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Directions Issued To Electricity Regulatory Commissions To Give Reasons For Not Referring a Non-Tariff Dispute To Arbitration: Appellate Tribunal For Electricity  

By: Nipun Dave and Ishita Thakur

The Appellate Tribunal, in its Judgment dated 14.11.2022, passed in Appeal No. 397 of 2022 and Appeal No. 147 of 2021, has interpreted the expression “and to refer any dispute for arbitration” under Sections 86(1)(f) and 79(1)(f) of the Electricity Act, 2003 (hereinafter referred to as ‘the Act’) while directing the Regulatory Commissions as under:

  • To decide whether a dispute under Section 79(1)(f) or Section 86(1)(f), of the Act is suitable for reference to arbitration, on the basis that the matter falls in a tariff or non-tariff category. It has further guided the Regulatory Commissions on nature of dispute being tariff vis a vis non-tariff based on their exercise of the function, i.e., regulatory or adjudicatory under the Act.
  • A reasoned Order has to be passed if the case is not found suitable for being referred to arbitration, such order being amenable to scrutiny, upon challenge, before the Appellant Tribunal.
  • Further, a reference to arbitration can be made even in the absence of an Arbitration Agreement between the parties.

I. REASONING OF THE JUDGMENT

The Appellate Tribunal while giving such directions have also found relevant that the adjudicatory processes undertaken by the State Commission, in a large number of matters, having been found to be “derelict and wanting”. Having built upon the aforesaid premise, the reasoning adopted by the Appellate Tribunal can be captured as under:

(A) The expression “to refer any dispute for arbitration” has been held to mean that the State Commissions are bound to refer the matter to arbitration, such matters which are relating to non-tariff category, unless there are justified reasons for not doing so. The relevant extract of the same as under:

“55. …The Commission ought to proceed with adjudication by itself only if it decides, by such reasoned order, that the dispute is of such nature as ought not be referred for arbitration. For testing the arbitrability (or otherwise) of the dispute, the Commission will be guided by such considerations as have been noted earlier, particularly the principles enunciated in Afcons Infrastructure (supra).”

For the above, reliance has been placed on the judgment given in Gujarat Urja Vikas Nigam Ltd. v Essar Power Ltd., reported in (2008) 4 SCC 755, wherein the Hon’ble Supreme Court has opined that the word ‘and’ in Section 86(1)(f) between the words ‘generating companies’ and `to refer any dispute for arbitration’ means ‘or’. It also held that qua the overriding effect of Section 86(1)(f), being a “special provision”, over Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘Arbitration Act’), being a “general provision” for arbitration of disputes between the licensee and generating companies.

(B) Reference has also been made to the power of the Appellate Tribunal to issue such directions, under Section 121 of the Act, to any Appropriate Commission whenever it finds that the Commission has not performed its statutory functions. While it has been observed that the present appeal was brought invoking the appellate jurisdiction under Section 111 of the Act, it was found to be an appropriate occasion for dealing with the core issue of considering issuance of appropriate directions to the Commissions in exercise of the jurisdiction, vested in the Appellant Tribunal, under Section 121.

(C) Relying upon the judgment passed in the case of Afcons Infrastructure Ltd. & Anr. v. Cherian Varkey Construction Co. (P) Ltd & Ors., reported in (2010) 8 SCC 24, which “opened the doors for such reference to be made for arbitration even if there was no prior arbitration agreement binding the parties”, it was held that the possibility of reference to arbitration of a dispute by Regulatory Commissions under the Act is not contingent upon existence of a prior arbitration agreement or consent being given by the disputants before the Commission for such reference to be made. Even though it may be noted that, under the civil procedure, such reference encouraged by the court was contingent upon the Court simply “using its persuasive power to nudge the parties to agree to the alternative mode of conciliation or arbitration”.

(D) Under para 56, it has also been observed that the words “refer any dispute for arbitration”, appearing in Section 79(1)(f) and Section 86(1)(f), have been used by the legislature for a purpose, the objective sought to be thereby achieved being similar to the one behind the jurisprudence of section 89 of the Code of Civil Procedure, 1908 (hereinafter referred to as ‘CPC’).

