HINDUSTAN ZINC LIMITED (H.Z.L.) versus AJMER VIDYUT VITRAN NIGAM LIMITED on 4 December 2019

1. Leave granted.

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2. The present appeal raises an important question as to the scopeof arbitration proceedings under the Electricity Act, 2003 (hereinafterreferred to as ‘Electricity Act’ for brevity), in particular, Section 86(1)(f)thereto read with Section 158.

3. The skeletal facts necessary to decide this case are as follows:

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AThe appellant before us, Hindustan Zinc Limited, has four hightension electricity connections for its units at Chanderiya, Debari, Aghuchaand Dariba, for which four contracts with the respondent were enteredinto for purchase of electricity.

The appellant also set up a captive power plant of 154 MW atBChanderiya, which was commissioned in February, 2005, andsynchronized with the Rajasthan Vidyut Prasarran Nigam Limited Grid.Short term open access to transmission and distribution systems of thisGrid was sought under the Regulations and requisite permission wasobtained. Thereafter, the appellant entered into three open accessagreements with the respondent on 10.03.2005 for wheeling of powerCfrom its captive power plant on the respondent’s distribution system tothe three units that were owned by it which were the units at Aghucha,Debari and Dariba respectively. Open access commenced on 24.03.2005and the power generated at its captive power plant was injected at 132KV and 220 KV at the grid substations at Chittorgarh from where it Dwas transmitted on the respondent’s transmission system and then suppliedto the appellant’s three units.

4. The dispute that arose between the parties was as to theunscheduled interchange charges which become payable under Clauses8 and 9 of the three agreements dated 10.03.3005.E5. Clauses 8 and 9 read as follows:

“(8) Scheduling:

The following procedure is agreed upon by the parties for schedulingopen access power at generation and drawl at the receiving pointFby Open Access Consumer:

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G(c) The Open Access Consumer at 10 AM each day shall furnishto Ajmer Discom schedule of drawl on 15 minute block basiswhich it intent to draw against the open access and on 15 minuteblock basis schedule against contract demand of existingconnections, if any, separately. The drawl schedule of open accesspower shall be limited to the availability shown by the supplyingHgenerator in its schedule.

9. Settlement

(a) The parties agree that the settlement of mismatch betweenthe schedule injection and actual injection by the generating stationinjecting open access power into State Transmission System ofby the generating station embedded in the Distribution System foreach 15 minute block shall be done in following manner.

(i) Unschedule generation not exceeding 5% of the generation/injection scheduled in any 15 minute block at UI price specifiedby the Commission for the state from time to time.

(ii) Generation exceeding 5% of the generation/injection scheduledin any 15 minute block shall be considered as zero and no UIcharges shall be receivable by the generating station for suchexcess generation.

(iii) The mismatch between the schedule generation and actualgeneration shall be determined from the meter data down loadedthrough MRI and 15 minute block-wise schedule furnished foreach day during the billing month.

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(c) The mismatch in total drawl scheduled by consumer againstopen access and against existing contract demand and total actualdrawl in each 15 minute block shall be done in following manner:

(i) Un-schedule drawl not exceeding 5% of the total schedulemade by the consumer against open access and existing Discomconnections in any 15 minutes block shall be priced at UI rate andpayable/receivable by the Open Access Consumer.

(ii) The balance mismatch in scheduled and actual drawl shall bepaid by the Open Access Consumer to the Ajmer Discom at themutually agreed rates and in absence of any agreement such drawlwould be treated as temporary supply and shall be charged thetariff for temporary supply as contained in Part III of the “Tarifffor Supply of Electricity 2004”: booklet for the applicable category.

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118SUPREME COURT REPORTS

A(iii) The mismatch between the schedule drawl and actual drawlshall be determined from the meter data down loaded throughMRI and 15 minute block wise schedule furnished for each dayduring the billing month.

6. It will be seen that each of the three units is described as anBOpen Access Consumer and that if generation exceeds 5% of theinjection that is scheduled the day previous in any 15 minutes block,mismatch between scheduled generation and actual generation will theneither be determined at mutually agreed rates or the excess supply willbe treated as temporary supply and charged the tariff for temporarysupply as contained in Part III of the Tariff for Supply of ElectricityC2004 booklet for the applicable category. (If, however, mismatch doesnot exceed 5%, it shall be priced at the unscheduled interchange chargesrate that is either payable or receivable by the open access consumer.)

7. When the disputes arose between the parties, the appellant andthe respondent, by two orders passed by the Rajasthan ElectricityDRegulatory Commission dated 22.05.2006 and 23.06.2006, theCommission stated that it will itself decide the dispute between the parties.

