Introduction
Over the last two decades, arbitration as an alternative mode for dispute resolution in India has gained significant traction among major enterprises in both the public and private sectors. The gradual expansion of arbitration to resolve complex contractual disputes pertaining to infrastructure, ports, and roads has enabled it to emerge as a viable alternative to conventional court litigation. While the comprehensive nature of arbitration is increasingly recognised, questions remain as to whether energy disputes arising under the Electricity Act, 2003 ("Electricity Act") are also arbitrable under the Arbitration and Conciliation Act, 1996 ("Arbitration Act"). These disputes often involve intricate questions of law, policy, and technical expertise, rendering their resolution both challenging and significant for the sector's stability and growth. The present article seeks to delineate the jurisdictional boundaries between the two Acts, based on the existing jurisprudence on the issue.
Statutory interplay between the Electricity Act and Arbitration Act
In order to appreciate the intersection of both Acts, it is pertinent to identify the respective legislative frameworks for the adjudication of disputes provided under each. Under the Arbitration Act, a party who has entered into a contract containing an arbitration agreement may mandate the adjudication of disputes via arbitration either under Section 8 or Section 11 of the Act. Both these sections are enabling in nature, inasmuch as they allow the Court to either refer the dispute to arbitration or appoint an arbitrator for the proper adjudication of disputes. Conversely, Section 86(1)(f) of the Electricity Act stipulates that disputes between licensees and generating companies may only be adjudicated by the State Commission, either by itself or by an arbitrator to whom the Commission refers the dispute. In addition, Section 174 provides that the Electricity Act shall prevail over anything inconsistent in any other law.
Therefore, on a plain reading of both Acts, there is a cogent argument that all energy disputes may only be adjudicated through the mechanism provided under the Electricity Act, thereby excluding the applicability of the Arbitration Act, 1996. This interpretation is further supported by the fact that the Electricity Act, being a special statute enacted to regulate the generation and distribution of electricity, overrides a general statute such as the Arbitration Act. Moreover, the Electricity Act, having been enacted subsequent to the Arbitration Act, indicates legislative cognizance of the existing provisions of the Arbitration Act.
Jurisprudence on the Intersection of both Acts
The Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Limited v Essar Power Limited1 ("hereinafter referred to as Gujarat Urja") affirmed this interpretation and held that Section 86(1)(f) of the Electricity Act was a special provision for adjudicating disputes between licensees and generating companies, and thus Section 11 of the Arbitration Act could not be invoked to resolve such disputes. In so holding, the Court clarified that all disputes, irrespective of their nature, arising between licensees and generating companies could only be resolved by the State Electricity Regulatory Commission ("SERC") or an arbitrator appointed by it. However, the Court noted that except for the power of appointing an arbitrator being shifted to the State Commission, the conduct of arbitration even under Section 86(1)(f) of the Electricity Act would be governed by the provisions of the Arbitration Act, 1996. In the facts of this case, the arbitration clause provided under the Power Purchase Agreement executed between the parties was relied upon for the appointment of an arbitrator under Section 11 of the Arbitration Act. However, the Court categorically denied the said request, holding that disputes arising out of the Electricity Act could only be resolved via the procedure laid down under Section 86(1)(f) of the Act.
The Hon'ble Court in Andhra Pradesh Power Coordination Committee and Others v. Lanco Kondapalli,2relying on Gujarat Urja, reiterated that even claims or disputes arising purely out of contract must either be adjudicated by the Commission or the Commission itself has the discretion to refer the dispute for arbitration.
