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A V V N L Thr Cmd vs Hindustan Zinc Ltd on 5 April, 2018

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IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN
AT JAIPUR BENCH
ORDER

D.B. Civil Miscellaneous Appeal No.2803/2017

Ajmer Vidyut Vitaran Nigam Limited through its CMD Hathibhata Power House
Road, Ajmer (now MD Vidyut Bhawan Makawarali Road, Ajmer (Raj.)
— Appellant
Versus

Hindustan Zinc Limited (HZL) Yashad Bhawan, Udaipur (Raj.)

Respondent

Date of Order: April 05, 2018.

PRESENT
HON’BLE MR. JUSTICE MOHAMMAD RAFIQ
HON’BLE MR. JUSTICE ALOK SHARMA

Mr. Virendra Lodha with
Mr. Jai Lodha, for the appellant.

Mr. R.N. Mathur, with
Mr. Punit Singhvi, for the respondent.

BY THE COURT: (Per Hon’ble Sharma, J.)

REPORTABLE

By this Miscellaneous appeal under Section 37 of the

Arbitration Conciliation Act, 1996 (hereafter `the Act of 1996′) a

challenge has been laid to the judgment dated 25-2-2017 passed by

the Commercial Court dismissing the appellant AVVNL’s (hereafter
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`AVVNL’) objections under Section 34 of the Act of 1996 to the

award dated 25-8-2007 passed by the sole Arbitrator appointed by

the Rajasthan Electricity Regulatory Commission Jaipur (hereafter

`the Commission’) vide order dated 12-2-2007 purporting to

exercise its power under Section 4, 94, and 158 of the Electricity Act,

2003 (hereafter `the Act of 2003′) read with clause 30 of the

Rajasthan Electricity Commission terms and Conditions of (open

access) Regulations, 2004 (hereafter `Regulations of 2004′).

The necessary facts relevant to adjudication of the appeal are

that the respondent Hindustan Zinc Limited (hereafter `HZL’) has

four high tension Electricity Connections for its units at Chanderiya,

Debari, Aghucha and Dariba for which four contracts with AVVNL

obtain for purchase of electricity. HZL also set up a captive power

plant (hereafter `CPP’) of 154 MW (2×77 MW) at Chanderiya,

which was commissioned in February, 2005 and synchronized with

the Rajasthan Vidyut Prasaran Nigam Limited Grid (hereafter `the

RVPNL’). Short term open access to transmission and distribution

systems of RVPNL and AVVNL for electricity generated at the CPP

was sought under the Regulations of 2004 framed under Sections

42(2) and 181 of the Act of 2003. Requisite permission for open

access to the transmission system was granted by RRVPNL on 28-1-

2005 and open access thereafter obtained under agreement dated
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11-3-2005. HZL also entered into three open access agreements

with the AVVNL on 10-3-2005 for wheeling of power from its CPP

on AVVNL’s distribution system. The open access capacity allocation

agreement between AVVNL and HZL was for Rampura Aghucha–

20000 KW, for Debari–15000 KW and for Dariba–5000 KW.

Open access commenced 24-3-2005 and the power generated by

the respondent HZL at its CPP after meeting the requirements of its

industrial unit at Chanderiaya was injected at 132 KV and 220 KV

grid substations at Chittorgarh from where it was transmitted on

RVPN’s transmission system and supplied to respondent HZL’s units

at Aghucha, Debari and Dariba through AVVNL’s distribution lines.

Under the open access agreements dated 10-3-2005 between

AVVNL and HZL it was agreed that charges for existing connections

for the sanctioned contract demand of HZL as a Discom consumer

and charges as open access consumer would be governed by the

tariff and regulatory order/s in force from time to time. The

agreements specifically provided for daily scheduling of injection

and drawl for each 15 minutes time block. It was also agreed that

Availability Base Tariff (ABT) complaint meters capable of recording

deviation from schedules of the generating system station contracted

by open access consumer for supplying/ injection open access power

were to be provided at injection point. Other salient features of the
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agreement dated 10-3-2005 relevant for this miscellaneous appeal

were as under:-

“As both the parties are agreeable to modify the existing
connection agreement(s) to the extent applicable.”

(1) Definitions
In this agreement, unless the context otherwise requires-

(a) “Act” means the Electricity Act, 2003 (Act No.36
of 2003);

(b) “ABT Compliant Meter” means metering system
specified for Availability Based Tariff (ABT) in metering
code by the commission;

(c) “Commission” means Rajasthan Electricity
Regulatory Commission;

(d) “Contract Demand” shall mean the demand in
KVA sanctioned for the consumer which the Ajmer
Discom makes specific commitment to supply energy
from time to time subject to the governing terms and
conditions;

(e) “Distribution Metering Code” means the
metering code specified by the commission for
distribution system of the distribution licensee in the
state;

(f) “Grid Code” means the grid code specified by the
commission under section 86(1)(h) of the Act for
Rajasthan State Transmission System;

(g) “Open Access Consumer” means a person using
or interchange against the transmission system and/ or
the distribution system of the licensee(s) in the state for
transmission and/ or wheeling of electricity in the state;

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(i) “SLDC” means the Rajasthan State Lead
Dispatch Centre at Heerapura, Jaipur–functioning
under sub-section (1) of Section 31 of the Act;

(j) “Transmission Metering Code” means the Grid
Metering Code specified by the commission for the
Rajasthan State Transmission System;

(k) “Terms Condition of Supply of Electricity”
means the terms and conditions of supply of electricity–

2004 issued by Ajmer Discom and includes any
modifications thereof from time to time.

(l) “Wheeling” means the operation where by the
distribution system and associated facilities of a
transmission licensee or distribution licensee as the case
may be, are used by another person for conveyance of
electricity on charges, terms and Conditions as set birth
with in this Agreement;

Words and expressions used in this Agreement but
not defined herein, shall have meaning assigned to them
in the Electricity Act, 2003, and Rajasthan Electricity
Regulatory Commission (Terms and Conditions for Open
Access) Regulation, 2004, Terms and Conditions of
Supply of Electricity–2004 in that order.

(2) Ajmer Discom shall continue to supply power to Open
Access Consumer against his existing connections for the
sanctioned contract demand(s) as detailed above, subject
to terms and conditions as modified by this agreement.
(3) Ajmer Discom shall wheel _ KW power for the
consumer on the open access basis on its distribution
system from point of injection to the point of drawl as
detailed in the Schedule–1 referred to earlier.
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(4) The wheeling of power by Ajmer Discom on its
Distribution System shall be governed by the Open Access
Agreement executed by consumer with RVPN under
Rajasthan Electricity Regulatory Commission (Terms and
Conditions for Open Access) Regulations, 2004 and the
specified procedure therein.

(5) Both the parties agree that the charges for existing
connections for the sanctioned Contract Demand(s) as a
Discom consumer and charges for Open Access
Consumer shall be governed by the tariff and regulatory
order in force time to time, except where specific
provision has been made in this Agreement.

7. (g) The Open Access Consumer shall have
round the clock facility of communication with SLDC
through telephone/ mobile with STD and for
transmission/ receipt of fax and e-mails.

8. Scheduling
The following procedure is agreed upon by the
parties for scheduling open power at generation and
drawal at the receiving point by Open Access Consumer.

(a) The generating station injecting open access
power into State Transmission System or generating
stations embedded in the Distribution System and
injecting open access power directly into Distribution
System shall furnish each day at 10 AM to State Load
Despatch Centre. Heerapura, a day-ahead generation
schedule for each 15-minute block starting from 00.00
hrs for the ensuing day

(b)

(c) The Open Access Consumer at 10 AM each day
shall furnish to Ajmer Discom schedule of drawal on 15
minute block basis which it intent to draw against the
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open access and on 15 minute block basis schedule
against contract demand of existing connections, f any,
separately. The drawl schedule of open access power shall
be limited to the availability shown by the supplying
generator in its schedule.

