In the High Court of Judicature at Madras Dated: 18.11.2009 Coram: The Honourable Mr.Justice M.CHOCKALINGAM and The Honourable Mr.Justice V.PERIYA KARUPPIAH Original Side Appeal Nos.363,364,361,317,318,163 to 168, 169, 170, 192 to 201, 213 to 215 and 385 to 387 of 2009 and connected M.Ps. M/s.Arkay Energy(Rameswaram)Ltd. New No.20(Old No.129) Chamiers Road, Nandanam, Chennai-600 035 ...Appellant in OSA No.363,361, 317,318,169,170,192 to 197 of 2009. M/s.Arkay Energy(Rameswaram)Ltd., rep.by its Managing Director, GF 1-A, Prince Villa, 15,Rajamannar Salai,T.Nagar, Chennai-600 017 ...Appellant in OSA No.364/09, 163 to 168/09,213,214,215/09 & in OSA No.385 to 387 of 2009 M/s.Arkay Energy (Rameswaran) Ltd Rep.by The Manging Director Plot No.3A, Road No.1,Film Nagar, Jubilee Mills, Hyderabad 500 033. ...Appellants in OSA No.198,199,200 and 201 of 2009. Vs. Sundaram Brake Linings Ltd, rep.by its Financial Advisor and Secretary R. Mani Parthasarathy having registered Office of 180, Anna Salai,Chennai-600 006. ... Respondent in OSA No.363/09 318/09,195, 196,197 of 2009 M/s.MRF Ltd., Rep by Venkatasubu M-Electrical Engineering Registered Office at No.124 Greams Road, Chennai-600 006. ...Respondent OSA No.364/09 https://hcservices.ecourts.gov.in/hcservices/ Madura Coats Pvt.Ltd, Rep.by its Vice President Excise Legal Mr.Sandeep Sharadchandra Thakur New Jail Road, Madurai-625 001. ...Respondent in OSA.No.361,317, 192 to 194 of 2009 M/s. Sundaram Clayton Ltd., rep. by Senior Manager, Legal Registered Office at Jayalakshmi Estates, No.24, Haddows Road, Chennai-600 006. ..Respondent in OSA.No.163/09 to 168/09 and Appellant in OSA.Nos.386 & 387/09 Thiagarajar Mills (P) Ltd., rep. by its General Manager, P.K. Venugopal Kappalur, Madurai-625 008. ..Respondent in OSA.No.169, 170 of 2009 M/s. Tractors and Farm Equipment Ltd., rep. by P.B. Sampath, Director and Secretary Registered Office at 86, Anna Salai,Chennai-600 002. ..Respondent in OSA.Nos.198 &199/09 India Pistons Ltd., rep. by Director K.V. Shetty, Registered Office at Huzur Gardens, Sembiam, Chennai-600 011. ..Respondent in OSA.Nos.200 &201/09 Future Polyesters Ltd., Registered Office at Paragon Condominium 3rd Floor, Pandurang Budhkar Marg, Mumbai-400 013. ..Respondent in OSA.Nos.213, 214, 215 of 2009 and Appellant in OSA.No.385/2009 Original Side Appeals filed under Order XXXVI Rule 1 of Original Side Rules read with Section 37(1)(a) of the Arbitration and Conciliation Act, 1996 read with Clause 15 of the Letters Patent, against the common order dated 29.04.2009 passed by a learned single Judge of this Court in O.A.Nos.374, 375, 356, 357,374, 324, 325, 248, 418, 419 and 435 to 438 of 2009,475/09 and Applications No.1939 to 1941, 1842 to 1844 and 1734 to 1739 of 2009. https://hcservices.ecourts.gov.in/hcservices/ For Appellants : Mr.R.Thiagarajan, Senior Counsel for Mr.N.C.Ramesh & T.Sivaprakasam in OSA 363,364,361,317,318,163 to 168,192 to 201 & 213 to 215 of 2009 Mr.M.S.Krishnan, Senior Counsel for M/s.Sarvabhauman Associates in OSA 385 to 387 of 2009 Mr.N.P.Jayakumar in OSA 169&170/2009 For Respondents : Mr.P.R.Raman in OSA 361,169 & 170, 192 to 197, 317,318 & 363 of 2009 Mr.R.Thiagarajan, Senior Counsel for Mr.N.C.Ramesh & T.Sivaprakasam in OSA Nos.385 to 387 of 2009 Mr.M.S.Krishnan, Senior Counsel for M/s.Sarvabhauman Associates in OSA 163 to 168 and 213 to 215 of 2009 Mr.Krishna Srinivasan for M/s.Ramasubramaniam & Associates in OSA 198 to 201 of 2009 Mr.V.Vijayan for M/s.King & Partridge in OSA 364 of 2009 COMMON JUDGMENT (Judgment of the Court was delivered by M.CHOCKALINGAM, J.,) This judgment shall govern all these intra court appeals, which have arisen from a common order dated 29.04.2009 of the learned single Judge of this Court made in the Original Applications No.374, 375, 356, 357, 324, 325, 248, 418, 419 and 435 to 438 of 2009 and Applications No.1939 to 1941, 1842 to 1844 and 1734 to 1739 of 2009, all filed under Section 9 of the Arbitration and Conciliation Act, 1996. While Appeals No.363, 364, 361, 317, 318, 163 to 168, 169, 170, 192 to 201 and 213 to 215 are at the instance of the respondent in those applications challenging the impugned order, the other three appeals, namely, Appeals No.385 to 387 of 2009 are at the instance of the applicants, seeking expulsion of certain observations made in the said order. For the sake of convenience, the respondent in the original applications is described as the appellant herein. 