Supreme Court of India
T.N. GENERATION & DISTBN. CORPN. LTD.versusPPN POWER GEN. CO. PVT. LTD.
- Citation
- 2014 INSC 248
- Decided
- 4 April 2014
- Disposal
- Dismissed
- Bench
- S S NIJJAR
Holding
Under Section 86(1)(f) of the Electricity Act, 2003 the State Commission may either adjudicate a dispute itself or refer it to arbitration, and its exercise of discretion in the present case was reasonable, rendering the appellant's challenges untenable.
Summary
The appellant, a power distribution company, entered into a Power Purchase Agreement (PPA) with the respondent, a power generator, and disputed accounting details and rebate claims arising from monthly invoices. The dispute was taken before the Tamil Nadu Electricity Regulatory Commission (State Commission) which adjudicated the matter, refusing to refer it to arbitration despite the appellant's request, and ordered the respondent to redraw invoices and pay interest. The appellant appealed to the Appellate Tribunal for Electricity (APTEL) and subsequently to the Supreme Court, challenging the State Commission's discretion, the entitlement to a 2.5% rebate on part payments, the FIFO method of payment adjustment, the applicability of the Limitation Act, and the constitution of the State Commission without a judicial member. The Supreme Court held that under s.86(1)(f) of the Electricity Act, 2003 the State Commission may either adjudicate the dispute itself or refer it to arbitration, and its exercise of discretion in this case was reasonable and not arbitrary; consequently, the appellant's claims regarding mandatory arbitration, rebate entitlement, FIFO adjustment, limitation, and the need for a judicial member were rejected. The appeal was dismissed, upholding the findings of the State Commission and APTEL.
Issues considered
- The scope and discretion of Section 86(1)(f) of the Electricity Act, 2003 regarding adjudication versus referral to arbitration.
- Whether the State Commission erred by not referring the dispute to arbitration upon the appellant's request.
- Entitlement of the appellant to a 2.5% rebate on part payment of invoices within five days.
- Validity of the FIFO (first‑in‑first‑out) method of adjusting part payments under Sections 60 and 61 of the Indian Contract Act, 1872.
- Applicability of the Limitation Act, 1963 and the doctrines of delay and laches to the proceedings before the State Commission.
- Whether the State Commission, lacking a judicial member, can validly exercise judicial functions.
- Computation of interest on late payments under Article 10.6 of the PPA (compound rate).
Legislation cited
- Arbitration Act, 1940
- Arbitration and Conciliation Act, 1996s. 2(4), s. 43, s. 45, s. 8
- Code of Civil Procedure, 1908s. 100
- Electricity Act, 2003s. 111, s. 113, s. 125, s. 146, s. 173, s. 174, s. 175, s. 55, s. 84(1), s. 84(2), s. 86(1)(f), s. 94
- Indian Contract Act, 1872s. 59, s. 60, s. 61
- Limitation Act, 1963
Subjects
Electricity Act 2003ArbitrationState Commission discretionPower Purchase AgreementRebate entitlementFIFO payment adjustmentLimitation ActJudicial members in tribunalsInterest on late paymentCompound interest
Judgment
[2014] 4 S.C.R. 667
T.N. GENERATION & DISTBN. CORPN. LTD. A
V.
PPN POWER GEN. CO. PVT. LTD.
(Civil Appeal No. 4126 of 2013)
APRIL 04, 2014
B
[SURINDER SINGH NIJJAR AND A.K. SlKRI, JJ]
ELECTRIC/TY ACT, 2003:
s. 86 (1) (f) -- Discretion of State Commission either to c
adjudicate the dispute or to refer it to arbitration - Dispute
between parties with regard to accounting details, refund of
excess rebate etc. - State Commission exercising the
discretion to adjudicate the dispute - Held: It cannot be
accepted that since appellant had made a request for a 0
reference of dispute to arbitration, State Commission ought
to have made the reference - Appellant chose to contest the
claim of respondent on merits and filed written statement
before State Commission - Further, appellant participated in
the entire proceedings and invited the findings on ments - E
Besides, applicability of Arbitration and Conciliation Act, 1996
and Arbitration Act, 1940 has been specifically excepted by
Article 16 (2) of the Power Purchase Agreement -
Commission is required to exercise its discretion reasonably
and not arbitrarily - In the instant case, State Commission
upon consideration of the entire matter has rightly exercised F
its discretion.
s.86 - Adjudication of dispute by State Commission -
Held: If the amount of invoice is disputed, the appellant is
obliged to make full payments of the invoice when due and G
then raise the dispute - Undoubtedly, early payment is
encouraged by offering rebate of 2.5% if paid within 5 days
of the date of the invoice -- Similarly, 1% rebate would be
available if the payment of the entire invoice is made within
667 H
668 SUPREME COURT REPORTS [2014] 4 S.C.R.
A 30 days - The rebate is in the form of incentive and is an
exception to the general rule requiring payment in full on due
date - Therefore, the appellant had no legal right to claim
rebate at the rate of 2. 5% not having paid the entire invoice
amount within 5 days - Similarly, the appellant would be
B entitled to 1% rebate if payment is made within 30 days of
invoice - The findings of the Appellate Tribunal on this issue
do not call for any interference - As regard interest on late
payment, Appellate Tribunal has considered the entire matter
and has rightly come to the conclusion that interest is payable
c on compound rate basis in terms of Article 10.6 of the PPA.
DELA YILACHES:
Plea that claim of respondent was time baffed - Held:
Claim of respondents cannot be held to be time baffed -
D Principle of delay and /aches would not apply, by virtue of'the
adjustment of payments being made on FIFO (first in first out)
basis - Appellant was duly informed that the part payments
made would be adjusted by respondents under FIFO system
- It has been coffectly held that in such circumstances, s. 59
E of Contract Act would not be applicable - In any event,
Limitation Act is inapplicable to proceedings before State
Commission - There is no reason to interfere with the findings
recorded by Appellate Tribunal - Contract Act, 1872 - ss.
59,60 and 61 - Limitation Act, 1963.
F ELECTRIC/TY ACT, 2003:
ss. 111 and 113 -- Appellate Tribunal for Electricity -
Appeal - Jurisdiction - Held: Appellate Tribunal exercises
jurisdiction over State Commission by way of a first appeal -
G Therefore, it is the bounden duty of Appellate Tribunal to
examine as to whether decisions rendered by State
Commission suffer from vice of arbitrariness,
unreasonableness or perversity - It is a/ways open to Appellate
Tribunal to examine as to whether State Commission has
H exercised discretion with regard to referring the dispute to
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 669
GEN. CO. PVT. LTD.
arbitration, in accordance with well known norms for exercising A
such discretion - In the instant case, Appellate Tribunal ought
not tc. have brushed aside the submissions of appellant with
the observation that State Commission having exercised its
discretion, the issue need not be investigated by Appellate
Tribunal - However, conclusions reached by Appellate B
Tribunal, that jurisdiction has not been exercised by State
Commission arbitrarily, whimsically or against statutory
provisions does not call for any interference.
s. 125 - Appeal to Supreme Court - Scope of -- Held: C
Under s.125 appeal lies in Supreme Court on any one or
more of the grounds specified in s.100 of the Code of Civil
Procedure, 1908 - Therefore, unless the Court is satisfied that
the findings of fact recorded by the State Commission are
perverse, irrational and based on no evidence, it would not
interfere. D
ss. 84 - Appointment of Chairperson of State Commission
- States of Tamil Nadu - Held: State Commission in deciding
a /is between appellant and respondent, discharges judicial
functions and exercises judicial power of State - It exercises E
judicial functions of far reaching effect - Therefore, it must
have essential trapping of the court - State Government ought
to have exercised its power under sub-s. (2) of s. 84 to appoint
one or more Judicial Members in State Commission - Till date
no judicial Member has been appointed in the Tamil Nadu F
State Commission - Matter needs to be considered, with some
urgency - s. 84 enables the State Government to appoint any
person as the Chairperson from amongst persons who is, or
has been, a Judge of a High Court - It would be advisable for
State Government to exercise this enabling power. G
The respondent, a generating company, entered into
a Power Purchase Agreement (PPA) with the appellant
and as per PPA started raising monthly invoices from
26.4.2001 for the electricity supplied by it to the appellant.
There arose dispute between the parties with regard to H
670 SUPRE:ME COURT REPORTS [2014] 4 S.C.R
A accounting details. The respondents issued a notice of
dispute resolution on 26.4.2007. Since the dispute was
not resolved, the respondent filed a petition i.e. D.R.P. No.
12 of 2009 before the T.N. Electricity Regulatory
Commission (the State Commission) seeking a direction
s to the appellant to make the payment. The State
Commission, by an order dated 17 .6.2011 allowed the
petition for refund of excess rebate availed by the
appellant contrary to the terms of PPA and also ordered
the respondent to redraw the monthly invoices. The
c Commission also held that it was competent to
adjudicate upon the dispute and that the limitation period
prescribed under the Limitation Act, 1963 was not
applicable to the proceedings. The appeal filed by the
appellant was dismissed by the Appellate Tribunal for
Electricity (Appellate Tribunal).
0
Dismissing the appeal, the Court
HELD: 1.1 The issues raised by the appellant with
regard to the constitution of the State Commission and
E its discretion to either adjudicate or refer a particular
dispute to arbitration is no longer res integra. This Court
has comprehensively addressed all the issues, on the
scope and ambit of s.86 in general and s. 86 (1) (f) in
particular of the Electricity Act, 2003. It cannot be
F accepted that since the appellant had made a request for
a reference of the dispute to arbitration, the State
Commission ought to have made the reference. It cannot
be accepted that the State Commission was dealing with
only a pure and simple money claim. The Appellate
G Tribunal in the impugned order has correctly culled out
the ratio of the judgment of this Court in Gujarat Urja*. It
is also correctly held that the appellant cannot dictate
that the State Commission ought to have referred the
dispute to arbitration. [Para 34] [699-B-F]
H
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 671
GEN. CO. PVT. LTD.
*Gujarat Urja Vikas Nigam Ltd. Vs. Essar Power Ltd. 2008 A
(4) SCR 822 =(2008) 4 sec 755 - relied on.
1.2 The plea that the State Commission failed to
exercise its discretion by not making .a reference to
arbitration and the request made by the appellant, cannot 8
be countenanced in the particular facts of the case.
Having taken the plea that the matter ought to be referred
to arbitration, the appellant chose to contest the claim of
the respondent on merits and filed the written statement
before the State Commission. Not only this, the appellant
participated in the entire. proceedings and invited the C
findings on merits. Therefore, the appellant cannot be
permitted to raise such a plea. Section 86(1) (f) specifically
confers jurisdiction on the State Commission to refer the
dispute. Undoubtedly, the Commission is required to
exercise its discretion reasonably and not arbitrarily. In D
the instant case, the State Commission upon
consideration of the entire matter has exercised its
discretion. [Para 39 and 50] [701-G-H; 702-A; 708-A-C]
Svenska Handelsbanken vs. Indian Charge Chrome Ltd. E
1994 (1) SCR 261 = 1994 (2) SCC 155 and Booz Allen &
Hamilton Inc. vs. SB/ Home Finance Ltd. 2011 (7) SCR 310
= 2011 (5) sec 532 - relied on.
1.3 Even if the reference had been made under Article
16 of the PPA, the applicability of the Arbitration and F
Conciliation Act, 1996 and the Arbitration Act of 1940
have been specifically excepted under Article 16(2)(h).