(E) Under para 62, it has been held that even in the case where there is no arbitration agreement contemplated under the Power Purchase Agreements, the State Commission cannot be deprived of its power to do so, the relevant extract of the same is as under:

62. For similar reasons, we reject the opposition to the proposal for reference of the dispute at hand to arbitration, the matter to that extent being within the domain and responsibility of the regulatory authority. The observations of Hon’ble Supreme Court in Afcons infrastructure (supra) of impermissibility of reference to arbitration in absence of pre-existing arbitration agreement or by consent given before the court have to be understood against the general scenario of suits or cases of civil nature brought before civil courts. The Electricity Act, 2003, is a special legislation which creates its own procedure and machinery, the Regulatory Commissions being the tribunals (fora of first instance) for resolution of disputes. In our reading, as already concluded for reasons set out in detail earlier, the reference to arbitration by such statutory authority is not dependent upon an arbitration agreement.”

The relevance of the above has been coupled with the power granted to the Appellate Tribunal to “regulate its own procedure” under Section 120(1) of the Act, unconstrained by the provisions of CPC to meet the ends of justice. The above reasonings have been strengthened by the well-settled law that when a discretion is vested in a statutory body, it is required to exercise such discretion in a judicious manner.

(F) It is also pertinent to note the contents of para 49 of the judgement wherein the Appellate Tribunal has drawn a distinction between ‘tariff’ and ‘non-tariff’ related disputes and which forms the basis of the directions issued to the Respondent Commissions. The relevant extract is reproduced as under:

49. All Standard Bidding Documents generally contain an arbitration clause. Under the dispute resolution clause, disputes are categorised into tariff and non-tariff related disputes. Under the current regulatory regime, the PPAs are approved by Electricity Regulatory Commissions. Ostensibly, arbitration clauses are also approved in that process. Once the PPAs, and the arbitration clause, are approved, the Appropriate Commission is deemed to have exercised its jurisdiction under Section 79 (1) (f) or Section 86 (1) (f) of the Electricity Act. Therefore, in terms of Section 8 of the Arbitration and Conciliation Act, the Appropriate Commission is bound to refer non-tariff related disputes for arbitration.

II. ANALYSIS AND ITS IMPLICATIONS CONSIDERED

1. It is our considered view that an incorrect reasoning has been adopted in holding that once the PPAs including the arbitration clauses, if any, are approved by the Appropriate Commission under section 86(1)(b) of the Act, it is deemed to have exercised its jurisdiction under Section 79 (1) (f) or Section 86 (1) (f) of the Act as well. It is so because firstly, no such mandate under the statute exist and secondly, the same makes the exercise of power under section 86(1)(f) or 79(1)(f) of the Act subservient to the exercise of jurisdiction under section 86(1)(b) of the Act, which also cannot be the correct interpretation of the aforesaid provisions of the Act. The exercise of adjudicatory power under Section 86(1)(f) cannot be made subservient to the approval of the procurement process through PPA by the Commission in exercise of the power under Section 86(1)(b). The degree of exercise of power under Section 86(1)(b) and the scope and ambit of power exercised under Section 86(1)(f) are completely different which makes the observations made under para 49 itself is fallacious.

2. While, the above impetus given to arbitration, being premised upon the inappropriate handling of the jurisdiction to adjudicate by the various Regulatory Commissions, is an appreciable and progressive step, the above compulsion for referring a non-tariff dispute to arbitration, regardless of a) the existence of an arbitration agreement; b) consent of the parties, makes the Judgment a fit case for judicial overreach.

3. An obvious departure from the ratio laid down by the Hon’ble Supreme Court of India in GUVNL judgment (supra), though not much in letters but in spirit. The departure from the judgment is further manifested through laying down the mandate whereby the discretion of the regulatory commission has been compromised, which is otherwise vested in it by an act of the Parliament. The question arises whether by virtue of the exercise of appellate power, the autonomy reposed in the Regulatory Commission in either deciding the matter on its own or referring it for arbitration, can completely be ousted, in the light of the direction made by the Appellate Tribunal under para 67 of the judgment.

4. It has been left unanswered as to what would be appropriate reasons for the Regulatory Commission to given for it to adjudicate a simplicitor money claim. Further, the Appellate Tribunal has also considered several policy factors such as competence with which the Regulatory Commission has previously exercised adjudicatory functions to determine the necessity of giving reasons. The decision of the Appellate Tribunal though is unsatisfactory inasmuch as it has taken away the autonomy of the parties to decide whether the dispute can be referred to arbitration or to be resolved by Regulatory Commission themselves.

5. Further, the fate of a matter which requires interim relief has not been taken into consideration, since the Regulatory Commission is mandated to first deal with the question of adjudication by itself or reference to arbitration. By making that order itself amenable to appeal, the interest of parties in an emergent situation seeking interim relief would be jeopardized on account of delay by creating additional avenue for litigation.

A copy of the Judgment can be accessed from the following link:

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