THE STATE OF KARNATAKA vs. HASSAN THERMAL POWER PRIVATE LIMITED

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 12TH DAY OF MARCH, 2021

PRESENT

THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA

AND

THE HON'BLE MR. JUSTICE V.SRISHANANDA

WRIT APPEAL NO.3893/2019 C/W WRIT APPEAL NO.190/2020 (GM-KEB)

IN WRIT APPEAL NO.3893/2019

BETWEEN:

KARNATAKA POWER TRANSMISSION CORPORATION LTD., REGD. OFFICE: KAVERI BHAWAN, K.G.ROAD K.R. CIRCLE BANGALORE-560 009 REPRESENTED BY ITS FINANCIAL ADVISOR …APPELLANT

(BY SRI.S.S.NAGANAND, SR. ADV. FOR SRI.SRIRANGA, ADV.)

AND:

ADMINISTRATIVE OFFICE

S/327, GREATER KAILASH-II NEW DELHI 110 048

REPRESENTED BY ITS DIRECTOR

BANGALORE-560 001 REPRESENTED BY ITS ADDITIONAL CHIEF SECRETARY … RESPONDENTS

(BY SRI.ANOOP GEORGE CHANDHARI, SR. ADV. SMT.JUNE CHANDARI, SR. ADV. FOR SRI.RAMESH KUMAR NAROOLA, ADV. MS.PRATIBHA SHARMA FOR SRI.K.S.BHEEMAIAH, ADV. FOR R1 SRI.LAXMINARAYAN, AGA FOR R2)

THIS APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED 27/09/2019 PASSED BY THE LEARNED SINGLE JUDGE IN WRIT PETITION NO.1633/2019 (GM-KEB) COSTS AND ETC.

IN WRIT APPEAL NO.190/2020

BETWEEN:

THE STATE OF KARNATAKA DEPARTMENT OF ENERGY VIKASA SOUDHA, BENGALURU REPRESENTED BY ITS ADDITIONAL CHIEF SECRETARY …APPELLANT

(BY SRI.LAXMINARAYAN, AGA)

AND:

A COMPANY INCORPORATED UNDER THE

PROVISIONS OF THE COMPANIES ACT, 1956

HAVING ITS ADMINISTRATIVE OFFICE AT

S/327, GREATER KAILASH, NEW DELHI 110048

REPRESENTED HEREIN BY ITS DIRECTOR

CORPORATION LIMITED, A COMPANY

REGISTERED UNDER THE PROVISIONS OF THE

COMPANIES ACT, 1956

HAVING ITS REGISTERED OFFICE AT

KAVERI BHAVAN, K.G.ROAD,

BENGALURU-560 009

REPRESENTED BY ITS FINANCIAL

ADVISOR (REGULATORY AFFAIRS) … RESPONDENTS

(BY SRI.S.S.NAGANAND, SR. ADV., FOR SRI.S.SRIRANGA, ADV. FOR R2 SRI.ANOOP GEORGE CHANDHAR, SR. ADV. SMT.JUNE CHANDAR, SR. ADV. FOR SRI.RAMESH KUMAR NAROOLA, ADV. MS.PRATIBHA SHARMA FOR SRI.K.S.BHEEMAIAH, ADV. FOR R1)

THIS APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO ALLOW THE WRIT APPEAL AND SET ASIDE THE IMPUGNED ORDER DATED 27/09/2019 PASSED BY THE LEARNED SINGLE JUDGE OF THE HON’BLE HIGH COURT IN WRIT PETITION NO.1633/2019 AND ETC.

THESE APPEALS HAVING BEEN HEARD AND RESERVED ON 22.02.2021, COMING ON FOR ‘PRONOUNCEMENT’ OF JUDGMENT THIS DAY, SATISH CHANDRA SHARMA J., DELIVERED THE FOLLOWING:

JUDGMENT

Regard being had to the similitude in the controversy involved in these two cases, they were heard analogously together and a common order is being passed.

petition) and WA.No.190/2020 is filed by the State of Karnataka (respondent No.2 in the writ petition).

respondent No.1 – company opted to change the land based coal project and finally Karnataka Power Transmission Corporation Limited (KPTCL) was directed to make certain amendments in the PPA dated 22.4.1999. The amendments of PPA were not finalized by KPTCL ( the successor of KEB) and a dispute arose between the parties in respect of tariff as well as on other aspects. The representations were submitted and finally respondent No.1- company invoked the provision of Permanent Court of Arbitration keeping in view Article 14.3 of the PPA dated 22.4.1999. The Arbitration Court, comprising of three members, was constituted which entered upon the reference for adjudication of disputes and thereafter, upon a joint adjudication, duly signed by both the parties, terminated the proceedings by passing an order on 5.8.2004. Subsequently, further negotiations took place after termination of the arbitral proceedings and the parties agreed to revise the capacity of project from 220 to 300 M W and then to 500 M W with change of location from Mandya to Hassan. The revised PPA was signed by the parties on 25.6.2007.

original PPA dated 22.4.1999 and also invoked the arbitration clause under 1999 PPA before the Permanent Court of Arbitration (hereinafter referred to as PCA) Hague at Netherlands. The PCA issued a notice to the present appellant on 29.6.2018. A reply dated 13.8.2018 was filed in the matter and on 3.9.2018 the PCA appointed one Mr.Gourab Banerjee as a designated appointing authority and on 11.9.2018 co-arbitrators were appointed with the Presiding Arbitrator.

that respondent No.1 – company is a ‘generating company’ and any dispute between the ‘generating company’ and the ‘distributing company’ has to be looked into keeping in view Section 86(1)(f) of the Electricity Act, 2003.

