Grid Corporation Of Orissa Ltd. v. Indian Charge Chrome Ltd. .

S.P Kurdukar, J.— Leave granted.

2. These appeals are directed against a common judgment and order dated 10-2-1998 passed by the learned Chief Justice of Orissa High Court, Cuttack in Miscellaneous Appeals Nos. 599, 600 of 1997 and MJC No. 229 of 1997. All these appeals are being disposed of by this judgment.

3. The brief facts leading to the present controversy may be summarised as under:

The GRID Corporation of Orissa Ltd., (for short “the GRIDCO”) is the appellant in all these appeals whereas M/s Indian Charge Chrome Ltd., (for short “ICCL”) is the respondent. GRIDCO was the appellant in Miscellaneous Appeals Nos. 599, 600 of 1997 whereas ICCL was the petitioner in MJC No. 229 of 1997 before the Orissa High Court.

4. The GRIDCO became the successor of the Orissa State Electricity Board (hereinafter referred to as “OSEB”) w.e.f 1-4-1996 and was engaged in the business of transmission, distribution and supply of electricity to various consumers in the State of Orissa. Indian Metals and Ferro Alloys Company (for short “IMFA”) is a sister concern of ICCL. ICCL sometime in 1984 corresponded with the Government of Orissa seeking permission to generate power. Accordingly after completing the formalities ICCL sometime in 1989 set up the Captive Power Plant to generate power in the State of Orissa at Choudwar. Power generated at Choudwar was to be wheeled to the Indian Metals and Ferro Alloys Company (IMFA) at Therubali, a sister concern of ICCL and PPL and the surplus power was to be sold to OSEB. For the purposes of administrative convenience ICCL was incorporated. Accordingly, an agreement dated 14-2-1989 was entered into between OSEB and ICCL and under the said agreement the power generated by ICCL at Choudwar was fed to the GRID of OSEB for further transmission to the Charge Chrome Manufacturing Plant of IMFA at Therubali. The arrangement between OSEB and ICCL continued until a Memorandum of Understanding dated 15-11-1994 was arrived at and signed by ICCL and OSEB and thereafter followed by an agreement dated 4-3-1995 w.e.f 1-12-1994. Under this MOU of 1994 power supplied by ICCL to OSEB was charged at 77 paise per unit; wheeling of power by OSEB (from ICCL) was charged @ 15%, (known as wheeling charges). ICCL was permitted to draw power from OSEB for supply to PPL/IMFA/PPT on payment of Rs 2.31 per unit (back-up power); ICCL guaranteed supply of at least 10 MW power to OSEB per day. Although this agreement was valid for six months, however the exchange of power on both sides continued even thereafter. OSEB used to raise the monthly bills as per the readings recorded on TOD meters with 30 minutes' recording time. GRIDCO who became the successor of OSEB w.e.f 1-4-1996, called upon ICCL to pay outstanding dues for the period December 1994 to December 1996 amounting to Rs 24.8281 crores. ICCL failed to make the payment. During this period the OSEB and thereafter GRIDCO had been wheeling/supplying electricity to ICCL in terms of MOU dated 15-11-1994.

5. On 25-2-1997 ICCL filed an application before the Regulatory Commission constituted under the Orissa Electricity Reform Act, 1995 (for short “Reform Act”) raising a dispute as regards bill amounts and its liability to pay to GRIDCO. On 7-4-1997 GRIDCO informed ICCL that unless the arrears of Rs 24.8281 crores are paid on or before 22-4-1997, it will be compelled to discontinue the power supply in accordance with law. On 8-4-1997 ICCL filed another petition before Regulatory Commission alleging that the claim of the GRIDCO for the arrears for the period from December 1994 to December 1996 is untenable inasmuch as the same is contrary to the MOU and the agreement. ICCL then alleged that because of variation of frequency in the GRID, the power generated by its Captive Power Plant could not be inducted into the GRID. It was an obligation of GRIDCO to check variation of frequency in the GRID and because of its negligence its captive power plant got damaged. The billing done by GRIDCO on the basis of half-hourly reading was totally unjustified. The GRIDCO in its reply denied the allegations and stated that variations of frequency in the GRID was maintained by using proper electric system. The frequency was maintained as prescribed under the Indian Electricity Rules. The power was wheeled according to the MOU dated 15-11-1994 and the agreement dated 4-3-1995. As regards the maintenance of frequency it was stated that it depends upon all operators in the GRID which is coordinated by the Eastern Regional Load Despatch Centre. The GRIDCO used to receive power from various sources. The claim set up by ICCL as regards the damage to their Captive Power Plant is untenable. As regards the billing it was stated that it is established practice for all heavy industrial consumers that though billing is done on a monthly basis, but for billing purposes exchange of energy/power supplied to the consumers is measured on the basis of consumption for each 30 minutes' block separately. To facilitate this TOD meters are installed at the supply point. Clause 16(2) of the agreement dated 4-3-1995 provides for such billing.

