Holding

Section 86(1)(f) of the Electricity Act, 2003 applies only to disputes between licensees and generating companies, and the State Commission cannot both decide a dispute and refer it to arbitration; consequently, the arbitrator was appointed without jurisdiction and the award is void.

Summary

Hindustan Zinc Limited (HZL) operates four units and a captive power plant, and entered into open‑access agreements with Ajmer Vidyut Vitran Nigam Ltd (AVVNL) for wheeling power to three of its units. A dispute arose over unscheduled interchange (UI) charges under clauses 8 and 9 of the agreements. The Rajasthan Electricity Regulatory Commission first said it would decide the dispute, but later appointed an arbitrator under Section 86(1)(f) of the Electricity Act, 2003, and the arbitrator struck down the disputed clauses. HZL challenged the award; the Commercial Court dismissed the challenge, but the Rajasthan High Court set aside the award, holding that the parties were open‑access consumers, not generating companies, so Section 86(1)(f) did not apply and the arbitrator was appointed without jurisdiction. The Supreme Court affirmed that an inherent lack of jurisdiction can be raised at any stage, that Section 86(1)(f) applies only to disputes between licensees and generating companies, and that the word "and" in that provision must be read as "or", rendering the arbitrator’s appointment void. Consequently, the award is non‑est and the appeal is disposed of.

Issues considered

Whether Section 86(1)(f) of the Electricity Act, 2003 applies to a dispute between a licensee and an open‑access consumer.
Whether the State Commission could both decide a dispute and refer it to arbitration under Section 86(1)(f).
Whether an inherent lack of jurisdiction of an arbitrator can be raised at any stage, including in collateral proceedings.
Interpretation of the word "and" in Section 86(1)(f) as "or" for statutory purposes.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11, s. 34, s. 37
Electricity Act, 2003s. 158, s. 37, s. 42, s. 86(1)(f)

Subjects

Electricity Act 2003ArbitrationSection 86Open AccessJurisdictionUnscheduled interchange chargesLicenseeGenerating companyConsumerStatutory interpretation

Judgment

[2019] 15 S.C.R. 113 113

HINDUSTAN ZINC LIMITED (H.Z.L.) A
v.
AJMER VIDYUT VITRAN NIGAM LIMITED
(Civil Appeal No. 9212 of 2019)
DECEMBER 04, 2019 B
[R. F. NARIMAN, ANIRUDDHA BOSE AND
V. RAMASUBRAMANIAN, JJ.]
Electricity Act, 2003 – ss.86(1)(f) and ss.37, 42, 158 –
Appellant has four high tension electricity connections for its units C
at Chanderiya, Debari, Aghucha and Dariba, for which four
contracts with the respondent were entered into for purchase of
electricity – Appellant also set up a captive power plant at
Chanderiya – It entered into three open access agreements dtd.
10.03.05 with the respondent – Dispute arose as to the unscheduled
D
interchange charges payable under Clauses 8 & 9 of the agreements
– By orders passed by the Rajasthan Electricity Regulatory
Commission, it stated that it will itself decide the dispute between
the parties – However, later the Commission appointed Arbitrator
u/s.86(1)(f) r/w s.158 – Inter alia, the Arbitrator struck down Clause
8(c) & 9 of the agreements, consequently, the unscheduled E
interchange charges would be billed as per the agreements earlier
entered between the parties –Commercial Court dismissed the
challenge to the Award – High Court while setting aside the award,
held that the hat worn by the appellant, which contained all four
units, was that of an open access consumer and not that of generating
F
company and thus, s.86(1)(f) was not attracted – Held: If there is
an inherent lack of jurisdiction, the plea can be taken up at any
stage and also in collateral proceedings – Thus, difficult to
countenance to the appellant ‘s argument that having consented,
the respondent cannot now turn around and challenge the very
appointment of the Arbitrator as being invalid and without G
jurisdiction– Further, in view of judgment of Supreme court in Gujarat
Urja Vikas Nigam Ltd. case, the expression ‘and’ occurring in
s.86(1)(f) must be read as ‘or’ – As pointed out in the judgment, the
State Commission cannot both decide the dispute itself and also
refer it to an Arbitrator – Otherwise also, reference of any dispute
H
113
114 SUPREME COURT REPORTS [2019] 15 S.C.R.

