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PETITIONER: BRID CORPN. OF ORISSA LTD.

       Vs.

RESPONDENT: M/S INDIAN CHARGE CHROME LTD.

DATE OF JUDGMENT:       13/05/1998

BENCH: G.T. NANAVATI, S.P. KURDUKAR

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T S.P. KURDUKAR, J.      Leave granted. (2)  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 Judgment.      The brief  facts leading to the present controversy may be summarised as under:- (3)  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 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 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. Accordingly,  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

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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. (5)  On 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. (6)  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 discontinued. (7)  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

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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". (8)  In 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. (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 19.6.97/20.6.97 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. (10) 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 orders. (11) 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.

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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. (12) 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. (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 19.797 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. (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 Indian Electricity Act, 1910 and also under Section 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 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

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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. It 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;      (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 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. His 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. 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 re  given by  the  Courts below while  granting unconditional interim orders in favour of ICCL.

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(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 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. (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 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. (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

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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. (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 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 10.2.98 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. The 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.