Article 16 indeed provides for informal resolution of
disputes by way of arbitration. However, Article 16(2)
mandates that arbitration shall be conducted in G
accordance with the ICC Rules. Under those rules, ICC
Court of arbitration is to make the appointment of Arbitral
Tribunal. It has been provided in Article 16.2(e) that the
seat of arbitration shall be in London. This fact alone
would make Part I of the Arbitration Act, 1996 inapplicable H
672 SUPREME COURT REPORTS [2014] 4 S.C.R.
A to the arbitration proceedings. There is a further
provision that notwithstanding Article 17(8), the laws of
England shall govern the validity, interpretation,
construction, performance and the enforcement of the
provision contained in Article 16(2). Clearly then, the
B applicability of Arbitration Act, 1996 is totally ruled out by
the parties. Therefore, the appellant cannot claim the
benefit of s.43 of the Arbitration and Conciliation Act,
1996. [Para 52] [709-C-F; 711-C]
C Bhatia International vs. Bulk Trading S.A. & Anr. 2002
(2) SCR 411 = 2002 (4) sec 105 - relied on .
. .
Bharat Aluminium Company vs. Kaisar Aluminium
Technical Services Inc 2012 (12) SCR 327 = 2012 (9) SCC
552 - referred to.
D
1.4 However, the Appellate Tribunal ought not to have
brushed aside the submissions of the appellant with the
observation that the State Commission having exercised
its discretion, the issue need not be investigated by the
E Appellate Tribunal. It would always be open to the
Appellate Tribunal to examine as to whether the State
Commission has exercised the discretion with regard to
the question whether the dispute ought to have been
referred to arbitration, in accordance with the well known
norms for exercising such discretion. The Appellate
F Tribunal exercises jurisdiction over the State Commission
by way of a First Appeal. Therefore, it is the bounden
duty of the Appellate Tribunal to examine as to whether
all the decisions rendered by the State Commission
suffer from the vice of arbitrariness, unreasonableness
G or perversity. This would be apart from examining as to
whether the State Commission has exercised powers in
accordance with the statutory provisions contained in
Electricity Act, 2003. However, the conclusions reached
by the Appellate Tribunal, that the jurisdiction has not
H been exercised by the State Commission arbitrarily,
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 67.3
GEN. CO. PVT. LTD.
whimsically or against the statutory provisions does not A
call for any interference. [Para 39] [702-A-E]
2.1 The claim of the respondents cannot be held to
be time barred. On the facts of the case, the principle of
delay and laches would not apply, by virtue of the
adjustment of payments being made on FIFO (First in first B
out) basis. The procedure adopted by the respondent, as
observed by the State Commission as well as by the
Appellate Tribunal, would be covered u/ss 60 and 61 of
the Contract Act. The Appellate Tribunal, upon a detailed
consideration of the correspondence between the parties, C
has confirmed the findings of fact recorded by the State
Commission that the appellant had been only making part
payment of the invoices. It has been pointed out that the
payment of entire invoices was to be made each time
which was never adhered to by the appellant. Therefore, D
the respondents were constrained to adopt FIFO method.
In any event, the Limitation Act is inapplicable to
proceeding before the State Commission. [Para 48] [706-
'
F-H; 707-A-B, D]
2.2 It cannot be said that the appellants have wrongly E
adopted the system of FIFO for adjustment of the
payments made by the appellant. The State Commission
as well as the Appellate Tribunal having considered the
matter in detail, it would not be appropriate to re-examine
the issue in these proceedings. Under s.125 of the F
Electricity Act, 2003, the appeal lies in the Supreme Court
on any one or more of the grounds specified in s.100 of
the Code of Civil Procedure, 1908. Therefore, unless the
Court is satisfied that the findings of fact recorded by the
State Commission are perverse, irrational and based on G
no evidence, it would not interfere. The findings recorded
by the State Commission and Appellate Tribunal would
not give rise to a substantial question of law. In any event,
the appellant never refuted or rejected the practice
adopted by the respondent. Rather the appellant claimed H
674 SUPREME COURT REPORTS [2014] 4 S.C.R.
A that it was under temporary financial strain and,
therefore, requested to make only part payment. The
invoices having been accepted in full, the appellant
unilaterally withheld some of the payments on the ground
that the claims were disputed. Under Article 10 of the
8 PPA, the appellant was required to make the payment for
the entire invoice and, thereafter, raise the dispute. The
appellant had been duly informed that the part payments
made would be adjusted by the respondents under the
FIFO system. It has been correctly held that in such
C circumstances, s.59 of the Contract Act would not be
applicable. There is no reason to interfere with the
conclusions reached by the Appellate Tribunal. [Para 53]
[711-C-H; 712-A]
2.3 The real dispute between the parties is on the
D question whether the appellant was entitled to avail 2.5%
rebate on part payment of the monthly invoices within 5
business days. It was a pre- condition under Article 10
that the payment of the monthly invoice had to be made
in full. In addressing the issue of rebate, the Appellate
E Tribunal has come to the conclusion that merely because
substantial payment had been made in relation to monthly
invoices, it would not entitle the appellant to claim the
rebate of 2.5% on the invoice amount. There is no reason
to interfere with the findings recorded by the Appellate
F Tribunal. [Para 54] [712-B-D]
2.4 Under Article 10.2(b) (i), the payments have to be
made in full for every invoice by due date. Under Article
10.2(e), the payment had to be made in full when due even
if the entire portion or a portion of the invoice is disputed.
G Thus, it would be evident that even if the amount of
invoice is disputed, the appellant is obliged to make full
payments of the invoice when due and then raise the
dispute. Undoubtedly, early payment is encouraged by
offering rebate of 2.5% if paid within 5 days of the date
H of the invoice. Similarly, 1% rebate would be available if
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 675
GEN. CO. PVT LTD.
the payment of the entire invoice is made within 30 days. A
The rebate is in the form of incentive and is an exception
to the general rule requiring payment in full on due date.
Therefore, the appellant had no legal right to claim rebate
at the rate of 2.5% not having paid the entire invoice
amount within 5 days. Similarly, the appellant would be B
entitled to 1% rebate if payment is made within 30 days
of the invoice. The findings of the Appellate Tribunal on
this issue do not call for any interference. [Para 54] [712-
D, G-H; 713-A-B] .
2.5 It is true that reconciliation is to be done annually C
but the payment is to be made on monthly basis. It
cannot be said that any prejudice has been caused to the
appellant by the delayed submission of annual invoice by
the ·respondents. Pursuant to the directions issued by the
State Commission, the monthly invoice and annual D
invoice for the respective years have been redrawn as on
30th September each year. Therefore, the benefit of
interest has been given on such annual invoices. [Para
55] [713-D-F]
E
3.1 With regard to the issue raised about the interest
on late payment, the Appellate Tribunal has considered
the entire matter and has riahtly come to the conclusion
that interest is payable on compound rate basis in terms
of Article 10.6 of the PPA. [Para 55] [713-F]
F
Central Bank of India vs. Ravindra & Ors. 2001 (4)
Suppl. SCR 323 = 2002 (1) SCC 367; Indian Council of
Enviro-Legal Action vs. Union of India & Ors. 2011 (9) SCR
=
146 2011 (8) sec 161 - referred to ..
3.2 The late payment clause only captures the G
principle that a person denied the benefit of money, that
ought to have been paid on due dates should get
compensated on the same basis as his bank would
charge him for funds lent together with a deterrent of
0.5% in order to prevent delays. It has been pointed out H
676 SUPREME COURT REPORTS [2014] 4 S.C.R.
A that bankers of the respondents have applied quarterly
compounding or monthly compounding for cash credits
during different periods on the basis of RBI norms.
Article 10.6 of the PPA has followed the norms of the
bank. This cannot be said to be unfair as the same
B principle would also apply to the appellants. [Para 57]
[715-E-G]
4.1 This Court emphasizes that adjudicatory
functions generally ought not to be conducted by the
State Commission in the absence of a Judicial Member.
C Especially in relation to disputes which are not fairly
relative to tariff fixation or the advisory and
recommendatory functions of the Sta~ Commission. The
tribunal such as the State Commission in deciding a lis
between the appellant and the respondent, discharges
D judicial functions and exercises judicial power of State.
It exercises judicial functions of far reaching effect.
Therefore, it must have essential trapping of the court.
This can only be achieved by the presence of one or more
judicial members in the State Commission which is called
E upon to decide complicated contractual or civil issues
which would normally have been decided by a civil court.
Not only the decisions of the State Commission have far
reaching consequences, they are final and binding
between the parties, subject, of course, to judicial review.
F [Para 40 and 43] [702-E-F; 704-D-F]
Harinagar Sugar Mills Ltd. vs. Shyam Sundar
Jhunjhunwala 1962 (2) SCR 339 - relied on.
Kihoto Hof/oh an vs. Zachi/lhu 1992 (1) SCR 686 =(1992
G Supp. (2) SCC 651 - referred to.
4.2 Section 113 of the Act mandates that the
Chairman of the Appellate Tribunal shall be a person who
is or has been a Judge of the Supreme Court or the Chief
Justice of a High Court. This would clearly show that the
H legislature was aware that the functions performed by the
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 677
GEN. CO. PVT. LTD.
State Commission as well as the Appellate Tribunal are A
judicial in nature. Necessary provision has been made in
s. 113 to ensure that the Appellate Tribunal has the
'trapping of a court. This essential feature has not been
made mandatory uls 84 although provision has been
made in s.84(2) for appointment of any person as the B
Chairperson from amongst persons who is or has been
a Judge of a High Court. Section 84(2) enables the State
Government to appoint any person as the Chairperson
from amongst persons who is, or has been, a Judge of a
High Court. Such appointment shall be made after c
consultation with the Chief Justice of the High Court. The
provision contained in s. 84 (2) is notwithstanding the
provision contained in s. 84 (1 ). Till date no judicial
Member has been appointed in the Tamil Nadu State
Commission. The matter needs to be considered, with D
some urgency, by the appropriate State authorities. It
would be advisable for the State Government to exercise
the enabling power uls 84(2) to make appointment of a
person who is or has been a Judge of a High Court as
Chairperson of the State Commission. [para 44-46] (704-
0
F-G; 705-F-G, H; 706-A-D]
Union of India vs. R.Gandhi, President, Madras Bar
=
Association 2010 (6) SCR 857 (2010 (11) SCC 1); Institute
of Chartered Accountants of India vs. LK.Ratna & Ors. 1986
(3) SCR 1048 = (1986) 4 SCC 537; Union Carbide E
Corporation & Ors. vs. Union of India & Ors. 1991(1) Suppl.
=
SCR 251 1991 (4) SCC 584; Brahm Dutt vs. Union of India
2005 (2) SCC 431; S.P. Sampath Kumar vs. Union of India
=
& Ors. 1987 (1) SCR 435 1987 (1) sec 124; State of M.P.
vs. Bhailal Bhai & Ors. 1964 (6) SCR 261; Municipal F
Corporation of greater Bombay vs. Bombay Tyres
International Ltd. & Ors. 1998 (4) SCC 100; Corporation Bank
& Anr. vs. Navin J. Shah 2000 (2) SCC 628; Consolidated
Engineering Enterprises Vs. Principal Secretary, Irrigation
Department & Ors. 2008(5) SCR 1108 = 2008 (7) SCC 169;
G
\
678 SUPREME COURT REPORTS [2014] 4 S.C.R.
A ·and Central Bank of India Vs. Ravindra & Ors. 2001 (4)
Suppl. SCR 323 = 2002 (1) sec 367 - cited.
