India: Supreme Court Examines The Ambit Of Force Majeure Clause In Agreements

Last Updated: 26 July 2017
Article by Vikrant Rana and Tulip De


The Electricity Act, 2003 (hereinafter referred to as "the Act") did away with 3 erstwhile legislations namely, the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1928 and the Electricity Regulatory Commissions Act, 1998 paving the way for a new regime for generating and supply of electricity was provided for.

Section 63 of the Electricity Act, 2003 deals with procurement of power and determination of tariff for the supply of electricity. A process of bidding is followed to determine this tariff for which tenders are invited. Based on a pre-disclosed criterion the best possible tariff is followed in order to arrive at the lowest tender as decided amongst the participating bidders in a transparent bidding process.

Facts of the Case: Energy Watchdog v. Central Electricity Regulatory Commission and Anr.1

Two separate Power Purchase Agreements (contracts for supply of power) were executed by Adani Power with two of the Haryana entities and Gujarat entities for supply of power to each of them from their Mundra Power Project. The decided tariff was adopted by the respective State Electricity Regulation Commissions.

However, Indonesia changes its domestic coal distribution policy which resulted in the change in the Indonesian law (from where Coal was imported for the generation of electricity) and increased the export prices of coal from Indonesia drastically changing those which were prevalent since the last 40 years.

Adani Power and Tata Power, filed a petition before the Central Electricity Regulatory Commission seeking relief due to the change in the Indonesian laws praying that it should:

  • discharge them from the performance of the PPA on account of frustration of contract, or
  • to evolve a mechanism to restore the petitioners to the same economic condition prior to occurrence of the change in law.

Even though the Central Commission, in April 2013, rejected the claim of Adani Power as the grounds of force majeure or frustration due to the change in law were held not to be admissible,

the Commission, in exercise of the regulatory powers provided under Section 79 of the Act, proceeded to grant compensatory tariff based on a report of a Committee Report of a committee constituted in this regard.

Aptel's View:

It was argued that, Adani had quoted the non-escalable prices to win the bids and could not later alter the same after winning the bid. It cannot, under the pretense of being affected by force majeure, convert the prices into an escalable tariff. Also, the bid given by Adani Enterprises was not premised on the import of coal from Indonesia only and the contract does not get frustrated merely because it becomes commercially onerous.

Adani stated that "a force majeure event in Clause 12 takes place the moment performance is "hindered" and there can be no doubt that an astronomical rise in prices of Indonesian coal, thanks to a change in law, has certainly hindered performance."

The Appellate Tribunal for Electricity ("ApTEl") observed that in view of the laws on frustration of contract2 and the relevant provisions of the PPAs, a force majeure condition was made out on the facts of these cases and reversed the Commission's order. It also denied the Commission, the regulatory power under Section 79 of the Electricity Act, stating that as there was a PPA entered into under Section 63 of the Act which would dictate the agreement between the parties and not the Commission. Aptel also held that change in legal provisions do not apply to foreign law and, therefore, changes in Indonesian law did not come within the scope of the provisions.

The Verdict:

Appeals were filed against Aptel's order by distribution companies, generators and consumer representatives. The Supreme Court held that it was not within the ambit of the regulatory powers of the Central Commission to decide the tariff but only adopt the tariff already decided in the transparent bidding process as enumerated, which is accordance with the guidelines issued by the Central Government. The Apex Court also observed that the Regulatory Powers of the Commission come into play when the guidelines issues in this regard are silent. "Force majeure" is governed by the Indian Contract Act, 1872. The Supreme Court held: "In so far as a force majeure event occurs de hors the contract, it is dealt with by a rule of positive law under Section 56 of the Contract. The performance of an act may not be literally impossible but it may be impracticable and useless from the point of view of the object and purpose of the parties."It is noteworthy that the Force majeure Exclusion Clause in the Agreements clearly excluded any increase in the cost of the plant, machinery, equipment, materials, spare parts, fuel or consumables for the Project from the purview of Force Majeure.

The escalation of prices of the resources required for the performance of the contract does not render the contract itself impossible to perform. To explain this, the Court referred to M/s Alopi Parshad & Sons Ltd. v. Union of India, [1960 (2) SCR 793], in which the plaintiffs, who were in agreement with the Union of India for supply of "ghee" to the Indian army, pleaded for frustration of contract as there was a rise in demand for supply of ghee and the prices had to be decreased by way of mutual agreement. Here, the Supreme Court had stated that "the Act does not enable a party to a contract to ignore the express covenants thereof and to claim payment of consideration, for performance of the contract at rates different from the stipulated rates, on a vague plea of equity. Parties to an executable contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate, for example, a wholly abnormal rise or fall in prices which is an unexpected obstacle to execution. This does not in itself get rid of the bargain they have made." Unless there is a fundamental change in the events and not merely circumstantial changes, there can be no frustration of contract.

In Satyabrata Ghose v. Mugneeram Bangur & Co. [1954 AIR 44], during unstable times of war, the parties had agreed on the development of a land, which was later requisitioned by the government. The defendant stated that this made the contract impossible to perform, in a suit for specific performance by the plaintiff. The Court held that the requisitioning made it difficult but not impossible to perform. It stated "'The Courts have no general power to absolve a party from the performance of its part of the contract merely because its performance has become onerous on account of an unforeseen turn of events."

In Tsakiroglou & Co. Ltd. v. Noblee Thorl [GmbH, 1961 (2) All ER 179] it was observed that mere closure of the Suez Canal, when there is alternative way of transporting goods through the Cape of Good Hope, does not qualify as a condition for the frustration of contracts just because the alternative route is longer than the original one.

The Supreme Court concluded, "It is clear 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.".


The ultimate question before the Apex Court was how far can the ambit for "Force majeure" be stretched so as to make the performance of the contract impossible, thereby frustrating it. It is clear upon perusal of the PPA as a whole, that the price payable for the supply of coal is entirely for the person who sets up the power plant to bear. The very genesis of mutually agreeing to give and take services/ goods is to transfer the risk of performing those services or providing those goods to the contracting party. It is an obligation set upon the contracting parties to complete their parts of the agreement against all odds as far as practicable. Not every difficulty faced can be inferred as a reason for frustration of contract.

In the instant case, the Supreme Court rightly reiterated that the ambit of force majeure cannot be stretched to a probable difficulty or loss caused to the entity obligated to perform the contract. From the point of view of the Electricity Act, the Court also made it clear that prices once bid for cannot be escalated or subsequently changed as the stage for determining the prices is only during the process of bidding and allocation of tenders.


1 Civil Appeal Nos.5399-5400 of 2016

2 contained in the Indian Contract Act, 1872

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Vikrant Rana
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions