Redefinition of 'change in law' imposed on international enterprises operating in India

In a significant decision, the Indian Supreme Court has ruled that policy signals, press releases, or administrative clarifications do not qualify as a 'change in law'. This verdict, which marks the end of a decade-long legal battle between Punjab State Power Corporation Limited (PSPCL) and two private thermal power producers, CESC Limited and Lanco Infratech, has far-reaching implications for foreign businesses operating in India.

The dispute centred around the withdrawal of 'deemed export benefits' by the Indian government post-bid. These benefits, which were based on goods being treated as exports for certain benefits, in this case, thermal power, were a crucial factor in the power purchase agreements (PPAs) between PSPCL and the private thermal power producers. The power producers sought compensation from PSPCL due to the withdrawal, citing a 'change in law' clause in their PPAs.

However, the court ruled that no change in law had occurred, as the benefits were not formally gazetted laws or policies. Mohammed Talib, an expert in international arbitration at Pinsent Masons, stated that only duly promulgated statutes, regulations, and official notifications can constitute 'law' for changes under commercial contracts.

This ruling underscores the importance of anchoring risk assessments in formal legal instruments, not expectations or informal government communications about what the law will be. International businesses operating in India are advised to heed this advice, particularly in sectors like telecoms, transport, where regulatory risk management needs to be anchored in the contract.

Scheherazade Dubash, another expert in international arbitration at Pinsent Masons, mentioned that this precedent affects all sectors where 'change in law' clauses are invoked, not just power PPAs. This case does not involve construction contracts or disputes in China or the United Arab Emirates.

It is worth noting that the 'deemed export benefits' were withdrawn post-bid by the Indian government. This move was not considered a 'change in law' by the Supreme Court, highlighting the importance of formal legal processes in such matters.

In conclusion, the Indian Supreme Court ruling serves as a reminder for foreign businesses to base their risk assessments on formally gazetted laws and policies, not government communications. This decision sets a crucial precedent for the interpretation of 'change in law' provisions in contracts, ensuring a more transparent and predictable business environment in India.

Redefinition of 'change in law' imposed on international enterprises operating in India