Case Law Reference:
2008 (4) SCR 822 relied on · para 13
B
2010 (6) SCR 857 cited para 20
1992 (1) SCR 686 referred to para 20
1986 (3) SCR 1048 cited para 20
c 1991 (1) Suppl. SCR 251 cited para 20
2005 (2) sec 431 cited para 20
1987 (1) SCR 435 cited para 20
1964 (6) SCR 261 cited para 22
D
1998 (4) sec 100 cited para 22
2000 (2) sec 628 cited para 22
1994 (1) SCR 261 relied on Para 30
E 2011 (7) SCR 310 relied on Para 30
2008 (5) SCR 1108 cited Para 30
2001 (4) Suppl. SCR 323 cited Para 30
1962 (2) SCR 339 relied on para 42
F
2002 (2) SCR 411 relied on para 52
2012 (12) SCR 327 referred to para 52
2001 (4) Suppl. SCR 323 referred to para 55
G 2011 (9) SCR 146 referred to para 56
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4126 of 2013.
From the Judgment and Order dated 22.02.2013 of the
H
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 679
GEN. CO. PVT. LTD.
Appellate Tribunal for Electricity, New Delhi in Appeal No. 176 A
of2011.
Rohinton F. Nariman, Pravin H. Parekh, E.R. Kumar,
Vallinayagam, Faisal Sherwani, Utsav Trivedi, S. Lakshmi Iyer,
Vishal Prasad (for Parekh- & Co.) for the Appellant. 8
Harish N. Salve, Jayant Bhushan, Senthil Jagadeesan,
Rahul Balaji, Sony Bhatt, Govind Manoharan for the
Respondent.
The Judgment of the Court was delivered by c
SURINDER SINGH NIJJAR, J. 1. This statutory appeal
under Section 125 of the Electricity Act, 2003 (hereinafter
referred to as the "Act") is directed against the final judgment
and order dated 22nd February, 2013 passed by the Appellate
Tribunal for Electricity (hereinafter referred to as "APTEL" or D
"Appellate Tribunal"), at New Delhi in Appeal No. 176 of 2011,
whereby it has dismissed the appeal preferred by the appellant
against the final judgment and order dated 17th June, 2011 of
Tamil Nadu Electricity Regulatory Commission (hereinafter
referred to as the "State Commission") in D.R.P. No. 12 of E
2009. The facts have been noticed in detail both by the State
Commission and the APTEL, therefore, we shall make a
reference only to the very essential facts necessary for deciding
this appeal.
F
2. The respondent, a generating company, has entered
into a Power Purchase Agreement (PPA) with the appellant on
3rd January, 1997 for the supply of the entire Electricity to be
generated by the respondent for a period of 30 years. The
respondent commenced commercial operations on 26th April, G
2001. Under the PPA, the respondent has to submit an annual
invoice indicating the amounts owed under the Tariff. The
amounts receivable from the appellant for the previous year are
to be reconciled against the sum of monthly estimated payment
made by the appellant as soon as possible after the end of H
680 SUPREME COURT REPORTS [2014] 4 S.C.R.
A each year. Accordingly, respondent started raising monthly
invoices from 26th April, 2001 for the Electricity supplied by it
to the appellant. According to the appellant, invoices of the
respondent inter alia included interest on debt sanctioned but
not disbursed, charges towards energy consumed at the
B residential quarters at the generating station etc. The appellant
claims that substantial payments towards the monthly invoices
raised by the Respondent for every month were paid against
the admitted amount in the invoice. The disputed amount was
withheld. The respondent accepted the admitted amount paid
C against each invoice without raising any dispute either with
respect to the disputed amount or the substantial payment
made by the appellant.
· 3. Government of India by Notification dated 30th March,
1992 incorporated a rebate scheme on the receivables. Under
D this scheme, the purchaser, i.e., appellant is entitled to a rebate
@ 2.5% if the payment is released within 5 days from the date
of invoice and @ 1% if the payment is released within 30 days
from the date of invoice. Accordingly, while making the payment
of the admitted amount under each invoice, the appellant
E deducted the 2.5% rebate, as payments were made within 5
days from the date of the receipt of the invoice. These payments
were accepted by the appellants. On the other hand,
respondent adjusted the amount received by it in the following
month against the unpaid amount of the previous month. The
F balance was carried forward by the respondent. Since June,
2001, the appellant had been making payments as noticed
above, and the respondent had been adjusting the same on a
"FIFO" basis. The appellant claims that the monthly invoices
raised by the respondent were only estimated invoices. On the
G other hand, the respondent claims that the appellant, from
inception only made adhoc payments periodically against the
monthly invoices raised. Therefore, each side is claiming that
the other did not provide any details with regard to the amounts
due and the amounts paid. It is also the claim of the respondent
H that the appellant had unilaterally made several disallowances
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 681
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
without informing the respondent of the same. A
4. It appears that both the parties were dissatisfied with
accounting details provided by the other. Ultimately, the
respondent issued a notice of dispute resolution on 26th April,
2007 and appointed its Vice President, Shri B. Sundaramurthy 8
as the representative. Continuous correspondence was
exchanged between the parties from August, 2007 to March,
2009. On 1st April, 2009, respondent sent a Notice to the
appellant in terms of Article 16 of the PPA claiming amounts
due/overdue from the appellant and interest on late payments. C
The Notice gives a summary of claims of the respondent till 30th
March, 2009 other than towards specified taxes, which was
stated to be subjudice, and, therefore, not included therein. The
balance of amount payable, according to the respondent was
Rs.1, 787,272,534. The appellant in reply informed the
respondent on 16th April, 2009 that the matter was under D
scrutiny and examination. Since, there was no response, the
respondent sent a reminder. Instead of making the payment of
the amounts claimed, the appellant issued letter dated 4/5th
May, 2009 claiming that according to its accounts, sum of
Rs.31.12 crores was due to the appellant. On 8th May, 2009, E
the respondent requested the appellant "to provide the
particulars and details forming the basis of your claim before
15th May, 2009." The respondent also requested the appellant
to fix a meeting on or before 19th May, 2009 to discuss the
issues and resolve the same. A meeting took place on 19th F
May, 2009 but the dispute was not resolved.
5. Since the dispute was not resolved, the respondent filed
the petition - D.R.P. No. 12 of 2009 before the State
commission, seeking a direction to the appellant to make a G
payment of sum of Rs. 1,89,91,17,264 being a sum due as on
19th March, 2009, under the invoices raised under the PPA and
interest thereon in terms of Article 10.6 of the PPA from the
due date till the date of actual payment. After setting out the
details of the amounts due as narrated above, the respondent H
682 SUPREME COURT REPORTS [2014] 4 S.C.R.
A claimed that, under Article 10.2{b) of the PPA. in the event of
any dispute as to all or any of the portion of an invoice, the
appellant was required to pay the full amount of the disputed
charges and thereafter serve a notice on the respondent
indicating the amount in dispute. The dispute is to be resolved
s under Article 16, which provides for informal resolution of
dispute. Firstly, under Article 16(1 ), by mutual discussions
through the designated representatives of the parties.
Secondly, in case the parties are unable to resolve the dispute
pursuant to Article 16.1, it is to be resolved through finally by
c arbitration in accordance with Article 16.2.
6. Under Article 16.2, the arbitration has to be conduced
in accordance with the rules of Conciliation and Arbitration of
International Chamber of Commerce (ICC), in effect on the date
of the agreement. The Arbitration Tribunal is to consist of three
D arbitrators, of whom each party should select one. The two
arbitrators appointed by the parties shall select the third
arbitrator, to act as the Chairman of the Tribunal. If the two
arbitrators appointed by the parties, fail to agree on a third
arbitrator, the ICC Court of Arbitration shall make the
E appointment. The arbitration shall be held in England. It is
further provided that notwithstanding Article 16.8, the laws of
England shall govern the validity, interpretation, construction,
performance and enforcement of the provisions contained in
Article 16.2. The arbitration proceedings shall be conducted
F and the award shall be rendered in English language. It is
further provided that the rights and obligations of the parties
shall remain in full force and effect pending the award in any
arbitration proceedings. The costs of the arbitration shall be
determined by the arbitral tribunal in accordance with the Rules.
G The arbitration clause specifically provides that the Indian
Arbitration Act (Act No. X(10) of 1940/The Arbitration and
Conciliation Act, 1996 shall not be applicable to this arbitration
provision, to any arbitration proceedings or award rendered or
any dispute or difference arising out of or in relation to the
H agreement. It is further provided that award rendered hereunder
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 683
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
shall be a foreign award within the meaning of the Foreign A
Awards Act, 1961.
7. Clause 16.2(i) specifically provides that the parties
hereby waive any rights of application or appeal to the Courts
of India to the fullest extent permitted by law in connection with 8
any question of law arising in the course of arbitration or with
respect to any award made.
8. Clause 16.3 of the arbitration agreement provides that
the award of the arbitrators shall be final and binding. The other
provisions with regard to the arbitration clause are incidental C
and, therefore, not necessary to be mentioned. Article 17 .8 of
the PPA provides as under:-
"17.8 Governing Law: Subject to Sections 16.2(b) and
16.2(e) hereof, this agreement and the rights and o
obligations hereunder shall be interpreted, construed and
governed by the substantive laws of India."
9. As noticed above, Article 16.2(b) provides that the
arbitration shall be conducted in accordance with the ICC Rules
notwithstanding Article 17.8. Similarly, Article 16.2(e) provides E
for exclusion of Article 17.8.
10. Upon completion of the pleadings and after hearing the
parties, the State Commission by an order dated 17th June,
2011, allowed the petition filed by the respondent for refund of F
the excess rebate availed by the appellant contrary to the terms
of PPA and also ordered the respondent to redraw the monthly
invoices in accordance with the directions issued by the State
Commission. The State Commission held that it is competent
to adjudicate upon the dispute. The limitation period prescribed G
in the Limitation Act, 1963 would not apply to the proceeding
before the Commission, delay and !aches would apply. The
appellant is liable to pay interest to the respondent in terms of
Clause 10.6 of the PPA till payment. Conversely, if the appellant
has made excess payment against each monthly invoice
H
684 SUPREME COURT REPORTS [2014] 4 S.C.R.
A compared to the corresponding redrawn monthly invoice, the
respondent is liable to pay interest in terms of Article 10.6 of
the PPA. The rebate would be admissible to the appellant, if
the redrawn monthly invoice and the original payment made by
the appellant against the invoice of that month matches or if the
. B appellant has made excess payment, the respondents were
directed to redraw the annual invoice for 2001~2002, 2002-
2003, 2003-2004, 2004-2005, 2005-2006 and 2006-2007, as
at September of each year to capture the gains to the appellant
on account of lower interest rates and gains to the respondent
c on account of higher floating rate. Certain other directions were
also issued. The petition was accordingly disposed of.
11. Aggrieved by the aforesaid directions, the appellant
filed Appeal No. 176 of 2011 before the APTEL. Before the
APTEL, in the appeal, the appellant raised the following issues:-
D
(a) Entitlement of the Appellant to Rebate.
(b) Jurisdiction of the State Commission u/s 86(1 )(f) of
the Act, 2003;
E (c) First in First Out method; for adjustment of payment.