6. Despite the notice no payment was made by ICCL and therefore, vide notice dated 24-4-1997 under Section 24(1) of the Indian Electricity Act the ICCL was called upon to pay the arrears within seven days, in default power supply will be discontinued.

7. The ICCL did not make any payment. But on the contrary on 30-4-1997 filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short “Arbitration Act”) in the Court of District Judge, Puri which was numbered as Arbitration Case No. 195 of 1997 for relief of injunction. The District Judge on 30-4-1997 granted ex parte injunction restraining GRIDCO from disconnecting back-up power supply to ICCL, IMFA and PPL. GRIDCO aggrieved by this order filed appeal before the Orissa High Court on 15-5-1997. The High Court stayed the operation of the order of the District Judge dated 30-4-1997. On 16-5-1997 ICCL appeared before the High Court and prayed for recall of the order of stay dated 15-5-1997. The High Court recalled its order and directed to restore the electric supply which was disconnected, subject to deposit of Rs 5 crores by ICCL as against the arrears of Rs 24.8281 crores. Aggrieved by this order dated 16-5-1997 ICCL filed SLP in this Court which came to be disposed of on 27-5-1997 confirming the direction of payment of Rs 5 crores but, however, this Court granted facility to make payment in two instalments. As regards the recurring charges the Court observed as under:

“We are not passing any order with regard to recurring charges. The matter is left open. The appeals are disposed of accordingly.”

8. In the meantime the Regulatory Commission on 21-5-1997 asked ICCL to clarify as to how its petition could be treated as reference under Section 37(1) of the Reform Act since it is not a licensee under the said Act. On 2-6-1997 ICCL filed another application before the Regulatory Commission stating that the same may be treated as a reference under Section 37(1) of the Reform Act. On 9-6-1997 GRIDCO filed its reply and took a preliminary objection to the maintainability of the application for reference under Section 37(1) of the Reform Act. The Regulatory Commission adjourned the matter to 19-7-1997 for hearing on the question of maintainability.

9. On payment of rupees five crores by ICCL in pursuance of the order of this Court the GRIDCO restored power supply to ICCL. Again for the period of January 1997 to May 1997 the ICCL failed to pay the bills amounting to Rs 5,12,45,546.06 and, therefore, on 19-6-1997/20-6-1997 the GRIDCO issued a notice to ICCL to pay the said amount within seven days in default power supply will be disconnected. The ICCL approached the Additional District Judge challenging the said notice and the Court on 27-6-1997 granted interim order staying the operation of the notice dated 19-6-1997/20-6-1997 of disconnection without imposing any condition. On 14-7-1997 the ICCL filed a petition before the Orissa High Court under Section 11 of the Arbitration Act being MJC No. 229 of 1997 for appointment of an arbitrator. In the meantime the Additional District Judge who was seized of the two applications disposed of the same by two separate orders dated 26-7-1997 restraining GRIDCO from disconnecting power supply to ICCL/IMFA till disposal of Case No. 15 of 1997 pending before the Regulatory Commission. Both these orders did not impose any condition for payment of arrears or current charges except stating therein that in the event ICCL failed to comply with the order of the Supreme Court, GRIDCO may take appropriate action.