9. Settlement

(a) The parties agree that the settlement of
mismatch between the schedule injection and actual
injection by the generating station injecting open access
power into State Transmitting System or by the
generating station embedded in the Distribution System
for each 15 minute block shall be done in following
manner

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

(ii) Generation exceeding 5% of the generation/ injection
scheduled in any 15 minute block shall be considered as
zero and no UI charges shall be receivable by the
generating station for such excess generation.

(iii) The mismatch between the schedule generation and
actual generation shall be determined from the meter
data down loaded through MRI and 15 minute block-
wise shcedule furnished for each day during the billing
month.

(c) The mismatch in total drawl scheduled by consumer
against open access and against existing contract demand
and total actual drawn each 15 minute block shall be
done in following manner;

(i) Un-schedule drawl not exceeding 5% of the
total schedule made by the consumer against open access
and existing Discom Connections in any 15 minute block
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shall be priced at UI rate and payable by the Open Access
Consumer.

(ii) The balance mismatch in scheduled and actual
drawl shall be paid by the Open Access Consumer to the
Ajmer Discom at the mutually agreed rates. And in
absence of any agreement such drawl would be treated as
temporary supply and shall be charged the tariff for
temporary supply as contained in Part-II of the “Tariff for
Supply of Electricity–2004” booklet for the applicable
category.

(iii) The mismatch between the schedule drawl and actual
drawl shall be determined from the meter data down
loaded through MRI and 15 minute block wise schedule
furnished for each day during the billing month.

10. Energy Losses
It is agreed that the energy losses on account of use
of the transmission and distribution system shall be done
by the Open Access Consumer. The losses shall be
considered in proportion of the energy drawl by the
Open Access consumer on the basis of loss levels
approved by the Commission for the previous year for the
voltage level at which Open Access consumers is
connected.

(11) Billing
Ajmer Discom shall raise the bills at the end
of the month for the use of distribution system for
wheeling of Open Access power and against the existing
Discom connections of the consumer for the following
amount.

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(a) Wheeling charges for the contracted open
access power on Discom system as specified by the
Commission from time to time.

(b) The cross-subsidy surcharge as determined by
the commission from time to time under Rajasthan
Electricity Regulatroy Commission (Terms and Conditions
for Open Access) Regulations, 2004

(c) An additional surcharge as determined by the
Commission from time to time in case the consumer
availing open access and receiving supply of electricity
from a licensee other than his existing distribution
licensee of his area of supply.

(d) Energy charges for scheduled energy against existing
connections for the Contract Demand of 21000 KVA as
Discom Consumer as per applicable tariff.

(e) Fixed Charges for the contract Demand of 21000 KVA
as Discom consumer as per applicable tariff.

(f) Minimum bill amount as per tariff applicable in force
for the contract demand against the existing connections.

(12) Payments.

The Open Access Consumer shall pay the
payments for the bills raised by the Ajmer Discom within
the due date indicated in such bills. In the event of
monthly bill(s) not paid in full within the period specified
on the bill, the Open Access Consumer agree for Late
Payment Surcharge for total bills of Discom as per
applicable tariff in force from time to time.

(13) Other tariff provisions

Both the parties agree that other tariff provisions shall be
governed by the following:

(a) Billing demand: The Open Access Consumer shall not
cause a demand more than 105% of his Contract Demand
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against his existing Discom’s connection. In case he
causes a demand or more than 105% of the Contract
demand in any 15 minute time block in a particular
month, he shall be required to pay extra charge equal to
same percentage of the fixed and energy charges against
his existing connection bu equal percentage of excess
demand caused over and above contract demand. The
demand caused by the Open Access Consumer against
existing Discom connection in excess of Contract demand
shall be computed through following procedure:

(i) 15 minute block wise total KWh MRI data down
loaded at month and shall be converted in to KW giving
total demand caused by Open Access Consumer against
existing Discom’s connection and open access power.
Kwh figures to be divided by time (0,25 hours) to arrive
KW.

(ii) From 15 minute block-wise total KW demand,
the power scheduled by the open access consumer
against open access in such block shall be deducted to
arrive at 15 minute block-wise actual KW drawn against
existing connection.

(iii) Maximum KW caused in any 15 minute block during
the month (out of 96 blocks X number of days in billing
months) shall be considered as actual maximum demand
in KW caused by the consumer during such month.

Maximum demand in KVA shall be worked out by
applying power factor (PF) of 0.9 (90%) for leyy of
Demand Surcharge exceeding contract demand against
existing connection.

(b) Power Factor: The Open Access Consumer shall
maintain the average monthly power factor not less than
0.9 for the total power consumer against existing Discom
connection and power wheeled on Open Access on single
point basis. In case of the average power factor falls
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below 0.9 (90%), a surcharge of 1% of energy charges
computed at the tariff applicable for existing connection
shall be charged for total energy consumed against
existing Discom connection and power wheeled on open
access on single point basis.

In the average power factor falls below 0.7 (70%)
the installation shall be disconnected and will not be
reconnected till the average power factor is improved to
the satisfaction of Ajmer Discom.

(c) Incentive Scheme–Both parties agree that any
incentive scheme applicable for large industrial
consumers for encouraging higher consumption through
rebate on energy charges by whatever name called will
not apply under this agreement.

(d) No incentive for maintaining PF above 0.95 shall be
admissible to the open access consumer.

(14) This agreement shall remain in force during the
period of open access permitted by RVPN vide its letter no
RVPN/Dir(P8R)/NPP/Open Access/D.1029 dated 28-1-
2005 and thereafter a fresh agreement as a Discom
Consumer for such contract demand as may be permitted
by Ajmer Discom will have to executed.

(15) Both the parties agree that during the term of this
agreement the contract demand or contracted open
access power and any other terms and conditions agreed
initially will not be changed without consent of other.

On the basis of open access agreements dated 10-3-2005, as

mutually agreed the AVVNL billed HZL as per the scheduled/

actual injection and scheduled/ actual drawl under open access and
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contract demand. However for want of requisite data and software

no specific amounts were indicated as UI charges for the mismatch

of scheduled and actual drawls simultaneously with other associated

charges payable by HZL under the agreements. Instead AVVNL

deducted 10% of the energy injected by HZL under the agreements

from its CPP towards unscheduled interchange charges as leviable

under the agreement dated 10-3-2005. These rule of thumb

deductions pending finalization of unscheduled interchange pricing

mechanism by the Commission under clause 20 of the Regulations

of 2004 aggregated to Rs.9.43 crore for the period April, 2005 to

December, 2005.

Aggrieved of deductions aforesaid towards UI charges on

approximate basis the respondent HZL filed petition No.87/2006

before the Commission. Its counsel on objections to the

maintainability of the dispute relating to UI charges before the

Commission in view of clause 29 of the Open Access Regulations,

2004 dealing with redressal mechanism for open access related

disputes and complaints submitted that “Clause 29 of the OA

Regulations shall be effective only when the UI mechanism is

specified by the Commission”. The Commission vide interim order

dated 10-4-2006 directed AVVNL to finalize the HZL’s unscheduled

interchange settlement account within three months based on
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applicable orders and clarification issued by it. The Commission

further held that AVVNL could recover Unscheduled Interchange

(UI) charges but only as provided interalia under clause 20 of the

Regulations of 2004 after receipt of schedules of each 15 minutes

from HZL and then finalize UI settlement account from the

deviations of drawls from the agreed schedule.

