O.M.P./677/2011 of PTC INDIA LIMITED Vs JAYPEE KARCHAM HYDRO CORPORATION LIMITED

IN THE HIGH COURT OF DELHI AT NEW DELHI

O.M.P. 677 of 2011 & IA 14336 of 2011

Reserved on: March 28, 2012Decision on: May 15, 2012

PTC INDIA LIMITED..... PetitionerThrough: Mr. Parag Tripathi, Senior Advocatewith Mr. Varun Pathak, Mr. ShadanFarasat and Mr. Ravi Prakash, Advocates.

versus

JAIPRAKASH POWER VENTURES LTD.

..... RespondentThrough: Mr. Shanti Bhushan, Senior Advocatewith Mr. Vishal Gupta andMr. Mukesh Pandit, Advocates.

CORAM: JUSTICE S. MURALIDHAR

JUDGMENT15.05.2012

1. In this petition under Section 34 of the Arbitration and ConciliationAct, 1996 (‘Act’) PTC India Limited, the Petitioner, has challengedthe impugned majority Award dated 28[th]April 2011 in the disputesbetween it and the Respondent Jaiprakash Power Ventures Limited(JPVL)[thesuccessor-in-interestofJaypeeKarchamHydroCorporation Limited (‘Jaypee Karcham’)] arising out of PowerPurchase Agreement (‘PPA’) dated 21[st]March 2006 executedbetween them for sale and purchase of power from the JaypeeKarchamWangtooHydroelectricProject(‘theproject’)beingimplemented by the Respondent in Kinnaur in Himachal Pradesh.

Background Facts

2. Jaypee Karcham, the predecessor-in-interest of JPVL, generatingcompany within the meaning of Section 2 (28) of the Electricity Act,

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2003 (‘EA’) was incorporated on 29[th]April 2002 for implementingthe project comprising of four units of 250 MW each. On 31[st]March2003, the Central Electricity Authority (‘CEA’) under Section 4(b) ofthe Electricity Supply Act, 1948 (‘ESA’) granted Techno-EconomicClearance (TEC) to the project at an estimated capital cost of USDollar (‘USD’) 117.44 million (Rs.5345.88 crores @ 1 USD = Rs.48).One of the conditions of the TEC was in Clause (xviii) which statedthat the “tariff shall be decided by the Central Electricity RegulatoryCommission (‘CERC’)”. Under Clause 9 of the TEC in the event thatthe time gap between the TEC by the CEA and the actual start of workof the project was more than three years, fresh TEC of the CEA hadto be obtained before actual start of work.

3. Under the PPA entered into between the parties, Jaypee Karchamwas to sell and the Petitioner was to purchase 704 MW gross capacityand corresponding energy from the project at the Project Bus Bar for aperiod of 35 years from the Commercial Operation Date (‘COD’) ofthe project for onward sale on long term basis. The Petitioner is atrading licencee which meant that it is engaged in the trading ofelectricity by purchasing all forms of electric power from independentproducers, captive power plants and other generating companies forsale to electricity boards, power utilities, transmission companies andother organisations buying power whether in the private or the publicsector. In terms of the recital ‘E’ of PPA, the Petitioner was to enterinto suitable arrangements with one or more purchasers for sale of thecontracted power from the project. condition precedent was set outin Article 3.1.3 (iv) of the PPA in terms of which the Petitioner was toexecute Power Sale Agreement (‘PSA’) with the purchaser approvedby the appropriate Commission for the entire contracted power and

make it available to Jaypee Karcham. Under Article 9.1.2 thedetermination of tariff was subject to approval of the appropriateCommission subject to Article 9.1.1. Under Article 9.1.3 the tariffapproved by the appropriate Commission would be applicable forpurchase and sale of the contracted power and contracted energy.

4. In terms of Article 3.1.3(iv) of the PPA, the Petitioner entered intoa PSA with the Punjab State Electricity Board (‘PSEB’) on 1[st]September 2006, another PSA with the Uttar Pradesh PowerCorporation Limited (‘UPPCL’) on 13[th]September 2006 and yetanother with the Haryana Power Generation Corporation Limited(‘HPGCL’) on 25[th]September 2006. It entered into PSAs with threedistribution companies in the State of Rajasthan on 27[th]September2006.

5. The Haryana Electricity Regulatory Commission (‘HERC’) by itsletter dated 18[th]/21[st]June 2007 approved the PSA between thePetitioner and HPGCL.

6. On 5[th]March 2005, Jaypee Karcham wrote to the CEA givingdetails of the various efforts made towards working the project andsought for an extension of time for finalizing the firm financialpackage. More than three years later, on 18[th]March 2008, CEAreplied to the Respondent stating that after the enactment of EA, thetariff for all power projects had to be determined by CERC. It furtherstated that there was no necessity for extending the validity of theTEC as it remained valid in terms of Para 9 of the OM issued by CEAon 31[st]March 2003.

The decision of the APTEL in Gajendra Haldea

7.At this stage, reference is required to be made to the variousdecisions of the Appellate Tribunal for Electricity (‘APTEL’) as wellas those of the CERC on the question of the CERC’s jurisdiction todetermine tariff. The first of these was decision dated 22[nd]December 2006 of the APTEL in Gajendra Haldea v. CERC(hereafter Gajendra Haldea). That was petition under Section 121of the EA seeking direction from the to the appropriate Commissionto ensure that all generating companies and licencees abide by theprovisions of the Act insofar as they relate to sale and purchase ofelectricity. further direction was sought to the appropriateCommission “to fix the trading margins for trading licencees” andcertain other reliefs. The CERC and several State ElectricityRegulatory Commissions (SERCs) were Respondents in the abovepetition. They objected to the locus standi of the Petitioner to maintainthe said petition under Section 121 of the EA.Stating that it hadtaken cognizance of the petition since the issues therein had far-reaching implications affecting the electricity industry in India and theconsumers of electricity, the APTEL overruled the preliminaryobjection of the Respondents. It then proceeded to formulate the issue“whether Electricity Regulatory Commissions can fix tariff for sale ofelectricity by (i) generator to trader or an intermediary; (ii) adistributor to trader, and (iii) by trader to any other person.” TheAPTEL undertook the exercise of interpreting Section 62(1), Section79(1) (a) and (b) and Section 86(1) (a) of the EA. It was held thatunder Section 62(1(a), tariff was to be determined by the appropriateCommission for the supply of electricity by generating company to adistribution licencee and not for the supply of electricity by agenerating company to trader or an intermediary or by distributor

to trader or by trader to any person. An application under Section64(1) for tariff determination had to be confined to determination ofthe tariff in respect of the four categories of cases specified in Section62(1) and not under Section 79(1)(a) and (b) and Section 86(1)(a) ofthe EA. It was held that the provisions of Section 79(1) (a) and (b)and Section 86(1) (a) had to take colour from Section 62(1) of the EA.

8. In Gajendra Haldea, the APTEL examined the statement ofObjects and Reasons (‘SOR’) as well as the Preamble to the EA andconcludedthatthevariousprovisionswereforpromotingacompetition and that the object of the EA would be frustrated anddefeated in case the words “generation and supply” and the words“tariff of generating companies” occurring in Sections 86(1)(a) and79(1)(a) and (b) of the EA were construed independently of Section62(1)(a). Consequently, it was concluded that both CERC as well asSERC by virtue of Section 62(1)(a) read with Section 79 (1)(a) andSection 86(1)(a) were empowered to determine tariff only for the fourdistinct types of supplies spelt out in Section 62(1). In other words,this left it open to the generating company to have direct commercialrelationship with the trader or an intermediary which was vital factorfor encouraging competition. This was important for securing powerto the consumers at reasonable rates. direction was issued by theAPTEL in Gajendra Haldea that generating company could sellpower directly to the traders and intermediaries at mutually agreedprice which would not exceed the base price plus 4% thereof and thatprice would continue till such time appropriate Commissions actingunder Sections 60 and 66 EA fixed the price over and above at whichthe sale could be effected. Further, the appropriate Commissions weredirected to fix trading margins for intra-State trading in reasonable