2. The facts and circumstances leading to these appeals can be stated as follows: https://hcservices.ecourts.gov.in/hcservices/ The appellant/respondent, a captive power plant as defined in Section 2(8) of the Electricity Act, 2003, entered into agreements with the applicants for investment and for power supply. Every agreement entered into between the appellant company and the applicants referred to the requirements of the power for the plant, the investment and in return thereof, the allotment of shares at Rs.10/-. The capacity of the power plant was 75 MW and the supply of fuel was to be from Gas Authority of India Limited (GAIL), for which purpose, the appellant company had contracted with GAIL for the supply of fuel till December, 2010. The captive power plant was set up at Valantharavai Village, Ramanathapuram District. The contract also stipulated that in the event the appellant/respondent could not supply the electrical energy to the extent of the contracted demand, there should be a discount of 12.5% of TNEB energy charges for such non-supply by the company and the same has to be settled to the applicants within 30 days from the date of receipt of the respective claim. The agreement was for a period of six years and renewable on mutual terms. The agreement could be terminated if the appellant/respondent company stopped supplying of electrical energy for the continuous period of 90 days or if the applicants stopped consumption of the power for such continuous period of 90 days without assigning any reason. The parties also entered into a supplementary agreement to the power supply on 28.10.2005, which provided for investment in the order as mentioned in the agreements. It also contained a clause for getting appropriate number of equity shares. The appellant company informed all the other captive consumers, who are the applicants, that few of them transferred their shares held by them and as a result of which, the percentage of share which would be held by the captive consumers fell below 26% and thus, the appellant company no longer retained the status as the captive power unit. By a communication dated 07.03.2009, the appellant company informed to all the applicants that they had not consumed the units allocated in the peak hour slot, which resulted in a loss to the company and in order to overcome the loss, the appellant was compelled to enter into an agreement for sale of power. In view of the power position in the State and the quantity of supply of gas, the appellant company would not be able to allot any units as per the agreement. Following the said communication, a meeting was held between the parties in which the applicants were informed that the appellant was no longer interested in maintaining its status as a captive power plant and wanted to convert as merchant power plant and that there was already a contract with TNEB till June 2009 for supply of 40 MW at the rate of Rs.6.75 per unit and the total production has dropped to 44 MW and hence, nothing was left for the captive consumers. Under such circumstances, there arose necessity for referring the matters to the Arbitration Proceedings. Pending the arbitration proceedings, all the applicants filed the said applications under section 9 of the Arbitration and Conciliation Act, 1996 for an order of interim injunction restraining the https://hcservices.ecourts.gov.in/hcservices/ appellant/respondent (i) from supplying 51% of the electrical energy generated by it to anyone other than its captive consumers pending disposal of the Arbitral proceedings and (ii) from stopping the supply of power to the applicants pursuant to the power supply agreements pending disposal of the Arbitral proceedings. 3. The said applications were resisted by the appellant/ respondent that the applicants had not taken into consideration the mandatory requirements and regulations under the Electricity Act. The applicants have made an attempt to make an unfair advantage of the situation. In their communication dated 30.04.2008, the appellant company had informed the applicants to bear with the situation and purchase the available power equitably among them or in the alternative, to have the power supply agreements terminated by mutual consent and get refund of the amount invested by the applicants towards the equity. Relying on Section 9 of the Electricity Act, 2003 and also the Electricity Rules, 2005 particularly to Rule 3, it was averred that the statutory prescription to retain a status as the Captive Generating Plant required not less than 51% of the aggregate electricity supply generated in such a plant determined on an annual basis be consumed for the captive use and also there is another condition that not less than 26% of the shares were to be owned by the captive users. In view of the reduction of the holding below 26%, it was not possible to supply units to the captive consumers in terms of the agreements entered into between the parties, without violation of the statutory provisions and breaching the rules. Since the appellant did not enjoy the status as a captive power plant, the applications made were thoroughly misconceived. 