Case: T.N.Generation &amp; Distbn. Corpn Ltd Vs. Ppn Power Gen.Co.Pvt.Ltd

2. The respondent, a generating company, has entered into a Power Purchase Agreement (PPA) with the appellant on 3rd January, 1997 for the supply of the entire Electricity to be generated by the respondent for a period of 30 years. The respondent commenced commercial operations on 26th April, 2001. Under the PPA, the respondent has to submit an annual invoice indicating the amounts owed under the Tariff. The amounts receivable from the appellant for the previous year are to be reconciled against the sum of monthly estimated payment made by the appellant as soon as possible after the end of each year. Accordingly, respondent started raising monthly invoices from 26th April, 2001 for the Electricity supplied by it to the appellant. According to the appellant, invoices of the respondent inter alia included interest on debt sanctioned but not disbursed, charges towards energy consumed at the residential quarters at the generating station etc. The appellant claims that substantial payments towards the monthly invoices raised by the Respondent for every month were paid against the admitted amount in the invoice. The disputed amount was withheld. The respondent accepted the admitted amount paid against each invoice without raising any dispute either with respect to the disputed amount or the substantial payment made by the appellant.3. Government of India by Notification dated 30th March, 1992 incorporated a rebate scheme on the receivables. Under this scheme, the purchaser, i.e., appellant is entitled to a rebate @ 2.5% if the payment is released within 5 days from the date of invoice and @ 1% if the payment is released within 30 days from the date of invoice. Accordingly, while making the payment of the admitted amount under each invoice, the appellant deducted the 2.5% rebate, as payments were made within 5 days from the date of the receipt of the invoice. These payments were accepted by the appellants. On the other hand, respondent adjusted the amount received by it in the following month against the unpaid amount of the previous month. The balance was carried forward by the respondent. Since June, 2001, the appellant had been making payments as noticed above, and the respondent had been adjusting the same on abasis. The appellant claims that the monthly invoices raised by the respondent were only estimated invoices. On the other hand, the respondent claims that the appellant, from inception only made adhoc payments periodically against the monthly invoices raised. Therefore, each side is claiming that the other did not provide any details with regard to the amounts due and the amounts paid. It is also the claim of the respondent that the appellant had unilaterally made several disallowances without informing the respondent of the same.4. It appears that both the parties were dissatisfied with accounting details provided by the other. Ultimately, the respondent issued a notice of dispute resolution on 26th April, 2007 and appointed its Vice President, Shri B. Sundaramurthy as the representative. Continuous correspondence was exchanged between the parties from August, 2007 to March, 2009. On 1st April, 2009, respondent sent a Notice to the appellant in terms of Article 16 of the PPA claiming amounts due/overdue from the appellant and interest on late payments. The Notice gives a summary of claims of the respondent till 30th March, 2009 other than towards specified taxes, which was stated to be subjudice, and, therefore, not included therein. The balance of amount payable, according to the respondent was Rs.1,787,272,534. The appellant in reply informed the respondent on 16th April, 2009 that the matter was under scrutiny and examination. Since, there was no response, the respondent sent a reminder. Instead of making the payment of the amounts claimed, the appellant issued letter dated 4/5th May, 2009 claiming that according to its accounts, sum of Rs.31.12 crores was due to the appellant. On 8th May, 2009, the respondent requested the appellantprovide the particulars and details forming the basis of your claim before 15th May,The respondent also requested the appellant to fix a meeting on or before 19th May, 2009 to discuss the issues and resolve the same. A meeting took place on 19th May, 2009 but the dispute was not resolved.5. Since the dispute was not resolved, the respondent filed the petition – D.R.P. No. 12 of 2009 before the State commission, seeking a direction to the appellant to make a payment of sum of Rs. 1,89,91,17,264 being a sum due as on 19th March, 2009, under the invoices raised under the PPA and interest thereon in terms of Article 10.6 of the PPA from the due date till the date of actual payment. After setting out the details of the amounts due as narrated above, the respondent claimed that, under Article 10.2(b) of the PPA, in the event of any dispute as to all or any of the portion of an invoice, the appellant was required to pay the full amount of the disputed charges and thereafter serve a notice on the respondent indicating the amount in dispute. The dispute is to be resolved under Article 16, which provides for informal resolution of dispute. Firstly, under Article 16(1), by mutual discussions through the designated representatives of the parties. Secondly, in case the parties are unable to resolve the dispute pursuant to Article 16.1, it is to be resolved through finally by arbitration in accordance with Article 16.2.6. Under Article 16.2, the arbitration has to be conduced in accordance with the rules of Conciliation and Arbitration of International Chamber of Commerce (ICC), in effect on the date of the