(d) Limitation, delay and laches;
(e) Bar under Order 2 Rule 2 CPC;
F (f) Non filing of Annual Invoices;
(g) Determination of capital cost;
(h) Deduction on the monthly invoices;
G (i) Excess Claims in the monthly invoice - unjust
enrichment;
Q) Interest on Late Payments.
12. After hearing the learned counsel for the parties,
H
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 685
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
APTEL has held that under Article 10.2(a), 10.2(b)(i) and A
10.2(e), the appellant is obliged to pay full amount of the invoice
within the due date to be eligible for the rebate of 2.5% or 1%
as the case may be. Admittedly, the appellant neither paid the
full amount for every invoice nor raised the dispute within one
year. The appellant was held to be not eligible for rebate for B
reduction of the invoice funds.
13. With regard to the second issue, i.e., jurisdiction and
scope of Section 86(1 )(f) of the Act, relying on the judgment of
this Court in the case of Gujarat Urja Vikas Nigam Ltd. Vs. C
Essar Power Ltd. 1 , it is held that the State Commission has the
discretion to decide as to whether the dispute should be
adjudicated by itself or it should be referred to an arbitrator. The
appellant can not dictate that the State Commission ought to
have referred the dispute to an arbitrator. It is further held that
the State Commission can adjudicate all the disputes including D
the dispute on money claims between the Licensees and the
Generating Companies. In coming to the aforesaid conclusion,
APTEL relied on its earlier order rendered in Neyveli Ignite
Corporation Vs. Tamil Nadu Electricity Board in Appeal No.
49 of 2010 dated 10th September, 2010. E
14. On the third issue on the method adopted by the
respondent for adjustment of the payment made by the
appellant on the "FIFO" basis, APTEL has approved the
decision of the State Commission that the respondent was F
justified in adopting the aforesaid method, in accordance with
Section 60 of the Indian Contract Act, 1872.
15. On the fourth issue relating to the applicability of the
limitation Act or delay and laches, it has been held that the
Limitation Act would not apply to the proceedings under the G
Electricity Act. On facts, it has been held that the issue of
limitation does not arise since Sections 60 and 61 of the Indian
Contract Act would permit the creditor to adjust the amount on
1. (2ooai 4 sec 755. H
686 SUPREME COURT REPORTS [2014] 4 S.C.R.
A "FIFO" method. APTEL has also held that the bar under Order
2 Rule 2 of the CPC would not be applicable in the facts of this
case ..With regard to the non-filing of the annual invoices by the
respondent, it has been held that the respondent should have
filed the annual invoices in time. Therefore, the direction issued
B by the State Commission to the respondent to redraw the
annual invoices has been affirmed. The seventh issue related
to determination of capital costs, the State Commission in its
order under appeal had directed the appellant to pay the
invoice in full as claimed by the respondent without determining
c the capital costs by getting the petition for finalization of capital
costs, which was pending in the State Commission finally
adjudicated. APTEL has approved the findings of the State
Commission that the appellant had adopted delaying tactics by
not cooperating in the finalization of the capital costs.
D 16. On issue No. 9, it has been held that as the respondent
has given up the claim on account of capital costs incurred on
Gas Boosting Station and Conditioning System and that the
· Power Company has been directed to redraw the monthly
invoices by the State Commission, the issue would not survive.
E Finally, on issue No. 10, which related to interest on late
payments, it has been held that the respondent company is
entitled to interest on late payment of dues under the provisions
of the PPA.
F 17. The present appeal is directed against the aforesaid
directions issued by APTEL.
18. We have heard learned counsel for the parties.
19. Mr. R.F.Nariman, learned senior counsel appearing for
G the appellant has submitted that the disputes raised in the
present proceeding are not adjudicable by the State
Commission. Mr. Nariman submitted that the primary functions
of the State Commission being advisory, regulatory and
recommendatory, the adjudication permitted under Section
H 86(1)(f) is only restricted to the disputes which are fairly relatable
••
-... T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 687
GEN. CO. PVT LTD. [SURINDER SINGH NIJJAR, J.]
to the primary functions. The cardinal issue, according to Mr. A
Nariman, which ought to have been decided by the State
Commission, was with regard to the nature ofa dispute. The
State Commission has failed to address the issue whether the
dispute is unconnected to advisory functions. This was
necessary as the respondent had made only a pure money B
claim which could only be adjudicated either by the Civil Court
or the Arbitral Tribunal upon a reference being made to that
effect. Mr. Nariman submits that the State Commission illegally
declined to exercise its discretion to refer the dispute to
arbitration. The dispute between the parties being purely of civil c
nature required decision on complex issues of fact and law.
Since the dispute arises out of the working and interpretation
of the PPA, the State Commission would not have sufficient
knowledge of law to adjudicate the issues involved.
20. The next submission of Mr. Nariman is that the State D
Commission cannot be an adjudicatory body, as it does not
have the trappings of a court, which is normally manned
exclusively by Judges. Under Section 84, there is no
requirement for the Chairperson or member of the State
Commission to be a Judge of a High Court. The Members are E
required to be persons of ability, integrity and standing who
have adequate knowledge of, and have shown capacity in
dealing with problems relating to engineering, finance,
commerce, economics, law or management. Although sub-
section (2) permits the State Commission to appoint any F
person as the Chairperson from amongst person who is or has
been a Judge of a High Court, no appointment from the
aforesaid category of persons has been made to the State
Commission. Mr. Nariman pointed out that the State
Commission which heard the petition filed by the respondent G
did not have a Judicial Member. He further submits that the
State Commission functioning without a Judicial Member is
contrary to the law laid down by this Court in Union of India
vs. R.Gandhi, President, Madras Bar Association 2 . Learned
2. (2010 (11) sec 1). H
688 SUPREME COURT REPORTS [2014] 4 S.C.R.
A senior counsel elaborated that by virtue of Section 94(1 ), the
State Commission has been vested with the power of a Civil
Court under the Code of Civil Procedure. Under sub-section
(2) of Section 94, the State Commission has the power to issue
interim orders. Section 55 provides that all proceedings before
8 the State Commission shall be deemed to be judicial
proceedings within Sections 193 and 228 of the IPC. It is further
provided that appropriate commission shall be deemed to be
a civil court for the purpose of Sections 345 and 346 of the ·
Code of Criminal Procedure, 1903. (2 of 1974). By virtue of
C Section 146, the State Commission has been empowered to
impose punishment including imprisonment, fine and additional
fine. He further emphasized that the State Commission in
deciding a lis, between the respondent and the appellant,
discharged judicial functions and exercised judicial power of
the State. Such exercise of judicial power can be either by the
0
Civil Court or a Tribunal having atleast one Judicial Member.
The State Commission exercises judicial functions of far
reaching effect, therefore, it must have essential trappings of
a court. In support of this submission, learned senior counsel
relied on Kihoto Hol/ohan vs. Zachillhu3 • Subsequently, the
E appellant has submitted additional written submission which can
also be appropriately noticed at this stage. It is submitted that
the aforesaid infirmity in the constitution of the State
Commission can not be cured on the basis that the Appellate
Tribunal would always be headed by either a sitting Judge/
F former Judge of the Supreme Court or Chief Justice/former
Chief Justice of a High Court as well as having other Judicial
Members. In support of this submission, learned senior counsel
relied on Institute of Chartered Accountants of India vs.
L.K.Ratna & Ors. 4 and Union Carbide Corporation & Ors. vs.
G Union of India & Ors. 5 • Learned senior counsel submitted that
an adjudication of a lis by a tribunal without a judicial member
would be an anathema to judicial process. It would directly
3. (1992 Supp. (2) sec 651 ).
4. (1986) 4 sec 537.
H 5. (1991) 4 sec 584.
--
;.
•
- T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER
GEN. CO. PVT LTD. [SURINDER SINGH NIJJAR, J.]
689
impinge on the impartiality and the independence of the A
Judiciary. It would also undermine the principle of separation
of powers which is sought to be strictly maintained by the
Constitution of India. Mr. Nariman emphasized that this Court
carved out an exception to the rule of necessarily having a
Judicial Member of a Tribunal, only, in the case of highly B
specialized fact - finding tribunals. In the written submissions,
the appellant has also relied upon judgments of this Court in
Brahm Dutt vs. Union of lndia 6 , S.P. Sampath Kumar vs.
Union of India & Ors. 7 • It is further submitted by Mr. Nariman
that the disputes arising between the generating company and c
a licensee are decided by the Commission by holding meetings
of the Members. In case the members of the Commission are
equally divided, the Presiding Member would have the casting
vote. Such procedure, submits Mr. R.F. Nariman, is unknown
to judicial proceedings.
D
21. Mr. Nariman then submitted that the Chairma~ of
APTEL is required under Section 113 of the Electricity Act to
be a person who is or has been a Judge of the Supreme Court
or the Chief Justice of a High Court. A person can also be
appointed as a Member of the Appellate Tribunal who is or has E
been or is qualified to be a Judge of the High Court. This,
according to him, clearly shows that the adjudicatory functions
performed by the State Commission as well as the Appellate
Tribunal are judicial in nature and ought to be performed only
by the tribunal which has either a Chairman or a Member(s) who F
are or were Judges of the Supreme Court or a High Court. Mr.
Nariman submitted that since the State Commission was not
constituted in accordance with law and the order having been
passed without any judicial member, is a nullity non-est in law.
He submitted that the proceedings of the Commission are G
coram non judice and, therefore, liable to be set aside.
22. The next submission of Mr. Nariman is that the claim
6. c2005) (2) sec 431.
7. (1987) (1) sec 124. H
690 SUPREME COURT REPORTS [2014] 4 S.C.R.
A of the respondent would have been held to be time barred on
reference to arbitration. The respondent made a money claim
in the year 2009 for the alleged dues starting from the year
2001 onwards. Therefore, had the dispute been referred to
arbitration in terms of dispute resolution clause, contained in
B Article 16 of the PPA, the proceeding of the arbitral tribunal
would be governed by the Limitation Act, 1963. The State
Commission has erred in law in holding that by virtue of Section
2(4) of the Arbitration Act, 1996, the applicability of Section 43
would be excluded. This, according to Mr. Nariman, is one more
c reason why the State Government ought not to have entertained
the money claim of the respondent and ought to have relegated
the parties to arbitration. In any event, the claim of the
respondent ought to have been dismissed for delay and !aches.
He submits that even if the Limitation Act was not applicable,
the maximum period of time for filing a suit, in a Civil Court,
0
ought to be taken as a reasonable standard by which the issues
with regard to such delay and !aches can be measured. In
support of this submission learned counsel relied on the
judgment of this Court in State of M.P. vs. Bhailal Bhai & Ors. 8 .
He made a reference to the observations made by this Court
E at Para 273. Learned senior counsel also relied on Municipal
Corporation of greater Bombay vs. Bombay Tyres
International Ltd. & Ors. 9 and Corporation Bank & Anr. vs.
Navin J. Shah 10•
F 23. Mr. Nariman then submits that the "FIFO" method of
adjustment of payment was not available to the respondents. It
is submitted that the reliance placed on Sections 60 and 61 of
the Contract Act by the respondents is misconceived. He
submits'that the respondents have wrongly claimed that they
G have been adjusting the monthly payment made by the appellant
not against the monthly invoices but against the earlier pending
bills. The respondents are also wrongly claiming that the
8. (1964 (6) SCR 261.
