Case: D.C.M. Ltd Vs. Municipal Corporation Of Delhi &amp; Anr

2. For the sake of convenience we are referring to the facts in Civil Appeal No. 1269 of 1987. The facts in other appeals are similar and the disputes raised are the same.3. The appellant entered into an agreement dated 26th of September, 1972 with respondent No. 2 Delhi Electricity Supply Undertaking (DESU) for the supply of electrical energy. Clause 15(a) of the agreement is as follows:15(a). The consumer shall pay each month to the Undertaking for electrical energy supplied during the preceding month such amount as shall be calculated and ascertained in accordance with the Rate Schedules LIP attached hereto. The rates contained in the schedule are those in force at the time of executing this agreement. The consumer be eligible for whatever reduction or rebate as may be granted on the rates and shall be liable to pay for whatever surcharge or increase in those rates as may frombe levied or made by the Undertaking. Any other method of charging decided by the Undertaking shall also be applicable?.The Rate Schedule of Large Industrial Power (LIP) which was annexed to the said agreement was the same as was prescribed fromby the Tariff which was fixed by respondent No. 2 for the relevant years. The Tariff pertaining to large industrial power sets out the availability of such power to large industrial consumers having connected load above 100 K.W. and the character of service viz. A.C. 50 cycles, 3 phase, 11 K.V. The Tariff is divided into two parts. The first part deals with demand charges. In addition the consumers are also required to pay energy charges. Under energy charges. Clause 1 provides for fuel adjustment charges as follows : (For the yearAn adjustment of energy charges as under:(i)The above energy charges are based on the basic average fuel an purchase cost of 15.25 paise per KWH.(ii)The actual cost of fuel used during any period shall be the amount in rupees of the cost of all types of fuel burnt in the Undertakings Thermal Generating Plants in that period.(iii)The actual cost of energy purchased shall be the amount paid in rupees for import of energy for that period.(iv)The cost of energy per KWH sold shall be the quotient computed on dividing the sum of (ii) and (iii) by the KWH sold during the period.(v)The increase or decrease in cost of per KWH sold shall be the difference of (iv) and (i) above and accordingly shall be added or substracted to the above energy rates.Final adjustment on account of variation in energy charges will be made as soon as possible after the close of the period of account but adjustment as may be provisionally fixed by the DESU Management fromwill be incorporated as a part of the monthly bill and shall be payable by the consumer. Such provisional rates as and when finalised shall have retrospective effect from the beginning of that financial year.?This was the Tariff for the yearThe energy charges were prescribed at Rs. 15.25 per KWH. These were subject to adjustment.4. Respondent No. 2 enhanced the energy charges from Rs. 15.25 to 20.44 paise per unit whereupon the appellants disputed the increase and filed suits under Section 20 of the Arbitration Act for referring their dispute relating to the increase in fuel adjustment charges to arbitration. During the pendency of the suit, fuel adjustment charges were further enhanced from 20.44 paise per unit to 29.97 paise per unit on 12th of March, 1983, and to 29.47 paise per unit in May, 1983.5. In the suit of the appellants under Section 20 of the Arbitration Act, learned Single Judge examined the arbitration clause in the contract which was very widely worded. He held that any question or difference arising between the parties as to any matter in any way connected with or arising out of the agreement or with regard to the rights, duties or liabilities of either party in connection with the agreement; was referable to arbitration. He said that the dispute was with regard to the liability of the petitioners to pay the fuel adjustment charges. The quantum of this liability was disputed. Such a dispute was covered by the arbitration caluse. He further held, ?It will, of course, not be open to the petitioners to contend before the Arbitrator that the rate fixed in the Tariff is high nor will it be open to the petitioners to challenge the formula which has been laid down. It will be outside the scope of the arbitration to ask the Arbitrator to enquire into the correctness of the accounts of DESU?. In fact in the earlier part of the judgment also learned Single Judge observed that there can be no dispute with the rates so fixed or the method of computation, which can be referred to arbitration. The dispute in the present cases was really as to whether the variation of fuel adjustment charges had been done in accordance with the formula or not. The petitioners said that they were willing to pay the energy charges which were fixed in accordance with the said formula. The learned Judge then said, ?To my mind, though it is not open to the petitioners to challenge the correctness of the rates fixed or the formula which is laid down for computing the amount of energy charges, but it is open to them to contend that in working out the formula no irrelevant or extraneous considerations have been taken into account or that the formula has not been properly followed while computing the fuel adjustment charges which are now being demanded. While considering whether the said charges have been worked out in accordance with the formula or not it is not open to challenge the correctness of the accounts or the figures of respondent No. 2. But as already noted it can be contended that some relevant factors have not been taken into consideration or irrelevant factors have been taken into account.? With these directions, namely, (1) that the petitioners before the Court were not entitled to contend before the Arbitrator that the rate fixed in the Tariff was high; (2) it was not open to the petitioners to challenge the formula laid down; (3) it was not open to the petitioners to ask