The Commission thereafter on further hearing of petition

No.87/2006 vide final order dated 22-5-2006 found that AVVNL

had deducted Rs.8.81 crore and not 9.43 crore towards the UI

charges from HZL and observed that to facilitate appropriate energy

accounting the basic software wold be got developed for the purpose

through its own staff as per the conditions of the agreement dated

10-3-2005. And once the software was finalized, the dispute

regarding energy accounting and billing be settled by the dispute

redressal mechanism as per clause 29 of the Regulations of 2004.

The operative part of the order dated 22-5-2006 is reproduced

hereunder:-

“9. The Commission has heard the petitioner and
respondent on 4-4-06 and it was observed by the
Commission that as per clause 8 (a) (c) of the agreement,
open access consumer is to submit a day ahead schedule of
injection (from generating station) and drawl against open
access from AVVNL at the aforesaid industrial units on 15
14

minutes block basis and that as per clause-9 (a)(i) (ii)
9 (c), (i) (ii), deviation from scheduled generation and
scheduled drawl not exceeding 5% of total schedule for
open access and AVVNL supply is to be priced at the UI
Price specified by the Commission and shall be
payable/receivable by the open access consumer. For the
generation (i.e. injection) exceeding 5% of the schedule, no
amount shall be receivable by generating station and drawl
exceeding 5% of total schedule shall be charged at the
tariff for temporary supply. On 4-4-2006, the respondent
stated that UI settlement account could not be prepared for
want of requisite software with them and SLDC and that
time is required by the respondent to compile schedules.

No definite schedule for accomplishing this task could be
indicated by the respondent. The Commission observed
that while the respondent was entitled to recover/pay
charges as per these provisions, but in no case was entitled
to withhold payments in lieu of UI charges for a long
period without preparing UI account and billing.
Accordingly, such adhoc deduction withholding of the
amount is not desirable and conducive to open access.
Considering these aspects, the Commission passed the
order on 10-4-2006 (placed at Annexure-2). The orders
dated 13-2-2006 10-4-2006 passed by the Commission
and attached herewith, shall from part of this order as
confirmed.

10. In pursuance to para 7 of the order dated 10-04-2006,
a meeting was held between AVVNL, HZL SLDC on 24-
4-2006 for technical discussions and to review the
progress. It was informed in the meeting that the petitioner
and the respondent have not exchanged hard soft copy
of schedules. It was stated that it could not be done by the
respondent, as the copy of schedules prior to June 2005
were not furnished to SLDC and HZL was also not in a
15

position to deliver them to AVVNL due to computer
problem. The petitioner and respondent agreed to
exchange the same by 26-4-2006. HZL stated that they
have furnished BG and AVVNL stated to effect refund, if
any, by the end of May 06. AVVNL, however, expressed
difficulty on account of non-availability of suitable
software for energy accounting and determination of UI
from the schedules viz-a-viz actual drawl/ injection. To
facilitate energy accounting, the Commission agreed to
have basic software developed for the purpose though the
Commission’s staff. The software shall be as per the
provisions of the agreement and shall not be construed as
approval of RERC for various provisions of agreement
except UI rates.

11. It was decided that the software would be delivered to
AVVNL for billing after testing for errors/improvement. Its
copy was also be delivered to HZL SLDC. Once software
is finalized, further upgradation/ improvements shall be
effected by AVVNL/SLDC. The Commission observes that
this open access is effected in the area of supply of AVVNL
and no other distribution licensee is involved in this open
access. I case, billing as per provisions of agreement for the
aforesaid period is not effected within 3 months of the
receipt of the schedules from HZL the balance amount
withheld by AVVNL shall be refunded to HZL against Bank
Guarantee valid for 6 months.

12- The Commission reaffirms that one software is
finalized, dispute regarding energy accounting and billing
shall be settled by dispute redressal mechanism already
provided at clause 29 of the Open A ccess Regulations,
wherein SLDC is the proper authority to be approached for
settlement of the dispute. When SLDC is unable to settle the
dispute the State Power Committee (‘SPC’), under the
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provisions of the State Grid Code, will endeavour to resolve
it and in case, SPC is also unable to resolve the dispute, the
Commission is to be approached.”

Following the development of software by the Commission’s

staff AVVNL on 25-1-2007 prepared final bill for the period from

May, 2005 to January, 2007 aggregating to Rs.20.6 crores.

Thereupon the HZL on 25-1-2007 filed petition No.122/2007

before the Commission invoking Sections 42, 94, 158 of the act of

2003 read with clause 30 of the OA Regulations of 2004 for

appointment of an Arbitrator. Despite the Commission’s earlier

directions by a 3 member bench under its orders dated 10-4-2006

and 22-6-2006 that after bill drawn following finalization of

software by the Commission’s staff disputes relating to UI account

settlement be referred to SLDC under Clause 29 of the Regulations of

2004, vide order dated 12-2-2007 one member of the Commission

referred the dispute relating to billing of UI charges to one Mr. R.K.

Sharma, ex member of the erstwhile RSEB as sole arbitrator. The

reference categorically was “to resolve the dispute arising out of

Open Access availed by M/s. HZL from its Captive Power Plant at

Chanderiya (Chittorgarh) to its industrial units located within the

area of AVVNL in the matter of UI charges billed by AVVNL”.
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The respondent filed a claim petition setting up multiple

claims before the Arbitrator. The appellant filed reply thereto

objecting to the claims except those relating to UI charges levied

being beyond the reference.

On the basis of pleadings of the parties, the Arbitrator framed

11 issues:-

1. Whether bilateral agreements entered into to deal
with contingencies not provided in the RERC Regulations
can be challenged by either party?

2. Whether the software adopted for billing was in
accordance with the bilateral Agreement dated 10-3-
2005?

3. Whether the petitioner failed to comply with any of
the requirements of OA agreement and its effect?

4. Whether any of the provisions of Open Access
Agreement are contrary to the provisions of RERC
Regulations and its effect? Whether the amount
deducted towards UI charges was justified?

5. Whether AVVNL is justified in not allowing Power
Factor incentive to HZL units?

6. Whether the wheeling charges billed by the AVVNL
are as per the agreement?

7. Whether the levy of LPS retrospectively by AVVNL is
justified particularly when they had deducted 10% on
adhoc basis towards UI charges?

8. Whether AVVNL is justified in claiming temporary
supply tariff for injection less than 95% of schedule?

9. Whether AVVNL is justified in not accounting units in
excess of 105% of the schedule?

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10. What claim? Whether interest is payable to the
claimant?

11. Whether AVVNL is justified in levying temporary
tariff in terms of clause 9(c)(ii) of the agreement, even
though the drawl is within the contract demand?

12. Whether AVVNL is justified in not allowing any
credit for under-drawl of energy below 95% of the
schedule?

Vide award dated 25-8-2007, the claim petition of HZL was

allowed.

Aggrieved of the award, the appellant filed objections under

Section 34 of the Act of 1996 before the Commercial court on the

ground that the dispute as to UI charges ought not have been

adjudicated by the Arbitrator, the Arbitrator’s conclusion as to

conditions 2, 5, 8(c), 9, 11(d)(e) and 13(d) of the OA agreements

dated 10-3-2005 being illegal and unenforceable were perverse

and beyond the reference made to him and that the award was both

patently unjust and perverse.

The commercial court vide impugned judgment dated 25-2-

2017 dismissed AVVNL’s objections to the award dated 25-8-2007.

The award thus now hold as an executable decree.

Hence this miscellaneous appeal.