10. Aggrieved by the two orders dated 26-7-1997 passed by the Additional District Judge the GRIDCO on 14-8-1997 filed two appeals before the Orissa High Court being MAs Nos. 599-600 of 1997 challenging the legality and correctness of the said orders.

11. In view of the blanket stay order dated 26-7-1997, ICCL did not make any payment for the amounts due from June 1997 to September 1997 in the aggregate sum of Rs 13,18,88,000. On 7-11-1997 GRIDCO, therefore, issued a notice of disconnection for non-payment of the dues of Rs 13,18,88,000. On receipt of this notice ICCL on 10-11-1997 filed an application before the High Court praying for stay of the notice dated 7-11-1997 of disconnection and the High Court on 11-11-1997 granted the interim relief.

12. The learned Chief Justice of the Orissa High Court took up for final disposal Miscellaneous Appeals Nos. 599/600 of 1997 filed by GRIDCO and MJC No. 229 of 1997 filed by ICCL. The High Court by its order dated 10-2-1998 held that there was a dispute between ICCL and the GRIDCO which is arbitrable falling within the jurisdiction of the Regulatory Commission under Section 37 of the Reform Act and also arbitrable under Section 3 read with Schedule of Electricity Act. The High Court further held that since the Regulatory Commission failed to arbitrate in the matter and/or failed to appoint an arbitrator, it nominated a retired Chief Justice of India as the sole arbitrator. The High Court further directed that stay of disconnection shall continue. From the return filed on behalf of ICCL it appears that ICCL without loss of any time, on 25-2-1998 filed statement of claim on its behalf before the sole arbitrator.

13. The GRIDCO aggrieved by the common judgment and order passed by the High Court filed these three appeals challenging the legality and correctness thereof.

14. We have gone through the judgment of the High Court and in our considered view it had exceeded the jurisdiction while entertaining the application of ICCL under Section 11 of the Arbitration and Conciliation Act, 1996. The High Court erroneously assumed that the Regulatory Commission had failed to arbitrate under Section 37(1) of the Reform Act. This finding is factually incorrect because vide application dated 19-7-1997 ICCL asked the Regulatory Commission to adjourn the proceedings pending before it on the ground that it had filed MJC No. 229 of 1997 in the High Court. In view of this application the Regulatory Commission did not proceed in the matter. If this be so the High Court in our opinion was wrong in holding that there was failure on the part of the Regulatory Commission to arbitrate and consequently the application made by ICCL under Section 11 of Arbitration Act is maintainable. In our considered view the application made by ICCL under Section 11 of the Arbitration Act, 1996 (MJC No. 229 of 1997) was premature and the High Court could not have entertained the same and granted desired relief to ICCL.

15. Another question which was seriously contested on behalf of GRIDCO before the Regulatory Commission as well as before the High Court was that ICCL is not a licensee within the meaning of Section 2(h) of the Indian Electricity Act, 1910 and also under Sections 2(e) and (f) of the Reform Act, 1995. The High Court recorded a finding that ICCL is a licensee under the Indian Electricity Act, 1910 and it continued to be a licensee even after the Reform Act, 1995 came into force. The High Court placed reliance on Section 14(1) of the Reform Act and held that ICCL is authorised by the State Authority in the business of supplying the electricity. It was thus concluded that ICCL in view of Section 14 of the Reform Act, 1995 shall continue to be a licensee. In view of this finding the High Court held that the dispute is arbitrable under Section 37(1) read with Section 33 of the Reform Act, 1995. It is not seriously disputed that ICCL after a long-drawn correspondence with the Orissa Government had received no objection to put up the Captive Power Plant at Choudwar to generate power. Accordingly in 1989 the Captive Power Plant started generating power which was supplied to the OSEB. This arrangement continued till 1994 when MOU and agreement were entered into between ICCL and OSEB. The GRIDCO being a successor of OSEB, naturally the MOU of 1994 and agreement of 1995 will be binding upon the GRIDCO in the absence of any material to the contrary. It is not the contention of the GRIDCO that ICCL did not supply any power at all during the period for which the bills were raised on ICCL. Despite this factual position it appears that no formal licence was issued under Section 2(h) of the Indian Electricity Act, 1910 or under the Reform Act, 1995. It cannot be ignored that the investment of ICCL in putting up a Captive Power Plant at Choudwar is running into few hundred crores. Sections 2(e) and (f) of the Reform Act read as under:

