1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION APPEAL NO.672 OF 2005 DSL Enterprises Pvt.Ltd. Appellants Datar Apartments, Commercial Complex, Vakilwadi, Nashik. Versus 1. Maharashtra State Electricity Distribution Company Limited, Prakashgad, Station Road, Bandra (E), Mumbai 400 051. 2. Maharashtra State Distribution Co. Ltd. Prakashgad, Bandra (E), Mumbai 400 051. 3. State of Maharashtra Through the Secretary of Energy, Mantralaya, Mumbai 40-0 032. Respondents Mr.R.A.Dada, Sr.Counsel with Mr.D.J.Khambatta, Sr.Adv., Mr.M.M.Joly, Mr.Vaibha Joglekar, Mr.C.S.Babara, Mr.Z.R.Dada and Ms.Swati Deshpande i/by S.Mohamedbhai & Co. for Appellant. Mr.Nagendra Rai, Sr.Adv. With Mr.Prashant Chowhan, Mr.Abhishek Khare, Mr.Chandra Parikh i/by Khare Legal Chambers for respondents. CORAM : BILAL NAZKI AND A.A.KUMBHAKONI, JJ. DATE OF RESERVING THE JUDGEMENT : 26.09.2008 DATE OF PRONOUNCING THE JUDGEMENT : 22.10.2008 JUDGMENT (PER : BILAL NAZKI, J.) :- 1. The present appeal has been filed by the appellant being aggrieved and dissatisfied by the judgement and order dated 3rd August 2005 passed by the learned Single Judge of this Court in Arbitration Petition No.374 of 2004. By the impugned judgement and order, the arbitration petition filed by the first and second respondents herein against the appellant and third respondent herein, has been allowed and the arbitration award which was impugned in the said arbitration petition came to be set aside. The appellant herein has been further directed to pay costs of the arbitration petition to the petitioners therein as incurred by the petitioners. 2 2. The aforesaid Arbitration Petition No.374 of 2004 was filed under section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “t he Act” for the sake of brevity”) challenging an award made by the Arbitral Tribunal dated 18th June 2004. The Arbitral Tribunal by the said award has directed first respondent herein to pay to the appellant herein a sum of Rs.185,97,86,399/- (One hundred eight five crores ninety seven lakhs eighty six thousand three hundred ninety nine only) as damages in respect of the work order dated 27th March 1997. The award further directs the first respondent herein to pay interest @ 10% p.a. on the sum of Rs.179,15,87,009/- and also to pay an amount of Rs.1.00 crore towards costs of the proceedings. 3. This appeal has been field on 17th August 2005 and was admitted by this Court on 26th August 2005. When the same was placed before us for final hearing, we have heard all the parties at length. 4. At the final hearing of this appeal, on behalf of the appellant, two basic submissions were made, apart from the 3 submissions that were advanced as to the intricacies of factual and legal issues involved in the matter. On behalf of the second respondent these arguments were repelled with, if not more, with equal vehemence. Both sides have relied on various judgements in support of their legal submissions. 5. Before entering into the web of factual and legal controversies raised on behalf of both the contesting parties in the present case, we will first deal with two basic contentions raised on behalf of the appellant giving rise to the following issues :- (a) Whether the second respondent– Maharashtra State Distribution Company Limited could have legally continued to represent first respondent Maharashtra State Electricity Board in the present litigation and as to whether the second respondent had locus- standi to continue with the arbitration petition before the learned Single Judge ? (b) Whether the judgement and order dated 3rd August 2005 delivered by the learned Single Judge could have been delivered considering the scope and limitations of Section 34 of the Arbitration and Conciliation Act, 1996 ? 4 6. In order to appreciate the controversy giving rise to the aforesaid two basic issues it will be necessary to understand some factual background with relevant chronology of events wherever necessary. The same is set out hereunder, of course, in nut shell. Use of electrical pump sets and other electrical equipments in rural areas cause current to log behind the voltage in the electricity distribution system. This causes a low power factor indicating that the electrical energy is being lost for unproductive process. This causes repeated grid failures to voltage collapse. The Rural Electrification Corporation of India under the Ministry of Power, Government of India, therefore, strongly recommended implementation of a scheme to reduce the reactive burden on the generators of the electricity system in the State of Maharashtra. This project involved introduction or installation of electrical panels into the rural electricity distribution network for saving electrical energy. These electrical panels comprise of sophisticated and computerized measurement and control system to inject required positive, reactive power compensation to meet out the negative reactive power interest by ineffective loads. Such 5 equipment comprises of Capacitors, Thyrister Switches, Electric Numerical Controls, Productive Devices, a specialisd software etc. installed therein for reactive power management. These panels continuously monitor the efficiency of the system and maintain it at optimum unit power factor and eliminate the distribution losses. These panels were to be installed at Distribution Transformer Centers (hereinafter referredto as DTCs for short) from where the consumers are supplied energy. These DTCs are connected to a network of high voltage feeders from a sub station which, in turn, receives the extra high voltage supply from the generating stations. 