Supreme Court clarifies jurisdiction in power purchase disputes: MP Power Trading vs. Narmada Equipments (2021)

Date of the Judgment: 23 March 2021

Citation: 2021 INSC 156

Judges: Dr Dhananjaya Y Chandrachud, J, M R Shah, J, Sanjiv Khanna, J. The judgment was authored by Dr Dhananjaya Y Chandrachud, J.

Can a High Court appoint an arbitrator in a dispute between a power generating company and a licensee, or does the State Electricity Commission have exclusive jurisdiction? The Supreme Court addressed this question in a recent case, clarifying the interplay between the Arbitration and Conciliation Act, 1996 and the Electricity Act, 2003. The core issue revolves around which body has the authority to resolve disputes in the power sector.

Case Background

The dispute arose from a Power Purchase Agreement (PPA) between Madhya Pradesh Electricity Board (the Board) and Narmada Equipments Pvt Ltd (the respondent), dated 20 May 1999. The respondent was to establish a mini hydro-electric project. However, the Board terminated the PPA on 27 September 2001. The respondent initially challenged this termination in a writ petition, which the High Court declined due to the presence of an arbitration clause in the PPA.

Following the dismissal of the writ petition and a subsequent review petition, the respondent issued a notice to the Board on 28 December 2009, seeking resolution through mutual discussion. When this failed, the respondent invoked arbitration on 30 May 2011. After receiving no response, the respondent approached the High Court for the appointment of an arbitrator.

Timeline:

Course of Proceedings

The respondent initially filed a writ petition challenging the termination of the PPA, which was dismissed by the High Court due to the arbitration clause. Subsequently, the respondent filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The High Court initially recorded the parties’ agreement to nominate arbitrators. However, when the nominated arbitrators could not proceed due to non-payment of fees, the respondent filed a fresh application under Section 11(6). The High Court allowed this application, holding that remedies under Section 86(1)(f) of the Electricity Act, 2003 and Section 11(6) of the Arbitration and Conciliation Act, 1996 are independent of each other. This order of the High Court was appealed to the Supreme Court.

Legal Framework

The primary legal provisions in question are:
✓ Section 11(6) of the Arbitration and Conciliation Act, 1996: This section deals with the procedure for the appointment of arbitrators by the High Court when parties fail to agree on an appointment process.

✓ Section 86(1)(f) of the Electricity Act, 2003: This section empowers the State Electricity Commission to adjudicate disputes between licensees and generating companies and to refer any dispute for arbitration. The relevant text is:

“86.Functions of State Commission .— (1) The State Commission shall discharge the following functions, namely: –
*** *** ***
(f) adjudicate upon the disputes between the licensees and generating companies and to refer any dispute for arbitration;”

✓ Section 174 of the Electricity Act, 2003: This section provides that the Electricity Act, 2003 has an overriding effect over any other law for the time being in force. The relevant text is:

“174. Act to have overriding effect. — Save as otherwise provided in Section 173, the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.”

✓ Section 21 of the Arbitration and Conciliation Act, 1996: This section specifies that unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.

The Supreme Court emphasized that the Electricity Act, 2003 is a special law, and hence, has an overriding effect on the general provisions of the Arbitration and Conciliation Act, 1996.

Arguments

The appellant argued that the High Court’s decision was incorrect based on the Supreme Court’s ruling in Gujarat Urja Vikas Nigam Limited v Essar Power Limited [(2008) 4 SCC 755]. The appellant contended that Section 86(1)(f) of the Electricity Act, 2003 gives exclusive jurisdiction to the State Electricity Commission to resolve disputes between licensees and generating companies.

The respondent argued that the Gujarat Urja Vikas Nigam Limited case does not apply because the PPA was executed and terminated before the Electricity Act, 2003 came into force. The respondent also argued that the appellant could not raise the issue of jurisdiction under Section 86(1)(f) because the appellant had previously agreed to the appointment of arbitrators by the High Court.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

• Whether the High Court could appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 in a dispute between a licensee and a generating company, or whether the State Electricity Commission had exclusive jurisdiction under Section 86(1)(f) of the Electricity Act, 2003.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

The Court also considered the following legal provisions:

• Section 11 of the Arbitration and Conciliation Act, 1996: Deals with the appointment of arbitrators by the High Court.
• Section 86(1)(f) of the Electricity Act, 2003: Empowers the State Electricity Commission to adjudicate disputes between licensees and generating companies.
• Section 174 of the Electricity Act, 2003: Provides that the Electricity Act, 2003 has an overriding effect over any other law.
• Section 21 of the Arbitration and Conciliation Act, 1996: Specifies when arbitral proceedings commence.

Judgment

The Supreme Court allowed the appeal, setting aside the High Court’s order. The Court held that the State Electricity Commission has exclusive jurisdiction to adjudicate disputes between licensees and generating companies under Section 86(1)(f) of the Electricity Act, 2003. This provision overrides the general provisions of Section 11 of the Arbitration and Conciliation Act, 1996.