“(e) ‘licence’ means a licence granted under Chapter VI;

(f) ‘licence’ or ‘licence-holder’ means a person licensed under Chapter VI to transmit or supply energy including GRIDCO.”

Chapter VI deals with licensing of transmission and supply.

Section 14(1) reads as under:

No person, other than those authorised to do so by licence or by virtue of exemption under this Act or authorised or exempted by any other authority under the Electricity (Supply) Act, 1948 shall engage in the State in the business of

(a) transmitting; or

(b) supplying electricity.

From the facts noted hereinabove and in view of Section 14(1) of the Reform Act it is quite clear that ICCL was/is authorised and engaged in supplying the electricity to OSEB and thereafter to GRIDCO and if this be so the dispute between the GRIDCO and ICCL could be arbitrable under Section 37(1) read with Section 33 of the Reform Act, 1995.

16. Mr F.S Nariman, learned Senior Counsel in support of these appeals urged that not only the District Judge but even the High Court had totally ignored a well-settled rule while injuncting the GRIDCO from performing its statutory function of disconnection of power supply to ICCL for non-payment of arrears of electricity bills without imposing any condition as regards payment of arrears and recurring charges and consequently the GRIDCO is obliged to continue power supply. The order passed by the High Court is neither just nor fair and is opposed to the rule of balance of convenience. As regards the amount of arrears of Rs 24 crores recoverable pursuant to the first demand/disconnection notice for the period December 1994 to December 1996 at the moment it is covered by the interim order of this Court. His grievance is as regards the subsequent arrears from January 1997 to March 1998 which come to Rs 46.193 crores (approximately) on monthly settlement basis. On half-hourly settlement basis the amount payable would come to Rs 62.52 crores including delayed payment surcharge @ 2% per month. Demand/disconnection notices have already been served but in view of various orders passed by the courts the GRIDCO is unable to recover arrears and in addition it has been injuncted from disconnecting power supply. The only equitable order in such circumstances ought to be to call upon ICCL to pay all the arrears since ICCL had availed facility of power/energy to run its plants IMF and PPL. He urged that no reasons whatsoever are given by the courts below while granting unconditional interim orders in favour of ICCL.

17. Mr K.K Venugopal, learned Senior Counsel while countering these submissions urged that ICCL was neither in arrears nor it neglected to pay the bill amount. According to him the bills served on ICCL were patently wrong because billing was done on the basis of half-hourly consumption recorded on TOD meter. ICCL was not obliged to honour such bills. He also urged that ICCL was generating power but it was because of high frequency in the GRID it could not absorb power generated by ICCL and as a result thereof its Captive Plant and boilers were required to be shut down. At times the boilers were closed down for several hours. Though the high rise frequency was intermittent but once the boilers were shut down they used to take more than two hours to produce the steam which is supplied to the turbines to generate power. The GRID high frequency had caused damage to the blades of the turbines costing about couple of crores in replacing the same. Mr Venugopal then urged that in fact the GRIDCO owed certain amounts to ICCL and had received Rs 10 crores and for the balance the matter is pending before the High-Power Committee set up by the Government of Orissa. As regards the wheeling charges counsel disputed any liability thereof and urged that there was no question of paying any wheeling charges when power was not wheeled by GRIDCO by reason of time to time shutting down of turbines and boilers of ICCL. It was, therefore, urged that the GRIDCO had no claim whatsoever against the ICCL and therefore the courts below were right in staying the disconnection notices without imposing any condition.

