Supreme Court on Nabha Power: “Competitive Bidding Rests on Conscious Risk Allocation”

Case Summary

• Case Name: Nabha Power Limited v. Punjab State Power Corporation Limited and Others

• Citation: 2025 INSC 1002

• Court: Supreme Court of India, Civil Appellate Jurisdiction

• Date of Judgment: 19 August 2025

• Coram: Hon’ble Mr Justice Augustine George Masih

• Connected Appeals: Civil Appeal Nos. 8694 and 8739 of 2017

• Parties:

  • Appellant: Nabha Power Limited (NPL)

  • Respondents: Punjab State Power Corporation Limited (PSPCL) & Others

• Statutes Involved:

  • Electricity Act, 2003

  • Foreign Trade (Development & Regulation) Act, 1992

  • Foreign Trade Policy (2009–2014)

  • Customs Act, 1962

  • Central Excise Act, 1944

• Key Clauses: Article 13 (“Change in Law”) of the Power Purchase Agreement (PPA) dated 18 January 2010

• Key Issues:

  1. Whether withdrawal of deemed export benefits under Para 8.3 of the FTP amounts to “Change in Law” under the PPA.

  2. Whether a Cabinet Press Release reducing thresholds for Mega Power Project eligibility constitutes “Change in Law”.

  3. Whether restitutionary relief by way of compensation should be granted.

• Key Precedents Cited:

  • Energy Watchdog v. CERC (2017) 14 SCC 80

  • Tata Power Co. Ltd. v. Maharashtra Electricity Regulatory Commission

  • Union of India v. Reliance Industries Ltd. (2018)

  • DGFT Policy Circulars & Public Notices (2011)

  • APTEL and State Commission orders under the Electricity Act

Introduction

The Supreme Court’s decision in Nabha Power Limited v. Punjab State Power Corporation Limited (2025 INSC 1002) marks a critical juncture in the intersection of infrastructure law, energy contracts, and administrative discretion in fiscal incentives. At the heart of the dispute lies the interpretation of “Change in Law” under Article 13 of a long-term Power Purchase Agreement (PPA) in the context of the withdrawal of deemed export benefits under the Foreign Trade Policy (FTP) 2009–2014.

This judgment is a significant continuation of the line of reasoning in Energy Watchdog and other electricity-sector cases, but it pushes further into the domain of trade policy incentives and their treatment under tariff-based competitive bidding frameworks.

Background of the Dispute

Nabha Power Limited (NPL), a special purpose vehicle created to develop a 1400 MW coal-fired power project at Rajpura, Punjab, entered into a PPA with PSPCL in January 2010. The project had been bid under Section 63 of the Electricity Act, 2003, which mandates tariff determination through competitive bidding.

At the time of bidding (2009), the Foreign Trade Policy 2009–14 offered deemed export benefits under Para 8.3, including Terminal Excise Duty (TED) refunds and Duty Drawbacks, for certain capital goods and infrastructure projects.

NPL argued that its bid had factored in the availability of such benefits. However, subsequent circulars and public notices issued by the Directorate General of Foreign Trade (DGFT) in April 2011 restricted such benefits, clarifying that supplies made to non-Mega Power Projects would not qualify. This led NPL to claim that the withdrawal of benefits post-bid constituted a Change in Law event under the PPA.

The State Commission (Punjab) and later the Appellate Tribunal for Electricity (APTEL) rejected NPL’s claims. The matter thus reached the Supreme Court.

Issues before the Court

The Court crystallised three main questions:

1. FTP Benefits & Change in Law: Whether deemed export benefits available under Para 8.3 of the FTP, later withdrawn, could be treated as a “Change in Law” under the PPA.

2. Cabinet Press Release & Legal Effect: Whether a Cabinet Press Release changing eligibility thresholds for Mega Power Projects amounted to a “Change in Law”.

3. Restitutionary Relief: If there was a “Change in Law”, was NPL entitled to financial compensation or tariff adjustment?

Reasoning of the Supreme Court

1. Deemed Export Benefits – Were They in Force at the Cut-off Date?

The Court examined whether benefits under Para 8.3 were legitimately available at the time of bidding (October 2009). NPL argued they were, pointing to FTP provisions and past DGFT circulars.

However, the Court found that the benefits were never intended for immovable, in-situ infrastructure projects like thermal power plants. They were meant for “manufactured goods” exported or deemed exported.

Hon’ble Justice Augustine George Masih observed:

“The Foreign Trade Policy, by its very design, is aimed at incentivising domestic manufacture and export of movable goods. To extend its sweep to thermal power plants erected in situ is to stretch its language beyond permissible limits.”

Thus, the Court held that NPL’s assumption of benefits was misplaced, and their withdrawal could not constitute a “Change in Law”.

2. Press Release of 1 October 2009 – Legal Status

Another contentious point was whether a Cabinet decision, announced via a Press Release, altering eligibility under the Mega Power Policy (MPP) 2006, constituted a “Change in Law”.

The Court clarified that Press Releases are not law. They only indicate executive intent and cannot bind unless translated into a formal notification under statutory authority.

“A Cabinet press release, however authoritative in tone, cannot by itself be the source of legal rights and obligations. Law emanates from duly notified instruments, not press communiqués.”

This finding reins in attempts to rely on informal executive communications as legally enforceable.

3. Restitutionary Relief – No Compensation Absent Change in Law

Having concluded that neither the FTP withdrawals nor the Press Release amounted to a “Change in Law”, the Court rejected NPL’s claim for compensation.

Importantly, the Court reinforced that under Article 13 of the PPA, only genuine changes in statutory or delegated legislation could trigger compensatory relief. Commercial miscalculations or assumptions by bidders cannot be shifted onto distribution companies or consumers.

