M/s.Kaveri Gas Power Limited v. M/s.Sri Kaderi Ambal Mills Limited & Ors.

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED: 14.07.2009CORAM:THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJAO.S.A.Nos.57 and 58 of 2009 and M.P.Nos.1 of 2009M/s.Kaveri Gas Power Limited5/3, Ranganathan GardensAnna Nagar, Chennai – 600 040... Appellant in both O.S.As-vs-1.M/s.Sri Kaderi Ambal Mills Limitedrepresented by its Managing DirectorS.V.Petha PerumalRegd.Office at Super B-3Industrial Estate, Madurai – 625 0072.M/s.Agni Steel Pvt.Ltd.,No.2, Mohan Kumaramangalam StreetSurampathi, Erode – 638 0583.M/s.Madura Coats Pvt.Ltd.,New Jail RoadMadurai – 625 0014.Shri Ramalinga Mills Ltd. No.212, Ramasamy Nagar, Arupukottai – 626 1015.Sree Jeya Soundharam Textiles MillsPvt.Ltd., No.212, Ramasamy Nagar, Arupukottai – 626 1016.Arupukottai Shri Ramalinga Spinners Pvt.Ltd., No.212, Ramasamy Nagar, Arupukottai – 626 1017.M/s.Tamilnadu Jai Bharathi Mills Ltd., No.212, Ramasamy Nagar, Arupukottai – 626 1018.The Chairman Tamilnadu Electricity Board800, Anna Salai, Chennai – 600 002. https://hcservices.ecourts.gov.in/hcservices/

9.The Member (Generation)Tamilnadu Electricity Board800, Anna Salai, Chennai – 600 002. .. Respondents in both O.S.AsFor Appellant : Mr.K.HarishankarFor Respondents : Ms.Chitra Sampath (R1.) Mr.Rajnish Pathiyil (R.2)Mr.P.R.Raman (R.3)Mr.N.Kannan (RR.4 to 7)Mr.Muthuswami for RR8&9Prayer: Original Side Appeals in O.S.A.Nos.57 and 58 of 2009are filed under Order 36 Rule 11 of the Original side Rules readwith Clause 15 of the Letters Patent against the order dated18.3.2009 made in O.A.No.1103 of 2008 and Application No.5331 of 2008respectively in C.S.No.906 of 2008 on the file of this Court. O.A.No.1103/08: This application filed under order XIV R8 of OS Rulesr/w 0.39 R1 & 2 of CPC to grant an order of Interim Injunctionrestraining the first respondent from effecting any supply of energyto the respondents 2 to 5 without exhausting the supply of energy at12.5 lac units per month on firm basis and 2.5 lac units on non firmbasis to the applicant pending disposal of the suit. O.A.No.5331/08: This application filed under Order 14 R8 of OS Rulesr/w under Order III R1 CPC & Clause 12 of Letters Pattern Act torefer the Plaintiff and the 1st defendant to arbitration as per theterms of the power supply agreement dated.24.9.2005.J U D G M E N T K.RAVIRAJA PANDIAN,J.The Original Side Appeal Nos.57 and 58 of 2009 are filedagainst the order and decretal order passed by the learned singleJudge dated 18.3.2009 made in O.A.No.1103 of 2008 and ApplicationNo.5331 of 2008 respectively in C.S.No.906 of 2008 on the file ofthis Court. 2. The appellant – the power generating plant is the firstdefendant in the suit. The plaintiff and defendants No.2 and 3 arethe captive consumers. Defendants No.4 to 7 are subsequent powersupply agreement holders. Defendants No.8 and 9 are statutoryauthorities. For the sake of convenience, the parties are referred inthis appeal as arrayed in the suit. 3. The plaintiff filed suit in C.S.No.906 of 2008 seeking forthe decree and judgment for specific performance of the wheelingagreement signed by the first defendant on 25.5.2006 with theTamilnadu Electricity Board and consequential permanent injunctionagainst the first defendant from discontinuing power supply to theplaintiff during the subsistence of the wheeling permission granted https://hcservices.ecourts.gov.in/hcservices/ by the Tamilnadu Electricity Board on 24.5.2006 and for a furtherrelief of permanent injunction restraining the first defendant fromeffecting power supply to defendants No.4 to 7 beyond their shareholding without supplying the guaranteed supply of units to theplaintiff as per the wheeling agreement. 4. Along with the suit, the plaintiff filed O.A.No.1103 of2008 seeking for an order of interim injunction restraining the firstdefendant from effecting any supply of energy to defendants No.4 to 7without exhausting the supply of energy at 12.5 lakh units per monthon firm basis and 2.5 lakh units on non firm basis to the plaintiff.The first defendant filed application under Section 8 of theArbitration and Conciliation Act, 1996 in Application No.5331 of 2008seeking for the relief to refer the plaintiff and first defendant tothe arbitration as per the terms of the Power supply agreement dated24.9.2005 to get the dispute resolved.5. The learned single Judge held that the first defendant hadnot made out a case for referring the dispute between them and