However, by order dated 12.02.2007, the Commission appointedan Arbitrator under Section 86(1)(f) read with Section 158 of theElectricity Act, referring the following dispute to arbitration:E

“………….to resolve the dispute rising out of the Open Accessavailed by M/s. HZL from its Captive Power Plant at Chanderia[Chittorgarh] to its other industrial units located within the area ofAVVNL in the matter of UI charges billed by AVVNL. ThePetitioner shall file an application along with complete detailsFbefore the Arbitrator within one week from the date of receipt ofthe notice from the Arbitrator. The Arbitrator should endeavor toaccord his award within a period of 4[four] months from the dateof this Order. In all other respects the arbitration shall be subjectto the provisions of the Arbitration and Conciliation Act, 1996.”

G8. By Award dated 25.08.2007, the learned Arbitrator raised 12issues between the parties and struck down Clause 8(c) and 9 of theopen access agreements dated 10.03.2005, as a consequence of which,the unscheduled interchange charges would be billed as per theagreements that were earlier entered into between the parties.

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9. This Award was challenged before the Commercial Court in aSection 34 petition under the Arbitration and Conciliation Act, 1996,(hereinafter referred to as ‘Arbitration Act’ for brevity), which wasdismissed vide the Commercial Court’s order dated 25.02.2017.

10. A Section 37 appeal was then decided vide the impugnedjudgment dated 05.04.2018 by the High Court of Judicature for Rajasthan,Jaipur Bench.

11. The High Court held that, in the peculiar facts of this case, thecaptive generating plant of the company situated at Chanderiya was touse, through open access, the distribution system of the respondent towheel power to three of its own units which were situated at Aghucha,Debari and Dariba as aforestated. Given this fact, and given the factthat the three agreements were entered into with these three units, theHigh Court held that the hat worn by the appellant-company, whichcontained all four units, was that of an open access consumerand notthat of a generating company. As a result of which, Section 86 (1)(f) ofthe Electricity Act would not be attracted. Consequently, the issue beingone of inherent lack of jurisdiction, the High Court reversed the order ofthe Commercial Court, Ajmer, and set aside the entire Award statingthat the dispute raised between the parties in the present case would beoutside Section 86 of the Electricity Act altogether. The High Court alsowent on to discuss the merits of the Award and, on several grounds, setaside the Award as being perverse on merits as well.

12. We have heard detailed arguments from Shri C.S.Vaidyanathan, learned senior counsel appearing on behalf of the appellant,and Shri Puneet Jain, learned counsel for the respondent.

13. Section 42 of the Electricity Act, 2003, is relevant for thepurpose of discussion and set out hereunder:

Section 42. (Duties of distribution licensee and open access): —(1) It shall be the duty of a distribution licensee to develop andmaintain an efficient co-ordinated and economical distributionsystem in his area of supply and to supply electricity in accordancewith the provisions contained in this Act.

(2) The State Commission shall introduce open access in suchphases and subject to such conditions, (including the cross subsidies, A

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and other operational constraints) as may be specified within oneyear of the appointed date by it and in specifying the extent ofopen access in successive phases and in determining the chargesfor wheeling, it shall have due regard to all relevant factors includingsuch cross subsidies, and other operational constraints:

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Provided that such open access shall be allowed on payment of asurcharge in addition to the charges for wheeling as may bedetermined by the State Commission:

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Provided further that such surcharge shall be utilised to meet therequirements of current level of cross subsidy within the area ofsupply of the distribution licensee :

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Provided also that such surcharge and cross subsidies shall beprogressively reduced in the manner as may be specified by theState Commission:

Provided also that such surcharge shall not be leviable in caseopen access is provided to a person who has established a captivegenerating plant for carrying the electricity to the destination ofhis own use:

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Provided also that the State Commission shall, not later than fiveyears from the date of commencement of the Electricity(Amendment) Act, 2003, by regulations, provide such open accessEto all consumers who require a supply of electricity where themaximum power to be made available at any time exceeds onemegawatt.

(3) Where any person, whose premises are situated within thearea of supply of a distribution licensee, (not being a local authorityFengaged in the business of distribution of electricity before theappointed date) requires a supply of electricity from a generatingcompany or any licensee other than such distribution licensee,such person may, by notice, require the distribution licensee forwheeling such electricity in accordance with regulations made bythe State Commission and the duties of the distribution licenseeGwith respect to such supply shall be of a common carrier providingnon-discriminatory open access.

(4) Where the State Commission permits a consumer or class ofconsumers to receive supply of electricity from a person otherthan the distribution licensee of his area of supply, such consumershall be liable to pay an additional surcharge on the charges of H

wheeling, as may be specified by the State Commission, to meetthe fixed cost of such distribution licensee arising out of hisobligation to supply.

(5) Every distribution licensee shall, within six months from theappointed date or date of grant of licence, whichever is earlier,establish a forum for redressal of grievances of the consumers inaccordance with the guidelines as may be specified by the StateCommission.

