Case: West Bengal State Electricity Board Vs. Calcutta Electric Supply Corpn. Ltd

2. The West Bengal State Electricity Board is in appeal against the Judgment of the Division Bench of Calcutta High Court. The respondent is the licensee. The licensee, on 27th of December, 1989 submitted an application to the Board for getting its consent for establishment of new Thermal Generating Station at Budge and a Project Report was enclosed with the said application. Under Section 44 of the Electricity (Supply) Act, 1948, (hereinafter referred to as the Supply Act), no licensee can establish a new generating station without the previous consent in writing of the Board. Under Sub-section 2A of Section 44, the Board before giving consent to a licensee for establishing a new generating station, shall consult the Authority. The expression "Authority" has been defined in Section 2(1) of the Supply Act to mean the Central Electricity Authority constituted under Section 3 of the Act. On 23.2.1990, the Board accorded sanction under Section 44 of the Supply Act for setting up a new generating station in Budge with an installed capacity of 2 x 250 M.W. Units, operating on pulverised fuel fired boilers. The Board forwarded the Project Report to the CEA, requesting the authority to consider the proposal in the light of likely gap in system demand that would exist in the year 1995, after taking into account the plans of the Board to set up the Sagardighi Thermal Project, which was at that point of time awaiting techno-economic clearance from CEA. The C.E.A. replied to the Board that issues may be resolved through Government of West Bengal and intimated that the techno-economic examination of the proposal was being withheld by CEA till the final views on the matter is conveyed by the Board. The Board in its letter dated 23rd of April, 1990, informed the CEA that the issues raised had been resolved and the consent already given may be treated as final and, therefore, CEA may take up the techno-economic examination. On 29th of January, 1991, CEA communicated its in principle clearance to the Budge Budge Project, subject to certain conditions mentioned therein. It also informed that any clearance required under Section 44 of the Supply Act would be made after the Department of Power, Ministry of Energy, Govt. of India, clears the project. Finally on 11th of November, 1991, CEA intimated its clearance of the Budge Budge Project under Section 44 of the Act at a total cost of Rs. 1285.70 crores, subject to the conditions mentioned in the letter. The licensee informed the CEA by its letter dated 23rd April, 1992, indicating that there has been an enhancement of Project cost which stands revised to Rs. 2220 crores and requested the CEA to convey its approval, after examining the estimates and other required particulars. On 24th of April, 1992, a revised breakup of the Project cost was furnished to the CEA. The Government of India, Ministry of Power by its letter dated 21st October, 1992 intimated its approval of the revised financial plan for the project at Rs. 1638 crores, with certain conditions mentioned in the said letter. The CEA then wrote a letter to the Government of West Bengal on 26th September, 1996 regarding escalation of the Budge Budge Project cost to Rs. 2220 crores and it was stated therein that the CEA has not received any revised cost estimates from the Board though the same was required under Section 44 of the Supply Act. The Board then called upon the licensee by its letter dated 4th of December, 1996 to furnish the detailed break-up of the cost estimates as well as the revised cost of the Project which was then at Rs. 2220 crores. The Government of West Bengal, through its Power Department also made correspondence with the licensee, seeking information as to whether the licensee has submitted the detailed proposal for revision of the Project cost, as required under Section 44 of the Supply Act and also further requested that the copies of the Project cost be furnished to the Government. On 17th of January, 1997, the licensee wrote to the petitioner Board, giving groupwise break-up of the escalated project cost as in July, 1996, amounting to Rs. 2220 crores and also intimated that the cost is being revised by the Financial Institution I.C.I.C.I. The licensee then informed the Board by letter dated 24 of February, 1997 that the revised cost which has been approved by the financial institution in January, 1997 work out at Rs. 2308 crores. On 30th of July, 1997, the Board sought for clarification, details and reasonings from the licensee, regarding the revised cost and those clarifications were duly communicated by the licensee to the Board. Unit I of the Project was commissioned on 15th of September, 1997 and on 20th of February, 1998, the licensee requested the Board to give its consent to the revised project cost of Rs. 2460 crores, as in the interregnum, the project cost had further got escalated. The Board then constituted a Committee for determining the quantum as to what would be the reasonable cost of the Budge Budge Project and the said Committee arrived at a figure at Rs. 1853 crores. On 22nd of May, 1998, West Bengal State Electricity Board approved the revised cost by Resolution at Rs. 1853 crores and the same was intimated to the licensee. Along with the resolution, the Committees Report also had been appended. On 4th June, 1998, the Government of West Bengal, Department of Power, directed the Board to communicate the decision of the Board, approving the revised project cost under Section 44 of the Supply Act to the licenee. Finally on 11th of June, 1998, the Board intimated the licensee with regard to its approval of the revised project cost of Budge Budge Project at Rs. 1853 crores under Section 44 