TaxTMI 
TaxTMI 
2015 (11) TMI 1287
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....to 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....
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....l, 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 appellant "to provide the particulars and details forming the basis of your claim before 15th May, 2009." 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....
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....t 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 as under:- "17.8 Governing 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." 9. 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 th....
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....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 the "FIFO" basis, 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 wou....
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.... has failed to address the issue whether the dispute is unconnected to advisory functions. This was necessary as the respondent had made only a pure money claim which could only be adjudicated either by the Civil Court or the Arbitral Tribunal upon a reference being made to that effect. Mr. Nariman submits that the State Commission illegally declined to exercise its discretion to refer the dispute to arbitration. The dispute between the parties being purely of civil nature required decision on complex issues of fact and law. Since the dispute arises out of the working and interpretation of the PPA, the State Commission would not have sufficient knowledge of law to adjudicate the issues involved. 20. The next submission of Mr. Nariman is that the State Commission cannot be an adjudicatory body, as it does not have the trappings of a court, which is normally manned exclusively by Judges. Under Section 84, there is no requirement for the Chairperson or member of the State Commission to be a Judge of a High Court. The Members are required to be persons of ability, integrity and standing who have adequate knowledge of, and have shown capacity in dealing with problems relating to engine....
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....pport of this submission, learned senior counsel relied on Institute of Chartered Accountants of India vs. L.K.Ratna & Ors.[ (1986 ) 4 SCC 537] and Union Carbide Corporation & Ors. vs. Union of India & Ors.[ (1991) 4 SCC 584]. Learned senior counsel submitted that an adjudication of a lis by a tribunal without a judicial member would be an anathema to judicial process. It would directly impinge on the impartiality and the independence of the Judiciary. It would also undermine the principle of separation of powers which is sought to be strictly maintained by the Constitution of India. Mr. Nariman emphasized that this Court carved out an exception to the rule of necessarily having a Judicial Member of a Tribunal, only, in the case of highly specialized fact - finding tribunals. In the written submissions, the appellant has also relied upon judgments of this Court in Brahm Dutt vs. Union of India [(2005) (2) SCC 431], S.P. Sampath Kumar vs. Union of India & Ors. [(1987) (1) SCC 124]. It is further submitted by Mr. Nariman that the disputes arising between the generating company and a licensee are decided by the Commission by holding meetings of the Members. In case the members o....
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....ailal Bhai & Ors.[ (1964 (6) SCR 261]. He made a reference to the observations made by this Court at Para 273. Learned senior counsel also relied on Municipal Corporation of greater Bombay vs. Bombay Tyres International Ltd. & Ors.[ 1998 (4) SCC 100 (at page 104 para 9)] and Corporation Bank & Anr. vs. Navin J. Shah[2000 (2) SCC 628 (at page 635 para 12)]. 23. Mr. Nariman then submits that the "FIFO" method of adjustment of payment was not available to the respondents. It is submitted that the reliance placed on Sections 60 and 61 of the Contract Act by the respondents is misconceived. He submits that the respondents have wrongly claimed that they have been adjusting the monthly payment made by the appellant not against the monthly invoices but against the earlier pending bills. The respondents are also wrongly claiming that the appellant had been duly informed that the payments have been received on "FIFO" basis. Mr. Nariman points out that the respondents are wrongly relied on letters dated 25th June, 2001, 2nd December, 2003 and 10th September, 2001. According to Mr. Nariman, none of three letters support the case of the respondents that the appellant had either agreed to or ac....
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....to the question as to whether the appellant was entitled to avail rebate of 2.5 % on the part payment of the monthly invoice within 5 business days from the date of the presentation of the monthly invoice. It is submitted that in the initial petition filed by the State Commission it was not the claim of the respondent that the appellant wrongly availed rebate of 2.5%. There were no pleadings to that effect. Therefore, the findings and conclusions of the State Commission are liable to be set aside. Mr. Nariman submits that if one reads the PPA as a whole, it would become apparent that the payment of the full invoice amount within 5 days of the date of raising of invoice is not a pre-condition for seeking a rebate of 2.5% of the invoice amount. Clause 10.2(a) does not make it a pre-condition for payment of the full amount of invoice within 5 business days in order to avail the rebate of 2.5%. Clause 10.2(b)(i) indicates that the full amount is to be paid on the due date of an invoice. Due date is defined in Article 10.2 (a) as 30 days from the date of handing over of the invoice. Mr. Nariman then submits that a conjoint reading of these clauses would show that in order to be eligible....
