MSEB compromised parties’ right for neutral panel, location: Offshore lenders

Sanjay Jog

Mumbai, Sept 20: The Bank of America (BoA) National Association and other offshore lenders of Dabhol project have charged that the Maharashtra State Electricity Board (MSEB) has compromised the right of commercial parties to contract for a neutral arbitrary panel and location for the resolution of disputes, as reflected in the Arbitration and Conciliation Act, 1996 by approaching the Maharashtra Electricity Regulatory Commission (MERC).

The BoA National Association and other lenders, which would be heard by the Bombay high court during the hearing on Dabhol Power Company’s writ petition challenging the jurisdiction of MERC, has said that MSEB’s move to approach the MERC was in contravention of the
arbitration agreement set forth in clause 20.3 of the power purchase agreement (PPA).

“In order to maintain a stable and predictable business environment, it is essential to uphold and protect arbitration agreements entered into between parties and not permit a party to frustrate the same through collateral proceedings,” it said in its application for intervention submitted to the Bombay high court. The high court has rejected its plea for intervention but ruled that it would be
heard. These lenders, who have advanced Rs 2,088 crore worth loans for the project, have claimed that the assumption of jurisdiction to adjudicate dispute and difference between MSEB and DPC by MERC and its grant of ad- interim relief on May 29 on MSEB’s petition have called into “question the enforceability of arbitration agreements in India.” The availability of arbitration in a neutral forum for the resolution of disputes was a critical factor in financing, these lenders added.

The US Exim Bank, which has advanced a loan of $298.2 million (Rs 1,401.5 crore) has said that it has a substantial interest in the issues involved in DPC’s writ petition challenging the MERC’s jurisdiction as the determination of these issues would “directly and substantially affect its rights and interests.”

According to the bank, of the $298.2 million, about $221.7 million (Rs 1,041.99 crore) of principal remains outstanding and is owed by the DPC.The DPC has made a debt service payment to the bank last on March 15 this year.

“If the present impasse between DPC and MSEB continues and the MSEB continues to fail to make payments to DPC under the PPA, there may come a time, when the DPC lacks funds to make any further debt service payments.

Unless, the DPC is at liberty to proceed to recover what it claims is owed to it by MSEB, by means of the arbitration begun by it on April 12, the DPC may find itself in a position, where it lacks the financial resources with which to service or to repay the loan advanced to it by the bank,” it said.