9. 1998 (4) sec 100 (at page 104 para 9).
H 1o. 2000 (2) sec 628 (at page 635 para 12).
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..i
= T.N. GENERATION & DiSTBN. CORPN. LTD. v. PPN POWER 691
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
appellant had been duly informed that the payments have been A
received on "FIFO" basis. Mr. Nariman points out that the
respondents are wrongly relied on letters dated 25th June,
2001, 2nd December, 2003 and 10th September, 2001.
According to Mr. Nariman, none of three letters support the
case of the respondents that the appellant had either agreed B
to or acquiesced in the monthly payments made by him within
5 business days of the presentation of the monthly invoices
being adjusted on the FIFO basis. Mr. Nariman points out that
the respondent's own letter dated 20th November, 2006
demolishes the case of respondent based on FIFO. He further c
submits that if the parties are agreed to the FIFO and had been
acting on the same, as claimed by the respondents, then there
would have been no need for the respondents to write letters
dated 20th November, 2006 and 23rd April, 2007 regarding
their objections to the disallowance made by the appellant or
0
seeking an explanation/clarification from the appellant with
respect to the payments made by the appellant and referred
to in the said letters. The respondent was well aware that the
appellant had been making the monthly payments against the
respective monthly invoices. Therefore, the respondents can
take no benefit of Sections 60 and 61 of the Contract Act. E
Therefore, the impugned order passed by the State
Commission as well as APTEL being based on these two
sections are unsustainable.
24. It is further submitted by Mr. Nariman that the F
respondents have failed to file annual invoices at the end of
each year for the years 2001-2006. The invoices for these years
were filed only on 18th July, 2007. This is in breach of Clause
10.2(b)(ii) of the PPA which required the respondents to submit
annual invoices setting of the details of the amounts owed under G
the tariff and reconciliation of the actual amounts receivable
from the appellant for the prior year against the sum of monthly
estimated payments made by the appellant. Similarly, if
payments are due by the respondent to the appellant, the stated
amount has to be paid to the appellant and vice versa. The H
692 SUPREME COURT REPORTS [2014] 4 S.C.R.
A State Commission rejected the explanation given by the
respondent for failure to submit the annual invoices, but instead
of dismissing the claim of the respondents, a direction has been
made to redraw the annual invoices of each year as on 30th
September of each year. Mr. Nariman further points out that the
B respondent, upon redrawal of the invoices, had agreed to
refund/adjust a sum of Rs.45 crores, being the excess amount
charged by the respondent from the appellant. The said amount
has not been paid till date.
25. Mr. Nariman points out that the only dispute between
C the parties in the present litigation is only with regard to the
question as to whether the appellant was entitled to avail rebate
of 2.5 % on the part payment of the monthly invoice within 5
business days from the date of the presentation of the monthly
invoice. It is submitted that in the initial petition filed by the State
D Commission it was not the claim of the respondent that the
appellant wrongly availed rebate of 2.5%. There were no
pleadings to that effect. Therefore, the findings and conclusions
of the State Commission are liable to be set aside. Mr.
Nariman submits that if one reads the PPA as a whole, it would
E become apparent that the payment of the full invoice amount
within 5 days of the date of raising of invoice is not a pre-
condition for seeking a rebate of 2.5% of the invoice amount.
Clause 10.2(a) does not make it a pre-condition for payment
of the full amount of invoice within 5 business days in order to
F avail the rebate of 2.5%. Clause 10.2(b)(i) indicates that the
full amount is to be paid on the due date of an invoice. Due
date is defined in Article 10.2 (a) as 30 days from the date of
handing over of the invoice. Mr. Nariman then submits that a
conjoint reading of these clauses would show that in order to
G be eligible for a rebate, at the rate of 2.5%, the payment has
to be made on the 30th day of the presentation of the invoice.
Therefore, any payment made within 5 business days entitled
the appellant to claim 2.5% rebate on such payment. It is further
submitted by Mr. Nariman that rebate is nothing but refund of
H a part of the interest loaded upfront on the Working Capital. The
I
T.N. GENERATION & DISTBN. CORPN LTD. v. PPN POWER 693
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
estimated monthly tariff invoice has two components - (i) the A
fixed capacity charges (FCC) and (ii) variable fuel charges
(VFC). The rebate of 2.5 % is allowed in view of the notification
dated 30th March, 1992 issued by the Ministry of Power,
Government of India, in exercise of powers under sub-section
(2) of Section 43 of the Electricity Supply Act, 1948. The B
aforesaid notification has been made part of the PPA as
Schedule U thereof. Schedule A of the PPA deals with Tariff.
Interest on the receivable equivalent to 2 months' average billing
for sale of electricity is loaded upfront on the monthly invoice.
Part of this is refunded by way of rebate of-2.5 % if payment is c
made within 5 days and at 1% if it is made after 5 days but
upto the 29th day from the presentation of the monthly invoice.
Interest of the respondent upto the 3oth day loaded upfront in
the irwoice. Thereafter the interest of the respondent is
protected from the due date till payment is made in accordance
D
with the Clause 10.6(e) of the PPA. Therefore, the appellant is
entitled to rebate if payment is made within 5 days or within
29th day of the presentation of the invoice. Lastly, it is submitted
by Mr. Nariman that the appellant has been made the payment
within 5 days only to avail rebate of 2.5%. One such payment E
was made, the respondent had the use of money for a period
of 25 days and correspondingly the appellant had been
deprived of the use of such money for a period of 25 days every
month. He submits that absent the contract between the parties,
the appellant would have made the payment only on the 30th
day and not within 5 days. In any event, 60 days of interest on F
the Working Capital had already been loaded upfront. Only 30
days interest was being returned in the form of rebate on the
amount paid by the appellant within 5 days. In order to make
the payment within 5 days, the appellant often had to avail the
loan. Out of Rs.240 crores, which the appellant has already G
paid to the respondent under the Orders of the State
Commission, almost Rs.235 crores is rebate. The respondent
I
is now claiming more than Rs.500 crores towards interest at
compound rate on Rs. 240 crores paid by the appellant, contrary
to the provisions of the PPA. On the basis of the above, he H
694 SUPREME COURT REPORTS [2014] 4 S.C.R.
A submits that allowing the claim of the respondent for refund of
the rebate amount would amount to unjust enrichment. Further,
the award of interest on the aforesaid amount of rebate would
amounts to double unjust enrichment.
26. On the other hand, it is submitted by Mr. Harish Salve
8
and Mr. Jayant Bhushan learned senior counsel that orders
passed by the State Commission as well as the Appellate
Tribunal are just and proper and do not call for any interference.
The appellant has been granted instalments to make the
C payment of Rs. 240 crores. It is also pointed out that the
following order passed by the State Commission in the
independent legal proceeding relating to fixation of capital cost
on 15th July, 2013, the claim was updated upto 20th August,
2013 for invoices raised till 30th June, 2011, in a gross sum of
Rs.695 crores. After giving credit of Rs.145 crores (including
D interest computed at the interest rates applicable to PPN) the
net claim, subject-matter of the present appeal, stands at
Rs.550 crores.
27. With regard to the submission of the appellant relating
E to Section 86(1 )(f), it is submitted that the matter is no longer
res integra as it is squarely covered by the judgment of this
Court in Gujarat Urja Vikas Nigam Ltd. (supra). It is submitted
by Mr. Salve and Mr. Bhusha1. learned senior counsel
appearing for the respondent that Section 86(1)(f) gives the
F discretion the State Commission either to adjudicate the
disputes itself or to refer the same to arbitration. By making
detailed reference to the findings recorded by APTEL, Mr. Salve
and Mr. Bhushan submit that all the issues raised by the
appellant are without any merit as it cannot be supported either
G in facts or in law.
28. It is submitted by the learned senior counsel that even
Article 16(2) provides for international arbitration under the ICC
Rules. Article 16.2(h) specifically excludes the application of the
Arbitration and Conciliation Act of 1996 and the Arbitration Act
H of 1940. Article 16.2(e) provides that the laws of England shall
•
•-
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 695
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
govern the arbitration agreement in contra-distinction to Indian A
law applying to the PPA. In any event, the appellant cannot be
permitted to claim a reference of arbitration as a matter of right.
He points out that at the initial stage, the appellant only referred
to the existence of an informal dispute resolution provision and
provision for arbitration under Article 16 of the PPA. Having B
taken such a preliminary objection, the appellant proceeded·to
subject itself to the jurisdiction of the State Commission. In fact
the entire claim of the respondent was answered by the
appellant on merit in the written statement, filed before the State
Commission. Even if the written submissions before the State C
Commission, the appellant principally contended that the
matter ought to be referred to the adjudication by a civil court.
The appellant failed to make any application either under
Section 8 or Section 45 of the Arbitration and Conciliation Act,
1996 seeking reference to arbitration. It is further pointed out
0
that this Court in Gujarat Urja Vikas Nigam Ltd. (supra) has
clearly laid down the law that the existence of an arbitration
clause in a contract does not act as an ouster of jurisdiction of
the jurisdictional forum. The appellant having submitted to the
jurisdiction of the State Commission and having invited the
findings cannot now seek to challenge the jurisdiction on the E
ground of existence of arbitration clause. Mr. Salve and Mr.
Bhushan relied on the judgment of this Court in Svenska
Handelsbanken vs. Indian Charge Chrome Ltd. 11 and Booz
Allen & Hamilton Inc. vs. SB/ Home Finance Ltd. 12 • It is further
submitted that the proceeding before the State Commission F
would not be vitiated on the ground that its constitution is
contrary to the ratio of law laid down in the case of R. Gandhi
(supra). The appellant has not even raised a single ground of
any prejudice being caused by the absence of a judicial
member before the State Commission. In any event, the G
aforesaid submission contradicts the appellant's other
submission that the matter ought to have been referred to
arbitration under the Arbitration Act. There is no requirement
11. 1994 (2) sec 155.
12. 2011 (5) sec 532. H
696 SUPREME COURT REPORTS [2014] 4 S.C.R.
A that the arbitrator should be a judicial person. Even in the
absence of Electricity Act, 2003 and the regulatory bodies
contemplated therein, the instant dispute would have been
subject matter of an arbitration proceeding as per the provision
of the PPA and not a civil suit in the civil court.
B 29. Answering the submission of the appellant that the
respondent has illegally adjusted the payments on the concept
of FIFO. It is submitted that the State Commission as well as
the Appellate Tribunal have correctly held that the procedure
adopted by the respondent is covered under Section 60 and
C 61 of the Contract Act. Mr. Salve and Mr. Bhushan submit that
admittedly the appellant did not make full payment in relation
to any of the invoices. The State Commission as well as the
Appellate Tribunal have concurrent findings that the appellant
was duly notified that the payment/part payment made were
D being adjusted on FIFO basis. The appellant never refuted or
rejected to such practice adopted by the respondent. The
appellant submitted that it was undergoing temporary financial
strain. It is also pointed out by Mr. Salve and Mr. Bhushan that
the invoices were accepted in full. The statement was made
E by the appellant that part payment being made would not
prejudice the right of respondent to receive the full payment
against the invoices. The correspondence between the parties
has been noticed by the APTEL in extenso. Coming to the legal
position, Mr. Salve and Mr. Bhushan submit that APTEL having
F considered the statutory provisions as well as judicial
precedents have come to the conclusion that the appellant was
duly intimated that the payment made would be applied by the
respondents on FIFO basis. Therefore, Section 59 of the Indian
Contract Act would not be applicable. On the issue of limitation,
G it is submitted that neither the Limitation Act nor the principle
of delay and laches would apply to the present case. It is
submitted by Mr. Salve and Mr. Bhushan that the provision of
Limitation Act, 1963 would not be applicable to the
proceedings before the State Commission. The Electricity Act,
H 2003 being a complete code, which is self contained and
T. N.. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 697
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
comprehensive, the provision of Limitation Act, 1963 would not A
apply. Mr. Salve and Mr. Bhushan relied on the Consolidated
Engineering Enterprises Vs. Principal Secretary, Irrigation
Department & Ors. 13 In support of this submission, the
Limitation Act would be inapplicable to Tribunals and quasi-
judicial authorities. Replying to the submission of Mr. Nariman B
that in arbitration proceedings, the appellant would be entitled
to the benefit of Limitation Act, 1963, Mr. Salve and Mr.
