Electricity Act, 2003 (hereinafter referred to as the “Act”)- Power Purchase Agreement (PPA) -- supply of the entire Electricity to be generated by the respondent for a period of 30 years. - Disputes arose regarding payments - State Commission by an order dated 17th June, 2011, allowed the petition filed by the respondent for refund of the excess rebate availed by the appellant contrary to the terms of PPA and also ordered the respondent to redraw the monthly invoices in accordance with the directions issued by the State Commission. - The State Commission held that it is competent to adjudicate upon the dispute.-Appellate Tribunal for Electricity (hereinafter referred to as“APTEL” or “Appellate Tribunal”), at New Delhi dismissed the appeal - Apex court too dismissed the civil appeal =
The balance was carried forward by the respondent.
Since June, 2001, the appellant had been making payments as
noticed above, and the respondent had been adjusting the same
on a “FIFO” basis.
The appellant claims that the monthly
invoices raised by the respondent were only estimated invoices.
On the other hand, the respondent claims that the appellant,
from inception only made adhoc payments periodically against
the monthly invoices raised.
Therefore, each side is claiming
that the other did not provide any details with regard to the
amounts due and the amounts paid. It is also the claim of the
respondent that the appellant had unilaterally made several
disallowances without informing the respondent of the same.
4. It appears that both the parties were dissatisfied with
accounting details provided by the other. Ultimately, the
respondent issued a notice of dispute resolution on 26th April,
2007 and appointed its Vice President, Shri B. Sundaramurthy as
the representative.
Continuous correspondence was exchanged
between the parties from August, 2007 to March, 2009. On 1st
April, 2009, respondent sent a Notice to the appellant in terms
of Article 16 of the PPA claiming amounts due/overdue from the
appellant and interest on late payments.
The Notice gives a
summary of claims of the respondent till 30th March, 2009 other
than towards specified taxes, which was stated to be subjudice,
and, therefore, not included therein.
The balance of amount
payable, according to the respondent was Rs.1,787,272,534.
The appellant in reply informed the respondent on 16th April,
2009 that the matter was under scrutiny and examination.
Since, there was no response, the respondent sent a reminder.
Instead of making the payment of the amounts claimed, the
appellant issued letter dated 4/5th May, 2009 claiming that
according to its accounts, sum of Rs.31.12 crores was due to
the appellant.
On 8th May, 2009, the respondent requested the
appellant “to provide the particulars and details forming the
basis of your claim before 15th May, 2009.”
The respondent
also requested the appellant to fix a meeting on or before 19th
May, 2009 to discuss the issues and resolve the same. A
meeting took place on 19th May, 2009 but the dispute was not
resolved.
Since the dispute was not resolved, the respondent filed the
petition – D.R.P. No. 12 of 2009 before the State commission,
seeking a direction to the appellant to make a payment of sum
of Rs. 1,89,91,17,264 being a sum due as on 19th March, 2009,
under the invoices raised under the PPA and interest thereon in
terms of Article 10.6 of the PPA from the due date till the
date of actual payment. =
Upon completion of the pleadings and after hearing the parties,
the State Commission by an order dated 17th June, 2011, allowed
the petition filed by the respondent for refund of the excess
rebate availed by the appellant contrary to the terms of PPA
and also ordered the respondent to redraw the monthly invoices
in accordance with the directions issued by the State
Commission.
The State Commission held that it is competent to adjudicate upon the dispute.
The limitation period prescribed
in the Limitation Act, 1963 would not apply to the proceeding
before the Commission, delay and laches would apply. The
appellant is liable to pay interest to the respondent in terms
of Clause 10.6 of the PPA till payment.
Conversely, if the
appellant has made excess payment against each monthly invoice
compared to the corresponding redrawn monthly invoice, the
respondent is liable to pay interest in terms of Article 10.6
of the PPA.
The rebate would be admissible to the appellant,
if the redrawn monthly invoice and the original payment made by
the appellant against the invoice of that month matches or if
the appellant has made excess payment, the respondents were
directed to redraw the annual invoice for 2001-2002, 2002-2003,
2003-2004, 2004-2005, 2005-2006 and 2006-2007, as at September
of each year to capture the gains to the appellant on account
of lower interest rates and gains to the respondent on account
of higher floating rate.
Certain other directions were also issued. The petition was accordingly disposed of.=
This statutory appeal under Section 125 of the Electricity Act,
2003 (hereinafter referred to as the “Act”) is directed against the
final judgment and order dated 22nd February, 2013 passed by the
Appellate Tribunal for Electricity (hereinafter referred to as
“APTEL” or “Appellate Tribunal”), at New Delhi in Appeal No. 176 of
2011, whereby it has dismissed the appeal preferred by the
appellant against the final judgment and order dated 17th June,
2011 of Tamil Nadu Electricity Regulatory Commission (hereinafter
referred to as the “State Commission”) in D.R.P. No. 12 of 2009.
The facts have been noticed in detail both by the State Commission
and the APTEL, therefore, we shall make a reference only to the
very essential facts necessary for deciding this appeal.=
It is
submitted that during the pendency of these proceedings, the
respondents have received rebates, discounts, credits, refunds in the
fuel price being extended by fuel supplier i.e. Indian Oil Corporation
Ltd. (IOCL).
Such benefits have been received by the respondent from
January 2001 till date It is pleaded that the respondents have failed
to give details about the discounts and credits received the benefit
of which ought to have been passed on to the appellant.
Therefore,
IOCL be made parties to respondent No.2 to the present appeal.
I.A.No.5 of 2013 seeks direction to IOCL to furnish details of all the
documents of the matter.
Further directions are also sought on the
respondent to refund a sum of Rs.240 crores paid by the appellant
under the order passed by the State Commission along with interest at
the rate as mentioned in PPA.
The
applications have been evidently preferred purely as dilatory tactics,
to delay and deny substantial payments that are due and payable to the
respondent pursuant to the orders passed by the State Commission which
have been upheld by APTEL.
We are not inclined to entertain either of
the applications at this stage. The issue sought to be raised in both
the applications ought to have been raised by the appellant at the
relevant time. The applications are, therefore, accordingly dismissed.
2014 ( Apr.Part ) judis.nic.in/supremecourt/filename=41381 SURINDER SINGH NIJJAR, A.K. SIKRI
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4126 OF 2013
T.N. Generation & Distbn. Corpn. Ltd. …Appellant
VERSUS
PPN power Gen. Co. Pvt. Ltd. ...Respondent
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. This statutory appeal under Section 125 of the Electricity Act,
2003 (hereinafter referred to as the “Act”) is directed against the
final judgment and order dated 22nd February, 2013 passed by the
Appellate Tribunal for Electricity (hereinafter referred to as
“APTEL” or “Appellate Tribunal”), at New Delhi in Appeal No. 176 of
2011, whereby it has dismissed the appeal preferred by the
appellant against the final judgment and order dated 17th June,
2011 of Tamil Nadu Electricity Regulatory Commission (hereinafter
referred to as the “State Commission”) in D.R.P. No. 12 of 2009.
The facts have been noticed in detail both by the State Commission
and the APTEL, therefore, we shall make a reference only to the
very essential facts necessary for deciding this appeal.
2. The respondent, a generating company, has entered into a Power
Purchase Agreement (PPA) with the appellant on 3rd January, 1997
for the supply of the entire Electricity to be generated by the
respondent for a period of 30 years. The respondent commenced
commercial operations on 26th April, 2001. Under the PPA, the
respondent has to submit an annual invoice indicating the amounts
owed under the Tariff. The amounts receivable from the appellant
for the previous year are to be reconciled against the sum of
monthly estimated payment made by the appellant as soon as possible
after the end of each year. Accordingly, respondent started
raising monthly invoices from 26th April, 2001 for the Electricity
supplied by it to the appellant. According to the appellant,
invoices of the respondent inter alia included interest on debt
sanctioned but not disbursed, charges towards energy consumed at
the residential quarters at the generating station etc. The
appellant claims that substantial payments towards the monthly
invoices raised by the Respondent for every month were paid against
the admitted amount in the invoice. The disputed amount was
withheld. The respondent accepted the admitted amount paid against
each invoice without raising any dispute either with respect to the
disputed amount or the substantial payment made by the appellant.
3. Government of India by Notification dated 30th March, 1992
incorporated a rebate scheme on the receivables. Under this
scheme, the purchaser, i.e., appellant is entitled to a rebate
@ 2.5% if the payment is released within 5 days from the date
of invoice and @ 1% if the payment is released within 30 days
from the date of invoice. Accordingly, while making the
payment of the admitted amount under each invoice, the
appellant deducted the 2.5% rebate, as payments were made
within 5 days from the date of the receipt of the invoice.
These payments were accepted by the appellants. On the other
hand, respondent adjusted the amount received by it in the
following month against the unpaid amount of the previous
month. The balance was carried forward by the respondent.
Since June, 2001, the appellant had been making payments as
noticed above, and the respondent had been adjusting the same
on a “FIFO” basis. The appellant claims that the monthly
invoices raised by the respondent were only estimated invoices.
On the other hand, the respondent claims that the appellant,
from inception only made adhoc payments periodically against
the monthly invoices raised. Therefore, each side is claiming
that the other did not provide any details with regard to the
amounts due and the amounts paid. It is also the claim of the
respondent that the appellant had unilaterally made several
disallowances without informing the respondent of the same.
4. It appears that both the parties were dissatisfied with
accounting details provided by the other. Ultimately, the
respondent issued a notice of dispute resolution on 26th April,
2007 and appointed its Vice President, Shri B. Sundaramurthy as
the representative. Continuous correspondence was exchanged
between the parties from August, 2007 to March, 2009. On 1st
April, 2009, respondent sent a Notice to the appellant in terms
of Article 16 of the PPA claiming amounts due/overdue from the
appellant and interest on late payments. The Notice gives a
summary of claims of the respondent till 30th March, 2009 other
than towards specified taxes, which was stated to be subjudice,
and, therefore, not included therein. The balance of amount
payable, according to the respondent was Rs.1,787,272,534.
The appellant in reply informed the respondent on 16th April,
2009 that the matter was under scrutiny and examination.
Since, there was no response, the respondent sent a reminder.
Instead of making the payment of the amounts claimed, the
appellant issued letter dated 4/5th May, 2009 claiming that
according to its accounts, sum of Rs.31.12 crores was due to
the appellant. On 8th May, 2009, the respondent requested the
appellant “to provide the particulars and details forming the
basis of your claim before 15th May, 2009.” The respondent
also requested the appellant to fix a meeting on or before 19th
May, 2009 to discuss the issues and resolve the same. A
meeting took place on 19th May, 2009 but the dispute was not
resolved.
5. Since the dispute was not resolved, the respondent filed the
petition – D.R.P. No. 12 of 2009 before the State commission,
seeking a direction to the appellant to make a payment of sum
of Rs. 1,89,91,17,264 being a sum due as on 19th March, 2009,
under the invoices raised under the PPA and interest thereon in
terms of Article 10.6 of the PPA from the due date till the
date of actual payment. After setting out the details of the
amounts due as narrated above, the respondent claimed that,
under Article 10.2(b) of the PPA, in the event of any dispute
as to all or any of the portion of an invoice, the appellant
was required to pay the full amount of the disputed charges and
thereafter serve a notice on the respondent indicating the
amount in dispute. The dispute is to be resolved under Article
16, which provides for informal resolution of dispute.
Firstly, under Article 16(1), by mutual discussions through the
designated representatives of the parties. Secondly, in case
the parties are unable to resolve the dispute pursuant to
Article 16.1, it is to be resolved through finally by
arbitration in accordance with Article 16.2.
6. Under Article 16.2, the arbitration has to be conduced in
accordance with the rules of Conciliation and Arbitration of
International Chamber of Commerce (ICC), in effect on the date
of the agreement. The Arbitration Tribunal is to consist of
three arbitrators, of whom each party should select one. The
two arbitrators appointed by the parties shall select the third
arbitrator, to act as the Chairman of the Tribunal. If the two
arbitrators appointed by the parties, fail to agree on a third
arbitrator, the ICC Court of Arbitration shall make the
appointment. The arbitration shall be held in England. It is
further provided that notwithstanding Article 16.8, the laws of
England shall govern the validity, interpretation,
construction, performance and enforcement of the provisions
contained in Article 16.2. The arbitration proceedings shall
be conducted and the award shall be rendered in English
language. It is further provided that the rights and
obligations of the parties shall remain in full force and
effect pending the award in any arbitration proceedings. The
costs of the arbitration shall be determined by the arbitral
tribunal in accordance with the Rules. The arbitration clause
specifically provides that the Indian Arbitration Act (Act No.
X(10) of 1940/The Arbitration and Conciliation Act, 1996 shall
not be applicable to this arbitration provision, to any
arbitration proceedings or award rendered or any dispute or
difference arising out of or in relation to the agreement. It
is further provided that award rendered hereunder shall be a
foreign award within the meaning of the Foreign Awards Act,
1961.
7. Clause 16.2(i) specifically provides that the parties hereby
waive any rights of application or appeal to the Courts of
India to the fullest extent permitted by law in connection with
any question of law arising in the course of arbitration or
with respect to any award made.
8. Clause 16.3 of the arbitration agreement provides that the
award of the arbitrators shall be final and binding. The other
provisions with regard to the arbitration clause are incidental
and, therefore, not necessary to be mentioned. Article 17.8 of
the PPA provides as under:-
“17.8 Governing Law: Subject to Sections 16.2(b) and 16.2(e)
hereof, this agreement and the rights and obligations hereunder
shall be interpreted, construed and governed by the substantive
laws of India.”
9. As noticed above, Article 16.2(b) provides that the arbitration
shall be conducted in accordance with the ICC Rules
notwithstanding Article 17.8. Similarly, Article 16.2(e)
provides for exclusion of Article 17.8.
10. Upon completion of the pleadings and after hearing the parties,
the State Commission by an order dated 17th June, 2011, allowed
the petition filed by the respondent for refund of the excess
rebate availed by the appellant contrary to the terms of PPA
and also ordered the respondent to redraw the monthly invoices
in accordance with the directions issued by the State
Commission. The State Commission held that it is competent to
adjudicate upon the dispute. The limitation period prescribed
in the Limitation Act, 1963 would not apply to the proceeding
before the Commission, delay and laches would apply. The
appellant is liable to pay interest to the respondent in terms
of Clause 10.6 of the PPA till payment. Conversely, if the
appellant has made excess payment against each monthly invoice
compared to the corresponding redrawn monthly invoice, the
respondent is liable to pay interest in terms of Article 10.6
of the PPA. The rebate would be admissible to the appellant,
if the redrawn monthly invoice and the original payment made by
the appellant against the invoice of that month matches or if
the appellant has made excess payment, the respondents were
directed to redraw the annual invoice for 2001-2002, 2002-2003,
2003-2004, 2004-2005, 2005-2006 and 2006-2007, as at September
of each year to capture the gains to the appellant on account
of lower interest rates and gains to the respondent on account
of higher floating rate. Certain other directions were also
issued. The petition was accordingly disposed of.
11. Aggrieved by the aforesaid directions, the appellant filed
Appeal No. 176 of 2011before the APTEL. Before the APTEL, in
the appeal, the appellant raised the following issues:-
(a) Entitlement of the Appellant to Rebate.
(b) Jurisdiction of the State Commission u/s 86(1)(f) of the
Act, 2003;
(c) First in First Out method; for adjustment of payment.
(d) Limitation, delay and laches;
(e) Bar under Order 2 Rule 2 CPC;
(f) Non filing of Annual Invoices;
(g) Determination of capital cost;
(h) Deduction on the monthly invoices;
(i) Excess Claims in the monthly invoice – unjust enrichment;
(j) Interest on Late Payments.
12. After hearing the learned counsel for the parties, APTEL has
held that under Article 10.2(a), 10.2(b)(i) and 10.2(e), the
appellant is obliged to pay full amount of the invoice within
the due date to be eligible for the rebate of 2.5% or 1% as the
case may be. Admittedly, the appellant neither paid the full
amount for every invoice nor raised the dispute within one
year. The appellant was held to be not eligible for rebate for
reduction of the invoice funds.
13. With regard to the second issue, i.e., jurisdiction and scope
of Section 86(1)(f) of the Act, relying on the judgment of this
Court in the case of Gujarat Urja Vikas Nigam Ltd. Vs. Essar
Power Ltd.[1], it is held that the State Commission has the
discretion to decide as to whether the dispute should be
adjudicated by itself or it should be referred to an
arbitrator. The appellant can not dictate that the State
Commission ought to have referred the dispute to an arbitrator.
It is further held that the State Commission can adjudicate
all the disputes including the dispute on money claims between
the Licensees and the Generating Companies. In coming to the
aforesaid conclusion, APTEL relied on its earlier order
rendered in Neyveli Ignite Corporation Vs. Tamil Nadu
Electricity Board in Appeal No. 49 of 2010 dated 10th
September, 2010.
14. On the third issue on the method adopted by the respondent for
adjustment of the payment made by the appellant on the “FIFO”
basis, APTEL has approved the decision of the State Commission
that the respondent was justified in adopting the aforesaid
method, in accordance with Section 60 of the Indian Contract
Act, 1872.
