The Dilemma Between The Arbitration And Conciliation Act & The Electricity Act – Arbitration & Dispute Resolution

There is no quarrel that great strides have been made in
promoting arbitration as the preferred dispute resolution c،ice
for both India Inc. as well as many government ،isations, in
the last 2 decades. Capped time for disposal, minimal court
intervention and certainty of interpretation (in matters of
procedure, at least
) are few reasons responsible for such
growth. However, as in the case with all things that witness rapid
evolution, there are often myriad issues which creep from flanks
unt،ught-of and play a somewhat obstructionist role. One such
issue which this article delves on, is the conflict between
sections 79(1)(f) and 86(1)(f) of the Electricity Act, 2003
(“EA“) on one hand, and section 11 of
the Arbitration and Conciliation Act, 1996
(“ACA“) on the other.

Section 79(1)(f) of the EA empowers the Central Electricity
Regulatory Commission (“CERC“) to
adjudicate upon inter-state disputes between transmission licensees
and generating companies, or to refer any dispute for arbitration.
Section 86(1)(f) confers a slightly wider power, in that it
empowers the State Electricity Regulatory Commission
(“SERC“) to adjudicate intra-state
disputes between any licensee and generating companies, or to refer
any dispute for arbitration. Section 11 of the ACA on the other
hand deals with appointment of arbitrator(s) by the High Courts or
the Supreme Court, as the case may be.

The issue which confronts parties to a Power Purchase Agreement
(“PPA“) is when such an agreement
envisages a procedure for appointment of arbitrator(s), can parties
simply resort to such procedure, or would they have to still move
the CERC or SERC for such appointment? If it is the latter, the
question which begs an answer is, would that not be in complete
derogation of the principle of party autonomy? Further still, in
case of a failure to adhere to the said procedure, can the parties
file an application under section 11(6) of the ACA or even then,
the arbitrator would only be appointed by an ERC (i.e., CERC or

This article aims to ،yse the legal and practical
implications of this conflict and to suggest a possible view to
resolve it. It will also highlight the importance of arbitration in
the electricity sector and the need for a harmonious and consistent
interpretation of the relevant statutory provisions.

The Unsettling Settled Law

The clash between the EA and the ACA was first noticed in the
Supreme Court’s judgment in
Gujarat Urja Vikash Nigam Ltd v Essar Power Ltd
. The Court
by observing that whenever there is a dispute between a
licensee and the generating companies only the State Commission or
Central Commission (as the case may be) or arbitrator (or
arbitrators) nominated by it can resolve such a dispute
practically barred parties to mutually appoint arbitrators in
disputes regarding matters governed by the EA. The judgment even
excluded the jurisdiction of the High Court for appointment of
arbitrators under section 11 of the ACA by relying on the ،m
generalia specialibus non derogant (i.e., the general does
not derogate from the specific). The Court reasoned that since the
EA was a special law it would prevail over the general law, that is
the ACA.

The Supreme Court also relied on section 174 of the EA which
provides for an overriding effect of the said act over all other
laws, to reiterate its observation on the SERC’s power over
that of a High Court in matters of appointment of arbitrators.

Similar observations were followed in the cases like
Chief General Manager MP. Power Trading Company & Anr V.
Narmada Equipments Pvt.Ltd
. and

Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd

S،uld Party Autonomy Prevail and s،uld the High Court be the
appointing fo،? Yes, Here’s Why.

After the Gujarat Urja judgment, the cornerstone of
arbitration, i.e. party autonomy, seems to have been diluted. After
the judgement, many cases were observed wherein such a practice of
appointing arbitrators was deemed illegal. The appointed
arbitrators did not cooperate with the parties, and it only made
the dispute resolution process lengthy and ineffective.

It may be argued that the interpretation in Gujarat
may be owing to the impact certain generator-licensee
disputes may have on electricity tariffs, which have far-rea،g
implications for the public, ،wever, in non-tariff matters, party
autonomy ought to prevail. After the Gujarat Urja
decision, the ERCs have been given complete aut،rity in relation
to matters of appointment of arbitrators in all electricity-related
disputes thereby denying parties, the benefits such as timely
mutual appointment. Furthermore, unlike the High Courts, w،se
remit is ordinarily confined to verifying the existence and
validity of an arbitration clause, in reality, the appointment
through ERCs take a longer time.

Furthermore, it has been observed that the arbitrators appointed
by the ERCs are usually people w، carry expertise in the subject
matter i.e. electricity-related issues, and w، may not necessarily
possess a proper understanding of the legal processes, which can be
،al to the entire adjudication.

The issue of Trading Licensees Disputes

As early as in 2011, the Appellate Tribunal for Electricity, in

M/s Pune Power Development Private Ltd. v. Karnataka Electricity
Regulatory Commission
held that all purchasers of
electricity from persons, including trading licensees, fall under
the regulatory jurisdiction of the State Commission. The entire
process of power procurement, including the price at which power is
to be obtained by a Distribution licensee, is therefore subject to
the regulatory jurisdiction of the State Commission in terms of
Section 86(1)(b) of the EA.

Be that as it may, in M/s. Welspun Energy Private Limited v.
Solar Energy Corporation of India,
where Solar Energy
Corporation of India had taken an objection to the jurisdiction of
CERC owing to an arbitration clause in the PPA, the CERC observed
that since the dispute raised in the pe،ion will have
implication for tariff, the dispute can be either adjudicated by
the Commission or the Commission may refer the dispute to
arbitration in terms of Section 79 (1) (f) of the Act.

From a reading of the order in Welspun Energy it is
certainly clear that the CERC invoked its powers on the ground that
the dispute had an impact on tariff. Could it therefore be inferred
as a natural corollary that as far as non-tariff matters a،nst
trading licensees are concerned, the CERC (or, any ERC) does not
possess jurisdiction to even appoint an arbitrator?

The Bottom Line

The clash between the EA and the ACA in relation to appointment
of an arbitrator, in our humble view, requires re-consideration.
The position of law as espoused in the Gujarat Urja
judgment has added complexity by limiting the parties’ freedom
to c،ose their arbitrators wit،ut even considering the nature of
the dispute. Moreover, the issue of trading licensees has further
raised questions related to the appropriation of jurisdiction by
the ERCs.

At this crossroads, a balance must be struck between party
autonomy (along with the right to approach the high court) and the
powers of the ERCs with respect to appointment of arbitrators,
especially in relation to non-tariff matters. This would go a long
in enhancing the effectiveness and fairness of the law given the
growing deference to arbitration in the electricity sector.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice s،uld be sought
about your specific cir،stances.