of the Supply Act and along with it forwarded the copy of the Report of the Committee and the Minutes of the Boards Resolution. Since entire project cost furnished by the licensee had not been approved by the Board, as stated earlier, the licensee wrote a letter to the CEA, requesting him to refer the dispute to the Arbitration under Section 44(3) of the Supply Act. Before the CEA, the licensee also filed his Statement of claims on 16th of December, 1998. The Board, on the other hand, filed an application under Section 16(2) and 16(3) of the ArbitrationConciliation Act, 1996 against the appointment of CEA as arbitrator, contending inter alia that the approval of the revised project cost was not contemplated under Section 44 of the Supply Act and, therefore, CEA had no authority to arbitrate on the dispute, if any. Board then filed an application under Section 13(2) of the ArbitrationConciliation Act, 1996, challenging the appointment of the Arbitral Tribunal. The arbitrator passed an Award on 13th of July, 1999, dismissing the applications filed by the Board under Section 13 and Section 16 of the Act. The Board then filed a writ petition in Delhi High Court, but that was withdrawn with liberty to file in the appropriate forum. Arbitrator then passed an award, determining the revised project cost at Rs. 2295.57 crores on 12th of January, 2000. Against the Award, an objection was filed by the Board, which was heard by a learned Single Judge of the Calcutta High Court. The objection was essentially on the ground that the dispute regarding escalated project cost would not be a dispute under Section 44 of the Supply Act and, therefore, provisions contained in Section 44(3), will not apply and consequently, the Award is without jurisdiction and nullity. The licensee, on the other hand reiterated before the Single Judge that the project cost as well as the revised project cost would be a matter coming under Section 44 of the Supply Act and, therefore, any dispute in relation to the same would be arbitrable under Section 44(3). It was also contended that all the parties namely the licensee, the Board, the State Government, as well as the Electricity Authority have understood that the project cost was a matter covered under Section 44 and, therefore, it would not be open for the Board to take a stand that such project cost is outside the purview of Section 44 and as such is not arbitrable under Sub-section (3) of Section 44 of the Supply Act. The learned Single Judge on an analysis of Section 44 of the Supply Act, was persuaded to accept the contention of the Board and held that the subject matter of arbitration was beyond the scope of the statutory provision under Sub-section (3) of the Section 44 and as such the award passed by the Electricity Authority is without jurisdiction and is liable to be set aside. The licensee being aggrieved by the aforesaid order of the learned Single Judge, filed an appeal before the Division Bench and the Division Bench of Calcutta High Court by the impugned judgment, having allowed the appeal, on setting aside the conclusions and finding of the Single Judge, the present appeal by grant of special leave has been filed in this Court by the Board.

Court's reasoning:
A plain reading of the aforesaid sub-section would indicate that an applicant is bound to furnish all such particulars which the Board may reasonably require to enable the Board to give its consent and where a consent is given, then while acting in pursuance of that consent, the applicant shall not without further consent of the Board, make any material variation in the particulars, so stated. If the project cost is one of the particulars required to be given by an applicant, while making an application under sub-section (1) of Section 44, then in the event, Board gives the consent and while acting in pursuance of that consent, the project cost varies, then for such variation, further consent of Board would be necessary, as provided under sub-section (2) of Section 44. Since the Board could withheld the consent, if it shows to the applicant that the electricity required by him could be more economically obtained within a reasonable time from another appropriate source, to arrive at such conclusion, it would be reasonable to infer that the applicant must indicate the project cost in its application for consent. If the project cost is not indicated in the application for consent, then the Board will not be in a position to find out whether the electricity required by the applicant could be more economically obtained from another appropriate source within a reasonable time and, therefore, in our view it is necessary for every applicant while invoking power of the Board under sub-section (1) of Section 44 to obtain the previous consent in writing for establishment of a generating station to indicate the cost of the project. This being the position, where consent is received on the basis of the project cost indicated in the application, while acting in pursuance of such consent, if the project cost varies, then it would be a material variation of an important particular and consequently, a further consent of the Board would be necessary under sub-section (2) of Section 44. In the case in hand, the original consent of the Board had been obtained and while acting in pursuance of such consent, it was found that the project cost has got escalated and application for further consent was made to the Board and the Board also did accord its further consent at Rs. 1853 crores, which was communicated to the applicant-licensee. While the applicant-licensee had indicated the revised project cost at a much higher figure but the Board approved the revised cost at Rs. 1853 crores and this further consent on the basis of revised cost