vehemently argued that, in case, the learned Single Judge has arrived at a conclusion that the Arbitral Tribunal could decide its own jurisdiction, the question of recording a finding about the jurisdiction of the Tribunal and the appropriateness of the initiation of the arbitration proceedings by the writ petitioner is not tenable and the order passed by the learned Single Judge deserves to be set aside.

amount to taking away the jurisdiction of the KERC in respect of a number of regulatory aspects and dispute resolution mechanism pertaining to various power projects, which have not yet attained commercial operation.

mechanism agreed between the parties. It has been argued that the impugned order suffers from both a mistake of law and also mistake of fact.

aforesaid writ petitions, the writ petitioner is claiming relief based upon the PPA which was signed in the year 2007 and therefore, it has been argued that the writ petitioner is blowing hot and cold and has indulged in multifarious proceedings taking stands to suit its own convenience and the learned Single Judge has totally lost sight of the aforesaid aspect.

the arbitration proceedings based upon the PPA of the year 1999 does not arise.

untenable in view of the specific language of Section 86(1)(f) of the Electricity Act, 2003, which empowers the KERC to set aside all disputes itself or to refer disputes for adjudication by arbitration. A direct consequence of the said provision would be that the arbitrability of disputes also has to be considered by the State Commission itself. It has been further contended that the learned Single Judge has misdirected himself in comparing the provisions of Section 64 of the aforesaid Disabilities Act with Section 94 the Electricity Act, 2003. The learned Single Judge has not compared the ambit and scope of jurisdiction by comparing Sections 58 and 59 of the aforesaid Disabilities Act with Section 86(1)(f) of the Electricity Act 2003. In those circumstances, learned Single Judge recorded an erroneous finding that the State Commission completely lacks jurisdiction and the order of the State Commission is void. Hence, a prayer has been made to set aside the order passed by the learned Single Judge.

not approved the PPA of 2007, the fact of restatement of the PPA has not been considered at all. He has further stated that non approval of the PPA has no effect insofar as the applicability of Section 86(1)(f) of the Electricity Act, 2003 and the restated dispute resolution in the PPA has to be taken into account in the matter of any dispute between the present appellant and the ‘generating company’. It has been further contended that the earlier clause in the PPA of the year 1999 is obliterated by novation and the learned Single Judge has failed to consider this vital aspect and therefore, the order passed by the learned Single Judge deserves to be set aside. It has been further contended that the finding arrived at by the learned Single Judge that by virtue of Section 185 of the Electricity Act, 2003, the definition of the term ‘generating company’ contained in previous enactments cannot be looked into, is also untenable and therefore, the impugned order deserves to be set aside.

parties, the Electricity Act, 2003 is very much applicable and in the light of Section 86(1)(f) of the Electricity Act, 2003, the KERC was justified in passing an order in favour of the appellant. Hence, a prayer has been made to set aside the order passed by the learned Single Judge.

2) Gujarat Urja Vikas Nigam Ltd., vs Essar Power Ltd, reported in (2008) 4 SCC 755;

3) Enercon (India) Ltd., & Ors., vs. Enercon GMBH & Anr., reported in (2014) 5 SCC 1;

4) Modi Entertainment Network & Anr., vs. WSG Cricket PTE Ltd., reported in (2003) 4 SCC 341;

5) Ashapura Mine-Chem Limited vs. Gujarat Mineral Development Corporation, reported in (2015) 8 SCC 193;

6) Printers Mysore Ltd.,& Anr., vs. Asst. Commercial Tax Officer & Ors.,, reported in (1994) 2 SCC 434;

7) P.Singaravelan & Ors., vs. District Collector, Tiruppur & Ors.,, reported in (2020) 3 SCC 133, and

8) N.N.Global Mercantile Pvt.Ltd., vs. Indo Unique Flame Ltd., & Ors., reported in 2021 SCC Online SC 13.

terms of the consent award dated 5.8.2004, respondent No.1 invoked the arbitration proceedings again on 25.6.2008 under the UNCITRAL Rules. The PCA (Permanent Court of Arbitration) issued notice to the appellant and respondent No.2 on 29.6.2018 under Article 2 of the Rules. It has been further stated that as per Article 3.2 of the Rules, arbitral proceedings shall be deemed to be commenced on the date on which notice of arbitration is received by the respondents. It has been further argued that thus the respondents submitted to the jurisdiction under the UNCITRAL Rules. It has been stated that after the constitution of the Arbitral Tribunal, the appellant and respondent No.2 without raising the plea of lack of jurisdiction of the proceedings as provided under Article 23 of the UNCITRAL Rules, rushed to the KERC raising the plea of lack of jurisdiction of the Arbitral Tribunal seeking declaratory relief. It has been further stated that in spite of the fact that Article 23 of the UNCITRAL Rules provides that the objection as to the lack of jurisdiction, if at all, has to be raised before the Arbitral Tribunal itself and Article 23.3 provides that the Arbitral Tribunal may rule on a plea referred to it either as a preliminary question or while delivering the award on merits.