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....mmission, almost Rs. 235 crores is rebate. The respondent is now claiming more than Rs. 500 crores towards interest at compound rate on Rs. 240 crores paid by the appellant, contrary to the provisions of the PPA. On the basis of the above, he submits that allowing the claim of the respondent for refund of the rebate amount would amount to unjust enrichment. Further, the award of interest on the aforesaid amount of rebate would amounts to double unjust enrichment. 26. On the other hand, it is submitted by Mr. Harish Salve and Mr. Jayant Bhushan learned senior counsel that orders passed by the State Commission as well as the Appellate Tribunal are just and proper and do not call for any interference. The appellant has been granted instalments to make the payment of Rs. 240 crores. It is also pointed out that the following order passed by the State Commission in the independent legal proceeding relating to fixation of capital cost on 15th July, 2013, the claim was updated upto 20th August, 2013 for invoices raised till 30th June, 2011, in a gross sum of Rs. 695 crores. After giving credit of Rs. 145 crores (including interest computed at the interest rates applicable to PPN) the net ....
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....nd having invited the findings cannot now seek to challenge the jurisdiction on the ground of existence of arbitration clause. Mr. Salve and Mr. Bhushan relied on the judgment of this Court in Svenska Handelsbanken vs. Indian Charge Chrome Ltd. [1994 (2) SCC 155] and Booz Allen & Hamilton Inc. vs. SBI Home Finance Ltd. [2011 (5) SCC 532]. It is further submitted that the proceeding before the State Commission would not be vitiated on the ground that its constitution is contrary to the ratio of law laid down in the case of R. Gandhi (supra). The appellant has not even raised a single ground of any prejudice being caused by the absence of a judicial member before the State Commission. In any event, the aforesaid submission contradicts the appellant's other submission that the matter ought to have been referred to arbitration under the Arbitration Act. There is no requirement that the arbitrator should be a judicial person. Even in the absence of Electricity Act, 2003 and the regulatory bodies contemplated therein, the instant dispute would have been subject matter of an arbitration proceeding as per the provision of the PPA and not a civil suit in the civil court. 29. Answering the ....
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....fic provisions contained in Section 2(4) of the Arbitration and Conciliation Act, 1996, Section 43 of the Arbitration Act would not be applicable. In any event, the matter is squarely covered by the judgment in Gujarat Urja (supra). Mr. Salve and Mr. Bhushan reiterated that the issue of limitation does not even arise in the present dispute due to the FIFO adjustment effected by the respondent. 30. Addressing the issue of the rebate being available to the appellant, Mr. Salve and Mr. Bhushan submit that APTEL has rendered detailed findings on the issue. The submissions made before this Court is a repetition of the submissions made before the APTEL. They submit that such findings recorded by the APTEL can not be reopened in this Court except on the ground that such findings are either arbitrary or based on no evidence. In fact, the appellant has illegally arrogated to itself the right to adjudicate, by unilaterally assuming rights, which are not available to it. Rather than complying with the requirements of the PPA of making payment within due date, the appellant had disallowed certain payments on the ground that the claims of the appellant were doubted. These actions of the appell....
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....4. 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....
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....or arbitration" means "or". It is well settled that sometimes "and" can mean "or" and sometimes "or" can mean "and" (vide G.P. Singh's Principles of Statutory Interpretation, 9th Edn., 2004, p. 404). 27. In our opinion in Section 86(1)(f) of the Electricity Act, 2003 the word "and" between the words "generating companies" and the words "refer any dispute" means "or", otherwise it will lead to an anomalous situation because obviously the State Commission cannot both decide a dispute itself and also refer it to some arbitrator. Hence the word "and" in Section 86(1)(f) means "or". 28. Section 86(1)(f) is a special provision and hence will override the general provision in Section 11 of the Arbitration and Conciliation Act, 1996 for arbitration of disputes between the licensee and generating companies. It is well settled that the special law overrides the general law. Hence, in our opinion, Section 11 of the Arbitration and Conciliation Act, 1996 has no application to the question who can adjudicate/arbitrate disputes between licensees and generating companies, and only Section 86(1)(f) shall apply in such a situation. 37. This Court also negated the submission that the provision co....
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....tory 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. 41. A Constitution Bench of this Court in Kihoto Hollohan (supra) has examined the nature of the power of the Speaker or the Chairman under paragraph 6(1) of the Tenth Schedule of the Constitution of India which contains "PROVISIONS AS TO DISQUALIFICATION ON GROUND OF DEFECTION" of a Member of either House of Parliament. Upon consideration of the entire matter, it was observed as follows : "95. In the present case, the power to decide disputed disqualification under Paragraph 6(1) is pre-eminently of a judicial complexion." 42. The Constitution Bench relied on the earlier judgment of this Court in Harinagar Sugar Mills Ltd. vs. Shyam Sundar Jhunjhunwala[1962 (2) SCR 339]. In that case, Hidayatullah, J. said "... By 'courts' is meant courts of civil judicature and by 'tribunals', those bodies of men who are appointed to decide controversies arising under certain special laws. Among the powers of the State is included ....