The decision in Lanco I

9. The next relevant decision of the APTEL was the one dated 21[st]October 2008 in Lanco Amarkantak Power Pvt. Ltd. v. MadhyaPradesh Electricity Regulatory Commission, (hereafter Lanco-I).The brief facts were that Lanco was generating company having acoal-based Thermal Power Station in district Korba, Chtattisgarh. Itentered into PPA with PTC India Limited (which incidentally is alsothe Petitioner in the present case) for sale and purchase of 300 MWpower. On 30[th]May 2005, PTC entered into PSA with M. P. PowerTrading Co. Ltd., (‘MPPTCL’) which was also trading company inMadhya Pradesh. On 16[th]November 2005, the predecessor ofMPPTCL filed petition before the Madhya Pradesh ElectricityRegulatory Commission (‘MPERC’) for approval of the PSA betweenPTC and MPPTCL. By an order dated 14[th]December 2005, MPERCopined that the fixation of cost of generation of GENCO locatedoutside Madhya Pradesh is not within its purview, yet it directedLanco to voluntarily submit itself to the jurisdiction of MPERC andsubmit its Detailed Project Report (‘DPR’) for scrutiny. By letterdated 19[th]January 2006 addressed to PTC, Lanco expressed itswillingness to supply information and clarifications required by PTCto be submitted to MPERC. It also expressed its willingness to abideby the directions of MPERC generally and the overall guidelines ofthe CERC. By its order dated 7[th]March 2008, MPERC grantedconditional approval to the PSA between PTC and MPPTCL subjectto the condition, inter alia, that Lanco would submit to the jurisdictionof MPERC and file petition for determination of the tariff under thePPA.10.On 14[th]March 2008, Lanco terminated the PPA.Meanwhile,MPERC extended time to Lanco to submit the tariff petition first upto30[th]April 2008 and then upto 4[th]October 2008. By an affidavit dated30[rd]April 2008, Lanco disputed MPERC’s jurisdiction in the matterof fixing the tariff of Lanco under the PPA. This objection wasnegatived by MPERC by its order dated 6[th]May 2008 holding that ithad jurisdiction to determine the tariff under the PPA and examineand re-determine the levelized tariff contractually stipulated in thePPA. MPERC further directed that till such time the tariff wasdetermined, provisional tariff of 95% of the levelized tariff indicatedin the PPA would be applicable.

11.Lanco then appealed to the APTEL against the order dated 6[th]May 2008 of the MPERC. While PTC opposed the appeal, itconceded that MPERC could not have directed Lanco, generatingcompany, to apply for the fixation of tariff for supply of electricity toPTC, which was trading licencee. Following its earlier decision inGajendra Haldea, the APTEL allowed the appeal and set aside theorder dated 6[th]May 2008 of MPERC. The contention of MadhyaPradesh State Electricity Board (‘MPSEB’) that MPERC hadjurisdiction to fix tariff under the PPA by virtue of the clause in thePPA whereby the parties had agreed that Lanco would file petitionbefore the appropriate Commission for approval of the tariff wasrejected by holding that SERC derived jurisdiction only from the EAand that parties could not by agreement confer jurisdiction on theSERC.

12. On 9[th]April 2009, the Supreme Court gave its decision in CentralElectricity Regulatory Commission v. Gajendra Haldea (2009) 11

SC 556. In brief order, it was held that in view of the decision of theSupreme Court in Grid Corporation of Orissa Limited v. GajendraHaldea (2008) 13 SCC 414 the petition by Gajendra Haldea beforethe APTEL was not maintainable. On that short ground the order ofthe APTEL in the case was set aside.

APTEL’s decision in Lanco II

13. On 6[th]August 2009, the APTEL gave its decision in LancoAmarkantak Power Pvt. Ltd. v. MPERC (hereinafter Lanco-II). Thistime, the APTEL was dealing with challenge to an order dated 25[th]August 2008 passed by the MPERC which held that it had jurisdictionto deal with the disputes between PTC and Lanco arising out of PPAdated 11[th]May 2005. It was held by the APTEL that the MPERC hadmerely relied upon on its earlier order dated 6[th]May 2008 to ascertainjurisdiction in disputes between PTC and Lanco. That order had beenset aside by the APTEL on 21[st]October 2008.Secondly, SERCwould have jurisdiction under Section 86 to adjudicate upon disputebetween ‘its licencee and generating company’ i.e. trading licenceefor intra-State trading in Madhya Pradesh and not person grantedlicence by CERC for inter-State trading. Before the APTEL reliancewas placed by the counsel for PTC on the decision of the SupremeCourt in Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008)4 SCC 755 (hereinafter GUVNL). The said decision did not go intoquestion as to who could be called licencee for the purpose ofinvoking the jurisdiction of SERC. The APTEL held that since PTChad been granted licence by the CERC it could not be licencee underthe MPERC so as to invoke the jurisdiction of the MPERC.Consequently, the appeal was allowed and the order dated 25[th]August2008 of the MPERC was set aside.

CERC’s order dated 26[th]October 2009

14. Meanwhile on 27[th]July 2009, Jaypee Karcham filed petitionNo.153 of 2009 before the CERC praying for revision of the estimatedproject cost from Rs.5909.59 crores to Rs.7080.38 crores and soughtan advance ruling from the CERC. The CERC by an order dated 26[th]October 2009 discussed in detail the provisions of the earlier ESA, theEA as well as the CERC norms. It noted that under the ESA, thescheme relating to the establishment of generating stations was to besubmitted to CEA for its concurrence and that CEA while accordingits concurrence was expected to take into account the capital costapart from the other relevant factors. The CERC observed that inenacting the EA,Parliamenthad not retained the provisionsconcerning grant of TEC including approval of capital cost by theCEA. Further, while framing the tariff regulations during the period2004-2009, CERC had made provisions for ‘in principle’ approval ofthe project’s capital cost for thermal power generating stations. Therewas no corresponding provision for hydro power generating stations(like PTC India). In other words, while framing the 2009 regulations,CERC had done away with the provisions of ‘in principle’ approval ofthe project capital cost applicable to thermal power generatingstations. Therefore, granting approval to the estimated project cost forthe hydro power generating station by relaxing the provisions of thetariff regulations through invoking Regulation 44 “may amount torestoring the repealed provision, through back door”. Consequently, itwas held that the prayer made by Jaypee Karcham could not begranted and the petition was dismissed at the admission stage.

Termination of the PPA by Jaypee Karcham

15.Following the above decision dated 26[th]October 2009 of theCERC, Jaypee Karcham on 17[th]December 2009 wrote to the

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Petitioner stating that it had obtained legal advice from seniorcounsel to the effect that the PPA dated 21[st]March 2006 “was void asthe procedure contemplated in the PPA for determination of the tariffon the basis of which alone the price for supply of electricity by thecompany to PTC India Limited was payable, could not be enforced.”It was accordingly stated by Japyee Karcham that since the PPA wasfound to be void, no agreement survived between them.

16. The Petitioner by its letter dated 13[th]January 2010 protestedagainst the above decision of Japyee Karcham. It filed OMP No.25 of2010 in this Court under Section 9 of the Act for seeking an adinterim stay of termination of the PPA by Jaypee Karcham and torestrain Jaypee Karcham from entering into an agreement for sale ofpower with any other party.

17. By an order dated 19[th]February 2010 this Court dismissed thesaid petition on two grounds. The first was that Clause 13.3 of thePPA did not constitute negative covenant and, therefore, no reliefrestraining Jaypee Karcham from either terminating the contract orfrom entering into another sale agreement with any third party couldbe granted. The second was that the Petitioner could be compensatedin terms of money under Clause 14.6.1 of the PPA. Therefore, in viewof the bar under Section 14(1)(a) to (d) read with Section 41 of theSpecific Relief Act, 1963 the petition was dismissed.

18. Aggrieved by the above decision, the Petitioner filed FAO (OS)No.146 of 2010. By detailed judgment dated 13[th]August 2010, theDivision Bench of this Court dismissed the appeal. In the concurringopinion of Justice Mool Chand Garg, there was discussion on the

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provisions of Section 79(1) (b) and Section 62 of the EA. It wasopined that the question as to whether the tariff could be fixed inrespect of sale of electricity by generating company to tradinglicencee would have to be adjudicated actually by CERC. It wasobserved that the question whether the PPA between the parties hadbecome void on account of the decision of the CERC would have tobe examined only by the CERC.

