CHIEF GENERAL MANAGER (IPC) MP POWER TRADING CO LTD & ANR. versus NARMADA EQUIPMENTS PVT LTD on 23 March 2021

1. Leave granted.

F2. This appeal arises from a judgment and order of a learnedSingle Judge of the High Court of Madhya Pradesh dated 30 November2016 where it appointed an Arbitrator in the dispute between the parties,in an application[1] filed by the respondent under Section 11(6) of theArbitration and Conciliation Act 1996[2].

3. The genesis of the matter is from when the Madhya PradeshGElectricity Board[3], entered into a Power Purchase Agreement[4] on 20May 1999 with the respondent. Under the PPA, the respondent was to 1 “AC No 1 of 2015"2 “1996 Act”

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establish a mini hydro-electric project on a built and operate basis.However, the PPA was terminated on 27 September 2001 by the Board.The respondent initially filed a writ petition[5] challenging the terminationof the PPA. The High Court, by its order dated 4 November 2009,declined to entertain the petition in view of an arbitration agreementcontained in Clause 12.3[6] of the PPA. Thereafter, the respondent filed areview petition[7 ]which was dismissed by the High Court by an orderdated 10 December 2009.

4. As a consequence of the orders dated 4 November 2009 and10 December 2009, on 28 December 2009, the respondent issued anotice to the Board under Clause 12.1 of the PPA, seeking to resolvethe dispute by mutual discussion. Since the respondent did not receive areply to the notice dated 28 December 2009 from the Board, on 30 May2011, the respondent issued another notice to the Board invokingarbitration under Clause 12.3 of the PPA. In the notice, the respondentstated that if the Board did not act upon the notice within 30 days of itsreceipt, it would approach the High Court under Section 11(6) of the1996 Act.

5. Having received no reply from the Board, an application[8] wasfiled under Section 11(6) of the 1996 Act by the respondent seeking theappointment of an arbitrator. The High Court, by its order dated 21 January2014, recorded that the respondent and the appellant had agreed tonominate their arbitrators, and observed that the two arbitrators wouldproceed to appoint a third arbitrator, in accordance with the procedure inClause 12.3(a) of the PPA. The nominated Arbitrators fixed their first 5 “WP No 2642 of 2002"

6 “12.3 Arbitration:

5 “WP No 2642 of 2002"

6 “12.3 Arbitration:

(a) If dispute cannot be salted within Thirty (30)days mutual discussions as (sic) bysection 12.1 and (sic) to Conciliation is not elected by the Parties pursuant to Section12.2 of if a Parties so requests in accordance with Section 12.2 the Dispute shall in dallybe settled by an Umpire to be appointed by two arbitrators one to be appointed by theBoard and other by the Company Provisions of the Indian Arbitration and ConciliationAct 1996 9or any enactment that replaces the said Act) shall apply in such arbitrator.The arbitration proceedings shall be held at head Quarter of the Board i.e. at Jabalpur.(b) The award rendered shall apportion the costs of the arbitration.

(c) The award rendered in any arbitration commended here under shall be finalconclusive and binding upon the Parties and award may be entered in any Courthavingjurisdiction as darned under article 15.1.”

7 “Review Petition No 716 of 2009”

8 “AC No 76 of 2011”

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Ameeting on 7 May 2014, when both parties appeared and the Arbitrators’fee was fixed. However, the Arbitrators, by a letter dated 7 July 2014,highlighted their inability to proceed with the arbitration proceedings onthe ground that their fees had not been paid.

6. Thereafter, the respondent filed AC No 1 of 2015 on 8 DecemberB2014, seeking the appointment of an arbitrator under Section 11(6) ofthe 1996 Act. This application was opposed by the appellant on the groundthat, in view of the provisions of Section 86(1)(f) of the Electricity Act2003[9], it was the State Electricity Commission which was vested withthe exclusive jurisdiction to adjudicate upon disputes between licenseesand generating companies. By the impugned judgment and order datedC30 November 2016, the Single Judge of the High Court allowed theapplication filed by the respondent under Section 11(6) of the 1996 Act.The Single Judge held that the remedies under Section 86(1)(f) of the2003 Act and under Section 11(6) of the 1996 Act are independent ofeach other, and it was open to the High Court to exercise its jurisdictionDunder Section 11(6). The appellant now comes before this Court in appeal.