A for arbitration can only be between the licensees and generating
companies and not otherwise – High Court right in stating that the
Arbitrator could not, in law, have been appointed by the State
Commission u/s.86 – Award based on such appointment would be
non est in law – However, the High Court did not stop with finding
on this issue, but went on to discuss the merits of the Award – In
B
case the appellant wishes to avail any other remedy in law, none of
the observations made by the High Court will stand in its way –
Interpretation of Statutes.
Disposing of the appeal, the Court
C HELD: 1.1 It is settled law that if there is an inherent lack
of jurisdiction, the plea can be taken up at any stage and also in
collateral proceedings. Therefore, it is a little difficult to
countenance the argument that having consented, the respondent
cannot now turn around and challenge the very appointment of
the Arbitrator as being invalid and without jurisdiction. Coming
D now to Section 86 of the Electricity Act, 2003, it is clear that the
adjudication upon disputes can only be between licensees and
generating companies and not between licensees and consumers,
which is provided for in an open access situation by Section 42.
[Paras 18, 20, 21][122-C, F-G]
E 1.2 Under the Open Access Regulations of 2004, clause
29, in particular, gives a three-tier hierarchy of challenge when it
comes to disputes raised between distribution licensees and
consumers in relation to matters qua open access. This is quite
apart from the separate mechanism provided in Section 42(6) of
F the Electricity Act, where a representation for redressal of
grievances may be made to the Ombudsman appointed or
designated by the State Commission, which, as has been pointed
out, has already been set up. What becomes clear on a reading
of the judgment of the Supreme Court in Gujarat Urja Vikas Nigam
Ltd. v. Essar Power Ltd. is that the expression ‘and’ occurring in
G Section 86(1)(f) must be read as ‘or’. But this is only because, as
has been pointed out in the judgment, the State Commission
cannot both decide the dispute itself and also refer it to an
Arbitrator. Otherwise also, reference of any dispute for arbitration
can only be between the licensees and generating companies and
H not otherwise. This being the case, the High Court is right in
HINDUSTAN ZINC LIMITED (H.Z.L.) v. AJMER VIDYUT 115
VITRAN NIGAM LIMITED

stating that the Arbitrator could not, in law, have been appointed A
by the State Commission under Section 86 of the Electricity Act.
The Award based on such appointment would be non est in law.
However, the High Court did not stop with a finding on this issue,
but went on to discuss the merits of the Award. In case the
appellant wishes to avail of any other remedy in law, none of the
B
observations made by the High Court will stand in its way. [Paras
22, 23, 25-27][122-H; 123-A-B; 124-A-D]
Kiran Singh and Others v. Chaman Paswan and Others’
[1955] 1 SCR 117; Gujarat Urja Vikas Nigam Ltd. v.
Essar Power Ltd. (2008) 4 SCC 755 : [2008] 4 SCR
822– relied on. C

Case Law Reference
[1955] 1 SCR 117 relied on Para 16
[2008] 4 SCR 822 relied on Para 20
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9212
of 2019.
From the Judgment and Order dated 05.04.2018 of the High
Court of Judicature for Rajasthan, at Jaipur Bench in S.B. Civil Misc.
Appeal No. 2803 of 2017.
E
C. S. Vaidyanathan, Sr. Adv., Prashanto Chandra Sen, P. S.
Sudheer, Rishi Maheshwari, Ms. Anne Mathew, Bharat Sood, Ms. Shruti
Jose, Advs. for the Appellant.
Puneet Jain, Ms. Christi Jain, Harsh Jain, Ms. Ankita Gupta,
Harshit Khanduja, Abhinav Deshwal, Pankaj Sharma, Ms. Pratibha Jain, F
Advs. for the Respondent.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
1. Leave granted. G
2. The present appeal raises an important question as to the scope
of arbitration proceedings under the Electricity Act, 2003 (hereinafter
referred to as ‘Electricity Act’ for brevity), in particular, Section 86(1)(f)
thereto read with Section 158.
3. The skeletal facts necessary to decide this case are as follows: H
116 SUPREME COURT REPORTS [2019] 15 S.C.R.