4. The learned single Judge, after looking into the materials placed and also hearing the learned counsel on either side, allowed all the applications filed by the applicants and dismissed the applications filed by the appellant herein for vacating the order of interim injunction. Under these circumstances, the above appeals have arisen at the instance of the appellant while 3 of those appeals, namely, O.S.A.Nos.385 to 387 of 2009 were brought forth by the applicants, seeking to expunge certain remarks made by the learned single Judge in the course of the order under challenge. 5. Advancing the arguments on behalf of the appellants, Mr.R.Thiagarajan, the learned Senior Counsel, would submit that it is an admitted position that a few of the units have transferred their shares held by them and as such, the shareholding of the captive consumers fell below 26% and thus, the appellant company has lost the status as a Captive Generating Plant; that under such circumstances, the learned single Judge should have dismissed all the applications as misconceived; that as per the Power Supply Agreements entered into between the parties, once the appellant plant has been treated as a generating station, the agreements become otiose; that a fresh agreement has to be entered into between the parties, which would https://hcservices.ecourts.gov.in/hcservices/ fulfill the requirements contemplated under the provisions of the Electricity Act, 2003, Regulations and Order passed by the Regulatory Commission; that when the learned single Judge has pointed out that the appellant plant has become a generating station, consequent on non-fulfilling the qualification to claim the status of a captive generating plant as laid down under the Electricity Rules, 2005, the power supply agreements entered into between the parties could not be worked out and the question of the appellant being directed to supply power in pursuance of the power supply agreements entered into between the parties as a generating station, did not arise; that the power supply agreements entered into between the parties specifically described the respective applicant as a captive user, which presupposes that the power was being supplied as a captive power plant and hence, a direction given to the appellant to continue the supply as per the power supply agreements did not arise, especially having regard to the fact that the learned Judge has found that the appellant has lost the status of a captive power plant. 6. Added further the learned senior counsel that a captive generating plant does not require any licence for selling power to captive users, but a generating company requires a licence for selling power to any consumer; that merely because a captive generating plant's operation has to be regulated in the same manner as a generating station of a generating company the same did not mean that the agreement entered into between the parties still subsisted and hence, the finding of the learned single Judge that though the appellant has lost the status of a captive power plant, it should supply power to the applicants as a generating plant in terms of the agreement is erroneous; that it remains to be stated that even after losing the status of a captive generating plant, any power supplied as per the power supply agreements entered into between the parties, as directed by the learned single Judge, would result in the distribution licensee, namely, the Tamil Nadu Electricity Board, charging the respondents for the supply made at the HT consumer rate and hence, the order is unworkable; that once the status of a captive power plant is lost on the ground of not maintaining 26% of the shares by the appellant generating station, the appellant plant automatically loses its status of a captive power plant and the other requirements, namely, 51% of consumption of the power generated by the captive user did not arise and the requirement of 51% of consumption of electricity by the captive user, in a given year can always be achieved in the next year and in case of failure the power supplied is treated as a generating station, such a position could not be applied, when the shareholdings of 26% is lost, as in the instant case and hence, the direction given to the appellant to supply power as per the terms of the power supply agreements would be neither here nor there, in the sense that, it cannot be complied with, as per the provisions of the Act. https://hcservices.ecourts.gov.in/hcservices/ 7. Added further that having observed in the order that the appellant has pleaded that the power supply agreement could be terminated without assigning any reason, the learned single Judge has failed to consider the effect of such a clause, especially when reliance was placed on Sections 14 and 41 of the Specific Relief Act; that the appellant has well informed the applicants that there was a contract till June 2009 with Tamil Nadu Electricity Board for sale of the power at the rate of Rs.6.75 per unit was besides the issue which arose consideration in the application indulged in by the applicants because what was contended before the learned