In Chief General Manager, HIEF General Manager(IPC) MP. Power Trading Company & Anr Vs. Narmada Equipments Pvt.Ltd., Civil Appeal No. 1051 OF 2021, the Supreme Court of India held that where Conflict between Arbitration Act & Electricity Act arises, the latter will prevail as being a specialised provision.
Decided on
23.03.2021
Factual Background
The Madhya Pradesh Electricity Board (“the Board”) had entered into a Power Purchase Agreement (“PPA”) with Narmada Equipments Pvt. Ltd. (“the Respondent”) on 20.05.1999, under which the Respondent was supposed to set up a mini hydro-electric project on a “build-and-operate” basis.
However, the Board terminated the said PPA on 27.09.2001, and such termination was challenged by the Respondent before the High Court of Madhya Pradesh (“the HC”), by way of a Writ Petition. The HC, vide its Order dated 04.11.2009, rejected the Writ Petition on account of existence of an Arbitration Agreement between the parties, in the form of Clause 12.3 of the PPA. The Respondent also filed a Review Petition in this regard, but the same was also dismissed by the HC, vide Order dated 10.12.2009.
In pursuance of the abovementioned Orders of the HC, the Respondent issued a notice to the Board, dated 28.12.2009, seeking to resolve the dispute amicably. Subsequently, upon receiving no reply from the Board, the Respondent issued another notice, dated 30.05.2011, officially invoking the Arbitration Clause under the PPA.
Since the Board again failed to respond within the 30 day period stipulated under the notice dated 30.05.2011, the Respondent filed an Application under Section 11(6) of the Arbitration & Conciliation Act, 1996 (“the Arbitration Act”) before the HC, seeking appointment of an Arbitrator.
In pursuance of the HC’s Order dated 21.01.2014 in this regard, each party appointed 1 Arbitrator. An Umpire was also appointed by the 2 Arbitrators, as set out in the Arbitration Clause under the PPA. However, due to the issue of non-payment of fees, the Arbitrators expressed their inability to continue with the proceedings.
The Respondent again approached the Court for appointment of an Arbitrator under Section 11(6) of the Arbitration Act, but the same was opposed by the Appellant on the ground that, by virtue of Section 86(1)(f) of the Electricity Act, 2003, the State Electricity Commission is the authority that has the exclusive jurisdiction to adjudicate disputes arising between Generating Companies and Licensees.
In the Order dated 30.11.2016, passed qua the above mentioned Application, it was held that the remedies existing under Section 11(6) of the Arbitration Act and Section 86(1)(f) of the Electricity Act, 2003 are independent in nature, and the HC is empowered to exercise its jurisdiction in appointing the Arbitrator.
It is this Order dated 30.11.2016 which has formed the subject matter of the present Appeal before the Hon’ble Supreme Court (“the SC”).
Issues Before the Court
- Whether there exists a conflict between Section 11(6) of the Arbitration Act and Section 86(1)(f) of the Electricity Act, 2003? In case of a conflict, which provision would have the overriding effect?
- Whether the Appellant is entitled to raise objection as to maintainability at the stage of the second Application, when it has not raised such an objection at an earlier stage?
Decision & Findings
The Appellant, as mentioned above, contended that, in light of Section 86(1)(f) of the Electricity Act, 2003, the sole jurisdiction over the case rests with the State Electricity Commission and, hence, the question of appointment of Arbitrator under Section 11(6) of the Arbitration Act does not arise. The Appellant, in order to substantiate its contention, relied heavily upon the judgement in the case of Gujarat Urja Vikas Nigam Limited vs Essar Power Limited [(2008) 4 SCC 755].
