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Price Escalation And Change In Foreign Law Cannot Be Considered Force Majuere

In FAO (OS) No. 272/2012, COASTAL ANDHRA POWER LIMITED vs ANDHRA PRADESH CENTRAL POWER DISTRIBUTION CO LTD & ORS., Date of decision: 15th January, 2019, 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 change in Indonesian laws, which led to 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.

This led Coastal Andhra to file application under Section 9 of the Arbitration and Conciliation Act, seeking to restrain APCPDL from invoking the bank guarantee furnished by it for the claim of damages.The single judge initially granted a stay on Mach 20, 2012. Later, this stay was vacated on July 02,2012. Against the vacation of stay, appeal was filed before the Division Bench.

The Division Bench of the Delhi High Court referring to the judgment of the Supreme Court in  Energy Watchdog v CERC, wherein it was held that an unexpected rise in the price of coal will not absolve the generating companies from performing their part of the contract for the very good reason that when they submitted their bids, this was a risk they knowingly took, decided that in this matter also escalation of price of coal and change in law abroad will not amount to "force majuere" under the agreement, so as to absolve the power generating company from its obligations.

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