A The appellant before us, Hindustan Zinc Limited, has four high
tension electricity connections for its units at Chanderiya, Debari, Aghucha
and Dariba, for which four contracts with the respondent were entered
into for purchase of electricity.
The appellant also set up a captive power plant of 154 MW at
B Chanderiya, which was commissioned in February, 2005, and
synchronized with the Rajasthan Vidyut Prasarran Nigam Limited Grid.
Short term open access to transmission and distribution systems of this
Grid was sought under the Regulations and requisite permission was
obtained. Thereafter, the appellant entered into three open access
agreements with the respondent on 10.03.2005 for wheeling of power
C from its captive power plant on the respondent’s distribution system to
the three units that were owned by it which were the units at Aghucha,
Debari and Dariba respectively. Open access commenced on 24.03.2005
and the power generated at its captive power plant was injected at 132
KV and 220 KV at the grid substations at Chittorgarh from where it
D was transmitted on the respondent’s transmission system and then supplied
to the appellant’s three units.
4. The dispute that arose between the parties was as to the
unscheduled interchange charges which become payable under Clauses
8 and 9 of the three agreements dated 10.03.3005.
E 5. Clauses 8 and 9 read as follows:
“(8) Scheduling:
The following procedure is agreed upon by the parties for scheduling
open access power at generation and drawl at the receiving point
F by Open Access Consumer:
…………………………………………………………………..
……………………………………………………………………..

G (c) The Open Access Consumer at 10 AM each day shall furnish
to Ajmer Discom schedule of drawl on 15 minute block basis
which it intent to draw against the open access and on 15 minute
block basis schedule against contract demand of existing
connections, if any, separately. The drawl schedule of open access
power shall be limited to the availability shown by the supplying
H generator in its schedule.
HINDUSTAN ZINC LIMITED (H.Z.L.) v. AJMER VIDYUT 117
VITRAN NIGAM LIMITED [R. F. NARIMAN, J.]

9. Settlement A
(a) The parties agree that the settlement of mismatch between
the schedule injection and actual injection by the generating station
injecting open access power into State Transmission System of
by the generating station embedded in the Distribution System for
each 15 minute block shall be done in following manner. B

(i) Unschedule generation not exceeding 5% of the generation/
injection scheduled in any 15 minute block at UI price specified
by the Commission for the state from time to time.
C
(ii) Generation exceeding 5% of the generation/injection scheduled
in any 15 minute block shall be considered as zero and no UI
charges shall be receivable by the generating station for such
excess generation.
(iii) The mismatch between the schedule generation and actual D
generation shall be determined from the meter data down loaded
through MRI and 15 minute block-wise schedule furnished for
each day during the billing month.
………………………………………
……………………………………… E
(c) The mismatch in total drawl scheduled by consumer against
open access and against existing contract demand and total actual
drawl in each 15 minute block shall be done in following manner:
(i) Un-schedule drawl not exceeding 5% of the total schedule
made by the consumer against open access and existing Discom F
connections in any 15 minutes block shall be priced at UI rate and
payable/receivable by the Open Access Consumer.

(ii) The balance mismatch in scheduled and actual drawl shall be G
paid by the Open Access Consumer to the Ajmer Discom at the
mutually agreed rates and in absence of any agreement such drawl
would be treated as temporary supply and shall be charged the
tariff for temporary supply as contained in Part III of the “Tariff
for Supply of Electricity 2004”: booklet for the applicable category.
H
118 SUPREME COURT REPORTS [2019] 15 S.C.R.