29.6.2018 by the PCA (Permanent Court of Arbitration) at Hague to the appellant and respondent No.2 and appellant and respondent No.2 have filed objections regarding maintainability and jurisdiction of the Arbitral Tribunal on 28.8.2018 and on 29.8.2018. It has been further stated by the learned Senior Counsel for respondent No.1 that ignoring the objections raised by the appellant and respondent No.2, the PCA (Permanent Court of Arbitration) appointed Mr.Gourab Banerji as appointing authority, who inturn appointed Hon’ble Justice Amitava Roy, Retired Judge of Supreme Court, in exercise of power under Article 7(2)(b) of the UNCITRAL Rules, who in turn along with Mr.Ashok Kumar Shahi, nominee Arbitrator of respondent No.1 nominated Hon’ble Justice S.B.Sinha (retired judge of Supreme Court) as the Presiding Arbitrator. The appellant along with respondent No.2 being aggrieved by the appointment of Arbitrators filed a common application in O.P No.91/2018 before the KERC under Section 86(1)(f) of the Electricity Act, 2003.

which is a sine qua non for any dispute to be adjudicated under Section 86(1)(f) of the Electricity Act, 2003. It has been further argued that the PCA (Permanent Court of Arbitration) through its appointed authority and the members of the Arbitral Tribunal so constituted were made parties before the KERC and notices were issued to them. It has been further stated that from its very inception KERC overstepped its jurisdiction by entertaining the application OP.No.91/2018 and issued notices to respondents 3 to 6 therein.

the PCA as well as the communication of the PCA is illegal and passed a restraint order against proceeding in respect of the arbitration. Therefore, respondent No.1 being aggrieved by the order passed by the KERC preferred a writ petition i.e., WP.No.1633/2019 raising a plea amongst others on the jurisdiction of KERC under Section 86(1)(f) of the Electricity Act, 2003 to pass the impugned order.

b) A combined reading of Clauses (28) and (29) of Section 2 of the Electricity Act, 2003 makes it clear that the legislature intended that an entity to be categorized as a ‘generating company’ must own or operate or maintain a generating station. The respondent No.1 admittedly neither owns or operates nor is in a position to supply electricity. Therefore, respondent No.1 does not fall within the definition of ‘generating company’ and is thus outside the purview of the Act. In the application moved before KERC by the appellant and respondent No.2, it was falsely averred, in order to bring the case under section 86(1)(f) that the respondent No.1 is a ‘generating company engaged in the business of generating electricity’ because sans such an averment or existence of such a fact the application of the respondent No.2 was not maintainable being outside the scope of the Act.

c) The KERC in order to get over the hurdle of the fact that the respondent No.1 was not a generating company and thus outside the scope of section 86(1)(f) of the Act, attributed to the respondent No.1, the character of ‘a prospective generating company’, by adding words and intention to the definition clause, and literally amending the provision, KERC did not apply its mind to the fact that the duty of a generating company u/s 10 of the Act, is to supply electricity to a licensee (appellant) and without a generating station how could electricity be generated and then supplied. The concept of a prospective generating company is not envisaged under the Act. The KERC clothed itself with the power of legislation and violated the basic principles of statutory interpretation. The KERC in its anxiety to grant relief failed to appreciate that the only dispute that can ever arise between a generating company and a license would only be relatable to the quantum of supply of its electricity or the rates at which the electricity is to be supplied or a breach of electricity supply agreement. This is settled by the Hon’ble Supreme Court in Tata Power Company Ltd. (2009) 16 SCC 659. No such agreement existed and thus not alluded to by the appellants. A prospective generating company cannot under any circumstances be in a position to supply electricity to a licensee, a duty, which is statutorily mandated u/s 10 of the Act. There is no other relationship envisaged under the Act between a generating company a licensee, and sans such relationship (as understood u/s 10 of the Act) there can never arise any dispute so as to attract Section 86(1) (f) of the Act.

d) That the Revised or Restated version dated 25.06.2007 having never been processed/approved by the KERC till date, its Arbitration Clause in the Agreement dated 22.04.1999 remains unaffected by the provisions of Electricity Act, 2003 due to lack of applicability of the said Act and thus the Respondent No.1 had rightly resorted to invoking Arbitration under the terms of the Consent Award pursuant to Article 14.3 of the Agreement dated 22.04.1999. e) That the KERC, while delivering the impugned judgment chose to ignore the submissions of the petitioner nor it applied its mind to the obvious fact that Respondent No.1 not being a generating company and there being no generating station owned or operated by the petitioner, KERC could not assume to itself jurisdiction under Section 86(1) (f) of the Electricity Act, 2003 to adjudicate upon “disputes” which if at all, fall patently under the

jurisdiction of the Arbitral Tribunal and are clearly beyond the scope and powers to KERC.

f) That, KERC failed to appreciate that it neither had the jurisdiction nor the power under law to restrain the Arbitral Tribunal validly constituted under the UNCITRAL Rules pursuant to the consent award passed on 05.08.2004.

g) That, KERC failed to appreciate that the impugned order is outside the scope of the Act and being wholly without jurisdiction is a nullity which is non est.

h) That the Hon’ble KERC failed to appreciate that the Hon’ble Supreme Court in Sarwan Kumar and Anr. Vs. Madan Lal Aggarwal (2003) 4 SCC 147, has held that “A decree passed by a Court without jurisdiction over the subject matter or on other grounds which goes to the root of its exercise or jurisdiction, lacks inherent jurisdiction. It is a coram non judice. A decree passed by such a court is a nullity and is non est”.

