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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
14minutes 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
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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.
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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
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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-
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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.
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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.