This article explores the interplay between the Electricity Act, 2003, and the Arbitration and Conciliation Act, 1996 in resolving disputes in the power sector. It delves into key Supreme Court rulings, including the impact of the Gujarat Urja Vikash Nigam Ltd case and the distinction between tariff and non-tariff disputes, providing clarity on the jurisdictional authority of the CERC and SERC.
Introduction
Arbitration has become a preferred mode of resolving disputes due to its efficiency in providing speedy resolutions and the significant autonomy it offers to the parties to determine the procedural framework governing their proceedings. The significance of arbitration has also increased in the power sector, especially with the enactment of the Electricity Act, 2003 (EA), which incorporates specific provisions for the adjudication of disputes arising between the parties. This Act came into force after the Arbitration and Conciliation Act, 1996 (Arbitration Act), resulting in an overlap of provisions regarding the adjudication of disputes.
Under the EA, the Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commission (SERC) are empowered to adjudicate disputes between the parties under sections 79 and 86, respectively. These disputes can either be decided by the commissions themselves or referred to arbitrator(s) nominated by them.
A critical question that arose before the courts was whether an arbitrator could be appointed under Section 11 of the Arbitration Act when the dispute falls entirely under the provisions of sections 79 and 86 of the EA. This issue was examined by the Supreme Court in Gujarat Urja Vikash Nigam Ltd vs Essar Power Ltd1, where it was held that the EA, being a special statute, prevails over the Arbitration Act as the latter Act provides a mechanism for resolving all arbitration matters and not just matters related to a specific category whereas the former statue targets dispute of a particular category specified in the Act itself. Sections 174 and 175 of the EA clarify that the provisions of this Act take precedence over any other law in force when there is a conflict between the statutes.
After a detailed examination of the relevant provisions of both the EA and the Arbitration Act, particularly sections 86, 174, and 175 of the EA and section 11 of the Arbitration Act, the Court concluded that only the State Commission has the authority to adjudicate disputes falling under Section 86. Consequently, Section 11 of the Arbitration Act is not applicable to disputes governed by Section 86(1)(f) of the EA.
Before proceeding further, it is essential to understand the framework of both statutes to comprehend the impact of this decision.
Statutory Scheme
Section 79(1)(f) of the EA grants the CERC the authority to adjudicate inter-state disputes between transmission licensees and generating companies, or to refer such disputes for arbitration. In contrast, Section 86(1)(f) provides a slightly broader scope, empowering the SERC to adjudicate intra-state disputes between licensees and generating companies, or to refer these disputes for arbitration. On the other hand, Section 11 of the Arbitration Act governs the appointment of arbitrators by the High Courts or the Supreme Court, as applicable.
The Supreme Court in Gujarat Urja Vikash Nigam Ltd (supra) clarified the language of Section 86(1)(f) of the EA by interpreting the word “and” as “or.” The Court observed that the use of “and” between the phrases “generating companies” and “refer any dispute for arbitration” would imply that the Commissions are required to both adjudicate and refer the same dispute to arbitration, which could not have been the legislature’s intent. This interpretation ensures that the provision is applied in a logical manner, avoiding the absurd scenario where the Commission would simultaneously decide and refer the same dispute.
Commissions’ Exclusive Jurisdiction Over Disputes Arising Under The Electricity Act
Under the EA, as noted above Central Commission or State Commission has the discretion to either resolve disputes itself or refer them to arbitration. This was challenged on the ground that it violates article 14 of the Indian Constitution as it is giving unguided discretion to the commissions. The Court rejected this argument and observed that “It is in the discretion of the State Commission whether the dispute should be decided itself or it should be referred to an arbitrator.” This flexibility allows the Commission to manage its workload and decide the most effective method for resolving each dispute.
The Court further explained that the EA prevails over inconsistent provisions in other laws, both explicitly and implicitly. It said that “Where a statute provides for a thing to be done in a particular manner, then it has to be done in that manner, and in no other manner.” This makes it clear that disputes between licensees and generating companies can only be resolved through the mechanisms provided under Section 86(1)(f). The application of Section 11 of the Arbitration Act is thus effectively barred in such cases.
In Hindustan Zinc Limited (H.Z.L.) vs Ajmer Vidyut Vitran Nigam Limited2, the Supreme Court while upholding the decision of the Rajasthan High Court which had set aside the award passed by the arbitrator, held that Section 86(1)(f) applies only to disputes between licensees and generating companies, not consumers. In this case, the State Commission had referred the dispute between a generating company and a consumer to arbitration under section Section 86(1)(f). As per this section as noted above, only dispute between a generating company and licensee could be referred to the arbitration.
The court in the above case also observed that a decree passed by a court without subject matter jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon. Such a defect of jurisdiction cannot be cured even by the consent of the parties.