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....ect 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. 44. As noticed earlier, Section 84(2) enables the State Government to appoint any person as the Chairperson from amongst persons who is, or has been, a Judge of a High Court. Such appointment shall be made after consultation with the Chief Justice of the High Court. The provision contained in Section 84(2) is notwithstanding the provision contained in Section 84(1). In our opinion, the State Government ought to have exercised its power under sub-section (2) to appoint one or more Judicial Members on the State Commission especially when complicated issues are raised involving essentially civil and contractual matters. A Constitution Bench of this Court in the case of R.Gandhi (supra) recognized that : "87. ...........that ....
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....son from amongst persons who is or has been a Judge of a High Court. In our opinion, it would be advisable for the State Government to exercise the enabling power under Section 84(2) to make appointment of a person who is or has been a Judge of a High Court as Chairperson of the State Commission. 47. These observations, however, do not in any manner affect the jurisdiction exercised by the State Commission in the present matter. It has been rightly pointed out by the respondent that having filed the written statement in reply to the petition filed by the respondent, the appellant willingly participated in the proceedings and invited the findings recorded by the State Commission. It would be too late in the day, to interfere with the jurisdiction exercised by the State Commission in these proceedings. 48. The next submission of Mr. Nariman is that the claim of the respondents would have been held to be time barred on reference to arbitration. We are not able to accept the aforesaid submission of Mr. Nariman. On the facts of this case, in our opinion, the principle of delay and laches would not apply, by virtue of the adjustment of payments being made on FIFO basis. The procedure a....
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....the Electricity Act, 2003. We are unable to accept the submission of Mr. Nariman that the State Commission failed to exercise its discretion by not making a reference to arbitration and the request made by the appellant. Such a submission cannot be countenanced in the particular facts of this case. Having taken the plea that the matter ought to be referred to arbitration, the appellant chose to contest the claim of the respondent on merits and filed the written statement before the State Commission. Not only this, the appellant participated in the entire proceedings and invited the findings on merits. Therefore, the appellant cannot now be permitted to raise such a plea. This view of ours will find support in two earlier judgments of this Court. In Svenska Handelsbanken (supra) it has been observed as follows: "53. It may be that even after entering into an arbitration clause any party may institute legal proceedings. It is for the other party to seek stay of the suit by showing the arbitration clause and satisfying the terms of the provisions of law empowering the court to stay the suit........" Admittedly, in this case the appellant did not file any application under Section 8 ....
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....t would be useful to make a reference to the observations made by this Court in paragraph 21 and 32 which are as follows: "21. The legislature is emphasising that the provisions of Part I would apply to arbitrations which take place in India, but not providing that the provisions of Part I will not apply to arbitrations which take place out of India. The wording of sub-section (2) of Section 2 suggests that the intention of the legislature was to make provisions of Part I compulsorily applicable to an arbitration, including an international commercial arbitration, which takes place in India. Parties cannot, by agreement, override or exclude the non-derogable provisions of Part I in such arbitrations. By omitting to provide that Part I will not apply to international commercial arbitrations which take place outside India the effect would be that Part I would also apply to international commercial arbitrations held out of India. But by not specifically providing that the provisions of Part I apply to international commercial arbitrations held out of India, the intention of the legislature appears to be to ally (sic allow) parties to provide by agreement that Part I or any provision....
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.... give rise to a substantial question of law. In any event, the appellant never refuted or rejected the practice adopted by the respondent. Rather the appellant claimed that it was under temporary financial strain and, therefore, requested to make only part payment. The invoices having been accepted in full, the appellant unilaterally withheld some of the payments on the ground that the claims were disputed. Under Article 10 of the PPA, the appellant was required to make the payment for the entire invoice and, thereafter, raise the dispute. The appellant had been duly informed that the part payments made would be adjusted by the respondents under the FIFO system. It has been correctly held that in such circumstances, Section 59 of the Contract Act would not be applicable. We see no reason to interfere with the conclusions reached by the APTEL. 54. The real dispute between the parties seems to be on the question whether the appellant was entitled to avail 2.5% rebate on part payment of the monthly invoices within 5 business days. We have noticed earlier that it was a pre- condition under Article 10 that the payment of the monthly invoice had to be made in full. In addressing the iss....
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....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]. In this judgment it has been held as follows: ".........The essence of interest in the opinion of Lord....
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....f compound interest takes into account, by reason of prevailing rates, both these factors i.e. use of the money and the inflationary trends, as the market forces and predictions work out. 180. Some of our statute law provide only for simple interest and not compound interest. In those situations, the courts are helpless and it is a matter of law reform which the Law Commission must take note and more so, because the serious effect it has on the administration of justice. However, [pic]the power of the Court to order compound interest by way of restitution is not fettered in any way. We request the Law Commission to consider and recommend necessary amendments in relevant laws." 57. The late payment clause only captures the principle that a person denied the benefit of money, that ought to have been paid on due dates should get compensated on the same basis as his bank would charge him for funds lent together with a deterrent of 0.5% in order to prevent delays. It is submitted by Mr. Salve and Mr. Bhushan that bankers of the respondents have applied quarterly compounding or monthly compounding for cash credits during different periods on the basis of RBI norms. Article 10.6 of the....