A (iii) The mismatch between the schedule drawl and actual drawl
shall be determined from the meter data down loaded through
MRI and 15 minute block wise schedule furnished for each day
during the billing month.
6. It will be seen that each of the three units is described as an
B Open Access Consumer and that if generation exceeds 5% of the
injection that is scheduled the day previous in any 15 minutes block,
mismatch between scheduled generation and actual generation will then
either be determined at mutually agreed rates or the excess supply will
be treated as temporary supply and charged the tariff for temporary
supply as contained in Part III of the Tariff for Supply of Electricity
C 2004 booklet for the applicable category. (If, however, mismatch does
not exceed 5%, it shall be priced at the unscheduled interchange charges
rate that is either payable or receivable by the open access consumer.)
7. When the disputes arose between the parties, the appellant and
the respondent, by two orders passed by the Rajasthan Electricity
D Regulatory Commission dated 22.05.2006 and 23.06.2006, the
Commission stated that it will itself decide the dispute between the parties.
However, by order dated 12.02.2007, the Commission appointed
an Arbitrator under Section 86(1)(f) read with Section 158 of the
Electricity Act, referring the following dispute to arbitration:
E
“………….to resolve the dispute rising out of the Open Access
availed by M/s. HZL from its Captive Power Plant at Chanderia
[Chittorgarh] to its other industrial units located within the area of
AVVNL in the matter of UI charges billed by AVVNL. The
Petitioner shall file an application along with complete details
F before the Arbitrator within one week from the date of receipt of
the notice from the Arbitrator. The Arbitrator should endeavor to
accord his award within a period of 4[four] months from the date
of this Order. In all other respects the arbitration shall be subject
to the provisions of the Arbitration and Conciliation Act, 1996.”
G 8. By Award dated 25.08.2007, the learned Arbitrator raised 12
issues between the parties and struck down Clause 8(c) and 9 of the
open access agreements dated 10.03.2005, as a consequence of which,
the unscheduled interchange charges would be billed as per the
agreements that were earlier entered into between the parties.
H
HINDUSTAN ZINC LIMITED (H.Z.L.) v. AJMER VIDYUT 119
VITRAN NIGAM LIMITED [R. F. NARIMAN, J.]

9. This Award was challenged before the Commercial Court in a A
Section 34 petition under the Arbitration and Conciliation Act, 1996,
(hereinafter referred to as ‘Arbitration Act’ for brevity), which was
dismissed vide the Commercial Court’s order dated 25.02.2017.
10. A Section 37 appeal was then decided vide the impugned
judgment dated 05.04.2018 by the High Court of Judicature for Rajasthan, B
Jaipur Bench.
11. The High Court held that, in the peculiar facts of this case, the
captive generating plant of the company situated at Chanderiya was to
use, through open access, the distribution system of the respondent to
wheel power to three of its own units which were situated at Aghucha, C
Debari and Dariba as aforestated. Given this fact, and given the fact
that the three agreements were entered into with these three units, the
High Court held that the hat worn by the appellant-company, which
contained all four units, was that of an open access consumer and not
that of a generating company. As a result of which, Section 86 (1)(f) of D
the Electricity Act would not be attracted. Consequently, the issue being
one of inherent lack of jurisdiction, the High Court reversed the order of
the Commercial Court, Ajmer, and set aside the entire Award stating
that the dispute raised between the parties in the present case would be
outside Section 86 of the Electricity Act altogether. The High Court also
went on to discuss the merits of the Award and, on several grounds, set E
aside the Award as being perverse on merits as well.
12. We have heard detailed arguments from Shri C.S.
Vaidyanathan, learned senior counsel appearing on behalf of the appellant,
and Shri Puneet Jain, learned counsel for the respondent.
F
13. Section 42 of the Electricity Act, 2003, is relevant for the
purpose of discussion and set out hereunder:
Section 42. (Duties of distribution licensee and open access): —
(1) It shall be the duty of a distribution licensee to develop and
maintain an efficient co-ordinated and economical distribution G
system in his area of supply and to supply electricity in accordance
with the provisions contained in this Act.
(2) The State Commission shall introduce open access in such
phases and subject to such conditions, (including the cross subsidies,
H
120 SUPREME COURT REPORTS [2019] 15 S.C.R.