7. The appellant was awarded a contract for installation of 12555 Low Tension Capacitors in the year 1993-94, in pursuance of which the appellant appears to have installed these capacitors in the electricity distribution network of the first respondent. Of course we are not concerned with the same in the present matter. 8. Thereafter the first respondent decided to install technically improved electrical panels into its electricity distribution network 6 for the aforesaid purpose. These are technically known as “L ow Tension Mode Management Systems”. The first respondent Board awarded to the appellant herein this work also for installation of these panels in thirteen circles/districts falling in three zones all over the State of Maharashtra. . Initially a contract was awarded to the appellant for installation of such 11760 technically improved panels which are referred to as “B-1”. This contract was awarded by way of Letter of Intent, dated 15th January, 1997. . Another Letter of Intent dated 18th February, 1997 was issued to the appellant by the first respondent for the replacement of existing 12555 Low Tension System Capacitors with the aforesaid improved panels, which have been referred to as “B -2”. . Additional quantities of such panels to the extent of 23,672 were ordered by the first respondent for being installed by the appellant, which are referred to as the “B -3”. . Thus, the work order dated 27th March 1997 has been issued in favour of the appellant by the first respondent for installation of these panels as under- 7 a) 11,760 - B-1 b) 12,555 - B-2 c) 23,672 - B-3 ----------- 47,987 - Total ----------- 9. The work order accordingly was issued comprising of 47,987 such panels. The appellant installed 17,294 panels. The appellant prepared 14,206 panels but these panels were not installed. Admittedly, the appellant did not prepare/manufacture 16,487 panels though, according to the appellant, all the raw material for its preparation was ready and available with the appellant. The appellant terminated the contract firstly on 19th February 1999 and secondly on 21st April 1999 and initiated arbitration proceedings before a panel of three arbitrators. As aforesaid, an award was made by the Arbitral Tribunal on 18th June 2004 which has been set aside by the judgement and order impugned in this appeal. 8 10. We have set out hereinabove with some detail, though not all, the subject matter of the contract between the parties, its purpose, the location where the electrical panels were decided to be installed and their utility purposely, as the same would make it abundantly clear that the panels in issue were to be installed in the electricity distribution network and were to form a part and parcel of the “distribution” activity in sharp contrast to the “ge neration” and “transmission” of the electricity. This aspect of the matter is of some importance and is required to be considered in its proper perspective while answering the first issue framed by us hereinabove. 11. With the aforesaid background we may now set out herein relevant chronology of events about which there is no dispute between the parties. 27.3.1997 : Work order issued to the appellant by the first respondent for manufacture, installation and maintenance of 47,987 panels to be installed in the electricity distribution network; 9 -------- Huge correspondence has taken place between the parties which may not be listed out herein and may be considered if and when required hereunder. Most of it is in respect of non-supply of DTCs locations by the first respondent to the appellant ; 19.2.1999 : The appellant terminated the contract alleging various breaches committed by the first respondent and its officers. By this time, the appellant had installed 17,294 panels. By this communication the appellant offered to maintain these installed panels on certain conditions set out therein. The appellant made other claims also in regard to the remaining un-installed panels covered by the original contract; 21.4.1999 : The appellant sent the communication to the first respondent alleging breaches on the part of first respondent by contending that the appellant was entirely absolved of all its obligations under the contract; 5.5.1999 / April 2001 : An Arbitral Tribunal of three arbitrators was constituted; 17.5.1999 : Appellant submitted statement of claims before the Arbitral Tribunal; 10 20.9.1999 : The First respondent submitted its written statement; --------- Oral and documentary evidence was led before the Arbitrators by both the parties. Written Submissions were also filed in addition to the oral submissions made before the Arbitral Tribunal. 