The Supreme Court ruled on Tuesday that Adani Power Ltd cannot charge its customers more to cover a surge in the cost of imported coal, overturning a decision by a power regulator in December.
The court did, however, allow the utility to claim relief for the higher costs, which resulted from a shortage in domestic supplies at state-run Coal India.
Both Adani Power and competitor Tata Power—which was also party to the ruling although it was not mentioned directly in it—struck long-term deals in the middle of the last decade with distribution companies to supply power from plants they operate in Prime Minister Narendra Modi's home state of Gujarat.
The companies also struck deals with domestic and foreign miners in the latter part of the last decade to fuel their plants in Gujarat, which each have over 4,000 megawatt (MW) of capacity.
Adani and Tata appealed for relief, arguing that they had to be compensated for an unforeseen change in economic conditions which made the terms of the deal with distribution companies unviable.
Following a legal battle that stretched over half a decade, the Central Electricity Regulatory Commission (CERC) ruled in December last year that the companies could charge their customers more to compensate for higher costs.
The case, which was argued by former minister and lawyer Kapil Sibal and renowned anti-corruption lawyer Prashant Bhushan among others, was then escalated to the country's top court by the state distribution companies.
The top court ruled in favour of the distribution companies, saying the agreements did not state that "coal is to be procured only from Indonesia at a particular price".
"The price payable for the supply of coal is entirely for the person who sets up the power plant to bear," the top court's judges said in Tuesday's ruling.
CERC will now look at the matter afresh and determine what relief should be granted to the companies to make up for the shortage in domestic coal supplies.