19. Aggrieved by the above decision of the Division Bench, thePetitioner filed SLP (C) No.26883 of 2010 in the Supreme Court.While directing notice to issue in the said SLP on 21[st]September2010, the Supreme Court directed that pending the hearing anddisposal of the said appeal, if Jaypee Karcham entered into anyagreement for sale of electricity with any third party, the same wouldabide by and be subject to the result of the SLP.

Award of the Arbitral Tribunal

20. During the pendency of the appeal before the Division Bench, thePetitioner on 28[th]May 2010 invoked the arbitration clause andnominated its arbitrator. Jaypee Karcham nominated its arbitrator andthe two arbitrators appointed third to constitute the Tribunal.

21. By majority of 2:1 the Tribunal by the impugned Award dated28[th]April 2011 held that CERC did not have the power to determineor to decide or settle the tariff for supply of electricity by generatingcompany, such as Jaypee Karcham, to trader, such as the Petitioner.It was held that the appropriate Commission was not vested with thepower to determine tariff for supply of electricity by generatingcompany to trader and, therefore, CERC did not have the power to

decide the tariff for the supply of electricity by Jaypee Karcham to thePetitioner. The argument of severability advanced by the Petitionerwas also rejected. It was held that upon severance of the provisionthat required CERC to approve the tariff, the PPA would not remainenforceable firstly, because it would contain no provision in respect ofthe price to be paid for the sale of electricity and secondly, because itwould violate the TEC for the project which made CERC’s decisionof the tariff necessary pre-condition.

22. The dissenting Member of the Tribunal gave separate Awardholding that CERC had “ample and full power” to determine andapprove the tariff for supply of electricity by generating company toa trading licencee and that the dispute in that regard had to be decidedby CERC alone as long as generating company was involved in thedispute. Consequently, it was held that the letter dated 17[th]December2009 issued by Jaypee Karcham declaring the contract as void waspremature.

Submissions of Counsel for the Petitioner

23. Mr. Parag Tripathi, learned Senior counsel appearing for thePetitioner, submitted that although the Petitioner had initiated thearbitral proceedings, in view of the fact that the EA was completecode in itself in respect of matters pertaining to and connected withthe supply of electricity, the Tribunal had no jurisdiction to enter intoor entertain dispute between generating company and tradinglicencee. Reliance was placed on the decisions in PTC India Limitedv. Central Electricity Regulatory Commission (2010) 4 SCC 603,Executive Engineer, Southern Electricity Supply Company of OrissaLimited v. Sri Seetaram Rice Mill (2012) 2 SCC 108 and

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ChhattisgarhStateElectricityBoardv.CentralElectricityRegulatory Commission (2010) 5 SCC 23. It was submitted that theinvocation of the arbitration clause would not constitute estoppel orwaiver to prevent the Petitioner from questioning the jurisdiction ofthe Tribunal. Reliance was placed on the decision in Isabella Johnsonv. M.A. Susai (1991) 1 SCC 494.

24. Mr. Tripathi submitted that the EA was special law whichoverrode the general law. Reliance was placed on the decision in theGUVNL case which held that all disputes between licencee and agenerating company can be adjudicated either by the CERC, theSERC or by an Arbitrator to whom such disputes are referred to bythe CERC, and not by Tribunal appointed under the Act. Referencewas also made to the decision of the APTEL in Appeal No.200 of2009 [M/s. Pune Power Development Private Ltd. v. KarnatakaElectricity Regulatory Commission] (hereafter Pune Power case) andReview Petition No.6 of 2011 in Appeal No.184 of 2010 [AdaniPower Limited v. Gujarat Electricity Regulatory Commission](hereafter Adani Power case). It is pointed out that the very basis ofthe earlier judgments of the APTEL in Gajendra Haldea, Lanco-Iand Lanco-II was taken away by its subsequent decision dated 4[th]November 2011 in Appeal No.15 of 2011 in Lanco Power Limited v.Haryana Electricity Regulatory Commission (hereafter Lanco-III) inwhich the APTEL held that transaction involving supply by agenerating company through trader to distribution licencee is notoutside the purview of the EA and that the appropriate Commissionhas the jurisdiction to determine tariff. The APTEL in arriving at thatconclusion took note of the decision of the Supreme Court in TataPower Company Limited v. Reliance Energy Limited (2009) 16 SCC

659 and the decision of CERC dated 22[nd]January and 8[th]July 2008[and which was affirmed by APTEL by its judgment dated 21[st]July2011 in Appeal No.151 of 2008 (Uttar Pradesh Power CorporationLtd. v. Central Electricity Regulatory Commission)].

25. Mr. Tripathi submitted that the power to ‘regulate’ under Section86(1) (b) of the EA included the power to ‘determine’. Referring tothe decision in Booz Allen and Hamilton Inc. v. SBI Home FinanceLimited (2011) 5 SCC 53 it was submitted that disputes where rightsin rem were involved were not arbitrable and amenable to privatearbitration. It is submitted that the observation in Para 4 (x) of theSOR of the EA which stated that in direct commercial relationshipbetween the consumer and generating company or trader the priceof power would not be regulated, meant transaction of direct transferof electricity from either the generating company to the consumer orfrom trader to the consumer. Where the trader was selling electricityto the distribution licencee which was eventually supplying it to theconsumer, the tariff would be amenable to regulation.

26. It is pointed out that Jaypee Karcham misunderstood the orderdated 26[th]September 2009 of CERC. In that order CERC had onlyrefused to approve the in-principle capital cost through an advanceruling and did not refuse to determine the tariff. The CERC pointedout that an application at that stage by Jaypee Karcham fordetermining the tariff was premature. Jaypee Karcham was aware thatthe application for determination of tariff had to be moved six monthsprior to the COD, whereas it filed the application much earlier. TheTribunal while referring to the APTEL’s decisions in GajendraHaldea and Lanco-I failed to take note of APTEL’s subsequent

decisions in the Pune Power case, Lanco-III and Adani Review case.

27.Mr. Tripathi submitted that even assuming that CERC hadrefused to approve the tariff, the parties could have done so in termsof Schedule of the PPA. In the instant case it was Section 9 of theSale of Goods Act, 1930 (‘SGA’) and not Section 10 which wouldhave applied. Relying on the decision in The Instalment Supply Ltd.v. S.T.O., Ahmedabad-I (1974) 4 SCC 739 it was submitted that theterm ‘contract of sale’ defined in Section 4 (1) SGA included an‘agreement to sell’ which was sub-species of contract of sale towhich Section 9 or Section 10 might apply depending on the facts andcircumstances.

28. Finally relying on the decisions in UP State Electricity BoardLucknow v. Ram Barai Prasad AIR 1985 Allahabad 265, VijayaMinerals Pvt. Ltd. v. Bikash Chandra Deb AIR 1996 Cal 67 and thedecision dated 7[th]September 2011 of the APTEL in Appeal No. 184of 2010 (Adani Power Limited v. Gujarat Electricity RegulatoryCommission) it was submitted that electricity not being scarcecommodity, specific performance was the only available remedy to anaggrieved party when there was breach of contract. Consequently,the Tribunal was in error in declaring that the PPA had become voidand incapable of being enforced.