15. On the fourth issue relating to the applicability of the
limitation Act or delay and laches, it has been held that the
Limitation Act would not apply to the proceedings under the
Electricity Act. On facts, it has been held that the issue of
limitation does not arise since Sections 60 and 61 of the
Indian Contract Act would permit the creditor to adjust the
amount on “FIFO” method. APTEL has also held that the bar
under Order 2 Rule 2 of the CPC would not be applicable in the
facts of this case. With regard to the non-filing of the
annual invoices by the respondent, it has been held that the
respondent should have filed the annual invoices in time.
Therefore, the direction issued by the State Commission to the
respondent to redraw the annual invoices has been affirmed.
The seventh issue related to determination of capital costs,
the State Commission in its order under appeal had directed the
appellant to pay the invoice in full as claimed by the
respondent without determining the capital costs by getting the
petition for finalization of capital costs, which was pending
in the State Commission finally adjudicated. APTEL has
approved the findings of the State Commission that the
appellant had adopted delaying tactics by not cooperating in
the finalization of the capital costs.
16. On issue No. 9, it has been held that as the respondent has
given up the claim on account of capital costs incurred on Gas
Boosting Station and Conditioning System and that the Power
Company has been directed to redraw the monthly invoices by the
State Commission, the issue would not survive. Finally, on
issue No. 10, which related to interest on late payments, it
has been held that the respondent company is entitled to
interest on late payment of dues under the provisions of the
PPA.
17. The present appeal is directed against the aforesaid directions
issued by APTEL.
18. We have heard learned counsel for the parties.
19. Mr. R.F.Nariman, learned senior counsel appearing for the
appellant has submitted that the disputes raised in the present
proceeding are not adjudicable by the State Commission. Mr.
Nariman submitted that the primary functions of the State
Commission being advisory, regulatory and recommendatory, the
adjudication permitted under Section 86(1)(f) is only
restricted to the disputes which are fairly relatable to the
primary functions. The cardinal issue, according to Mr.
Nariman, which ought to have been decided by the State
Commission, was with regard to the nature of a dispute. The
State Commission has failed to address the issue whether the
dispute is unconnected to advisory functions. This was
necessary as the respondent had made only a pure money claim
which could only be adjudicated either by the Civil Court or
the Arbitral Tribunal upon a reference being made to that
effect. Mr. Nariman submits that the State Commission illegally
declined to exercise its discretion to refer the dispute to
arbitration. The dispute between the parties being purely of
civil nature required decision on complex issues of fact and
law. Since the dispute arises out of the working and
interpretation of the PPA, the State Commission would not have
sufficient knowledge of law to adjudicate the issues involved.
20. The next submission of Mr. Nariman is that the State Commission
cannot be an adjudicatory body, as it does not have the
trappings of a court, which is normally manned exclusively by
Judges. Under Section 84, there is no requirement for the
Chairperson or member of the State Commission to be a Judge of
a High Court. The Members are required to be persons of
ability, integrity and standing who have adequate knowledge of,
and have shown capacity in dealing with problems relating to
engineering, finance, commerce, economics, law or management.
Although sub-section (2) permits the State Commission to
appoint any person as the Chairperson from amongst person who
is or has been a Judge of a High Court, no appointment from the
aforesaid category of persons has been made to the State
Commission. Mr. Nariman pointed out that the State Commission
which heard the petition filed by the respondent did not have a
Judicial Member. He further submits that the State Commission
functioning without a Judicial Member is contrary to the law
laid down by this Court in Union of India vs. R.Gandhi,
President, Madras Bar Association[2]. Learned senior counsel
elaborated that by virtue of Section 94(1), the State
Commission has been vested with the power of a Civil Court
under the Code of Civil Procedure. Under sub-section (2) of
Section 94, the State Commission has the power to issue interim
orders. Section 55 provides that all proceedings before the
State Commission shall be deemed to be judicial proceedings
within Sections 193 and 228 of the IPC. It is further provided
that appropriate commission shall be deemed to be a civil court
for the purpose of Sections 345 and 346 of the Code of Criminal
Procedure, 1903. (2 of 1974). By virtue of Section 146, the
State Commission has been empowered to impose punishment
including imprisonment, fine and additional fine. He further
emphasized that the State Commission in deciding a lis, between
the respondent and the appellant, discharged judicial functions
and exercised judicial power of the State. Such exercise of
judicial power can be either by the Civil Court or a Tribunal
having atleast one Judicial Member. The State Commission
exercises judicial functions of far reaching effect, therefore,
it must have essential trappings of a court. In support of this
submission, learned senior counsel relied on Kihoto Hollohan
vs. Zachillhu[3]. Subsequently, the appellant has submitted
additional written submission which can also be appropriately
noticed at this stage. It is submitted that the aforesaid
infirmity in the constitution of the State Commission can not
be cured on the basis that the Appellate Tribunal would always
be headed by either a sitting Judge/former Judge of the Supreme
Court or Chief Justice/former Chief Justice of a High Court as
well as having other Judicial Members. In support of this
submission, learned senior counsel relied on Institute of
Chartered Accountants of India vs. L.K.Ratna & Ors.[4] and
Union Carbide Corporation & Ors. vs. Union of India & Ors.[5].
Learned senior counsel submitted that an adjudication of a lis
by a tribunal without a judicial member would be an anathema to
judicial process. It would directly impinge on the impartiality
and the independence of the Judiciary. It would also undermine
the principle of separation of powers which is sought to be
strictly maintained by the Constitution of India. Mr. Nariman
emphasized that this Court carved out an exception to the rule
of necessarily having a Judicial Member of a Tribunal, only, in
the case of highly specialized fact - finding tribunals. In the
written submissions, the appellant has also relied upon
judgments of this Court in Brahm Dutt vs. Union of India[6],
S.P. Sampath Kumar vs. Union of India & Ors.[7]. It is further
submitted by Mr. Nariman that the disputes arising between the
generating company and a licensee are decided by the Commission
by holding meetings of the Members. In case the members of the
Commission are equally divided, the Presiding Member would have
the casting vote. Such procedure, submits Mr. R.F. Nariman, is
unknown to judicial proceedings.
21. Mr. Nariman then submitted that the Chairman of APTEL is
required under Section 113 of the Electricity Act to be a
person who is or has been a Judge of the Supreme Court or the
Chief Justice of a High Court. A person can also be appointed
as a Member of the Appellate Tribunal who is or has been or is
qualified to be a Judge of the High Court. This, according to
him, clearly shows that the adjudicatory functions performed by
the State Commission as well as the Appellate Tribunal are
judicial in nature and ought to be performed only by the
tribunal which has either a Chairman or a Member(s) who are or
were Judges of the Supreme Court or a High Court. Mr. Nariman
submitted that since the State Commission was not constituted
in accordance with law and the order having been passed without
any judicial member, is a nullity non-est in law. He submitted
that the proceedings of the Commission are coram non judice
and, therefore, liable to be set aside.
22. The next submission of Mr. Nariman is that the claim of the
respondent would have been held to be time barred on reference
to arbitration. The respondent made a money claim in the year
2009 for the alleged dues starting from the year 2001 onwards.
Therefore, had the dispute been referred to arbitration in
terms of dispute resolution clause, contained in Article 16 of
the PPA, the proceeding of the arbitral tribunal would be
governed by the Limitation Act, 1963. The State Commission has
erred in law in holding that by virtue of Section 2(4) of the
Arbitration Act, 1996, the applicability of Section 43 would be
excluded. This, according to Mr. Nariman, is one more reason
why the State Government ought not to have entertained the
money claim of the respondent and ought to have relegated the
parties to arbitration. In any event, the claim of the
respondent ought to have been dismissed for delay and laches.
He submits that even if the Limitation Act was not applicable,
the maximum period of time for filing a suit, in a Civil Court,
ought to be taken as a reasonable standard by which the issues
with regard to such delay and laches can be measured. In
support of this submission learned counsel relied on the
judgment of this Court in State of M.P. vs. Bhailal Bhai &
Ors.[8]. He made a reference to the observations made by this
Court at Para 273. Learned senior counsel also relied on
Municipal Corporation of greater Bombay vs. Bombay Tyres
International Ltd. & Ors.[9] and Corporation Bank & Anr. vs.
Navin J. Shah[10].
23. Mr. Nariman then submits that the “FIFO” method of adjustment
of payment was not available to the respondents. It is
submitted that the reliance placed on Sections 60 and 61 of the
Contract Act by the respondents is misconceived. He submits
that the respondents have wrongly claimed that they have been
adjusting the monthly payment made by the appellant not against
the monthly invoices but against the earlier pending bills. The
respondents are also wrongly claiming that the appellant had
been duly informed that the payments have been received on
“FIFO” basis. Mr. Nariman points out that the respondents are
wrongly relied on letters dated 25th June, 2001, 2nd December,
2003 and 10th September, 2001. According to Mr. Nariman, none
of three letters support the case of the respondents that the
appellant had either agreed to or acquiesced in the monthly
payments made by him within 5 business days of the presentation
of the monthly invoices being adjusted on the FIFO basis. Mr.
Nariman points out that the respondent’s own letter dated 20th
November, 2006 demolishes the case of respondent based on FIFO.
He further submits that if the parties are agreed to the FIFO
and had been acting on the same, as claimed by the respondents,
then there would have been no need for the respondents to write
letters dated 20th November, 2006 and 23rd April, 2007
regarding their objections to the disallowance made by the
appellant or seeking an explanation/clarification from the
appellant with respect to the payments made by the appellant
and referred to in the said letters. The respondent was well
aware that the appellant had been making the monthly payments
against the respective monthly invoices. Therefore, the
respondents can take no benefit of Sections 60 and 61 of the
Contract Act. Therefore, the impugned order passed by the State
Commission as well as APTEL being based on these two sections
are unsustainable.
24. It is further submitted by Mr. Nariman that the respondents
have failed to file annual invoices at the end of each year for
the years 2001-2006. The invoices for these years were filed
only on 18th July, 2007. This is in breach of Clause
10.2(b)(ii) of the PPA which required the respondents to submit
annual invoices setting of the details of the amounts owed
under the tariff and reconciliation of the actual amounts
receivable from the appellant for the prior year against the
sum of monthly estimated payments made by the appellant.
Similarly, if payments are due by the respondent to the
appellant, the stated amount has to be paid to the appellant
and vice versa. The State Commission rejected the explanation
given by the respondent for failure to submit the annual
invoices, but instead of dismissing the claim of the
respondents, a direction has been made to redraw the annual
invoices of each year as on 30th September of each year. Mr.
Nariman further points out that the respondent, upon redrawal
of the invoices, had agreed to refund/adjust a sum of Rs.45
crores, being the excess amount charged by the respondent from
the appellant. The said amount has not been paid till date.
25. Mr. Nariman points out that the only dispute between the
parties in the present litigation is only with regard to the
question as to whether the appellant was entitled to avail
rebate of 2.5 % on the part payment of the monthly invoice
within 5 business days from the date of the presentation of the
monthly invoice. It is submitted that in the initial petition
filed by the State Commission it was not the claim of the
respondent that the appellant wrongly availed rebate of 2.5%.
There were no pleadings to that effect. Therefore, the findings
and conclusions of the State Commission are liable to be set
aside. Mr. Nariman submits that if one reads the PPA as a
whole, it would become apparent that the payment of the full
invoice amount within 5 days of the date of raising of invoice
is not a pre-condition for seeking a rebate of 2.5% of the
invoice amount. Clause 10.2(a) does not make it a pre-condition
for payment of the full amount of invoice within 5 business
days in order to avail the rebate of 2.5%. Clause 10.2(b)(i)
indicates that the full amount is to be paid on the due date of
an invoice. Due date is defined in Article 10.2 (a) as 30 days
from the date of handing over of the invoice. Mr. Nariman
then submits that a conjoint reading of these clauses would
show that in order to be eligible for a rebate, at the rate of
2.5%, the payment has to be made on the 30th day of the
presentation of the invoice. Therefore, any payment made within
5 business days entitled the appellant to claim 2.5% rebate on
such payment. It is further submitted by Mr. Nariman that
rebate is nothing but refund of a part of the interest loaded
upfront on the Working Capital. The estimated monthly tariff
invoice has two components – (i) the fixed capacity charges
(FCC) and (ii) variable fuel charges (VFC). The rebate of 2.5 %
is allowed in view of the notification dated 30th March, 1992
issued by the Ministry of Power, Government of India, in
exercise of powers under sub-section (2) of Section 43 of the
Electricity Supply Act, 1948. The aforesaid notification has
been made part of the PPA as Schedule U thereof. Schedule A of
the PPA deals with Tariff. Interest on the receivable
equivalent to 2 months’ average billing for sale of electricity
is loaded upfront on the monthly invoice. Part of this is
refunded by way of rebate of 2.5 % if payment is made within 5
days and at 1% if it is made after 5 days but upto the 29th day
from the presentation of the monthly invoice. Interest of the
respondent upto the 30th day loaded upfront in the invoice.
Thereafter the interest of the respondent is protected from the
due date till payment is made in accordance with the Clause
10.6(e) of the PPA. Therefore, the appellant is entitled to
rebate if payment is made within 5 days or within 29th day of
the presentation of the invoice. Lastly, it is submitted by Mr.
Nariman that the appellant has been made the payment within 5
days only to avail rebate of 2.5%. One such payment was made,
the respondent had the use of money for a period of 25 days and
correspondingly the appellant had been deprived of the use of
such money for a period of 25 days every month. He submits that
absent the contract between the parties, the appellant would
have made the payment only on the 30th day and not within 5
days. In any event, 60 days of interest on the Working Capital
had already been loaded upfront. Only 30 days interest was
being returned in the form of rebate on the amount paid by the
appellant within 5 days. In order to make the payment within 5
days, the appellant often had to avail the loan. Out of Rs.240
crores, which the appellant has already paid to the respondent
under the Orders of the State Commission, almost Rs.235 crores
is rebate. The respondent is now claiming more than Rs.500
crores towards interest at compound rate on Rs. 240 crores paid
by the appellant, contrary to the provisions of the PPA. On
the basis of the above, he submits that allowing the claim of
the respondent for refund of the rebate amount would amount to
unjust enrichment. Further, the award of interest on the
aforesaid amount of rebate would amounts to double unjust
enrichment.
26. On the other hand, it is submitted by Mr. Harish Salve and Mr.
Jayant Bhushan learned senior counsel that orders passed by the
State Commission as well as the Appellate Tribunal are just and
proper and do not call for any interference. The appellant has
been granted instalments to make the payment of Rs. 240 crores.
It is also pointed out that the following order passed by the
State Commission in the independent legal proceeding relating
to fixation of capital cost on 15th July, 2013, the claim was
updated upto 20th August, 2013 for invoices raised till 30th
June, 2011, in a gross sum of Rs.695 crores. After giving
credit of Rs.145 crores (including interest computed at the
interest rates applicable to PPN) the net claim, subject-matter
of the present appeal, stands at Rs.550 crores.
27. With regard to the submission of the appellant relating to
Section 86(1)(f), it is submitted that the matter is no longer
res integra as it is squarely covered by the judgment of this
Court in Gujarat Urja Vikas Nigam Ltd. (supra). It is submitted
by Mr. Salve and Mr. Bhushan learned senior counsel appearing
for the respondent that Section 86(1)(f) gives the discretion
the State Commission either to adjudicate the disputes itself
or to refer the same to arbitration. By making detailed
reference to the findings recorded by APTEL, Mr. Salve and Mr.
Bhushan submit that all the issues raised by the appellant are
without any merit as it cannot be supported either in facts or
in law.
28. It is submitted by the learned senior counsel that even Article
16(2) provides for international arbitration under the ICC
Rules. Article 16.2(h) specifically excludes the application of
the Arbitration and Conciliation Act of 1996 and the
Arbitration Act of 1940. Article 16.2(e) provides that the laws
of England shall govern the arbitration agreement in contra-
distinction to Indian law applying to the PPA. In any event,
the appellant cannot be permitted to claim a reference of
arbitration as a matter of right. He points out that at the
initial stage, the appellant only referred to the existence of
an informal dispute resolution provision and provision for
arbitration under Article 16 of the PPA. Having taken such a
preliminary objection, the appellant proceeded to subject
itself to the jurisdiction of the State Commission. In fact the
entire claim of the respondent was answered by the appellant on
merit in the written statement, filed before the State
Commission. Even if the written submissions before the State
Commission, the appellant principally contended that the matter
ought to be referred to the adjudication by a civil court. The
appellant failed to make any application either under Section 8
or Section 45 of the Arbitration and Conciliation Act, 1996
seeking reference to arbitration. It is further pointed out
that this Court in Gujarat Urja Vikas Nigam Ltd. (supra) has
clearly laid down the law that the existence of an arbitration
clause in a contract does not act as an ouster of jurisdiction
of the jurisdictional forum. The appellant having submitted to
the jurisdiction of the State Commission and having invited the
findings cannot now seek to challenge the jurisdiction on the
ground of existence of arbitration clause. Mr. Salve and Mr.
Bhushan relied on the judgment of this Court in Svenska
Handelsbanken vs. Indian Charge Chrome Ltd. [11] and Booz Allen
& Hamilton Inc. vs. SBI Home Finance Ltd. [12]. It is further
submitted that the proceeding before the State Commission would
not be vitiated on the ground that its constitution is contrary
to the ratio of law laid down in the case of R. Gandhi (supra).