Bhushan submit that in view of the specific provisions contained
in Section 2(4) of the Arbitration and Conciliation Act, 1996,
Section 43 of the Arbitration Act would not be applicable. In any c
event, the matter is squarely covered by the judgment in Gujarat
Urja (supra). Mr. Salve and Mr. Bhushan reiterated that the
issue of limitation does not even arise in the present dispute
due to the FIFO adjustment effected by the respondent.
30. Addressing the issue of the rebate being available to D
the appellant, Mr. Salve and Mr. Bhushan submit that APTEL
has rendered detailed findings on the issue. The submissions
made before this Court is a repetition of the submissions made
before the APTEL. They submit that such findings recorded by
the APTEL can not be reopened in this Court except on the E
ground that such findings are either arbitrary or based on no
evidence. In fact, the appellant has illegally arrogated to itself
the right to adjudicate, by unilaterally assuming rights, which are
not available to it. Rather than complying with the requirements
of the PPA of making payment within due date, the appellant F
had disallowed certain payments on the ground that the claims
of the appellant were doubted. These actions of the appellant
were contrary to Articles 10.3 and 10.4 of the PPA which deals
with Letter of Credit and Escrow. Even if the claim of the
appellant is accepted that the invoices were only based on the G
estimates the appellant had no authority of making unilateral
deductions in the monthly invoices and make only ad-hoc
payments contrary to the provisions of PPA. It is submitted that
the monthly invoices consists of both actual as also estimates
13. (2008) 1 sec 169. H
698 SUPREME COURT REPORTS [2014] 4 S.C.R.
A in respect of certain items. The annual invoices raised on the
basis of a reconciliation at the end of the year, since actuals
become known in respect of such portions of monthly invoices,
which were calculated on the basis of the estimates. Mr. Salve
and Mr. Bhushan then submit that interest on late payments
B have been rightly granted both by the State Commission as well
as the APTEL. The interest has been calculated on the basis
of Article 10.6 of the PPA. Since the loans taken by the
respondent are payable at compounded interest rates, the later
payment interest payable by the appellant would also be at the
c compounded interest rate as per Article 10.6 of the PPA. Mr.
Salve and Mr. Bhushan relied on the judgment of this Court in
Central Bank of India Vs. Ravindra & Ors. 14 and Indian
Council for Legal Action Vs. Union of lndia 15
31. During the course of hearing, the appellant had taken
D out I.A. No. 5 of 2013 and I.A. No. 6 of 2013. I.A. No. 6 is for
the impleadment and I.A. No. 5 is for the direction.
I.A. Nos. 5 and 6 of 2013
32. It is submitted by Mr. Salve and Mr. Bhushan that in
E I.A. No. 6, the appellant has made a prayer to implead IOCL
as the respondent. This application can not be allowed as IOCL
is not a party to the contract. The attempt to implead third party
is only an effort to delay the proceedings by the appellant. It is
pointed out that IOCL is either necessary or a proper party for
F adjudication of the disputes arising between the appellant and
the respondents.
33. I.A. No. 5 of 2013, according to Mr. Salve and Mr.
Bhushan has been filed with the sole object of avoiding
G payments. The appellant has made wild allegations of fraud
without any foundational facts being pleaded either before the
State Commission or before the APTEL. The appellant ought
not to be permitted to resolve such disputes. The application
14. c2062) 1 sec 367.
H 15. c2011i a sec 161.
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 699
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J)
according to Mr. Salve and Mr. Bhushan deserves to be A
dismissed.
34. We have considered the submissions made by the
learned counsel for the parties. In our opinion, the issues raised
by the appellant with regard to the constitution of the State B
Commission and its discretion to either adjudicate or refer a
particular dispute to arbitration is no longer res integra.
Therefore, even though, Mr. Nariman has very forcefully
contended that the issue ought to be reconsidered, we are not
inclined to adopt such a course. In our opinion, this Court has C
comprehensively addressed all the issues, on the scope and
ambit of Section 86 in general and Section 86(1)(f) in particular
of the Act. We are also not inclined to accept the submission
that since the appellant had made a request for a reference of
the dispute to arbitration, the State Commission ought to have
made the reference. We are also not able to accept the D
submission of Mr. Nariman that the State Commission was
dealing with only a pure and simple money claim. We also do
not find much substance in the submission that the issues having
been raised being complex and intricate ought to have been
left to be decided either by the Arbitral Tribunal or by the Civil E
Court. APTEL in the impugned order, in our opinion, has
correctly culled out the ratio of the judgment of this Court in
Gujarat Urja (supra). It is also correctly held that th~ appellant
can not dictate that the State Commission ought to have
referred the dispute to arbitration. F
35. In the aforesaid judgment, the question that arose
before this Court was whether the application for appointment
of an arbitrator under Section 11 of the Arbitration and
Conciliation Act, 1996 was maintainable in view of the statutory G
provisions contained in the Electricity Act, 2003.
36. It was submitted on behalf of the appellant (licensee)
that by Virtue of Section 86( 1)(f) of the Act of 2003, the dispute
between the licensees and the generating companies can only
be adjudicated upon by the State Commission either by itself H
700 SUPREME COURT REPORTS [2014] 4 S.C.R.
A or by an arbitrator to whom the Commission refers the dispute.
Therefore, the High Court had no jurisdiction under Section
11 (6) to refer the dispute between the licensees and the
generating company to an arbitrator, since such power of
adjudication of reference has been specifically vested in the
s State Commission. Since the Electricity Act is a special law,
dealing with arbitrations of dispute between the licensees and
the generating companies, the provision of Section 11 of the
Arbitration and Conciliation Act would be inapplicable. The High
Court has, therefore, committed an error of jurisdiction in
c allowing the application under Section 11 (6) and referring the
matter to arbitration to a Former Chief Justice of India. On the
other hand, it was submitted on behalf of the generating
companies that the provisions of the Electricity Act are in
addition to and not in derogation of any other law for the time
being in force. The provisions contained in Sections 173 and
0
174 would not affect the applicability of the Arbitration Act,
1996, in view of the provisions contained in Section 175 of the
Electricity Act. Upon consideration of the aforesaid submission,
this Court has held as follows:-
E "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 Commis~ion
or the person or persons to whom it is referred for
F arbitration. In our opinion the word "and" 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 Principles of Statutory
G Interpretation, 9th Edn., 2004, p. 404).
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
H
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 701
GEN. ·co.
PVT. LTD. [SURINDER SINGH NIJJAR, J 1
obviously the State Commission cannot both decide a A
dispute itself and also refer it to some arbitrator. Hence
the word "and" in Section 86(1)(f) means "or".
28. Section 86(1)(f) is a special provision and hence will
override the general provision in Section 11 of the
8
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 of the Arbitration
and Conciliation Act, 1996 has no application to the
question who can adjudicate/arbitrate disputes between C
licensees and generating companies, and only Section
86(1 )(f) shall apply in such a situation.
37. This Court also negated the submission that the
provision contained in Section 86(1 )(f) would be violative of D
Article 14 (See Para 30-31).
38. Considering the provisions contained in Sections 173,
174 and 175 of the Electricity Act, this Court observed that
since Section 86(1 )(f) provides a special manner of making E
reference to an arbitrator in disputes between a licensee and
a generating company, by implication all other methods are
barred. Considering the applicability of Sections 174 and 175,
this Court has held that Section 174 would prevail over Section
175 in matters where the where there is any conflict (but no
further). In our opinion, the observations made by this Court in F
Paragraphs 59 and 60 are a complete answer to the
submissions of Mr. Nariman that upon an application being
made, the State Commission was bound to refer the matter to
arbitration.
G
39. Section 86(1 )(f) specifically confers jurisdiction on the
State Commission to refer the dispute. Undoubtedly, the
Commission is required to exercise its discretion reasonably
and not arbitrarily. In the present case, the State Commission
upon consideration of the entire matter has exercised its H
702 SUPREME COURT REPORTS [2014] 4 S.C.R.
A discretion. However, in our opinion, the APTEL ought not to
have brushed aside the submissions of the appellant with the
observation that the State Commission having exercised its
discretion, the issue need not be investigated by the APTEL.
It would always be open to APTEL to examine as to whether
B the State Commission has exercised the discretion with regard
to the question whether the dispute ought to have been referred
to arbitration, in accordance with the well known norms for
exercising such discretion. APTEL exercises jurisdiction over
the State Commission by way of a First Appeal. Therefore, it
C is the bounden duty of the Appellate Tribunal to examine as to
whether all the decisions rendered by the State Commission
suffer from the vice of arbitrariness, unreasonableness or
perversity. This would be apart from examining as to whether
the State Commission has exercised powers in accordance
D with the statutory provisions contained in Electricity Act, 2003.
H~ving said this, we are not inclined to interfere with the
conclusions reached by APTEL, as in our opinion, the
jurisdiction has not been exercised by the State Commission
arbitrarily, whimsically or against the statutory provisions.
E 40. We, however, find substance in the submission of Mr.
Nariman that adjudicatory functions generally ought not to be
conducted by the State Commission in the absence of a
Judicial Member. Especially in relation to disputes which are
not fairly relative to tariff fixation or the advisory and
F recommendatory functions of the State Commission.
41. A Constitution Bench of this Court in Kihoto Hollohan
(supra} has examined the nature of the power of the Speaker
or the Chairman under paragraph 6(1} of the Tenth Schedule
G of the Constitution of India which contains "PROVISIONS AS
TO DISQUALIFICATION ON GROUND OF DEFECTION" of a
Member of either House of Parliament. Upon consideration of
the entire matter, it was observed as follows :
"95. In the present case, the power to decide disputed
H disqualification under Paragraph 6(1} is pre-eminently of
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 703
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
a judicial complexion." A
42. The Constitution Bench relied on the earlier judgment
of this Court in Harinagar Sugar Mills Ltd. vs. Shyam Sundar
Jhunjhunwa/a 16 . In that case, Hidayatullah, J. said
" ... By 'courts' is meant courts of civil judicature and B
by 'tribunals', those bodies of men who are appointed to
decide controversies arising under certain special laws.
Among the powers of the State is included the power to
decide such controversies. This is undoubtedly one of the
attributes of the State, and is aptly called the judicial power C
of the State. In the exercise of this power, a clear division
is thus noticeable. Broadly speaking, certain special
matters go before tribunals, and the residue goes before
the ordinary courts of civil judicature. Their procedures may
differ but the functions are not essentially different. What D
distinguishes them has never been successfully
established. Lord Stamp said that the real distinction is
that the courts have 'an air of detachment'. But this is more
a matter of age and tradition and is not of the essence.