Submissions of Counsel for the Respondent

29. Replying to the above submissions, Mr. Shanti Bhushan, learnedSenior counsel for JPVL, contended that under the scheme of the Actit was not contemplated that any objection as to the jurisdiction of theTribunal chosen by the parties themselves can be allowed to be raised

at the stage of Section 34 unless the objection has first been raisedbefore the Tribunal itself. He referred to Sections 4, 5, 16 and 37(2)(a) of the Act and the decisions in Krishna Bhagya Jala Nigam Ltd.v. G. Harischandra Reddy (2007) 2 SCC 720, Gas Authority of IndiaLtd. v. Keti Construction (I) Ltd. (2007) 5 SCC 38and S.N.Malhotra & Sons v. Airports Authority of India (2008) 2 Arb LR 76(Delhi). He pointed out that the objection as to the jurisdiction of theTribunal was raised for the first time, in the rejoinder affidavit filed on25[th]January 2012. Relying on the decision in Delhi Jal Board v.Vijay Kumar Goel (2005) 3 Arb LR 499 (Delhi) it was submitted thatin view of the proviso to Section 34(3) new plea could not beallowed to be taken after the limitation period of three months as wellas the extended period of 30 days had elapsed.30. Mr. Bhushan next submitted that dispute whether contract forsupply of electricity by generating company to trading licenceebecame void or not was not covered by Section 79(1)(f) of the EA,and therefore, was outside the purview of the functions of CERCregarding adjudication of disputes. Since in the present case, thePetitioner was an inter-State trading licencee, the question ofapplicability of Section 86(1)(f) also did not arise. Relying on thedecision of the APTEL in Lanco-II it was submitted that the word‘licencee’ in Section 86(1) (f) referred to only licencee which hasbeen granted license by the SERC which claims to have thejurisdiction to decide the dispute and not licencee which has beengranted license either by some other SERC or by the CERC. Sincethe dispute in the present case was between generating company andan inter-state trading licencee which has been granted trading licenceby CERC and not by any SERC, no SERC would have jurisdiction to

adjudicate the said dispute. Further, if only because the Petitioner hadagreed to sell part of the power generated by it to distributionlicencee in State, the concerned SERC exercised jurisdiction todecide dispute about the validity of the PPA itself, then in case asthe present one it would lead to an absurd situation because all thefour SERCs for identical reasons would claim to possess the samepower which could give rise to conflict in the decisions. It is pointedout that the decision of the Supreme Court in the GUVNL case wasdistinguishable on facts since the agreement in that case was betweena generating company and distribution licencee.Likewise, thedecisions of the APTEL in the Pune Power case and Lanco-III weresought to be distinguished on facts.

31. Analysing Section 62 EA Mr. Bhushan submitted that if thelegislative intent was to authorize the appropriate Commissions todetermine the tariff for supply of electricity by generating companyto entities other than distribution licencees then Section 62 (1) (a)would have merely talked of supply of electricity by generatingcompany without adding the words “to distribution licencee”. Theproviso thereto also brought out this distinction.If in every case ofsupply of electricity by generating company even to tradinglicencee was intended to be covered by the determination of tariff nooccasion could arise to apply the proviso to fix the minimum andmaximum ceiling of tariff between generating company and alicencee. According to him the proviso covered every licenceeincluding trading licencee. Referring to Section 62 (6) whichprovides for refund of excess amount in the event of determination oftariff under Section 62, he submitted that if Section 79 or 86 containedindependent powers of determining the tariff applicable to supply by

generating companies to an entity different from distributionlicencee, either Section 62 (6) would not have been confined todetermination of tariff under Section 62, or separate provision wouldhave been made for refund of the excess amount even in the case oftariff determination under Section 79 or 86. Given the detailedprocedure outlined under sub-sections (1), (2) and (3) of Section 62and Section 64 for the determination of tariff, and the absence of anycorresponding provisions for tariff determined either under Section 79or Section 86, it was apparent that the power of the appropriateCommissions to determine stood exhausted by Section 62 and thepurpose of Sections 79 and 86 was only to identify as to whichcommission would exercise such power conferred by Section 62 andin which case.

32. Mr. Bhushanreferred to paras 4 (ix) and (x) of the SOR andsubmitted that in terms thereof trading licencee was supposed to beregulated by fixation of ceilings on trading margins if necessary asprovided in Section 79 (1) (j) and Section 86 (1) (j). It showed thatneither the purchases nor the sales made by trading licencee wouldbe subjected to the determination of tariffs. This was why it wasnecessary to fix trading margins in their case. If the tariff on which atrading licencee would purchase electricity was also to be determinedby regulatory commission and when it sold it to distributionlicencee was also required to be determined by the regulatorycommission there would be no reason to fix any ceiling on tradingmargin.Clause (x) further made it clear that every sale by agenerating company or trader was not subjected to the power ofregulating the tariffs. It showed that when generating companydirectly sold to consumer or trader directly sold to consumer, the

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tariff would not be regulated at all and only the transmission andwheeling charges would be regulated. This system had ensured that nosurplus power available anywhere in the country would go unutilizedand any big consumer requiring such supply could get it by enteringinto an agreement with trader. The trader would keep informationregarding the availability of surplus energy anywhere in the countryand could also be contacted by consumer needing electricity.Insuch cases the EA intended that the price should be fixed by the sellerand the purchaser by private negotiations on the basis of market forcesand not be regulated by any statutory authority. Considering that thedetermination of tariffs required an elaborate procedure, it wascontemplated for long term and not short term requirement. .Reliance is placed on the decision of the ATE in Gajendra Haldeaand Lanco-I and of the Supreme Court in Tata Power Company Ltd.v. Reliance Energy Ltd. and in particular to the observations in Para83.

33. Mr. Bhushan submitted that the majority Award suffered from noerror and even if there was an error in interpretation of the clauses ofthe PPA or of the provisions of the EA, that by itself did not permit achallenge to the Award under Section 34 of the Act. Relying on thedecision in Oil & Natural Gas Corporation Ltd. v. Saw Pipes Ltd.(2003) 5 SCC 705, he submitted that the impugned Award could notbe set aside unless it was opposed to the public policy of India whichmeant that it should be patently illegal and the illegality should go tothe root of the matter.

34. Relying on the decision in Sales Tax Officer, Pilibhit v. Messrs.Budh Prakash Jai Prakash (1955) 1 SCR 243 and Sections 4, 6, 9and 10 of the SGA, it is submitted that the PPA in question was an

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agreement for transfer of property in future and was covered underSection 10(1) of the SGA and not Section 9. Under Article 9.1.1 to9.1.3 of the PPA, the price payable for the electricity to be generatedin future was to be subject to the approval by the appropriateCommission constituted under the EA. Under Article 9.1.1 tariff wasto be determined in terms of Schedule ‘E’ to the PPA i.e. inaccordance with CERC (Terms and Conditions of Tariff) Regulations2004. Since CERC, in any event, had no jurisdiction to fix the tariff,the PPA had been rendered void under Section 10 of the SGA. It wasafter discussing the above legal position that the majority of theTribunal in the impugned Award came to the conclusion that the PPAwas an agreement to sell electricity which was yet to be produced and,therefore, Section 10 of the SGA applied and consequently, PPA washeld to be void. Relying on the decision in Kumbakonam ElectricSupply Corporation Limited v. Joint Commercial Tax Officer AIR1964 Mad 477, which was approved in Commissioner of Sales Tax,Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board,Jabalpur (1969) 1 SCC 200 and in State of A.P. v. National ThermalPower Corporation Limited (2002) 5 SCC 203, it was submitted thatelectricity was movable property and fell within the definition of thegoods under the SGA and, therefore, Section 10 SGA was applicableto the facts of the present case.Lastly, it was submitted that thecontract for sale under Section 4(1) of the SGA had to be for priceand, if no provision relating to price remained, then the contract itselfhad to fail. Therefore, Article 15.10 of the PPA which provided forseverability would not rescue the validity of the PPA as such.

Issues for consideration

35. On the basis of the above submissions, the following issues arise

for consideration:

(i) Is it open to the Petitioner to raise an objection as to thejurisdiction of the Tribunal for the first time in this Court,without raising it first before the Tribunal?

(ii) Whether the dispute which was the subject matter of theimpugned Award could be adjudicated by CERC alone or wasit an arbitrable dispute that could be examined by the Tribunal?

(iii) Whether the decision of the majority of the Tribunal thatCERC had no power to determine the tariff for electricitysupplied by generating company to trading licencee sufferedfrom patent illegality or was otherwise opposed to the publicpolicy of India calling for interference under Section 34 of theAct?

Maintainability of the objection as to jurisdiction of the Tribunal

36. The facts of the case show that the parties consciously inserted anarbitration clause in the PPA under which they agreed to refer theirinter se disputes for arbitration by Tribunal. The Petitioner alsounderstood that the Tribunal had jurisdiction to adjudicate the disputesand in anticipation thereof first invoked the jurisdiction of this Courtunder Section 9 of the Act for interim relief. At that stage thePetitioner proceeded on the footing that the Tribunal had jurisdictionto adjudicate the disputes between the parties.