Section 86 (1) (f) of the 2003 Act, and for this reason the Application filed by the State as a main applicant along with the Appellant as a co-applicant could not have been entertained by the KERC as it was without authority of law.

jurisdiction or not. He has further argued that the learned Single Judge was justified in setting aside the order dated 17.12.2018.

had not been made out by BSES and on that basis had issued orders which had not been prayed for by BSES. He has further contended that in case the KERC has inserted ‘prospective generating company’ into the statute by recording a finding that the ‘generating company’ would also mean a ‘prospective generating company’ which owns or operates or maintains a ‘generating company’ which was never the stand of the appellant and respondent No.2 before the KERC. He has further argued that the KERC should have restrained itself from making out a third case which prejudiced respondent No.1 and was without authority of law. Hence, the learned Single Judge was justified in setting aside the order passed by KERC.

stood repealed ie., cease to exist. He has further contended that the 1948 Act stood repealed with the coming into force of the Electricity Act, 2003 and what was saved was only the State Act of 1999 and not the Central Act of 1948. He has further argued that under the Act of 1999 there is no definition of ‘generating company’ and therefore, by no stretch of imagination the ‘generating company’ can include a ‘prospective generating company’ also.

(2017) 1 SCC 487;

2) State Bank of Patiala vs. Vinesh Kumar Bhasin, reported in (2010) 4 SCC 368;

3) India Tobacco Co.Ltd., vs. The Commercial Tax Officer, Bhavanipore and others, reported in (1975) 3 SCC 512;

4) Raghunath Rai Bareja vs. Punjab National Bank, reported in (2007) 2 SCC 230;

5) CIT, Kerala vs. Tara Agencies, reported in (2007) 6 SCC 429;

6) Dipak Babaria & Anr., vs. State of Gujarat & Others, reported in (2014) 3 SCC 502;

7) Dwarka Prasad Agarwal vs. B D Agarwal, reported in 2003(6) SCC 230;

8) Nusli Neville Wadia vs. Ivory Properties , reported in (2019) SCC Online SC 1313 ;

9) A.Ayyasamy vs. A.Paramasivam & Ors., reported in (2016) 10 SCC 386;

10) Gujarat Urja Vikas Nigam Ltd vs Essar Power Ltd., reported in 2008(4) SCC 755;

11) Maharashtra Electricity Regulatory Commission vs. Reliance Energy Ltd., reported in (2007) 8 SCC 381;

12) Tata Power Company Ltd., vs. Reliance Energy Ltd., reported in (2009) 16 SCC 659;

13) Tata Power Company Ltd., vs. Reliance Energy Ltd., reported in (2008) 10 SCC 321;

14) Mohinder Singh Gill vs. Chief Election Commissioner, reported in (1978) 1 SCC 405;

15) Magma Leasing & Finance Ltd., vs. Potluri Madhavilata, reported in 2009(4) Arb. LR 1 SC;

16) State M.P. vs. Sanjay Nagayach, reported in (2013) 7 SCC 25;

17) Wander Ltd., vs. Antox India Pvt.Ltd., reported in 1990 Supp SCC 727;

18) CIT & Anr., vs., KARN Planters Coffee Curing Pvt.Ltd., reported in (2016) 9 SCC 538;

19) Harbanslal Sahnia & Anr., vs. Indian Oil Corpn., Ltd., & Ors., reported in AIR 2003 SC 2120;

20) Whirlpool Corporation vs. Registrar of Trade Marks, reported in (1998) 8 SCC 1; and

21) Balkrishna Ram vs. Union of India & Anr., reported in (2020) 2 SCC 442.

“14.3 Arbitration. a) Notwithstanding the above, if any dispute is unable to be resolved by the Parties under Section 14.1 or Section 14.2 within one hundred (100) Days after such dispute arises (or such shorter period provided in Article 9, then such dispute shall be settled exclusively and finally by arbitration. It is specifically understood and agreed that any dispute that cannot be resolved between the Parties, including any matter of law or fact relating to the interpretation of this Agreement, shall be submitted to arbitration irrespective of the magnitude thereof, the amount in dispute or whether such dispute would otherwise be considered justiciable or ripe for resolution by any court or arbitral tribunal.

(b) Save as expressly otherwise provided in this Agreement, all disputes arising out of or connection with this Agreement shall be settled exclusively and finally by arbitration. It is understood and agreed that any dispute which cannot be resolved between the Parties including any matter of law or fact relating to the interpretation of this Agreement shall be submitted to arbitration irrespective of its size or the amount in dispute. This Agreement and the rights and obligations of the parties shall remain in full force and effect pending the award in such arbitration.

(c) The parties agree that the arbitration shall be conducted in accordance with the UNCITRAL Rules (the “Rules”) for the time being in force. For the avoidance of doubt, the parties agree that the Indian Arbitration and Conciliation Act 1996 shall not apply to this Agreement or to any arbitration proceeding or award rendered pursuant to this Article or to any dispute arising out of or in connection with this Agreement except as stated in the following sentence. In relation to the enforcement of an award in India, the Parties agree that such award shall be treated as a foreign award and not a domestic award and further agree that enforcement of such an award shall be subject to the provisions of Part II of the Arbitration and Conciliation Act 1996.

(d) The venue of the arbitration shall be Bangalore, India and the award shall be made (or shall be deemed for all purposed) to be made in Bangalore. The language

and documents of the arbitration shall be English and the award shall be made in English.

(e) There shall be three arbitrators. One arbitrator shall be appointed by each party. The third arbitrator shall be appointed by the each Party. The third arbitrator shall be appointed by the first two arbitrators in accordance with the Rules and shall be the presiding arbitrator. If the two arbitrators appointed by the Parties fail to appoint the third presiding arbitrator the third arbitrator will be appointed by the Appointing Authority in accordance with the Rules.

(f) The award of the arbitrators shall be final and conclusive and binding on the parties.

