GRID CORPORATION OF ORISSA LTD V. INDIAN CHARGE CHROME LTD

The author of this case analysis is Ms. Diya Runwal, she is a first year law student pursuing law from ILS Law College.

FACTS/ BACKGROUND

1. GRIDCO becomes successor of OSEB i.e. Orissa State Electricity Board and was engaged in business of transmission, distribution and supply of Electricity to consumers;

2. IMFA i.e. Indian metal and Ferro alloy Co. is sister concern (separate enterprise owned by same owner) of ICCL;

3. There was an agreement between OSEB and ICCL wherein ICCL was to send power generated by it to GRID OF OSEB for further transmission to the Charge Chrome manufacturing plant of IMFA. ICCL was permitted to draw power from OSEB for supply to PPL/IMFA/PPT;

4. This agreement was for 6 months but the transmission and re-transmission of power continued even after the expiry of the agreement;

5. GRIDCO called upon ICCL to pay the bill amount of 24.8281 Cr which it failed to pay;

6.  ICCL filed an application to the Regulatory Commission (RC) under Orissa Electricity Reforms Act 1995 for disputes as to bill amount;

7. On 8th of April 1997 ICCL filed a petition before RC complaining that the bill amount is not valid;

8. At the same time GRIDCO sent a notice to disconnect the supply to ICCL due to nonpayment of the bill amount;

9. On response to which ICCL on 30th of April 1997 filed a petition under section 9 of the Arbitration and Conciliation act for relief of injunction to the Orissa district Court;

10. Decision of the District Judge-The District Judge restrained GRIDCO from disconnecting backup power supply to ICCL;

11. GRIDCO filed an appeal before the High Court challenging the decision of the District Court;

12. The High Court in its order dated 10-2-98 held that there was a dispute between ICCL and GRIDCO which is arbitrable falling within the jurisdiction of the Regulatory Commission under Section 37 of the Reforms Act and also arbitrable under Section 3 read with the Schedule of Electricity Act. The High Court further held that since the Regulatory Commission failed to appoint an arbitrator, nominated a retired Chief Justice of India as the sole arbitrator.

13. High Court in its decision put a stay on the decision of the District Court but on recall on its order of the prayer of ICCL directed GRIDCO to restore the electricity which was disconnected on the condition that ICCL pays 5 Crore as against arrears of 24.8281Crore to GRIDCO;

14. Aggrieved by the decision, ICCL appealed to the Supreme Court.

ISSUES

1. Whether  the entertaining  of an an application under Section 11 of the Arbitration and Conciliation Act(26 of 1996) in which the  High Court assumed that the Regulatory Commission failed to arbitrate under Section 37(1) of the Reforms Act  during the pendency of   the matter before Regulatory Commission is valid or not?

2. Whether the grant of injunction by the High Court on notice by GRIDCO regarding disconnection of power supply to ICCL for  non payment of bills by the latter is valid or not ?

ARGUMENTS ADVANCED BY

1. Petitioner

Mr. F. S. Nariman. Learned Senior Counsel in support of the appellant urged that firstly, District Judge and High Court ignored a well settled rule while injunction the GRIDCO from performing its statutory function of disconnection of power supply to ICCL, demand/disconnection notices has already been served but in view of various orders passed by the courts the GRIDCO is unable recover arrears so the only equitable order in such circumstances ought to be call upon ICCL to pay all arrears since ICCL had availed facility of power to run its plants IMF/PPL.

2. Respondent

Mr. K. K. Venugopal, Learned Senior Counsel urged that ICCL was neither in arrears nor it neglected to pay the bill amount. According to him, the bills served were patently wrong because billing was done on the basis of half hour consumption recorded on TOD meter and ICCL was not obliged to pay such bills.

He also urged that ICCL was not able to absorb the power generated by ICCL because of high frequency in the GRID as a result the boilers and its Captive Plant had to be shut down. There was no question of wheeling charges when power was not wheeled by GRIDCO by reason of time to shut down the turbines and boilers of ICCL.

RATIONALE

The claims on behalf of ICCL cannot be accepted at this interlocutory stage and the courts are required to bear in mind 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. Mr. Venugopal 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, the 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 an application the Regulatory Commission will pass an interim order in accordance with law. These calculations and directions are without prejudice to the rights and contentions of the parties.

FINAL JUDGMENT

HON’BLE JUDGES- G. T. NANAVATI, S. P. KURDUKAR

The judgment and order dated 10-02-1998 passed by the High Court is set aside and resultantly the appointment of the arbitrator stands quashed. The Supreme Court on 13-05-98 ruled that the High Court overstepped its jurisdiction, as the regulatory commission had not yet failed to act, making the application for arbitration premature. 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 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.

AUTHOR'S INSIGHT

The case threw light upon the procedural aspects of arbitration under the Arbitration and Conciliation Act, 1996. It also laid down the importance of jurisdiction and interim invocation of arbitration when regulatory authorities are concerned. The Supreme Court held the High Court erred in assuming the fact that the regulatory commission has failed to act, thereby prematurely entertaining the petition. This decision on interim invocation of arbitration by judicial forums is a landmark in the history of law of arbitration​

This case established the power and jurisdiction of the state electricity regulatory commission to decide disputes between the utility provider and consumers. It further lays down that if any dispute arises between the utility provider and consumer, it should be first decided within the regulatory framework, before the judicial forums are approached. Thus, the primary authority of the Regulatory Authority to decide the dispute is upheld.

The authority also needs to frame clear cut policies and frameworks in respect to disposal of such disputes within the commission. For example, definite timeline and procedure for arbitration should be prescribed so as to avoid unnecessary and unwanted judicial delay.

The multiplicity of the agencies which were involved in the present case including GRIDCO, ICCL, Orissa State Electricity Regulatory Commission, District Judge, Special Judge (P&H) and the Supreme Court, shows the lack of coordination amongst the agencies to effectively deal with such disputes. Thus, certain reforms in the dealing of the disputes relating to industrial utilities by and large would be advisable.

To sum up, Grid Corporation of Orissa Ltd. v. Indian Charge Chrome Ltd. decision has implications beyond the technicalities of the case and outside the narrow legal issues involved therein. It has wide ranging ramifications for the regulatory authority, the industrial sector, the financial investors and the common consumers. This landmark decision would thus, act as a touchstone for any future disputes relating to utility providers and other large consumers.

Sources

1. Grid Corporation of Orissa Ltd v. Indian Charge Chrome Ltd [1998] SC 2686, [1998] AIR 1998 SC 1761.