37. The Petitioner sought to explain its stand in this regard byreferring to the decisions of the APTEL in Gajendra Haldea andLanco-I which held that CERC did not have jurisdiction to fix tarifffor supply of electricity by generating company to trading

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licencee. While that may be possible explanation, by the time thedisputes were examined and heard by the Tribunal, the decision dated9[th]April 2009 of the Supreme Court setting aside the decision of theATE in Gajendra Haldea was available. Therefore, even before theTribunal the Petitioner was aware that the decision of the APTEL inGajendra Haldea was not good in law. It could have easily raised theissue concerning lack of jurisdiction of the Tribunal to decide thedispute before the Tribunal itself. However, admittedly no such pleawas raised before the Tribunal by filing any petition under Section 16of the Act.

38. Under Section 4 of the Act, if party knowing that certainprovision of the Act has not been complied with, proceeds in thearbitration without stating its objection, then such party shall bedeemed to have waived its right to do so.Further, under Section16(2) of the Act, the objection as to the jurisdiction of the Tribunalhas to be raised “not later than the submission of the statement ofdefence”. It can be raised even by the party which has invoked thearbitration clause. However, under Section 16(3) “it should be raisedas soon as the matter, alleged to be beyond the scope of its authority,is raised during the arbitral proceedings.” An appeal is also providedunder Section 37(2) (a) whereby the Tribunal accepts such plea. It wasfor this reason that in Krishna Bhagya Jala Nigam Ltd. v. G.Harischandra Reddy the Supreme Court did not permit the Jal Nigamto raise the contention as to want of jurisdiction of the Tribunal afterparticipating in the proceedings before the Tribunal without raisingsuch objection. In Gas Authority of India Ltd. v. Keti Construction(I) Ltd. it was explained by the Supreme Court that given the object ofthe Act to secure expeditious disposal of disputes, the plea of lack of

jurisdiction ought to be raised at the threshold before the ArbitralTribunal so that “remedial measures may be immediately taken andtime and expense involved in hearing of the matter before the arbitraltribunal which may ultimately be found to be either not properlyconstituted or lacking in jurisdiction, in proceedings for setting asidethe award, may be avoided.” Division Bench of this Court reiteratedthe above legal position in S.N. Malhotra & Sons v. AirportAuthority of India.

39. In the present case, the objection as to the jurisdiction of theTribunal was raised, for the first time, only in the rejoinder which wasfiled on 25[th]January 2012. Although it is sought to be contended bythe Petitioner that it had raised an objection as to the jurisdiction ofthe Tribunal in grounds ‘C’ and ‘D’ of the petition under Section 34, aperusal of the said two grounds shows that the Petitioner raised anobjection to the Award in regard to the scope of the powers of CERCunder Section 79(1)(a) and (b) read with Section 62 of the EA. Thereis no challenge in those grounds to the jurisdiction of the Tribunal.

40. Reliance was placed by the Petitioner on the decision of theSupreme Court in State of Maharashtra v. Hindustan ConstructionCompany Limited (2010) 4 SCC 518 to contend that the rejoinderbeing part of the petition, the plea of limitation under Section 34(3)cannot be applied to defeat the plea under Section 34 as tojurisdiction. perusal of the said judgment shows that it dealt with asituation where an appeal under Section 37 of the Act from an orderrefusing to set aside the award by losing party i.e. the State ofMaharashtra was dismissed since it was found that the grounds soughtto be added in the memorandum of arbitration by way of amendment

were absolutely new grounds for which there was no foundation in theapplication for setting aside the Award. It was held “obviously suchnew grounds containing new materials/facts could not have beenintroduced for the first time in an appeal when admittedly thesegrounds were not originally raised in the arbitration petition for settingaside the Award.” Moreover, no prayer was made by the appellant foramendment in the petition under Section 34 of the Act either beforethe Court concerned or at the appellate stage. Therefore, contrary tothe contention of the Petitioner that the rejoinder was to be treated asan amendment to the main petition under Section 34 of the Act, theabove decision appears to indicate that unless specific amendment issought to the main petition itself under Section 34 of the Act andwhich again should not be based on new materials/facts beingintroduced for the first time, the question of permitting new groundto be raised for the first time by way of the rejoinder, does not arise.The observations in Paras 29 and 30 of the judgment have to be readin the context of Para 36 of the judgment in order to spell out the ratioof the judgment. With there being no amendment application in thepresent case, the said decision cannot come to the help of thePetitioner.

41. The decision in Karnataka Power Transmission Corporation v.Ashok Iron Works Private Limited (2009) 3 SCC 240 which statesthat jurisdictional issue, if wrongly decided, would not attract theprinciple of res judicata, was obviously not in the context of the Act.In Centrotrade Minerals and Metals Inc. v. Hindustan Copper Ltd.(2006) 11 SCC 245 the question that arose concerned the enforcementof foreign award on the ground of lack of jurisdiction of theArbitrator. perusal of the said judgment shows that the two Judges

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who heard the case differed in their views and the case was ultimatelyplaced before larger Bench for consideration.Consequently, thesaid judgment cannot assist the Petitioner.

42. It was contended by the Petitioner that Section 4 of the Act wouldapply only in respect of non-derogatory provision in an arbitrationagreement and where non-compliance alleged is not in Part-I of theAct but mandatory provision relating to the jurisdiction under theEA.Reliance was placed on the observations made in Inder SainMittal v. Housing Board, Haryana (2002) 3 SCC 175 wherein it washeld that where ground was based upon the breach of mandatoryprovision of law, party would be estopped from raising the same inthe objection to the Award even after participating in the arbitrationproceedings in view of the well settled maxim that there is no estoppelagainst statute. While it is true that parties perhaps can raise such aground even after participating in the proceedings, clearly it has to beraised in good time i.e. within the period of limitation provided underSection 34(3) of the Act. Otherwise, the party would be precludedfrom raising the objection as to the jurisdiction under Section 34 ofthe Act.

43. For the afore-mentioned reasons, this Court decides Issue (i) byholding that the Petitioner cannot challenge jurisdiction of theTribunal to decide the dispute between the parties referred to it sincethe Petitioner failed to raise such objection before the Tribunal itself.Issue (i) is decided against the Petitioner.

Arbitrability of the dispute and Jurisdiction of the Tribunal

44. The central issue involved in the present petition concerns thepowers and jurisdiction of the CERC and SERC under Section 62 read

with Section 79(1)(f) and Section 86(1)(f) of the EA to fix tariff whenelectricity is supplied by generating company to trading licencee.There are two aspects to this matter. One is whether the Tribunalcould have determined the question referred to it by the parties at alli.e. whether the dispute referred to it was an arbitrable dispute. Thesecond aspect is whether the Tribunal decided the dispute referred toit correctly. The second aspect leads to the third issue, whether theimpugned Award suffers from any patent illegality or is opposed tothe public policy of India. Issue (ii) is confined to examining the verynature of the dispute that was examined by the Tribunal. The Tribunalwas asked to determine if the PPA was void because one essentialfeature, viz., fixation of tariff that required approval of the CERC, wasnot legally capable of being performed. Interpreting the provisions ofthe EA, the Tribunal answered that question in the affirmative. Ittherefore proceeded on the basis that the issue before it was anarbitrable one, although it involved determination of rights in rem.

45. What is an issue involving determination of rights in rem and theapparent non-arbitrability of such dispute was discussed by theSupreme Court in Booz Allen and Hamilton Inc. v. SBI HomeFinance. It was explained in Para 35 of the said decision:

“35. The Arbitral tribunals are private fora chosenvoluntarily by the parties to the dispute, toadjudicate their disputes in place of courts andtribunals which are public fora constituted underthe laws of the country. Every civil or commercialdispute,eithercontractualornon-contractual,which can be decided by court, is in principlecapable of being adjudicated and resolved byarbitration unless the jurisdiction of the ArbitralTribunals is excluded either expressly or bynecessary implication. Adjudication of certaincategories of proceedings are reserved by thevoluntarily by the parties to the dispute, toadjudicate their disputes in place of courts andtribunals which are public fora constituted underthe laws of the country. Every civil or commercialdispute,eithercontractualornon-contractual,which can be decided by court, is in principlecapable of being adjudicated and resolved byarbitration unless the jurisdiction of the ArbitralTribunals is excluded either expressly or bynecessary implication. Adjudication of certaincategories of proceedings are reserved by the

legislature exclusively for public fora as matterof public policy. Certain other categories of cases,though not expressly reserved for adjudication bypublicfora(courtsandtribunals),maybynecessary implication stand excluded from thepurview of private fora. Consequently, where thecause/dispute is inarbitrable, the court where suitis pending, will refuse to refer the parties toarbitration, under Section 8 of the Act, even if theparties might have agreed upon arbitration as theforum for settlement of such disputes.”