agreement. The Arbitration Tribunal is to consist of three arbitrators, of whom each party should select one. The two arbitrators appointed by the parties shall select the third arbitrator, to act as the Chairman of the Tribunal. If the two arbitrators appointed by the parties, fail to agree on a third arbitrator, the ICC Court of Arbitration shall make the appointment. The arbitration shall be held in England. It is further provided that notwithstanding Article 16.8, the laws of England shall govern the validity, interpretation, construction, performance and enforcement of the provisions contained in Article 16.2. The arbitration proceedings shall be conducted and the award shall be rendered in English language. It is further provided that the rights and obligations of the parties shall remain in full force and effect pending the award in any arbitration proceedings. The costs of the arbitration shall be determined by the arbitral tribunal in accordance with the Rules. The arbitration clause specifically provides that the Indian Arbitration Act (Act No. X(10) of 1940/The Arbitration and Conciliation Act, 1996 shall not be applicable to this arbitration provision, to any arbitration proceedings or award rendered or any dispute or difference arising out of or in relation to the agreement. It is further provided that award rendered hereunder shall be a foreign award within the meaning of the Foreign Awards Act, 1961.7. Clause 16.2(i) specifically provides that the parties hereby waive any rights of application or appeal to the Courts of India to the fullest extent permitted by law in connection with any question of law arising in the course of arbitration or with respect to any award made.8. Clause 16.3 of the arbitration agreement provides that the award of the arbitrators shall be final and binding. The other provisions with regard to the arbitration clause are incidental and, therefore, not necessary to be mentioned. Article 17.8 of the PPA provides asGoverning Law: Subject to Sections 16.2(b) and 16.2(e) hereof, this agreement and the rights and obligations hereunder shall be interpreted, construed and governed by the substantive laws of India.As noticed above, Article 16.2(b) provides that the arbitration shall be conducted in accordance with the ICC Rules notwithstanding Article 17.8. Similarly, Article 16.2(e) provides for exclusion of Article 17.8.10. Upon completion of the pleadings and after hearing the parties, the State Commission by an order dated 17th June, 2011, allowed the petition filed by the respondent for refund of the excess rebate availed by the appellant contrary to the terms of PPA and also ordered the respondent to redraw the monthly invoices in accordance with the directions issued by the State Commission. The State Commission held that it is competent to adjudicate upon the dispute. The limitation period prescribed in the Limitation Act, 1963 would not apply to the proceeding before the Commission, delay and laches would apply. The appellant is liable to pay interest to the respondent in terms of Clause 10.6 of the PPA till payment. Conversely, if the appellant has made excess payment against each monthly invoice compared to the corresponding redrawn monthly invoice, the respondent is liable to pay interest in terms of Article 10.6 of the PPA. The rebate would be admissible to the appellant, if the redrawn monthly invoice and the original payment made by the appellant against the invoice of that month matches or if the appellant has made excess payment, the respondents were directed to redraw the annual invoice for 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006 and 2006-2007, as at September of each year to capture the gains to the appellant on account of lower interest rates and gains to the respondent on account of higher floating rate. Certain other directions were also issued. The petition was accordingly disposed of.11. Aggrieved by the aforesaid directions, the appellant filed Appeal No. 176 of 2011before the APTEL. Before the APTEL, in the appeal, the appellant raised the followingEntitlement of the Appellant to Rebate.(b) Jurisdiction of the State Commission u/s 86(1)(f) of the Act, 2003;(c) First in First Out method; for adjustment of payment.(d) Limitation, delay and laches;(e) Bar under Order 2 Rule 2 CPC;(f) Non filing of Annual Invoices;(g) Determination of capital cost;(h) Deduction on the monthly invoices;(i) Excess Claims in the monthly invoice – unjust enrichment;(j) Interest on Late Payments.After hearing the learned counsel for the parties, APTEL has held that under Article 10.2(a), 10.2(b)(i) and 10.2(e), the appellant is obliged to pay full amount of the invoice within the due date to be eligible for the rebate of 2.5% or 1% as the case may be. Admittedly, the appellant neither paid the full amount for every invoice nor raised the dispute within one year. The appellant was held to be not eligible for rebate for reduction of the invoice funds.13. With regard to the second issue, i.e., jurisdiction and scope of Section 86(1)(f) of the Act, relying on the judgment of this Court in the case of Gujarat Urja Vikas Nigam Ltd. Vs. Essar Power Ltd. [(2008) 4 SCC 755] , it is held that the State Commission has the discretion to decide as to whether the dispute should be adjudicated by itself or it should be referred to an arbitrator. The appellant can not dictate that the State Commission ought to have referred the dispute to an arbitrator. It is further held that the State Commission can adjudicate all the disputes including the dispute on money claims between the Licensees and the Generating Companies. In coming to the aforesaid conclusion, APTEL relied on