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Hindustan Zinc Limited (H.Z.L.) v. Ajmer Vidyut Vitran Nigam Limited

Civil Appeal · 2019 INSC 1319Decided 4 Dec 2019
Civil Appeal No. 9212 of 2019
Justice Rohinton Fali Nariman · Justice Aniruddha Bose · Justice V. Ramasubramanian

Background

Hindustan Zinc Limited had a captive power plant and used open access arrangements to wheel electricity from that plant to three of its own industrial units, through the distribution system of Ajmer Vidyut Vitran Nigam Limited (AVVNL). A billing dispute arose over "unscheduled interchange" charges under their open access agreements, and the Rajasthan Electricity Regulatory Commission referred the dispute to an arbitrator under Section 86(1)(f) of the Electricity Act, 2003. The arbitrator ruled substantially in Hindustan Zinc's favour, but AVVNL later argued, for the first time before the High Court, in a Section 37 appeal, that the arbitrator had never had jurisdiction in the first place. The Rajasthan High Court agreed and set aside the entire arbitral award.

Decision Breakdown

The Supreme Court upheld the High Court's view that Section 86(1)(f) of the Electricity Act only allows the State Commission to refer disputes between a licensee (the distribution company) and a generating company to arbitration: it does not cover a dispute between a licensee and a mere open-access consumer, which is instead governed by Section 42 of the Act and its own separate three-tier grievance mechanism. Since Hindustan Zinc was using its captive plant's power for its own consumption (as a consumer) rather than acting as a generating company selling power, the dispute fell outside Section 86(1)(f), making the arbitrator's appointment itself without jurisdiction and the resulting award a nullity in law. The Court also held that a jurisdictional defect of this kind can be raised at any stage, even after a party initially consented to arbitration, relying on the settled principle that a decision rendered without jurisdiction is a nullity. However, the Court clarified that the High Court should not have gone on to examine the merits of the award once it found a lack of jurisdiction, and left it open to Hindustan Zinc to pursue any other legal remedy available to it.

Lesson Learnt

Consenting to an arbitrator's appointment does not cure a fundamental lack of jurisdiction: a party can challenge the very authority of an arbitrator (or any adjudicator) at any later stage, because a decision rendered without jurisdiction is treated as void from the start, not merely voidable.

Official source (sci.gov.in)View Judgment (PDF)

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