“The sanctity of competitive bidding under Section 63 of the Electricity Act rests on the principle that risks are consciously allocated. To permit bidders to re-open bids on the basis of mistaken assumptions would destabilise the tariff framework.”

Comparative Precedents

The judgment heavily relied on Energy Watchdog v. CERC (2017) 14 SCC 80, where the Court had similarly emphasised the narrow scope of “Change in Law” clauses in PPAs.

It also drew upon Reliance Industries Ltd. v. Union of India (2018), which stressed that executive circulars or internal clarifications do not carry the force of law unless issued under proper statutory authority.

Analysis and Implications

1. For Power Project Developers

This ruling is a setback for power developers who seek to rely on policy incentives in their bid economics. The Court has sent a clear message: only formal statutory notifications matter. Mere expectations or past practice cannot form the basis of compensation.

2. For Distribution Companies

The decision protects distribution licensees (DISCOMs) and ultimately consumers from tariff shocks arising from post-bid claims. It affirms that risk allocation under Section 63 PPAs must be respected.

3. For Trade and Infrastructure Law

The judgment limits the applicability of the FTP’s deemed export provisions. It underscores that infrastructure projects cannot claim export-linked incentives unless expressly included.

4. For Administrative Law

By refusing to accord binding status to Cabinet Press Releases, the Court strengthens the principle of rule of law and formalism in government communications.

Highlighted Observations

Some of the Court’s remarks deserve reproduction as guiding principles:

• “The Foreign Trade Policy was never intended to underwrite the economics of domestic power generation projects erected in situ.”

• “Competitive bidding is premised on allocation of risks; bidders cannot, ex post facto, shift commercial misjudgements to consumers.”

• “Press releases, however high their source, cannot stand in place of law. Law must be notified and enforceable under recognised statutory authority.”

Judicial Interpretation of “Change in Law”

The Court meticulously unpacked Article 13 of the PPA, which defined “Change in Law” as events occurring after the cut-off date that “results in any change in cost of the business of the seller.” The appellant sought to include the withdrawal of deemed export benefits within this definition.

However, Hon’ble Justice Augustine George Masih underlined that not every policy adjustment amounts to law:

“For an event to qualify as a Change in Law, it must stem from legislative action or a statutory notification duly empowered under the law. Executive clarifications or retrospective rationalisations by administrative agencies, absent statutory foundation, cannot be subsumed within the clause.”

This interpretation narrowed the field significantly, preventing commercial bidders from enlarging the scope of “Change in Law” to encompass expectational policy incentives.

On the Nature of Deemed Export Benefits

Nabha Power had relied on Para 8.3 of the FTP to argue that its procurement of capital goods for the Rajpura project was eligible for deemed export incentives. But the Court rejected this premise, emphasising the purpose of the FTP.

“The Foreign Trade Policy is primarily an instrument of export promotion. To treat civil works and plant erection within India as deemed exports dilutes the very objective of incentivising outward flow of goods.”

The Court stressed that the scheme of Para 8.3 could not be read in isolation. It was tied to movable goods manufactured and supplied in the course of trade. Extending it to immovable assets such as a thermal power station would “fundamentally distort the intent” of the policy.

This reasoning builds a strong precedent against overbroad interpretations of fiscal incentives in infrastructure projects.

On Reliance upon Cabinet Press Releases

The appellant placed heavy reliance on a Cabinet Press Release dated 1 October 2009, which reduced the eligibility thresholds under the Mega Power Policy. NPL contended that this change, later walked back by official clarifications, directly impacted its project economics.

The Court, however, took a firm stance:

“Executive press releases, even if emanating from the Cabinet Secretariat, do not have the force of law. Until crystallised into a statutory notification, they cannot alter legal rights or obligations. At best, they serve as statements of intent.”

This position fortifies a clear boundary between political announcements and legally binding instruments. For practitioners, the takeaway is crucial: reliance on press notes or Cabinet minutes is insufficient in contractual disputes unless backed by statutory authority.

Principle of Sanctity of Competitive Bidding

Perhaps the most impactful part of the ruling lies in its reaffirmation of sanctity of bidding under Section 63 of the Electricity Act. The Court warned against allowing developers to retrospectively reopen bids on the strength of policy expectations.

“Tariff-based competitive bidding is a delicate balance of risks and returns. Any post facto alteration based on speculative assumptions would jeopardise consumer interest and render the process unstable.”

By anchoring its reasoning in Energy Watchdog v. CERC, the Court underscored that risk allocation is a cornerstone of infrastructure contracting. Developers must carefully factor policy uncertainties into their bid price; they cannot later invoke restitution to escape adverse policy shifts that were neither statutory nor guaranteed.

Restitutionary Relief and Financial Neutrality

Nabha Power pressed for restitutionary relief on the ground that it had suffered financial loss due to withdrawal of benefits. The Court, however, refused to conflate commercial loss with legal injury.

“Restitution under Article 13 is not a vehicle to indemnify bidders for every financial adversity. It is confined to compensating demonstrable impacts arising from genuine statutory changes. To expand it otherwise would erode consumer protection and regulatory certainty.”

This nuanced clarification reinforces that restitution is not a catch-all safety net, but a carefully delimited remedy within the tariff framework.

Conclusion

By firmly ruling that neither the withdrawal of FTP benefits nor Cabinet press releases amounted to “Change in Law”, the Supreme Court has drawn a bright-line distinction between enforceable law and executive policy.

The judgment will serve as a touchstone for future disputes in the power sector, PPP projects, and infrastructure contracts where bidders often seek to invoke policy fluctuations as grounds for compensation.

For lawyers and policymakers, Nabha Power v. PSPCL is a reminder of the need for precision in drafting, clarity in risk allocation, and adherence to the constitutional principle that law must emanate from lawfully empowered sources.