Case Note & Summary
The Supreme Court of India addressed the question whether an arbitration clause incorporated in an electricity supply licence could compel a consumer to arbitrate a dispute with the licensee. The appellant, a supplier of electrical energy in Belgaum, held a licence granted under Section 3 of the Indian Electricity Act, 1910. The respondent, a consumer, filed a civil suit on or about 8 June 1955 in the Court of the Civil Judge, Belgaum, claiming a refund of excess charges paid for electricity. The appellant applied under Section 34 of the Arbitration Act, 1940 to stay the suit, contending that the dispute was referable to arbitration under Clause XVI of the Sixth Schedule to the Electricity (Supply) Act, 1948. Clause XVI provided that any dispute arising out of the provisions of the Sixth Schedule should be referred to the arbitration of the Authority. Section 57 of the 1948 Act had the effect of incorporating the provisions of the Sixth Schedule into the licence and making them prevail over inconsistent terms in earlier licences or laws. The trial court dismissed the appellant's stay application, and that dismissal was confirmed by the Extra Assistant Sessions Judge on appeal and by the High Court in revision. The appellant then appealed to the Supreme Court by special leave. The Supreme Court assumed for argument that the dispute fell within Clause XVI but held that the clause was not available to the appellant against the respondent. The appellant did not claim that Clause XVI was part of any contract between it and the respondent. The only statutory provision was Section 57, which deemed the Schedule clauses incorporated in the licence granted by the Government. Therefore, the licence was an engagement between the Government and the licensee, and an arbitration clause in such an instrument could only apply to disputes between the parties to it. Section 57 did not make Clause XVI a statutory provision for arbitration of disputes between any and every person. Consequently, the suit was not liable to be stayed under Section 34 of the Arbitration Act, 1940. The appeal was dismissed with costs.
Headnote
A) Arbitration - Scope of Arbitration Clause in Electricity Licence - Arbitration Clause Binds Only Parties to Instrument - Electricity (Supply) Act, 1948, Section 57 and Sixth Schedule Clause XVI - The appellant licensee sought stay of a consumer's suit under Section 34 of the Arbitration Act, 1940 relying on Clause XVI of the Sixth Schedule incorporated by Section 57 of the Electricity (Supply) Act, 1948. The Supreme Court held that the licence is an engagement between the Government and the licensee, and the arbitration clause can only cover disputes between those parties, not disputes with a consumer; Section 57 does not make the arbitration clause a statutory provision for arbitration between any and every person. Held that the appeal fails and is dismissed with costs.
Issue of Consideration
Whether a suit by a consumer for refund of excess electricity charges should be stayed under Section 34 of the Arbitration Act, 1940, on the ground that the dispute is referable to arbitration under Clause XVI of the Sixth Schedule to the Electricity (Supply) Act, 1948, as incorporated by Section 57 thereof.
Final Decision
The appeal was dismissed with costs. The Supreme Court held that the arbitration clause in the licence is an engagement between the Government and the licensee and does not cover disputes with a consumer. Therefore, the suit was not liable to be stayed under Section 34 of the Arbitration Act, 1940.
Law Points
- Legal points not extracted
- Arbitration clause in a licence binds only the parties to the licence
- A statutory provision for arbitration must clearly apply to the parties to the dispute
- Section 57 of the Electricity (Supply) Act
- 1948 incorporates Schedule provisions into licence but does not create statutory arbitration for consumer disputes
- Section 34 of the Arbitration Act
- 1940 requires an arbitration agreement between parties to the suit