(g) The provisions for the resolution of disputes in this Section including the law applicable to this Section have been agreed by the Parties in good faith and on an arms length basis.

amendments in the PPA dated 22.4.1999. The amendments to the PPA were not finalized by KPTCL (the successor company of Karnataka Electricity Board) and a dispute arose between the parties in respect of tariff as well as on other aspects. Finally, respondent No.1 – company invoked the provisions of Permanent Court of Arbitration (PCA) keeping in view Article 14.3 of PPA dated 22.4.1999. The Permanent Court of Arbitration, comprising of three members was constituted which entered upon the reference for adjudication of disputes and thereafter, upon a joint application, duly signed by both the parties, terminated the proceedings by passing an order on 5.8.2004. The order dated 5.8.2004 is reproduced as under: “ARBITRAL TRIBUNAL Comprised of 1. Mr.Justice S.P.Bharucha (Retd) 2. Mr.Arvind Pande, 3. Mr.Justice K.Shivashankar Bhat (Retd)

In the matter of dispute: Between Euro India Power Canara (Pvt) Ltd.,

.. Claimant And Karnataka Power Transmission Corporation Ltd., Caveri Bhavan, Bangalore

.. Respondent

Minutes of the Proceedings dated 5th August 2004,

Appearances: Mr.R.K.Naroola, Advocate & director with another of Claimant.

Mr.S.S.Naganand Senior Advocate and Mr.Sriranga Advocate and Mr.Vishvanath Hiremath Executive Director and Chief Legal Advisor of the Respondent – KPTCL

Learned counsel for the parties have submitted an application, jointly made and signed by the parties and their counsel, under section 32(2) of the Arbitration and Conciliation Act, 1996. They pray for an order that the arbitral proceedings be terminated in terms of the said application. Accordingly, the arbitration proceedings stand terminated in terms of the said application.

Each of the parties shall pay the sum of Rs.25,000 (twenty five thousand) to Mr.Justice S.P.Bharucha and Mr.Arvind Pande within two weeks. The balance of Rs.75,000 (Seventy Five thousand) shall be refunded by Mr.Justice K.Shivashankar Bhat to each of the parties.

Sd/-

Sd/- Sd/- Mr.Justice S.P.Bharucha Mr.Justice K.Shviashankar Bhat Mr.Arvind Pande”

“ARTICLE -7 DISPUTE RESOLUTION

7.1 Informal Dispute resolution

(a) The parties hereto agree to attempt to resolve all Disputes arising hereunder promptly, equitably and in good faith.

(b) The parties further agree to provide each other with reasonable access during business hours to any and all non privileged records information and data pertaining to any such Dispute.

(c) Each Party shall designate in writing and communicate to the other Party a representative who shall be authorized to resolve any Dispute arising under this Agreement in an equitable manner and unless otherwise expressly provided herein, to exercise the authority of the Parties hereto to make decisions by mutual agreement.

(d) If the designated representatives are unable to resolve a Dispute under this Agreement within thirty days after such Dispute arises, such Dispute shall be referred to respective higher authorities designated by the Parties for resolution of the Dispute.

7.2 Formal Dispute Resolution

(a) All Disputes or differences between the Parties arising out of or in connection with this Agreement shall be first tried to be settled through mutual negotiation in terms of Article 7.1.

(b) In the event that such differences or Disputes between the Parties are not settled through mutual negotiations within ninety (90) days after such Dispute arises, then it shall be resolved in accordance with The Electricity Act 2003 as modified from time to time.

(c) Notwithstanding the existence of any disputes referred to adjudication, the Parties shall continue to perform their respective obligations under this Agreement and the Parties shall not withhold, for any reason whatsoever, when any adjudication proceeding are pending, payment of any undisputed amount that has become due under this Agreement.”

KERC alone which is empowered to adjudicate upon the disputes between the ‘generating company’ and the ‘licencees’. A prayer was also made for a declaration to declare that the provisions of the Arbitration and Conciliation Act, 1996, would not be applicable in the matter pertaining to appointment of arbitrators and finally, an order has been passed by the KERC on 17.12.2018 holding that it is the KERC alone which can decide the dispute between respondent No.1 – company and Karnataka Electricity Board/KPTCL, against which the writ petition was filed by respondent No.1 – company and the same has been allowed by the learned Single Judge.

The revised/restated PPA dated 25.6.2007 contained the following recitals; “RECITALS

WHEREAS

(i) Under the International Competitive Bids called for in December, 1995, Government of Karnataka (GOK) accepted in March, 1996, the setting up a 156 MW Barge Mounted Power Plant (BMPP), based on Low Sulphur Heavy stock as fuel, at Mulki, near Mangalore to be executed by Euro India Power Canara (Private) Limited (EIPCL), a special purpose company incorporated on the 1st May, 1996, and

later GOK agreed to alter the project to a 195 MW combined cycle plant with Naphtha as fuel and EIPCL and erstwhile Karnataka Electricity Board (KEB) executed a Power Purchase Agreement on 22nd April 1999 (Original PPA) accordingly, with a fixed tariff of US$ 0.0389 plus Rs.0.1685 (equivalent to Rs.1.95 at Rs 46/US$) per kWh and a variable charge as a pass through;

(ii) With changed scenario, in view of the IPP policy of GOK which discouraged Naphtha as fuel and also BMMPs, on 22nd May, 2001, GOK accepted the proposal of EIPCL to change the location to Mandya (land based), fuel to Coal, and capacity to 220 MW Gross (200MW Net) as an extended bid route project, the tariff and the other terms of PPA to be negotiated by EIPEL and Karnataka Power Transmission Corporation Limited (KPTCL), the successor entity to KEB,

(iii) As the revised PPA could not be finalized, at the request of EIPCL, GOK on 23rd September, 2006, accepted further change of location to Hassan, use of imported coal, and capacity to 1x300 MW Gross, and to finalise a revised PPA with ESCOMS and file it before KERC;

(iv) In terms of the said GOK order 23rd September 2006, detailed negotiations have been held. During these negotiations, it was desired that the base year tariff for the power project be linked to that of 1x500 MW power plat of KPCL at Bellary. EIPCL, accepted the suggestion and subsequently GOK vide its order dated 19th April 2007 approved the proposal of the Buyers and the Seller to enhance the gross capacity of the power plant to 1x500 MW at the same site, subject to the condition that the tariff shall not be higher than the tariff of Bellary Thermal Power Station (KPCL) I stage.