theplaintiff to arbitration and dismissed the application No.5331 of2008 and allowed O.A.No.1103 of 2008 by directing the first defendantto restore the supply of energy to the plaintiff forthwith at 12.5lakh units per month on firm basis and 2.5 lakh units per month onnon-firm basis and further restrained the first defendant fromeffecting any supply of energy to defendants No.4 to 7 withoutexhausting the aforesaid supply of energy to the plaintiff. Thecorrectness of the said orders are put in issue in these two appeals.6. The facts in brief are as follows:The plaintiff along with defendant Nos.1 to 3 decided topromote a joint venture captive power generating plant for generationof power for their requirements of the factories owned by them. Theplaintiff and defendant No.2 and 3 signed power supply agreement withthe first defendant. The power generated by the first defendant hasto be supplied to the captive users in proportion to their sharecapital vis a vis the power production. The eighth defendant – thestatutory authority granted wheeling permission identifying thecaptive users of the first defendant. The wheeling permission dated24.5.2006 was subject to several conditions. 7. The plaintiff and defendants No.2 and 3 are thebeneficiaries of the wheeling agreement. The plaintiff contributed asum of Rs.45 lakhs and in consideration of the same the firstdefendant allotted 4,50,000 equity shares to the plaintiff. Theplaintiff is entitled to supply of 1.5 crore units per annum on firmbasis and 0.30 crore units per annum on non firm basis. The firstdefendant conceived an idea of selling the electrical energy tothird parties and obtained additional wheeling permission from the 8thdefendant. Based on the additional wheeling permission, the firstdefendant reduced the supply to the plaintiff in the months of Augustand September 2007. Thereafter the first defendant resumed supplyfrom January 2008, but from April 2008, the first defendantcompletely stopped the supply of power to the plaintiff in violation https://hcservices.ecourts.gov.in/hcservices/ of the terms and conditions of the wheeling agreement. If the firstdefendant failed to supply its captive users, the eighth defendanthas the right to revoke the wheeling permission. Likewise, if thecontracted supply of energy is not consumed by the plaintiff it wouldbe liable to penal charges for the unconsumed supply. The firstdefendant is now diverting the energy to defendants No.4 to 7 andthereby failed to make the assured supply to the plaintiff. Withoutsupplying the agreed quantity of energy to the plaintiff, the firstdefendant has no right to supply any energy to defendants No.4 to 7.On that basis, the suit has been filed and interim relief is soughtfor pending suit.8. The first defendant resisted the claim by filingapplication No.5331 of 2008 and contended that all disputes betweenthe plaintiff and the first defendant have to be adjudicated by anarbitrator as per Article 10 of the power supply agreement. Theplaintiff is a chronic defaulter in making payment for the supplymade. The suit itself is not maintainable as there is a prayer forspecific performance of agreement between the first defendant and theTamilnadu Electricity Board in which the plaintiff is not a party. 9. This application was resisted by the plaintiff bycontending that the power supply agreement between the plaintiff andthe first defendant was entered into for the purpose of obtainingwheeling permission from the Tamilnadu Electricity Board. Thewheeling permission was granted by the Tamilnadu Electricity Boardonly for the benefit of the captive users i.e., the plaintiff anddefendants No.2 and 3. In contravention of the wheeling agreement,the first defendant failed to supply power to the plaintiff anddiverted the energy to defendants No.4 to 7. Any relief that may begranted in the suit would effect the interest of defendants No.4 to7. Admittedly, they were not parties to the agreement covering thedispute. As such the dispute cannot be referred to arbitration. Thesubsequent wheeling permission obtained by the first defendant hasvirtually deprived the plaintiff of the agreed supply of energy.Thus, the scope of the suit is wider, which cannot be decided in thearbitration proceedings. 10. It is the stand of the statutory defendants that thecaptive users shall consume a minimum of 51% of energy generatedproportionate to their shareholding in the company to satisfy thestatus as a captive generating plant. As per the request of the firstdefendant, the additional wheeling agreement was granted to the firstdefendant Company by including defendants No.4 to 7. It is wellopen to the plaintiff to initiate protective action against the firstdefendant. 11. On the aforesaid contentions of the rival parties, thelearned single Judge formulated two points for determination i.e.,(1) Whether the dispute arisen between the plaintiff and the firstdefendant requires reference to arbitration? And (2) Whether theplaintiff is entitled to an order of injunction as prayed for inO.A.No.1103 of 2008?. https://hcservices.ecourts.gov.in/hcservices/

