Gazette or bust? Why only formal statutes now trigger change-in-law relief

On a late summer day this year the Supreme Court of India did something that lawyers love and clients grudgingly respect: it turned ambiguity into rule. In Nabha Power Limited v. Punjab State Power Corporation Limited — the decade-long tussle that finally reached the top court — the bench delivered a sharply worded clarification about what counts as a “change in law” for long-term commercial contracts. The court held that the withdrawal of central fiscal incentives (the so-called “deemed export” benefits) could not be treated as a change in law when those incentives were issued as administrative or policy instruments rather than as duly promulgated legislation or gazetted regulations. In plain English: a press release, clarification or circular is not the same thing as a statute — and you can’t treat the first as a substitute for the second when claiming contractual relief. The judgment is now an important lodestar for projects, PPAs, concession agreements and investor guarantees across India. 

This is more than doctrinal housekeeping. At stake in the case were claims worth thousands of crores and the fate of risk allocation models that sustained energy, infrastructure and manufacturing deals for years. Private generators argued that post-bid withdrawal of deemed export benefits under the Foreign Trade Policy entitled them to change-in-law compensation under their power purchase agreements. The Supreme Court disagreed: the essence of the FTP benefit applied to movable goods supplied under competitive procurement and did not extend to immovable, site-assembled power plants; and the circulars and policy notes relied upon by the generators were administrative instruments that did not qualify as a change in law under the PPA regime. The upshot: the producers’ claims were dismissed, and the state utility (and ultimately the power consumers) were relieved of a potentially crippling liability. That relief was not merely theoretical — the judgment forestalled claims reportedly in the order of several thousand crores that would have landed squarely on PSPCL and, by extension, on the tariff-paying public.  

Why this matters to anyone who signs a 15–25 year contract is obvious: commercial life is littered with public policy experiments. Governments announce incentives by press releases, circulars, notifications and policy statements all the time. Those promises shape bids, project finance models and boardroom decisions. But until now there was a gnawing uncertainty about how far a “change in law” clause protected the party that counted on those incentives. The lesson from the Supreme Court is crisp: if you want compensation when the government changes course, anchor that expectation to instruments that have the force of law. Otherwise you are betting on administrative goodwill. The Court’s doctrinal insistence on formal promulgation restores a predictable line between enacted law and administrative messaging — and with predictability comes both winners and losers.  

The ruling therefore operates at two levels. First, it is doctrinal: it restores a textual, formalist yardstick for contractual interpretation. The Court invoked the difference between statutes/regulations and administrative instructions — a distinction that may seem pedantic to non-lawyers but which is fundamental in drawing lines of legal obligation. Second, it is practical: it forces market participants to rethink how they draft, price and secure long-term projects in an environment where policy whims can be consequential. To borrow Justice Oliver Wendell Holmes’s famous observation, “The life of the law has not been logic; it has been experience.” Here the law has reacted to experience — to the management headache caused by years of quasi-legal policy shifts and to the fiscal exposure that ambiguous drafting creates. The decision therefore rebalances the transaction: governments retain flexibility to issue policy, while private parties must now pay a premium for that flexibility or insist on sturdier protections. (Holmes quote used for rhetorical emphasis.) 

That rebalancing has immediate practical consequences. First, drafters must stop assuming that “change in law” is self-explanatory. The phrase must be defined with surgical clarity: does “law” mean only statutes and rules notified in the Gazette? Does it include notifications, orders, tariffs, executive circulars, FDI policy pronouncements or amendments to administrative guidelines? The court’s answer in this case suggests a narrow interpretation; the pragmatic response from commercial counsel should be the opposite: expand the definition where you need protection and narrow it where you bear the risk. Parties can and must stipulate in advance that “change in law” includes not only primary and subordinate legislation but also government notifications, policy circulars, tariff orders, executive instructions, and even withdrawal of fiscal incentives whether or not formally gazetted. If parties cannot get that, then they need robust fall-back mechanisms — price adjustment formulas, automatic compensation triggers, or express renegotiation windows. The World Bank’s PPP drafting materials and longstanding practice in project finance counsel strongly for this kind of explicitness: define, quantify, allocate. If you leave the terms vague, a court may do it for you — and courts, as this judgment shows, will prefer formal enactment over administrative pronouncements.  

Second, financiers and insurers must recalibrate their assumptions. Project lenders price risk and covenant structures around the predictability of cashflows. If a material incentive can vanish with nothing more than a policy note, lenders will demand yield, collateral or structural protections. We can expect tougher loan covenants, more frequent use of government-backed escrow accounts, and greater insistence on sovereign or state guarantees where possible. Conversely, where a project has real statutory protection or a gazetted stabilisation, the cost of capital should fall because the legal buffer is clearer. There is a subtle but important point here: legal certainty reduces transaction cost; it can lower interest spreads; it increases project bankability. The Supreme Court ruling, by distinguishing statutes from policy, therefore nudges the market toward formalisation — either through contractual terms or through governments making incentives legally durable if they want those incentives to backstop bids and financing.  

