Introduction
Modern electricity faces frequent disputes over tariffs, grid access, contracts and change-in-law claims among generators, utilities, traders and consumers. Resolution by Central Electricity Regulatory Commission (CERC), State Electricity Regulatory Commissions (SERCs) or civil courts can be slow, costly and undermines confidence.
The Electricity Act, 2003[1] (‘the Act’) enacted June 10, unified sector laws on generation, transmission, distribution and consumption; fostered competition, consumer protection and tariff rationalisation; and established Central and State Commissions and the Appellate Tribunal, section 158[2] empowers Commissions to refer sector-specific disputes to arbitration, offering efficient resolution. It examines the referral mechanism, its alignment with the Arbitration and Conciliation Act, award enforcement, judgments and challenges to bolster stability and investor trust.
Statutory Framework under the Electricity Act, 2003
The Act integrates dispute resolution into its framework by granting Commissions both adjudicatory and arbitral authority through two principal mechanisms:
- Adjudication: Under section 86(1)(f)[3], allows State Commissions to resolve disputes between licensees and generators or open access consumers. They issue binding orders on tariff, compliance, and contractual issues. This ensures efficient regulatory enforcement.
- Arbitration: section 158 empowers the Commission to refer disputes under the Act to arbitration on a party’s application. It provides for arbitrator appointment and award enforcement. This offers a flexible alternative to formal adjudication.
The Act establishes a two‑tier regulatory framework:
- Central Electricity Regulatory Commission[4]: CERC regulates tariffs for interstate transmission, trading, and grid operations. It also issues model regulations and guideline, which often include dispute resolution clauses in Power Purchase Agreement (‘PPA’) and transmission service agreements.
- State Electricity Regulatory Commissions[5]: SERCs regulate intra-state distribution, retail tariffs, and open access. Alongside their adjudicatory role under section 86(1)(f), they can frame arbitration rules, aligning with the Act and CERC model guidelines.
Types of Disputes in the Electricity Sector
Disputes in the electricity sector run the gamut from clashes between generators and licensees over plant-availability penalties and PPA billing defaults, to tariff fights sparked by legal shifts or fuel-cost swings, and to battles over transmission fees, capacity allocation, and grid-access hurdles. Consumers, too, challenge billing errors, poor service, or utilities’ regulatory slip-ups. These tangled controversies can stall projects and erode trust. While regulatory bodies and courts traditionally handle such cases, arbitration, with its confidentiality, speed, and specialist expertise, offers a compelling alternative for resolving complex, contract-driven disputes and keeping the lights on.
Advantages and Limitations of Arbitration in the Electricity Sector
Advantages can be summarized as
In the electricity industry, arbitration speeds up dispute resolution by offering strict timelines and flexible hearing schedules under the Arbitration and Conciliation Act, cutting through court delays and limiting costly setbacks. It also lets parties shape procedures, appoint arbitrators with real world sector know-how, and keep sensitive details private. By combining speed, discretion, and technical expertise, arbitration becomes a practical, reliable way to settle complex tariff, grid-access, and PPA conflicts.
Limitations can be summarized as
In practice, electricity arbitration under section 158 remains under regulatory oversight. Commissions can dictate appointments and impose procedural rules, limiting parties’ autonomy. Awards, though enforceable as court decrees, may conflict with sector-specific regulations or public-policy norms, prompting set-aside challenges. And while institutional tribunals provide structure, their administrative and arbitrator fees can strain smaller players, who often turn to less-costly ad-hoc proceedings for relief.
Judicial Interpretation and Case Law
The jurisprudence of use of Alternative Dispute Resolution, can be primarily witnessed beginning from year 2008, when the judgment of Gujarat Urja Vikas Nigam Limited v. Essar Power Limited[6](‘Urja Vikas Nigam’) came, in this case, a dispute over a ₹5 crore deduction under a PPA arose as Essar invoked arbitration and GUVNL approached the State Commission under section 86(1)(f). The Gujarat High Court appointed an arbitrator under section 11 of the Arbitration and Conciliation Act, 1996. However, the Supreme Court held section 86(1)(f) is a special, self-contained provision where ‘and’ should be read as ‘or’ excluding section 11. It ruled that only the State Commission or its appointed arbitrator has jurisdiction, affirming the Electricity Act, 2003 overrides the general arbitration law.
In 2012, the Appellate Tribunal for Electricity in Damodar Valley Corporation v. Central Electricity Regulatory[7],from Damodar Valley Corporation’s claim for unpaid dues under a PPA, which the State Commission argued was non-arbitrable under section 79(1)(f) of the Act. The Appellate Tribunal rejected this view, holding that the Electricity Act’s adjudicatory framework prevails over general arbitration law. It classified PPA termination issues as non-tariff matters, thus arbitrable if an arbitration clause exists. The Tribunal directed the Commission to appoint an arbitrator, reinforcing arbitration as a viable mechanism for resolving non-tariff disputes in the electricity sector.