12. In respect of the first point, taking note of the reliefsought for by the plaintiff in the suit, which is not only againstthe first defendant, who is party to the wheeling agreement dated25.5.2006, but also against defendants N0.4 to 7, who are not partiesto the said agreement, but are the beneficiaries under the subsequentwheeling agreement obtained by the first defendant from the TamilnaduElectricity Board, and the further prayer against the first defendantnot to supply power to defendants NO.4 to 7 without exhausting theagreed supply of power to the plaintiff the learned single Judgefound that the prayer in the suit does not emanate from the powersupply agreement between the plaintiff and first defendant. Thelearned single Judge also differentiated the judgments cited onbehalf of the first defendant in the case of KOTAK MAHINDRA BANK LTD.V. SUNDARAM BRAKE LINING LTD. (2008(4) CTC 1) and VIRENDER YADAV V.AEROSVIT AIRLINES AND OTHERS (2008(3) ARBLR 445 (DELHI) on facts andultimately held that the first defendant had not made out a case forreferring the dispute between them and the plaintiff to arbitration. 13. In respect of the second point formulated for decision,the learned single Judge found that except the disputed sum of peakhour charges and deemed demand charges, which are under challenge byway of writ petition, all the dues upto date have been promptly paidby the plaintiff. Thus the plaintiff has established a prima faciecase for their entitlement for continued supply of energy and theplaintiffs are as per the wheeling agreement entitled to supplyenergy at 12.5 lakh units per month on firm basis and 2.5 lakh unitsper month on non-firm basis as per the power supply agreement. 14. Before us also, the only contention that has been raisedon behalf of the first defendant was that the plaintiff had beenconsistently defaulting in making payment for the power supplied tothem and also guilty of making delayed payment and not complying withthe provisions of the power supply agreement. It is further contendedthat the appellant is only interested in enforcing the power supplyagreement. However, the first respondent is not paying the peak hourcharges and deemed demand charges. As per the agreement, the benefitsthat are passed on to consumers by the Tamilnadu Electricity Boardhave to be shared between the appellant and the first respondent inthe ratio of 60:40, which the plaintiffs are not adhering to. 15. On behalf of the plaintiff, it was contended that theplaintiff effected payment promptly for the supply of energy made bythe appellant. The regulatory authority has directed the TamilnaduElectricity Board to pass on the peak hour charges and deemed demandcharges to the consumers, but the Tamilnadu Electricity Board hasclaimed the same from the plaintiff, which compelled the plaintiff toapproach the High Court by filing writ petition and obtained stay ofthe demand made by the Tamilnadu Electricity Board. As per theagreement, the benefits that are passed on to the consumers by theTamilnadu Electricity Board have to be shared between the plaintiffand the first defendant in the ratio of 60:40. The first defendantraised a supplementary invoice claiming the benefit from theplaintiff when it had not been passed on to the plaintiff by theTamilnadu Electricity Board till this date. Except the disputed https://hcservices.ecourts.gov.in/hcservices/ amount, the plaintiff had paid all the amounts to the appellant andthere is no due. 16. It is brought to the notice of this Court that theTamilnadu Electricity Regulatory Commission (hereinafter referred toas "TNERC") in order Nos.2 and 4 dated 15.5.2006 has resolved theissue as to the payment of peak hour charges and demand charges. Onpointing out this issue, the plaintiff filed memo dated 3.7.2009wherein the plaintiff undertakes to pay 60% of the peak hour anddemand charges as per the letter of the appellant dated 15.5.2009amounting to Rs.14,54,818/- as on 15.5.2009 in view of the TNERCOrder Nos.2 and 4 dated 15.5.2006. In the said memo, it is furtherstated that as per the TNERC Order No.2 dated 15.5.2006, theTamilnadu Electricity Board had issued an audit slip dated 20.8.2008for recovering a sum of RS.7,06,569/- from the plaintiff, which hadbeen paid by then. That amount represents the backup power chargeswhich have to be paid only by the first defendant as per Clause 11-2-20 of the Power Supply Agreement and prayed that the plaintiff maybe permitted to deduct the said sum from the amount due towards peakhour charges and pay the balance amount. 