its earlier order rendered in Neyveli Ignite Corporation Vs. Tamil Nadu Electricity Board in Appeal No. 49 of 2010 dated 10th September, 2010.14. On the third issue on the method adopted by the respondent for adjustment of the payment made by the appellant on thebasis, APTEL has approved the decision of the State Commission that the respondent was justified in adopting the aforesaid method, in accordance with Section 60 of the Indian Contract Act, 1872.15. On the fourth issue relating to the applicability of the limitation Act or delay and laches, it has been held that the Limitation Act would not apply to the proceedings under the Electricity Act. On facts, it has been held that the issue of limitation does not arise since Sections 60 and 61 of the Indian Contract Act would permit the creditor to adjust the amount onmethod. APTEL has also held that the bar under Order 2 Rule 2 of the CPC would not be applicable in the facts of this case. With regard to the non-filing of the annual invoices by the respondent, it has been held that the respondent should have filed the annual invoices in time. Therefore, the direction issued by the State Commission to the respondent to redraw the annual invoices has been affirmed. The seventh issue related to determination of capital costs, the State Commission in its order under appeal had directed the appellant to pay the invoice in full as claimed by the respondent without determining the capital costs by getting the petition for finalization of capital costs, which was pending in the State Commission finally adjudicated. APTEL has approved the findings of the State Commission that the appellant had adopted delaying tactics by not cooperating in the finalization of the capital costs.16. On issue No. 9, it has been held that as the respondent has given up the claim on account of capital costs incurred on Gas Boosting Station and Conditioning System and that the Power Company has been directed to redraw the monthly invoices by the State Commission, the issue would not survive. Finally, on issue No. 10, which related to interest on late payments, it has been held that the respondent company is entitled to interest on late payment of dues under the provisions of the PPA.17. The present appeal is directed against the aforesaid directions issued by APTEL.

Court's reasoning:
34. We have considered the submissions made by the learned counsel for the parties. In our opinion, the issues raised by the appellant with regard to the constitution of the State Commission and its discretion to either adjudicate or refer a particular dispute to arbitration is no longer res integra. Therefore, even though, Mr. Nariman has very forcefully contended that the issue ought to be reconsidered, we are not inclined to adopt such a course. In our opinion, this Court has comprehensively addressed all the issues, on the scope and ambit of Section 86 in general and Section 86(1)(f) in particular of the Act. We are also not inclined to accept the submission that since the appellant had made a request for a reference of the dispute to arbitration, the State Commission ought to have made the reference. We are also not able to accept the submission of Mr. Nariman that the State Commission was dealing with only a pure and simple money claim. We also do not find much substance in the submission that the issues having been raised being complex and intricate ought to have been left to be decided either by the Arbitral Tribunal or by the Civil Court. APTEL in the impugned order, in our opinion, has correctly culled out the ratio of the judgment of this Court in Gujarat Urja (supra). It is also correctly held that the appellant can not dictate that the State Commission ought to have referred the dispute to arbitration.arbitration.39. Section 86(1)(f) specifically confers jurisdiction on the State Commission to refer the dispute. Undoubtedly, the Commission is required to exercise its discretion reasonably and not arbitrarily. In the present case, the State Commission upon consideration of the entire matter has exercised its discretion. However, in our opinion, the APTEL ought not to have brushed aside the submissions of the appellant with the observation that the State Commission having exercised its discretion, the issue need not be investigated by the APTEL. It would always be open to APTEL to examine as to whether the State Commission has exercised the discretion with regard to the question whether the dispute ought to have been referred to arbitration, in accordance with the well known norms for exercising such discretion. APTEL exercises jurisdiction over the State Commission by way of a First Appeal. Therefore, it is the bounden duty of the Appellate Tribunal to examine as to whether all the decisions rendered by the State Commission suffer from the vice of arbitrariness, unreasonableness or perversity. This would be apart from examining as to whether the State Commission has exercised powers in accordance with the statutory provisions contained in Electricity Act, 2003. Having said this, we are not inclined to interfere with the conclusions reached by APTEL, as in our opinion, the jurisdiction has not been exercised by the State Commission arbitrarily, whimsically or against the statutory provisions.40. We, however, find substance in the submission of Mr. Nariman that adjudicatory functions generally ought not to be conducted by the State Commission in the absence of a Judicial Member. Especially in relation to disputes which are not fairly relative to tariff fixation or the advisory and recommendatory functions of the State Commission.In view of the aforesaid categorical statement of law, we would accept