Electricity Act Will Not Apply When Contract Is For Supply Of Materials Simplicitor, Court Can Apppoint Arbitrator: Allahabad High Court

The Single Bench of Justice Sangeeta Chandra held that a party that has supplied some material for the construction of an electricity sub-station would not fall within the meaning of licenecee or supplier under the Electricity Act and when the contract is purely a commercial arising out of a supply contract and does not involve an element of trade in electricity, the provisions of Electricity Act are not attracted.

Facts

The parties entered into three separate agreements for the construction of an electricity sub-station out of which one was for the supply of material and equipment. The petitioner requested the respondent to take the delivery before the stipulated period. The petitioner also agreed to bear the interest towards the preponement of delivery.

However, the dispute arose when the respondent withheld some payment citing early delivery. The petitioner served the respondent with a legal notice and on the failure of the respondent to make the payments, the petitioner invoked the arbitration clause in the supply agreement. The respondent refused its consent to the appointment of arbitration and insisted that only the Chairman of UPPTCL could appoint the arbitrator.

Contention of the Parties

The respondent disputed the maintainability of the application on the following grounds:

• The dispute falls within the rubric of the Electricity Act and the same must be referred to the U.P. State Electricity Regulatory Commission or the adjudicator nominated by it.
• The Electricity Act is a special legislation and overrides S.11 of the Arbitration Act.
• Section 86 r/w S. 174 gives overriding effect to the Electricity Act.
• The construction of the sub-station is a technical matter which shall be referred to someone having knowledge of the field.
• The claims of the petitioner are highly time-barred.

The petitioner countered the submissions made by the respondent on the following grounds:

• In view of the 2015 Amendment to the Act, the Chairman of the Commission has become ineligible to appoint the arbitrator.
• The dispute does not fall within the rubric of Electricity Act and is purely a commercial contract governed by the Indian Contract Act and the A&C Act.
• The petitioner is only supplying material for the construction of a sub-station that has no element of any trade in electricity.
• The jurisdiction of the Court under S.11 is limited to the examination of a valid arbitration agreement, the Court is not expected to go into limitation aspect.

Analysis by the Court

The Court held that the embargo under S.86 of the Electricity Act which provides that only the Regulatory Commission can appoint an arbitrator does not apply when the agreement is for supply simpliciter and does not have an element of transmission, distribution and trading of electricity and the Court can appoint an arbitrator in such cases.

The Court further held that a party that has supplied some material for construction of an electricity sub-station would fall within the meaning of licenecee or supplier under the Electricity Act and when the contract is purely a commercial arising out of a supply contract and does not involve an element of trade in electricity, the provisions of Electricity Act are not attracted.

The Court reiterated that the jurisdiction of the Court in a S. 11 application is confined to the examination of the existence of the arbitration agreement. Accordingly, the Court allowed the application.

Case Title: CG Power and Industrial Solutions Ltd. v. U.P. Power Transmission Corporation Ltd., CIVIL MISC. Arb. A. 12 of 2021

Case citation: 2022 LiveLaw (All) 191

Date: 17.01.2022

Counsel for the Petitioner: Ms. Meha Rashmi and Gantavya, Advocates

Counsel for the Respondent: Karuna Thareja, Romit Seth and Shishir Prakash, Advocates.