The appellant has not even raised a single ground of any
prejudice being caused by the absence of a judicial member
before the State Commission. In any event, the aforesaid
submission contradicts the appellant’s other submission that
the matter ought to have been referred to arbitration under the
Arbitration Act. There is no requirement that the arbitrator
should be a judicial person. Even in the absence of Electricity
Act, 2003 and the regulatory bodies contemplated therein, the
instant dispute would have been subject matter of an
arbitration proceeding as per the provision of the PPA and not
a civil suit in the civil court.
29. Answering the submission of the appellant that the respondent
has illegally adjusted the payments on the concept of FIFO. It
is submitted that the State Commission as well as the Appellate
Tribunal have correctly held that the procedure adopted by the
respondent is covered under Section 60 and 61 of the Contract
Act. Mr. Salve and Mr. Bhushan submit that admittedly the
appellant did not make full payment in relation to any of the
invoices. The State Commission as well as the Appellate
Tribunal have concurrent findings that the appellant was duly
notified that the payment/part payment made were being adjusted
on FIFO basis. The appellant never refuted or rejected to such
practice adopted by the respondent. The appellant submitted
that it was undergoing temporary financial strain. It is also
pointed out by Mr. Salve and Mr. Bhushan that the invoices were
accepted in full. The statement was made by the appellant that
part payment being made would not prejudice the right of
respondent to receive the full payment against the invoices.
The correspondence between the parties has been noticed by the
APTEL in extenso. Coming to the legal position, Mr. Salve and
Mr. Bhushan submit that APTEL having considered the statutory
provisions as well as judicial precedents have come to the
conclusion that the appellant was duly intimated that the
payment made would be applied by the respondents on FIFO basis.
Therefore, Section 59 of the Indian Contract Act would not be
applicable. On the issue of limitation, it is submitted that
neither the Limitation Act nor the principle of delay and
laches would apply to the present case. It is submitted by Mr.
Salve and Mr. Bhushan that the provision of Limitation Act,
1963 would not be applicable to the proceedings before the
State Commission. The Electricity Act, 2003 being a complete
code, which is self contained and comprehensive, the provision
of Limitation Act, 1963 would not apply. Mr. Salve and Mr.
Bhushan relied on the Consolidated Engineering Enterprises Vs.
Principal Secretary, Irrigation Department & Ors.[13] In
support of this submission, the Limitation Act would be
inapplicable to Tribunals and quasi-judicial authorities.
Replying to the submission of Mr. Nariman that in arbitration
proceedings, the appellant would be entitled to the benefit of
Limitation Act, 1963, Mr. Salve and Mr. Bhushan
submit that in view of the specific provisions contained in
Section 2(4) of the Arbitration and Conciliation Act, 1996,
Section 43 of the Arbitration Act would not be applicable. In
any event, the matter is squarely covered by the judgment in
Gujarat Urja (supra). Mr. Salve and Mr. Bhushan reiterated
that the issue of limitation does not even arise in the present
dispute due to the FIFO adjustment effected by the respondent.
30. Addressing the issue of the rebate being available to the
appellant, Mr. Salve and Mr. Bhushan submit that APTEL has
rendered detailed findings on the issue. The submissions made
before this Court is a repetition of the submissions made
before the APTEL. They submit that such findings recorded by
the APTEL can not be reopened in this Court except on the
ground that such findings are either arbitrary or based on no
evidence. In fact, the appellant has illegally arrogated to
itself the right to adjudicate, by unilaterally assuming
rights, which are not available to it. Rather than complying
with the requirements of the PPA of making payment within due
date, the appellant had disallowed certain payments on the
ground that the claims of the appellant were doubted. These
actions of the appellant were contrary to Articles 10.3 and
10.4 of the PPA which deals with Letter of Credit and Escrow.
Even if the claim of the appellant is accepted that the
invoices were only based on the estimates the appellant had no
authority of making unilateral deductions in the monthly
invoices and make only ad-hoc payments contrary to the
provisions of PPA. It is submitted that the monthly invoices
consists of both actual as also estimates in respect of certain
items. The annual invoices raised on the basis of a
reconciliation at the end of the year, since actuals become
known in respect of such portions of monthly invoices, which
were calculated on the basis of the estimates. Mr. Salve and
Mr. Bhushan then submit that interest on late payments have
been rightly granted both by the State Commission as well as
the APTEL. The interest has been calculated on the basis of
Article 10.6 of the PPA. Since the loans taken by the
respondent are payable at compounded interest rates, the later
payment interest payable by the appellant would also be at the
compounded interest rate as per Article 10.6 of the PPA. Mr.
Salve and Mr. Bhushan relied on the judgment of this Court in
Central Bank of India Vs. Ravindra & Ors.[14] and Indian
Council for Legal Action Vs. Union of India[15]
31. During the course of hearing, the appellant had taken out I.A.
No. 5 of 2013 and I.A. No. 6 of 2013. I.A. No. 6 is for the
impleadment and I.A. No. 5 is for the direction.
I.A. Nos. 5 and 6 of 2013
32. It is submitted by Mr. Salve and Mr. Bhushan that in I.A. No.
6, the appellant has made a prayer to implead IOCL as the
respondent. This application can not be allowed as IOCL is not
a party to the contract. The attempt to implead third party is
only an effort to delay the proceedings by the appellant. It
is pointed out that IOCL is either necessary or a proper party
for adjudication of the disputes arising between the appellant
and the respondents.
33. I.A. No. 5 of 2013, according to Mr. Salve and Mr. Bhushan has
been filed with the sole object of avoiding payments. The
appellant has made wild allegations of fraud without any
foundational facts being pleaded either before the State
Commission or before the APTEL. The appellant ought not to be
permitted to resolve such disputes. The application according
to Mr. Salve and Mr. Bhushan deserves to be dismissed.
34. We have considered the submissions made by the learned counsel
for the parties. In our opinion, the issues raised by the
appellant with regard to the constitution of the State
Commission and its discretion to either adjudicate or refer a
particular dispute to arbitration is no longer res integra.
Therefore, even though, Mr. Nariman has very forcefully
contended that the issue ought to be reconsidered, we are not
inclined to adopt such a course. In our opinion, this Court has
comprehensively addressed all the issues, on the scope and
ambit of Section 86 in general and Section 86(1)(f) in
particular of the Act. We are also not inclined to accept the
submission that since the appellant had made a request for a
reference of the dispute to arbitration, the State Commission
ought to have made the reference. We are also not able to
accept the submission of Mr. Nariman that the State Commission
was dealing with only a pure and simple money claim. We also
do not find much substance in the submission that the issues
having been raised being complex and intricate ought to have
been left to be decided either by the Arbitral Tribunal or by
the Civil Court. APTEL in the impugned order, in our opinion,
has correctly culled out the ratio of the judgment of this
Court in Gujarat Urja (supra). It is also correctly held that
the appellant can not dictate that the State Commission ought
to have referred the dispute to arbitration.
35. In the aforesaid judgment, the question that arose before this
Court was whether the application for appointment of an
arbitrator under Section 11 of the Arbitration and Conciliation
Act, 1996 was maintainable in view of the statutory provisions
contained in the Electricity Act, 2003.
36. It was submitted on behalf of the appellant (licensee) that by
Virtue of Section 86(1)(f) of the Act of 2003, the dispute
between the licensees and the generating companies can only be
adjudicated upon by the State Commission either by itself or by
an arbitrator to whom the Commission refers the dispute.
Therefore, the High Court had no jurisdiction under Section
11(6) to refer the dispute between the licensees and the
generating company to an arbitrator, since such power of
adjudication of reference has been specifically vested in the
State Commission. Since the Electricity Act is a special law,
dealing with arbitrations of dispute between the licensees and
the generating companies, the provision of Section 11 of the
Arbitration and Conciliation Act would be inapplicable. The
High Court has, therefore, committed an error of jurisdiction
in allowing the application under Section 11(6) and referring
the matter to arbitration to a Former Chief Justice of India.
On the other hand, it was submitted on behalf of the generating
companies that the provisions of the Electricity Act are in
addition to and not in derogation of any other law for the time
being in force. The provisions contained in Sections 173 and
174 would not affect the applicability of the Arbitration Act,
1996, in view of the provisions contained in Section 175 of the
Electricity Act. Upon consideration of the aforesaid
submission, this Court has held as follows:-
“26. It may be noted that Section 86(1)(f) of the Act of 2003 is
a special provision for adjudication of disputes between the
licensee and the generating companies. Such disputes can be
adjudicated upon either by the State Commission or the person or
persons to whom 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 well settled that sometimes “and” can mean “or” and
sometimes “or” can mean “and” (vide G.P. Singh’s Principles of
Statutory Interpretation, 9th Edn., 2004, p. 404).
27. In our opinion in Section 86(1)(f) of the Electricity Act,
2003 the word “and” between the words “generating companies” and
the words “refer any dispute” means “or”, otherwise it will lead
to an anomalous situation because obviously the State Commission
cannot both decide a dispute itself and also refer it to some
arbitrator. Hence the word “and” in Section 86(1)(f) means “or”.
28. Section 86(1)(f) is a special provision and hence will
override the general provision in Section 11 of the Arbitration
and Conciliation Act, 1996 for arbitration of disputes between
the licensee and generating companies. It is well settled that
the special law overrides the general law. Hence, in our
opinion, Section 11 of the Arbitration and Conciliation Act,
1996 has no application to the question who can
adjudicate/arbitrate disputes between licensees and generating
companies, and only Section 86(1)(f) shall apply in such a
situation.
37. This Court also negated the submission that the provision
contained in Section 86(1)(f) would be violative of Article 14
(See Para 30-31).
38. Considering the provisions contained in Sections 173, 174 and
175 of the Electricity Act, this Court observed that since
Section 86(1)(f) provides a special manner of making reference
to an arbitrator in disputes between a licensee and a
generating company, by implication all other methods are
barred. Considering the applicability of Sections 174 and 175,
this Court has held that Section 174 would prevail over Section
175 in matters where the where there is any conflict (but no
further). In our opinion, the observations made by this Court
in Paragraphs 59 and 60 are a complete answer to the
submissions of Mr. Nariman that upon an application being made,
the State Commission was bound to refer the matter to
arbitration.
39. Section 86(1)(f) specifically confers jurisdiction on the State
Commission to refer the dispute. Undoubtedly, the Commission
is required to exercise its discretion reasonably and not
arbitrarily. In the present case, the State Commission upon
consideration of the entire matter has exercised its
discretion. However, in our opinion, the APTEL ought not to
have brushed aside the submissions of the appellant with the
observation that the State Commission having exercised its
discretion, the issue need not be investigated by the APTEL.
It would always be open to APTEL to examine as to whether the
State Commission has exercised the discretion with regard to
the question whether the dispute ought to have been referred to
arbitration, in accordance with the well known norms for
exercising such discretion. APTEL exercises jurisdiction over
the State Commission by way of a First Appeal. Therefore, it is
the bounden duty of the Appellate Tribunal to examine as to
whether all the decisions rendered by the State Commission
suffer from the vice of arbitrariness, unreasonableness or
perversity. This would be apart from examining as to whether
the State Commission has exercised powers in accordance with
the statutory provisions contained in Electricity Act, 2003.
Having said this, we are not inclined to interfere with the
conclusions reached by APTEL, as in our opinion, the
jurisdiction has not been exercised by the State Commission
arbitrarily, whimsically or against the statutory provisions.
40. We, however, find substance in the submission of Mr.
Nariman that adjudicatory functions generally ought not to be
conducted by the State Commission in the absence of a Judicial
Member. Especially in relation to disputes which are not fairly
relative to tariff fixation or the advisory and recommendatory
functions of the State Commission.
41. A Constitution Bench of this Court in Kihoto Hollohan (supra)
has examined the nature of the power of the Speaker or the
Chairman under paragraph 6(1) of the Tenth Schedule of the
Constitution of India which contains “PROVISIONS AS TO
DISQUALIFICATION ON GROUND OF DEFECTION” of a Member of either
House of Parliament. Upon consideration of the entire matter,
it was observed as follows :
“95. In the present case, the power to decide disputed
disqualification under Paragraph 6(1) is pre-eminently of a
judicial complexion.”
42. The Constitution Bench relied on the earlier judgment of this
Court in Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala[16].
In that case, Hidayatullah, J. said
“… By ‘courts’ is meant courts of civil judicature and by
‘tribunals’, those bodies of men who are appointed to decide
controversies arising under certain special laws. Among the
powers of the State is included the power to decide such
controversies. This is undoubtedly one of the attributes of the
State, and is aptly called the judicial power of the State. In
the exercise of this power, a clear division is thus noticeable.
Broadly speaking, certain special matters go before tribunals,
and the residue goes before the ordinary courts of civil
judicature. Their procedures may differ but the functions are
not essentially different. What distinguishes them has never
been successfully established. Lord Stamp said that the real
distinction is that the courts have ‘an air of detachment’. But
this is more a matter of age and tradition and is not of the
essence. Many tribunals, in recent years, have acquitted
themselves so well and with such detachment as to make this test
insufficient.”
Again in para 99, it is observed as follows :
“99. Where there is a lis — an affirmation by one party and
denial by another — and the dispute necessarily involves a
decision on the rights and obligations of the parties to it and
the authority is called upon to decide it, there is an exercise
of judicial power. That authority is called a Tribunal, if it
does not have all the trappings of a Court. In Associated Cement
Companies Ltd. v. P.N. Sharma36 this Court said: (SCR pp. 386-
87)
“… The main and the basic test however, is whether the
adjudicating power which a particular authority is empowered to
exercise, has been conferred on it by a statute and can be
described as a part of the State’s inherent power exercised in
discharging its judicial function. Applying this test, there can
be no doubt that the power which the State Government exercises
under Rule 6(5) and Rule 6(6) is a part of the State’s judicial
power…. There is, in that sense, a lis; there is affirmation by
one party and denial by another, and the dispute necessarily
involves the rights and obligations of the parties to it. The
order which the State Government ultimately passes is described
as its decision and it is made final and binding.”
43. In view of the aforesaid categorical statement of law, we would
accept the submission of Mr. Nariman that the tribunal such as the
State Commission in deciding a lis, between the appellant and the
respondent discharges judicial functions and exercises judicial power
to the State. It exercises judicial functions of far reaching effect.
Therefore, in our opinion, Mr. Nariman is correct in his
submission that it must have essential trapping of the court. This can
only be achieved by the presence of one or more judicial members in
the State Commission which is called upon to decide complicated
contractual or civil issues which would normally have been decided by
a Civil Court. Not only the decisions of the State Commission have far
reaching consequences, they are final and binding between the parties,
subject, of course, to judicial review.
44. As noticed earlier, Section 84(2) enables the State Government to
appoint any person as the Chairperson from amongst persons who is, or
has been, a Judge of a High Court. Such appointment shall be made
after consultation with the Chief Justice of the High Court. The
provision contained in Section 84(2) is notwithstanding the provision
contained in Section 84(1). In our opinion, the State Government ought
to have exercised its power under sub-section (2) to appoint one or
more Judicial Members on the State Commission especially when
complicated issues are raised involving essentially civil and
contractual matters. A Constitution Bench of this Court in the case of
R.Gandhi (supra) recognized that :
“87. ………..that the legislature has the power to create tribunals
with reference to specific enactments and confer jurisdiction on
them to decide disputes in regard to matters arising from such
special enactments. Therefore it cannot be said that legislature
has no power to transfer judicial functions traditionally
performed by courts to tribunals.”
“90. But when we say that the legislature has the competence to
make laws, providing which disputes will be decided by courts,
and which disputes will be decided by tribunals, it is subject
to constitutional limitations, without encroaching upon the
independence of the judiciary and keeping in view the principles
of the rule of law and separation of powers. If tribunals are to
be vested with judicial power hitherto vested in or exercised by
courts, such tribunals should possess the independence, security
and capacity associated with courts. If the tribunals are
intended to serve an area which requires specialised knowledge
or expertise, no doubt there can be technical members in
addition to judicial members………….”
45. Keeping in view the aforesaid observations of this Court, in our
opinion, the State of Tamil Nadu ought to make necessary appointments
in terms of Section 84(2) of the Act. We have been informed that till
date no judicial Member has been appointed in the Tamil Nadu State
Commission. We are of the opinion that the matter needs to be
considered, with some urgency, by the appropriate State authorities
about the desirability and feasibility for making appointments, of any
person, as the Chairperson from amongst persons who is, or has been, a
Judge of a High Court.
46. We have noticed earlier that Section 113 of the Act mandates that
the Chairman of APTEL shall be a person who is or has been a Judge of
the Supreme Court or the Chief Justice of a High Court. A person can
be appointed as the Member of the Appellate Tribunal who is or has
been or is qualified to be a Judge of a High Court. This would
clearly show that the legislature was aware that the functions
performed by the State Commission as well as the Appellate Tribunal
are judicial in nature. Necessary provision has been made in Section
113 to ensure that the APTEL has the trapping of a court. This
essential feature has not been made mandatory under Section 84
although provision has been made in Section 84(2) for appointment of
any person as the Chairperson from amongst persons who is or has been
a Judge of a High Court. In our opinion, it would be advisable for the
State Government to exercise the enabling power under Section 84(2) to
make appointment of a person who is or has been a Judge of a High
Court as Chairperson of the State Commission.