46. Thereafter in paras 36 to 39 the Supreme Court explained thedistinction between rights in personem and rights in rem. It held:

“36.Thewellrecognizedexamples ofnon-arbitrable disputes are: (i) disputes relating torights and liabilities which give rise to or arise outof criminal offences; (ii) matrimonial disputesrelating to divorce, judicial separation, restitutionof conjugal rights, child custody; (iii) guardianshipmatters; (iv) insolvency and winding up matters;(v) testamentary matters (grant of probate, lettersof administration and succession certificate); and(vi) eviction or tenancy matters governed byspecial statutes where the tenant enjoys statutoryprotection against eviction and only the specifiedcourts are conferred jurisdiction to grant evictionor decide the disputes.

37.It may be noticed that the cases referred toabove relate to actions in rem. right in rem is aright exercisable against the world at large, ascontrasted from right in personam which is aninterestprotectedsolelyagainstspecificindividuals. Actions in personam refer to actionsdetermining the rights and interests of the partiesthemselves in the subject-matter of the case,whereas actions in rem refer to actions determiningthe title to property and the rights of the parties, notmerely among themselves but also against allpersons at any time claiming an interest in thatproperty. Correspondingly, judgment in personam

referstoajudgmentagainstapersonasdistinguished from judgment against thing,right or status and judgment in rem refers to ajudgment that determines the status or condition ofproperty which operates directly on the propertyitself. (Vide: Black's Law Dictionary).

38. Generally and traditionally all disputes relatingtorightsinpersonamareconsideredtobeamenable to arbitration; and all disputes relating torights in rem are required to be adjudicated bycourts and public tribunals, being unsuited forprivate arbitration. This is not however rigid orinflexible rule. Disputes relating to subordinaterights in personam arising from rights in rem havealways been considered to be arbitrable.

39. The Act does not specifically exclude anycategory of disputes as being not arbitrable.Sections 34(2)(b) and 48(2) of the Act howevermake it clear that an arbitral award will be set asideif the court finds that "the subject-matter of thedispute is not capable of settlement by arbitrationunder the law for the time being in force."

47.It was contended by the Respondent that Article 15.2 of the PPAstates that the agreement was solely for the benefit of the parties andtheir successors and was not to be construed as creating any “duty,standard of care or any liability towards any third person”. However,with the goods in question being electricity which is not meant forconsumption by the purchaser of the electricity but for onward sale bythe trading licencee to distribution companies and ultimately to theconsumers, the above interpretation that Article 15.2 does not createrights in rem is not correct.

48. Under Section 79(1)(f) it is possible for CERC while dischargingits functions “to refer any dispute for arbitration”. In other words, it is

O.M.P. 677 of 2011

the CERC which will decide which dispute, if any, involving agenerating company has to be referred to arbitration. That is theprerogative of CERC. The Petitioner could have validly raised anobjection to the Tribunal examining the question whether the PPAwas void since the jurisdiction to decide such issue was solely withinthe purview of CERC. The Tribunal has in by the impugned Awarddecided dispute which was “not capable of settlement by arbitration”and therefore liable to be set aside under Section 34 (2) (b) (i) of theAct. The question raised in Issue No. (ii) is therefore answered in theaffirmative.

49. However, such an objection not having been raised at the relevantstage before the Tribunal, this Court does not wish to permit thePetitioner to raise this issue in the present proceedings.In otherwords, this Court does not permit the Petitioner to assail the impugnedAward on the ground of lack of jurisdiction of the Tribunal. However,this does not mean that in an appropriate case such challenge wouldnot be entertained by the Court if properly raised by way of groundunder Section 34 of the Act. Issue No.(ii) is decided accordingly.

Powers of the CERC, SERCs and the validity of the Award

50. The issue whether the Tribunal was justified in holding that thePPA was void requires this Court to examine whether CERC haspower to determine the tariff when electricity is supplied by agenerating company to trading licencee. The Tribunal has in theimpugned Award held that the CERC does not. Issue (iii) concerns thelegal tenability of that conclusion.

51. As has been noticed earlier, the decisions of the APTEL inGajendra Haldea and Lanco I were to the effect that CERC did notO.M.P. 677 of 2011Page 29 of 43

have jurisdiction to regulate the tariff applicable to the supply ofelectricity by generating company to trading licencee.Theinterpretation placed by the APTEL on the SOR to the EA and theprovisions of the EA in coming to the above conclusion hasundergone change in the subsequent decisions of the APTEL, in lightof the decisions of the Supreme Court which will be discussedhereafter.

52. In order to examine the above issue, first the relevant portion ofthe SOR to the EA requires to be referred to. Paras 4(ix) and (x) of theSOR acknowledge that under the EA, trading in electricity was for thefirst time being recognized as distinct activity. The said clauses readas under:

“(ix) Trading as distinct activity is being recognizedwith the safeguard of the Regulatory Commissionsbeing authorised to fix ceilings on trading margins, ifnecessary.

(x) Where there is direct commercial relationshipbetween consumer and generating company or atrader the price of power would not be regulated andonly transmission and wheeling charges with surchargewould be regulated.”

53. careful reading of Clause 4(x) of the SOR shows that it talks ofdirect commercial relationship between (i) consumer and agenerating company; (ii) consumer and trader. In the chain ofsupply of electricity, it is possible that generating company makes adirect supply to consumer. Sometimes, trader could also be anintermediary in the supply by the generating company to theconsumer. Such supplies would not be regulated by the appropriateCommission. Where there is direct transfer of electricity from eitherthe generating company to the consumer or from trader to the

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consumer then the tariff would not be subject to regulation. However,where trader or trading licencee sells electricity to distributionlicencee which in turn supplies to the consumer, the tariff would besubject to regulation.

54. Next the relevant provisions of the EA have to be examined.Sections 62, 79 and 86 read under:

“62. (1) The Appropriate Commission shall determinethe tariff in accordance with provisions of this Act for–

(a) supply of electricity by generating company to adistribution licencee:

Provided that the Appropriate Commission may, incase of shortage of supply of electricity, fix theminimum and maximum ceiling of tariff for sale orpurchase of electricity in pursuance of an agreement,entered into between generating company and alicencee or between licencees, for period notexceeding one year to ensure reasonable prices ofelectricity;

(b) transmission of electricity ;

(c) wheeling of electricity;

(d) retail sale of electricity.

Provided that in case of distribution of electricity in thesame area by two or more distribution licencees, theAppropriateCommissionmay,forpromotingcompetition among distribution licencees, fix onlymaximum ceiling of tariff for retail sale of electricity.(2) The Appropriate Commission may require alicencee or generating company to furnish separatedetails, as may be specified in respect of generation,transmission and distribution for determination oftariff.

(3) The Appropriate Commission shall not, whiledetermining the tariff under this Act, show unduepreference to any consumer of electricity but maydifferentiate according to the consumer's load factor,power factor, voltage, total consumption of electricityduring any specified period or the time at which thesupply is required or the geographical position of anyarea, the nature of supply and the purpose for whichthe supply is required.

(4) No tariff or part of any tariff may ordinarily beamended more frequently than once in any financialyear, except in respect of any changes expresslypermitted under the terms of any fuel surchargeformula as may be specified.

(5) The Commission may require licencee or agenerating company to comply with such procedures asmay be specified for calculating the expected revenuesfrom the tariff and charges which he or it is permittedto recover.

(6) If any licencee or generating company recovers aprice or charge exceeding the tariff determined underthis section, the excess amount shall be recoverable bythe person who has paid such price or charge alongwith interest equivalent to the bank rate withoutprejudice toany other liability incurred by thelicencee.”