(v) GOK vide its order No.DE 98 PPC 95 dated 18.05.2007 has accorded its approval for change of name of the Company from M/s.Euro India Power Canara (P) Ltd to M/s. Hassan Thermal Power (P) Ltd including all the allotments, documents and approvals pertaining to 1x500 MW Coal based

thermal power project at Hassan allotted in the name of M/s.Euro India Power Canara (P) Ltd.,

(vi) Thereafter, ‘the Seller’ and ‘the Buyers’, (being the successor entities to KPTCL and on whom the applicable rights and liabilities of the erstwhile KEB finally devolved under the Karnataka Reforms Act, 1999 and Electricity Act, 2003), having conducted detail negotiations, desire to incorporate the result of their consensus, by entering into a self contained Revised and Restated Power Purchase Agreement, in terms of Article 16.1 of the original PPA of 1999. Under this:

(vii) The Seller plans to design, construct, own and operate a new pulverized coal-fired thermal power generating station generating station located near Hassan with a nominal net electrical generating capacity of atleast 462.5 MW (as more specifically defined in section 1.1 and Annexure-4), the “Facility” and

(viii) The Buyers are at present the distribution license holders and engaged at present in the business of distribution of Electricity in the areas coming under their jurisdiction in Karnataka State; and

(ix) The Seller desires the Facility to be built and financed as a single project consisting of one 462.5 MW (net) minimum generating Facility, with pulverized coal-fired boilers and other associated equipments; and

(x) The Seller desires to interconnect the Facility with the state Grid System at the Interconnection Point, in order to sell electricity to the Buyers in accordance with this Agreement; and

(xi) The Seller has offered to sell 462.5 MW of Electricity generated by the Facility, to the Buyers and the Buyers have agreed to purchase the same subject to the provisions of Electricity Act 2003, and approval of Commissioner and the terms and conditions, set out herein.

“Section 86. (Functions of State Commission): ---

(1) The State Commission shall discharge the following functions, namely:

(a) determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State:

Provided that where open access has been permitted to a category of consumers under section 42, the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers;

(b) regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from the generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State;

(c) facilitate intra-State transmission and wheeling of electricity;

(d) issue licences to persons seeking to act as transmission licensees, distribution licensees and electricity traders with respect to their operations within the State; (e) promote co-generation and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee;

(f) adjudicate upon the disputes between the licensees, and generating companies and to refer any dispute for arbitration;

(g) levy fee for the purposes of this Act;

(h) specify State Grid Code consistent with the Grid Code specified under clause (h) of sub-section (1) of section 79;

(i) specify or enforce standards with respect to quality, continuity and reliability of service by licensees;

(j) fix the trading margin in the intra-State trading of electricity, if considered, necessary; and

(k) discharge such other functions as may be assigned to it under this Act.

(2) The State Commission shall advise the State Government on all or any of the following matters, namely :-.

(i) promotion of competition, efficiency and economy in activities of the electricity industry;

(ii) promotion of investment in electricity industry (iii) reorganization and restructuring of electricity industry in the State; (iv) matters concerning generation, transmission , distribution and trading of electricity or any other matter referred to the State Commission by that Government.

(3) The State Commission shall ensure transparency while exercising its powers and discharging its functions.

(4) In discharge of its functions, the State Commission shall be guided by the National Electricity Policy, National Electricity Plan and tariff policy published under section 3.”

Section 142 reads as under:

“Section 142. (Punishment for non-compliance of directions by Appropriate Commission):

In case any complaint is filed before the Appropriate Commission by any person or if that Commission is satisfied that any person has contravened any of the provisions of this Act or the rules or regulations made thereunder, or any direction issued by the Commission, the Appropriate Commission may after giving such person an opportunity of being heard in the matter, by order in writing, direct that, without prejudice to any other penalty to which he may be liable under this Act, such person shall pay, by way of penalty, which shall not exceed one lakh rupees for each contravention and in case of a continuing failure with an additional penalty which may extend to six thousand rupees for every day during which the failure continues after contravention of the first such direction.”

Section 149 reads as under:-

“Section 149. (Offences by companies): ---

(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed was in charge of and was

responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of having committed the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

2) Notwithstanding anything contained in sub- section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of having committed such offence and shall be liable to be proceeded against and punished accordingly.

Explanation. - For the purposes of this section,-

a) "company" means a body corporate and includes a firm or other association of individuals; and

b) "director", in relation to a firm, means a partner in the firm.”

of the Electricity Act, 2003 and the writ petition ought not to have been entertained by the learned Single Judge in view of the alternative remedy.

(1) Any person aggrieved by an order made by an adjudicating officer under this Act (except under section 127) or an order made by the Appropriate Commission under this Act may prefer an appeal to the Appellate Tribunal for Electricity:

Provided that any person appealing against the order of the adjudicating officer levying any penalty shall, while filing the appeal , deposit the amount of such penalty:

Provided further that wherein any particular case, the Appellate Tribunal is of the opinion that the deposit of such penalty would cause undue hardship to such person, it may dispense with such deposit subject to such conditions as it may deem fit to impose so as to safeguard the realisation of penalty.

