Authored by Abhishek Nath Tripathi and Vedant Kumar, Sarthak Advocates & Solicitors

The conflict between electricity regulatory commissions and arbitrators in electricity sector disputes is a long-standing and vexed issue. In the recent case of Chief General Manager (IPC) MP Power Trading Co Ltd & Anr v Narmada Equipments Pvt Ltd, the Supreme Court confirmed that section 86(1)(f) of the Electricity Act, 2003 (ECA), which deals with the power of a state commission to appoint arbitrators, overrides section 11 of the Arbitration and Conciliation Act, 1996 (ACA).

The Madhya Pradesh Electricity Board (board) and the respondent had entered into a Power Purchase Agreement (PPA) in 1999, under which the respondent was to establish a mini hydroelectric project on a build and operate basis. The PPA was subsequently terminated by the board, which was challenged by the respondent before the high court. The action was dismissed as the PPA contained an arbitration clause. A subsequent review petition filed by the respondent was also dismissed by the high court. This led to the respondent issuing notices to the board to resolve the matter under the dispute resolution clause of the PPA. When no reply was forthcoming from the board, the respondent invoked section 11(6) of the ACA to appoint the arbitrators.

The high court ruled that the respondent and the board had agreed to nominate their respective arbitrators, who would appoint the third arbitrator under the PPA. After the arbitrators terminated their mandate due to the non-payment of their fees, the respondent again applied under section 11(6) of the ACA to reappoint arbitrators. At that stage, the board objected to the fresh application on the grounds that the provisions of section 86(1)(f) of the ECA vested the state electricity regulatory commission with the exclusive power to adjudicate disputes between licensees and generating companies. On this basis, the board argued that the high court had no power under section 11(6) of the ACA to appoint arbitrators. The high court ruled in favour of the respondent, holding that the remedy under section 11(6) of the ACA was independent of the remedy available under section 86(1)(f) of the ECA. The board appealed to the Supreme Court against this decision.

In coming to its decision, the Supreme Court relied on its own judgments in Gujarat Urja Vikas Nigam Limited v Essar Power Ltd, Hindustan Zinc Limited v Ajmer Vidyut Vitran Nigam Ltd and NHAI v Sayedabad Tea Company Ltd to hold that section 86(1)(f) of the ECA is a special provision, which thus overrides the general provisions contained in section 11 of the ACA.

Interpreting section 86(1)(f) of the ECA, the Supreme Court held that the word and appearing twice in the wording of that section, “adjudicate upon disputes between licensees and generating companies and to refer any dispute for arbitration”, should be read as or in each instance. This conclusion was based on the reasoning that the state commission obviously cannot resolve the dispute itself and also refer it to arbitration. In view of section 174 of the ECA, the Supreme Court held that the ECA had an overriding effect over the ACA and that the commission had exclusive power to the exclusion of the high court.

On the further argument of the respondent that, having acceded to the jurisdiction of the high court for the appointment of arbitrators under section 11(6) of the ACA, the appellant could not now challenge the jurisdiction of the high court, the Supreme Court reiterated that a plea of inherent lack of jurisdiction can be made at any stage and can also be made in collateral proceedings. The Supreme Court held that the order of a court without valid subject matter jurisdiction is a nullity, which therefore cannot be relied on or enforced.

In this judgment, the Supreme Court has merely confirmed the existing position. The judgment, however, comes at a time when the draft Electricity (Amendment) Bill, 2020, has proposed the setting up of a separate Electricity Contracts Enforcement Authority to adjudicate contractual disputes. This is a tacit acknowledgement that electricity regulatory commissions may have failed in adjudicating contractual disputes in an efficient manner. The government should consider whether institutional arbitration is a better framework to resolve disputes than a separate statutory authority.

Published at India Business Law Journal