18. In our considered view the spacious claim pressed before us on behalf of ICCL cannot be accepted at this interlocutory stage. It is not denied by ICCL that back-up power was available to its sister concern IMF and PPL and the manufacturing process was continuing. At this interlocutory stage what the courts are required to bear in mind is as to whether a prima facie case for recovery of arrears of energy charges is made out and on whose side the balance of convenience lies. In the facts and circumstances of the case whether interim order should be passed by imposing certain conditions or without any condition. The net result of the impugned order is that the GRIDCO is required to maintain back-up power to the constituents of ICCL but for such supply the latter was not required to make any payment for power consumed. It also needs to be mentioned that under the MOU dated 15-11-1994 and agreement dated 4-3-1995 ICCL is required to pay for consumption of energy @ Rs 2.31 per unit which is far less than the rate at which power is supplied to other commercial units. It is true that ICCL when supplies power to GRIDCO the latter pays at the rate of 77 paise per unit to the former. Some dispute is also raised as regards interpretation of MOU and agreement but we do not think it appropriate to deal with these contentions at this point of time.

19. Mr Venugopal also disputed the recording of consumption of power on half-hourly basis. It was according to learned counsel wholly illegal and as a result thereof the amounts in the bills stood inflated, and consequently ICCL is not liable to honour such bills. On the other hand Mr Nariman urged that it is not open to ICCL to challenge the half-hourly recording because it was specifically agreed upon between the parties under MOU and the agreement. We do not propose to deal with these rival contentions at this interlocutory stage and, therefore, they are kept open.

20. Mr Nariman alternatively urged that at any rate on the basis of monthly billing, the amounts payable by ICCL to GRIDCO would come to Rs 46.193 crores and, therefore, at this interlocutory stage without touching the controversy as regards half-hourly recording is right or wrong, ICCL must make the full payment of this amount. Another dispute also relates to wheeling charges @ 15%. Accordingly the GRIDCO power was in fact wheeled but according to Mr Venugopal when the turbines were shut down, though intermittently, there was no question of wheeling the power. This issue again needs further investigation in depth and at this interlocutory stage it would not be proper to conclude one way or the other. We, therefore, proceed on the assumption that the amount reflected on the basis of monthly bills payable to the GRIDCO by ICCL would be Rs 46.193 crores less 15% wheeling charges which would come to Rs 6.92 crores approximately. At this interlocutory stage even if we give benefit of this amount of Rs 6.92 crores payable by ICCL to GRIDCO under the various bills still the outstanding arrears payable by ICCL to GRIDCO would come to Rs 39.273 crores.

21. Now the question is what could be the fair and just order as regards the payment of these arrears. Mr Venugopal although expressed the financial constraints of ICCL to make any payment but that cannot be a ground to allow ICCL to use power without any charges. We, therefore, feel that the fair and proper order to meet the ends of justice at this interim stage would be to direct ICCL to pay Rs 39.273 crores in seven equal instalments of Rs 5 crores payable on or before 10th of each month to GRIDCO and the 8th instalment would be for the balance amount. First instalment of Rs 5 crores will be payable in the month of June 1998. The Regulatory Commission while making the award, will pass appropriate orders as regards interest on the amount if found refundable to ICCL or recoverable by GRIDCO on their respective claims in accordance with law. In the event of any two defaults, facility of payment by instalment to stand vacated. Disconnection notices will revive and GRIDCO will be at liberty to take such steps as permissible in law. As regards the recurring charges if ICCL wants to use power it will have to make payment of such bills as and when served upon them. ICCL may raise a dispute before the Regulatory Commission. If there be any occasion to consider such application the Regulatory Commission will pass interim orders in accordance with law. These calculations and directions are without prejudice to the rights and contentions of the parties.

22. For the conclusions recorded hereinabove all the three appeals are allowed. The judgment and order dated 10-2-1998 passed by the High Court is set aside and resultantly the appointment of the arbitrator stands quashed. The ICCL is directed to make the payment of arrears as indicated above. The application made by ICCL to the Regulatory Commission to arbitrate will stand revived and the Regulatory Commission will dispose of the matter in accordance with law. In the facts and circumstances of the case the parties are directed to bear their own costs.