The Court’s view of the authorities:

• Gujarat Urja Vikas Nigam Limited v Essar Power Limited [(2008) 4 SCC 755]: The Court followed this authority, reiterating that Section 86(1)(f) of the Electricity Act, 2003 is a special provision that overrides the general provisions of Section 11 of the Arbitration and Conciliation Act, 1996.
• Hindustan Zinc Limited v Ajmer Vidyut Vitran Nigam Limited [(2019) 17 SCC 82]: The Court approved this authority, holding that a lack of subject matter jurisdiction can be raised at any stage and cannot be cured by consent of the parties.
• NHAI v Sayedabad Tea Company Limited [(2020) 15 SCC 161]: The Court approved this authority, confirming the position of law in Gujarat Urja Vikas Nigam Limited.

The Supreme Court quoted the following from Gujarat Urja Vikas Nigam Limited:

“26. It may be noted that Section 86(1)( f) of the Act of 2003 is a special provision for adjudication of disputes between the licensee and the generating companies. Such disputes can be adjudicated upon either by the State Commission or the person or persons to whom it is referred for arbitration. In our opinion the word “and” in Section 86(1)( f) between the words “generating companies” and “to refer any dispute for arbitration” means “or”. It is well settled that sometimes “and” can mean “or” and sometimes “or” can mean “and” (vide G.P. Singh’s Principles of Statutory Interpretation, 9th Edn., 2004, p. 404).
”

“27. In our opinion in Section 86(1)( f) of the Electricity Act, 2003 the word “and” between the words “generating companies ” and the words “refer any dispute” means “or”, otherwise it will lead to an anomalous situation because obviously the State Commission cannot both decide a dispute itself and also refer it to some arbitrator. Hence the word “and” in Section 86(1)( f) means “or”.
”

“28. Section 86(1)( f) is a special provision and hence will override the general provision in Section 11 of the Arbitration and Conciliation Act, 1996 for arbitration of disputes between the licensee and generating companies. It is well settled that the special law overrides the general law. Hence, in our opinion, Section 11 of the Arbitration and Conciliation Act, 1996 has no application to the question who can adjudicate/arbitrate disputes between licensees and generating companies, and only Section 86(1)( f) shall apply in such a situation.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that a special law overrides a general law, and that the State Electricity Commission has exclusive jurisdiction to resolve disputes between licensees and generating companies. The Court also emphasized that a lack of subject matter jurisdiction cannot be cured by the consent of the parties.

Logical Reasoning:

Key Takeaways

• The State Electricity Commission has exclusive jurisdiction to adjudicate disputes between licensees and generating companies under Section 86(1)(f) of the Electricity Act, 2003.
• Section 86(1)(f) of the Electricity Act, 2003 is a special provision that overrides the general provisions of Section 11 of the Arbitration and Conciliation Act, 1996.
• A lack of subject matter jurisdiction cannot be cured by the consent of the parties.
• The relevant date for determining jurisdiction is the date of invocation of arbitration, not the date of the PPA or its termination.

Directions

The Supreme Court set aside the High Court’s order but clarified that this would not prevent the respondent from pursuing other available legal remedies.

Development of Law

The ratio decidendi of this case is that the State Electricity Commission has exclusive jurisdiction to adjudicate disputes between licensees and generating companies under Section 86(1)(f) of the Electricity Act, 2003, and this provision overrides the general provisions of Section 11 of the Arbitration and Conciliation Act, 1996. This case reinforces the principle that a special law overrides a general law, and that a lack of subject matter jurisdiction cannot be cured by the consent of the parties. The judgment also clarifies that the relevant date for determining jurisdiction is the date of invocation of arbitration. This ruling confirms the position of law established in Gujarat Urja Vikas Nigam Limited and other previous judgments.

Conclusion

The Supreme Court’s judgment in this case clarifies the jurisdictional issues in disputes between licensees and generating companies. The Court held that the State Electricity Commission has exclusive jurisdiction under Section 86(1)(f) of the Electricity Act, 2003, which overrides the general provisions of the Arbitration and Conciliation Act, 1996. This ruling ensures that disputes in the power sector are resolved by the specialized body established for that purpose.

Category

Parent Category: Arbitration Law

Child Category: Section 11(6), Arbitration and Conciliation Act, 1996

Parent Category: Electricity Law

Child Category: Section 86(1)(f), Electricity Act, 2003

FAQ

Q: What type of disputes does this judgment address?

A: This judgment addresses disputes between power generating companies and licensees, specifically regarding which body has the authority to resolve such disputes.

Q: What is the significance of Section 86(1)(f) of the Electricity Act, 2003?

A: Section 86(1)(f) empowers the State Electricity Commission to adjudicate disputes between licensees and generating companies and to refer any dispute for arbitration. The Supreme Court has held that this section gives exclusive jurisdiction to the State Electricity Commission.

Q: Can parties agree to have a dispute resolved by a body other than the State Electricity Commission?

A: No. The Supreme Court has held that the State Electricity Commission has exclusive jurisdiction and a lack of subject matter jurisdiction cannot be cured by the consent of the parties.

Q: What is the relevant date for determining jurisdiction in arbitration cases?

A: The relevant date is the date on which the arbitration was invoked, not the date of the agreement or its termination.

Q: What happens if a High Court appoints an arbitrator in a case where the State Electricity Commission has jurisdiction?

A: The Supreme Court has held that such an appointment is unsustainable and the order of the High Court can be set aside.