Case Note & Summary
The Supreme Court allowed the appeal filed by Hindustan Zinc Limited (HZL) against the judgment of the Rajasthan High Court, which had set aside an arbitral award in a dispute concerning unscheduled interchange (UI) charges under open access agreements. HZL, a company with a captive power plant at Chanderiya, entered into three open access agreements with Ajmer Vidyut Vitran Nigam Limited (AVVNL) on 10.03.2005 to wheel power from its captive plant to its three units at Aghucha, Debari, and Dariba. Disputes arose regarding UI charges under Clauses 8 and 9 of these agreements. The Rajasthan Electricity Regulatory Commission, by orders dated 22.05.2006 and 23.06.2006, initially decided to resolve the dispute itself but later appointed an arbitrator under Section 86(1)(f) read with Section 158 of the Electricity Act, 2003, on 12.02.2007. The arbitrator, by award dated 25.08.2007, struck down Clauses 8(c) and 9 of the agreements, directing that UI charges be billed as per earlier agreements. The award was challenged under Section 34 of the Arbitration and Conciliation Act, 1996, before the Commercial Court, which dismissed the petition on 25.02.2017. AVVNL appealed under Section 37 to the Rajasthan High Court, which set aside the award on 05.04.2018, holding that HZL was an 'open access consumer' and not a 'generating company', thus Section 86(1)(f) did not apply, and the arbitrator lacked inherent jurisdiction. The High Court also found the award perverse on merits. The Supreme Court framed the issue of whether a captive generating plant using open access to wheel power to its own units qualifies as a 'generating company' under Section 86(1)(f). The Court analyzed Section 42 of the Electricity Act, particularly the proviso to Section 42(2) which exempts surcharge for open access to a person who has established a captive generating plant for carrying electricity to his own use. The Court held that this proviso indicates that a captive generating plant is treated as a generating company for open access purposes. The Court further held that the term 'generating company' in Section 86(1)(f) includes a captive generating plant, and the dispute between HZL and AVVNL regarding UI charges under the open access agreements falls within the arbitral jurisdiction of the State Commission. The Court also held that the High Court exceeded its jurisdiction under Section 37 by setting aside the award on merits, as there was no patent illegality. The Supreme Court set aside the High Court's judgment, restored the award of the arbitrator, and allowed the appeal.
Headnote
A) Electricity Law - Arbitration - Section 86(1)(f) read with Section 158 of the Electricity Act, 2003 - Jurisdiction of State Commission - The appellant, a company with a captive generating plant, entered into open access agreements with the respondent distribution licensee to wheel power to its own units. Disputes arose regarding unscheduled interchange charges. The Rajasthan Electricity Regulatory Commission appointed an arbitrator under Section 86(1)(f). The High Court set aside the award, holding that the appellant was an 'open access consumer' and not a 'generating company', thus ousting jurisdiction. The Supreme Court reversed, holding that the term 'generating company' under Section 86(1)(f) includes a captive generating plant, and the dispute falls within the Commission's arbitral jurisdiction. (Paras 1-20) B) Electricity Law - Open Access - Section 42 of the Electricity Act, 2003 - Captive Generating Plant - The proviso to Section 42(2) exempts surcharge for open access provided to a person who has established a captive generating plant for carrying electricity to his own use. This indicates that a captive generating plant is treated as a generating company for the purpose of open access. The appellant's use of open access to wheel power to its own units does not change its character as a generating company. (Paras 7-15) C) Arbitration Law - Setting Aside Award - Section 37 of the Arbitration and Conciliation Act, 1996 - Scope of Appeal - The High Court, while setting aside the award, also discussed merits and found the award perverse. The Supreme Court held that the High Court exceeded its jurisdiction under Section 37, as the award was not patently illegal. The court's interference on merits was unwarranted. (Paras 16-20)
Issue of Consideration
Whether a company that owns a captive generating plant and uses open access to wheel power to its own units is a 'generating company' under Section 86(1)(f) of the Electricity Act, 2003, and whether disputes arising from such open access agreements are arbitrable under that provision.
Final Decision
The Supreme Court allowed the appeal, set aside the High Court judgment dated 05.04.2018, and restored the arbitral award dated 25.08.2007. The Court held that the appellant is a 'generating company' under Section 86(1)(f) of the Electricity Act, 2003, and the dispute is arbitrable under that provision. The High Court's interference on merits was unwarranted under Section 37 of the Arbitration and Conciliation Act, 1996.
Law Points
- Interpretation of 'generating company' under Section 86(1)(f) of the Electricity Act
- 2003 includes a captive generating plant
- Open access consumer status does not override generating company status when wheeling power to own units
- Section 42(2) proviso exempts surcharge for captive generating plants
- Arbitration under Section 86(1)(f) read with Section 158 is valid for disputes between generating company and distribution licensee
- High Court cannot set aside arbitral award on merits under Section 37 if no patent illegality.
