Overview
India is one of the biggest producers of electricity globally. As per the recent data published by the IEA in 2019, India is the third largest producer of electricity worldwide, with a per capita consumption ranking at 106th in the world. India has also vowed on producing 500 GW of non-fossil power by the year 2030. This increase in production is based on an unprecedented increase in demand for power supply. Although, about 75% of the electricity produced in the country is obtained from thermal sources, the recent electricity trends are key as we look towards seizing the opportunities of today, to present a sustainable tomorrow. As more industries are looking towards capitalising on non-depletable sources owing to their Renewable Purchase Obligations (RPOs), electricity generated from renewable sources (non-thermal sources) are further being encouraged.
An increased production would need an efficient system of cash flow. Only when different sectors in the regime operate efficiently can this be obtained. Timely payment of dues and expeditious redressal of disputes are two major domains which need improvement. The Electricity Act, 2003 (hereinafter, ‘The Act’) confines the authority to resolve disputes to the Central or State Electricity Regulatory Commissions. However, on account of these commissions being burdened with litigations, timely redressals are not achieved which delays the process of production. A proposed solution to this issue could be encouraging alternative methods (out of court settlements) of dispute resolution in the sector. The act provides for ‘Arbitration’ as a mechanism for dispute resolution, however the discretion to appoint an arbitrator is solely vested with the commissions. Further, the Act fails to consider other available mechanisms for dispute resolution such as negotiation, mediation & conciliation etc.[1]
Arbitration under the Act
Section 158 of the Act provides for Arbitration whereby on an application made by either party to dispute, the appropriate commission (after being satisfied that it is needed), can nominate an Arbitrator to resolve such dispute.
Besides the Act, the Arbitration and Conciliation Act of 1996 (hereinafter, ‘the ACA’) also governs how the framework of Arbitration is regulated in the country. Parties to a contract can include an arbitration clause in their agreement and designate a mutual arbitrator. If parties in conflict are unable to mutually designate, they can approach the respective High Court or the Supreme Court u/s 11 for appointment of an arbitrator.
Now, keeping the provisions of both ‘the Act’ as well as ‘the ACA’ in consideration, the question to consider is can parties to a conflict mutually appoint an arbitrator under the ACA, or do they necessarily have to get it appointed through the Commissions under the Act? Which statute is to take precedence in terms of a conflict between the two? This concern was addressed by the Supreme Court in the Gujarat Urja[2] case which is discussed further.
Appointment of Arbitrators
In Gujarat Urja Vikas Nigam Limited v Essar Power Limited[3], the Appellant was a generating company and had contracted with the Respondent for supply of power. The disagreement developed from the electricity supply contract, wherein they tried to settle the dispute in accordance with the arbitration clause in the contract but were unable to settle on a single arbitrator. The respondent approached the High Court of Gujarat to request appointment of an arbitrator under ACA. The appellant approached the state commission to direct the matter to arbitration under the Electricity Act. The High Court approved the respondent’s petition and appointed his choice of arbitrator as the sole arbitrator. Aggrieved by non-compliance of the Electricity Act, the appellant approached the Supreme Court.
What is interesting to note is that provisions of the Act prevail (over-riding effect) over anything inconsistent in any other law based on S.174. This was acknowledged by the Supreme Court wherein it noted that since the Act was a special act dealing with specific law, it will prevail over the ACA which is a general statute. The position was made clear wherein the apex body observed that the regulatory commissions had exclusive jurisdiction to either resolve disputes themselves or appoint an arbitrator for the same. The court offered certain examples to illustrate when arbitrators can be appointed. In situations where the disputes require high technical expertise and the commission’s bench is not technically competent, or when the commission is burdened with pending litigation, the commission can direct the matter for arbitration.
This was a landmark judgement clarifying the position of the legislature; however, it left scope for arbitrariness. The judgement provided no defining principles regarding when must a commission adjudicate by itself and when must it refer the matter to arbitration.
Thereafter, the Supreme Court ruled in the case T.N Generation and Distribution Corporation Ltd. v PPN Power Generation Company Private Ltd[4]., that the discretion to appoint an arbitrator must be reasonable and non-arbitrary. Further, the court held that upon being dissatisfied with the decision of the commission to appoint an arbitrator, the aggrieved party can approach the APTEL (appellate tribunal) for re-determination. The APTEL is required to make a reasonable and non-arbitrary decision upon hearing such appeals. This was a welcome decision reducing the scope of arbitrariness and posing obligation upon the APTEL for a fair redressal of appeals.
However, concerns of parties who had already invoked the arbitration clause before the Gujarat Urja judgement (either mutually or via the HCs or the SC under the ACA) have been overlooked. After the judgement, many cases were observed wherein such practice of appointing arbitrators were deemed illegal. The appointed arbitrators did not co-operate with parties, and it only made the dispute resolution process lengthy and ineffective.