7. The submission of the appellant, which has been urged beforethis Court by MrVarun Chopra, learned counsel, is that the view whichhas been taken by the High Court is contrary to the law which has beenlaid down by a two-Judge Bench of this Court in Gujarat Urja VikasENigam Limited v Essar Power Limited[10].

8. Controverting the submissions, Mr Sanjay K Agrawal, learnedcounsel appearing on behalf of the respondent, however, urged that thedecision in Gujarat UrjaVikas Nigam Limited (supra) would not applyto the facts of the present case since the PPA was executed on 20 MayF1999 and the termination by the Board was on 27 September 2001; bothof these events have taken place before the enforcement of the 2003Act on 10 June 2003. It was further urged that the appellant did not raiseits objection stemming from Section 86(1)(f) of the 2003 Act when theHigh Court appointed Arbitrators by the consent of both parties in itsorder dated 21 January 2014 in AC No 76 of 2011 and also before theGArbitrators so appointed, and hence it cannot be raised at this stage.

9. In the present case, the notice for the initiation of arbitrationunder Clause 12.3 of the PPA was issued by the respondent on 30 May 9 “2003 Act”H10 (2008) 4 SCC 755, hereinafter referred to as “Gujarat UrjaVikas Nigam Limited”

2011. The commencement of the arbitral proceedings by the invocationof the arbitration agreement would, therefore, relate to 30 May 2011,when the notice invoking Clause 12.3 was issued. Hence, the fact thatthe PPA and the notice of termination predate the 2003 Act would notconstitute material circumstances.Section 21[11] of the 1996 Act specifiesthat unless otherwise agreed by the parties, the arbitral proceedings inrespect of a particular dispute would commence on the date on which arequest for that dispute to be referred to arbitration is received by therespondent. Hence, there can be no manner of doubt that 30 May 2011would be the material date, since it is on this date that the notice invokingClause 12.3 was issued by the respondent to the appellant.

10. The first issue which is raised in this appeal is governed byGujarat Urja Vikas Nigam Limited (supra). In that case, the powerpurchase agreement between the parties was entered into on 30 May1996, and the notice for referring the dispute to arbitration was sent byone of the parties on 14 November 2005. The other party opposed thenotice by stating that the State Electricity Commission had exclusivejurisdiction in accordance with Section 86(1)(f) of the 2003 Act.TheGujarat High Court thereafter appointed an Arbitrator in an applicationunder Section 11(6) of the 1996 Act, which was impugned before thisCourt. Speaking for the two-Judge bench, Justice Markandey Katju settledthe position of law in paragraphs 26, 27 and 28 of the judgment, whichare extracted below for convenience of reference:

“26. It may be noted that Section 86(1)(f) of the Act of 2003 is aspecial provision for adjudication of disputes between the licenseeand the generating companies. Such disputes can be adjudicatedupon either by the State Commission or the person or persons towhom it is referred for arbitration. In our opinion the word “and”in Section 86(1)(f) between the words “generating companies”and “to refer any dispute for arbitration” means “or”. It is wellsettled that sometimes “and” can mean “or” and sometimes “or”can mean “and” (vide G.P. Singh’s Principles of StatutoryInterpretation, 9th Edn., 2004, p. 404).

27. In our opinion in Section 86(1)(f) of the Electricity Act, 2003

11 “21. Commencement of arbitral proceedings.—Unless otherwise agreed by theparties, the arbitral proceedings in respect of a particular dispute commence on the dateon which a request for that dispute to be referred to arbitration is received by therespondent.”

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Athe word “and” between the words “generating companies” andthe words “refer any dispute” means “or”, otherwise it will leadto an anomalous situation because obviously the State Commissioncannot both decide a dispute itself and also refer it to somearbitrator. Hence the word “and” in Section 86(1)(f) means “or”.

B28. Section 86(1)(f) is a special provision and hence will overridethe general provision in Section 11 of the Arbitration andConciliation Act, 1996 for arbitration of disputes between thelicensee and generating companies. It is well settled that the speciallaw overrides the general law. Hence, in our opinion, Section 11of the Arbitration and Conciliation Act, 1996 has no application toCthe question who can adjudicate/arbitrate disputes betweenlicensees and generating companies, and only Section 86(1)(f)shall apply in such a situation.”

This position has subsequently also been approved by two three-Judge benches of this Court in Hindustan Zinc Limited v Ajmer VidyutDVitran Nigam Limited[12 ]and NHAI v Sayedabad Tea CompanyLimited[13].