A and other operational constraints) as may be specified within one
year of the appointed date by it and in specifying the extent of
open access in successive phases and in determining the charges
for wheeling, it shall have due regard to all relevant factors including
such cross subsidies, and other operational constraints:

B Provided that such open access shall be allowed on payment of a
surcharge in addition to the charges for wheeling as may be
determined by the State Commission:
Provided further that such surcharge shall be utilised to meet the
requirements of current level of cross subsidy within the area of
supply of the distribution licensee :
C
Provided also that such surcharge and cross subsidies shall be
progressively reduced in the manner as may be specified by the
State Commission:
Provided also that such surcharge shall not be leviable in case
open access is provided to a person who has established a captive
D generating plant for carrying the electricity to the destination of
his own use:
Provided also that the State Commission shall, not later than five
years from the date of commencement of the Electricity
(Amendment) Act, 2003, by regulations, provide such open access
E to all consumers who require a supply of electricity where the
maximum power to be made available at any time exceeds one
megawatt.
(3) Where any person, whose premises are situated within the
area of supply of a distribution licensee, (not being a local authority
F engaged in the business of distribution of electricity before the
appointed date) requires a supply of electricity from a generating
company or any licensee other than such distribution licensee,
such person may, by notice, require the distribution licensee for
wheeling such electricity in accordance with regulations made by
the State Commission and the duties of the distribution licensee
G with respect to such supply shall be of a common carrier providing
non-discriminatory open access.
(4) Where the State Commission permits a consumer or class of
consumers to receive supply of electricity from a person other
than the distribution licensee of his area of supply, such consumer
shall be liable to pay an additional surcharge on the charges of
H
HINDUSTAN ZINC LIMITED (H.Z.L.) v. AJMER VIDYUT 121
VITRAN NIGAM LIMITED [R. F. NARIMAN, J.]

wheeling, as may be specified by the State Commission, to meet A
the fixed cost of such distribution licensee arising out of his
obligation to supply.
(5) Every distribution licensee shall, within six months from the
appointed date or date of grant of licence, whichever is earlier,
establish a forum for redressal of grievances of the consumers in B
accordance with the guidelines as may be specified by the State
Commission.
(6) Any consumer, who is aggrieved by non-redressal of his
grievances under sub-section (5), may make a representation for
the redressal of his grievance to an authority to be known as
C
Ombudsman to be appointed or designated by the State
Commission.
(7) The Ombudsman shall settle the grievance of the consumer
within such time and in such manner as may be specified by the
State Commission.
D
(8) The provisions of sub-sections (5),(6) and (7) shall be without
prejudice to right which the consumer may have apart from the
rights conferred upon him by those sub-sections.”
Section 86 which deals with the functions of the State Commission,
and states as follows:
E
Section 86. Functions of State Commission.-(1) The State
Commission shall discharge the following functions, namely: -
(a) determine the tariff for generation, supply, transmission and
wheeling of electricity, wholesale, bulk or retail, as the case may
be, within the State: F

Provided that where open access has been permitted to a category
of consumers under section 42, the State Commission shall
determine only the wheeling charges and surcharge thereon, if
any, for the said category of consumers; G
………………………………………………………………………
………………………………………………………………………
(f) adjudicate upon the disputes between the licensees, and
generating companies and to refer any dispute for arbitration; H
122 SUPREME COURT REPORTS [2019] 15 S.C.R.