In the aforementioned judgement, the SC observed that, according to the well-established principles of statutory interpretation, the word “and” can sometimes mean “or”, and vice versa. The SC held that the word “and” used in Section 86(1)(f) of the Electricity Act, 2003, between the words “generating companies” and the words “refer any dispute to” actually means “or”. The relevant Section 86(1)(f) reads as follows:
“Section 86: Functions of State Commission
- The State Commission shall discharge the following functions, namely:
(f) adjudicate upon the disputes between the licensees and generating companies and to refer any dispute for arbitration;”
The SC also held that if Section 86(1)(f) of the Electricity Act, 2003 is not interpreted in the above manner, it would lead to an “anomalous situation” whereby the State Electricity Commission would be erroneously tasked with both, adjudicating a dispute as well as referring the same to an Arbitrator.
The Respondent controverted the Appellant’s submissions and argued that since both, the signing of the PPA as well as the termination thereof, were events that had occurred prior to the enactment of the Electricity Act, 2003, the judgement in the Gujarat Urja Vikas Nigam Limited Case (Supra) and, in turn, Section 86(1)(f) of the Electricity Act, 2003 would not have any applicability in the circumstance of the present case.
However, the SC definitively held that since the notice for the initiation of Arbitration was issued by the Respondent to the Appellant on 30.05.2011, which was post the Electricity Act, 2003 having come into force, the fact that the PPA and the termination thereof predate the Electricity Act, 2003 would not constitute “material facts”.
The SC had also clarified that Section 86(1)(f) of the Electricity Act, 2003 is a special provision and, as such, would have an overriding effect on Section 11(6) of the Arbitration Act. The Court, in this respect, relied on the judgement in the case of Hindustan Zinc Limited (H.Z.L.) vs Ajmer Vidyut Vitran Nigam Limited (Civil Appeal No. 9212 of 2019).
Additionally, the SC also noted that Section 174 of the Electricity Act, 2003 expressly states that the provisions of the Electricity Act, 2003 would have an overriding effect in the event of a clash/conflict with any other existing law in force.
The second contention of the Respondent was that, since the Appellant had not raised any objection as to maintainability or jurisdiction at the stage of the first Application before the HC for appointment of an Arbitrator, it was not entitled to do so at a later stage. This contention of the Respondent was also rejected by the SC.
The SC held that objections as to maintainability are basic in nature and it is the duty of the Court to address the same. The SC also held that if such an objection goes to the very root of the case, not raising such an objection at an earlier stage does not preclude the Court from entertaining it at a later stage.
The SC also noted that “it is trite law that jurisdiction cannot be assumed by consent of the parties.” To reiterate its stance, the SC again placed reliance on the judgement in the Hindustan Zinc Limited Case (Supra) wherein Justice Rohinton F Nariman held that in cases where jurisdiction is inherently lacking, a plea can be taken before the Court at any stage, including collateral proceedings.
Therefore, the SC allowed the Appeal and set aside the appointment of the Arbitrator as well as the Order of the HC, dated 30.11.2016.
AMLEGALS REMARKS
The Supreme Court has, in this case, deftly dealt with the issue of a conflict between Section 86(1)(f) of the Electricity Act, 2003 and Section 11(6) of the Arbitration Act, and held that the former, being a special provision, would have an overriding effect on the latter, being a general provision. As noted by the SC, this issue has cropped up in earlier litigations as well, but with such a crystal clear clarification being offered by a 3-Judge Bench of the SC, the issue would now stand settled.
Further, the SC’s reference to the Gujarat Urja Vikas Nigam Limited Case (Supra) and to G.P. Singh’s Principles of Statutory Interpretation reflects the SC’s emphasis on thorough and logical interpretation of each provision, in light of the context provided by the facts of each case, so as to avoid situations unintended by the Legislature.
The SC has, in holding that the plea of maintainability and jurisdiction can be taken at any stage of the proceedings, also ensured that objections going to the heart of the case can and should be addressed by the Court, irrespective of the stage at which they are brought to light.
Therefore, the judgement in this case has been delivered in a precise and systematic way to settle the existing issues being faced by the parties under the Arbitration Act, and it will now act as a touchstone for the Courts and parties to an Arbitration Agreement alike.
For any feedback or query, please connect at vineeta.tekwani@amlegals.com
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