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SC asks HC to decide MERC jurisdiction in Enron case; DPC delighted

Our Correspondent in Bombay

The Supreme Court has stayed the arbitration proceedings initiated by the Enron-promoted Dabhol Power Company and has directed the Bombay high court to decide whether the Maharashtra Electricity Regulatory Commission has the jurisdiction to adjudicate the dispute.

The Supreme Court judgement comes in response to a special leave petition filed by the DPC challenging the June 26 judgement of the Bombay high court that upheld the MERC's jurisdiction in the dispute.

"Until such time the high court finally hears and decides the writ petition filed by DPC challenging the jurisdiction of MERC, the Commission will not pass further orders on the application that has been made before it by the Maharashtra State Electricity Board," the Supreme Court bench has said.

"Equally during that time, arbitration proceedings commenced by DPC will not be proceeded with," the Bench said adding that "Till the high court decides the writ petition, the interim orders passed by the Commission will continue."

The MERC by its June 29 interim order had restrained DPC from resorting to international arbitration and invoking of escrow account from the banks.

Enron has welcomed the judgement.

"DPC is extremely pleased with the Supreme Court of India's ruling today. The court has ruled that whether and to what extent the MERC had jurisdiction over disputes between DPC and MSEB should be decided by the Bombay high court and not by MERC as had been sought by MSEB," a statement issued by DPC said.

"The favourable ruling gives further support to DPC's faith in the Indian legal system as it is widely known that Dabhol project has previously been upheld in over 25 cases before courts in India including the SC," DPC said in a statement.

The SC took note of DPC's argument that the regulator's members had previously published articles and position papers against the Dabhol project, the company claimed.

However, the apex court did not rule on question of MERC's bias. It recognised the seriousness of political bias and agreed that the matter could be heard before the high court and not the commission, the company further claimed.

Enron's stand has been that members of the MERC had previously published articles and position papers against the Dabhol Project and so a possibility of bias of MERC members against DPC is possible.

DPC's counsel, senior advocate P Chidambaram, contended that it was inappropriate for a commission comprising civil servants and engineers to decide issues of substantive law such as the jurisdiction of administrative tribunals.

The current litigation has its genesis in MSEB's claim for a whopping rebate of over Rs 5.40 billion under PPA from DPC alleging that there was a shortfall in delivery of energy. The amount claimed by MSEB by way of rebates by its February 28, 2001, letter was Rs 4.01 billion and later another claim of Rs 1.43 billion was made.

DPC disputed the interpretation of the availability of rebate provisions under PPA as also the rebate claimed by MSEB. The matter was then referred to Dispute Resolution Panel under the PPA signed between the parties on December 8, 1993. The Panel failed to resolve the dispute leading to DPC giving Arbitration notice on April 12.

Meanwhile, MSEB approached MERC set up under the Electricity Regulatory Commission Act. The Commission restrained DPC from proceeding further with the notice of Arbitration while holding that it had jurisdiction to adjudicate the dispute between parties relating to PPA in view of the larger public interest.

DPC then approached the high court seeking a declaration that MERC had no jurisdiction to entertain or adjudicate any dispute or differences arising between the parties from the PPA.

An Enron spokesperson has said that the favourable ruling issued by the Supreme Court has reiterated DPC's faith in the Indian legal system: "It is widely known that the Dabhol Project has previously been upheld in over 25 cases before courts in India including the Supreme Court. DPC is confident that the Bombay high court will find in its favour when the issue of MERC jurisdiction is heard, and that the Bombay high court will uphold the sanctity of the arbitration agreement between DPC and MSEB."

Representatives of 11 different international lenders to the Dabhol Project including the United States Government's Overseas Private Investment Corporation were present in the Supreme court on Monday.

They argued that in lending over $ 444 million to the Dabhol Project they had relied on the arbitration provisions of the PPA for swift and impartial resolution of disputes between DPC and MSEB.

These said that they would suffer irreparable harm if the agreement to arbitrate was not enforced.

Additional inputs: PTI

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