Case Note & Summary
The dispute arose from the disconnection of electricity supply to a cold storage and ice factory by the Punjab State Electricity Board (the Board) on 20 August 1982 due to default in payment of dues. The Board filed a suit for recovery of arrears, which ultimately culminated in a decree upheld by the Supreme Court in Civil Appeal No. 2767 of 1987 on 15 February 1989. Meanwhile, on 1 August 1985, the consumer issued a notice claiming damages of Rs. 68,25,734 (later increased to over Rs. 93,00,694) for alleged illegal disconnection and called upon the Board to refer the dispute to arbitration under Section 52 of the Indian Electricity Act, 1910 or Section 76(2) of the Electricity (Supply) Act, 1948. The Board challenged this notice by filing Suit No. 291 of 1985 before the Sub-Judge, I Class, seeking a declaration and permanent injunction restraining appointment of an arbitrator. The trial court dismissed the suit on 31 March 1989, and the first appellate court confirmed the dismissal. In Second Appeal No. 1993 of 1990, the High Court by judgment dated 14 December 1992 dismissed the appeal, holding that under Sections 32 and 33 of the Arbitration Act, 1940, a civil suit was not competent and that the challenge to the existence of an arbitration agreement could only be made through an application under Section 33. The Board appealed to the Supreme Court by special leave. The main legal issue was whether the dispute over damages for disconnection was arbitrable under the Indian Electricity Act, 1910 or the Electricity (Supply) Act, 1948, and consequently whether the civil suit was barred. The Board argued that disconnection of supply and consequential damages were not matters arbitrable under either Act, while the consumer contended that illegal disconnection gave rise to a dispute under Section 19 of the Electricity Act, arbitrable under Section 52 or Section 76(2), and that Section 46 read with Section 33 of the Arbitration Act permitted the civil court to decide only arbitrability, not the merits. The Supreme Court examined the scheme of Part II of the Electricity Act and found that Section 19(1) provides compensation for damage, detriment or inconvenience caused by a licensee while exercising powers such as opening streets, laying lines, altering pipes, or other works under Sections 12 to 18. The damages claimed by the consumer for disconnection of supply did not fall within that ambit; the right to claim damages was not available to a consumer for supply disconnection. Similarly, the Supply Act provided for arbitration only in specified matters under Sections 19(4), 44(3), 55(3) and 78-A(2), none of which covered the present dispute. The Court also held that Section 46 of the Arbitration Act, 1940 applies only when a matter is statutorily directed to arbitration; it cannot convert a non-arbitrable dispute into an arbitrable one. Since there was no express arbitration agreement under Section 2(a) and the dispute was not statutorily arbitrable, the civil court had jurisdiction to entertain the suit challenging the arbitration notice. The Court concluded that the High Court erred in holding the civil suit not maintainable. Accordingly, the appeal was allowed, the impugned judgment was set aside, and the civil suit was held maintainable.
Headnote
A) Arbitration - Statutory Arbitration - Arbitrability of damages for disconnection of electricity supply - Indian Electricity Act, 1910 Sections 19(1), 19(2), 52 - Claim for damages arising from disconnection of electricity supply to a consumer is not damage caused in execution of works under Part II of the Electricity Act, hence not arbitrable under Section 19(1) read with Section 52 or under Section 76(2) of the Electricity (Supply) Act, 1948 - Held that Section 19(1) applies to damage, detriment or inconvenience caused by licensee while exercising powers like opening streets, laying lines, etc., not to contractual/consumer supply disputes (Paras Not mentioned). B) Arbitration - Bar of Civil Suit - Existence and validity of arbitration agreement - Arbitration Act, 1940 Sections 32, 33 - Civil suit is not barred when no arbitration agreement exists or dispute is not statutorily arbitrable; Section 33 allows a party to challenge existence of arbitration agreement by application, but it does not bar a suit for declaration and injunction when the arbitration notice itself is without legal basis - Held that since respondent admitted absence of arbitration agreement under Section 2(a) and dispute not covered by statutory arbitration, civil suit was maintainable (Paras Not mentioned). C) Arbitration - Application of Act to Statutory Arbitrations - Section 46 of Arbitration Act, 1940 - Section 46 applies only when the matter is directed to be determined by arbitration under another enactment; it cannot create an arbitration where the statute does not provide for arbitration - Held that Section 46 cannot make a non-arbitrable dispute arbitrable (Paras Not mentioned). D) Electricity Law - Consumer Rights - Damages for illegal disconnection - Indian Electricity Act, 1910 Section 19 and Electricity (Supply) Act, 1948 Section 76(2) - Consumer's claim for compensation due to alleged illegal disconnection does not fall under Section 19(1) as it is not related to damage caused during execution of works; such dispute may be adjudicated by civil court not arbitrator - Held that High Court erred in holding civil suit not maintainable (Paras Not mentioned).
Issue of Consideration
Whether the dispute regarding damages suffered by the respondent consumer due to alleged illegal disconnection of electricity supply was arbitrable under Section 52 of the Indian Electricity Act, 1910 or Section 76(2) of the Electricity (Supply) Act, 1948, and whether the civil suit filed by the appellant was barred by Sections 32 and 33 of the Arbitration Act, 1940.
Final Decision
The Supreme Court held that the dispute regarding damages for disconnection of electricity supply was not arbitrable under Section 52 of the Indian Electricity Act, 1910 or Section 76(2) of the Electricity (Supply) Act, 1948, as it did not fall under Section 19(1) of the Electricity Act or any other statutory provision directing arbitration. The Court also held that Section 46 of the Arbitration Act, 1940 did not apply because the matter was not directed to arbitration by any enactment. Consequently, the civil suit was maintainable, and the High Court's judgment was set aside. The appeal was allowed.
Law Points
- Statutory arbitration under Section 52 of Indian Electricity Act
- 1910 applies only to disputes directed by or under that Act
- Section 19(1) of Indian Electricity Act
- 1910 compensates damage caused during execution of works
- not consumer disconnection disputes
- Section 46 of Arbitration Act
- 1940 applies only to statutory arbitrations where matter is directed to arbitration under another enactment
- Section 33 of Arbitration Act
- 1940 empowers civil court to decide existence or validity of arbitration agreement
- arbitrator cannot conclusively decide own jurisdiction
- civil suit not barred when no arbitration agreement exists and dispute not statutorily arbitrable.