Many tribunals, in recent years, have acquitted themselves E
so well and with such detachment as to make this test
insufficient."
Again in para 99, it is observed as follows :
"99. Where there is a lis - an affirmation by one party F
and denial by another - and the dispute necessarily involves
a decision on the rights and obligations of the parties to it
and the authority is called upon to decide it, there is an
exercise of judicial power. That authority is called a
Tribunal, if it does not have all the trappings of a Court. In G
Associated Cement Companies Ltd. v. P.N. Sharma36
this Court said: (SCR pp. 386-87)
" ... The main and the basic test however, is whether
- ----
16. 1962 (2) SCR 339. H
704 SUPREME COURT REPORTS (2014] 4 S.C.R.
A the adjudicating power which a particular authority is
empowered to exercise, has been conferred on it by a
statute and can be described as a part of the State's
inherent power exercised in discharging its judicial
function. Applying this test, there can be no doubt that the
B power which the State Government exercises under Rule
6(5) and Rule 6(6) is a part of the State's judicial power ....
There is, in that sense, .a lis; there is affirmation by one
party and denial by another, and the dispute necessarily
involves the rights and obligations of the parties to it. The
c order which the State Government ultimately passes is
described as its decision and it is made final and binding."
43. In view of the aforesaid categorical statement of law,
we would accept the submission of Mr. Nariman that the tribunal
such as the State Commission in deciding a lis, between the
D appellant and the respondent discharges judicial functions and
exercises judicial power to the State. It exercises judicial
functions of far reaching effect. Therefore, in our opinion, Mr.
Nariman is correct in his submission that it must have essential
trapping of the court. This can only be achieved by the presence
E of one or more judicial members in the State Commission
which is called upon to decide complicated contractual or civil
issues which would normally have been decided by a Civil
Court. Not only the decisions of the State Commission have
far reaching consequences, they are final and binding between
F the parties, subject, of course, to judicial review.
44. As noticed earlier, Section 84(2) enables the State
Government to appoint any person as the Chairperson from
amongst persons who is, or has been, a Judge of a High Court.
Such appointment shall be made after consultation with the
G Chief Justice of the High Court. The provision contained in
Section 84(2) is notwithstanding the provision contained in
Section 84(1). In our opinion, the State Government ought to
have exercised its power under sub-section (2) to appoint one
or more Judicial Members on the State Commission especially
H
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 705
GEN CO. PVT. LTD. [SURINDER SINGH NIJJAR, J]
when complicated issues are raised involving essentially civil A
and contractual matters. A Constitution Bench of this Court in
the case of R. Gandhi (supra) recognized that :
"87 ............ that the legislature has the power to create
tribunals with reference to specific enactments and confer B
jurisdiction on them to decide disputes in regard to matters
arising from such special enactments. Therefore it cannot
be said that legislature has no power to transfer judicial
functions traditionally performed by courts to tribunals."
"90. But when we say that the legislature has the C
competence to make laws, providing which disputes will
be decided by courts, and which disputes will be decided
by tribunals, it is subject to constitutional limitations, without
encroaching upon the independence of the judiciary and
keeping in view the principles of the rule of law and D
separation of powers. If tribunals are to be vested with
judicial power hitherto vested in or exercised by courts,
such tribunals should possess the independence, security
and capacity associated with courts. If the tribunals are
intended to serve an area which requires specialised E
knowledge or expertise, no doubt there can be technical
members in addition to judicial members ............."
45. Keeping in view the aforesaid observations of this
Court, in our opinion, the State of Tamil Nadu ought to make
necessary appointments in terms of Section 84(2) of the Act.
F
We have been informed that till date no judicial Member has
been appointed in the Tamil Nadu State Commission. We are
of the opinion that the matter needs to be considered, with
some urgency, by the appropriate State authorities about the
desirability and feasibility for making appointments, of any G
person, as the Chairperson from amongst persons who is, or
has been, a Judge of a High Court.
46. We have noticed earlier that Section 113 of the Act
mandates that the Chairman of APTEL shall be a person who H
706 SUPREME COURT REPORTS [2014] 4 S.C.R.
A is or has been a Judge of the Supreme Court or the Chief
Justice of a High Court. A person can be appointed as the
Member of the Appellate Tribunal who is or has been or is
qualified to be a Judge of a High Court. This would clearly show
that the legislature was aware that the functions performed by
B the State Commission as well as the Appellate Tribunal are
judicial in nature. Necessary provision has been made in
Section 113 to ensure that the APTEL has the trapping of a
court. This essential feature has not been made mandatory
under Section 84 although provision has been made in Section
c 84(2) for appointment of any person as the Chairperson from
amongst persons who is or has been a Judge of a High Court.
In our opinion, it would be advisable for the State Government
to exercise the enabling power under Section 84(2) to make
appointment of a person who is or has been a Judge of a High
Court as Chairperson of the State Commission.
0
47. These observations, however, do not in any manner
affect the jurisdiction exercised by the State Commission in the
present matter. It has been rightly pointed out by the respondent
that having filed the written statement in reply to the petition filed
E by the respondent, the appellant willingly participated in the
proceedings and invited the findings recorded by the State
Commission. It would be too late in the day, to interfere with
the jurisdiction exercised by the State Commission in these
proceedings.
F
48. The next submission of Mr. Nariman is that the claim
of the respondents would have been held to be time barred on
reference to arbitration. We are not able to accept the aforesaid
submission of Mr. Nariman. On the facts of this case, in our
G opinion, the principle of delay and laches would not apply, by
virtue of the adjustment of payments being made on FIFO
basis. The procedure adopted by the respondent, as observed
by the State Commission as well as by the APTEL, would be
covered under Sections 60 and 61 of the Contract Act. APTEL,
H - upon a detailed consideration of the correspondence between
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 707
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J]
the parties, has confirmed the findings of fact recorded by the A
State Commission that the appellant had been only making part
payment of the invoices. During the course of the hearing, Mr.
Salve has pointed out that the payment of entire invoices was
to be made each time which was never adhered to by the
appellant. Therefore, the respondents were constrained to B
adopt FIFO method. Learned senior counsel also pointed out
that there was no complaint or objection ever raised by the
appellant. The objection to the method adopted by the
respondents on the method of FIFO, was only raised in the
counter affidavit to the petition filed by the appellant before the c
State Commission. According to learned senior counsel, the
plea is an afterthought and has been rightly rejected by the
State Commission as well as the APTEL. We also have no
hesitation in rejecting the submission of Mr. Nariman on this
issue. In any event, the Limitation Act is inapplicable to 0
proceeding before the State Commission.
49. The submission of the appellant that the Limitation Act
would be available in case the reference was to be made to
arbitration, in our opinion, is also without merit. Firstly, the State
Commission exercised its jurisdiction to decide the dispute E
itself. The matter was not referred to arbitration, therefore, the
Limitation act would not be applicable. Secondly, Section 43
of the Arbitration and Conciliation Act would not be applicable
even if the matter was referred to arbitration by virtue of Section
2(4) of the Arbitration Act, 1996. Section 2(4) of the Arbitration F
Act reads as under :
"This part except sub-section (1) of section 40, sections
41 and 43 shall apply to every arbitration under any other
enactment for the time being in force, as if the arbitration G
were pursuant to an arbitration agreement and as if that
other enactment were an arbitration agreement, except in
so far as the provisions of this Part are inconsistent with
that other enactment or with any rules made thereunder."
50. By virtue of the aforesaid provision, the provision with H
708 SUPREME COURT REPORTS [2014] 4 S.C.R.
A regard to the Limitation Act under Section 43 would not be
applicable, to statutory arbitrations conducted under the
Electricity Act, 2003. We are unable to accept the submission
of Mr. Nariman that the State Commission failed to exercise
its discretion by not making a reference to arbitration and the
B request made by the appellant. Such a submission cannot be
countenanced in the particular facts of this case. Having taken
the plea that the matter ought to be referred to arbitration, the
appellant chose to contest the claim of the respondent on merits
and filed the written statement before the State Commission.
c Not only this, the appellant participated in the entire proceedings
and invited the findings on merits. Therefore, the appellant
cannot now be permitted to raise such a plea. This view of ours
will find support in two earlier judgments of this Court. In
Svenska Handelsbanken (supra) it has been observed as
follows:
0
"53. It may be that even after entering into an arbitration
clause any party may institute legal proceedings. It is for
the other party to seek stay of the suit by showing the
arbitration clause and satisfying the terms of the provisions
E of law empowering the court to stay the suit.. ...... "
Admittedly, in this case the appellant did not file any
application under Section 8 or Section 45 of the Arbitration Act,
1996. No prayer for stay of the proceedings was filed.
F 51. In the case of Booz Allen & Hamilton /nc.(supra) this
Court observed a follows:
"29. Though Section 8 does not prescribe any time-limit
for filing an application under that section, and only states
G that the application under Section 8 of the Act should be
filed before submission of the first statement on the
substance of the dispute, the scheme of the Act and the
provisions of the section clearly indicate that the
application thereunder should be made at the earliest.
H Obviously, a party who willingly participates in the
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 709
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
proceedings in the suit and subjects himself to the A
jurisdiction of the court cannot subsequently turn around
and say that the parties should be referred to arbitration
in view of the existence of an arbitration agreement.
Whether a party has waived his right to seek arbitration
and subje,cted himself to the jurisdiction of the court, B
depends upon the conduct of such party in the suit."
These observations are squarely applicable to the facts in
this case.
52. Even if the reference had been made under Article 16 C
of the PPA, the applicability of the Arbitration Act, 1996 and
the Arbitration Act of 1940 have been specifically excepted
under Article 16(2)(h). In the earlier part of the judgment, we have
noticed that Article 16 indeed provides for informal resolution
of disputes by way of arbitration. However, Article 16(2) D
mandates that the arbitration shall be conaucted in accordance
with the ICC Rules. Under those rules, ICC Court of arbitrc;ition
is to make the appointment of the Arbitral Tribunal. To make
the matters worst for the appellant, it has been provided in
Article 16.2(e) that the seat of the arbitration shall be in London. E
This fact alone would make Part I of the Arbitration Act, 1996
inapplicable to the arbitration proceedings. There is a further
provision that notwithstanding Article 17(8), the laws of England
shall govern the validity, interpretation, construction,
performance and the enforcement of the provision contained F
in Article 16(2). Clearly then, the applicability of Arbitration Act,
1996 is totally ruled out by the parties. This Court in Bhatia
International vs. Bulk Trading S.A. & Anr. 17 has clearly held
that the parties are at liberty by agreement to opt out of any or
all the provisions of 1996 Act. It would be useful to make a G
reference to the observations made by this Court in paragraph
21 and 32 which are as follows:
"21. The legislature is emphasising that the provisions of
11. 2002 (4) sec 105. H
710 SUPREME COURT REPORTS [2014] 4 S.C.R.
A Part I would apply to arbitrations which take place in India,
but not providing that the provisions of Part I will not apply
to arbitrations which take place out of India. The wording
of sub-section (2) of Section 2 suggests that the intention
of the legislature was to make provisions of Part I
B compulsorily applicable to an arbitration, including an
international commercial arbitration, which takes place in
India. Parties cannot, by agreement, override or exclude
the non-derogable provisions of Part I in such arbitrations.
