Arbitration under Electricity Act: Hindustan Zinc vs Ajmer Vidyut Vitran Nigam

The present case involves a dispute between Hindustan Zinc Limited (H.Z.L.) and Ajmer Vidyut Vitran Nigam Limited (AVVNL) regarding unscheduled interchange (UI) charges related to open access for electricity wheeling under the Electricity Act, 2003. The case primarily revolves around the applicability of arbitration proceedings in resolving disputes between licensees and generating companies.

Hindustan Zinc Limited, which operates multiple industrial units, had entered into agreements with AVVNL for the purchase and transmission of electricity through open access. The dispute arose over the calculation of unscheduled interchange charges, particularly when actual generation exceeded the scheduled generation by 5%. The matter was referred to arbitration after the Rajasthan Electricity Regulatory Commission appointed an arbitrator in 2007. The arbitrator ruled in favor of Hindustan Zinc, but this award was contested by AVVNL, leading to a series of legal proceedings.

The case was ultimately brought before the Supreme Court after the Rajasthan High Court ruled against Hindustan Zinc, stating that the dispute was outside the scope of Section 86(1)(f) of the Electricity Act, which allows for arbitration between licensees and generating companies. The Court considered the legal arguments put forth by both parties and concluded that the dispute could not be adjudicated under Section 86(1)(f) of the Electricity Act as it pertained to a consumer-licensee conflict, rather than a dispute between generating companies and licensees.

The petition was dismissed by the Supreme Court, with the Court emphasizing that arbitration proceedings under the Electricity Act are only applicable to disputes between generating companies and licensees, not between licensees and consumers. Therefore, the Court upheld the High Court’s judgment, setting aside the arbitral award.

Important Judge Arguments:

Justice Nariman: The dispute between the parties cannot be adjudicated under Section 86(1)(f) as it involves a consumer-licensee dispute, which is outside the scope of arbitration under the Electricity Act. The award based on such arbitration would be legally invalid.

Justice Bose: Arbitration in this context is only applicable between generating companies and licensees. The jurisdiction of the State Commission does not extend to arbitration for disputes between consumers and licensees in the open access scenario.

Petitioner and Respondent Arguments:

Petitioner (Hindustan Zinc): The appellant argued that the arbitrator’s appointment was valid, and the dispute regarding unscheduled interchange charges should be adjudicated as per the earlier agreements.

Respondent (Ajmer Vidyut Vitran Nigam): The respondent contended that the dispute was not arbitrable under the Electricity Act as the matter concerned open access issues between a consumer and a distribution licensee.

Background of the Case:

The case arose out of a dispute regarding the billing and charging for unscheduled interchange (UI) charges under an agreement for open access in the electricity sector. Hindustan Zinc Limited, a prominent industrial player in India, sought to transmit power generated from its captive plant to various units located in different parts of the state. To facilitate this, the company entered into agreements with Ajmer Vidyut Vitran Nigam Limited, a distribution licensee under the Electricity Act. These agreements specifically dealt with the scheduling of power generation and the transmission of this power through the state’s distribution system.

The primary issue between the parties revolved around whether the unscheduled generation of electricity by Hindustan Zinc, which exceeded the scheduled generation by more than 5%, was to be treated as per the terms of the agreement or whether a different mechanism should apply. The agreements entered into by the parties, specifically clauses 8 and 9, provided for a detailed process of settlement in cases where actual generation did not match the scheduled generation. Under the agreements, if the mismatch exceeded 5%, the power was to be treated as temporary supply, and additional charges were to apply.

The dispute over these charges led to a prolonged legal battle, with both parties seeking to have their interpretation of the agreement upheld. The matter was referred to the Rajasthan Electricity Regulatory Commission, which issued several orders before appointing an arbitrator in 2007. However, despite the arbitrator’s decision in favor of Hindustan Zinc, the award was challenged before the Rajasthan High Court, which ruled against the appellant, stating that the dispute did not fall within the jurisdiction of Section 86(1)(f) of the Electricity Act. This led to the appeal before the Supreme Court.

Section 86(1)(f) and Its Implications:

Section 86(1)(f) of the Electricity Act provides that the State Commission shall adjudicate disputes between licensees and generating companies and may also refer any dispute for arbitration. This provision was central to the dispute in this case, as both the appellant and respondent had argued over whether the dispute fell within this ambit. The issue of whether arbitration proceedings could be initiated between a licensee and a consumer, as opposed to between a licensee and a generating company, was one of the key points of contention.

The appellant contended that the dispute was inherently an issue between the licensee and the generating company, and hence arbitration should be permissible under Section 86(1)(f). On the other hand, the respondent argued that the matter involved a consumer-licensee relationship and, as such, could not be adjudicated under this section, which is meant specifically for disputes between generating companies and licensees.

The Supreme Court’s Judgment:

In its judgment, the Supreme Court considered the legal framework under the Electricity Act, particularly Section 86(1)(f), and clarified that arbitration proceedings could only be initiated between generating companies and licensees. The Court observed that the dispute at hand involved a consumer and a licensee, not a generating company and a licensee, and therefore did not fall within the ambit of Section 86(1)(f). As a result, the Court concluded that the High Court’s decision to set aside the arbitrator’s award was correct.

The Court also referred to its earlier decision in Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008) 4 SCC 755, where it had held that Section 86(1)(f) allows for arbitration only between generating companies and licensees. The Court further noted that the State Commission could not adjudicate disputes between licensees and consumers under this section. The appeal was therefore dismissed, and the arbitral award was set aside.

Conclusion:

The Supreme Court’s judgment in this case clarified the scope of arbitration proceedings under the Electricity Act, 2003. It reaffirmed that disputes between licensees and consumers could not be adjudicated under Section 86(1)(f) and that such disputes must be resolved through other mechanisms provided under the law, such as the grievance redressal forum or the Ombudsman. This ruling has significant implications for the electricity sector, particularly for open access consumers, as it defines the boundaries of arbitration and adjudication under the Electricity Act.

Petitioner Name: Hindustan Zinc Limited.
Respondent Name: Ajmer Vidyut Vitran Nigam Limited.
Judgment By: Justice Rohinton Fali Nariman, Justice Aniruddha Bose, Justice V. Ramasubramanian.
Place Of Incident: Chanderiya, Rajasthan.
Judgment Date: 04-12-2019.

Don’t miss out on the full details! Download the complete judgment in PDF format below and gain valuable insights instantly!

Download Judgment: Hindustan Zinc Limit vs Ajmer Vidyut Vitran Supreme Court of India Judgment Dated 04-12-2019.pdf

Direct Downlaod Judgment: Direct downlaod this Judgment

See all petitions in Arbitration Awards
See all petitions in Dispute Resolution Mechanisms
See all petitions in Arbitration Act
See all petitions in Commercial Arbitration
See all petitions in Judgment by Rohinton Fali Nariman
See all petitions in Judgment by Aniruddha Bose
See all petitions in Judgment by V. Ramasubramanian
See all petitions in dismissed
See all petitions in supreme court of India judgments December 2019
See all petitions in 2019 judgments

See all posts in Arbitration and Alternate Dispute Resolution Category
See all allowed petitions in Arbitration and Alternate Dispute Resolution Category
See all Dismissed petitions in Arbitration and Alternate Dispute Resolution Category
See all partially allowed petitions in Arbitration and Alternate Dispute Resolution Category