17. On behalf of the first defendant, by way of reply, amemo has been filed on 6.7.2009, wherein it is stated that theappellant is only interested in enforcing the terms of the powersupply agreement dated 24.9.2005 entered into between the firstdefendant and the plaintiff. With a view to settle the disputesarising in the present appeals, the first defendant had agreed toreceive a sum of Rs.17,18,053/- (excluding interest) towards the"peak hour charges" and "demand charges" payable by the plaintiff onsuch payment to resume supply of power to the first respondent as perthe terms of the power supply agreement dated 24.9.2005. The amountpayable by the respondent as on June 2009 towards peak hour chargesand demand charges is Rs.17,18,053/-. Further it is stated that theplaintiff for the first time raised an issue regarding the "back uppower charges". The issue has not been raised earlier either in theplaint or affidavit or even during the course of proceedings beforethe single Judge, but raised for the first time in the memo dated3.7.2009. It is further stated that as early as 3.12.2007, the firstdefendant had a meeting with all its consumers including theplaintiff and in the said meeting it was decided and accepted by allconsumers including the plaintiff that back up charges as claimed byTamilnadu Electricity Board due to the implementation of order Nos.2and 4 of 2006 of the TNERC have to be borne by the consumers.Accordingly, the plaintiff and all consumers of the first defendanthave paid the backup power charges to the Tamilnadu ElectricityBoard. The back up charges are nothing but the charges payable forthe power consumed from TNEB directly by a captive consumer when suchpower is not available from the captive generation plant. As per theagreement between parties all demand charges levied by the TNEB forthe Electricity dispatched to the consumer are directly payable bythe consumer to the TNEB. Therefore, the first defendant as perArticle III.1.3 and Article VIII.2.4 of the Power Supply Agreement,is not liable to pay any charges imposed by the TNEB towardsElectricity supplied to the consumer. https://hcservices.ecourts.gov.in/hcservices/

18. From the above, it is evident that the scope of thedispute in the appeals is limited to the payment. When the matter wastaken up on 9.7.2009, it was argued for some time and after hearingthe learned counsel on either side with reference to the memos i.e.,two memos dated 3.7.2009 and 9.7.2009 filed by the plaintiff and onememo dated 6.7.2009 filed by the first defendant, it is much clearthat the issue in dispute in this case has become very thin. Thefirst defendant is only interested in enforcing the power supplyagreement dated 24.9.2005 entered into between the first defendantand the plaintiff. As a matter of fact, the main relief sought for inthe suit is for enforcing the terms of the power supply agreement. Itis agreed that except the peak hour charges and deemed demandcharges, all other charges are being regularly paid as and wheninvoices are raised on the plaintiff. The dispute as to the paymentof peak hour charges is also now stated to be settled as per thememo. The plaintiff undertakes to pay 60 percent of the peak hour anddemand charges as demanded by the first defendant by its letter dated15.5.2007 in view of the order of the TNERC dated 15.5.2006 made inOrder Nos.2 and 4. Hence, the issue is now resolved. The amountquoted in the memo cannot be regarded as an issue because the shareof the peak hour charges at the ratio of 60:40 is known to theparties concerned and the plaintiff also undertakes to pay 60% of thecharges. As per the agreement and undertaking given by the memo, theplaintiff has to pay 60 percent of the peak hour charges and demandcharges. Then, what remains is the minor issue raised by the firstdefendant that the letter of credit furnished by the plaintiff is aconditional one but as per the power supply agreement dated 24.9.2005the plaintiff has to furnish an unconditional confirmed revolvingletter of credit. 