19

Mr. Virendra Lodha submitted that the dispute of which the

reference was made on 12-2-2007 – billing of UI charges – by the

commission being related to the OA agreement dated 10-3-2005

could only have been pursued for resolution under clause 29 of the

OA Regulations 2004. That clause provides that “all disputes and

complaint relating to open access shall be referred to (the) State Load

Dispatch Center, which would investigate and resolve the grievance

within thirty days, and where it was so unable to do the matter was

to be considered thereafter by State Power Committee. And only

when the State Power Committee was not able to resolve the dispute

within thirty days of taking seisin, such a dispute or complaint at the

instance of open access consumer would be referred to the RERC.

Mr. Virendra Lodha submitted that the OA Regulations 2004 had

been made under Section 42 (2) read with Section 181 of the Act of

2003 and placed before the State Legislature in terms of Section 182

thereof. They thus partook the character of law and were binding

with a stamp of exclusively inter alia as to the manner of resolution

of dispute relating to open access. It was submitted that the resort to

arbitration in respect of such disputes i.e. regarding billing of UI

charges was thus completely misdirected and unsustainable. Mr.

Virendra Lodha further submitted that the application moved on

25-1-2007 by the HZL before the commission interalia invoking
20

Sections 42, 94 and 158 of the Act of 2003 as also clause 30 of the

Open Access Regulations 2004 was not qua a dispute relating to the

relationship between a generating company (CPP here) and the

distribution licensee, but one evidently between a open access

consumer and a licensee under the Regulations of 2004 in respect of

billing for UI charges leviable in the course of availing open access.

Such dispute was thus not arbitrable, a specific statutory remedy

therefor having been provided under clause 29 of the Open Access

Regulations 2004. A reference to the Arbitrator of such a dispute by

resort to Section 158 of the Act of 2003 was wholly misdirected,

without jurisdiction and of no consequence. An award based on

such a reference in regard to a non-arbitrable dispute, is liable to be

set aside under Section 34(2)(b)(i) of the Act of 1993.

Mr. Virendra Lodha further submitted that the sole arbitrator

travelled beyond the terms of the reference made under the

Commission’s order dated 12-2-2007 and hence exceeded his

jurisdiction in passing the impugned award dated 25-8-2007. It

was submitted that the reference made was only to “resolve the

dispute arising out of open access availed by HZL from its capital

power plant Chanderiya (Chittorgarh) to its other industrial units

located within the area of AVVNL in the matter of UI charges filled

by AVVNL in the matter of UI charges billed by AVVNL”. On its plain
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terms the reference was thus clearly limited to the dispute in regard

to UI charge and yet the Arbitrator under his award dated 25-8-

2007 proceeded to entertain and address other issues including

those as to whether HZL had complied with all its obligation under

the OA agreement dated 10-3-2005; as to whether AVVNL was

justified in not allowing power factor incentive to M/s. HZL’s units;

whether late payment charges were as per the OA agreements dated

10-3-2005 etc., Mr. Virendra Lodha submitted that even otherwise

the Arbitrator acted beyond the reference in respect of billing of UI

charges, which billing dispute necessarily had to be considered with

reference to the RERC (OA) Regulations, 2004 and the OA open

access agreements dated 10-3-2005. In allowing HZL to impugn the

various conditions of the OA agreement dated 10-3-2005 – more so

when no such challenge was laid in the application moved by HZL

before the Commission on 25-1-2007 on which the reference was

made was wholly beyond the reference. It was submitted that a

reference having been made by the Commission on the application

dated 25-1-2007, the sole arbitrator should have confined the

consideration and the subsequent award solely to the issue first

agitated in the application without entertaining the challenge to the

conditions of the agreement dated 10-3-2005. It was submitted that

the award dated 25-8-2007 in regard whereto objections have been

dismissed by the Commercial Court vide its judgment dated 25-2-
22

2017, being beyond the reference deserves to be quashed and set

aside.

Mr. Virendra Lodha further submitted that even otherwise the

award dated 25-8-2007 is ex-facie perverse, inasmuch as the sole

arbitrator despite recording that the OA agreements dated 10-3-

2005 entered into between the appellant and respondent HZL were

not vitiated either by undue influence or misrepresentation, held

condition Nos.2, 5, 8(c), 9, 11(d), (e) and 13(d) thereof to be

contrary to the “Regulations”. It was submitted that this findings of

the sole Arbitrator flew in the face of the fact that the agreements

dated 10-3-2005 were drafted as per the Commission’s order dated

25-5-2004 wherein it was recorded that any mismatch between

energy supplied for open access consumer and actual drawl by the

consumer, will result in corresponding mismatch (i.e. over drawl/

under drawl) by the distribution licensee from northern region and

will be reflected by the NRLDC in its energy account which will be

subject to UI charges. And as such UI account was to be billed to STU

for the state as a whole the SLDC was to allocate such UI charges

among distribution licensee. Further with open access being allowed

to consumers such allocation of UI charges was also to be made to

the consumers based on its over drawl/ under drawl extrapolated to

Ex-CSGS bus bar.

23

Mr. Virendra Lodha further submitted that subsequently in its

order dated 10-4-2006 the Commission with reference to the OA

agreement dated 10-3-2005 in para 4 recorded that “open access

agreement is by an large found to be in conformity with the

provisions of open access regulations”. Mr. Virendra Lodha pointed

out that even in its order dated 22-5-2006 the Commission

observed that AVVNL was entitled to recover charges as per the

provisions of OA agreement dated 10-3-2005, albeit AVVNL indeed

could not withhold credits/ payment otherwise due to HZL in lieu of

UI charges for long periods without preparing UI account and

billing. Mr. Virendra Lodha hastened to add that the reason for delay

in the settlement of UI account was that the HZL was not making

available requisite data to AVVNL as was its obligation under the

agreements dated 10-3-2005.

Mr. Virendra Lodha then submitted that in any event clause

20 of the OA Regulations 2004 with reference to which the

agreements dated 10-3-2005 were interalia entered into provided

for unscheduled inter-change pricing. Thereunder charges on the

open access consumer for mismatch between scheduled and actual

drawl were to be levied in terms of the pricing mechanism as

specified by the commission. It was submitted that there were indeed
24

delays in finalizing the pricing mechanism by the consumer for

whatever reason but that could not entail negation of the right of

AVVNL and the corresponding obligation of the open access

consumer–HZL with regard to conditions of the agreement dated

10-3-2005 based on the open access regulations of 2004 in regard

to UI charges–when applicable for mismatch in scheduled and

actual drawls by the open access consumer. At the worst, Mr.

Virendra Lodha submitted delay in finalization of the pricing

mechanism for UI charges by the commission would have only

entailed deferment of recovery of UI charges–appropriately

adjusted. It was submitted that the finding of the Arbitrator on this

count holding that non availability of pricing mechanism for UI

charges entailed an all time debarment for recovery thereof, even

after finalization of software for the purpose by the staff of the

commission itself is therefore wholly unsustainable. Mr. Virendra

Lodha also emphatically submitted that once the sole arbitrator had

recorded in his award dated 25-8-2007 that the agreements dated

10-3-2005 was signed by the parties with eyes open and were not

vitiated by undue influence or misrepresentation, there was no

reason with the sole arbitrator to strike down clauses 2, 5, 8(c), 9,

11(d)(e) and 13(d) of the agreement. It was submitted that even

otherwise there was nothing on record before the sole Arbitrator to

holds the agreements dated 10-3-2005 were vitiated by any
25

illegality. It was submitted that the Arbitrator ought to have

appreciated that the OA agreement dated 10-3-2005 were a

bargain between the AVVNL and HZL and a negation of some of the

essential conditions constituting consideration and a sine-qua-non

subsequent to its implementation, the HZL having obtained benefits

thereunder, was not permissible on the ground of equity. Mr.

