Important point
If the parties had been acting in a particular manner for a long time upon interpreting the terms and conditions of the contract, if pending determination of the lis, an order is passed that the parties would continue to do so, the same would not render the decision as an arbitrary one.

Headnote:Arbitration and Conciliation Act, 1996—Sections 9 and 11(3) and (4)—Andhra Pradesh Electricity Reform Act, 1998—Sections 37(1) and 50—Electricity Act, 2003—Section 86(1)(f) rw/s 174—Order of injunction—Validity—Power Purchase Agreement containing an arbitration clause—In terms of the agreement, power generated in the Plant constructed by respondent was to be supplied to appellant Corporation—Respondent has installed Power Generation Plant—It has continuously been supplying electrical energy to appellant—According to respondent, appellant owes a hefty sum of Rs. 132 crores to it—Appellant’s claim that it has paid an excess sum of Rs. 35 crores only—Appellant sent a notice as to why previous bills should not be revised accordingly—Application u/s 9 of the Arbitration Act was filed praying for a permanent injunction restraining appellant from taking any unilateral decision pursuant to the show cause notice—Appellant filed an application before the Andhra Pradesh Regulatory Commission for fixing the installed capacity of the Plant—Appellant’s claim that the Commission alone has the jurisdiction to arbitrate in respect of disputes and differences arising between the parties—Writ petition filed by respondent for issuance of writ against the Commission restraining it from proceeding to adjudicate the dispute between parties—An interim order was passed by the High Court directing ‘interim stay of impugned proceedings purported to be taken by appellant’—Whether High Court was justified in holding that the Commission alone had the jurisdiction to decide the dispute and not the City Civil Court—Such a question to be decided by the High Court.
       Held : The Appellant is a licensee within the meaning of both the 1998 Act and the 2003 Act. The question as to whether the Respondent should have taken a licence or permit under the 2003 Act or not is not a matter which requires our immediate attention. The Appellant is a licensee and the Respondent is a generating company in terms of the provisions of the 2003 Act. Section 37 of the 1998 Act deals with disputes between the licensees. Prima facie Section 50 of the 1998 Act, which bars the jurisdiction of the Civil Court keeping in view the language employed therein, is required to be read with Section 37 thereof. The resolution of the disputes between the parties rests upon the proper interpretation of the said Power Purchase Agreement and in particular the definition of ‘installed capacity’. Who would arbitrate in respect of the said dispute is the principal question. It is no doubt true that in the event if it ultimately be held that the arbitration clause contained in the contract between the parties dated 31.03.1997 stood superseded in view of the provisions of the 1998 Act and the 2003 Act, arguably, the question of Civil Court’s granting of an order of injunction is terms of Section 9 or the High Court to determine the question as to who should be appointed as an arbitrator, may not arise. As to whether Section 86(1)(f) of the 2003 Act confers an exclusive jurisdiction to decide all disputes and differences between a licensee and a generating company is open to question. It may or may not be that the said provision may have to be read with other provisions contained in the power of the Commission to resolve disputes between various parties as for example Sections 9, 20 or 29 thereof. But it would be matter of construction of the relevant provisions as to whether by reason of Section 86(1)(f) of the 2003 Act, the Commission derives a power so as to enable it to arbitrate also in relation to a dispute arising out an agreement although the Commission may not have any role to play whatsoever in respect thereof. (Paras 26 to 28)
       A writ court can also grant injunction in exercise of its power under Article 226 of the Constitution of India. If injunction is refused in this proceeding, the interim order passed in the writ proceedings shall continue. It may give rise to a stalemate. It may violate the well-known rule of judicial comity. (Para 43)
       The interim direction ordinarily would precede finding of a prima facie case. When existence of a prima facie case is established, the court shall consider the other relevant factors, namely, balance of convenience and irreparable injuries. The High Court in its impugned judgment although not directly but indirectly has considered this aspect of the matter when on merit it noticed that the Appellant has raised a dispute as regard payment of an excess amount of Rs. 35 crores although according to the Respondent a sum of Rs. 132 crores is due to it from the Appellant and the Appellant had been paying the amount for the last two years as per the contract. Conduct of the parties is also a relevant factor. If the parties had been acting in a particular manner for a long time upon interpreting the terms and conditions of the contract, if pending determination of the lis, an order is passed that the parties would continue to do so, the same would not render the decision as an arbitrary one, as was contended by Mr. Rao. Even the Appellant had prayed for adjudication at the hands of the Commission in the same manner. Thus, it itself thought that the final relief would be granted only by the Arbitrator. (Paras 48 and 49)
       The Respondent has installed the Power Generation Plant. It has continuously been supplying electrical energy to the Appellant. Indisputably, it has to discharge its contractual obligation. The Appellant being the only consumer, the Respondent has no other option but to supply electrical energy to it. In the event, the dispute is referred to the arbitrator, the equity between the parties can be adjusted. Without going into the correctness or otherwise of the claim of the Respondent, we may notice, that according to it, the Appellant owes a hefty sum of Rs. 132 crores to it. According to the Appellant, in the event, the disputes and differences between the parties are determined in its favour, it may be held, that it has paid an excess sum of Rs. 35 crores only. Clause 2 of Article 14 postulates that pending arbitration, the rights and obligations of the parties shall remain in full force and effect pending the award in such arbitration proceedings, which award shall determine whether and when termination of the said agreement if irrelevant shall become effective. (Paras 51 and 52)
       It is now well-settled that this Court would not interfere with an order of the High Court only because it will be lawful to do so. Article 136 of the Constitution vests this Court with a discretionary jurisdiction. In a given case, it may or may not exercise its power. (Para 53)
       We, therefore, are of the opinion that it is not a fit case where interference with the High Court’s judgment would be a proper exercise of jurisdiction under Article 136 of the Constitution of India. (Para 57)