Scope for Alternative Mechanisms: Types and Benefits
The authority to adjudicate electricity disputes have been vested with the Central or State Electricity Regulatory Commissions by virtue of S. 79 (f) and S. 86 (f). These provisions state that commissions can either resolve dispute by themselves or refer the matter for arbitration. However, the Act does not take into consideration alternative mechanisms for dispute resolutions.
A variety of alternate dispute resolution (ADR) methods are available to contracting parties (not in the electricity sector) to resolve their disputes without having to go through the hassles of litigation, and for a quick and timely redressal of their dispute. Further, such methods have proved to be less expensive in nature, saving both time and cost for the concerned parties.
It has been observed that taking re-course to litigation and court proceedings can turn relationships between the contracting parties sour and unhealthy. In this regard, ADR can be used as a tool to balance the interests of parties while being able to maintain business relationships.
While opting for alternative resolution mechanisms, the parties may agree to more adaptable and convenient procedures than those offered by regulatory commissions, such as the provision for fast-track systems for speedy resolution. Further, on many occasions, parties may prefer to keep the records of the dispute confidential. Under such circumstances, ADR can be preferred to preserve the confidentiality of important material, which otherwise would become a matter of public record if put before the commissions.
Various methods for dispute resolution can include referring the matter for negotiation, conciliation, or mediations.
Negotiations
A Power Purchase Agreement (PPA) signed between the contracting parties can include a clause for dispute resolution through negotiations. This can happen through various ways wherein, disputes which can be negotiated can be required to be presented before an advisory or review board. The chief officers of this boards can make room for negotiation upon a specific issue and come to a timely conclusion, without having to jeopardise other arrangements of the contract.
Mediation and Conciliation
Under mediation, a third party being a ‘mediator’ is responsible for helping the parties reach a mutually agreed arrangement, which can involve keeping the interests of both parties. A mediator does not have to personally resolve the issue, instead is responsible for facilitating effective communication between the disputing parties to amicably conclude. A mediator is therefore responsible to make a detailed note of all perspectives and thereafter, enable the parties to have a constructive discussion for resolving such dispute. Conciliation is similar to mediation, wherein a conciliator is responsible to facilitate effective communication between conflicting parties to reach a consensus.
To invoke redressal through mediation process, a PPA can include the available rules for mediation such as the UNCITRAL Mediation Rules, the 2021 Arbitration Rules etc. Further, certain institutions responsible for providing relief through mediations and alternative mechanisms can be set up in India. Such institutions can be inspired by other institutions operating around the globe. Like, in the case of USA, there is a CPR Institute for dispute resolution and in London, there is a Centre for Effective Dispute Resolution (CEDR) established for the same purpose. With time, such institutions have proved to be extremely beneficial for the parties in dispute to be able to come to a solution without resorting to lengthy and expensive litigation.
Further, it has been observed that a recourse towards ADR is also being encouraged by Indian electricity authorities. The APTEL in the case M/s Sukhbir Agro Energy Ltd. v UPERC and Ors.[5], observed that APTEL can adopt its own procedure for resolution and can be guided by Section 89 (which provides for mediation) of the CPC while doing so. The APTEL observed that the matter in hand was apt to be referred for mediation and consequently, it was settled by the appointed mediator.
Conclusion
The need to accelerate production is felt by the generators now, more than ever. To match India’s commitment to produce more power, the electricity sectors must align to operate in a coordinated manner. Disputes arising between generating companies and licensees (transmission licensees, distribution licensees and electricity traders) need speedy redressals for players to continue with their contractual obligations. The production process, under no circumstances can be hindered by lengthy litigations and the complacency of the commissions to expeditiously conclude such disputes.
The approach taken by the APTEL in the Sukhbir Agro Energy case is highly significant as it is a defining step towards approaching alternative mechanisms for resolution of disputes in the electricity sector in India. As suggested, specialised bodies for effective dispute resolution can be established and matters lying unattended in the regulatory commissions can be transferred to such bodies. In conclusion, it can be demonstrated that using the right conflict resolution technique can save time and money when used in context of power project negotiations. Additionally, it might reduce the strain that a project’s progress and overall economic relationship could otherwise experience because of the need to resolve conflicts.
[1] https://ijpiel.com/index.php/2022/06/01/paving-way-for-alternate-dispute-resolution-mechanisms-in-the-indian-electricity-sector/
[2] (2008) 4 SCC 755
[3] Ibid 2
[4] (2014) 11 SCC 53
[5] https://aptel.gov.in/sites/default/files/A.No.%2088%20of%202018_29.06.20.pdf