can only be under sub-section (2) of Section 44 and in fact the Board also communicated the same in the purported exercise of power under sub-section (2) of Section 44. The further consent in respect of the revised project cost having been given under sub-section (2) of Section 44, a dispute did arise within the ambit of sub-section (3) of Section 44 and, therefore, the authority concerned contemplated under sub-section (3) of Section 44, gets jurisdiction to arbitrate upon the dispute between the parties and in the case in hand, the said authority ultimately passed an award. In view of our analysis, as stated above, it is difficult for us to sustain the argument of Mr. Reddy, appearing for the Board that the so-called dispute regarding the project cost, cannot be a dispute arising out of the provision of Section 44 and as such would not be arbitrable under sub-section (3) of the said Section. We, therefore, are in agreement with the conclusion of the Division Bench of Calcutta High Court and hold that the dispute in question did come within the purview of sub-section (2) of Section 44 and as such was arbitrable under sub-section (3) thereof and the award cannot be held to be without jurisdiction, as contended by the Board.6. There is yet another facet in the case in hand, namely how the Board itself as well as the authority have themselves understood the provisions of the Act. The concerned authority, who was the statutory arbitrator under sub-section (3) of Section 44, while deciding the question of jurisdiction, unequivocally came to the conclusion that Section 44(1)(a)(ii) brings within its sweep the cost aspect of the project which is important for taking decision regarding establishment or acquisition of a generating station and the revision of cost is also being done under said section 44. With this conclusion is rejected the prayer of the Board, challenging the jurisdiction of the arbitrator. When the question of revision of project cost cropped up, the Chief Engineer of the Board by its letter dated 4.12.1996 called upon the licensee to furnish the detailed break up of the cost estimate, while it furnished the application originally in the year 1991 and the revised cost claimed by the licensee to the tune of Rs. 2220 crores. On 18th of December, 1996, the Joint Secretary to the Government of West Bengal also called upon the licensee to submit a detailed proposal for revision of the project cost, as required under Section 44 of the Supply Act. Again on 4th June, 1998, the Government wrote to the Board, requiring the approval of the Board to the revised project cost under Section 44 of the Act. On the very same date, that is on 4th June, 1998, the Government also wrote to the licensee that under the provisions of the Electricity Supply Act, the revised cost of the project of the licensee has to be worked out and approved by the State Electricity Board under Section 44 of the said Act and in the event the licensee is not satisfied with the decision of the Board, then the relief is available in the Supply Act itself, obviously referring to an arbitrator under sub-section (3) of Section 44. On 11th June, 1998, the Board wrote to the licensee that after careful and detailed examination of all data and records furnished by the licensee, the Board in its 505th meeting held on 22nd May, 1998, resolved that the reasonable project cost would be Rs. 1853 crores and as such the Board approves the revised project cost at Rs. 1853 crores under Section 44 of the Electricity (Supply) Act. The Board, therefore not only understood that the project cost is required to be approved under Section 44, but did take a decision, approving the reasonable revised project cost at a particular figure in exercise of its power under Section 44. The Board having exercised power under Section 44 and having approved the revised cost at a particular figure, cannot take a stand when the dispute regarding the project cost was referred to the authority for arbitration that the project cost does not come within the purview of Section 44. Thus, apart from our conclusion on interpreting the provisions of Section 44 of the Electricity (Supply) Act, the conduct of the Board itself disentitles it to take a stand that the revised project cost would not come within the ambit of Section 44 of the Supply Act. In the aforesaid premises, we do not find any merits in the contention of Mr. Reddy, challenging the jurisdiction of the arbitrator to entertain the dispute regarding the reasonability of the revised project cost. In our considered opinion, the dispute is one, which comes within the ambit of Section 44 and as such arbitrable under sub-section (3) of Section 44 and the Award cannot be held to be without jurisdiction. The conclusion of the Division Bench of the Calcutta High Court on this score remains unassailable.7. Mr. Reddy, then contended that the High Court was not justified in making any observations with regard to the impact of the revised project cost on the tariff, as the same was not a subject matter and the only question that had been raised before the High court was whether the arbitrator had the jurisdiction or not. We find sufficient force in the aforesaid contention of Mr. Reddy and Mr. Shanti Bhushan, the learned senior counsel, appearing for the licensee also fairly stated that it was not necessary for the High Court to make any observation as to what would be the effect of the reasonable project cost on the tariff structure. While, therefore, upholding the Division Bench Judgment of the Calcutta High Court, we further observe that it was not at all necessary for the High Court to go into the question of impact of the project cost upon the tariff structure and any observations made in respect of the same are set aside.