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Force Majeure Class Exercise - 1
Force Majeure Class Exercise - 1
Adani Power and Tata Power wants to increase electricity charges of consumers, stating that
they have additional financial burden due to a force majeure event. This is in relation with the
Power Purchase Agreements entered into by Adani Power and Tata Power with power
distributors. The sudden change in the coal price, especially coal in Indonesia, from where
Tata Power and Adani Power are procuring coal is reason for the claim of the force majeure
event
The companies had argued that the increased coal prices was a ‘force
majeure’ event (an unforeseen situation) provided for in the power
purchase agreements (PPAs) entered into between them and distributors.
The tribunal had then remanded the case to the Central Electricity
Regulation Commission to find out the impact of the ‘force majeure’ event
to grant compensatory tariff. On December 6, 2016, the Commission had
arrived at a certain determination as to compensatory tariff to be granted
on account of force majeure.
Setting aside all past orders of the tribunal and the commission, a Bench of
Justices P.C. Ghose and Rohinton Nariman held that a change in
Indonesian coal export regulations does not measure up to be a force
majeure event for which the consumers have to compensate for.
The court held that “changes in the cost of fuel, or the agreement
becoming onerous to perform, are not treated as force majeure events
under the PPA itself”.
The court further held that force majeure clause cannot be claimed for
change in foreign laws, but only for Indian laws.
1) What is force majeure event in a contract? Can increase of coal price in Indonesia be
considered as a force majeure event?
2) Should ‘change of law/policy’ be considered as force majeure event? Provide reason
from the angle of a business manager
3) How will you draft a suitable force majeure clause for your organisation?