A 14. The bone of contention revolves around Section 86(1) (f).
Shri Vaidyanathan, learned senior counsel for the appellant, has
argued that the challenge to the Award was only on merits before the
learned Commercial Court, and no challenge was raised stating that the
Arbitrator’s appointment itself would be without jurisdiction, both the
B parties having agreed to the order dated 12.02.2007 to refer the matter
to arbitration. However, the said issue was argued and taken up before
the High Court in First Appeal under Section 37 of the Arbitration Act.
15. We are of the view that it is settled law that if there is an
inherent lack of jurisdiction, the plea can be taken up at any stage and
C also in collateral proceedings.
16. This was held by this Court in Kiran Singh and Others v.
Chaman Paswan and Others’ (1955) 1 SCR 117 as follows:
“……………………………………………………………………………
It is a fundamental principle well-established that a decree passed
D by a Court without jurisdiction is a nullity, and that its invalidity
could be set up whenever and wherever it is sought to be enforced
or relied upon, even at the stage of execution and even in collateral
proceedings. A defect of jurisdiction, whether it is pecuniary or
territorial, or whether it is in respect of the subject-matter of the
E action, strikes at the very authority of the Court to pass any decree,
and such a defect cannot be cured even by consent of parties. If
the question now under consideration fell to be determined only
on the application of general principles governing the matter, there
can be no doubt that the District Court of Monghyr was coram
non judice, and that its judgment and decree would be nullities.”
F
17. Therefore, it is a little difficult to countenance Shri
Vaidyanathan’s argument that having consented, the respondent cannot
now turn around and challenge the very appointment of the Arbitrator as
being invalid and without jurisdiction.
Coming now to Section 86 of the Act, it is clear that the adjudication
G
upon disputes can only be between licensees and generating companies
and not between licensees and consumers, which is provided for in an
open access situation by Section 42.
18. We may also hasten to add that under the Open Access
Regulations of 2004, clause 29, in particular, gives a three-tier hierarchy
H
HINDUSTAN ZINC LIMITED (H.Z.L.) v. AJMER VIDYUT 123
VITRAN NIGAM LIMITED [R. F. NARIMAN, J.]

of challenge when it comes to disputes raised between distribution A
licensees and consumers in relation to matters qua open access.
19. This is quite apart from the separate mechanism provided in
Section 42(6) of the Electricity Act, where a representation for redressal
of grievances may be made to the Ombudsman appointed or designated
by the State Commission, which, as has been pointed out by Shri Puneet B
Jain, has already been set up.
20. The matter is no longer res integra. This Court, in Gujarat
Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008) 4 SCC 755 had
occasion to construe the language of Section 86 (1)(f) of the Act of
2003, in the following terms: C
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’ D
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 ‘Principle of Statutory
Interpretation’ 9th Edition, 2004 page 404.)
E
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’. F
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 G
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.
H
124 SUPREME COURT REPORTS [2019] 15 S.C.R.

A 21. What becomes clear on a reading of this judgment is that the
expression ‘and’ occurring in Section 86(1)(f) must be read as ‘or’. But
this is only because, as has been pointed out in the judgment, the State
Commission cannot both decide the dispute itself and also refer it to an
Arbitrator. Otherwise also, reference of any dispute for arbitration can
only be between the licensees and generating companies and not
B
otherwise.
22. This being the case, the High Court is right in stating that the
Arbitrator could not, in law, have been appointed by the State Commission
under Section 86 of the Electricity Act. The Award based on such
appointment would be non est in law.
C
23. However, the High Court did not stop with a finding on this
issue, but went on to discuss the merits of the Award. We may only
state that in case the appellant wishes to avail of any other remedy in
law, none of the observations made by the High Court will stand in its
way.
D
The appeal stands disposed of accordingly.

Divya Pandey Appeal disposed of.
E

F

G

H