Third, this is arbitration and litigation fuel. Change-in-law clauses are a common source of international arbitration claims, where claimants argue compensation for regulatory interventions. The new clarity will narrow the range of arguable relief in India where domestic policy instruments are concerned. That does not mean arbitration will disappear as a forum — rather, arbitrators and tribunals will spend more time parsing contract definitions and less time speculating about the effect of press statements. Parties who want an arbitral remedy must either lay their protection in the contract’s language or elevate the guarantee to a treaty-level or statutory protection that can be invoked. In short, arbitration remains a valuable tool, but it cannot substitute for drafting that fails to specify what the parties meant by “law.” 

Some will see a political economy problem: does this narrow reading empower governments to “announce and retract” incentives at will, effectively giving states a cheap tool to influence bids without bearing the fiscal consequences of enacting law? That critique has force. If policy announcements can be used tactically to create expectations that later vanish, market confidence suffers. Yet the Court’s answer is not to bless governmental fickleness; it is to reserve compensable change for instruments that pass through formal legislative or regulatory channels. If governments want their policies to be relied upon in bids and banked into project finance, the clear pathway is to convert those policies into gazetted rules or to provide contractual indemnities. This is a constructive way of distributing responsibility: policy must either be made durable through law or priced as risk by the market. The cost of doing business with a state that prefers soft law over statutes will be higher; and that is a market signal any responsible government should heed. 

To operationalize the judgment’s lessons, here are practical drafting and transactional suggestions that counsel, sponsors and financial advisers should put on their checklist. First, define “change in law” expansively if you want protection: include statutory enactments, rules, regulations, notifications, circulars, orders, and any withdrawal or modification of fiscal incentives whether gazetted or otherwise. Second, include an express “policy risk” clause that creates compensation mechanics when a policy is withdrawn — either a price adjustment calculated by an agreed formula, a time-limited renegotiation mechanism, or a right to terminate with compensation. Third, where policy instruments are not underpinned by statute, seek a government counter-guarantee or an undertaking in the bidding documents: a publicly signed indemnity or an escrowed contingency fund that can repay affected parties. Fourth, where possible, insist on a list of “material incentives” in the contract’s schedule — if an incentive is material to the bid, list it and tie any withdrawal to a compensation trigger. And fifth, be mindful of remedies and causation: a claimant must still prove that the change directly caused measurable extra cost — so the contract should provide straightforward forensic templates (cost heads, timelines, audit rights) to speed dispute resolution. These are not fanciful add-ons; they are practical transaction design features that reduce the likelihood of long, expensive litigation. 

Some counterarguments deserve attention. Critics will say that privileging formal legislation over administrative policy disadvantages small or medium enterprises that lack bargaining power to insist on robust clauses or state guarantees. That is true; power in negotiations matters. But the mismatch should be addressed through policy, not judicial reinterpretation. If governments intend to induce private investment via incentives, they should either codify those promises or accept that some degree of renegotiation is an inevitable part of the bargain. A better public policy approach would be to publish incentive schemes in the Gazette or include sunset clauses with clear transitional arrangements. That would give both investors and consumers a clear temporal horizon for benefits, reduce litigation risk and create a level playing field for bidders of varying sizes. 

Another counterpoint is that the Court’s approach may chill administrative agility. Governments use circulars and clarifications precisely because legislation is slow. If every policy decision must be legislated to be contractually reliable, will governments lose the nimbleness to respond to crises? The answer lies in calibration. Not every policy needs the security of statute; many administrative clarifications are appropriately flexible. The courts, however, are saying that flexibility cannot be translated into compensable contractual promises unless the parties have explicitly agreed otherwise. That is a reasonable equilibrium: agility for government, and contractual discipline for those who wish to rely on that agility commercially. 

Beyond drafting and public policy, the judgment carries a reputational lesson for investors. Institutional investors and boards will now ask a sharper question before underwriting a bid: is the incentive that undergirds this project legally durable? If the answer is “no,” lenders will price the project accordingly, sponsors will need deeper pockets, and governments will face a choice: make the incentive durable or accept a higher cost of capital for the projects they want. That is how rule-of-law clarity nudges markets toward better-aligned incentives. In this sense, the judgment is not simply an exercise in legal hair-splitting; it is a market-correcting signal that cost, law and policy must be aligned if investment is to flourish. 

Finally, we should place this ruling in comparative perspective. International project practice has long recognized the utility of stabilization clauses, sovereign guarantees and contractual undertakings precisely because administrative instruments are ephemeral. Multilateral lenders and arbitration tribunals often look to the contractual allocation of risk and the underlying law to resolve disputes. India’s Supreme Court has now contributed a domestic clarity that fits global governance norms: policy statements are not statutes, and contractual protection requires either legal backing or explicit bargain. That alignment with international practice should reassure foreign investors who crave predictability; it should also push domestic actors to modernize their transactional architecture. 

If there is a single takeaway from the PSPCL litigation, it is this: clarity costs less in the long run. Contracts that assume policy will not change are brittle. Contracts that explicitly define, allocate and price policy risk are resilient. The Court’s decision does not punish innovation in public policy; it simply insists that private actors should not mistake a press note for a statute. To the extent that this judgment prompts governments to either formalize significant incentives or provide bespoke contractual protections, it will have delivered a net gain — not just for lawyers and creditors, but for markets and consumers who depend on transparent, enforceable bargains. The era of guessing whether a circular counts as law is over; the era of better drafting and better public design should begin.