Virendra Lodha submitted that the HZL was estopped from

challenging any condition/s of the agreements dated 10-3-2005, on

which basis it obtained open access from the appellant AVVNL on its

distribution lines for supply of electricity from its CPP to its three

units at Aghucha, Debari and Dariba. It was submitted that the

lopsided and unjust construction of agreements dated 10-3-2005

on which the award dated 25-8-2007 is founded is wholly

unconscionable bringing it within the mischief of being contrary to

public policy as provided for in Section 34(2)(b)(ii) of the Act of

1996.

Mr. Virendra Lodha submitted that the trial court under its

impugned judgment dated 25-2-2017 rejecting the appellant’s

objections to the award dated 25-8-2007 has thus failed to exercise

its jurisdiction to set aside the award. It was submitted that the

award dated 25-8-2007, was liable to be set aside for reason of

submissions made. And the Commercial Court in impugned
26

judgment dated 25-2-2017 for having failed to exercise its

jurisdiction under Section 34 of the Act of 1996.

Per Contra, Mr. R.N. Mathur Senior Advocate, appearing with

Mr. Punit Singhvi for HZL submitted that Section 86(1)(f) of the Act

of 2003 empowers the Commission inter alia to adjudicate upon all

disputes between a licensee and a generating company and in its

discretion to refer any such dispute before it for arbitration. It was

submitted that Section 2(28) of the Act 2003 defines a generating

company to mean a company or body corporate or association or

body of individuals, whether incorporated or not, or artificial

juridical person which owns or operates or maintains a generating

station. That would indubitably also include a company operating a

captive power plant submitted Mr. R.N. Mathur as HZL was at

Chanderiay. Referring to Section 2 (17) of the Act of 2003, Mr. R.N.

Mathur submitted that it defines a distribution licensee to mean a

licensee authorized to operate and maintain a distribution system for

supplying electricity to the consumers in its area of supply and that

AVVNL unquestionably is. It was submitted that albeit the HZL was

also a consumer of AVVNL with a contracted demand for supply of

power to its four units, yet the dispute with regard to imposition of

illegal conditions in the open access agreement and wrong billing

of UI charges without the pricing mechanism therefore being
27

determined by the Commission under clause 20 of the Regulation of

2004 contrary to Act of 2003, and orders of the Commission,

entailed a dispute between the HZL as a generating company (HZL)

and AVVNL as the distribution licensee whose infrastructure was

being availed for open access. This dispute was thus eminently

amenable to adjudication by the Commission under Section 86(1)(f)

of the Act of 2003, and thereunder also to arbitration. The reference

made to the Arbitrator on 12-2-2007 on HZL’s application was thus

wholly rated. Mr. R.N. Mathur submitted that in terms of 16 of the

Act of 1996 read with Section 4 thereof any objection as to the

purported lack of jurisdiction of an Arbitrator to address the dispute

on the reference made to him had to be made prior to submission of

the reply to the claim petition and when not so agitated at the

appropriate time, it entailed a non-reversable waiver. Objection as to

jurisdiction of the Arbitrator once standing thus waived under

statute, cannot subsequently be resuscitated as an after thought

either before the commercial court in objections under Section 34 of

the Act of 1996 or subsequently in appeal from its judgment under

Section 37. Mr. R.N. Mathur submitted that the Apex Court in the

case of Gujarat Urja Vikas Nigam Limited Vs. Essar Power Limited

[(2008(4) SCC 755] has held in relation to Section 86(1)(f) of the

Act of 2003 held that when a dispute between a licensee and the

generating company is referred to an Arbitrator it has to be resolved
28

by him. Reliance has been placed on para 56 of the said opinion

wherein the Apex Court held that since the coming into force of the

Act of 2003 effective 10-6-2003 adjudication of all disputes

whether or not covered by clause (a) to (e) and (g) to (k) of Section

86 (1) (f) between the licensee and generating companies can only

be resolved by the Commission or the Arbitrator appointed by it. Mr.

R. N. Mathur submitted that in this view of the matter the

submission of Mr. Virendra Lodha with regard to the dispute

agitated by the respondent HZL not being arbitrable entailing the

consequences of the award dated 25-8-2007 thereon being set aside

is wholly without legal foundation and meritless.

Mr. R.N. Mathur further submitted that in any event the

redressal mechanism under clause 29 of the Regulations of 2004 for

redressal of the dispute agitated by HZL as to billing of UI charges,

for which the reference was made to the sole arbitrator by the

commission on 12-2-2007 was not appropriate. The dispute

agitated by the HZL was as a generating company being wrongly

harassed and being arbitrarily charged various amounts by the

distribution licensee whose lines were utilized for wheeling power

generated at its CPP. It was submitted that the dispute agitated before

the commission under application dated 25-1-2007 did not relate

to a matter of open access or billing therefor. In the written
29

submission filed on behalf of HZL it has been submitted that neither

was the dispute agitated by respondent HZL one relating to

determination of tariff under Section 62 of the Act of 2003 nor for

that matter a dispute qua the open access agreement. Mr. R.N.

Mathur further submitted that the dispute agitated also similarly

was not relatable to Section 42 of the Act of 2003 under Chapter VI

pertaining to distribution of energy and hence not one in respect of

which HZL as a consumer of electricity supplied by the appellant

AVVNL under contracted demand was under obligation to agitate its

billing dispute with AVVNL before the forum for redressal of

grievances under Section 42(5) of the Act of 2003 and thereafter

before the Ombudsman under Section 42(6) of the Act of 2003.

Mr. R. N. Mathur further submitted that the reference made

vide order dated 12-2-2007 passed by the commission was open

ended–it required adjudication of all disputes relating to AVVNL’s

arbitrary billing for UI charges. In so addressing the dispute the

clauses of the agreements dated 10-3-2005 invoked by AVVNL to

buttress the changes were open to consideration, evaluation and

setting set aside on being found in the cross-hairs of the Act of 2003

and orders of the Commission. Such offending clauses were capable

of being set aside. Similarly other conditions of the open access

agreements dated 10-3-2005 which flew in the face of the Act of
30

2003 empowering only the commission to determine tariffs for

supply of electricity and related charges could also be addressed by

the Sole Arbitrator, as they were and found to be null and void. Mr.

R.N. Mathur submitted that the sole arbitrator in the final judge of

both fact and law. His evaluation bonafide made cannot be second

guessed by courts which under the Scheme of the Act of 1996 can

only minimally interfere on the specific grounds as set out under

Section 34 of the Act of 1996 being made out with a semblance of

reasonableness. The arbitrator has taken a just and fair view on the

agreements dated 10-3-2005, kept them clear of illegal, onerous

conditions wholly illegal as also unsustainable in law. In

determining the dispute before him the Arbitrator has negated the

effort of the AVVNL to apply scheduling to drawl of power a find a

mismatch even in regard to contracted supply of electricity to a HT

consumer wherein no such scheduling was visualized. And because

of which HZL was being meted with huge amounts variously named

as UI charges, temporary tariff, LPS and those resulting from denial

of benefits of maintaining a PF (Power Factor) which benefits were

available to other sundry HT consumers.

Mr. R.N. Mathur finally submitted that the arbitrator has on

consideration of the evidence before it on issues struck on the

pleadings of the parties passed his award in his best and bonafide
31

judgment as the final judge of both fact and law. His award is thus

beyond challenge on merits not the least for the reason that he was

an expert in matters relating to electricity. Within the narrow limits

of jurisdiction under Section 34/ 37 of the Act of 1996 no ground

for setting aside of the award dated 25-8-2007 is thus made out.

And for this reason the commercial court under its judgment dated

25-2-2017 has rightly found no ground within Section 34 of the

Act of 1996 being made out to set aside the award. So should this

court find as no good reason to the contrary has been made out in

the appeal. And hence the appeal be dismissed, submitted Mr. R.N.