27.1.2004 : The Electricity Act, 2003 (hereinafter referred to as “the said Act” for the sake of brevity) came into force. By the operation of the Section 172 thereof, the first respondent is deemed to be the “S tate Transmission Utility” and a “Licensee” under its provisions for a period of one year. This period was extended up to 4th June 2005; 18.6.2004 : The Arbitral Tribunal declared its unanimous award; 26.8.2004 : First respondent filed Arbitration Petition No.374 of 2004 in this Court, before the learned Single Judge u/s 34 of the Act impugning the aforesaid Award; 14.12.2004 : Arbitration petition was admitted by the learned Single Judge; 11 4.6.2005 : The State Government, third respondent herein issued three separate Notifications as contemplated by Section 131 of the said Act. Notification for vesting; Notification for transfer of assets & liabilities i.e dicesting ; Notification for declaration of scheme. 7.6.2005 : The third respondent State Government issued notification in accordance with which four following registered companies came into existence viz. : (a) Maharashtra State Electricity Board Holding Company; (b) Maharashtra State Power Generation Company; (c) Maharashtra State Transmission Company; (d) Maharashtra State Distribution Company. 27.6.2005 : Chamber Summons No.789 of 2005 taken out by the aforesaid Distribution Company, which is the second respondent herein seeking to join as a co-petitioner in the aforesaid Arbitration Petition No.374 of 2004 which was pending before the learned Single Judge of this Court ; 4.7.2005 : The appellant herein filed affidavit in reply opposing the aforesaid Chamber Summons contending that the 12 State Government – third respondent herein, itself was liable to comply with the award and not the Distribution Company; 4.7.2005 : The learned Single Judge passed an order granting the Chamber Summons by consent of the petitioner i.e. first respondent herein. The learned Judge also by the same order permitted the petitioner therein i.e. the first respondent herein to join the State of Maharashtra as a party respondent to the aforesaid Arbitration Petition ; 5.7.2005 : The appellant herein filed a further affidavit in the arbitration petition seeking rejection of the petition on the ground that the State Government has not taken steps to prosecute the aforesaid Arbitration Petition and that the second respondent herein had no locus to prosecute the petition; 3.8.2005 : The learned Single Judge of this Court delivered the impugned judgement and order; 17.8.2005 : The present appeal came to be filed; 26.8.2005 : The present appeal came to be admitted; ---------- : The appellant received various documents from the State Government under Right to Information Act ; 13 June 2007 : The appellant took out Notice of Motion No.225 of 2007 seeking leave of this Court to place on record certain documents and facts which according to the appellant, the appellant became aware after the impugned judgement and order was delivered; 17.8.2007 : By an order passed in Notice of Motion No.225 of 2007, the appellant was allowed to bring on record these documents disclosed to the appellant by the second and third respondents herein; -------- : The appellant also took out Notice of Motion Nos.3288 of 2007 and 2141 of 2008 in this regard. 12. The appellant has sought to place on record certain documents which according to the appellant, the appellant received after filing of this appeal, under the Right to Information Act. We have our own doubts as to whether at this stage such documents can be considered and especially read in evidence in support of the case that is being tried to be made out by the appellant in regard to the first issue framed by us hereinabove for consideration. Be that as it may. 14 13. It is the contention of the appellant that the second respondent Distribution Company had no locus to prosecute the arbitration petition which was filed by the first respondent herein i.e. the erstwhile Electricity Board, before the learned Single Judge u/s 34 of the Act. In the submission of the appellant, it is only and only the State Government – the third respondent herein, which had and has locus to prosecute the said petition and that since the State Government did not prosecute the petition, the same ought to have been dismissed by the learned Single Judge. The contention of the appellant in this regard can be summarized as under. The liability in respect of the appellant i.e. the amounts due under the award of the