47. These observations, however, do not in any manner affect the
jurisdiction exercised by the State Commission in the present matter.
It has been rightly pointed out by the respondent that having filed
the written statement in reply to the petition filed by the
respondent, the appellant willingly participated in the proceedings
and invited the findings recorded by the State Commission. It would be
too late in the day, to interfere with the jurisdiction exercised by
the State Commission in these proceedings.
48. The next submission of Mr. Nariman is that the claim of the
respondents would have been held to be time barred on reference to
arbitration. We are not able to accept the aforesaid submission of Mr.
Nariman. On the facts of this case, in our opinion, the principle of
delay and laches would not apply, by virtue of the adjustment of
payments being made on FIFO basis. The procedure adopted by the
respondent, as observed by the State Commission as well as by the
APTEL, would be covered under Sections 60 and 61 of the Contract Act.
APTEL, upon a detailed consideration of the correspondence between the
parties, has confirmed the findings of fact recorded by the State
Commission that the appellant had been only making part payment of the
invoices. During the course of the hearing, Mr. Salve has pointed out
that the payment of entire invoices was to be made each time which was
never adhered to by the appellant. Therefore, the respondents were
constrained to adopt FIFO method. Learned senior counsel also pointed
out that there was no complaint or objection ever raised by the
appellant. The objection to the method adopted by the respondents on
the method of FIFO, was only raised in the counter affidavit to the
petition filed by the appellant before the State Commission. According
to learned senior counsel, the plea is an afterthought and has been
rightly rejected by the State Commission as well as the APTEL. We also
have no hesitation in rejecting the submission of Mr. Nariman on this
issue. In any event, the Limitation Act is inapplicable to proceeding
before the State Commission.
49. The submission of the appellant that the Limitation Act would be
available in case the reference was to be made to arbitration, in our
opinion, is also without merit. Firstly, the State Commission
exercised its jurisdiction to decide the dispute itself. The matter
was not referred to arbitration, therefore, the Limitation act would
not be applicable. Secondly, Section 43 of the Arbitration and
Conciliation Act would not be applicable even if the matter was
referred to arbitration by virtue of Section 2(4) of the Arbitration
Act, 1996. Section 2(4) of the Arbitration Act reads as under :
“This part except sub-section (1) of section 40, sections 41 and
43 shall apply to every arbitration under any other enactment
for the time being in force, as if the arbitration were pursuant
to an arbitration agreement and as if that other enactment were
an arbitration agreement, except in so far as the provisions of
this Part are inconsistent with that other enactment or with any
rules made thereunder.”
50. By virtue of the aforesaid provision, the provision with regard
to the Limitation Act under Section 43 would not be applicable, to
statutory arbitrations conducted under the Electricity Act, 2003. We
are unable to accept the submission of Mr. Nariman that the State
Commission failed to exercise its discretion by not making a reference
to arbitration and the request made by the appellant. Such a
submission cannot be countenanced in the particular facts of this
case. Having taken the plea that the matter ought to be referred to
arbitration, the appellant chose to contest the claim of the
respondent on merits and filed the written statement before the State
Commission. Not only this, the appellant participated in the entire
proceedings and invited the findings on merits. Therefore, the
appellant cannot now be permitted to raise such a plea. This view of
ours will find support in two earlier judgments of this Court. In
Svenska Handelsbanken (supra) it has been observed as follows:
“53. It may be that even after entering into an arbitration
clause any party may institute legal proceedings. It is for the
other party to seek stay of the suit by showing the arbitration
clause and satisfying the terms of the provisions of law
empowering the court to stay the suit……..”
Admittedly, in this case the appellant did not file any
application under Section 8 or Section 45 of the Arbitration Act,
1996. No prayer for stay of the proceedings was filed.
51. In the case of Booz Allen & Hamilton Inc.(supra) this Court
observed a follows:
“29. Though Section 8 does not prescribe any time-limit for
filing an application under that section, and only states that
the application under Section 8 of the Act should be filed
before submission of the first statement [pic]on the substance
of the dispute, the scheme of the Act and the provisions of the
section clearly indicate that the application thereunder should
be made at the earliest. Obviously, a party who willingly
participates in the proceedings in the suit and subjects himself
to the jurisdiction of the court cannot subsequently turn around
and say that the parties should be referred to arbitration in
view of the existence of an arbitration agreement. Whether a
party has waived his right to seek arbitration and subjected
himself to the jurisdiction of the court, depends upon the
conduct of such party in the suit.”
These observations are squarely applicable to the facts in this
case.
52. Even if the reference had been made under Article 16 of the
PPA, the applicability of the Arbitration Act, 1996 and the
Arbitration Act of 1940 have been specifically excepted under Article
16(2)(h). In the earlier part of the judgment, we have noticed that
Article 16 indeed provides for informal resolution of disputes by way
of arbitration. However, Article 16(2) mandates that the arbitration
shall be conducted in accordance with the ICC Rules. Under those
rules, ICC Court of arbitration is to make the appointment of the
Arbitral Tribunal. To make the matters worst for the appellant, it
has been provided in Article 16.2(e) that the seat of the arbitration
shall be in London. This fact alone would make Part I of the
Arbitration Act, 1996 inapplicable to the arbitration proceedings.
There is a further provision that notwithstanding Article 17(8), the
laws of England shall govern the validity, interpretation,
construction, performance and the enforcement of the provision
contained in Article 16(2). Clearly then, the applicability of
Arbitration Act, 1996 is totally ruled out by the parties. This Court
in Bhatia International vs. Bulk Trading S.A. & Anr.[17] has clearly
held that the parties are at liberty by agreement to opt out of any or
all the provisions of 1996 Act. It would be useful to make a reference
to the observations made by this Court in paragraph 21 and 32 which
are as follows:
“21. The legislature is emphasising that the provisions of Part
I would apply to arbitrations which take place in India, but not
providing that the provisions of Part I will not apply to
arbitrations which take place out of India. The wording of sub-
section (2) of Section 2 suggests that the intention of the
legislature was to make provisions of Part I compulsorily
applicable to an arbitration, including an international
commercial arbitration, which takes place in India. Parties
cannot, by agreement, override or exclude the non-derogable
provisions of Part I in such arbitrations. By omitting to
provide that Part I will not apply to international commercial
arbitrations which take place outside India the effect would be
that Part I would also apply to international commercial
arbitrations held out of India. But by not specifically
providing that the provisions of Part I apply to international
commercial arbitrations held out of India, the intention of the
legislature appears to be to ally (sic allow) parties to provide
by agreement that Part I or any provision therein will not
apply. Thus in respect of arbitrations which take place outside
India even the non-derogable provisions of Part I can be
excluded. Such an agreement may be express or implied.”
“32. To conclude, we hold that the provisions of Part I would
apply to all arbitrations and to all proceedings relating
thereto. Where such arbitration is held in India the provisions
of Part I would compulsorily apply and parties are free to
deviate only to the extent permitted by the derogable provisions
of Part I. In cases of international commercial arbitrations
held out of India provisions of Part I would apply unless the
parties by agreement, express or implied, exclude all or any of
its provisions. In that case the laws or rules chosen by the
parties would prevail. Any provision, in Part I, which is
contrary to or excluded by that law or rules will not apply.”
The aforesaid observations will be fully applicable to the facts
and circumstances of this case as the agreement is prior to 6th
September, 2012. The declaration of law in Bharat Aluminium Company
vs. Kaisar Aluminium Technical Services Inc.[18] that Part I of the
arbitration would not be applicable to International Commercial
Arbitration outside India applies to the Arbitration Agreements
executed after 6th September, 2012. Though by virtue of the
provisions contained in Article 16 of the PPA, the legal effect
remains the same, that is applicability of 1996 Act is ruled out,
therefore, the appellant cannot claim the benefit of Section 43 of the
Arbitration Act, 1996.
53. We also do not find any merit in the submission of Mr.
Nariman that the appellants have wrongly adopted the system of FIFO
for adjustment of the payments made by the appellant. The State
Commission as well as the APTEL having considered the matter in
detail, we are inclined to accept the submission of Mr. Salve and Mr.
Bhushan that it would not be appropriate to re-examine the issue in
these proceedings. Under Section 125 of the Electricity Act, 2003, the
appeal lies in the Supreme Court on any one or more of the grounds
specified in Section 100 of the Code of Civil Procedure, 1908.
Therefore, unless the court is satisfied that the findings of fact
recorded by the State Commission are perverse, irrational and based on
no evidence, it would not interfere. The findings recorded by the
State Commission and APTEL would not give rise to a substantial
question of law. In any event, the appellant never refuted or rejected
the practice adopted by the respondent. Rather the appellant claimed
that it was under temporary financial strain and, therefore, requested
to make only part payment. The invoices having been accepted in full,
the appellant unilaterally withheld some of the payments on the ground
that the claims were disputed. Under Article 10 of the PPA, the
appellant was required to make the payment for the entire invoice and,
thereafter, raise the dispute. The appellant had been duly informed
that the part payments made would be adjusted by the respondents under
the FIFO system. It has been correctly held that in such
circumstances, Section 59 of the Contract Act would not be applicable.
We see no reason to interfere with the conclusions reached by the
APTEL.
54. The real dispute between the parties seems to be on the question
whether the appellant was entitled to avail 2.5% rebate on part
payment of the monthly invoices within 5 business days. We have
noticed earlier that it was a pre- condition under Article 10 that the
payment of the monthly invoice had to be made in full. In addressing
the issue of rebate, APTEL has come to the conclusion that merely
because substantial payment had been made in relation to monthly
invoices would not entitle the appellant to claim the rebate of 2.5%
on the invoice amount. We see no reason to interfere with the findings
recorded by the APTEL. Under Article 10.2(b)(i), the payments have to
be made in full for every invoice by due date. Under Article 10.2(e),
the payment had to be made in full when due even if the entire portion
or a portion of the invoice is disputed. Under Article 10.3(a) to (c)
of the PPA, Letter of Credit is to be established covering three
months estimated billing, one month prior to Commercial Operation
Date. Under Article 10.3 (d) of the PPA, an Escrow Account is to be
established by the appellant in favour of the Power Company into which
collections from designated circles are to flow in and be available as
collateral security. Under Article 10.4, the Government of Tamil Nadu
has guaranteed all of the financial obligations of the appellant.
Under Article 10.2 (e) of the PPA agreement, the right to dispute any
invoice by the appellant is limited to one year from due date of such
invoice. Thus it would be evident that even if the amount of invoice
is disputed, the appellant is obliged to make full payments of the
invoice when due and then raise the dispute. Undoubtedly, early
payment is encouraged by offering rebate of 2.5% if paid within 5 days
of the date of the invoice. Similarly, 1% rebate would be available if
the payment of the entire invoice is made within 30 days. The rebate
is in the form of incentive and is an exception to the general rule
requiring payment in full on due date. Therefore, in our opinion, the
appellant had no legal right to claim rebate at the rate of 2.5% not
having paid the entire invoice amount within 5 days. Similarly, the
appellant would be entitled to 1% rebate if payment is made within 30
days of the invoice. We are of the opinion that the findings of APTEL
on this issue do not call for any interference.
55. In fact, in our opinion, the appellant has illegally arrogated
to itself the right to adjudicate by unilaterally assuming the
jurisdiction not available to it. It was required to comply with
Article 10 of the PPA which provides for Compensation Payment and
Billing. We are also not able to accept the submission of Mr. Nariman
that invoices could not be paid in full as they were only estimated
invoices. It is true that reconciliation is to be done annually but
the payment is to be made on monthly basis. This cannot even be
disputed by the appellant in the face of its claim for rebate at the
rate of 2.5% for having made part payment of the invoice amount within
5 days. We also do not find any merit in the submission that any
prejudice has been caused to the appellant by the delayed submission
of annual invoice by the respondents. Pursuant to the directions
issued by the State Commission, the monthly invoice and annual invoice
for the respective years have been redrawn as on 30th September each
year. Therefore, the benefit of interest has been given on such annual
invoices. With regard to the issue raised about the interest on late
payment, APTEL has considered the entire matter and come to the
conclusion that interest is payable on compound rate basis in terms of
Article 10.6 of the PPA. In coming to the aforesaid conclusion, APTEL
has relied on a judgment of this Court in Central Bank of India vs.
Ravindra & Ors. [19]. In this judgment it has been held as follows:
“………The essence of interest in the opinion of Lord Wright, in
Riches v. Westminster Bank Ltd.All ER at p. 472 is that it is a
payment which becomes due because the creditor has not had his
money at the due date. It may be regarded either as representing
the profit he might have made if he had had the use of the
money, or, conversely, the loss he suffered because he had not
that use. The general idea is that he is entitled to
compensation for the deprivation; the money due to the creditor
was not paid, or, in other words, was withheld from him by the
debtor after the time when payment should have been made, in
breach of his legal rights, and interest was a compensation
whether the compensation was liquidated under an agreement or
statute. A Division Bench of the High Court of Punjab speaking
through Tek Chand, J. in CIT v. Dr Sham Lal Narula thus
articulated the concept of interest the words ‘interest’ and
‘compensation’ are sometimes used interchangeably and on other
occasions they have distinct connotation. ‘Interest’ in general
terms is the return or compensation for the use or retention by
one person of a sum of money belonging to or owed to another. In
its narrow sense, ‘interest’ is understood to mean the amount
which one has contracted to pay for use of borrowed money. … In
whatever category ‘interest’ in a particular case may be put, it
is a consideration paid either for the use of money or for
forbearance in demanding it, after it has fallen due, and thus,
it is a charge for the use or forbearance of money. In this
sense, it is a compensation allowed by law or fixed by parties,
or permitted by custom or usage, for use of money, belonging to
another, or for the delay in paying money after it has become
payable.”
56. Similar observations have been made by this Court in Indian
Council of Enviro-Legal Action vs. Union of India & Ors. [20] wherein
it has been held as follows:
“178. To do complete justice, prevent wrongs, remove incentive
for wrongdoing or delay, and to implement in practical terms the
concepts of time value of money, restitution and unjust
enrichment noted above—or to simply levelise—a convenient
approach is calculating interest. But here interest has to be
calculated on compound basis—and not simple—for the latter
leaves much uncalled for benefits in the hands of the wrongdoer.
179. Further, a related concept of inflation is also to be
kept in mind and the concept of compound interest takes into
account, by reason of prevailing rates, both these factors i.e.
use of the money and the inflationary trends, as the market
forces and predictions work out.
180. Some of our statute law provide only for simple interest
and not compound interest. In those situations, the courts are
helpless and it is a matter of law reform which the Law
Commission must take note and more so, because the serious
effect it has on the administration of justice. However,
[pic]the power of the Court to order compound interest by way of
restitution is not fettered in any way. We request the Law
Commission to consider and recommend necessary amendments in
relevant laws.”
57. The late payment clause only captures the principle that a
person denied the benefit of money, that ought to have been paid on
due dates should get compensated on the same basis as his bank would
charge him for funds lent together with a deterrent of 0.5% in order
to prevent delays. It is submitted by Mr. Salve and Mr. Bhushan that
bankers of the respondents have applied quarterly compounding or
monthly compounding for cash credits during different periods on the
basis of RBI norms. Article 10.6 of the PPA has followed the norms of
the bank. This can not be said to be unfair as the same principle
would also apply to the appellants.
58. This now bring us to applications for impleadment of IOCL and
for direction. I.A.No.6 of 2013 is for the impleadment of IOCL. It is
submitted that during the pendency of these proceedings, the
respondents have received rebates, discounts, credits, refunds in the
fuel price being extended by fuel supplier i.e. Indian Oil Corporation
Ltd. (IOCL). Such benefits have been received by the respondent from
January 2001 till date It is pleaded that the respondents have failed
to give details about the discounts and credits received the benefit
of which ought to have been passed on to the appellant. Therefore,
IOCL be made parties to respondent No.2 to the present appeal.
I.A.No.5 of 2013 seeks direction to IOCL to furnish details of all the
documents of the matter. Further directions are also sought on the
respondent to refund a sum of Rs.240 crores paid by the appellant
under the order passed by the State Commission along with interest at
the rate as mentioned in PPA.
59. The respondents in a common counter statement to the applications
have submitted that the applications are not maintainable. The
applications have been evidently preferred purely as dilatory tactics,
to delay and deny substantial payments that are due and payable to the
respondent pursuant to the orders passed by the State Commission which
have been upheld by APTEL. We are not inclined to entertain either of
the applications at this stage. The issue sought to be raised in both
the applications ought to have been raised by the appellant at the
relevant time. The applications are, therefore, accordingly dismissed.
60. For the foregoing reasons, we see no merit in the appeal and the
same is accordingly dismissed.
…………………………….J.
[Surinder Singh Nijjar]
……………………………J.
[A.K.Sikri]
New Delhi;
April 04, 2014.
-----------------------
[1] (2008) 4 SCC 755
[2] (2010 (11) SCC 1)
[3] (1992 Supp.(2) SCC 651)
[4] (1986 ) 4 SCC 537
[5] (1991) 4 SCC 584
[6] (2005) (2) SCC 431
[7] (1987) (1) SCC 124
[8] (1964 (6) SCR 261
[9] 1998 (4) SCC 100 (at page 104 para 9)
[10] 2000 (2) SCC 628 (at page 635 para 12)
[11] 1994 (2) SCC 155
[12] 2011 (5) SCC 532
[13] (2008) 7 SCC 169
[14] (2002) 1 SCC 367
[15] (2011) 8 SCC 161
[16] 1962 (2) SCR 339
[17] 2002 (4) SCC 105
[18] 2012 (9) SCC 552
[19] 2002 (1) SCC 367
[20] 2011 (8) SCC 161
-----------------------
70
The balance was carried forward by the respondent.
