In a significant ruling by the Supreme Court, a landmark decision was made regarding open access dispute resolution. The case involved a dispute over unscheduled interchange charges in agreements dated 10.03.2005. The High Court of Rajasthan overturned the earlier arbitration award, citing jurisdictional issues under the Electricity Act. This judgment sets a precedent for future cases involving open access consumers and distribution licensees in the electricity sector.
Facts
- Three open access agreements were entered into on 10.03.2005 for wheeling power from appellant’s captive power plant to its three units at Aghucha, Debari, and Dariba.
- The agreements allowed open access to commence on 24.03.2005 with power being injected at grid substations in Chittorgarh and then supplied to the three units.
- The dispute arose regarding unscheduled interchange charges under Clauses 8 and 9 of the agreements dated 10.03.2005.
- An arbitrator struck down Clause 8(c) and 9 of the agreements, leading to charges being billed as per earlier agreements between the parties.
- The settlement for mismatch in scheduled and actual drawl was specified to be done as per the agreements or at mutually agreed rates, failing which temporary supply charges applied.
- A Section 34 petition challenging the arbitration award was dismissed by the Commercial Court on 25.02.2017.
- A Section 37 appeal was decided by the High Court of Rajasthan on 05.04.2018.
- The High Court held that the company’s captive generating plant at Chanderiya was using open access through the respondent’s distribution system to wheel power to three of its units at Aghucha, Debari, and Dariba.
- Based on the agreements with these units, the appellant-company was considered an open access consumer rather than a generating company.
- Due to the lack of jurisdiction, the High Court reversed the order of the Commercial Court and set aside the entire Award, stating that the dispute fell outside Section 86 of the Electricity Act.
- The High Court critiqued and overturned the Award on various grounds, deeming it as being perversely decided on its merits.
- Consequently, Section 86(1)(f) of the Electricity Act was deemed not applicable in this case.
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Arguments
- Shri Vaidyanathan argued that the challenge to the Award was only on merits before the Commercial Court.
- No challenge was raised regarding the Arbitrator’s appointment being without jurisdiction as both parties agreed to refer the matter to arbitration.
- The issue of jurisdiction was raised before the High Court during the First Appeal under Section 37 of the Arbitration Act.
- It is established law that a lack of jurisdiction can be raised at any stage, including in collateral proceedings.
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Analysis
- Shri Vaidyanathan’s argument that consent to arbitration cannot prevent challenging the appointment of the Arbitrator is not valid.
- Section 86 of the Electricity Act specifies that disputes can only be between licensees and generating companies, not consumers.
- Open Access Regulations of 2004 provide a three-tier hierarchy for resolving disputes between distribution licensees and consumers.
- A decree passed without jurisdiction is considered a nullity and can be challenged at any stage.
- Consent of parties cannot cure a defect of jurisdiction.
- General principles govern the determination of jurisdictional issues.
- Separate mechanism in Section 42(6) allows for grievances to be addressed by the Ombudsman appointed by the State Commission.
- The matter is no longer res integra, indicating it has been previously considered.
- The mismatch between scheduled generation and actual generation is crucial for determining charges and resolving disputes.
- Appointing an Arbitrator under Section 86(1)(f) is a valid method to resolve specific disputes related to Open Access availed by parties.
- Consumers can receive electricity supply from entities other than the distribution licensee with permission from the State Commission.
- Consumers receiving supply from alternative entities may be required to pay an additional surcharge on wheeling charges to cover the distribution licensee’s fixed costs.
- Distribution licensees must establish a forum for consumer grievance redressal within six months of the appointed date or grant of license.
- Consumers unsatisfied with grievance redressal by the licensee’s forum can approach an Ombudsman appointed by the State Commission.
- The Ombudsman must settle consumer grievances in a specified time and manner by the State Commission.
- Consumers retain the right to seek redressal through other means in addition to the mentioned grievance redressal processes.
- The State Commission has various functions including determining tariffs for electricity generation, supply, transmission, and wheeling as well as resolving disputes between licensees and generating companies.
- The introduction of open access by the State Commission may involve surcharges to meet cross subsidies and reduce them progressively.
- Distribution licensees have duties related to developing and maintaining an efficient distribution system.
- Mismatch in electricity drawls under open access and existing contracts must be managed within specified limits and conditions.
- Open access may be subject to surcharges determined by the State Commission for wheeling electricity.
- Regulations for open access and wheeling charges must consider factors like cross subsidies and operational constraints.
- In Section 86(1)(f) of the Electricity Act, 2003, the word ‘and’ should be interpreted as ‘or’.
- This interpretation avoids an anomalous situation where the State Commission would both decide a dispute itself and refer it to an arbitrator.
- The Supreme Court in Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. clarified that the word ‘and’ in Section 86(1)(f) should be read as ‘or’.
- Section 86(1)(f) is a special provision that overrides the general provision in Section 11 of the Arbitration and Conciliation Act, 1996 for arbitration between licensees and generating companies.
- Disputes between licensees and generating companies can be adjudicated by either the State Commission or through arbitration.
- The intent behind interpreting ‘and’ as ‘or’ in Section 86(1)(f) is to provide clarity and avoid conflicting provisions.
- State Commission cannot both decide the dispute itself and refer it to an Arbitrator.
- Disputes for arbitration can only be between licensees and generating companies.
- Special law overrides general law.
- Arbitrator could not have been appointed by the State Commission under Section 86 of the Electricity Act.
Also Read: Application for Stay in Civil Suit Rejected: Court’s Legal Analysis
Decision
- The Award based on the appointment would be non est in law.
- The Arbitrator must strive to issue the award within four months from the date of this Order.
- The Petitioner is required to submit an application with all details to the Arbitrator within one week from the date of receiving notice from the Arbitrator.
Case Title: HINDUSTAN ZINC LIMITED (H.Z.L.) Vs. AJMER VIDYUT VITRAN NIGAM LIMITED
Case Number: C.A. No.-009212-009212 / 2019
