Delhi HC allows petition of IL&FS for appointment of Arbitral Tribunal; Says Amity’s claim to oust Court’s jurisdiction not in consonance with Power Purchase Agreement

Read Judgment: Il And Fs Energy Development Company Limited V. Amity University 

Pankaj Bajpai

New Delhi, March 1, 2022: While finding that the solar power plant is for captive consumption, and the supply of electricity is a direct transfer of electricity from the generating company to the consumer and is not subject to regulation, the Delhi High Court has held that Amity’s claim to oust the jurisdiction of this Court, is prima facie not in consonance with the terms of the ‘Power Purchase Agreement’ (PPA) and hence, Section 86(1)(f) of the Electricity Act, 2003 would not be attracted. 

The Bench of Justice Sanjeev Narula therefore observed that the jurisdiction invoked by IL&FS under its arbitration agreement with Amity (Respondent) is in accordance with law and the provisions contained under the PPA. 

The observation came pursuant to a petition by IL&FS Energy Development Co. Ltd. (IL&FS – Petitioner) u/s 11(6) of the Arbitration and Conciliation Act, 1996 seeking appointment of an Arbitral Tribunal for adjudication of disputes in relation to and arising from a PPA dated October 16, 2014. 

Although the existence of PPA was not in dispute, yet Amity University (Respondent) opposed the maintainability of the petition, contending that this Court does not have the jurisdiction to refer the parties to arbitration, as the parties are ‘generating companies’ as defined under the Electricity Act and disputes between them in relation to the PPA fall squarely within the ambit of Electricity Act and exclusive jurisdiction for adjudication thereof vests with the concerned State Electricity Regulation Commission (SERC). 

The counsel for the Amity University pointed that Section 86(1)(f) is wide enough to bring within its ambit all disputes relating to electricity, except those involving a ‘consumer’.

On the other hand, the counsel for the Petitioner Mr. Sarojanand Jha submitted that the disputes between the parties are clearly arbitrable and placed substantial reliance on the judgment of the Supreme Court in Hindustan Zinc Limited v. Ajmer Vidyut Vitran Nigam Limited , (2019) 17 SCC 82,  to submit that the Court has to give due regard to the nature of dispute between the parties and in light of the terms and conditions in the Agreement.  

After considering the submissions, Justice Narula found that IL&FS is making direct supply of electricity from the solar power plant to Amity and IL&FS continues to operate and maintain the solar power plant. 

The High Court also noted that IL&FS had issued the notice for termination, and in terms of the PPA, Amity had an “obligation to buy-out the Project from the Seller” as per the modalities agreed between the parties. 

However, in absence of invocation of a ‘buy-out’ clause by Amity, as envisaged under the PPA, ownership of the said solar power plant prima facie continued to vest with IL&FS, added the Single Judge. 

Justice Narula noted that in Hindustan Zinc’s Case (Supra), the Supreme Court analyzing Section 86 of Electricity Act observed that the High Court was right in stating that the arbitrator could not, in law, have been appointed by the State Commission u/s 86 of the Electricity Act and the award based on such appointment would be non-est in law. 

The Single Judge further found from the terms of the PPA between the parties which envisaged an appointment of a three-member Arbitral Tribunal, that despite the Petitioner nominating its Arbitrator, Respondent failed to act, as per the arbitration agreement.

Accordingly, the High Court directed for constitution of a three-member Arbitral Tribunal comprising of  Justice Ajit Prakash Shah (Retd.), former Chief Judge of the Delhi High Court as the nominee Arbitrator of IL&FS and Justice Gita Mittal (Retd.), former Chief Justice of the Jammu and Kashmir High Court as the nominee Arbitrator of Amity. 

The Petitioner/IEDCL was represented by a team of Advocates comprising of Mr. Sarojanand Jha, Mr. Suraj Malik and Karan Sharma.