Since June, 2001, the appellant had been making payments as
noticed above, and the respondent had been adjusting the same
on a “FIFO” basis.
The appellant claims that the monthly
invoices raised by the respondent were only estimated invoices.
On the other hand, the respondent claims that the appellant,
from inception only made adhoc payments periodically against
the monthly invoices raised.
Therefore, each side is claiming
that the other did not provide any details with regard to the
amounts due and the amounts paid. It is also the claim of the
respondent that the appellant had unilaterally made several
disallowances without informing the respondent of the same.
4. It appears that both the parties were dissatisfied with
accounting details provided by the other. Ultimately, the
respondent issued a notice of dispute resolution on 26th April,
2007 and appointed its Vice President, Shri B. Sundaramurthy as
the representative.
Continuous correspondence was exchanged
between the parties from August, 2007 to March, 2009. On 1st
April, 2009, respondent sent a Notice to the appellant in terms
of Article 16 of the PPA claiming amounts due/overdue from the
appellant and interest on late payments.
The Notice gives a
summary of claims of the respondent till 30th March, 2009 other
than towards specified taxes, which was stated to be subjudice,
and, therefore, not included therein.
The balance of amount
payable, according to the respondent was Rs.1,787,272,534.
The appellant in reply informed the respondent on 16th April,
2009 that the matter was under scrutiny and examination.
Since, there was no response, the respondent sent a reminder.
Instead of making the payment of the amounts claimed, the
appellant issued letter dated 4/5th May, 2009 claiming that
according to its accounts, sum of Rs.31.12 crores was due to
the appellant.
On 8th May, 2009, the respondent requested the
appellant “to provide the particulars and details forming the
basis of your claim before 15th May, 2009.”
The respondent
also requested the appellant to fix a meeting on or before 19th
May, 2009 to discuss the issues and resolve the same. A
meeting took place on 19th May, 2009 but the dispute was not
resolved.
Since the dispute was not resolved, the respondent filed the
petition – D.R.P. No. 12 of 2009 before the State commission,
seeking a direction to the appellant to make a payment of sum
of Rs. 1,89,91,17,264 being a sum due as on 19th March, 2009,
under the invoices raised under the PPA and interest thereon in
terms of Article 10.6 of the PPA from the due date till the
date of actual payment. =
Upon completion of the pleadings and after hearing the parties,
the State Commission by an order dated 17th June, 2011, allowed
the petition filed by the respondent for refund of the excess
rebate availed by the appellant contrary to the terms of PPA
and also ordered the respondent to redraw the monthly invoices
in accordance with the directions issued by the State
Commission.
The State Commission held that it is competent to adjudicate upon the dispute.
The limitation period prescribed
in the Limitation Act, 1963 would not apply to the proceeding
before the Commission, delay and laches would apply. The
appellant is liable to pay interest to the respondent in terms
of Clause 10.6 of the PPA till payment.
Conversely, if the
appellant has made excess payment against each monthly invoice
compared to the corresponding redrawn monthly invoice, the
respondent is liable to pay interest in terms of Article 10.6
of the PPA.
The rebate would be admissible to the appellant,
if the redrawn monthly invoice and the original payment made by
the appellant against the invoice of that month matches or if
the appellant has made excess payment, the respondents were
directed to redraw the annual invoice for 2001-2002, 2002-2003,
2003-2004, 2004-2005, 2005-2006 and 2006-2007, as at September
of each year to capture the gains to the appellant on account
of lower interest rates and gains to the respondent on account
of higher floating rate.
Certain other directions were also issued. The petition was accordingly disposed of.=
This statutory appeal under Section 125 of the Electricity Act,
2003 (hereinafter referred to as the “Act”) is directed against the
final judgment and order dated 22nd February, 2013 passed by the
Appellate Tribunal for Electricity (hereinafter referred to as
“APTEL” or “Appellate Tribunal”), at New Delhi in Appeal No. 176 of
2011, whereby it has dismissed the appeal preferred by the
appellant against the final judgment and order dated 17th June,
2011 of Tamil Nadu Electricity Regulatory Commission (hereinafter
referred to as the “State Commission”) in D.R.P. No. 12 of 2009.
The facts have been noticed in detail both by the State Commission
and the APTEL, therefore, we shall make a reference only to the
very essential facts necessary for deciding this appeal.=
It is
submitted that during the pendency of these proceedings, the
respondents have received rebates, discounts, credits, refunds in the
fuel price being extended by fuel supplier i.e. Indian Oil Corporation
Ltd. (IOCL).
Such benefits have been received by the respondent from
January 2001 till date It is pleaded that the respondents have failed
to give details about the discounts and credits received the benefit
of which ought to have been passed on to the appellant.
Therefore,
IOCL be made parties to respondent No.2 to the present appeal.
I.A.No.5 of 2013 seeks direction to IOCL to furnish details of all the
documents of the matter.
Further directions are also sought on the
respondent to refund a sum of Rs.240 crores paid by the appellant
under the order passed by the State Commission along with interest at
the rate as mentioned in PPA.
The
applications have been evidently preferred purely as dilatory tactics,
to delay and deny substantial payments that are due and payable to the
respondent pursuant to the orders passed by the State Commission which
have been upheld by APTEL.
We are not inclined to entertain either of
the applications at this stage. The issue sought to be raised in both
the applications ought to have been raised by the appellant at the
relevant time. The applications are, therefore, accordingly dismissed.
2014 ( Apr.Part ) judis.nic.in/supremecourt/filename=41381 SURINDER SINGH NIJJAR, A.K. SIKRI
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4126 OF 2013
T.N. Generation & Distbn. Corpn. Ltd. …Appellant
VERSUS
PPN power Gen. Co. Pvt. Ltd. ...Respondent
J U D G M E N T
SURINDER SINGH NIJJAR, J.
1. This statutory appeal under Section 125 of the Electricity Act,
2003 (hereinafter referred to as the “Act”) is directed against the
final judgment and order dated 22nd February, 2013 passed by the
Appellate Tribunal for Electricity (hereinafter referred to as
“APTEL” or “Appellate Tribunal”), at New Delhi in Appeal No. 176 of
2011, whereby it has dismissed the appeal preferred by the
appellant against the final judgment and order dated 17th June,
2011 of Tamil Nadu Electricity Regulatory Commission (hereinafter
referred to as the “State Commission”) in D.R.P. No. 12 of 2009.
The facts have been noticed in detail both by the State Commission
and the APTEL, therefore, we shall make a reference only to the
very essential facts necessary for deciding this appeal.
2. The respondent, a generating company, has entered into a Power
Purchase Agreement (PPA) with the appellant on 3rd January, 1997
for the supply of the entire Electricity to be generated by the
respondent for a period of 30 years. The respondent commenced
commercial operations on 26th April, 2001. Under the PPA, the
respondent has to submit an annual invoice indicating the amounts
owed under the Tariff. The amounts receivable from the appellant
for the previous year are to be reconciled against the sum of
monthly estimated payment made by the appellant as soon as possible
after the end of each year. Accordingly, respondent started
raising monthly invoices from 26th April, 2001 for the Electricity
supplied by it to the appellant. According to the appellant,
invoices of the respondent inter alia included interest on debt
sanctioned but not disbursed, charges towards energy consumed at
the residential quarters at the generating station etc. The
appellant claims that substantial payments towards the monthly
invoices raised by the Respondent for every month were paid against
the admitted amount in the invoice. The disputed amount was
withheld. The respondent accepted the admitted amount paid against
each invoice without raising any dispute either with respect to the
disputed amount or the substantial payment made by the appellant.
3. Government of India by Notification dated 30th March, 1992
incorporated a rebate scheme on the receivables. Under this
scheme, the purchaser, i.e., appellant is entitled to a rebate
@ 2.5% if the payment is released within 5 days from the date
of invoice and @ 1% if the payment is released within 30 days
from the date of invoice. Accordingly, while making the
payment of the admitted amount under each invoice, the
appellant deducted the 2.5% rebate, as payments were made
within 5 days from the date of the receipt of the invoice.
These payments were accepted by the appellants. On the other
hand, respondent adjusted the amount received by it in the
following month against the unpaid amount of the previous
month. The balance was carried forward by the respondent.
Since June, 2001, the appellant had been making payments as
noticed above, and the respondent had been adjusting the same
on a “FIFO” basis. The appellant claims that the monthly
invoices raised by the respondent were only estimated invoices.
On the other hand, the respondent claims that the appellant,
from inception only made adhoc payments periodically against
the monthly invoices raised. Therefore, each side is claiming
that the other did not provide any details with regard to the
amounts due and the amounts paid. It is also the claim of the
respondent that the appellant had unilaterally made several
disallowances without informing the respondent of the same.
4. It appears that both the parties were dissatisfied with
accounting details provided by the other. Ultimately, the
respondent issued a notice of dispute resolution on 26th April,
2007 and appointed its Vice President, Shri B. Sundaramurthy as
the representative. Continuous correspondence was exchanged
between the parties from August, 2007 to March, 2009. On 1st
April, 2009, respondent sent a Notice to the appellant in terms
of Article 16 of the PPA claiming amounts due/overdue from the
appellant and interest on late payments. The Notice gives a
summary of claims of the respondent till 30th March, 2009 other
than towards specified taxes, which was stated to be subjudice,
and, therefore, not included therein. The balance of amount
payable, according to the respondent was Rs.1,787,272,534.
The appellant in reply informed the respondent on 16th April,
2009 that the matter was under scrutiny and examination.
Since, there was no response, the respondent sent a reminder.
Instead of making the payment of the amounts claimed, the
appellant issued letter dated 4/5th May, 2009 claiming that
according to its accounts, sum of Rs.31.12 crores was due to
the appellant. On 8th May, 2009, the respondent requested the
appellant “to provide the particulars and details forming the
basis of your claim before 15th May, 2009.” The respondent
also requested the appellant to fix a meeting on or before 19th
May, 2009 to discuss the issues and resolve the same. A
meeting took place on 19th May, 2009 but the dispute was not
resolved.
5. Since the dispute was not resolved, the respondent filed the
petition – D.R.P. No. 12 of 2009 before the State commission,
seeking a direction to the appellant to make a payment of sum
of Rs. 1,89,91,17,264 being a sum due as on 19th March, 2009,
under the invoices raised under the PPA and interest thereon in
terms of Article 10.6 of the PPA from the due date till the
date of actual payment. After setting out the details of the
amounts due as narrated above, the respondent claimed that,
under Article 10.2(b) of the PPA, in the event of any dispute
as to all or any of the portion of an invoice, the appellant
was required to pay the full amount of the disputed charges and
thereafter serve a notice on the respondent indicating the
amount in dispute. The dispute is to be resolved under Article
16, which provides for informal resolution of dispute.
Firstly, under Article 16(1), by mutual discussions through the
designated representatives of the parties. Secondly, in case
the parties are unable to resolve the dispute pursuant to
Article 16.1, it is to be resolved through finally by
arbitration in accordance with Article 16.2.
6. Under Article 16.2, the arbitration has to be conduced in
accordance with the rules of Conciliation and Arbitration of
International Chamber of Commerce (ICC), in effect on the date
of the agreement. The Arbitration Tribunal is to consist of
three arbitrators, of whom each party should select one. The
two arbitrators appointed by the parties shall select the third
arbitrator, to act as the Chairman of the Tribunal. If the two
arbitrators appointed by the parties, fail to agree on a third
arbitrator, the ICC Court of Arbitration shall make the
appointment. The arbitration shall be held in England. It is
further provided that notwithstanding Article 16.8, the laws of
England shall govern the validity, interpretation,
construction, performance and enforcement of the provisions
contained in Article 16.2. The arbitration proceedings shall
be conducted and the award shall be rendered in English
language. It is further provided that the rights and
obligations of the parties shall remain in full force and
effect pending the award in any arbitration proceedings. The
costs of the arbitration shall be determined by the arbitral
tribunal in accordance with the Rules. The arbitration clause
specifically provides that the Indian Arbitration Act (Act No.
X(10) of 1940/The Arbitration and Conciliation Act, 1996 shall
not be applicable to this arbitration provision, to any
arbitration proceedings or award rendered or any dispute or
difference arising out of or in relation to the agreement. It
is further provided that award rendered hereunder shall be a
foreign award within the meaning of the Foreign Awards Act,
1961.
7. Clause 16.2(i) specifically provides that the parties hereby
waive any rights of application or appeal to the Courts of
India to the fullest extent permitted by law in connection with
any question of law arising in the course of arbitration or
with respect to any award made.
8. Clause 16.3 of the arbitration agreement provides that the
award of the arbitrators shall be final and binding. The other
provisions with regard to the arbitration clause are incidental
and, therefore, not necessary to be mentioned. Article 17.8 of
the PPA provides as under:-
“17.8 Governing Law: Subject to Sections 16.2(b) and 16.2(e)
hereof, this agreement and the rights and obligations hereunder
shall be interpreted, construed and governed by the substantive
laws of India.”
9. As noticed above, Article 16.2(b) provides that the arbitration
shall be conducted in accordance with the ICC Rules
notwithstanding Article 17.8. Similarly, Article 16.2(e)
provides for exclusion of Article 17.8.
10. Upon completion of the pleadings and after hearing the parties,
the State Commission by an order dated 17th June, 2011, allowed
the petition filed by the respondent for refund of the excess
rebate availed by the appellant contrary to the terms of PPA
and also ordered the respondent to redraw the monthly invoices
in accordance with the directions issued by the State
Commission. The State Commission held that it is competent to
adjudicate upon the dispute. The limitation period prescribed
in the Limitation Act, 1963 would not apply to the proceeding
before the Commission, delay and laches would apply. The
appellant is liable to pay interest to the respondent in terms
of Clause 10.6 of the PPA till payment. Conversely, if the
appellant has made excess payment against each monthly invoice
compared to the corresponding redrawn monthly invoice, the
respondent is liable to pay interest in terms of Article 10.6
of the PPA. The rebate would be admissible to the appellant,
if the redrawn monthly invoice and the original payment made by
the appellant against the invoice of that month matches or if
the appellant has made excess payment, the respondents were
directed to redraw the annual invoice for 2001-2002, 2002-2003,
2003-2004, 2004-2005, 2005-2006 and 2006-2007, as at September
of each year to capture the gains to the appellant on account
of lower interest rates and gains to the respondent on account
of higher floating rate. Certain other directions were also
issued. The petition was accordingly disposed of.
11. Aggrieved by the aforesaid directions, the appellant filed
Appeal No. 176 of 2011before the APTEL. Before the APTEL, in
the appeal, the appellant raised the following issues:-
(a) Entitlement of the Appellant to Rebate.
(b) Jurisdiction of the State Commission u/s 86(1)(f) of the
Act, 2003;
(c) First in First Out method; for adjustment of payment.
(d) Limitation, delay and laches;
(e) Bar under Order 2 Rule 2 CPC;
(f) Non filing of Annual Invoices;
(g) Determination of capital cost;
(h) Deduction on the monthly invoices;
(i) Excess Claims in the monthly invoice – unjust enrichment;
(j) Interest on Late Payments.
12. After hearing the learned counsel for the parties, APTEL has
held that under Article 10.2(a), 10.2(b)(i) and 10.2(e), the
appellant is obliged to pay full amount of the invoice within
the due date to be eligible for the rebate of 2.5% or 1% as the
case may be. Admittedly, the appellant neither paid the full
amount for every invoice nor raised the dispute within one
year. The appellant was held to be not eligible for rebate for
reduction of the invoice funds.
13. With regard to the second issue, i.e., jurisdiction and scope
of Section 86(1)(f) of the Act, relying on the judgment of this
Court in the case of Gujarat Urja Vikas Nigam Ltd. Vs. Essar
Power Ltd.[1], it is held that the State Commission has the
discretion to decide as to whether the dispute should be
adjudicated by itself or it should be referred to an
arbitrator. The appellant can not dictate that the State
Commission ought to have referred the dispute to an arbitrator.
It is further held that the State Commission can adjudicate
all the disputes including the dispute on money claims between
the Licensees and the Generating Companies. In coming to the
aforesaid conclusion, APTEL relied on its earlier order
rendered in Neyveli Ignite Corporation Vs. Tamil Nadu
Electricity Board in Appeal No. 49 of 2010 dated 10th
September, 2010.
14. On the third issue on the method adopted by the respondent for
adjustment of the payment made by the appellant on the “FIFO”
basis, APTEL has approved the decision of the State Commission
that the respondent was justified in adopting the aforesaid
method, in accordance with Section 60 of the Indian Contract
Act, 1872.
15. On the fourth issue relating to the applicability of the
limitation Act or delay and laches, it has been held that the
Limitation Act would not apply to the proceedings under the
Electricity Act. On facts, it has been held that the issue of
limitation does not arise since Sections 60 and 61 of the
Indian Contract Act would permit the creditor to adjust the
amount on “FIFO” method. APTEL has also held that the bar
under Order 2 Rule 2 of the CPC would not be applicable in the
facts of this case. With regard to the non-filing of the
annual invoices by the respondent, it has been held that the
respondent should have filed the annual invoices in time.
