Libertatem Magazine

Price Escalation And Change In Foreign Law Cannot Be Considered A Force Majeure Event: Delhi HC

Contents of this Page

The Delhi High Court (“HC) in the case of Coastal Andhra Power Limited v. Andhra Pradesh Central Power Distribution Co. Ltd. Has held that price escalation and change in foreign law cannot be considered a force majeure event.

The judgment was delivered by a Division Bench of Justices Sanjiv Khanna and Anup Jairam Bhambhani while dealing with an appeal against vacation of an interim order in a proceeding under Section 9 of the Arbitration and Conciliation Act.

The judgment was delivered in the context of the power purchase agreement between the parties and Coastal Andhra Power Limited had claimed that the increase in price of coal in Indonesia which happened as a result of the amendment of Indonesian law would qualify as a force majeure event and would entitle it to rescind the contract without any liability.

The appellant Coastal Andhra Power Ltd had agreed to supply power to Andhra Pradesh Central Power Distribution Co. Ltd (APCPDL) under a PPA. The coal for power generation was to be imported from Indonesia. Meanwhile, there occurred a change in Indonesian laws, which led to a price rise of coal. In that backdrop, Coastal Andhra said that power generation will not be viable without renegotiation of prices. Not willing to renegotiate prices, APCPDL terminated the contract and sought for damages of Rs.400 crores from Coastal Andhra, for breach of contract.

The HC held that such changes in price and changes in foreign law cannot be held to be a force majeure event, as it was not an event which could render the performance of the contract impossible. Further, it also held that a change in prices of coal risk that the parties knowingly undertook before entering the contract. Consequently, it held that alternative arrangements, at higher prices, could be made and the performance of the contract could be carried on.

Meanwhile, Coastal Andhra had approached the Central Electricity Regulatory Commission (CERC) under the Electricity Act, as disputes relating to price tariff under the Agreement had to be submitted to it. Therefore, there were parallel proceedings going on, before the CERC and also the Division Bench of High Court. CERC, however, closed the proceedings on August 4, 2015, in view of the pendency of proceedings in High Court.

Upon a perusal of the foregoing dictum of the Supreme Court, it is clear that change in Indonesian law and consequential increase in the price of coal in Indonesia has been specifically held not to amount to change in law or to force majeure within the meaning of the Agreement.

The appellant made an alternative prayer for the continuation of interim order till it invokes the jurisdiction of the CERC by filing appropriate application. This prayer was rejected by the Court, holding that interim relief can be granted only in aid of the main relief. When the main proceeding itself is held to be not maintainable, no interim prayer can be granted to enable the party to invoke alternate remedies, the bench held. Reference was made to the constitution bench decision in the State of Orissa vs. Madan Gopal Rungta on this point.

About the Author