Court holds that under Section 86(1)(f) of Electricity Act, 2003, disputes arising out of Power Purchase Agreements and Bank Guarantees exceeding Rs.25 crore are non-arbitrable and fall solely within SERC's domain, allowing it to grant interim protection.
In a significant judgment delivered on October 14, 2026, the Delhi High Court, presided by Mr. Justice Tushar Rao Gedela, clarified the jurisdictional boundaries for disputes arising between generating companies and licensees under the Electricity Act, 2003. The petition filed by Enerica Infra 3 Private Limited seeking interim relief restraining NTPC Vidyut Vyapar Nigam Limited (NVVN) and Uttar Pradesh Power Transmission Corporation Limited (UPPTCL) from invoking performance and viability gap funding bank guarantees was dismissed for want of jurisdiction.
The court emphasized that Section 86(1)(f) of the Electricity Act, 2003, creates a special provision that exclusively vests jurisdiction in the State Electricity Regulatory Commission (SERC) to adjudicate disputes between generating companies and licensees. This statutory provision overrides the general arbitration provisions under the Arbitration and Conciliation Act, 1996 (A&C Act), particularly Section 9 petitions before courts.
Background and Facts:
Enerica Infra was awarded a Letter of Award (LoA) for a 125 MW/500 MWh Battery Energy Storage System (BESS) project at the Garautha Substation in Uttar Pradesh. The Power Purchase Agreement (PPA) required respondent UPPTCL to provide 10 acres of contiguous, encumbrance-free land within 60 days, but only about 9.23 acres were handed over after a delay. Despite this, Enerica furnished substantial bank guarantees totaling over Rs. 52 crore. The petitioner terminated the PPA citing fundamental breach by respondents for failure to deliver the full land parcel within the stipulated time and sought court intervention to restrain encashment of the guarantees.
Contentions and Legal Issues:
The petitioner contended that the delay and incomplete land handover constituted a fundamental breach, invalidating invocation of the bank guarantees. They sought urgent interim relief under Section 9 of the A&C Act from the High Court.
The respondents argued the petition was not maintainable before the court because:
- 1. The Electricity Act, 2003, specifically Section 86(1)(f), grants exclusive jurisdiction to the SERC to adjudicate or refer disputes to arbitration between licensees and generating companies.
- 2. The arbitration clause in the PPA excludes arbitrability of disputes exceeding Rs. 25 crore, and the aggregate bank guarantees far exceeded this threshold.
- 3. The petitioner should approach the SERC for dispute resolution and interim protection.
- 4. The invocation of guarantees was justified as 90% of the land was handed over and the petitioner's termination was malafide.
Court's Analysis:
The court undertook a detailed analysis of the Electricity Act, 2003 and the Arbitration and Conciliation Act, 1996 with reliance on the landmark Supreme Court judgment in Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (2008) 4 SCC 755. The court highlighted the following key legal principles:
- - Section 86(1)(f) is a special provision that confers exclusive jurisdiction on the SERC to adjudicate disputes between generating companies and licensees or to refer such disputes to arbitration. The word "and" in the provision is to be read as "or" to avoid anomalous interpretations.
- - This special provision overrides Section 11 of the A&C Act which empowers courts to appoint arbitrators, meaning that only the SERC can decide whether to adjudicate disputes itself or refer them to arbitration.
- - Section 174 of the Electricity Act provides that the Act shall prevail over inconsistent provisions of other laws, including the Arbitration Act.
- - The SERC also has inherent and statutory power under Section 94(2) of the Electricity Act to grant interim relief analogous to Section 9 of the Arbitration Act, ensuring parties are not left remediless pending arbitration.
- - The arbitration clause in the PPA (Annexure A to Clause 16.3.1(ii)) explicitly bars arbitration for disputes exceeding Rs. 25 crore. Since the cumulative bank guarantees involved amount to over Rs. 52 crore, the dispute falls outside the arbitration channel.
Holding:
The Delhi High Court held that:
- 1. The High Court lacks jurisdiction under Section 9 of the A&C Act to entertain the petition as the Electricity Act confers exclusive jurisdiction on the SERC to adjudicate or refer disputes between generating companies and licensees.
- 2. The dispute involving bank guarantees exceeding Rs. 25 crore is expressly non-arbitrable as per the PPA, hence the remedy cannot be sought in arbitration.
- 3. The petitioner must approach the State Electricity Regulatory Commission for adjudication and interim relief.
- 4. The SERC's powers include granting interim protection to preserve the status quo pending dispute resolution.
Consequently, the petition was dismissed for lack of jurisdiction, and the SERC was requested to disregard any merit-based observations in this order.
Significance:
This decision reiterates and reaffirms the exclusive jurisdiction of State Electricity Regulatory Commissions under the Electricity Act, 2003 in disputes involving generating companies and licensees arising from Power Purchase Agreements and related bank guarantees. It clarifies that parties cannot bypass the regulatory adjudicatory mechanism by invoking general arbitration provisions or approaching civil courts for interim relief. The judgment also underscores that arbitration clauses in PPAs may be subject to statutory limitations, especially for high-value disputes, emphasizing the primacy of sectoral laws over general arbitration law.
Bottom Line:
Arbitration and Electricity Law - In disputes between generating company and licensee arising out of PPA/Bank Guarantees, jurisdiction under Section 86(1)(f) of the Electricity Act, 2003 vests exclusively in the State Electricity Regulatory Commission, which can also grant interim protection under Section 94(2) - Petition under Section 9 of Arbitration and Conciliation Act is not maintainable - Further, where PPA bars arbitration for disputes exceeding Rs.25 crore, injunction against invocation of Bank Guarantees aggregating above Rs.25 crore is also non-arbitrable.
Statutory provision(s):
Section 2(4), Section 79(1)(f), Section 82, Section 86(1)(f), Section 94(2), Section 158, Section 174, Section 175, Section 181 of the Electricity Act, 2003; Section 9, Section 11 of the Arbitration and Conciliation Act, 1996.
