of Orissa Ltd. Vs. M/S Indian Charge Chrome Ltd.  INSC 311 (13 May 1998)
Nanavati, S.P. Kurdukar S.P. Kurdukar, J.
These appeals are directed against a common Judgment and order dated 10.2.98
passed by the Learned Chief Justice of Orissa High Court, Cuttack in Miscellaneous Appeal Nos.599/97,
600/97 and MJC No. 229/97. All these appeals are being disposed of by this
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 Appeal Nos. 599/97
-600/97 whereas ICCL was the petitioner in MJC No. 229/97 before the Orissa
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
sometimes 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.
an agreement dated February
14, 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. 1.12.94. 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 power to OSEB at least 10 MW
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 DSEB w.e.f. 1.4.96, 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.
25.2.1997 ICCL filed an application before the Regulatory Commission
constituted under the Orissa Electricity Reform Act, 1955 (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 crore are paid on or before 22.4.97, it will be compelled to
discontinue the power supply in accordance with law. On 8.4.97 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 this
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 GIRD 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 tat 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 4.3.95 provides for such billing.
Despite the notice no payment was made by ICCL and therefore, vide notice dated
24.4.97 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
The ICCL did not make any payment. But on the contrary on 30.4.97 ICCL 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. 195/97 for relief of injunction. The District
Judge on 30.4.97 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 15.5.97. The High Court
Stayed the operation of the order of the District Judge dated 30.4.97. on
16.5.97 ICCL appeared before the High Court and prayed for recall of the order
of stay dated 15.5.97. 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
27.5.97 confirming the direction of payment of Rs. 5 crore 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".
the meantime the Regulatory Commission on 21.5.97 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 2.6.97 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 9.6.97
GRIDCO filed its reply and took a preliminary objection to the maintainability
of the application of Reference under Section 37(1) of the Reform Act. The
Regulatory Commission adjourned the matter to 19.7.97 for hearing on the
question of maintainability.
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 19.6.97/20.6.97 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 19/20.6.97 of disconnection without imposing any condition. On
14.7.97 the ICCL filed a petition before the Orissa High Court under Section 11
of the Arbitration Act being MJC No. 229/97 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 26.7.97
restraining GRIDCO from disconnecting power supply to ICCL/IMFA till disposal
of Case No. 15/97 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.
Aggrieved by the tow orders dated 26.7.97 passed by the additional District
Judge the Gridco on 14.8.97 filed two appeals before the Orissa High Court being
M.A. Nos. 599-600 of 1997 challenging the legality and correctness of the said
In view of the blanket stay order dated 26.7.97, ICCL did not make any payment
for the amounts due from June, 1997 to September, 1997 in the aggregate sum of Rs.
13,18,88000/- . On 7.11.1997 GRIDCO, therefore, issued a notice of
disconnection for non payment of the dues of Rs.13,18,88000/-. On 7.11.1997
GRIDCO, therefore, issued a notice of disconnection for non payment of the dues
of Rs.13,18,88000/-. On receipt of this notice ICCL on 10.11.1997 filed an
application before the High court praying for stay of the notice dated 7.11.97
of disconnection and the High Court on 11.11.1997 granted the interim relief.
The Learned Chief Justice of Orissa High Court took up for final disposal
Miscellaneous appeal Nos. 599/600 of 1997 filled by GRIDCO and MJC No. 229 of
1997 filled by ICCL. The High Court by its order dated 10.298 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 t he 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, 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 25.2.98 filed
statement of claim on its behalf before the sole arbitrator.
The GRIDCO aggrieved by the common judgment and order passed by the High Court
filed these three appeals challenging the legality and correctness thereof.
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.
finding is factually incorrect because vide application dated 19.797 ICCL asked
the Regulatory Commission to adjourn the proceedings pending before it on the
ground that it had filed MJC No. 229/97 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 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. 229/97) was premature and the High Court could
not have entertained the same and granted desired relief to ICCL.
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 Indian Electricity Act, 1910 and
also under Section 2(e) and (f) of the Reform Act, 1995.
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 Reform Act,
1995 came into force.
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 Indian
Electricity Act, 1910 or under the Reform Act, 1995.
cannot be ignored that the investment of ICCL in putting up a Captive power
Plant at choudwar is running into few hundred crores. Section 2(e) and (f) of
the Reform Act read as under:
(e) "licence" means a licence granted under Chapter VI;
"licence" or "licence holder" means a person licensed under
Chapter VI to transmit or supply energy including Gridco".
VI DEALS WITH LICENSING OF
TRANSMISSION AND SUPPLY Section 14(1) reads as under:
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.
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.
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 crore 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.
grievance is as regards the subsequent arrears from January, 1997 to March,
1998 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.
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 re given by the Courts below while granting unconditional
interim orders in favour of ICCL.
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
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 to turbines and boilors 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.
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 o maintain
back up power to the constituents of ICCL but for such supply latter was not
required to make any payment for power consumed. It also needs to be mentioned
that under the MOU dated 15.11.94 and agreement dated 4.3.95 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 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
his point of time.
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.
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%.
According the GRIDCO power was in fact wheeled but according to Mr. Venugopal
when the turbines were shut down though intermittantly 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 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.
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 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.
For the conclusions recorded hereinabove all the three appeals are allowed. The
judgment and order dated 10.2.98 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.
application made by ICCL to 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.