Mathur.

Heard. Considered.

It is no doubt true that in terms of Section 16(2) of the Act of

1996 a plea of lack of jurisdiction of the Arbitrator is to be raised

not later than the submission of the statement of defence and if

unsuccessful at that stage, in objections under section 34 of the Act

of 1996 against the final award. Even a plea with regard to the

arbitrator exceeding the scope of his authority under the statutory

reference made or appointment under the relevant arbitration clause

is to be raised in the first instance when the occasion arises and not

otherwise. It is equally true that under Section 4 of the Act of 1996

where a party participates in an arbitration without stating its
32

objections to the jurisdiction of the Arbitrator, subsequently such a

plea is hit by waiver. Yet the limitations of Section 16(2)and 16 (3)

read with section 4 of the Act of 1996 relate only to the Arbitrator’s

jurisdiction, the arbitration agreement being invalid or as to the

composition of the Arbitral Tribunal not being proper. And as earlier

noted, when not initially raised cannot subsequently be so raised.

This obtaining legal position however does not entail taking away

the right specifically statutorily conferred under Section 34(2)(b)(i)

of the Act of 1996 to a party to an award to lay objections thereto on

the ground of the subject matter of the arbitration not being

arbitrable. Section 34(2)(b)(i) of the Act of 1996 reads thus:-

“the subject matter of the dispute is not capable of
settlement by arbitration under the law for the time
being in force,”

The plain language of Section 34(2)(b)(i) makes it pellucid

that objections as to an award for reason of it addressing a non

arbitrable dispute can be taken up subsequent to its passing. There

can be no waiver thereagainst either with reference to Section 4 of

the Act of 1996 or even otherwise.

The question that now arises is as to what disputes are non-

arbitrable?

33

The Apex Court in case of Booz Allen and Hamilton Inc. Vs.

SBI Home Finance Limited [(2011)5 SCC 532] has held that where

certain matters are governed by special status, they are not

arbitrable. By way of illustration the Apex Court referred to several

non-arbitrable disputes such as (i) disputes relating to rights and

liabilities which give rise to or arise out of criminal offences; (ii)

matrimonial disputes relating to divorce, judicial separation,

restitution of conjugal rights, child custody; (iii) guardianship

matters; (iv) insolvency and winding-up matters; (v) testamentary

matters (grant of probate, letters of administration and succession

certificate); and eviction of tenancy matters governed by special

statutes where the tenant enjoys statutory protection against eviction

and only the specified courts are conferred jurisdiction to grant or

decide the disputes. The issue was also considered by the Apex Court

in the case of MSP Infrastructure Limited Vs. Madhyapradesh Road

Development Corporation Limited [(2015)13 SCC 713] with a

similar conclusion.

The Apex Court in the case of A. Ayyasamy v. A. Paramasivam

[(2016)10 SCC 386] has held that ordinarily every civil or

commercial dispute whether based on contract or otherwise which

is capable of being decided by a civil court is in principle capable of

being adjudicated upon and resolved by arbitration. But such
34

resolution by arbitration of a dispute is subject to the dispute being

governed by the arbitration agreement. It was held that classes of

dispute which fall within the exclusive domain of special fora under

legislation which confers exclusive jurisdiction to the exclusion of

ordinary civil court could not be resolved by arbitration. And

consequently if the jurisdiction of ordinary civil court is excluded by

conferment of exclusive jurisdiction on a specific court as a matter

of public policy, such a dispute would not be capable of resolution

by arbitration.

In the instant case a bare look at the reference dated 12-2-

2007 made by the Commission indicates that it was with regard to

the dispute in the matter of UI charges being billed to HZL by the

AVVNL for open access to its three units under the open access

agreements dated 10-3-2005. It is not in dispute and cannot be so

that UI charges sought to be billed on the respondent HZL were in

terms of agreement dated 10-3-2005 between AVVNL and HZL for

open access to its distribution lines for the supply of electricity from

HZL’s CPP at Chanderiya. Admittedly the said OA agreements dated

10-3-2005 were founded upon the Regulations of 2004 notified by

the Commission in exercise of its power under Section 42(2) read

with Section 181 of the Act of 2003, after being laid and approved

by the State Legislature under Section 182 thereof. The said
35

Regulations of 2004 thus partook the character of law. Clause 29 of

the aforesaid Regulations 2004 provided for redressal mechanism

with regard to all disputes and complaints relating to open access.

Thereunder in the first instance all disputes and complaints relating

to open access were to be made to the State Load Depatch Centre

(SLDC) which would then be under an obligation to investigate and

resolve such dispute within thirty days, failing which the dispute

was to be considered and decided by the State Power Committee

(SPC) constituted under Grid Code, in thirty days following. It was

only when the SPC was unable to resolve the grievance of the open

access consumer (no doubt may be a CPP owner) the matter was to

be referred to the Commission, which was to then address the

disputes and complaints of the open access consumer. In terms of

Section 29 of the Regulations of 2004 the Commission on taking

seisin of the disputes and complaints relating to open access could

not make a reference to the Arbitrator as no such provision obtained

therefor.

Yet in the instant case an application under Sections 42, 94

and 158 of the Act of 2003 read with clause 30 of the Regulations of

2004 was moved by the respondent HZL before the Commission on

25-1-2007, which has been placed on record by the counsel for the

respondent HZL along with affidavit with inward No.12362/16-3-
36

2018. A perusal of the said application evidences that it is captioned

as one regarding “unauthorised deduction and collection from open

access consumer”. The caption and so too the application’s contents

indicate that it was not by HZL in its capacity of a generating

company (by virtue of it operating a CPP) but as an open access

consumer as defined in Regulations of 2004, using the distribution

systems of AVVNL–the distribution licensees. There was not a

whisper in the application by HZL that the dispute agitated was one

in its capacity as a “generating company”. The application set out

HZL’s grievances with regard to the electricity bills raised by AVVNL

under pain of disconnection of electricity supply. HZL’s case was that

the electricity bill dated 25-1-2007 raised on it following the

preparation of software by the Commission’s staff for settlement of

UI charges under the open access agreements dated 10-3-2005 was

wholly arbitrary, illegal and in violation of directions of the

Commission, and AVVNL could not make “any recovery through

software created two years after the event”. The application further

stated that in view of orders dated 10-4-2006 and 22-5-2006

passed by the Commission in petition No.57/2006, the national

Electricity Policy and the Terrif Policy, HZL required protection

without which it could not survive due to “undue harassment” and

unfair treatment at the hands of AVVNL leading to existential

hardships. Appropriate relief under clause 30 of the Regulations
37

2004 (Removal of Difficulties) was sought. On the aforesaid

averments relating to HZL’s grievance it was prayed that for its

resolution, the matter of wrongful/ arbitrary billing be resolved

through an arbitrator appointed under Section 158 of the Act of

2003.

On the aforesaid application dated 25-1-2007 the order of

reference was made by the Commission on 12-2-2007 appointing

Mr.R.K. Sharma as sole arbitrator to go into the issue of billing of UI

charges.

We are of the considered view that the contents of the

application by the respondent HZL before the Commission evidenced

that the dispute agitated therein was one related to billing for UI

charges under the open access agreements dated 10-3-2005 by

AVVNL. We find no force in the contention of Mr. R.N. Mathur

appearing for HZL that the dispute set up before the Commission in

the application dated 25-1-2007, on which the matter was referred

to the sole arbitrator did not relate to open access agreement/s dated

10-3-2005 or that it related to disputes by HZL as a generating

company (CPP owner) and AVVNL as a distribution licensee. To hold

so would be perverse and a gross misreading of HZL’s application

dated 25-1-2007.

