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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE V. RAMASUBRAMANIAN
Madura Coats Pvt. Ltd., Represented By Its Vice President Excise Legal, Mr.Sandeep Sharadchandra Thakur & Others
Versus
M/s.ARKAY Energy (Rameswaram) Ltd & Others
Application No.4782 of 2009 and Application No.4835 of 2009 & Application No.6316 of 2009 and Application No.6317 of 2009
Decided on : 08-12-2009
ARBITRATION - PROHIBITORY ORDER - POWER SUPPLY AGREEMENT - CAPTIVE POWER PLANT - SHAREHOLDING - TERMINATION - FORCE MAJEURE - ELECTRICITY ACT, 2003 - ELECTRICITY RULES, 2005 - ORDER 38, RULE 5, CPC - INTERIM RELIEF - GARNISHEE ORDER - IMPLEADING APPLICATION - COMPOSITE HYPOTHECATION DEED - TRUST AND RETENTION ACCOUNT AGREEMENT.
Fact of the Case:
The applicants, industries engaged in manufacturing activities, entered into Power Supply Agreements (PSA) with the first respondent, a company set up as a Captive Power Plant. The first respondent failed to supply power to the applicants as per the PSAs, resulting in additional payment and penalty by the applicants to the Tamil Nadu Electricity Board (TNEB). The applicants filed applications under Section 9 of the Arbitration and Conciliation Act, 1996, seeking interim orders of injunction restraining the first respondent from supplying power to anyone without making a supply to the applicants and restraining the first respondent from stopping the supply. Interim orders of injunction were granted and were subsequently made absolute. The applicants also filed separate applications seeking prohibitory orders against the TNEB, restraining them from making payments of their dues to the first respondent. Interim prohibitory orders were granted. The first respondent raised various contentions, including that no notice of default or demand for payment was served, the first respondent had lost the status of a captive power plant, and the essential requirements for the grant of a prohibitory order were not satisfied.
Finding of the Court:
The court held that the applicants had made out a case for the grant of prohibitory orders. The court found that there were admitted facts that established a prima facie case in favor of the applicants, that the first respondent had committed a breach of the PSAs, that the breach continued despite interim orders of injunction, and that the breach resulted in monetary loss to the applicants. The court also found that the explanation offered by the first respondent for the breach was not acceptable in terms of the PSAs, the Electricity Act, 2003, and the Electricity Rules, 2005. The court further held that the applicants were entitled to the prohibitory orders sought, as the first respondent was about to dispose of or remove the whole or any part of their property, with intent to obstruct or delay the execution of any decree that may be passed against them.
Issues: 1. Whether the applicants had made out a case for the grant of prohibitory orders? 2. Whether the first respondent had lost the status of a captive power plant? 3. Whether the essential requirements for the grant of a prohibitory order were satisfied?
Ratio Decidendi: 1. To be entitled to a prohibitory order, the applicants had to show (i) the existence of a prima facie case in their favor and (ii) that the first respondent was about to dispose of or remove the whole or any part of their property, with intent to obstruct or delay the execution of any decree that may be passed against them. 2. The first respondent had not lost the status of a captive power plant, as the Electricity Act, 2003, and the Electricity Rules, 2005, did not prescribe a continuing obligation upon the captive consumers to ensure their shareholding at 26% at all times to come. 3. The essential requirements for the grant of a prohibitory order were satisfied, as the applicants had established a prima facie case, the first respondent had disobeyed and continued to disobey the earlier orders of injunction, and the net assets of the first respondent would be far less than the claims that many of the captive consumers had already initiated against the first respondent.
Final Decision: The applications for prohibitory orders were allowed. The impleading applications filed by the Axis Bank were dismissed.
Applications A.Nos.4782 and 4835 of 2009 are for the grant of prohibitory orders, to restrain the second respondent-Garnishee from making payment of the amounts due from them to the first respondent. The other 2 applications A.Nos.6316 and 6317 of 2009 are by the Axis Bank to implead them as parties to the Garnishee applications.
2. Though the Garnishee applications are by different companies, the relief sought for by them, is against the very same respondents, on identical causes of action. The grounds on which relief is sought by the applicants and the grounds on which the applications are contested by the respondents, are common. Therefore the applications are taken up together and disposed of by this common order.
3. I have heard Mr.P.R.Raman, learned counsel for the applicant in A.No.4782 of 2009, Mr.M.S.Krishnan, learned Senior Counsel for the applicant in A.No.4835 of 2009, Mr.N.C.Ramesh, learned counsel for the first respondent in both the applications and Mr.M.Ravindran, learned Additional Solicitor General for the second respondent in both the applications. I have also heard Mr.V.T.Gopalan, learned Senior Counsel for Axis Bank which has come up with the impleading applications.
4. The applicants in both the garnishee applications are industries engaged in manufacturing activities, requiring enormous amount of power supply. Since the Tamil Nadu Electricity Board is unable to ensure uninterrupted supply of power, to the extent required by industrial consumers, Gas based power plants came to be set up in the State. The first respondent is a company which set up one such plant in Rameswaram, as a "Captive Power Plant".
.5. Several consumers like the applicants herein became shareholders in the first respondent-company, by investing in the equity share capital of the first respondent, in consideration of the first respondent agreeing to supply a fixed quantity of power at a price mutually agreed. While the applicant in A.No.4782 of 2009 agreed to invest Rs.50 lakhs in the equity share capital of the first respondent company and entered into (i) a Memorandum of Understanding (ii) a Power Supply Agreement (known in short as PSA) and (iii) an Agreement for investment, on 21. 2005, the applicant in A.No.4835 of 2009
.agreed to invest Rs.60 lakhs in the equity share capital of the first respondent and entered into (i)a Memorandum of Understanding (ii) a Power Supply Agreement (known in short as PSA) and (iii) an Agreement for investment, on 3. 2005.
6. Subsequently, supplementary agreements were entered into on 210. 2005 and 1. 2006 respectively by the applicants in A.Nos.4782 and 4835 of 2009, in pursuance of which, the applicant in A.No.4782 of 2009 actually invested a sum of Rs.227.5 lakhs, while the applicant in the other application invested Rs.105 lakhs in the share capital of the first respondent. Thereafter, the power plant of the first respondent was commissioned in March 2006.
7. Under the Power Supply Agreements, the first respondent was to supply 65 million KWH per year on firm commitment and 15 million KWH on non-firm commitment basis, to the applicant in A.No.4782 of 2009 and 30 million KWH per year on firm commitment and 10 million KWH on non-firm commitment basis, to the applicant in A.No.4835 of 2009. But unfortunately the first respondent did not make supply of power to the extent committed by them even on firm basis, in the year 2006-2007, 2007-2008 and 20082009.
8. To add to the woes of the applicants, Tamil Nadu Electricity Board also imposed a 40% cut on energy supply, apart from imposing a ban on usage of power during peak hours. On 11. 2008, the first respondent sent letters to the applicants, informing them that the Wheeling Agreement entered into by them with the Tamil Nadu Electricity Board had become inoperative and ineffective. The first respondent also moved the Tamil Nadu Electricity Regulatory Commission, seeking a direction to the Tamil Nadu Electricity Board to vary the terms
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