(2) Every appeal under sub-section (1) shall be filed within a period of forty-five days from the date on which a copy of the order made by the adjudicating officer or the Appropriate Commission is received by the aggrieved person and it shall be in such form, verified in such manner and be accompanied by such fee as may be prescribed:

Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty-five days if it is satisfied that there was sufficient cause for not filing it within that period.

(3) On receipt of an appeal under sub-section (1), the Appellate Tribunal may, after giving the parties to the appeal an opportunity of being heard, pass such orders

thereon as it thinks fit, confirming, modifying or setting aside the order appealed against.

(4) The Appellate Tribunal shall send a copy of every order made by it to the parties to the appeal and to the concerned adjudicating officer or the Appropriate Commission, as the case may be.

(5) The appeal filed before the Appellate Tribunal under sub-section (1) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the appeal finally within one hundred and eighty days from the date of receipt of the appeal:

Provided that where any appeal could not be disposed of within the said period of one hundred and eighty days, the Appellate Tribunal shall record its reasons in writing for not disposing of the appeal within the said period.

(6) The Appellate Tribunal may, for the purpose of examining the legality, propriety or correctness of any order made by the adjudicating officer or the Appropriate Commission under this Act, as the case may be, in relation to any proceeding, on its own motion or otherwise, call for the records of such proceedings and make such order in the case as it thinks fit.”

as a ‘generating company’ in the light of the definition of the ‘generating company’ as provided under the Electricity Act, 2003.

“(28) "generating company" means any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person, which owns or operates or maintains a generating station;”

resolution mechanism under the earlier PPA dated 22.4.1999, does not arise.

of the year 2007. In the considered opinion of this Court, once there is a subsequent agreement between the parties providing for resolution of their disputes in terms of Section 86, this Court will not be hesitant to hold that the dispute, if any, after execution of subsequent/fresh PPA dated 25.6.2007 has to be resolved keeping in view Section 86 of the Electricity Act, 2003.

Senior Counsel for respondent No.1 are accepted, there will be two parallel dispute resolution mechanisms in existence. In the considered opinion of this Court, so far as the dispute resolution mechanism is concerned, the earlier mechanism has been replaced by the subsequent mechanism on account of PPA dated 25.6.2007 executed between the parties. Hence, any dispute arising after 25.6.2007 has to be resolved in terms of Section 86 of the Electricity Act, 2003.

not pari materia to Section 89(1)(f) of the Electricity Act, 2003. In the considered opinion of this Court, it is only KERC which can adjudicate the dispute between the appellant and respondent No.1 keeping in view the subsequent agreement executed between the parties and therefore, the judgment in State Bank of Patiala (supra) does not help respondent No.1 in any manner.

executed by such companies, the disputes arising between such companies and the Transmission companies will have to be adjudicated by Regulatory Commission and those companies which have not started generation, will have a different forum. There cannot be such type of situation where two forums will be in existence as argued by the learned Senior Counsel and therefore, in the considered opinion of this Court any such company which is established or is going to establish a generating unit will come within the meaning and definition of ‘generating company’ as defined under the Electricity Act, 2003.

Therefore, the aforesaid judgments are of no assistance to respondent No.1.

vs. Reliance Energy Ltd., (supra) and Tata Power Co.Ltd., vs. Reliance Energy ltd., (supra) and it has been argued that a dispute between a ‘licensing company’ and a ‘generating company’ has to be decided in accordance with Section 11 of the Arbitration and Conciliation Act, 1986 and as respondent No.1 company is not a ‘generating company’ no such dispute can be resolved keeping in view Section 86 of the Electricity Act, 2003. This Court has carefully gone through the judgments delivered in the aforesaid cases and keeping in view the statutory provisions as contained under Section 86 of the Electricity Act, 2003 and the subsequent agreement executed between the parties dated 25.6.2007, as parties have accepted for adjudication of disputes keeping in view Section 86 of the Electricity Act, 2003, the question of referring the dispute to the Arbitration Tribunal constituted under the non existent PPA dated 22.4.1999, does not arise.

cannot be supplemented by fresh reasons. In the present case, there is no such contingency involved. The agreement dated 25.6.2007 is very much on record, which contains a dispute resolution mechanism and it also provides that the disputes, if any, shall be resolved keeping in view Section 86 of the Electricity Act, 2003. Therefore, the judgment in Mohinder Singh gill’s case (supra) is again of no help to respondent No.1.

been filed before the appellate forum. In the considered opinion of this Court, once the matter has already been decided by the learned Single Judge on merits and this Court is deciding the matter again on merits, question of availability of alternative remedy does not arise.