38

At this stage it would appropriate to also take note of the fact a

three member committee of the Commission constituted of Shanti

Prasad, as Chairman, S.N. Dharendra, Member (Finance) and K.L.

Vyas member (Technical) in its order dated 10-4-2006 had held

that the dispute as to UI charges and matters relating to open access

was liable to be adjudicated under clause 29 of the Regulations of

2004. Further the Commission in its order dated 22-5-2006 held in

para 12 as under:-

“The Commission reaffirms that once software is finalized,
dispute regarding energy accounting and billing shall be
settled by dispute redressal mechanism already provided
at clause 29 of the Open Access Regulations, wherein
SLDC is the proper authority to be approached for
settlement of the dispute. When SLDC is unable to settle
the dispute the State Power Committee (SPC) under the
provisions of the State Grid Code, will endeavour to
resolve it and in case, SPC is also unable to resolve the
dispute, the Commission is to be approached.

Oddly subsequently vide order dated 12-2-2007, one member

of the Commission then passed a contradictory order. And instead of

requiring the respondent HZL to approach SLDC under clause 29 of

the Regulations of 2004 for settlement of dispute in regard to billing

of UI charges and other aspects of the agreements dated 10-3-2005,
39

as earlier held by the 3 member Commission, made a reference of

the dispute of billing of UI charges to the Arbitrator under purported

exercise of powers under Sections 45, 94 and 158 of the Act of 2003

read with Regulations 2004. It is also relevant that Section 86(1)(f)

of the Act of 2003 was not adverted to in the order dated 12-2-

2007 not adverted to in HZL’s application dated 25-1-2007.

That so being, clause 29 of the Regulations 2004 which relates

to redressal mechanism for “all disputes and complaints” in regard to

open access, was the statutory mechanism which alone could have

been invoked by HZL for resolution of disputes related to open

access including billing of UI charges. The dispute/ complaint by

HZL as the open access consumer was thus exclusively to be resolved

by the statutory mechanism under clause 29 of the Regulations of

2004 and could not in any circumstance be resolved by resort to any

other procedure including a statutory arbitration. No power

statutory or otherwise vested with the Commission in the facts of the

case to make a reference of a dispute relating to open access to a

statutory arbitrator.

This also for the reason that disputes under the Open Access

Regulations 2004 are plainly not within the jurisdiction of civil

courts as per the scheme of the Act of 2003. The jurisdiction of the
40

Civil court in such disputes is barred by necessary implication. This

is evident from the fact that a parallel mechanism for resolution of

disputes relating to electricity has been set out under the Act of 2003

by way of constitution of Central Electricity Regulatory Commission

as also State Electricity Commissions. Decisions whereof are

appellable before the Appellate Tribunal under Section 111 of the

Act of 2003 and appeals wherefrom lie to the Apex Court under

Section 125 of the Act of 2003. In the circumstances disputes/

complaint of the respondent HZL with regard to alleged wrongful

billing on account of UI charges under the open access agreements

dated 10-3-2005 in the background of Open Access Regulations

2004 were to be exclusively determined under the redressal

mechanism provided under Regulation 29 of the Regulations 2004.

The respondent HZL thus aggrieved of the allegedly wrong billing of

UI charges by AVVNL ought to have only first approached the SLDC

and if necessary thirty days thereafter the SPC constituted under

Grid Code, and on failure of both, the Commission. We are further

of the considered view that in the event of State Commission being

approached under clause 29 of the Regulations 2004, it could not

exercise its powers under Section 86(1)(f) read with Section 158 of

the Act of 2003 to make a reference to the Sole Arbitrator. The

Commission could only decide itself.

41

We are of the considered view that in the facts on record and

legal position obtaining from the judgment of the Apex Court in

A.Ayyasamy vs. A. Paramasivam (supra) the dispute/ complaint with

regard to UI charges billing under the open access agreements dated

10-3-2005 having been legislatively set up for resolution through

the exclusive redressal mechanism under clause 29 of Regulations

2004 could not have been referred to the sole arbitrator as neither

an arbitration agreement therefor obtained nor were the

preconditions of a statutory arbitration under the Act of 2003

satisfied. The dispute with regard to billing of UI charges, referred to

the sole arbitrator purportedly under Section 158 of the Act of 2003

by the Commission’s order dated 12-2-2007 was thus not

arbitrable. The dispute thus not being arbitrable the award dated

25-8-2007 thereon passed by the Sole Arbitrator is liable to be

quashed and set aside on this count alone with reference to Section

34(2)(b)(i) of the Act of 1996.

Even otherwise we are of the considered view that the award

dated 25-8-2007 is wholly perverse in holding that conditions 2, 5,

8(c), 9, 11(d)(e) and 13(d) of the agreement dated 10-3-2005 were

contrary to the Regulations and the Act of 2003. In fact the award

aside of some broad brush observations does not specify as to which

of the Regulation/s or order/s of the Commission or provisions of the
42

Act of 2003 were/ was violated in drawing the said OA agreements

dated 10.3.2005. Contrarily the orders dated 10-4-2006 and 22-5-

2006 passed by the Commission evidence otherwise. The

Commission in its order dated 10-4-2006 in para 4 recorded that

the open access agreements dated 10-3-2005 were by and large

found to be in conformity with the provisions of OA Regulations

2004. The Commission further in para 6 of the said order noted that

in its view as per open access agreements it was appropriate for the

AVVNL to demand finalized schedule from HZL for levying UI

charges. And in view of delays being occasioned for one reason or

the other in finalizing the settlement mechanism it deserved to be

expedited. AVVNL was directed to finalize UI settlement account vis-

a-vis respondent HZL subsequent to receipt of requisite information

from HZL taking into consideration its deviations from the agreed

schedules in drawls of power. Thereafter in its final order dated 22-

5-2006 the Commission reiterated its earlier observations that as

per clause 9(a)(i)(ii) and 9(c), (i) and (ii) deviation from scheduled

generation and scheduled drawl not exceeding 5% of total schedule

for open access and AVVNL supply is to be priced at the UI price

specified by the Commission and shall be payable/ recoverable by

the open access consumer. For the generation (i.e. injection)

exceeding 5% of the schedule no amount shall be receivable by

generating station and drawl exceeding 5% of total schedule shall be
43

charge at the tariff for temporary supply. Thereafter noting the

submission of AVVNL that UI settlement account could not be

prepared for want of requisite software and that SLDC was required

to compile schedules, the Commission observed that AVVNL was

entitled to recover charges as per provisions of the agreements,

albeit it could not indefinitely withhold payment of sums otherwise

due in lieu of UI charges without preparing/ finalizing the UI

account and billing. To obviate the obstruction in preparing the UI

account and levy of charges the Commission therefore directed that

the energy account software be developed for the purpose through

Commission’s staff. The Commission then affirmed that once the

software was finalized, dispute regarding energy accounting and

billing would be settled by the dispute redressal mechanism as

provided under clause 29 of the Regulations 2004, whereunder the

SLDC was the proper authority to be first approached for settlement

of dispute.

It is thus apparent that the Commission had categorically

upheld the legality and validity of the agreements dated 10-3-2005

and inter alia the levy of UI charges and other sums from the open

access consumer for specified deviations in terms of the OA

Regulations of 2004 framed under Section 42(2) read with Section

181 of the Act of 2003 and under Section 42(2) of the Act of 2003
44

open access could be made subject to various conditions, extent and

manner of access defined. Clause 20 of the Regulations 2004

provides for unscheduled interchange pricing. Clause 21 for

reactive energy charges, clause 22 for energy losses, clause 23 for

other commercial conditions, clause 24 for compliance with grid

discipline. The OA agreements dated 10-3-2005 were accordingly

entered into between the AVVNL and HZL. And yet the sole

Arbitrator has overlooked the aforesaid findings of the Commission

and has perversely held that clauses 2, 5, 8(c), 9, 11(d) (e) and 13(d)

of the agreements dated 10-3-2005 were unlawful. Therefore the

impugned award dated 25-8-2007 is also liable to be quashed and

set aside for clear non application of mind.

