Triangular litigation over power tariff

There has been a spate of litigation between electricity generation and distribution companies, regulatory commissions and industrial consumers over tariff since the new Electricity Act came into force in 2003. The Supreme Court is scheduled to hear this week one such dispute involving Reliance-owned power distributors in New Delhi. Meanwhile, the court has just decided one more dispute in its judgment, Punjab State Power Corporation vs Punjab State Electricity Regulatory Commission. The state power corporation and some industrial consumers challenged the tariff orders of the commission in the appellate body and lost. On appeal, the Supreme Court has also dismissed the challenge in an elaborate judgment considering four issues raised in it. They are: Cost of supply and cross subsidy, disallowance of interest cost on account of alleged diversion of funds, disallowance of employees cost and coal transit losses. About a reasonable formula for cross subsidies, the court upheld the method adopted by the appellate tribunal and directions issued by it requiring the commission to gradually move away from the principle of average cost of supply to a determination of voltage cost of supply. The judgment observed that "though the practice adopted by many State Commissions and utilities is to consider the average cost of supply, it can hardly be doubted that actual costs of supply for each category of consumer would be a more accurate basis for determination of the extent of cross subsidies."

SC fills vacuum in arbitration

The Supreme Court has held that if a party in dispute appoints an arbitrator under the agreement and the other does not, the court can appoint one. Moreover, even if a third person is relevant to the resolution of the dispute, he can also be made a party to the arbitration. In this case, Purple Medical Solutions vs MIV Therapeutic Inc. differences arose between the Indian firm and the Canadian corporation over the share purchase agreement and a licence royalty agreement. The Indian firm invoked the arbitration clause and appointed its arbitrator, a retired chief justice of India, but the foreign firm did not respond, nor its chairman who signed the agreement. They did not appear before the court even after serving notice by several modes. So the court appointed one of its retired judges as the arbitrator on behalf of the foreign firm and the two arbitrators will now select the umpire. Though the chairman has since resigned, he was also made part of the arbitration to "lift the corporate veil".In a similar case, KSS KSSIIPL Consortium vs GAIL, the court last week appointed a retired judge of the Jammu & Kashmir High Court the sole arbitrator to decide disputes between a Kazakhstan consortium and government owned Gail over a contract to lay pipes between Dhabol and Bengaluru.

Power to auction only with DRT

After the establishment of debt recovery tribunals, courts have no power to appoint receivers and sell the property of the defaulters in public auction, the Supreme Court has said while dismissing the appeal, Indian Bank vs Manilal. When the borrower in this case defaulted, the bank moved the court which appointed a receiver to sell the property. The bank bought it and the court approved of the sale. However, after seven years, the owner moved the tribunal seeking cancellation of the sale in view of the coming into existence of the tribunals. The tribunal dismissed his petition. On appeal, the Bombay High Court set aside the tribunal's order and asked it to reconsider it in view of the new situation. The bank unsuccessfully appealed to the Supreme Court. Upholding the high court order, it observed that all proceedings were void from the start and asked the tribunal to reconsider the plea of the borrower.

Land acquisition for a pittance

It is not just the Land Acquisition Act 1894, now on artificial respiration, that is used ruthlessly against land owners; there is a lesser known Requisitioning and Acquisition of Immovable Property Act, 1952 which could operate equally brutally. This came to light last fortnight in the Supreme Court judgment, Defence Estate Officer vs Syed Abdul Saleem. The Defence Ministry acquired 1181 acres in Andhra Pradesh for an artillery centre near Golconda for Rs 35 lakh in1970 and offered to pay Rs 6 per sq yard. The land owners went in for arbitration which took nearly two decades. Ultimately the last arbitrator raised the rate of compensation to Rs 12. It also ordered the government to pay solatium at 30 per cent with nine per cent interest. The government appealed to the Andhra Pradesh High Court in vain. Then it moved the Supreme Court, arguing that the law did not provide for solatium or interest. The court dismissed the appeal stating that when the requisition law is rigid, it can mitigate it by applying the principle of equity to help the dispossessed owners who had suffered from protracted proceedings.

Challenge to TDS rule rejected

The Bombay High Court last week dismissed a writ petition challenging the constitutional validity of Section 234E of the Income Tax Act, 1961. The section seeks to levy Rs 200 per day on a person who deducts Tax at Source (TDS) and then fails to deliver the TDS return/statements to the authorities within a prescribed period. The petitioner, Rashmikant Kundalia, is a chartered accountant whose clients have received several notices from the revenue authorities. He argued that what was sought to be levied is a fee, for which there should be a service rendered. The government defended the fee as it was charged for the additional work by the department due to late payment. Moreover, the high court stated that an economic law would be viewed with greater latitude and judicial restraint. "This is for the simple reason that the court does not consist of economic and administrative experts and has no expertise in these matters," the judgment said, adding the judgment, "particularly as this court does not sit as a court of appeal. A certain measure of freedom of play in joints to the executive is required to be allowed."