Karnataka HC Holds KERC Has No Jurisdiction To Interfere With Proceedings Of Permanent Court Of Arbitration [Read Order]

The Karnataka High Court has held that Karnatala Electricity Regulatory Commission has no jurisdiction to interfere with Permanent Court of Arbitration (PCA), proceedings under Section 86 of Electricity Act.

Justice P B Bajanthri while allowing the petition filled by Hassan Thermal Power Private Limited set aside the order of the commission, dated August 17,2018. In it's order it was held that "The dispute, said to have been involved between the Hassan Thermal Power Private Limited (formerly known as Éuro India Power Transmission Corporation Limited Vs The Government of Karnataka and the Karnataka Power Transmission Corporation Limited) is exclusively triable by this Commission, under Section 86 (1) (f) of the Electricity Act, 2003, and not before any other Forum.

Further it declared that, appointing Arbitrators, are illegal and opposed to the mandate of the Electricity

Act, 2003 and restrained Arbitrators from proceeding with the above-mentioned arbitral case. This order was chalenged before the High Court.

Case background:

Government of Karnataka invited International competitive bids for setting up of 150 M W Barge Mounted Power Plant (BMPP) based on Low Sulphur Heavy Stock (LSHS) as fuel at Mulki

near Mangaluru in the month of December 1995. Euro-India Power Canara (Private) Limited (EIPCL) was the highest bidder.

Later on, state agreed to alter the project to 195 MW combined cycle plant with Naphtha as a fuel and EIPCL and erstwhile Karnataka Electricity Board (KEB) executed a Power Purchase Agreement.

However, in view of a pinch change IPP, use of Naphtha as a fuel and also BMMPs was discouraged. Government, accepted the proposal of EIPCL to change the location to Mandya, fuel to coal and capacity of 220 MW gross (200 MW Net) as an extended bid route project, the tariff and other terms of PPA to be negotiated by EIPCL and KPTC- the successor entity to KEB.

Over a period various changes were made like change of location to Hassan so also rename the Company from EIPCL to that of M/s Hassan Thermal Power (Private) Limited. Revised and Restated Power Purchase Agreement in terms of Article 16.1 of the Original PPA of 1999 as Revised and Restated Power Purchase Agreement (for short R and R PPA) was framed on 25.06.2007.

In 2015, company filled petition having sought for implementation of the original PPA 1999, simultaneously invoking arbitral clauses before the Permanent Court of Arbitration (for short PCA), Hague at Netherlands. PCA issued a notice to the respondents. Respondents filed their reply on 13.08.2018, thereafter, arbitrators we appointed. Following which the respondents moved the Commission.

Petitioners argued:

Senior advocate, Anoop George Chaudhari argued that "Even though petitioner has a remedy of Appeal under Section 111 of Act, 2003 against the order of the KERC dated 17.12.2018, petitioner has not chosen to invoke alternative remedy on the score that petiton filed by the respondents is not maintainable before the KERC under Sections 86(1)(f), 142 and 149 of Act 2003.

It was also contended that "Revised and Restated Power Purchase Agreement dated 25.06.2007 is not in supersession of PPA 1999 dated 22.04.1999. Clause (iv) (Recitals) of the Revised Agreement dated 25.06.2007 is crystal clear that self contained Revised and Restated Power Purchase Agreement in terms of Article 16.1 of the Original PPA of 1999. In terms of Article 14.3, if there is any dispute in respect of PPA 1999 dated 22.04.1999, remedy is only arbitration.

Only Superior Courts are empowered to grant declaratory relief or judicial review. Therefore, KERC exceeded its jurisdiction. That apart, KERC proceeded to assign status to the petitioner as a 'prospective generating company'. Such adding of words by KERC is without authority of law. Even assuming that petitioner is 'a prospective generating company', the other clauses/criteria for invoking Section 86(1)(f) cited supra do not fall under the jurisdiction of KERC.

Senior advocate, S S Naganand argued for Karnataka Power Transmission Corporation Limited.

It was said "Present petition is liable to be rejected at threshold on the score that petitioner has not exhausted the remedy of statutory appeal provided under Section 111 of Act 2003 which provides for preferring appeal against any order.

To overcome the definition of 'generating company' and Section 86(1)(f) of Act, 2003 contended, it is deemed that once the PPA is entered into between the parties, 'generating company' would fall under the definition of 'generating company' under Sub-section (28) of Section 2.

Court said:

Court observed "KERC has framed an issue. As is evident from the issue as if dispute is between the petitioner and the Government. In other words, issue has not been framed in respect of dispute relating to petitioner and KPTCL. Thus, there is a total non- application of mind in deciding by KERC. Petitioner has made out prima facie case that the order of the KERC is without authority of law."

As regards authority to pass a declaratory order by KERC the court said "Source of power has not been pointed out to interfere with the PCA proceedings which were initiated at the behest of the petitioner under UNCITRAL against the respondents. Thus, respondents have not made out a case that KERC has powers to interfere with the PCA proceedings so also to pass declaratory orders.'"

As regards maintainability of the petition the court said: "Even assuming that petitioner has alternative

remedy under Section 111 of the Act, still there is no

where a petition which seeks interpretation of intricate question of law or an interpretation of provisions of Act 2003 and a petition which raises an issue of jurisdiction is directly maintainable before the Court."

On the contention that petitioner has not availed remedy of appeal under Section 111 of Act, 2003 has no substance. Validity of UNCITRAL

Arbitration can be tested only before the Court exercising judicial review and while the Commission may decide upon a dispute involving the interpretation of a regulation, for which an appeal under Section 111 of Act, 2003 would be maintainable, no appeal lie before the Tribunal on the validity of jurisdiction of Arbitration under UNCITRAL. 

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