Therefore, the direction issued by the State Commission to the
respondent to redraw the annual invoices has been affirmed.
The seventh issue related to determination of capital costs,
the State Commission in its order under appeal had directed the
appellant to pay the invoice in full as claimed by the
respondent without determining the capital costs by getting the
petition for finalization of capital costs, which was pending
in the State Commission finally adjudicated. APTEL has
approved the findings of the State Commission that the
appellant had adopted delaying tactics by not cooperating in
the finalization of the capital costs.
16. On issue No. 9, it has been held that as the respondent has
given up the claim on account of capital costs incurred on Gas
Boosting Station and Conditioning System and that the Power
Company has been directed to redraw the monthly invoices by the
State Commission, the issue would not survive. Finally, on
issue No. 10, which related to interest on late payments, it
has been held that the respondent company is entitled to
interest on late payment of dues under the provisions of the
PPA.
17. The present appeal is directed against the aforesaid directions
issued by APTEL.
18. We have heard learned counsel for the parties.
19. Mr. R.F.Nariman, learned senior counsel appearing for the
appellant has submitted that the disputes raised in the present
proceeding are not adjudicable by the State Commission. Mr.
Nariman submitted that the primary functions of the State
Commission being advisory, regulatory and recommendatory, the
adjudication permitted under Section 86(1)(f) is only
restricted to the disputes which are fairly relatable to the
primary functions. The cardinal issue, according to Mr.
Nariman, which ought to have been decided by the State
Commission, was with regard to the nature of a dispute. The
State Commission has failed to address the issue whether the
dispute is unconnected to advisory functions. This was
necessary as the respondent had made only a pure money claim
which could only be adjudicated either by the Civil Court or
the Arbitral Tribunal upon a reference being made to that
effect. Mr. Nariman submits that the State Commission illegally
declined to exercise its discretion to refer the dispute to
arbitration. The dispute between the parties being purely of
civil nature required decision on complex issues of fact and
law. Since the dispute arises out of the working and
interpretation of the PPA, the State Commission would not have
sufficient knowledge of law to adjudicate the issues involved.
20. The next submission of Mr. Nariman is that the State Commission
cannot be an adjudicatory body, as it does not have the
trappings of a court, which is normally manned exclusively by
Judges. Under Section 84, there is no requirement for the
Chairperson or member of the State Commission to be a Judge of
a High Court. The Members are required to be persons of
ability, integrity and standing who have adequate knowledge of,
and have shown capacity in dealing with problems relating to
engineering, finance, commerce, economics, law or management.
Although sub-section (2) permits the State Commission to
appoint any person as the Chairperson from amongst person who
is or has been a Judge of a High Court, no appointment from the
aforesaid category of persons has been made to the State
Commission. Mr. Nariman pointed out that the State Commission
which heard the petition filed by the respondent did not have a
Judicial Member. He further submits that the State Commission
functioning without a Judicial Member is contrary to the law
laid down by this Court in Union of India vs. R.Gandhi,
President, Madras Bar Association[2]. Learned senior counsel
elaborated that by virtue of Section 94(1), the State
Commission has been vested with the power of a Civil Court
under the Code of Civil Procedure. Under sub-section (2) of
Section 94, the State Commission has the power to issue interim
orders. Section 55 provides that all proceedings before the
State Commission shall be deemed to be judicial proceedings
within Sections 193 and 228 of the IPC. It is further provided
that appropriate commission shall be deemed to be a civil court
for the purpose of Sections 345 and 346 of the Code of Criminal
Procedure, 1903. (2 of 1974). By virtue of Section 146, the
State Commission has been empowered to impose punishment
including imprisonment, fine and additional fine. He further
emphasized that the State Commission in deciding a lis, between
the respondent and the appellant, discharged judicial functions
and exercised judicial power of the State. Such exercise of
judicial power can be either by the Civil Court or a Tribunal
having atleast one Judicial Member. The State Commission
exercises judicial functions of far reaching effect, therefore,
it must have essential trappings of a court. In support of this
submission, learned senior counsel relied on Kihoto Hollohan
vs. Zachillhu[3]. Subsequently, the appellant has submitted
additional written submission which can also be appropriately
noticed at this stage. It is submitted that the aforesaid
infirmity in the constitution of the State Commission can not
be cured on the basis that the Appellate Tribunal would always
be headed by either a sitting Judge/former Judge of the Supreme
Court or Chief Justice/former Chief Justice of a High Court as
well as having other Judicial Members. In support of this
submission, learned senior counsel relied on Institute of
Chartered Accountants of India vs. L.K.Ratna & Ors.[4] and
Union Carbide Corporation & Ors. vs. Union of India & Ors.[5].
Learned senior counsel submitted that an adjudication of a lis
by a tribunal without a judicial member would be an anathema to
judicial process. It would directly impinge on the impartiality
and the independence of the Judiciary. It would also undermine
the principle of separation of powers which is sought to be
strictly maintained by the Constitution of India. Mr. Nariman
emphasized that this Court carved out an exception to the rule
of necessarily having a Judicial Member of a Tribunal, only, in
the case of highly specialized fact - finding tribunals. In the
written submissions, the appellant has also relied upon
judgments of this Court in Brahm Dutt vs. Union of India[6],
S.P. Sampath Kumar vs. Union of India & Ors.[7]. It is further
submitted by Mr. Nariman that the disputes arising between the
generating company and a licensee are decided by the Commission
by holding meetings of the Members. In case the members of the
Commission are equally divided, the Presiding Member would have
the casting vote. Such procedure, submits Mr. R.F. Nariman, is
unknown to judicial proceedings.
21. Mr. Nariman then submitted that the Chairman of APTEL is
required under Section 113 of the Electricity Act to be a
person who is or has been a Judge of the Supreme Court or the
Chief Justice of a High Court. A person can also be appointed
as a Member of the Appellate Tribunal who is or has been or is
qualified to be a Judge of the High Court. This, according to
him, clearly shows that the adjudicatory functions performed by
the State Commission as well as the Appellate Tribunal are
judicial in nature and ought to be performed only by the
tribunal which has either a Chairman or a Member(s) who are or
were Judges of the Supreme Court or a High Court. Mr. Nariman
submitted that since the State Commission was not constituted
in accordance with law and the order having been passed without
any judicial member, is a nullity non-est in law. He submitted
that the proceedings of the Commission are coram non judice
and, therefore, liable to be set aside.
22. The next submission of Mr. Nariman is that the claim of the
respondent would have been held to be time barred on reference
to arbitration. The respondent made a money claim in the year
2009 for the alleged dues starting from the year 2001 onwards.
Therefore, had the dispute been referred to arbitration in
terms of dispute resolution clause, contained in Article 16 of
the PPA, the proceeding of the arbitral tribunal would be
governed by the Limitation Act, 1963. The State Commission has
erred in law in holding that by virtue of Section 2(4) of the
Arbitration Act, 1996, the applicability of Section 43 would be
excluded. This, according to Mr. Nariman, is one more reason
why the State Government ought not to have entertained the
money claim of the respondent and ought to have relegated the
parties to arbitration. In any event, the claim of the
respondent ought to have been dismissed for delay and laches.
He submits that even if the Limitation Act was not applicable,
the maximum period of time for filing a suit, in a Civil Court,
ought to be taken as a reasonable standard by which the issues
with regard to such delay and laches can be measured. In
support of this submission learned counsel relied on the
judgment of this Court in State of M.P. vs. Bhailal Bhai &
Ors.[8]. He made a reference to the observations made by this
Court at Para 273. Learned senior counsel also relied on
Municipal Corporation of greater Bombay vs. Bombay Tyres
International Ltd. & Ors.[9] and Corporation Bank & Anr. vs.
Navin J. Shah[10].
23. Mr. Nariman then submits that the “FIFO” method of adjustment
of payment was not available to the respondents. It is
submitted that the reliance placed on Sections 60 and 61 of the
Contract Act by the respondents is misconceived. He submits
that the respondents have wrongly claimed that they have been
adjusting the monthly payment made by the appellant not against
the monthly invoices but against the earlier pending bills. The
respondents are also wrongly claiming that the appellant had
been duly informed that the payments have been received on
“FIFO” basis. Mr. Nariman points out that the respondents are
wrongly relied on letters dated 25th June, 2001, 2nd December,
2003 and 10th September, 2001. According to Mr. Nariman, none
of three letters support the case of the respondents that the
appellant had either agreed to or acquiesced in the monthly
payments made by him within 5 business days of the presentation
of the monthly invoices being adjusted on the FIFO basis. Mr.
Nariman points out that the respondent’s own letter dated 20th
November, 2006 demolishes the case of respondent based on FIFO.
He further submits that if the parties are agreed to the FIFO
and had been acting on the same, as claimed by the respondents,
then there would have been no need for the respondents to write
letters dated 20th November, 2006 and 23rd April, 2007
regarding their objections to the disallowance made by the
appellant or seeking an explanation/clarification from the
appellant with respect to the payments made by the appellant
and referred to in the said letters. The respondent was well
aware that the appellant had been making the monthly payments
against the respective monthly invoices. Therefore, the
respondents can take no benefit of Sections 60 and 61 of the
Contract Act. Therefore, the impugned order passed by the State
Commission as well as APTEL being based on these two sections
are unsustainable.
24. It is further submitted by Mr. Nariman that the respondents
have failed to file annual invoices at the end of each year for
the years 2001-2006. The invoices for these years were filed
only on 18th July, 2007. This is in breach of Clause
10.2(b)(ii) of the PPA which required the respondents to submit
annual invoices setting of the details of the amounts owed
under the tariff and reconciliation of the actual amounts
receivable from the appellant for the prior year against the
sum of monthly estimated payments made by the appellant.
Similarly, if payments are due by the respondent to the
appellant, the stated amount has to be paid to the appellant
and vice versa. The State Commission rejected the explanation
given by the respondent for failure to submit the annual
invoices, but instead of dismissing the claim of the
respondents, a direction has been made to redraw the annual
invoices of each year as on 30th September of each year. Mr.
Nariman further points out that the respondent, upon redrawal
of the invoices, had agreed to refund/adjust a sum of Rs.45
crores, being the excess amount charged by the respondent from
the appellant. The said amount has not been paid till date.
25. Mr. Nariman points out that the only dispute between the
parties in the present litigation is only with regard to the
question as to whether the appellant was entitled to avail
rebate of 2.5 % on the part payment of the monthly invoice
within 5 business days from the date of the presentation of the
monthly invoice. It is submitted that in the initial petition
filed by the State Commission it was not the claim of the
respondent that the appellant wrongly availed rebate of 2.5%.
There were no pleadings to that effect. Therefore, the findings
and conclusions of the State Commission are liable to be set
aside. Mr. Nariman submits that if one reads the PPA as a
whole, it would become apparent that the payment of the full
invoice amount within 5 days of the date of raising of invoice
is not a pre-condition for seeking a rebate of 2.5% of the
invoice amount. Clause 10.2(a) does not make it a pre-condition
for payment of the full amount of invoice within 5 business
days in order to avail the rebate of 2.5%. Clause 10.2(b)(i)
indicates that the full amount is to be paid on the due date of
an invoice. Due date is defined in Article 10.2 (a) as 30 days
from the date of handing over of the invoice. Mr. Nariman
then submits that a conjoint reading of these clauses would
show that in order to be eligible for a rebate, at the rate of
2.5%, the payment has to be made on the 30th day of the
presentation of the invoice. Therefore, any payment made within
5 business days entitled the appellant to claim 2.5% rebate on
such payment. It is further submitted by Mr. Nariman that
rebate is nothing but refund of a part of the interest loaded
upfront on the Working Capital. The estimated monthly tariff
invoice has two components – (i) the fixed capacity charges
(FCC) and (ii) variable fuel charges (VFC). The rebate of 2.5 %
is allowed in view of the notification dated 30th March, 1992
issued by the Ministry of Power, Government of India, in
exercise of powers under sub-section (2) of Section 43 of the
Electricity Supply Act, 1948. The aforesaid notification has
been made part of the PPA as Schedule U thereof. Schedule A of
the PPA deals with Tariff. Interest on the receivable
equivalent to 2 months’ average billing for sale of electricity
is loaded upfront on the monthly invoice. Part of this is
refunded by way of rebate of 2.5 % if payment is made within 5
days and at 1% if it is made after 5 days but upto the 29th day
from the presentation of the monthly invoice. Interest of the
respondent upto the 30th day loaded upfront in the invoice.
Thereafter the interest of the respondent is protected from the
due date till payment is made in accordance with the Clause
10.6(e) of the PPA. Therefore, the appellant is entitled to
rebate if payment is made within 5 days or within 29th day of
the presentation of the invoice. Lastly, it is submitted by Mr.
Nariman that the appellant has been made the payment within 5
days only to avail rebate of 2.5%. One such payment was made,
the respondent had the use of money for a period of 25 days and
correspondingly the appellant had been deprived of the use of
such money for a period of 25 days every month. He submits that
absent the contract between the parties, the appellant would
have made the payment only on the 30th day and not within 5
days. In any event, 60 days of interest on the Working Capital
had already been loaded upfront. Only 30 days interest was
being returned in the form of rebate on the amount paid by the
appellant within 5 days. In order to make the payment within 5
days, the appellant often had to avail the loan. Out of Rs.240
crores, which the appellant has already paid to the respondent
under the Orders of the State Commission, almost Rs.235 crores
is rebate. The respondent is now claiming more than Rs.500
crores towards interest at compound rate on Rs. 240 crores paid
by the appellant, contrary to the provisions of the PPA. On
the basis of the above, he submits that allowing the claim of
the respondent for refund of the rebate amount would amount to
unjust enrichment. Further, the award of interest on the
aforesaid amount of rebate would amounts to double unjust
enrichment.
26. On the other hand, it is submitted by Mr. Harish Salve and Mr.
Jayant Bhushan learned senior counsel that orders passed by the
State Commission as well as the Appellate Tribunal are just and
proper and do not call for any interference. The appellant has
been granted instalments to make the payment of Rs. 240 crores.
It is also pointed out that the following order passed by the
State Commission in the independent legal proceeding relating
to fixation of capital cost on 15th July, 2013, the claim was
updated upto 20th August, 2013 for invoices raised till 30th
June, 2011, in a gross sum of Rs.695 crores. After giving
credit of Rs.145 crores (including interest computed at the
interest rates applicable to PPN) the net claim, subject-matter
of the present appeal, stands at Rs.550 crores.
27. With regard to the submission of the appellant relating to
Section 86(1)(f), it is submitted that the matter is no longer
res integra as it is squarely covered by the judgment of this
Court in Gujarat Urja Vikas Nigam Ltd. (supra). It is submitted
by Mr. Salve and Mr. Bhushan learned senior counsel appearing
for the respondent that Section 86(1)(f) gives the discretion
the State Commission either to adjudicate the disputes itself
or to refer the same to arbitration. By making detailed
reference to the findings recorded by APTEL, Mr. Salve and Mr.
Bhushan submit that all the issues raised by the appellant are
without any merit as it cannot be supported either in facts or
in law.
28. It is submitted by the learned senior counsel that even Article
16(2) provides for international arbitration under the ICC
Rules. Article 16.2(h) specifically excludes the application of
the Arbitration and Conciliation Act of 1996 and the
Arbitration Act of 1940. Article 16.2(e) provides that the laws
of England shall govern the arbitration agreement in contra-
distinction to Indian law applying to the PPA. In any event,
the appellant cannot be permitted to claim a reference of
arbitration as a matter of right. He points out that at the
initial stage, the appellant only referred to the existence of
an informal dispute resolution provision and provision for
arbitration under Article 16 of the PPA. Having taken such a
preliminary objection, the appellant proceeded to subject
itself to the jurisdiction of the State Commission. In fact the
entire claim of the respondent was answered by the appellant on
merit in the written statement, filed before the State
Commission. Even if the written submissions before the State
Commission, the appellant principally contended that the matter
ought to be referred to the adjudication by a civil court. The
appellant failed to make any application either under Section 8
or Section 45 of the Arbitration and Conciliation Act, 1996
seeking reference to arbitration. It is further pointed out
that this Court in Gujarat Urja Vikas Nigam Ltd. (supra) has
clearly laid down the law that the existence of an arbitration
clause in a contract does not act as an ouster of jurisdiction
of the jurisdictional forum. The appellant having submitted to
the jurisdiction of the State Commission and having invited the
findings cannot now seek to challenge the jurisdiction on the
ground of existence of arbitration clause. Mr. Salve and Mr.
Bhushan relied on the judgment of this Court in Svenska
Handelsbanken vs. Indian Charge Chrome Ltd. [11] and Booz Allen
& Hamilton Inc. vs. SBI Home Finance Ltd. [12]. It is further
submitted that the proceeding before the State Commission would
not be vitiated on the ground that its constitution is contrary
to the ratio of law laid down in the case of R. Gandhi (supra).
The appellant has not even raised a single ground of any
prejudice being caused by the absence of a judicial member
before the State Commission. In any event, the aforesaid
submission contradicts the appellant’s other submission that
the matter ought to have been referred to arbitration under the
Arbitration Act. There is no requirement that the arbitrator
should be a judicial person. Even in the absence of Electricity
Act, 2003 and the regulatory bodies contemplated therein, the
instant dispute would have been subject matter of an
arbitration proceeding as per the provision of the PPA and not
a civil suit in the civil court.
