Cancellation of captive coal blocks constitutes a "Change in Law" entitling generators to compensation despite indemnity clauses.

The Appellant (WBSEDCL) and Respondent No. 3 (PTC) executed a Power Supply Agreement (PSA) in 2011, with a back-to-back Power Purchase Agreement (PPA) between PTC and Respondent No. 1 (APNRL).

Although the PPA did not explicitly name the coal source, contemporaneous documents identified the Ganeshpur Captive Coal Block as the intended source.

Due to delays in operationalizing the block, APNRL used tapering linkage coal and purchased expensive e-auction/imported coal.

In 2014, the Supreme Court in *Manohar Lal Sharma* cancelled the Ganeshpur block allotment, leading to the Coal Mines (Special Provision) Act, 2015.

APNRL sought compensation for additional fuel costs under "Change in Law" (Article 10) and for shortfall in tapering linkage.

The CERC denied the "Change in Law" claim but allowed compensation for tapering linkage shortfalls.

On appeal, APTEL reversed the "Change in Law" finding, granting full compensation and carrying costs.

1. Whether the Ganeshpur Captive Coal Block was the contractually designated source of coal despite not being expressly named in the PPA.

2. Whether the cancellation of coal blocks by the Supreme Court and subsequent 2015 legislation constituted a "Change in Law" under Article 10.

3. Whether APNRL was entitled to compensation for e-auction/imported coal purchased to meet tapering linkage shortfalls prior to the 2014 cancellation.

The Court applied the principles of contractual interpretation under Sections 91, 92 (Proviso 6), and 95 of the Indian Evidence Act, 1872 (now Sections 94, 95, and 98 of the Bharatiya Sakshya Adhiniyam, 2023), which allow extrinsic evidence of "attending circumstances" to link contractual terms to existing facts or resolve ambiguities.

It relied on *Anglo American Metallurgical Coal Pty. Ltd. v. MMTC Ltd.* regarding the use of contextual settings to interpret vague terms.

Additionally, it interpreted "Change in Law" clauses (Articles 10.1.1(b) and (f) of the PPA) covering changes in the interpretation of law by competent courts or changes in mining laws.

Regarding the coal source, the Court held that while Article 2.5 of the PPA was silent on the specific mine, the 2011 Meeting Minutes and 2012 correspondence from WBSEDCL confirmed both parties understood Ganeshpur was the "captive source."

On "Change in Law," the Court reasoned that the *Manohar Lal Sharma* judgment provided a new interpretation of the Coal Mines Nationalization Act, which, along with the 2015 Act, fundamentally altered APNRL's legal right to its fuel source, satisfying Article 10.

However, the Court rejected the claim for pre-2014 compensation for tapering linkage shortfalls.

It found that Article 2.5 served as an indemnity for WBSEDCL, placing the risk of operational delays/shortfalls on the generator (APNRL) until an actual "Change in Law" occurred.

It **upheld** the finding that the cancellation of the coal block was a "Change in Law" event, entitling APNRL to compensation and carrying costs effective from 25.08.2014.

However, it **set aside** the grant of compensation for e-auction/imported coal used to meet tapering linkage shortfalls prior to that date, holding that such costs were barred by the indemnity in Article 2.5.

The CERC was directed to modify its implementation orders accordingly within four weeks.