79 - Functions of Central Commission. (1) TheCentral Commission shall discharge the followingfunctions, namely:-

(a) to regulate the tariff of generating companiesowned or controlled by the Central Government;

(b) to regulate the tariff of generating companies otherthanthoseownedorcontrolledby theCentralGovernment specified in clause (a), if such generatingcompanies enter into or otherwise have compositescheme for generation and sale of electricity in morethan one State;

(c)toregulatetheinter-Statetransmissionofelectricity;

(d) to determine tariff for inter-State transmission ofelectricity;

(e) to issue licences to persons to function astransmission licensee and electricity trader with respectto their inter-State operations;

(f) to adjudicate upon disputes involving generatingcompanies or transmission licensee in regard to mattersconnected with clauses (a) to (d) above and to refer anydispute for arbitration;

(g) to levy fees for the purposes of this Act;

(h) to specify Grid Code having regard to GridStandards;

(i) to specify and enforce the standards with respect toquality,continuityandreliabilityofservicebylicensees;

(j) to fix the trading margin in the inter-State trading ofelectricity, if considered, necessary;

(k) to discharge such other functions as may beassigned under this Act.

(2) to (4)…

86 - Functions of State Commission. (1) The StateCommission shall discharge the following functions,namely:-

(a)determinethetariffforgeneration,supply,transmission and wheeling of electricity, wholesale,bulk or retail, as the case may be, within the State:

Provided that where open access has been permitted toa category of consumers under section 42, the StateCommission shall determine only the wheeling charges

and surcharge thereon, if any, for the said category ofconsumers;

(b) regulate electricity purchase and procurementprocess of distribution licensees including the price atwhich electricity shall be procured from the generatingcompanies or licensees or from other sources throughagreements for purchase of power for distribution andsupply within the State;

(c) facilitate intra-State transmission and wheeling ofelectricity;

(d) to (e)….

(f) adjudicate upon the disputes between the licenseesand generating companies and to refer any dispute forarbitration;

(g) and (h)…

(j) fix the trading margin in the intra-State trading ofelectricity, if considered, necessary;

(k) discharge such other functions as may be assignedto it under this Act.

(2) to (4)…….”

55. The words “supply of electricity by generating company to adistribution licencee” occurring in Section 62 would, in the abovecontext, envisage apart from direct supply from generatingcompany to distribution licencee, also supply from generatingcompany to trading licencee who in turn sells to distributionlicencee. The trader could intervene either in the supply by agenerating company to consumer or he could intervene in the supplyby generating company to the distribution licencee.The lattertransaction would certainly form the subject matter of regulation bythe appropriate Commission within the meaning of Section 62 read

O.M.P. 677 of 2011Page 34 of 43

56.It appears inconceivable that where trading licencee is sellingto distribution licencee and not directly to consumer, the tariff forsuch supply by the generating company to the trading licenceewould not be amenable to the regulatory jurisdiction of CERC orSERC under Section 62 of the EA. An interpretation to the contrarywould defeat the rights of the consumers which are intended to beprotected by the CERC and SERCs. The only freedom was given tothe direct commercial relationship between generating company andconsumer where presumably there would be bulk consumption bysuch consumer. However, in cases like the present one where thetrader is selling electricity to distribution licencee who is eventuallyselling or supplying electricity to the consumer, the tariff wouldnecessarily have to be regulated. Otherwise, every generatingcompany would route the sale of electricity through trading licenceeto evade the applicability of the regulatory framework EA.

57. The argument that wherever there is surplus power which mightbe unutilized and there is big consumer requiring such supply it canget it by entering into an agreement with the trader, does not reallyanswer the situation where such trader has entered into an agreementwith distribution company for supply to the consumer.Where atrader has direct supply to the consumer then again there may be asituation where such transaction may be unregulated within thescope of Section 62. But in situation where trader is selling suchelectricity to distribution company through PSAs then Section 62would apply. Fixation of trading margin by itself may not completelyensure that electricity is available to the consumers at reasonable

58. The decision in the GUVNL case emphasizes that the EA isindeed complete code meant to adjudicate all disputes arising underthe purview of the EA. The Supreme Court held that in respect of alldisputes between licencees and generating company, the CentralCERC or an SERC or an arbitrator appointed by them will have thejurisdiction. It was held (SCC, p.772):

“59. In the present case we have already noted that there is animplied conflict between Section 86(1)(f) of the Electricity Act,2003 and Section 11 of the Arbitration and Conciliation Act,1996 since under Section 86(1)(f) the dispute between licenceesand generating companies is to be decided by the StateCommission or the arbitrator nominated by it, whereas underSection 11 of the Arbitration and Conciliation Act, 1996, thecourt can refer such disputes to an arbitrator appointed by it.Hence on harmonious construction of the provisions of theElectricity Act, 2003 and the Arbitration and Conciliation Act,1996 we are of the opinion that whenever there is disputebetween licencee and the generating companies only the StateCommission or the Central Commission (as the case may be) orarbitrator (or arbitrators) nominated by it can resolve such adispute, whereas all other disputes (unless there is some otherprovision in the Electricity Act, 2003) would be decided inaccordance with Section 11 of the Arbitration and ConciliationAct, 1996. This is also evident from Section 158 of theElectricity Act, 2003. However, except for Section 11 all otherprovisions of the Arbitration and Conciliation Act, 1996 willapply to arbitrations under Section 86(1)(f) of the ElectricityAct, 2003 (unless there is conflicting provision in theElectricity Act, 2003, in which case such provision willprevail).

60. In the present case, it is true that there is provision forarbitration in the agreement between the parties dated 30-5-1996. Had the Electricity Act, 2003 not been enacted, therecould be no doubt that the arbitration would have to be done inaccordance with the Arbitration and Conciliation Act, 1996.However, since the Electricity Act, 2003 has come in forcew.e.f. 10-6-2003, after this date all adjudication of disputes

between licencees and generating companies can only be doneby the State Commission or the arbitrator (or arbitrators)appointed by it. After 10-6-2003 there can be no adjudication ofdispute between licencees and generating companies by anyoneother than the State Commission or the arbitrator (or arbitrators)nominated by it. We further clarify that all disputes, and notmerely those pertaining to matters referred to in Clauses (a) to(e) and (g) to (k) in Section 86(1), between the licencee andgenerating companies can only be resolved by the Commissionor an arbitrator appointed by it. This is because there is norestriction in Section 86(1)(f) about the nature of the dispute.”

59. The Respondent relies on paras 83 and 84 of the decision of theSupreme Court in Tata Power Company Limited v. Reliance EnergyLimited, to contend that in view of the above two paras of the SOR,the supply of electricity by generating company to trading licenceeis not intended to be subject to any kind of regulation either by theCERC or the SERCs. Paras 83 and 84 as under (SCC, P.686):

“83. The primary object, therefore, was to free thegenerating companies from the shackles of licensingregime. The 2003 Act encourages free generation andmore and more competition amongst the generatingcompanies and the other licencees so as to achievecustomer satisfaction and equitable distribution ofelectricity.The generating company, thus, exercisefreedom in respect of choice of site and investment ofthe generation unit; choice of counter-party buyer;freedom from tariff regulation when the generationcompany supplies to trader or directly to theconsumer.generating companies from the shackles of licensingregime. The 2003 Act encourages free generation andmore and more competition amongst the generatingcompanies and the other licencees so as to achievecustomer satisfaction and equitable distribution ofelectricity.The generating company, thus, exercisefreedom in respect of choice of site and investment ofthe generation unit; choice of counter-party buyer;freedom from tariff regulation when the generationcompany supplies to trader or directly to theconsumer.

84. If delicensing of the generation is the prime objectof the Act, the courts while interpreting the provisionsof the statute must guard itself from doing so in such amanner which would defeat the purpose thereof.Itmust bear in mind that licensing provisions are notbrought back through the side-door of regulations.”of the Act, the courts while interpreting the provisionsof the statute must guard itself from doing so in such amanner which would defeat the purpose thereof.Itmust bear in mind that licensing provisions are notbrought back through the side-door of regulations.”