arbitral tribunal was never transferred to the second respondent nor was it ever recognized as a contingent liability at any stage by either the first or the second respondent. Even the Cabinet Resolution dated 20th May 2005 published on 7th June 2005 and the balance sheets of the second respondent after the date of award, do not reflect this liability. The official notings 15 of the authorities of the State Government (the copies of which have been obtained by the appellant under the Right to Information Act) who had power to take a decision in this regard, support the contention of the appellant. The first notification dated 4th June 2004 transfers all liabilities of the Board to the State but the subsequent notification of the same date transfers only specified liabilities to the respective transferees, including the Distribution Company and that the liability under the award is not specified and, therefore, the same does not stand transferred to the second respondent but continues to remain with the State. Even the balance sheets of the Board for the period 1998 to 2004 do not recognize or reflect the liability under the award. The balance sheets of the Distribution Company also do not reflect the liability under the award. Only such contingent liabilities which are recognized are vested in the Distribution Company. The liability under the award having not been recognized, will not vest in the Distribution Company. The learned Single Judge erred in holding that it was not necessary to join the State Government as the petitioner before him in the arbitration petition. 16 14. As against the aforesaid contentions of the appellant on behalf of the respondents it is submitted that the second respondent had locus not only to continue the arbitration petition before the learned Single Judge but also to contest the present appeal of the appellant and that it is the second respondent alone who, in law, and in view of the facts of the case, is liable to discharge all the liabilities, if any, arising out of the arbitration proceedings initiated by the appellant. In the submission of the second respondent, the State Government is not at all liable in this regard. The second respondent relies on the provisions of the said Act as also the notifications issued there under by the State Government in support of its contentions. In short, in the submission of the second respondent, by operation of law, the liabilities, if any, under the impugned proceedings will visit the doors of second respondent alone and not the State Government. 15. Apart from anything else, it is rather surprising that the appellant and the second respondent have got themselves involved into such a strange dispute where the second respondent is strenuously contending that it will be liable to discharge the 17 liabilities under the arbitration proceedings, if any, of the appellant, whereas, though the appellant has got second respondent who is acknowledging and accepting its obligation to discharge the liabilities of the appellant, if any, the appellant is contending that the second respondent should not take upon itself such liabilities but the State Government should be held liable. Be that as it may. 16. We have given anxious thoughts to the rival contentions of the parties relating to the first issue framed by us hereinabove for our consideration and our observations in that regard are as under. 17. The first respondent has been constituted u/s 5 of the Electricity (Supply) Act, 1948. This Act was in force till it was repealed by the said Act w.e.f. 27th January 2004. Section 185 of the said Act deals with repeal and saving clause of the said Act. The said Act has come into force w.e.f. 27th January 2004. 18. Section 172 of the said Act deals with transitional provisions. By virtue of this provision, the first respondent is 18 deemed to be the State Transmission Utility and a Licensee under the provisions of the said Act for a period of one year from 27th January 2004. In pursuance of the proviso of sub section (a) of section 172, this period of one year has been extended up to 4th June 2005. 19. The third respondent State of Maharashtra has taken appropriate action u/s 131 of the said Act by issuing three different notifications but on the same date i.e. 4th June 2005. These three notifications are as under :- (a) A notification is issued in exercise of powers conferred by sub section (1) of section 131 of the said Act directing that with effect from 4th June 2005, all property, interest in property, rights and liabilities which immediately before 4th June 2005 vest in the first respondent herein, the Board, shall vest with the State Government; (b) A notification is issued for the re-vesting of the properties vested in the State Government into four Government Companies with effect from 6th 19 June 2005 in accordance with the transfer scheme prepared in that behalf. Appropriate directions have been