In 2014, in the case of T.N. Generation & Distribution Corporation Ltd. v. PPN Power Generating Company Pvt. Ltd.[8], the Appellate Tribunal for Electricity upheld a June 17, 2011 order directing T.N. Generation & Distribution Corporation Ltd. to refund excess rebates to PPN Power and revise invoices under their PPA. It endorsed the Commission’s interpretation of rebate entitlements and clarified that limitations under civil law don’t apply to regulatory proceedings.
Citing Urja Vikas Nigam, the Tribunal held that under section 86(1)(f), a State Commission may choose between adjudication and arbitration. It confirmed that while procedural safeguards under the Arbitration and Conciliation Act apply, they do so only if consistent with the Electricity Act, reinforcing the Commission’s discretion to adopt ADR mechanisms in electricity disputes
In 2017, in a significant ruling in case of Tata Power Trading Company Limited And Another v. Uttar Pradesh Power Corporation Ltd.[9], in a (Change-in-Law compensation dispute), CERC upheld its jurisdiction under section 79(1)(b)[10]due to the composite nature of JITPL’s (one of the parties that forms part of that interrelated network) multi-state PPA. It rejected UPPCL’s objections on privity, citing clear contractual links in the Letter of Intent (LOI) and Request for Proposal (RFP).
Relying on Urja Vikas Nigam, CERC held that non-tariff disputes must be resolved either by the Commission or through arbitrators it appoints. The order reaffirmed CERC’s authority to adjudicate such claims and, where needed, refer them to arbitration, emphasising the Electricity Act’s preference for ADR in complex sectoral matters.
In 2021, in the landmark ruling of the Supreme Court, in the case of Chief General Manager (Ipc) M.P. Power v. Narmada Equipments Pvt Ltd[11], under a May 20, 1999 PPA, Narmada Equipments sought arbitrator appointment under section 11(6) of the Arbitration and Conciliation Act, 1996[12]which MP Power Trading Co. opposed, citing section 86(1)(f) of the Electricity Act.
Relying on Urja Vikas Nigam, the Court ruled that electricity disputes between licensees and generators fall exclusively within the Commission’s jurisdiction or an arbitrator it appoints. This position, reaffirmed in Hindustan Zinc Ltd. v. Ajmer Vidyut Vitran Nigam Ltd.[13] and NHAI v. Sayedabad Tea Co.[14], confirms that the Electricity Act’s special ADR framework prevails over general arbitration law.
In 2024, in the landmark case of Southern Power Distribution Company of AP Limited v. Andhra Pradesh Electricity Regulatory Commission and Anr[15], APTEL noted that Commissions rarely refer disputes to arbitration, despite having discretion under the Act. To improve efficiency, it directed them to hear parties and justify any decision not to refer matters to arbitration.
It clarified that non-tariff issues like payment defaults or contract breaches should go to arbitration, while core tariff matters stay with Commissions. Crucially, it held that an arbitration agreement isn’t necessary under sections 86 and 79, affirming the Act’s strong preference for resolving electricity disputes through arbitration or other ADR mechanisms.
Conclusion
Arbitration has become a vital mechanism for resolving disputes in India’s power sector, offering a specialized, efficient, and confidential forum for complex issues. Sections 86(1)(f) and 158 of the Act empower regulatory commissions to adjudicate or refer disputes to arbitration, ensuring flexibility. However, debates on jurisdiction and party autonomy persist due to overlaps with the Arbitration and Conciliation Act, 1996. Judicial rulings, such as Urja Vikas Nigam case, affirm that regulatory commissions have exclusive authority to appoint arbitrators. Strengthening arbitration’s role requires balancing regulatory oversight with party autonomy, establishing clearer guidelines for arbitrator appointments, and raising awareness, ultimately enhancing sector stability and efficiency.
[1] The Electricity Act 2003(India) (Act No 36 of 2003) s 3
[2] Ibid. s 158
[3] Electricity Act 2003 s 86 (1)(f)
[4] Electricity Act 2003 s 70
[5] Electricity Act 2003 s 82
[6] 2008 (4) SCC 755 (‘Urja Vikas Nigam’)
[7] (2018) 14 SCC 433
[8] (2014) 11 SCC 53
[9] 2018 SCC ONLINE CERC 191
[10] Electricity Act 2003 s 79 (1)(f)Electricity Act 2003 s 79 (1)(b)
[11] (2021) 3 SCC 555
[12] The Arbitration and Conciliation Act 1996 (India) (Act No 26 of 1996) s 11(6).
[13] 2019 (17) SCC 82
[14] 2020 (15) SCC 161
[15] Appeal No. 314 of 2022 (APTEL)
Author: Anurag Sourot is a fourth-year B.A.LL.B. student at Asian Law College, Noida.
