the rise in cost of imported coal caused by the Indonesian law changes constituted force majeure or frustration so as to justify compensatory tariff

Analysis: Force majeure under the PPAs had to be read narrowly and in the context of the contractual clauses. The clauses dealing with force majeure excluded changes in cost of fuel and the agreement becoming onerous to perform. The Court held that a mere rise in price or commercial hardship does not by itself amount to frustration under Sections 32 or 56 of the Indian Contract Act, 1872, and that alternative modes of performance remained available. The fundamental basis of the contracts was not destroyed, and the Indonesian law change did not amount to force majeure or frustration under the PPAs.

Conclusion: Force majeure was not made out and this issue was decided in favour of the appellants.

Issue (iii): Whether the Indian Government's coal policy changes and revised tariff policy amounted to a change in law giving rise to tariff adjustment

Analysis: The change in law clause in the PPAs and the bidding guidelines was construed to refer to Indian law. The Court held that Indonesian law changes were outside the clause, but the revised Indian coal policy and the Ministry of Power communication, issued under Section 3 of the Electricity Act, 2003, constituted change in Indian law to the extent they altered the domestic coal supply position and affected the cost of generation. The compensatory mechanism therefore applied only to that limited extent, with the Commission required to reassess relief accordingly.

Conclusion: Change in law was made out only in respect of Indian law changes and this issue was decided partly in favour of the respondents.

Final Conclusion: The Tribunal's judgment and the Commission's consequential orders were set aside, and the matter was remitted to the Central Electricity Regulatory Commission for fresh determination of relief within the limited scope recognised by the Court.

Ratio Decidendi: Under a tariff-based competitive bidding regime, the regulatory commission's jurisdiction extends to composite schemes of inter-State generation and sale, force majeure clauses are narrowly construed so that mere escalation in fuel cost does not frustrate the contract, and contractual change-in-law relief is confined to the legal system contemplated by the agreement.

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