Tamil Nadu Electricity Board v St-Cms Electric Company Private Ltd

An arbitration agreement governed by English law is construed separately from the underlying contract. A wide clause referring disputes arising out of or relating to the contract to arbitration is not displaced merely because the contract is governed by foreign law or because foreign legislation assigns functions to a statutory body. Any contractual or statutory approval relevant to the merits may be considered by the arbitrators without affecting their jurisdiction, unless the contract clearly creates an exclusive alternative jurisdiction. Changes in the substantive law governing the underlying contract may affect the parties’ rights, but do not alter the scope of a separately governed arbitration agreement. An estoppel by convention requires a shared assumption, reliance and sufficient unfairness in allowing departure from it.

ST-CMS commenced ICC arbitration concerning the actual capital cost of a power plant and the resulting tariff payable under a long-term power purchase agreement with TNEB. TNEB applied under section 72 of the Arbitration Act 1996 for declarations that the claims were outside the arbitration agreement and for injunctions restraining the arbitration.

TNEB argued that Indian electricity legislation required the actual capital cost and tariff to be determined exclusively by the Central Electricity Authority or the Tamil Nadu Electricity Regulatory Commission. It relied alternatively on private international law, public policy and estoppel by convention. The central issue was whether those matters affected the arbitrators’ jurisdiction.

1. Construction of the arbitration agreement. The arbitration agreement was a separate agreement under section 7 of the Arbitration Act 1996, governed by English law. Article 15.2(a) was deliberately broad, covering disputes arising out of or relating to the PPA, subject only to matters expressly provided for elsewhere as being finally and exclusively determined by another person.
2. The PPA’s provisions concerning tariff compliance, capital cost and CEA approval dealt with substantive matters. They did not expressly or impliedly create an exception to the arbitrators’ jurisdiction. CEA approval, if required, was a matter for the arbitrators to take into account when determining the parties’ rights and appropriate relief.
3. Private international law and public policy. Indian law, as the proper law of the PPA, governed substantive disputes under it. It did not govern the scope of the separate English-law arbitration agreement. Article 3.3 of the Rome Convention did not apply to arbitration agreements, and no fundamental English public policy principle required the arbitration clause to be disapplied. The Ralli Bros principle was inapplicable because performance of the arbitration agreement was to occur in London and no contractual obligation required performance in India.
4. Indian electricity legislation. Under the 1948 regime, CEA’s approval was required only for excess costs over the relevant approved or contractual ceiling. There was no general requirement for CEA to determine the whole actual capital cost. Under the 2003 Act and the 2005 Tamil Nadu Regulations, an existing PPA continued to govern tariff and operating norms. The TNERC therefore had no exclusive jurisdiction to redetermine the tariff under this PPA.
5. The reasoning in Small Hydro Powers Developers Association v APERC was compelling and supported the distinction between regulation of electricity purchase under section 86(1)(b) and general tariff determination under section 86(1)(a). The contrary approach in GVK Industries v CEA was rejected insofar as it misconstrued CEA’s former statutory role.
6. Estoppel. The correspondence did not establish a shared assumption that CEA had exclusive jurisdiction to determine actual capital cost. TNEB’s work was required under the PPA in any event, and no sufficient detriment or unconscionability was shown. The estoppel case therefore failed.
7. TNEB’s applications for declarations and injunctions were dismissed. ST-CMS was entitled to the declarations sought. Costs were to follow the event, subject to consequential submissions.