Similarly, in Chief General Manager (Ipc) M.P. Power vs Narmada Equipments Pvt Ltd3 the issue before the Supreme Court was whether the High Court could exercise its jurisdiction under section 11(6) of the Arbitration Act seeking appointment of Arbitrator when the dispute arising between the parties was fully covered by section 86(1)(f). The court while setting aside the order of the High Court which had appointed the arbitrator under section 11 observed that as per law laid down by the Supreme Court in Gujarat Urja Vikash Nigam Ltd (supra) , only the State Commission is empowered to adjudicate dispute arising between a generating company and a licensee or get it adjudicated by nominating an arbitrator. The jurisdiction of the High Court under section 11 of the Arbitration Act was expressly barred by 86(1)(f) of the Electricity Act.
Whether Procedural Rules Of Arbitration Act Applicable On Forum Constituted Under Electricity Act
While the EA provides a specific framework for determining the forum for dispute resolution, the procedural aspects of arbitration continue to be governed by the Arbitration Act unless there is a direct conflict between the two statutes. This issue was also addressed by the court in Gujarat Urja Vikash Nigam Ltd (supra) wherein it opined that “Section 86(1)(f) is only restricted to the authority which is to adjudicate or arbitrate between licensees and generating companies. Procedural and other matters relating to such proceedings will of course be governed by Arbitration and Conciliation Act, 1996, unless there is a conflicting provision in the Act of 2003.”
Whether Arbitration Agreement Existed Prior To Enforcement Of Electricity Act Will Continue To Govern The Dispute After Electricity Act Came Into Force
This question was also answered by the Supreme Court in Gujarat Urja Vikash Nigam Ltd (supra) wherein the court rejected the argument that the arbitration agreement was entered into between the parties before the electricity act came into force therefore it should govern the dispute arising between the parties. The court observed that notice to invoke arbitration clause under section 21 of the Arbitration was sent to the other party after the electricity act came into force therefore any dispute between licensees and generating companies must be resolved exclusively through the State Commission or an arbitrator appointed by it.The Court observed, “Had the Electricity Act, 2003 not been enacted, there could be no doubt that the arbitration would have to be done in accordance with the Arbitration and Conciliation Act, 1996.”
Recent Development
This debate was further extended by the Supreme Court while upholding the decision of the APTEL delivered in M.P. Power Management Co. Ltd. v. Damodar Valley Corpn4 wherein the APTEL held that all the matters which would have a bearing upon the tariff for a generating company would constitute “tariff disputes” namely disputes related to Change in Law, delayed completion of projects, invocation of Force Majeure events etc. Such matters impact the tariff for a generating company directly and, therefore, fall solely within the jurisdiction of the Central Commission under Section 79(1) of the EA. However, the disputes related to termination or breach of contract which do not impact the tariff either directly or indirectly, can be considered as non-tariff related disputes referable to arbitration.
The tribunal after referring to relevant provisions of the EA Act observed that “the concept of arbitration is not alien to the disputes arising under various provisions of Electricity Act, 2003 and in appropriate cases, where a valid arbitration agreement exists between the parties and the dispute does not concern the regulatory functions of the Commission, the Commission would be not only justified but also bound to refer the dispute for arbitration.”
The tribunal also observed that the use of the phrase “and to refer any dispute for arbitration” in Sections 79(1)(f) and 86(1)(f) implies that certain disputes can be referred for arbitration. This is further supported by Section 158, which mandates that arbitration directed by the Commission be governed by the Arbitration Act. If all disputes under the Act were required to be adjudicated by the Commission, disregarding the possibility of arbitration even when a valid agreement exists, it would render these provisions redundant. Clearly, Parliament did not intend to exclude the application of the Arbitration Act entirely and would have included specific language, as seen in Section 145 which explicitly excludes jurisdiction of the civil court, if that had been the case.
Conclusion
The Electricity Act provides a specific mechanism for resolving disputes between the parties involved in the power sector. However, confusion arose when courts began appointing arbitrators under Section 11 of the Arbitration Act, even though the matter was fully covered by the provisions of the Electricity Act. The Supreme Court addressed this issue by analyzing the framework of both the statutes and concluded that disputes arising between the parties, governed by the Electricity Act, must follow the dispute resolution mechanism outlined in the Electricity Act itself.
However, the law which appeared to have been settled by the Supreme Court in Gujarat Urja Nigam Limited (supra) was further unsettled by the Supreme Court itself by upholding the decision rendered by the APTEL in MP Power Management(supra) wherein the tribunal created distinction between tariff and non-tariff disputes.
1Appeal (civil) 1940 of 2008
2(2019) 17 SCC 82
3Civil Appeal No 1051 of 2021
42024 SCC OnLine APTEL 76