We may at this stage appropriate to observe that reliance by

the respondent HZL on the Commission’s order dated 23-6-2006 in

petition No.RERC/57/2005 relatable to clause 20 of the OA

Regulations 2004, is of little avail for the reason that the said order

was passed in the course of the Commission specifying the pricing

mechanism for payment of mismatch between the scheduled and

actual drawal. The Commission did not issue any directions of

modifying the pre-existing OA agreements dated 10.3.2005. It

cannot therefore be anybody’s case that the charges levied by AVVNL

as per the conditions of the open access agreement/s dated 10-3-
45

2005 were unlawful and contrary to the extant OA Regulations of

2004 and till such time as they were amended effective 1.5.2006 as

per the Commission’s view.

Further, the arbitrator has also not recorded any reason

founded in law to hold clauses 2, 5, 8(c), 9, 11(d)(e) and 13(d) of the

agreement/s dated 10-3-2005 as null and void. In fact the award

dated 25-8-2007 records that neither misrepresentation nor undue

influence vitiated the open access agreements dated 10-3-2005.

And that both the parties thereto had entered into the open access

agreements with eyes open. The Arbitrator then however

peremptorily held that neither AVVNL nor HZL were conscious of

the operating law. We are of the considered view that in so holding

the sole Arbitrator has not applied his mind and overlooked the

Commission’s orders dated 30-4-2004, 10-4-2006 and 22-5-2006

rendering his conclusions/ finding that the operating law was

overlooked when the agreements dated 10-3-2005 were entered

into wholly perverse. The Arbitrator has also overlooked Section

28(1)(a) of the Act of 1996 which mandates that in a domestic

arbitration, the arbitral tribunal shall decide the dispute referred to

him in accordance with the substantive law for the time being in

force in India and Section 28(3) of the Act of 1996. The substantive

law in force in India at the time of passing of the impugned award
46

dated 25-8-2007 indisputably would include the Contract Act,

1872 (hereafter `the Act of 1872′). Section 21 thereof inter alia

provides that “a contract is not voidable because it was caused by a

mistake as to any law in force, even where there be one. Section 23

of the Act of 1872 provides that “the consideration or object of an

agreement is lawful, unless it is forbidden by law, is of such nature

that if permitted it would defeat the provisions of any law or is

fraudulent or involves or implies injury to the person or property of

another or the court regards it as immoral or opposed to public

policy.

We are for reason of Section 21 of the Act of 1872, of the

considered view that the open access agreement/s dated 10-3-2005

and the clauses incorporated therein were, irrespective of any

alleged mistake of law as found in the award dated 25-8-2007

(though we disagree for reasons recorded above) were not voidable.

The Apex Court in the case of Dhanyalakshmi Rice Mills Vs. the

Commissioner of Civil Supplies [(1976)4 SCC 723] held that a

contract entered into under a mistake of law, by both the contracting

parties falls under Section 21 of the Contract Act and cannot for that

reason be voidable.

47

The respondent HZL from its pleadings before the sole

arbitrator and evidence in support also failed to establish that any of

the five situations set out under Section 23 of the Act of 1872

rendered the open access agreements dated 10-3-2005 unlawful.

Yet the Arbitrator has in the absence of any valid legal ground under

Section 23 of the Act of 1872 perversely concluded that clauses 2, 5,

8(c), 9, 11(d)(e) and 13(d) of the agreements dated 10-3-2005 were

unlawful and unenforceable. The impugned award dated 25-8-

2007 as well as the judgment dated 25-2-2017 passed by the

Commercial Court rejecting the Section 34 objections thereagainst

are thus not sustainable in law. They are so held to be.

Further admittedly HZL has taken advantage of the open

access facility under the agreement/s dated 10-3-2005 and

admittedly the power generated at its CPP at Chanderiya transmitted

to its three units at Aghucha, Debari and Dariba. Subsequent thereto

in 2007, after the reference by the Commission on 12-2-2007 HZL

could not seek to renege on its obligation under the OA agreements

in issue and pray for declaring conditions thereof relating to

AVVNL’s right to levy UI and other charges and HZL’s corresponding

obligations void unlawful. Such a claim as allowed by the

impugned award dated 25-8-2007 renders the award itself

unconscionable. The Apex Court in the case of Shin Satellite Public
48

Co. Ltd. Vs. Jain Studios Ltd. [(2006)2 SCC 628] has recognised the

equitable principle in the construction of contracts and held that

where a party would not have agreed on certain terms of the

agreement had it known the other terms agreed to its benefit would

be held to be invalid or unlawful, the doctrine of severability would

not apply for the reason that so to do would be wholly inequitable

and contrary to justice. In the case of Transmission Corporation of

Andhra Pradesh Limited vs. Sai Renewable Power Private Limited

[(2011)11 SCC 34] the Apex Court held that when benefit is taken

under a contract on some of its conditions it is not possible to sustain

the plea of invalidity qua other conditions of the contract by the

beneficiary party under the said contract unless the party benefitting

can compensate the other for the benefit taken. Severability of the

contract in such situation even where otherwise possible, declaring

invalid certain terms and conditions, would not be permissible. In

the case of Rajasthan State Industrial Development and Investment

Corporation vs. Diamond and Gem Development Corporation

Limited [(2013)5 SCC 470] the Apex Court held that a party cannot

play hot and cold, both approbate and reprobate and after gaining

benefits of the contract cannot challenge its conditions with regard

to its obligation. In such situations it would be estopped from

denying the validity of any of the terms and conditions of the

contract.

49

Such a situation obtains in the instant appeal. Having obtained

open access to AVVNL’s distribution lines and supplied power

generated at its CPP Chanderiya (Chittorgarh) to its three units

Aghucha, Debari and Dariba and at no time prior to laying of claim

before the Sole Arbitrator in 2007 having even questioned its

liabilities on principle towards UI charges and other levies/ charges

under the OA agreements dated 10-3-2005, HZL could not be

permitted on receipt of the bill from AVVNL in January 2007 to

question the conditions of the OA agreements dated 10-3-2005 in

respect of its obligations to pay agreed charges under various heads.

It could only, if so advised, question the bill’s arithmetic alone before

the appropriate forum. In overlooking this fact as also the

Commission’s orders dated 10-4-2006 and 22-5-2006 on UI

charges being payable by HZL on mismatch between scheduled and

actual drawls and scheduled versus actual injections of power, the

sole Arbitrator acted wholly contrary to the terms of the contract,

between the parties as mandated under Section 28(3) of the Act of

1996. The award is thus vitiated by “patent illegality” within the

meaning ascribed to the term by the Apex Court in the case of

Associate Builders Vs. Delhi Development Authority [(2015)3 SCC

49]. The award dated 25-8-2007 is liable to be set aside also on this
50

ground. So is the Commercial Court’s judgment dated 25-2-2017

rejecting the AVVNL’s objections to the award.

The upshot of the aforesaid discussion is that neither the

award dated 25-8-2007 nor the impugned judgment dated 25-2-

2017 passed by the Commercial Court dismissing appellant’s

objections under Section 34 of the Act of 1996 thereof are

sustainable. Resultantly are quashed and set aside.

Appeal is accordingly allowed.

(Alok Sharma), J. (Mohammad Rafiq), J.

arn/
51

All corrections made in the order have been
incorporated in the order being emailed.

Arun Kumar Sharma, Private Secretary.

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