By omitting to provide that Part I will not apply to
c international commercial arbitrations which take place
outside India the effect would be that Part I would also apply
to international commercial arbitrations held out of India.
But by not specifically providing that the provisions of Part
I apply to international commercial arbitrations held out of
India, the intention of the legislature appears to be to ally
D
(sic allow) parties to provide by agreement that Part I or
any provision therein will not apply. Thus in respect of
arbitrations which take place outside India even the non-
derogable provisions of Part I-can be excluded. Such an
agreement may be express or implied."
E
"32. To conclude, we hold that the provisions of Part I would
apply to all arbitrations and to all proceedings relating
thereto. Where such arbitration is held in India the
provisions of Part I would compulsorily apply and parties
F are free to deviate only to the extent permitted by the
derogable provisions of Part I. In cases of international
commercial arbitrations held out of India provisions of Part
I would apply unless the parties by agreement, express or
implied, exclude all or any of its provisions. In that case
G the laws or rules chosen by the parties would prevail. Any
provision, in Part I, which is contrary to or excluded by that
law or rules will not apply.".
The aforesaid observations will be fully applicable to the
H facts and circumstances of this case as the agreement is prior
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 711
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR. J]
to 6th September, 2012. The declaration of law in Bharat A
Aluminium Company vs. Kaiser Aluminium Technical
Services lnc. 18 that Part I of the arbitration would not be
applicable to International Commercial Arbitration outside India
applies to the Arbitration Agreements executed after 6th
September, 2012. Though by virtue of the provisions contained B
in Article 16 of the PPA, the legal effect remains the same, that
is applicability of 1996 Act is ruled out, therefore, the appellant
cannot claim the benefit of Section 43 of the Arbitration Act,
1996.
53. We also do not find any merit in the submission of Mr.
c
Nariman that the appellants have wrongly adopted the system
of FIFO for adjustment of the payments made by the appellant.
The State Commission as well as the APTEL having considered
the matter in detail, we are inclined to accept the submission
of Mr. Salve and Mr. Bhushan that it would not be appropriate D
to re-examine the issue in these proceedings. Under Section
125 of the Electricity Act, 2003, the appeal lies in the Supreme
Court on any one or more of the grounds specified in Section
100 of the Code of Civil Procedure, 1908. Therefore, unless
the court is satisfied that the findings of fact recorded by the E
State Commission are perverse, irrational and based on no
evidence, it would not interfere. The findings recorded by the
State Commission and APTEL would not give rise to a
substantial question of law. In any event, the appellant never
refuted or rejected the practice adopted by the respondent. F
.Rather the appellant claimed that it was under temporary
financial strain and, therefore, requested to make only part
payment. The invoices having been accepted in full, the
appellant unilaterally withheld some of the payments on the
ground that the claims were disputed. Under Article 10 of the G
PPA, the appellant was required to make the payment for the
entire invoice and, thereafter, raise the dispute. The appellant
had been duly informed that the part payments made would be
adjusted by the respondents under the FIFO system. It has been
1s. 2012 (9 >sec 552. H
712 SUPREME COURT REPORTS [2014] 4 S.C.R.
A correctly held that in such circumstances, Section 59 of the
Contract Act would not be applicable. We see no reason to
interfere with the conclusions reached by the APTEL.
54. The real dispute between the parties seems to be on
the question whether the appellant was entitled to avail 2.5%
8
rebate on part payment of the monthly invoices within 5
business days. We have noticed earlier that it was a pre-
condition under Article 10 that the payment of the monthly
invoice had to be made in full. In addressing the issue of rebate,
APTEL has come to the conclusion that merely because
C substantial payment had been made in relation to monthly
invoices would not entitle the appellant to claim the rebate of
2.5% on the invoice amount. We see no reason to interfere
with the findings recorded by the APTEL. Under Article
10.2(b)(i), the payments have to be made in full for every invoice
D by due date. Under Article 10.2(e}, the payment had to be
made in full when due even if the entire portion or a portion of
the invoice is disputed. Under Article 10.3(a) to (c) of the PPA,
Letter of Credit is to be established covering three months
estimated billing, one month prior to Commercial Operation
E Date. Under Article 10.3 (d) of the PPA, an Escrow Account is
to be established by the appellant in favour of the Power
Company into which collections from designated circles are to
flow in and be available as collateral security. Under Article
10.4, the Government of Tamil Nadu has guaranteed all of the
F financial obligations of the appellant. Under Article 10.2 (e) of
the PPA agreement, the right to dispute any invoice by the
appellant is limited to one year from due date of such invoice.
Thus it would be evident that even if the amount of invoice is
disputed, the appellant is obliged to make full payments of the
G invoice when due and then raise the dispute. Undoubtedly, early
payment is encouraged by offering rebate of 2.5% if paid within
5 days of the date of the invoice. Similarly, 1% rebate would
be available if the payment of the entire invoice is made within
30 days. The rebate is in the form of incentive and is an
H exception to the general rule requiring payment in full on due
T.N, GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 713
' GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR, J.]
date. Therefore, in our opinion, the appellant had no legal right A
to claim rebate at the rate of 2.5% not having paid the entire
invoice amount within 5 days. Similarly, the appellant would be
entitled to 1% rebate if payment is made within 30 days of the
invoice. We are of the opinion that the findings of APTEL on
this issue do not call for any interference. B
55. In fact, in our opinion, the appellant has illegally
arrogated to itself the right to adjudicate by unilaterally assuming
·the jurisdiction not available to it. It was required to comply with
Article 10 of the PPA which provides for Compensation C
Payment and Billing. We are also not able to accept the
submission of Mr. Nariman that invoices could not be paid in
full as they were only estimated invoices. It is true that
reconciliation is to be done annually but the payment is to be
made on monthly basis. This cannot even be disputed by the
appellant in the face of its claim for rebate at the rate of 2.5% D
for having made part payment of the invoice amount within 5
days. We also do not find any merit in the submission that any
prejudice has been caused to the appellant by the delayed
submission of annual invoice by the respondents. Pursuant to
the directions issued by the State Commission, the monthly E
invoice and annual invoice for the respective years have been
redrawn as on 30th September each year. Therefore, the benefit
of interest has been given on such annual invoices. With regard
to the issue raised about the interest on late payment, APTEL
has considered the entire matter and come to the conclusion F
that interest is payable on compound rate basis in terms of
Article 10.6 of the PPA. In coming to the aforesaid conclusion,
APTEL has relied on a judgment of this Court in Central Bank
of India vs. Ravindra & Ors. 19• In this judgment it has.beenheld
as follows: G
" ......... The essence of interest in the opinion of Lord
Wright, in Riches v. Westminster Bank Ltd.All ER at p.
472 is that it is a payment which becomes due because
19. 2002 (1) sec 367. H
714 SUPREME COURT REPORTS [2014] 4 S.C.R.
A the creditor has not had his money at the due date. It may
be regarded either as representing the profit he might have
made if he had had the use of the money, or, conversely,
the loss he suffered because he had not that use. The
general idea is that he is entitled to compensation for the
B deprivation; the money due to the creditor was not paid;
or, in other words, was withheld from him by the debtor
after the time when payment should have been made, in
breach of his legal rights, and interest was a compensation
whether the compensation was liquidated under an
c agreement or statute. A Division Bench of the High Court
of Punjab speaking through Tek Chand, J. in CIT v. Dr
Sham Lal Narula thus articulated the concept of interest
the words 'interest' and 'compensation' are sometimes
used interchangeably and on other occasions they have
distinct connotation. 'lnter~st' in general terms is the return
D
or compensation for the use or retention by one person of
a sum of money belonging to. or owed to another. In its
narrow sense, 'interest' is understood to mean the amount
which one has contracted to pay for use of borrowed
money.... In whatever category 'interest' in a particular
E case may be put, it is a consideration paid either for the
use of money or for forbearance in demanding it, after it
has fallen due, and thus, it is a charge for the use or
forbearance of money. In this sense, it is a compensation
allowed by law or fixed by parties, or permitted by custom
F or usage, for use of money, belonging to another, or for
the delay in paying money after it has become payable."
56. Similar observations have been made by this Court in
Indian Council of Enviro-Legal Action vs. Union of India ~
G Ors. 20 wherein it has been held as follows:
"178. To do complete justice, prevent wrongs, remove
incentive for wrongdoing or delay, and to implement in
practical terms the concepts of time value of money,
H 20. 2011 csi sec 1s1.
T.N. GENERATION & DISTBN. CORPN. LTD. v. PPN POWER 715
GEN. CO. PVT. LTD. [SURINDER SINGH NIJJAR J.]
restitution and unjust enrichment noted above-or to simply A
levelise-a convenient approach is calculating interest. But
here interest has to be calculated on compound basis-and
not simple-for the latter leaves much uncalled for benefits
in the hands of the wrongdoer.
B
179. Further, a related concept of inflation is also to be kept
in mind and the concept of compound interest takes into
account, by reason of prevailing rates, both these factors
i.e. use of the money and the inflationary trends, as the
market forces and predictions work out.
c
180. Some of our statute law provide only for simple
interest and not compound interest. In those situations, the
courts are helpless and it is a matter of law reform which
the Law Commission must take note and more so,
because the serious effect it has on the administration of D
justice. However, the power of the Court to order
compound interest by way of restitution is not fettered in
any way. We request the Law Commission to consider and
recommend necessary amendments in relevant laws."
E
57. The late payment clause only captures the principle
that a person denied the benefit of money, that ought to have·
been paid on due dates should get compensated on the same
basis as his bank would charge him for funds lent together with
a deterrent of 0.5% in order to prevent delays. It is submitted
F
by Mr. Salve and Mr. Bhushan that bankers of the respondents
have applied quarterly compounding or monthly compounding
for cash credits during different periods on the basis of RBI
norms. Article 10.6 of the PPA has followed the norms of the
bank. This can not be said to be unfair as the same principle
would also apply to the appellants. G
58. This now bring us to applications for impleadment of
IOCL and for direction. l.A.No.6 of 2013 is for the impleadment
of IOCL. It is submitted that during the pendency of these
proceedings, the respondents have received rebates, H
716 SUPREME COURT REPORTS [2014] 4 S.C.R.
A discounts, credits, refunds in the fuel price being extended by
fuel supplier i.e. Indian Oil Corporation Ltd. (IOCL). Such
benefits have been received by the respondent from January
2001 till date It is pleaded that the respondents have failed to
give details about the discounts and credits received the
B benefit of which ought to have been passed on to the appellant.
Therefore, IOCL be made parties to respondent No.2 to the
present appeal. l.A.No.5 of 2013 seeks direction to IOCL to
furnish details of all the documents of the matter. Further
directions are also sought on the respondent to refund a sum
c of Rs.240 crores paid by the appellant under the order passed
by the State Commission along with interest at the rate as
mentioned in PPA.
59. The respondents in a common counter statement to
the applications have submitted that the applications are not
D maintainable. The applications have been evidently preferred
purely as dilatory tactics, to delay and deny substantial
payments that are due and payable to the respondent pursuant
to the orders passed by the State Commission which have
been upheld by APTEL. We are not inclined to entertain either
E of the applications at this stage. The issue sought to be raised
in both the applications ought to have been raised by the
appellant at the relevant time. The applications are, therefore,
accordingly dismissed.
F 60. For the foregoing reasons, we see no merit in the
appeal and the same is accordingly dismissed.
R.P. Appeal dismissed.
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