60. The Supreme Court in the above case was concerned with the

issue whether an SERC could disregard the PPAs entered into by agenerating company with two distribution licencees and direct thegenerating company to allocate the power amongst all the distributionlicencees, including those who had not entered into PPAs with it. Thecase did not involve trading licencee. The question whether thesupply to trading licencee was amenable to regulation under the EAdid not arise for consideration. The above observations of theSupremeCourthavetobeunderstoodintheabovefactualbackground. While the supply of electricity by generating companydirectly to consumer may be outside the purview of regulation, in acase where trading licencee sells electricity to the distributionlicencee or eventual supply to the consumer, the tariff for such supplycannot be outside the purview of regulation.

61. The APTEL’s decision in Lanco III is instructive The facts inbrief were that Lanco was generating company which entered into aPPA with Power Trading Corporation (PTC) for sale of 273 MWelectricity from its Korba thermal power project in Chhattisgarh. TheHaryana Power Generation Corporation Ltd. (HPGCL) approachedthe Haryana Electricity Regulatory Commission (HERC) for approvalof purchase of power from Lanco’s plant. An in-principle approvalwas granted by the HERC for purchase of power from Lanco’s plantthrough PTC. power Sale Agreement (PSA) was entered intobetween PTC and HPGCL for sale of the power purchased fromLanco. HPGCL approached the HERC for approval of the PSA. TheHERC granted approval. Later PTC filed petition before the HERCseeking direction to HPGCL to purchase electricity at the tariffcalculated in accordance with the CERC Regulations and the PSA toregulate the tariff. Among the objections raised by Lanco was thatHERC lacked the jurisdiction to approve the tariff for purchase ofelectricity by PTC, an inter-state trading licencee, from Lanco whichhad its plant in Chhattisgarh. The decision of the HERC, negativingthe said objection, was challenged by Lanco before the APTEL. Whileupholding the said part of the order of the HERC, the APTELobserved:

“So, the combined reading of the above provisions brings out thescheme of the Act. trader is treated as an intermediary. Whenthe trader deals with the distribution company for re-sale ofelectricity, he is doing so as conduit between generatingcompany and distribution licencee. When the trader is notfunctioning as merchant trader, i.e. without taking upon itself thefinancial and commercial risks but passing on the all the risks tothe Purchaser under re-sale, then there is clearly link betweenthe ultimate distribution company and the generator with traderacting as only an intermediary linking company.

61. It cannot be debated that the whole scheme of the Act is thatfromtheverygenerationofelectricitytotheultimateconsumptionofelectricitybytheconsumersisoneinterconnected transaction and is regulated at each level by thestatutory Commissions in manner so that the objective of theAct are fulfilled; the electricity industry is rationalized and alsothe interest of the consumer is protected. This whole scheme willbe broken if the important link in the whole chain i.e. the salefrom generator to trading licencee is to be kept outside theregulatory purview of the Act. If such plea of the Appellant isaccepted, the same would result in the Act becoming completelyineffective and completely failing to serve the objective forwhich it was created.

62. In other words, while interpreting the provisions of the Act,the entire Act will have to be looked into totality as one integralwhole and not in an isolated manner. That is why; the Act itselfdoes not seek to look at the electricity industry and the consumerinterest on segmented or fragmented basis but as cohesivewhole. It is for this reason that the Act has been given in Section174 overriding effect over all the other legislations which areinconsistent with the provisions of the Act.”

62. CERC has the power to regulate tariff of generating companiesunder Section 79 (1) (b) of the EA. generating company could sellin bulk to consumer in one state, to trading licencee in another andto one or more distribution licencees in other states. Sections 79 (1)(a) and (b) enable the CERC to fix or approve the tariff for the sale ofelectricity by the generating company in any of the above situationsby taking into account the capital expenditure incurred for setting upthe generating plant and fixed margin of profit. If there is an intra-State trading licencee supplying to many States, then it is possible thateach SERC may want to fix appropriate tariffs keeping in view theburden on the ultimate consumer.There is no absurdity in fourSERCs fixing these tariffs to benefit ultimate consumers in theirrespective states.Even as of today consumer of electricity inMaharashtra for instance is not paying the same tariff as consumerin Delhi or elsewhere. This is one of the purposes of establishingdifferent SERCs with one CERC. Where it is inter-State supply, thevarious factors will be accounted for by the CERC. Where it is anintra-State supply, the SERC would have the jurisdiction and where itis an inter-State supply, the CERC would have jurisdiction.

63. Indeed, as has been observed by the APTEL in the Pune Powercase, the nature of the licencee i.e. inter-State or intra-State, is not ofrelevance for the purpose of exercise of jurisdiction by the appropriateCommission. Under Section 86(1)(f) all disputes relating to theregulatory jurisdiction of the SERC which involve distributinglicencee or trading licencee or transmission licencee has to beadjudicated exclusively by SERC. Under Section 2(39) of the EA a‘licencee’ means person who has been granted licence underSection 14. It only depends on whether the transaction of sale of

O.M.P. 677 of 2011

electricity has taken place and if it is within the jurisdiction of aSERC, then that SERC would have jurisdiction to entertain thedispute. In Adani Power Limited v. Gujarat Electricity RegulatoryCommission, the APTEL was deciding case involving supply by agenerating company to trading licencee. Relying upon the GUVNLcase, it was held that all such disputes and differences had to bedecided only by the SERC and not by an arbitral Tribunal chosen bythe parties under the PPA.

64. The Tribunal in the present case did not discuss the changed legalposition as result of the decisions of the APTEL subsequent toGajendra Haldea and Lanco I in light of the altered decisions of theSupreme Court including the one in the GUVNL case.It went byonly literal and not purposive and contextual interpretation ofSection 62 EA. The majority of the Tribunal was, therefore, in errorin holding that the transaction involving supply by generatingcompany to trading licencee was outside the purview of regulationby the CERC under Section 79(1)(f) read with Section 62 of the Act.

65. It is not possible to accept the submission of Mr. Bhushan, thelearned Senior counsel for JPVL that the above finding of the majorityof the Tribunal was not opposed to the public policy of India. TheSOR of the EA explains the object of empowering the appropriateCommission to regulate the tariffs for supply of electricity at variousstages. The legislative intent as evident from collective reading ofthe SOR and the provisions of the EA in the manner explainedhereinabove is to bring the transactions involving the supply ofelectricity by generating company to distribution company forfurther supply to consumers within the ambit of the regulatory powers

of the CERC and the SERCs as the case may be. Any Award thatadopts an interpretation of the provisions of the EA that runs counterto the legislative intent would doubtless be in conflict with thelegislative and therefore the public policy of India within the meaningof Section 34 (2) (b) (ii) of the Act.

66. In view of the above determination, the further questions whetherit is Section 9 or Section 10 of the SGA that would apply to thepresent case and whether the clause concerning approval of the tariffby the CERC is severable, need not be answered.Since it is theCERC that has the jurisdiction to determine the tariff for supply ofelectricity by JPVL to the Petitioner, the question of impossibility ofcompliance with the essential condition of the PPA between themdoes not arise.As rightly pointed out by the Petitioner, the earlierorder of the CERC rejecting the application by Jaypee Karcham for anadvance ruling as to the capital cost was only because it waspremature and not because the CERC lacked the jurisdiction toapprove the tariff. If Jaypee Karcham had filed an application forfixation of tariff six months prior to the COD, the CERC would havehad to necessarily to deal with it on merits. The decision dated 26[th]October 2009 of the CERC rejecting Jaypee Karcham’s applicationfor approval of capital cost could not have formed valid basis forJaypee Karcham to conclude that the PPA was rendered void. Thedecision of Jaypee Karcham as communicated by its letter dated 17[th]December 2009 declaring the PPA void is contrary to the provisionsof the EA and, therefore, unsustainable in law.

Conclusion

67. As consequence, the majority Award dated 28[th]April 2011 is

hereby set aside. The view of the dissenting member of the Tribunalon the above aspect is, therefore, held to be correct and is approved.The parties are now to work out the respective rights and obligationsunder the PPA in accordance with law. JPVL will approach the CERCfor fixation of the tariff for supply of electricity to the Petitionerwithin period of four weeks from today.

68. The petition is, accordingly, allowed with costs of Rs.30,000which will be paid by JPVL to the Petitioner within four weeks.

MAY 15, 2012s.pal

S. MURALIDHAR, J.