single Judge was when once the status of appellant's captive generating plant itself was lost, the question of enforcing the agreement by the respondents did not arise and that the agreements to sell power to the Tamil Nadu Electricity Board were over and above 51% of the power generated; that the reason for the applicants moving the Court arose because of the fact that the appellant suddenly informed that it no longer retained its status as a captive power unit was not correct, because this position, namely, that the appellant has lost the status of the captive power plant occurred on and from 1st of April, 2009, that too after passing of the interim order in the application filed by one of the applicants, notice of which was received by the appellant only on 04.04.2009. 8. Added further the learned senior counsel that the application of the illustration to Rule 3 of the Electricity Rules, 2005 to the facts of the present case was wrong because in the first place, the said illustration speaks of not complying with the consumption of captive use of 51% in any year and nowhere it talks about the non fulfilling of the 26% of shareholding in any year, especially when the illustration clearly prescribes that if 51% of power is not consumed in any year, then automatically any supply made in a given year, would be treated as a supply of electricity by a generating company; that when once the appellant's status as captive power plant is lost, the power supply agreements entered into between the parties could not be worked out; that hence, direction to the appellant to supply electricity as per the terms of the agreements did not arise; that in view of the fact that the appellant has lost the status of a captive power plant, the power supply agreements cannot be enforceable in the eye of law; that under these circumstances, the appellant cannot be termed as a captive power plant and equally, the captive power consumers have also lost their status; that the judgments rendered by the Supreme Court in AIR 1974 SC 2177 and AIR 1975 SC 915 were applicable to the present facts of the case; that the finding of the learned single Judge that the appellant could not wriggle out of the contractual obligations was not correct because from the language used in the power supply agreements it could be seen that the respective applicant has been shown as a captive user, thereby qualifying the plant of the appellant as a captive generating plant; that when once the status of the captive power plant itself https://hcservices.ecourts.gov.in/hcservices/ was lost, it does not automatically become a generating plant for the purpose of supply of power to the applicants and under such circumstances, a different criteria and method has to be fulfilled by the appellant, as per the provisions of the Electricity Act, 2003. 9. Added further the learned senior counsel that as could be seen from the agreements entered into between the parties, it will be quite clear that it was a contract terminable and hence, the applicants/respondents cannot seek enforcement of such contract and apart from that, the contracts have become frustrated and got terminated by operation of law; that in the instant case, the balance of convenience is in favour of the appellant, but the respondents have not made out any prima face case for temporary injunction either to restrain the appellant to sell the electrical energy to others holding licence or to direct the appellant to continue the supply as per the agreements and hence, the order under challenge has got to be set aside and the appeals filed by the appellant have got to be allowed and the appeals filed by the applicants have got to be dismissed. In support of his contention, the learned senior counsel has relied on the decisions reported in AIR 1968 SC 522 and 1969 SC 110. 10. Contrary to the above contentions, after reiterating the contentions put forth before the learned single Judge, the learned counsel appearing for the respondents/ applicants, inter alia, would further add that the appellant has not lost the status of a captive generating plant; that even assuming that it falls under the category of generating station, the appellant should continue to supply energy as per the agreements entered into between the parties; that neither the provisions of section 42(2) of the Electricity Act nor the Rules made under the Enactment, prohibits the supply of the energy generated; that even as per the agreements entered into between the parties, it is for the appellant to see that the shareholdings of the captive consumers do not fall below 26% and also the consumption of energy not below 51%; that the case of the appellant that the shareholding of the captive consumers, namely the applicants, fell below 26% was actually one created by the appellant with a mala fide intention to defeat the rights of the applicants/ respondents; that originally there