issued by this notification by the State Government in exercise of its powers conferred by sub section (2) of section 131 of the said Act. The relevant clause thereof reads thus :- “… … (a) In consideration of transfer of all properties, interest in properties, rights and liabilities to the respective Transmission Company, Generating Company and Distribution Company, as specified in Parts A, B and C of the Transfer Scheme appended to the Schedule hereto, the said respective company shall issue their shares, debentures or any other acceptable securities of the equivalent value to the MSEB Holding Company Limited and as specified in Part-D of that scheme… …” ( c) The scheme prepared in exercise of powers under sections 131, 133 and 134 of the said Act was notified. The scheme is titled as “M aharashtra Electricity Reforms Transfers Scheme, 2005” (hereinafter referred to as “the said Scheme” for the sake of brevity”). 20 20. A perusal of section 131 of the said Act makes it clear that with effect from the date of publication of the said scheme, it will be for all purposes considered as “the effective date”. It lays down that from the effective date, the property, interest in property, rights and liabilities which immediately before the effective date belonged to the first respondent Board, shall vest in the State Government. Sub section (2) of Section 131 provides that any such property etc. and liabilities vested in the state Government under sub section (1) thereof, shall be re-vested by the State Government in the Government Company(ies) such as the second respondent company, in accordance with the transfer scheme so published along with such other liabilities of the State Government as may be stipulated in the scheme. 21. In view of the aforesaid provisions we will have to consider the scheme and it’s effect to answer the aforesaid issue framed by us. The said scheme opens with the following paragraph :- “In exercise of powers under sections 131, 133 and 134 of the Electricity Act, 2003, the Government of Maharashtra hereby makes the 21 following scheme for providing and giving effect to the transfer of properties, interests, rights, liabilities, obligations, proceedings and personnel of Maharashtra State Electricity Board to the Transferees and for matters incidental and ancillary thereto.” Clause-3 of the scheme states that undertakings of the Board are classified in various schedules. The Distribution undertakings with which we are concerned, is set out in Schedule-C of the scheme. The term “undertaking” is defined by the scheme to mean the functions, business etc. and includes liabilities, obligations, proceedings. Schedule-C of the scheme is in three parts. In the first part itself it is stated as under :- “The Distribution Undertaking shall also comprise generally all the assets, liabilities and proceedings, including the following but not limited them, belonging to the Board, concerning the distribution of electricity in the area of supply consisting of Amravati, Aurangabad… … … and Pune in the State of Maharashtra. I. Distribution assets … … …; II. General assets … …; 22 III. Miscellaneous : (e) Contracts, agreements, interest and arrangements to the extent they are associated with or related to distribution activities or to the undertakings or assets referred to in Part-I and Part-II above; (f) The contingent liabilities to the extent they are recognized and are associated with or related to distribution activities or to the undertakings or assets referred to in Part-I and Part-II above; (g) Proceedings to the extent they are associated with or related to distribution activities or to the undertakings or assets referred to in Part-I and Part-II above; d) … … … … IV. General................ 22. Clause-10 of the said scheme is very relevant in this regard and reads thus :- “10. Transfer by operation of law :- The transfer under this scheme shall operate and be effective pursuant to the action of the State Government by publishing the scheme and orders issued in terms of this scheme and without any further act, deed or anything to be done by the State Government, Board, Transferee or any other person, subject to the terms and conditions of the scheme.” 23. A close scrutiny of all the aforesaid viz. provisions of Section 131 of the said Act, various notifications issued there 23 under by the State Government and contents of the said scheme, leave no manner of doubt that all the liabilities of the first respondent which were related to the distribution activities of the first respondent, by operation of law, have statutorily been conferred on the second respondent. It is pertinent to note that such liabilities also specifically include contingent liabilities. In addition thereto, even the proceedings which are related to the distribution activity of the first respondent, have also to be statutorily continued by the second respondent. The term “p roceedings” also