Judgment

S.B. Sinha, J.—Leave granted.

Background facts

The parties herein entered into a Power Purchase Agreement on 31.03.1997 for short gestation liquid fuel based power project of 355 MW.

2. The said agreement contained an arbitration clause in Article 14 thereof.

Dispute

3. The Plant was commissioned. In terms of the said agreement, the power generated in the Plant constructed by the Respondent herein was to be supplied to the Appellant Corporation. The price to be paid therefor by the Appellant included ‘capacity charges’ and ‘variable charges’. Upon commission of the Plant, various tests as regard capacity of the plant to generate electricity were carried out. The Appellant herein had been paying capacity charges on the output of the Plant which was fixed at 368.144 MW from 08.11.2001. A notice, however, was issued by the Appellant alleging that the capacity charges payable by it with reference to the installed capacity should have been fixed at 334.75 MW x Rh (relative humidity) factor with tolerance limit of + or - 5 as per the agreement which works out at 351.49 MW and on that premise as to why future payments should not be made accordingly and why the previous bills should not be revised with reference thereto. The Respondent by a letter dated 17.12.2003 demanded withdrawal of the said notice from the Appellant.

Proceedings

4. In view of the threatened action on the part of the Appellant herein, an application purported to be under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, ‘the 1996 Act’) was filed before the City Civil Court praying for a permanent injunction restraining the Appellant herein from taking any unilateral decision pursuant to the said show cause notice. Evidently, the said application was filed relying on or on the basis of the arbitration clause contained in the said Power Purchase Agreement.

5. The Appellant, however, filed an application before the Andhra Pradesh Electricity Regulatory Commission (for short, ‘the Commission’) originally constituted under the Andhra Pradesh Electricity Reform Act, 1998 (for short, ‘1998 Act’), praying, inter alia, for fixing the installed capacity of the Plant and for consequential reliefs.

6. The said application before the Commission was filed by the Appellant herein on the premise that the Commission alone has the jurisdiction to arbitrate in respect of disputes and differences arising between the parties or to nominate an arbitrator therefor in terms of Section 37(1) of the 1998 Act corresponding to Section 86(1)(f) read with Section 174 of the Electricity Act, 2003 (for short, ‘2003 Act’). However, in the meantime, as no arbitrator was appointed by the Appellant in terms of the arbitration agreement contained in Article 14 of the Power Purchase Agreement, an application purported to be under sub-sections (3) and (4) of Section 11 of the 1996 Act was filed before the Chief Justice of the Andhra Pradesh for appointment of an arbitrator. The said application is still pending.

7. A writ petition marked as Writ Petition No. 7838 of 2004 was also filed by the Respondent before the Andhra Pradesh High Court on or about 22.04.2004 praying for issuance of a writ of prohibition against the Commission restraining it from proceeding to adjudicate the dispute between the parties on the premise that the constitution of the Commission was incomplete. In the said writ petition, an interim order was passed by the High Court directing "interim stay of the impugned proceedings purported to be taken by Respondent No.1 (Appellant herein) in terms of the impugned notice."

8. The Respondent’s application for grant of injunction in the proceedings initiated before the City Civil Court in the meanwhile was taken up for hearing and by an order dated 11.08.2004, the said Interlocutory Application was dismissed, holding that having regard to the provisions of the 1998 Act and the 2003 Act, the Commission alone had the jurisdiction to decide the dispute and not the City Civil

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2006 Supreme(SC) 1318

Cases Referred (16)