were 28 captive consumers having a share of 27.56%; that out of whom, according to the appellant company, they have withdrawn 2.52% of shareholdings and thus, it has come to 25.04%; that this was artificially created by the appellant; that it is clearly stipulated in the agreements that whenever there is any termination of the agreement by any one of the captive consumers, the shares of that captive consumer has got to be transferred inter se among the captive consumers; that while 25 agreements between the appellant and applicants stood so, the appellant while entering into agreements with three of the captive consumers later, introduced a clause in such a way that the shareholdings of those three captive https://hcservices.ecourts.gov.in/hcservices/ consumers, on termination, could be purchased by the appellant company itself or by its promoters, which was actually a thorough deviation and violative of the agreements entered into between the parties and that it is quite clear that it has schemed a device in order to cause detriment, prejudice and loss to the applicants/respondents. Added further the learned counsel that the rulings relied on by the appellant were in respect of the distribution of electric energy and not in respect of generation and supply; that the applicants/respondents have made out a prima facie case before the learned single Judge and the learned single Judge has also pointed out in the order that the appellant was under the obligation, as per the terms of the agreements, to continue the supply of electric energy and under such circumstances, till the arbitral proceedings are over, the appellant should be directed to make the supply of electric energy as per the terms of the agreements and the appellant also should be restrained from selling electric energy to third parties and hence, the order of the learned single Judge has got to be affirmed. 11. Advancing arguments on behalf of the appellants in O.S.A.Nos.385 to 387 of 2009, the learned senior counsel would submit that the finding of the learned single Judge that the appellant has lost the status of a captive generating plant has got to be expunged for the reason that the issue whether the appellant has lost the said status is in controversy between the parties and the same has got to be decided only in the arbitral proceedings and hence, the said finding has got to be expunged. 12. The Court paid its anxious consideration to the submissions made by the learned counsel on either side and looked into all the materials available. 13. Admittedly, the appellant company, a captive power plant as defined under Section 2(8) of the Electricity Act, 2003, entered into 28 agreements between January, 2005 and January, 2006. All the agreements were for the purpose of investment and for power supply. The capacity of the power plant was 75 MW and the supply of fuel was to be from the Gas Authority of India Limited. After entering into the agreements, the supply was made to the applicants, who were the captive consumers. As could be seen from the available materials, the appellant company sent communications to the applicants one after another that there was a deficiency of gas supply and the captive consumers have not taken the allocated units during the peak hours and hence, the appellant company was running in a loss and under such circumstances, the agreements entered into with the applicants for supply of power could not be continued. Hence, the relationship of the parties became strained. The applicant in O.A.No.248 of 2009 filed the same on 31.03.2009 and thereafter, all the applicants filed https://hcservices.ecourts.gov.in/hcservices/ the respective applications. What was all contended by the appellant before the learned single Judge and also before this Court is that in view of Section 9 of the Electricity Act, 2003 and also Rule 3 of Electricity Rules, 2005, there is a statutory prescription to retain the status of captive generating plant not less than 51% of the aggregate electricity generated which must be taken by the captive consumers and apart from that, not less than 26% of the shares were to be owned by them; that since 3 of the captive consumers have terminated the agreements and also surrendered their shares, the shareholdings with the captive users fell below 26% and also the captive consumers could not consume 51% for the captive use and under such circumstances, the appellant has lost the status of the captive generating plant and thus, it has become a regular generating unit; that in view of the said situation, the contracts between the parties became terminated and that in the absence of any licence, if there was any supply continued by the appellant as a generating plant, it would be a breach of and in violation of law. This contention was opposed strongly by the learned counsel for the applicants on different grounds supra. It is not in controversy that