29. Answering the submission of the appellant that the respondent
has illegally adjusted the payments on the concept of FIFO. It
is submitted that the State Commission as well as the Appellate
Tribunal have correctly held that the procedure adopted by the
respondent is covered under Section 60 and 61 of the Contract
Act. Mr. Salve and Mr. Bhushan submit that admittedly the
appellant did not make full payment in relation to any of the
invoices. The State Commission as well as the Appellate
Tribunal have concurrent findings that the appellant was duly
notified that the payment/part payment made were being adjusted
on FIFO basis. The appellant never refuted or rejected to such
practice adopted by the respondent. The appellant submitted
that it was undergoing temporary financial strain. It is also
pointed out by Mr. Salve and Mr. Bhushan that the invoices were
accepted in full. The statement was made by the appellant that
part payment being made would not prejudice the right of
respondent to receive the full payment against the invoices.
The correspondence between the parties has been noticed by the
APTEL in extenso. Coming to the legal position, Mr. Salve and
Mr. Bhushan submit that APTEL having considered the statutory
provisions as well as judicial precedents have come to the
conclusion that the appellant was duly intimated that the
payment made would be applied by the respondents on FIFO basis.
Therefore, Section 59 of the Indian Contract Act would not be
applicable. On the issue of limitation, it is submitted that
neither the Limitation Act nor the principle of delay and
laches would apply to the present case. It is submitted by Mr.
Salve and Mr. Bhushan that the provision of Limitation Act,
1963 would not be applicable to the proceedings before the
State Commission. The Electricity Act, 2003 being a complete
code, which is self contained and comprehensive, the provision
of Limitation Act, 1963 would not apply. Mr. Salve and Mr.
Bhushan relied on the Consolidated Engineering Enterprises Vs.
Principal Secretary, Irrigation Department & Ors.[13] In
support of this submission, the Limitation Act would be
inapplicable to Tribunals and quasi-judicial authorities.
Replying to the submission of Mr. Nariman that in arbitration
proceedings, the appellant would be entitled to the benefit of
Limitation Act, 1963, Mr. Salve and Mr. Bhushan
submit that in view of the specific provisions contained in
Section 2(4) of the Arbitration and Conciliation Act, 1996,
Section 43 of the Arbitration Act would not be applicable. In
any event, the matter is squarely covered by the judgment in
Gujarat Urja (supra). Mr. Salve and Mr. Bhushan reiterated
that the issue of limitation does not even arise in the present
dispute due to the FIFO adjustment effected by the respondent.
30. Addressing the issue of the rebate being available to the
appellant, Mr. Salve and Mr. Bhushan submit that APTEL has
rendered detailed findings on the issue. The submissions made
before this Court is a repetition of the submissions made
before the APTEL. They submit that such findings recorded by
the APTEL can not be reopened in this Court except on the
ground that such findings are either arbitrary or based on no
evidence. In fact, the appellant has illegally arrogated to
itself the right to adjudicate, by unilaterally assuming
rights, which are not available to it. Rather than complying
with the requirements of the PPA of making payment within due
date, the appellant had disallowed certain payments on the
ground that the claims of the appellant were doubted. These
actions of the appellant were contrary to Articles 10.3 and
10.4 of the PPA which deals with Letter of Credit and Escrow.
Even if the claim of the appellant is accepted that the
invoices were only based on the estimates the appellant had no
authority of making unilateral deductions in the monthly
invoices and make only ad-hoc payments contrary to the
provisions of PPA. It is submitted that the monthly invoices
consists of both actual as also estimates in respect of certain
items. The annual invoices raised on the basis of a
reconciliation at the end of the year, since actuals become
known in respect of such portions of monthly invoices, which
were calculated on the basis of the estimates. Mr. Salve and
Mr. Bhushan then submit that interest on late payments have
been rightly granted both by the State Commission as well as
the APTEL. The interest has been calculated on the basis of
Article 10.6 of the PPA. Since the loans taken by the
respondent are payable at compounded interest rates, the later
payment interest payable by the appellant would also be at the
compounded interest rate as per Article 10.6 of the PPA. Mr.
Salve and Mr. Bhushan relied on the judgment of this Court in
Central Bank of India Vs. Ravindra & Ors.[14] and Indian
Council for Legal Action Vs. Union of India[15]
31. During the course of hearing, the appellant had taken out I.A.
No. 5 of 2013 and I.A. No. 6 of 2013. I.A. No. 6 is for the
impleadment and I.A. No. 5 is for the direction.
I.A. Nos. 5 and 6 of 2013
32. It is submitted by Mr. Salve and Mr. Bhushan that in I.A. No.
6, the appellant has made a prayer to implead IOCL as the
respondent. This application can not be allowed as IOCL is not
a party to the contract. The attempt to implead third party is
only an effort to delay the proceedings by the appellant. It
is pointed out that IOCL is either necessary or a proper party
for adjudication of the disputes arising between the appellant
and the respondents.
33. I.A. No. 5 of 2013, according to Mr. Salve and Mr. Bhushan has
been filed with the sole object of avoiding payments. The
appellant has made wild allegations of fraud without any
foundational facts being pleaded either before the State
Commission or before the APTEL. The appellant ought not to be
permitted to resolve such disputes. The application according
to Mr. Salve and Mr. Bhushan deserves to be dismissed.
34. We have considered the submissions made by the learned counsel
for the parties. In our opinion, the issues raised by the
appellant with regard to the constitution of the State
Commission and its discretion to either adjudicate or refer a
particular dispute to arbitration is no longer res integra.
Therefore, even though, Mr. Nariman has very forcefully
contended that the issue ought to be reconsidered, we are not
inclined to adopt such a course. In our opinion, this Court has
comprehensively addressed all the issues, on the scope and
ambit of Section 86 in general and Section 86(1)(f) in
particular of the Act. We are also not inclined to accept the
submission that since the appellant had made a request for a
reference of the dispute to arbitration, the State Commission
ought to have made the reference. We are also not able to
accept the submission of Mr. Nariman that the State Commission
was dealing with only a pure and simple money claim. We also
do not find much substance in the submission that the issues
having been raised being complex and intricate ought to have
been left to be decided either by the Arbitral Tribunal or by
the Civil Court. APTEL in the impugned order, in our opinion,
has correctly culled out the ratio of the judgment of this
Court in Gujarat Urja (supra). It is also correctly held that
the appellant can not dictate that the State Commission ought
to have referred the dispute to arbitration.
35. In the aforesaid judgment, the question that arose before this
Court was whether the application for appointment of an
arbitrator under Section 11 of the Arbitration and Conciliation
Act, 1996 was maintainable in view of the statutory provisions
contained in the Electricity Act, 2003.
36. It was submitted on behalf of the appellant (licensee) that by
Virtue of Section 86(1)(f) of the Act of 2003, the dispute
between the licensees and the generating companies can only be
adjudicated upon by the State Commission either by itself or by
an arbitrator to whom the Commission refers the dispute.
Therefore, the High Court had no jurisdiction under Section
11(6) to refer the dispute between the licensees and the
generating company to an arbitrator, since such power of
adjudication of reference has been specifically vested in the
State Commission. Since the Electricity Act is a special law,
dealing with arbitrations of dispute between the licensees and
the generating companies, the provision of Section 11 of the
Arbitration and Conciliation Act would be inapplicable. The
High Court has, therefore, committed an error of jurisdiction
in allowing the application under Section 11(6) and referring
the matter to arbitration to a Former Chief Justice of India.
On the other hand, it was submitted on behalf of the generating
companies that the provisions of the Electricity Act are in
addition to and not in derogation of any other law for the time
being in force. The provisions contained in Sections 173 and
174 would not affect the applicability of the Arbitration Act,
1996, in view of the provisions contained in Section 175 of the
Electricity Act. Upon consideration of the aforesaid
submission, this Court has held as follows:-
“26. It may be noted that Section 86(1)(f) of the Act of 2003 is
a special provision for adjudication of disputes between the
licensee and the generating companies. Such disputes can be
adjudicated upon either by the State Commission or the person or
persons to whom 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 well settled that sometimes “and” can mean “or” and
sometimes “or” can mean “and” (vide G.P. Singh’s Principles of
Statutory Interpretation, 9th Edn., 2004, p. 404).
27. In our opinion in Section 86(1)(f) of the Electricity Act,
2003 the word “and” between the words “generating companies” and
the words “refer any dispute” means “or”, otherwise it will lead
to an anomalous situation because obviously the State Commission
cannot both decide a dispute itself and also refer it to some
arbitrator. Hence the word “and” in Section 86(1)(f) means “or”.
28. Section 86(1)(f) is a special provision and hence will
override the general provision in Section 11 of the Arbitration
and Conciliation Act, 1996 for arbitration of disputes between
the licensee and generating companies. It is well settled that
the special law overrides the general law. Hence, in our
opinion, Section 11 of the Arbitration and Conciliation Act,
1996 has no application to the question who can
adjudicate/arbitrate disputes between licensees and generating
companies, and only Section 86(1)(f) shall apply in such a
situation.
37. This Court also negated the submission that the provision
contained in Section 86(1)(f) would be violative of Article 14
(See Para 30-31).
38. Considering the provisions contained in Sections 173, 174 and
175 of the Electricity Act, this Court observed that since
Section 86(1)(f) provides a special manner of making reference
to an arbitrator in disputes between a licensee and a
generating company, by implication all other methods are
barred. Considering the applicability of Sections 174 and 175,
this Court has held that Section 174 would prevail over Section
175 in matters where the where there is any conflict (but no
further). In our opinion, the observations made by this Court
in Paragraphs 59 and 60 are a complete answer to the
submissions of Mr. Nariman that upon an application being made,
the State Commission was bound to refer the matter to
arbitration.
39. Section 86(1)(f) specifically confers jurisdiction on the State
Commission to refer the dispute. Undoubtedly, the Commission
is required to exercise its discretion reasonably and not
arbitrarily. In the present case, the State Commission upon
consideration of the entire matter has exercised its
discretion. However, in our opinion, the APTEL ought not to
have brushed aside the submissions of the appellant with the
observation that the State Commission having exercised its
discretion, the issue need not be investigated by the APTEL.
It would always be open to APTEL to examine as to whether the
State Commission has exercised the discretion with regard to
the question whether the dispute ought to have been referred to
arbitration, in accordance with the well known norms for
exercising such discretion. APTEL exercises jurisdiction over
the State Commission by way of a First Appeal. Therefore, it is
the bounden duty of the Appellate Tribunal to examine as to
whether all the decisions rendered by the State Commission
suffer from the vice of arbitrariness, unreasonableness or
perversity. This would be apart from examining as to whether
the State Commission has exercised powers in accordance with
the statutory provisions contained in Electricity Act, 2003.
Having said this, we are not inclined to interfere with the
conclusions reached by APTEL, as in our opinion, the
jurisdiction has not been exercised by the State Commission
arbitrarily, whimsically or against the statutory provisions.
40. We, however, find substance in the submission of Mr.
Nariman that adjudicatory functions generally ought not to be
conducted by the State Commission in the absence of a Judicial
Member. Especially in relation to disputes which are not fairly
relative to tariff fixation or the advisory and recommendatory
functions of the State Commission.
41. A Constitution Bench of this Court in Kihoto Hollohan (supra)
has examined the nature of the power of the Speaker or the
Chairman under paragraph 6(1) of the Tenth Schedule of the
Constitution of India which contains “PROVISIONS AS TO
DISQUALIFICATION ON GROUND OF DEFECTION” of a Member of either
House of Parliament. Upon consideration of the entire matter,
it was observed as follows :
“95. In the present case, the power to decide disputed
disqualification under Paragraph 6(1) is pre-eminently of a
judicial complexion.”
42. The Constitution Bench relied on the earlier judgment of this
Court in Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala[16].
In that case, Hidayatullah, J. said
“… By ‘courts’ is meant courts of civil judicature and by
‘tribunals’, those bodies of men who are appointed to decide
controversies arising under certain special laws. Among the
powers of the State is included the power to decide such
controversies. This is undoubtedly one of the attributes of the
State, and is aptly called the judicial power of the State. In
the exercise of this power, a clear division is thus noticeable.
Broadly speaking, certain special matters go before tribunals,
and the residue goes before the ordinary courts of civil
judicature. Their procedures may differ but the functions are
not essentially different. What distinguishes them has never
been successfully established. Lord Stamp said that the real
distinction is that the courts have ‘an air of detachment’. But
this is more a matter of age and tradition and is not of the
essence. Many tribunals, in recent years, have acquitted
themselves so well and with such detachment as to make this test
insufficient.”
Again in para 99, it is observed as follows :
“99. Where there is a lis — an affirmation by one party and
denial by another — and the dispute necessarily involves a
decision on the rights and obligations of the parties to it and
the authority is called upon to decide it, there is an exercise
of judicial power. That authority is called a Tribunal, if it
does not have all the trappings of a Court. In Associated Cement
Companies Ltd. v. P.N. Sharma36 this Court said: (SCR pp. 386-
87)
“… The main and the basic test however, is whether the
adjudicating power which a particular authority is empowered to
exercise, has been conferred on it by a statute and can be
described as a part of the State’s inherent power exercised in
discharging its judicial function. Applying this test, there can
be no doubt that the power which the State Government exercises
under Rule 6(5) and Rule 6(6) is a part of the State’s judicial
power…. There is, in that sense, a lis; there is affirmation by
one party and denial by another, and the dispute necessarily
involves the rights and obligations of the parties to it. The
order which the State Government ultimately passes is described
as its decision and it is made final and binding.”
43. In view of the aforesaid categorical statement of law, we would
accept the submission of Mr. Nariman that the tribunal such as the
State Commission in deciding a lis, between the appellant and the
respondent discharges judicial functions and exercises judicial power
to the State. It exercises judicial functions of far reaching effect.
Therefore, in our opinion, Mr. Nariman is correct in his
submission that it must have essential trapping of the court. This can
only be achieved by the presence of one or more judicial members in
the State Commission which is called upon to decide complicated
contractual or civil issues which would normally have been decided by
a Civil Court. Not only the decisions of the State Commission have far
reaching consequences, they are final and binding between the parties,
subject, of course, to judicial review.
44. As noticed earlier, Section 84(2) enables the State Government to
appoint any person as the Chairperson from amongst persons who is, or
has been, a Judge of a High Court. Such appointment shall be made
after consultation with the Chief Justice of the High Court. The
provision contained in Section 84(2) is notwithstanding the provision
contained in Section 84(1). In our opinion, the State Government ought
to have exercised its power under sub-section (2) to appoint one or
more Judicial Members on the State Commission especially when
complicated issues are raised involving essentially civil and
contractual matters. A Constitution Bench of this Court in the case of
R.Gandhi (supra) recognized that :
“87. ………..that the legislature has the power to create tribunals
with reference to specific enactments and confer jurisdiction on
them to decide disputes in regard to matters arising from such
special enactments. Therefore it cannot be said that legislature
has no power to transfer judicial functions traditionally
performed by courts to tribunals.”
“90. But when we say that the legislature has the competence to
make laws, providing which disputes will be decided by courts,
and which disputes will be decided by tribunals, it is subject
to constitutional limitations, without encroaching upon the
independence of the judiciary and keeping in view the principles
of the rule of law and separation of powers. If tribunals are to
be vested with judicial power hitherto vested in or exercised by
courts, such tribunals should possess the independence, security
and capacity associated with courts. If the tribunals are
intended to serve an area which requires specialised knowledge
or expertise, no doubt there can be technical members in
addition to judicial members………….”
45. Keeping in view the aforesaid observations of this Court, in our
opinion, the State of Tamil Nadu ought to make necessary appointments
in terms of Section 84(2) of the Act. We have been informed that till
date no judicial Member has been appointed in the Tamil Nadu State
Commission. We are of the opinion that the matter needs to be
considered, with some urgency, by the appropriate State authorities
about the desirability and feasibility for making appointments, of any
person, as the Chairperson from amongst persons who is, or has been, a
Judge of a High Court.
46. We have noticed earlier that Section 113 of the Act mandates that
the Chairman of APTEL shall be a person who is or has been a Judge of
the Supreme Court or the Chief Justice of a High Court. A person can
be appointed as the Member of the Appellate Tribunal who is or has
been or is qualified to be a Judge of a High Court. This would
clearly show that the legislature was aware that the functions
performed by the State Commission as well as the Appellate Tribunal
are judicial in nature. Necessary provision has been made in Section
113 to ensure that the APTEL has the trapping of a court. This
essential feature has not been made mandatory under Section 84
although provision has been made in Section 84(2) for appointment of
any person as the Chairperson from amongst persons who is or has been
a Judge of a High Court. In our opinion, it would be advisable for the
State Government to exercise the enabling power under Section 84(2) to
make appointment of a person who is or has been a Judge of a High
Court as Chairperson of the State Commission.
47. These observations, however, do not in any manner affect the
jurisdiction exercised by the State Commission in the present matter.
It has been rightly pointed out by the respondent that having filed
the written statement in reply to the petition filed by the
respondent, the appellant willingly participated in the proceedings
and invited the findings recorded by the State Commission. It would be
too late in the day, to interfere with the jurisdiction exercised by
the State Commission in these proceedings.