Section 86(1)(f) of the said Act opining that the adjudicatory functions generally ought not to be conducted by the State Commission in the absence of a Judicial Member, but then sub-section (1) of Section 84 of the said Act provides for a person with knowledge in the field of law albeit not mandatorily, on a plain reading of the section. The effect of this will be dealt with in the latter part of our judgment. “

“38. Much of the ground which was sought to be canvassed in the course of the pleadings is now subsumed in the submissions which have been urged before this Court on behalf of the State of Telangana and TSIIC. As we have noted earlier, during the course of the hearing, learned Senior Counsel appearing on behalf of the State of Telangana and TSIIC informed the Court that the entitlement of Unitech to seek a refund is not questioned nor is the availability of the land for carrying out the project being placed in issue. Learned Senior Counsel also did not agitate the ground that a remedy for the recovery of moneys arising out of a contractual matter cannot be availed of under Article 226 of the Constitution. However, to clear the ground, it is necessary to postulate that recourse to the jurisdiction under Article 226 of the Constitution is not excluded altogether in a contractual matter. A public law remedy is available for enforcing legal rights subject to well-settled parameters. 39. A two judge Bench of this Court in ABL International Ltd. v. Export Credit Guarantee Corporation of India [ABL International] analyzed a long line of precedent of this Court to conclude that writs under Article 226 are maintainable for asserting contractual rights against the state, or its instrumentalities, as defined under Article 12 of the Indian Constitution. Speaking through Justice N Santosh Hegde, the Court held: "27......... the following legal principles emerge as to the maintainability of a writ petition: (a) In an appropriate case, a writ petition as against a State or an instrumentality of a State arising out of a contractual obligation is maintainable. (b) Merely because some disputed questions of fact arise for consideration, same cannot be a ground to refuse to entertain a writ petition in all cases as a matter of rule. (c) A writ petition involving a consequential relief of monetary claim is also maintainable." 40. This exposition has been followed by this Court, and has been adopted by three-judge Bench decisions of this Court in State of UP v. Sudhir Kumar and Popatrao Vynkatrao Patil v. State of Maharashtra. The decision in

ABL International, cautions that the plenary power under Article 226 must be used with circumspection when other remedies have been provided by the contract. But as a statement of principle, the jurisdiction under Article 226 is not excluded in contractual matters. Article 23.1 of the Development Agreement in the present case mandates the parties to resolve their disputes through an arbitration. However, the presence of an arbitration clause within a contract between a state instrumentality and a private party has not acted as an absolute bar to availing remedies under Article 226. If the state instrumentality violates its constitutional mandate under Article 14 to act fairly and reasonably, relief under the plenary powers of the Article 226 of the Constitution would lie. This principle was recognized in ABL International: "28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power. (See Whirlpool Corpn. v. Registrar of Trade Marks [(1998) 8 SCC 1] .) And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the Court thinks it necessary to exercise the said jurisdiction." (emphasis supplied) 41. Therefore, while exercising its jurisdiction under Article 226, the Court is entitled to enquire into whether the action of the State or its instrumentalities is arbitrary or unfair and in consequence, in violation of Article 14. The jurisdiction under Article 226 is a valuable constitutional safeguard against an arbitrary exercise of

state power or a misuse of authority. In determining as to whether the jurisdiction should be exercised in a contractual dispute, the Court must, undoubtedly eschew, disputed questions of fact which would depend upon an evidentiary determination requiring a trial. But equally, it is well-settled that the jurisdiction under Article 226 cannot be ousted only on the basis that the dispute pertains to the contractual arena. This is for the simple reason that the State and its instrumentalities are not exempt from the duty to act fairly merely because in their business dealings they have entered into the realm of contract. Similarly, the presence of an arbitration clause does oust the jurisdiction under Article 226 in all cases though, it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked. The jurisdiction under Article 226 was rightly invoked by the Single Judge and the Division Bench of the Andhra Pradesh in this case, when the foundational representation of the contract has failed. TSIIC, a state instrumentality, has not just reneged on its contractual obligation, but hoarded the refund of the principal and interest on the consideration that was paid by Unitech over a decade ago. It does not dispute the entitlement of Unitech to the refund of its principal.”

company. When once this Court has held that respondent No.1 falls within the meaning and term of definition ‘generating company’ and there is an agreement executed between the parties dated 25.6.2007, any dispute arising out of such agreement has to be decided only by KERC and no other forum is available to respondent No.1 keeping in view Section 86 of the Electricity Act, 2003. In the present case, it is true that PPA dated 22.4.1999 contained dispute resolution clause. Clause 14.1 and clause 14.3 dealt with arbitration proceedings and the applicability of UNCITRAL Rules. The Provisions of PPA dated 22.4.1999 had been restated in the PPA dated 28.6.2007 which in its recitals Clause (vi) clearly states that the provisions of PPA of the year 1999 have been restated and revised in terms of Article 16.1 of the PPA of the year 1999 dealing with amendment. Further, Article 7 of the PPA of the year 2007 provides for dispute resolution mechanism in terms of the provisions of the Electricity Act, 2003 and therefore, the appointment of Arbitrator, if any, can only be done under the provisions of the Electricity Act, 2003.

generating power but also includes a company which intends to generate the power and is not confined to a company which has actually commenced generation or which has already set-up or owns a generating station. Respondent No.1 – company is certainly covered under the definition of ‘generating company’ and once it is covered under the definition of ‘generating company’, any dispute has to be adjudicated keeping in view Section 86 of the Electricity Act, 2003. The entire regulatory framework provides for resolution of dispute between the ‘licencees’ and the ‘generating company’ and the provisions of Electricity Act, 2003 and the regulations framed therein provides for resolution of disputes by the KERC and there is a remedy of appeal also against the order passed by the KERC. Therefore, in the considered opinion of this Court, the learned Single Judge has erred in law and in facts in allowing the writ petition. Hence, the order passed by the learned Single Judge deserves to be set aside.

authority which are competent to look into all disputes between the ‘licencees’ and the ‘generating company’ keeping in view the provisions of Electricity Act, 2003 and the regulations framed thereunder, meaning thereby any dispute between respondent No.1 – company and the licencee or the appellant or the State has to be resolved keeping in view Section 86 of the Electricity Act, 2003, by the KERC. No orders as to costs.

Sd/- JUDGE

Sd/- JUDGE nd