the Arbitrator to enquire into the correctness of the accounts of DESU, learned Judge referred the following question to arbitration:?Whether the fuel adjustment charges have been fixed and are being demanded by respondent No. 2 from time to time in accordance with the Tariff for the year in question.?He said that this reference was comprehensive enough to include all the questions which can be raised before the Arbitrator including the question as to whether provisional revision of such charges can be made from time to time with retrospective effect.6. The learned Judge appointed a retired Chief Justice of the Delhi High Court as Sole Arbitrator. The Arbitrator entered upon the reference and by a speaking award dated 24.9.1985 dealt with the various issues which were raised before the Arbitrator. The award was filed in Court and an application was made by the appellants under the Arbitration Act for the award being made rule of the Court. The second respondent filed its objections to the award before the High Court. A learned Single Judge of the High Court, inter alia, held that there was an error apparent on the face ofthe award in so far as it dealt with transmission and distribution losses. The award of the Arbitrator on the question of transmission and distribution losses was set aside in so far as it said that these two items could not be taken into consideration for working out the formula for an increase in fuel adjustment charges.7. Learned Single Judge also set aside the award in so far as it held that demurrage charges could not be included in the cost of fuel.8. The appellants who were aggrieved by the judgment and order of learned Single Judge preferred an appeal before a Division Bench of the High Court. The Division Bench of the High Court partly allowed the appeal on the question of demurrage. It, however, upheld the findings of learned Single Judge on the question of transmission and distribution losses being taken into account in calculating fuel adjustment charges. The present appeals before us are from the judgment of the Division Bench. The question of demurrage charges has not been pressed before us. Hence the only question we have to consider is the one relating to transmission and distribution losses.

Court's reasoning:
This has clearly changed the statutory formula. The Arbitrator was not authorised to examine the validity of the formula or to change it. He has, therefore, committed a jurisdictional error in so ?interpreting? the formula. This is a jurisdictional error which is also apparent on the face of the award.16. We need not examine the number of cases which were cited before us setting out the grounds on which an award can be set aside partly or wholly. It is well established that an Arbitrator cannot go beyond the scope of his reference. If he has exceeded his jurisdiction, the award to that extent can be set aside provided that the part of the award being quashed is severable from the rest. In the present case, therefore, the High Court was right in setting aside the award to the extent that it excluded transmission and distribution losses.11. This is how the formula has been worked throughout. In fact the figure of basic average fuel and purchase cost of 15.25 paise per KWH mentioned in Clause 1(i) of theTariff was also arrived at in the same fashion. The further increases in fuel adjustment charges are also on the same basis. Learned Single Judge, therefore, rightly observed that the elements which went into the calculation to arrive at the figure of 15.25 paise would be quite relevant for arriving at the increase. These elements cannot be theof challenge before the Arbitrator. The Arbitrator has also erred in considering transmission and distribution losses as a separate item of charge under the adjustment formula. We agree with the reasoning and conclusion arrived at by the learned Single Judge in this regard which has been upheld by the Divisionfacts of the present case are very different. In the first place, there is a speaking award. The Arbitrator was required to examine the application of the formula on which there was no dispute, to calculate the increase in fuel adjustment charges. In doing so, the Arbitrator examined the various ingredients which went to determine, (1) the cost of the units generated; (2) the cost of the units purchased from other power plants; and (3) the number of units sold. The formula in effect was very simple. The total cost of units available for being set in transmission for supply to the consumers was to be divided by the number of units sold. This would give the cost per unit of each unit sold. There was no dispute with this formula. What the Arbitrator in effect did was to say that the units sold are no different from the total number of units available to the second respondent for being put in transmission in order that they may be distributed to the consumers. He, therefore, held that the cost of all units which were made available for transmission and distribution should be determined by dividing the total cost by the number of units which were so made available. He in effect, replaced the third factor in the formula ?Units sold? by ?Units manufactured plus units bought from other power stations?.This has clearly changed the statutory formula. The Arbitrator was not authorised to examine the validity of the formula or to change it. He has, therefore, committed a jurisdictional error in so ?interpreting? the formula. This is a jurisdictional error which is also apparent on the face of the award.16. We need not examine the number of cases which were cited before us setting out the grounds on which an award can be set aside partly or wholly. It is well established that an Arbitrator cannot go beyond the scope of his reference. If he has exceeded his jurisdiction, the award to that extent can be set aside provided that the part of the award being quashed is severable from the rest. In the present case, therefore, the High Court was right in setting aside the award to the extent that it excluded transmission and distribution losses.