48. The next submission of Mr. Nariman is that the claim of the
respondents would have been held to be time barred on reference to
arbitration. We are not able to accept the aforesaid submission of Mr.
Nariman. On the facts of this case, in our opinion, the principle of
delay and laches would not apply, by virtue of the adjustment of
payments being made on FIFO basis. The procedure adopted by the
respondent, as observed by the State Commission as well as by the
APTEL, would be covered under Sections 60 and 61 of the Contract Act.
APTEL, upon a detailed consideration of the correspondence between the
parties, has confirmed the findings of fact recorded by the State
Commission that the appellant had been only making part payment of the
invoices. During the course of the hearing, Mr. Salve has pointed out
that the payment of entire invoices was to be made each time which was
never adhered to by the appellant. Therefore, the respondents were
constrained to adopt FIFO method. Learned senior counsel also pointed
out that there was no complaint or objection ever raised by the
appellant. The objection to the method adopted by the respondents on
the method of FIFO, was only raised in the counter affidavit to the
petition filed by the appellant before the State Commission. According
to learned senior counsel, the plea is an afterthought and has been
rightly rejected by the State Commission as well as the APTEL. We also
have no hesitation in rejecting the submission of Mr. Nariman on this
issue. In any event, the Limitation Act is inapplicable to proceeding
before the State Commission.
49. The submission of the appellant that the Limitation Act would be
available in case the reference was to be made to arbitration, in our
opinion, is also without merit. Firstly, the State Commission
exercised its jurisdiction to decide the dispute itself. The matter
was not referred to arbitration, therefore, the Limitation act would
not be applicable. Secondly, Section 43 of the Arbitration and
Conciliation Act would not be applicable even if the matter was
referred to arbitration by virtue of Section 2(4) of the Arbitration
Act, 1996. Section 2(4) of the Arbitration Act reads as under :
“This part except sub-section (1) of section 40, sections 41 and
43 shall apply to every arbitration under any other enactment
for the time being in force, as if the arbitration were pursuant
to an arbitration agreement and as if that other enactment were
an arbitration agreement, except in so far as the provisions of
this Part are inconsistent with that other enactment or with any
rules made thereunder.”
50. By virtue of the aforesaid provision, the provision with regard
to the Limitation Act under Section 43 would not be applicable, to
statutory arbitrations conducted under the Electricity Act, 2003. We
are unable to accept the submission of Mr. Nariman that the State
Commission failed to exercise its discretion by not making a reference
to arbitration and the request made by the appellant. Such a
submission cannot be countenanced in the particular facts of this
case. Having taken the plea that the matter ought to be referred to
arbitration, the appellant chose to contest the claim of the
respondent on merits and filed the written statement before the State
Commission. Not only this, the appellant participated in the entire
proceedings and invited the findings on merits. Therefore, the
appellant cannot now be permitted to raise such a plea. This view of
ours will find support in two earlier judgments of this Court. In
Svenska Handelsbanken (supra) it has been observed as follows:
“53. It may be that even after entering into an arbitration
clause any party may institute legal proceedings. It is for the
other party to seek stay of the suit by showing the arbitration
clause and satisfying the terms of the provisions of law
empowering the court to stay the suit……..”
Admittedly, in this case the appellant did not file any
application under Section 8 or Section 45 of the Arbitration Act,
1996. No prayer for stay of the proceedings was filed.
51. In the case of Booz Allen & Hamilton Inc.(supra) this Court
observed a follows:
“29. Though Section 8 does not prescribe any time-limit for
filing an application under that section, and only states that
the application under Section 8 of the Act should be filed
before submission of the first statement [pic]on the substance
of the dispute, the scheme of the Act and the provisions of the
section clearly indicate that the application thereunder should
be made at the earliest. Obviously, a party who willingly
participates in the proceedings in the suit and subjects himself
to the jurisdiction of the court cannot subsequently turn around
and say that the parties should be referred to arbitration in
view of the existence of an arbitration agreement. Whether a
party has waived his right to seek arbitration and subjected
himself to the jurisdiction of the court, depends upon the
conduct of such party in the suit.”
These observations are squarely applicable to the facts in this
case.
52. Even if the reference had been made under Article 16 of the
PPA, the applicability of the Arbitration Act, 1996 and the
Arbitration Act of 1940 have been specifically excepted under Article
16(2)(h). In the earlier part of the judgment, we have noticed that
Article 16 indeed provides for informal resolution of disputes by way
of arbitration. However, Article 16(2) mandates that the arbitration
shall be conducted in accordance with the ICC Rules. Under those
rules, ICC Court of arbitration is to make the appointment of the
Arbitral Tribunal. To make the matters worst for the appellant, it
has been provided in Article 16.2(e) that the seat of the arbitration
shall be in London. This fact alone would make Part I of the
Arbitration Act, 1996 inapplicable to the arbitration proceedings.
There is a further provision that notwithstanding Article 17(8), the
laws of England shall govern the validity, interpretation,
construction, performance and the enforcement of the provision
contained in Article 16(2). Clearly then, the applicability of
Arbitration Act, 1996 is totally ruled out by the parties. This Court
in Bhatia International vs. Bulk Trading S.A. & Anr.[17] has clearly
held that the parties are at liberty by agreement to opt out of any or
all the provisions of 1996 Act. It would be useful to make a reference
to the observations made by this Court in paragraph 21 and 32 which
are as follows:
“21. The legislature is emphasising that the provisions of Part
I would apply to arbitrations which take place in India, but not
providing that the provisions of Part I will not apply to
arbitrations which take place out of India. The wording of sub-
section (2) of Section 2 suggests that the intention of the
legislature was to make provisions of Part I compulsorily
applicable to an arbitration, including an international
commercial arbitration, which takes place in India. Parties
cannot, by agreement, override or exclude the non-derogable
provisions of Part I in such arbitrations. By omitting to
provide that Part I will not apply to international commercial
arbitrations which take place outside India the effect would be
that Part I would also apply to international commercial
arbitrations held out of India. But by not specifically
providing that the provisions of Part I apply to international
commercial arbitrations held out of India, the intention of the
legislature appears to be to ally (sic allow) parties to provide
by agreement that Part I or any provision therein will not
apply. Thus in respect of arbitrations which take place outside
India even the non-derogable provisions of Part I can be
excluded. Such an agreement may be express or implied.”
“32. To conclude, we hold that the provisions of Part I would
apply to all arbitrations and to all proceedings relating
thereto. Where such arbitration is held in India the provisions
of Part I would compulsorily apply and parties are free to
deviate only to the extent permitted by the derogable provisions
of Part I. In cases of international commercial arbitrations
held out of India provisions of Part I would apply unless the
parties by agreement, express or implied, exclude all or any of
its provisions. In that case the laws or rules chosen by the
parties would prevail. Any provision, in Part I, which is
contrary to or excluded by that law or rules will not apply.”
The aforesaid observations will be fully applicable to the facts
and circumstances of this case as the agreement is prior to 6th
September, 2012. The declaration of law in Bharat Aluminium Company
vs. Kaisar Aluminium Technical Services Inc.[18] that Part I of the
arbitration would not be applicable to International Commercial
Arbitration outside India applies to the Arbitration Agreements
executed after 6th September, 2012. Though by virtue of the
provisions contained in Article 16 of the PPA, the legal effect
remains the same, that is applicability of 1996 Act is ruled out,
therefore, the appellant cannot claim the benefit of Section 43 of the
Arbitration Act, 1996.
53. We also do not find any merit in the submission of Mr.
Nariman that the appellants have wrongly adopted the system of FIFO
for adjustment of the payments made by the appellant. The State
Commission as well as the APTEL having considered the matter in
detail, we are inclined to accept the submission of Mr. Salve and Mr.
Bhushan that it would not be appropriate to re-examine the issue in
these proceedings. Under Section 125 of the Electricity Act, 2003, the
appeal lies in the Supreme Court on any one or more of the grounds
specified in Section 100 of the Code of Civil Procedure, 1908.
Therefore, unless the court is satisfied that the findings of fact
recorded by the State Commission are perverse, irrational and based on
no evidence, it would not interfere. The findings recorded by the
State Commission and APTEL would not give rise to a substantial
question of law. In any event, the appellant never refuted or rejected
the practice adopted by the respondent. Rather the appellant claimed
that it was under temporary financial strain and, therefore, requested
to make only part payment. The invoices having been accepted in full,
the appellant unilaterally withheld some of the payments on the ground
that the claims were disputed. Under Article 10 of the PPA, the
appellant was required to make the payment for the entire invoice and,
thereafter, raise the dispute. The appellant had been duly informed
that the part payments made would be adjusted by the respondents under
the FIFO system. It has been correctly held that in such
circumstances, Section 59 of the Contract Act would not be applicable.
We see no reason to interfere with the conclusions reached by the
APTEL.
54. The real dispute between the parties seems to be on the question
whether the appellant was entitled to avail 2.5% rebate on part
payment of the monthly invoices within 5 business days. We have
noticed earlier that it was a pre- condition under Article 10 that the
payment of the monthly invoice had to be made in full. In addressing
the issue of rebate, APTEL has come to the conclusion that merely
because substantial payment had been made in relation to monthly
invoices would not entitle the appellant to claim the rebate of 2.5%
on the invoice amount. We see no reason to interfere with the findings
recorded by the APTEL. Under Article 10.2(b)(i), the payments have to
be made in full for every invoice by due date. Under Article 10.2(e),
the payment had to be made in full when due even if the entire portion
or a portion of the invoice is disputed. Under Article 10.3(a) to (c)
of the PPA, Letter of Credit is to be established covering three
months estimated billing, one month prior to Commercial Operation
Date. Under Article 10.3 (d) of the PPA, an Escrow Account is to be
established by the appellant in favour of the Power Company into which
collections from designated circles are to flow in and be available as
collateral security. Under Article 10.4, the Government of Tamil Nadu
has guaranteed all of the financial obligations of the appellant.
Under Article 10.2 (e) of the PPA agreement, the right to dispute any
invoice by the appellant is limited to one year from due date of such
invoice. Thus it would be evident that even if the amount of invoice
is disputed, the appellant is obliged to make full payments of the
invoice when due and then raise the dispute. Undoubtedly, early
payment is encouraged by offering rebate of 2.5% if paid within 5 days
of the date of the invoice. Similarly, 1% rebate would be available if
the payment of the entire invoice is made within 30 days. The rebate
is in the form of incentive and is an exception to the general rule
requiring payment in full on due date. Therefore, in our opinion, the
appellant had no legal right to claim rebate at the rate of 2.5% not
having paid the entire invoice amount within 5 days. Similarly, the
appellant would be entitled to 1% rebate if payment is made within 30
days of the invoice. We are of the opinion that the findings of APTEL
on this issue do not call for any interference.
55. In fact, in our opinion, the appellant has illegally arrogated
to itself the right to adjudicate by unilaterally assuming the
jurisdiction not available to it. It was required to comply with
Article 10 of the PPA which provides for Compensation Payment and
Billing. We are also not able to accept the submission of Mr. Nariman
that invoices could not be paid in full as they were only estimated
invoices. It is true that reconciliation is to be done annually but
the payment is to be made on monthly basis. This cannot even be
disputed by the appellant in the face of its claim for rebate at the
rate of 2.5% for having made part payment of the invoice amount within
5 days. We also do not find any merit in the submission that any
prejudice has been caused to the appellant by the delayed submission
of annual invoice by the respondents. Pursuant to the directions
issued by the State Commission, the monthly invoice and annual invoice
for the respective years have been redrawn as on 30th September each
year. Therefore, the benefit of interest has been given on such annual
invoices. With regard to the issue raised about the interest on late
payment, APTEL has considered the entire matter and come to the
conclusion that interest is payable on compound rate basis in terms of
Article 10.6 of the PPA. In coming to the aforesaid conclusion, APTEL
has relied on a judgment of this Court in Central Bank of India vs.
Ravindra & Ors. [19]. In this judgment it has been held as follows:
“………The essence of interest in the opinion of Lord Wright, in
Riches v. Westminster Bank Ltd.All ER at p. 472 is that it is a
payment which becomes due because the creditor has not had his
money at the due date. It may be regarded either as representing
the profit he might have made if he had had the use of the
money, or, conversely, the loss he suffered because he had not
that use. The general idea is that he is entitled to
compensation for the deprivation; the money due to the creditor
was not paid, or, in other words, was withheld from him by the
debtor after the time when payment should have been made, in
breach of his legal rights, and interest was a compensation
whether the compensation was liquidated under an agreement or
statute. A Division Bench of the High Court of Punjab speaking
through Tek Chand, J. in CIT v. Dr Sham Lal Narula thus
articulated the concept of interest the words ‘interest’ and
‘compensation’ are sometimes used interchangeably and on other
occasions they have distinct connotation. ‘Interest’ in general
terms is the return or compensation for the use or retention by
one person of a sum of money belonging to or owed to another. In
its narrow sense, ‘interest’ is understood to mean the amount
which one has contracted to pay for use of borrowed money. … In
whatever category ‘interest’ in a particular case may be put, it
is a consideration paid either for the use of money or for
forbearance in demanding it, after it has fallen due, and thus,
it is a charge for the use or forbearance of money. In this
sense, it is a compensation allowed by law or fixed by parties,
or permitted by custom or usage, for use of money, belonging to
another, or for the delay in paying money after it has become
payable.”
56. Similar observations have been made by this Court in Indian
Council of Enviro-Legal Action vs. Union of India & Ors. [20] wherein
it has been held as follows:
“178. To do complete justice, prevent wrongs, remove incentive
for wrongdoing or delay, and to implement in practical terms the
concepts of time value of money, restitution and unjust
enrichment noted above—or to simply levelise—a convenient
approach is calculating interest. But here interest has to be
calculated on compound basis—and not simple—for the latter
leaves much uncalled for benefits in the hands of the wrongdoer.
179. Further, a related concept of inflation is also to be
kept in mind and the concept of compound interest takes into
account, by reason of prevailing rates, both these factors i.e.
use of the money and the inflationary trends, as the market
forces and predictions work out.
180. Some of our statute law provide only for simple interest
and not compound interest. In those situations, the courts are
helpless and it is a matter of law reform which the Law
Commission must take note and more so, because the serious
effect it has on the administration of justice. However,
[pic]the power of the Court to order compound interest by way of
restitution is not fettered in any way. We request the Law
Commission to consider and recommend necessary amendments in
relevant laws.”
57. The late payment clause only captures the principle that a
person denied the benefit of money, that ought to have been paid on
due dates should get compensated on the same basis as his bank would
charge him for funds lent together with a deterrent of 0.5% in order
to prevent delays. It is submitted by Mr. Salve and Mr. Bhushan that
bankers of the respondents have applied quarterly compounding or
monthly compounding for cash credits during different periods on the
basis of RBI norms. Article 10.6 of the PPA has followed the norms of
the bank. This can not be said to be unfair as the same principle
would also apply to the appellants.
58. This now bring us to applications for impleadment of IOCL and
for direction. I.A.No.6 of 2013 is for the impleadment of IOCL. It is
submitted that during the pendency of these proceedings, the
respondents have received rebates, discounts, credits, refunds in the
fuel price being extended by fuel supplier i.e. Indian Oil Corporation
Ltd. (IOCL). Such benefits have been received by the respondent from
January 2001 till date It is pleaded that the respondents have failed
to give details about the discounts and credits received the benefit
of which ought to have been passed on to the appellant. Therefore,
IOCL be made parties to respondent No.2 to the present appeal.
I.A.No.5 of 2013 seeks direction to IOCL to furnish details of all the
documents of the matter. Further directions are also sought on the
respondent to refund a sum of Rs.240 crores paid by the appellant
under the order passed by the State Commission along with interest at
the rate as mentioned in PPA.
59. The respondents in a common counter statement to the applications
have submitted that the applications are not maintainable. The
applications have been evidently preferred purely as dilatory tactics,
to delay and deny substantial payments that are due and payable to the
respondent pursuant to the orders passed by the State Commission which
have been upheld by APTEL. We are not inclined to entertain either of
the applications at this stage. The issue sought to be raised in both
the applications ought to have been raised by the appellant at the
relevant time. The applications are, therefore, accordingly dismissed.
60. For the foregoing reasons, we see no merit in the appeal and the
same is accordingly dismissed.
…………………………….J.
[Surinder Singh Nijjar]
……………………………J.
[A.K.Sikri]
New Delhi;
April 04, 2014.
-----------------------
[1] (2008) 4 SCC 755
[2] (2010 (11) SCC 1)
[3] (1992 Supp.(2) SCC 651)
[4] (1986 ) 4 SCC 537
[5] (1991) 4 SCC 584
[6] (2005) (2) SCC 431
[7] (1987) (1) SCC 124
[8] (1964 (6) SCR 261
[9] 1998 (4) SCC 100 (at page 104 para 9)
[10] 2000 (2) SCC 628 (at page 635 para 12)
[11] 1994 (2) SCC 155
[12] 2011 (5) SCC 532
[13] (2008) 7 SCC 169
[14] (2002) 1 SCC 367
[15] (2011) 8 SCC 161
[16] 1962 (2) SCR 339
[17] 2002 (4) SCC 105
[18] 2012 (9) SCC 552
[19] 2002 (1) SCC 367
[20] 2011 (8) SCC 161
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