The aforesaid ratio of the Supreme Court continued to be the prevailing law on the said issue for over a decade, until APTEL's decision in Southern Power Distribution Company of AP Limited v Andhra Pradesh Electricity Regulatory Commission3 wherein the Tribunal opined that the SERCs were not well-equipped to handle matters involving money claims which required adjudication based on interpretation of contractual terms and application of principles of mercantile law. Pertinently, it for the first time advocated to bifurcate the arbitrability of energy disputes based on whether they were tariff or non-tariff in nature. The relevant extract of the Tribunal's order has been reproduced below for facility of reference:
"49. All Standard Bidding Documents generally contain an arbitration clause. Under the dispute resolution clause, disputes are categorised into tariff and non-tariff related disputes. Under the current regulatory regime, the PPAs are approved by Electricity Regulatory Commissions. Ostensibly, arbitration clauses are also approved in that process. Once the PPAs, and the arbitration clause, are approved, the Appropriate Commission is deemed to have exercised its jurisdiction under Section 79 (1) (f) or Section 86 (1) (f) of the Electricity Act. Therefore, in terms of Section 8 of the Arbitration and Conciliation Act, the Appropriate Commission is bound to refer non-tariff related disputes for arbitration.
50. The jurisdiction of Electricity Regulatory Commissions over tariff related disputes and mandatory referral of non-tariff related disputes for arbitration, if properly exercised, would give harmonious meaning to the dispute resolution sub-clauses in the PPAs. Otherwise, the arbitration clause is rendered redundant since the Regulatory Commissions prefer to sit in judgment over all disputes. (emphasis supplied)
The Tribunal also clarified the scope of the tariff and non-tariff disputes. It held that all disputes pertaining to payments made to the generating company along with 'Change in Law' disputes may be considered as tariff related disputes, and other monetary claims such as late payment surcharge, liquidated damages, termination or breach of contract etc., may be considered as non-tariff related disputes and be referred to arbitration. The APTEL judgement was significant as it deprecated the SERCs' practice of usurping all kinds of energy disputes with itself, disregarding any reference to arbitration at all.
The directions of the APTEL were further reinforced in Madhya Pradesh Power Management Company Ltd. v. Damodar Valley Corporation,4wherein the APTEL held that the SERCs, as judicial authorities under Section 8 of the Arbitration Act, are mandated to refer non-tariff disputes to arbitration in accordance with the arbitration clause contained in the Power Purchase Agreement. The Tribunal further clarified the distinction between tariff and non-tariff disputes, stating that all matters having a bearing on the tariff for a generating company constitute "tariff disputes," including disputes related to Change in Law, delayed completion of projects, and invocation of Force Majeure events. Such matters, as they directly impact the tariff for a generating company, fall exclusively within the jurisdiction of the Central Commission under Section 79(1) of the Electricity Act, 2003. However, disputes pertaining to termination or breach of contract that do not impact the tariff, either directly or indirectly, may be considered non-tariff related disputes and are referable to arbitration. Notably, an appeal against the APTEL's order was dismissed by the Hon'ble Supreme Court on 23.09.2024.5
Interestingly, the Model Agreement for Procurement of Power released by the Ministry of Power stipulates that any dispute/difference of whatsoever nature howsoever arising out of the Agreement must be resolved only via arbitration.6 Therefore, implying that even tariff disputes may be subject to be adjudicated through arbitration.
Conclusion
In summary, it is evident that parties continue to remain dependent on the SERCs for invoking arbitration due to the overarching status of the Electricity Act and the pronouncements of the Tribunal. However, as the electricity sector continues to evolve, with increasing private participation, technological innovation, and regulatory complexity, the importance of efficient and effective dispute resolution mechanisms cannot be overstated. A clear, predictable, and robust legal framework for resolving electricity disputes will be critical to the sector's continued growth and the realisation of India's energy goals.
Footnotes
1 AIR 2008 SUPREME COURT 1921
2 2016 SCC 3 468
3 Order dated 14th November 2022, Appeal No. 397 OF 2022.
4 Order dated 28 August 2024 in Appeal 309 of 2019.
5 Order dated 23 September 2024 in Civil Appeal No. 10480 of 2024
6 Clause 23.1 of the Model Agreement.
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