the submission of Mr. Nariman that the tribunal such as the State Commission in deciding a lis, between the appellant and the respondent discharges judicial functions and exercises judicial power to the State. It exercises judicial functions of far reaching effect. Therefore, in our opinion, Mr. Nariman is correct in his submission that it must have essential trapping of the court. This can only be achieved by the presence of one or more judicial members in the State Commission which is called upon to decide complicated contractual or civil issues which would normally have been decided by a Civil Court. Not only the decisions of the State Commission have far reaching consequences, they are final and binding between the parties, subject, of course, to judicial review.Keeping in view the aforesaid observations of this Court, in our opinion, the State of Tamil Nadu ought to make necessary appointments in terms of Section 84(2) of the Act. We have been informed that till date no judicial Member has been appointed in the Tamil Nadu State Commission. We are of the opinion that the matter needs to be considered, with some urgency, by the appropriate State authorities about the desirability and feasibility for making appointments, of any person, as the Chairperson from amongst persons who is, or has been, a Judge of a High Court.Even if the reference had been made under Article 16 of the PPA, the applicability of the Arbitration Act, 1996 and the Arbitration Act of 1940 have been specifically excepted under Article 16(2)(h). In the earlier part of the judgment, we have noticed that Article 16 indeed provides for informal resolution of disputes by way of arbitration. However, Article 16(2) mandates that the arbitration shall be conducted in accordance with the ICC Rules. Under those rules, ICC Court of arbitration is to make the appointment of the Arbitral Tribunal. To make the matters worst for the appellant, it has been provided in Article 16.2(e) that the seat of the arbitration shall be in London. This fact alone would make Part I of the Arbitration Act, 1996 inapplicable to the arbitration proceedings. There is a further provision that notwithstanding Article 17(8), the laws of England shall govern the validity, interpretation, construction, performance and the enforcement of the provision contained in Article 16(2). Clearly then, the applicability of Arbitration Act, 1996 is totally ruled out by the parties. This Court in Bhatia International vs. Bulk Trading S.A. & Anr. [2002 (4) SCC 105 ] has clearly held that the parties are at liberty by agreement to opt out of any or all the provisions of 1996 Act.55. In fact, in our opinion, the appellant has illegally arrogated to itself the right to adjudicate by unilaterally assuming the jurisdiction not available to it. It was required to comply with Article 10 of the PPA which provides for Compensation Payment and Billing. We are also not able to accept the submission of Mr. Nariman that invoices could not be paid in full as they were only estimated invoices. It is true that reconciliation is to be done annually but the payment is to be made on monthly basis. This cannot even be disputed by the appellant in the face of its claim for rebate at the rate of 2.5% for having made part payment of the invoice amount within 5 days. We also do not find any merit in the submission that any prejudice has been caused to the appellant by the delayed submission of annual invoice by the respondents. Pursuant to the directions issued by the State Commission, the monthly invoice and annual invoice for the respective years have been redrawn as on 30th September each year. Therefore, the benefit of interest has been given on such annual invoices. With regard to the issue raised about the interest on late payment, APTEL has considered the entire matter and come to the conclusion that interest is payable on compound rate basis in terms of Article 10.6 of the PPA. In coming to the aforesaid conclusion, APTEL has relied on a judgment of this Court in Central Bank of India vs. Ravindra & Ors. [2002 (1) SCC 367 ].58. This now bring us to applications for impleadment of IOCL and for direction. I.A.No.6 of 2013 is for the impleadment of IOCL. It is submitted that during the pendency of these proceedings, the respondents have received rebates, discounts, credits, refunds in the fuel price being extended by fuel supplier i.e. Indian Oil Corporation Ltd. (IOCL). Such benefits have been received by the respondent from January 2001 till date It is pleaded that the respondents have failed to give details about the discounts and credits received the benefit of which ought to have been passed on to the appellant. Therefore, IOCL be made parties to respondent No.2 to the present appeal. I.A.No.5 of 2013 seeks direction to IOCL to furnish details of all the documents of the matter. Further directions are also sought on the respondent to refund a sum of Rs.240 crores paid by the appellant under the order passed by the State Commission along with interest at the rate as mentioned in PPA.59. The respondents in a common counter statement to the applications have submitted that the applications are not maintainable. The applications have been evidently preferred purely as dilatory tactics, to delay and deny substantial payments that are due and payable to the respondent pursuant to the orders passed by the State Commission which have been upheld by APTEL. We are not inclined to entertain either of the applications at this stage. The issue sought to be raised in both the applications ought to have been raised by the appellant at the relevant time. The applications are, therefore, accordingly dismissed.