19. In paragraph No.6 of the memo dated 9.7.2009 filed by theplaintif, it is stated that the letter of credit was opened as earlyas 27.3.2006 and the terms of letter of credit were finalised withthe concurrence of the appellant. The appellant had not questionedthe nature of letter of credit vide letters dated 5.3.2007, 25.6.2007and 12.10.2007 till disputes arose between the parties in October2007. The letter of credit furnished is in consonance with normalbanking practice and is not a conditional one. 20. The above said averments that the letter of creditfurnished is in consonance with the normal banking practice cannot beaccepted. When the plaintiff comes forward with a suit to enforce theterms of contract, without harping upon the normal banking practice,the plaintiff has to give letter of credit as envisaged in theagreement and it should be an unconditional one. 21. The issue as to the back up charges, as rightly submittedby the learned counsel for the first defendant, was not a subjectmatter of the application before the trial Court and no issue hasbeen raised and finding, what so ever, has been rendered by thesingle Judge. Hence, that issue is left open for consideration by thelearned single Judge at appropriate stage. Till it is resolved, it isthe plaintiff to pay the charges. https://hcservices.ecourts.gov.in/hcservices/

22. So far as the finding rendered by the learned singleJudge in application N0.5331 of 2008 to refer the matter forarbitration, no argument, worth mentioning, has been advanced by theappellant, though the order has been appealed against.23. The findings recorded by the learned single Judge thatthe benefit conferred on the plaintiff by virtue of the Wheelingagreement entered into between the first defendant and the TamilnaduElectricity Board has been canvassed in the pleadings that thealleged guaranteed right of the plaintiff could not be decided inthe absence of defendants NO.4 to 7 as they were conferred with aright to draw supply of energy under the subsequent wheelingagreement entered into between the first defendant and the TamilnaduElectricity Board. Defendants No.4 to 7 are not formal parties; thattheir effective participation during the course of trial would onlydetermine the issue arising under the wheeling agreement; that thedispute between the plaintiff and the first defendant in the suit isbeyond the scope of arbitration under power supply agreement and assuch, it cannot be referred to arbitration are in our view based onreasons and well founded findings. Hence, in our view, that findinghas to be confirmed and the same is confirmed. 24. In respect of the appeal arising out of the order made ininjunction petition, in view of the discussion made above, thefollowing order is passed:(1) The plaintiff is entitled to supply of energy at 12.5lakh units per month on firm basis and 2.5 lakh units per month onnon-firm basis and the first defendant is directed to restore theabove supply. (2) The first defendant is also restrained from effecting anysupply of energy to defendants NO.4 to 7 without exhausting theaforesaid supply of energy to the plaintiff. (3) The peak hour charges and demand charges have to beshared by the plaintiff and the first defendant at the rate of 60:40as per the agreement. (4) The letter of credit given by the respondent must be inconformity with Article IV.2. Now the dispute about the payment isresolved, the original letter of credit for Rs.60 lakhs would revive,however, as pointed out in earlier paragraph. 25. With this observation, the O.S.A.No.57 of 2008 isdisposed of and the other O.S.A.No.58 of 2009 is dismissed. However,there is no order as to costs. Consequently, the connectedmiscellaneous petitions are closed. Sd/- Asst. Registrar / True Copy / Sub.Asst Registrar https://hcservices.ecourts.gov.in/hcservices/ uskTo.1.The Sub Asst.Registrar(O.S)High Court, Madras.2.The Chairman,TamilNadu Electricity Board,800,Anna Salai,Chennai-2.3.The Member(Generation)Tamil Nadu Electricity Board,800,Anna Salai,Chennai-2.+ 2 cc to Mr.Srinath Sridevan,Advocate,SR.30874+ 1 cc to Mr.Rajnish Pathiyil,Advocate,SR.37096+ 3 cc to Mr.Chitra Sampath,Advocate,SR.30791+ 1 cc to Mr.N.Kannan,Advocate,SR.30772+ 1 cc to Mr.M.Muthuswaami,Advocate,SR.30776 O.S.A.NOs.57 and 58 OF 2009RSI(CO)EM/20.7.09