11. From the above judgment, it is evident that this Court has heldthat Section 86(1)(f) of the 2003 Act is a special provision which overridesthe general provisions contained in Section 11 of the 1996 Act. SectionE86(1)(f) vests a statutory jurisdiction with the State Electricity Commissionto adjudicate upon disputes between licensees and generating companiesand to refer any dispute for arbitration. The “and” between “generatingcompanies” and “to refer any dispute for arbitration” is to be read as an“or”, since the State Electricity Commission cannot obviously resolveFthe dispute itself and also refer it to arbitration. Section 86(1)(f) isextracted below:

“86.Functions of State Commission.—(1) The StateCommission shall discharge the following functions, namely:- *********

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(f) adjudicate upon the disputes between the licensees andgenerating companies and to refer any dispute forarbitration;”

12 (2019) 17 SCC 82; hereinafter, referred to as “Hindustan Zinc Limited“H13 (2020) 15 SCC 161

12. Section 174 of the 2003 Act provides overriding effect to the2003 Act notwithstanding anything inconsistent contained in any otherlaw for the time being in force or in any instrument having effect byvirtue of any law other than the 2003Act itself. Section 174 providesthus:

“174. Act to have overriding effect. — Save as otherwiseprovided in Section 173, the provisions of this Act shall have effectnotwithstanding anything inconsistent therewith contained in anyother law for the time being in force or in any instrument havingeffect by virtue of any law other than this Act.”

13. We refer now to the second argument raised on behalf of therespondent, that the appellant cannot raise an objection relying on Section86(1)(f) of the 2003 Act in the second application filed by it under Section11(6) of the 1996 Act, when it had not raised the same objection in thefirst application under Section 11(6) of the 1996 Act or before theArbitrators so appointed. It is pertinent to note that this argument wasrejected by the Single Judge of the High Court in the impugned judgmentand order dated 30 November 2016 in the following terms”

“9. I will be failing in my duty if the basic objection raised by ShriManoj Dubey about maintainability of this application is not dealtwith. Merely because in earlier round of litigation, the objection ofmaintainability was not taken, it will not preclude the other side toraise such objection if it goes to the root of the matter. This is tritelaw that jurisdiction cannot be assumed by consent of the parties.If a statute does not provide jurisdiction to entertain an application/petition, the petition cannot be entertained for any reasonwhatsoever. Thus, I am not inclined to hold that since for thereason that in the earlier round of litigation i.e. A.C. No.76/2011parties reached to a consensus for appointment of Arbitrators,this application is also maintainable. I deem it proper to examinewhether because of operation of Section 174 of the Act of 2003,the present application under the Act of 1996 is not maintainable.”

14. A similar issue was raised before a three-Judge bench of thisCourt in Hindustan Zinc Limited (supra), where an arbitrator wasappointed by the State Electricity Commission under Section 86(1)(f) ofthe 2003 Act with the consent of the parties. Subsequently, the arbitral A

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Aaward was challenged under Section 34 of the 1996 Act before aCommercial Court, and the Commercial Court’s decision was challengedin an appeal under Section 37 of the 1996 Act where it was held that theState Electricity Commission had no jurisdiction to appoint the arbitratorsince Section 86(1)(f) refers to disputes only between licensees andgenerating companies, and not licensees and consumers. When the matterBreached this Court, the contention was that the objection to jurisdictioncould not have been raised in a proceeding under Section 37 of the 1996Act once the parties had consented to arbitration earlier. Speaking forthe Court, Justice Rohinton F Nariman held that if there is inherent lackof jurisdiction, the plea can be taken at any stage and also in collateralCproceedings. He highlighted the well-established principle that a decreepassed by a court without subject matter jurisdiction is a nullity, and thatits invalidity could be set up whenever and wherever it is sought to beenforced or relied upon. Such a defect of jurisdiction cannot be curedeven by the consent of the parties. The above dictum would apply to thepresent case.D

15. In the above view of the matter, the order of the High Courtappointing an arbitrator under Section 11(6) of the 1996 Act isunsustainable. We accordingly allow the appeal and set aside theimpugned judgment and order of the High Court dated 30 November2016 in AC No 1 of 2015. However, this will not come in the way of the Erespondent in taking recourse to such remedies as are available in law.However, we have expressed no opinion either on the merits or theobjections of the appellant which, when urged, would be considered bythe appropriate forum. There shall be no order as to costs.

16. Pending application, if any, stands disposed of.

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Devika Gujral

Appeal allowed.

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