(6) Any consumer, who is aggrieved by non-redressal of hisgrievances under sub-section (5), may make a representation forthe redressal of his grievance to an authority to be known asOmbudsman to be appointed or designated by the StateCommission.

(7) The Ombudsman shall settle the grievance of the consumerwithin such time and in such manner as may be specified by theState Commission.

(8) The provisions of sub-sections (5),(6) and (7) shall be withoutprejudice to right which the consumer may have apart from therights conferred upon him by those sub-sections.”

Section 86 which deals with the functions of the State Commission,and states as follows:

Section 86. Functions of State Commission.-(1) The StateCommission shall discharge the following functions, namely: - (a) determine the tariff for generation, supply, transmission andwheeling of electricity, wholesale, bulk or retail, as the case maybe, within the State:

Provided that where open access has been permitted to a categoryof consumers under section 42, the State Commission shalldetermine only the wheeling charges and surcharge thereon, ifany, for the said category of consumers;

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(f) adjudicate upon the disputes between the licensees, andgenerating companies and to refer any dispute for arbitration; A

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A14. The bone of contention revolves around Section 86(1) (f).

Shri Vaidyanathan, learned senior counsel for the appellant, hasargued that the challenge to the Award was only on merits before thelearned Commercial Court, and no challenge was raised stating that theArbitrator’s appointment itself would be without jurisdiction, both theBparties having agreed to the order dated 12.02.2007 to refer the matterto arbitration. However, the said issue was argued and taken up beforethe High Court in First Appeal under Section 37 of the Arbitration Act.

15. We are of the view that it is settled law that if there is aninherent lack of jurisdiction, the plea can be taken up at any stage andCalso in collateral proceedings.

16. This was held by this Court in Kiran Singh and Others v.Chaman Paswan and Others’ (1955) 1 SCR 117 as follows:

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It is a fundamental principle well-established that a decree passedDby a Court without jurisdiction is a nullity, and that its invaliditycould be set up whenever and wherever it is sought to be enforcedor relied upon, even at the stage of execution and even in collateralproceedings. A defect of jurisdiction, whether it is pecuniary orterritorial, or whether it is in respect of the subject-matter of theEaction, strikes at the very authority of the Court to pass any decree,and such a defect cannot be cured even by consent of parties. Ifthe question now under consideration fell to be determined onlyon the application of general principles governing the matter, therecan be no doubt that the District Court of Monghyr was coramnon judice, and that its judgment and decree would be nullities.”F

17. Therefore, it is a little difficult to countenance ShriVaidyanathan’s argument that having consented, the respondent cannotnow turn around and challenge the very appointment of the Arbitrator asbeing invalid and without jurisdiction.

Coming now to Section 86 of the Act, it is clear that the adjudicationGupon disputes can only be between licensees and generating companiesand not between licensees and consumers, which is provided for in anopen access situation by Section 42.

18. We may also hasten to add that under the Open AccessRegulations of 2004, clause 29, in particular, gives a three-tier hierarchyH

of challenge when it comes to disputes raised between distributionlicensees and consumers in relation to matters qua open access.

19. This is quite apart from the separate mechanism provided inSection 42(6) of the Electricity Act, where a representation for redressalof grievances may be made to the Ombudsman appointed or designatedby the State Commission, which, as has been pointed out by Shri PuneetJain, has already been set up.

20. The matter is no longer res integra. This Court, in GujaratUrja Vikas Nigam Ltd. v. Essar Power Ltd. (2008) 4 SCC 755 hadoccasion to construe the language of Section 86 (1)(f) of the Act of2003, in the following terms:

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 ‘Principle of StatutoryInterpretation’ 9th Edition, 2004 page 404.)

27. In our opinion in Section 86(1)(f) of the Electricity Act, 2003the word ‘and’ between the words ‘generating companies’ andthe words ‘refer any dispute’ means ‘or’, otherwise it will lead toan 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’.

28. 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 tothe question who can adjudicate/arbitrate disputes betweenlicensees and generating companies, and only Section 86(1)(f)shall apply in such a situation.

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A21. What becomes clear on a reading of this judgment is that theexpression ‘and’ occurring in Section 86(1)(f) must be read as ‘or’. Butthis is only because, as has been pointed out in the judgment, the StateCommission cannot both decide the dispute itself and also refer it to anArbitrator. Otherwise also, reference of any dispute for arbitration canonly be between the licensees and generating companies and notBotherwise.

22. This being the case, the High Court is right in stating that theArbitrator could not, in law, have been appointed by the State Commissionunder Section 86 of the Electricity Act. The Award based on suchappointment would be non est in law.

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23. However, the High Court did not stop with a finding on thisissue, but went on to discuss the merits of the Award. We may onlystate that in case the appellant wishes to avail of any other remedy inlaw, none of the observations made by the High Court will stand in itsway.

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The appeal stands disposed of accordingly.

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Divya Pandey

Appeal disposed of.

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