Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4304 OF 2007
MAHARASHTRA STATE ELECTRICITY ….APPELLANT
DISTRIBUTION CO. LTD.
VERSUS
UNION OF INDIA AND OTHER ….RESPONDENTS
J U D G M E N T
Arun Mishra, J.
1. The appeal has been preferred by Maharashtra State Electricity
Distribution Company Limited (for short, ‘the MSEDCL’) against the
order dated 30.5.2007, passed by Appellate Tribunal for Electricity (for
short, ‘the APTEL’), dismissing the appeal against the order dated
21.5.2004 passed by Maharashtra State Electricity Regulatory
Commission (for short, ‘the MERC’), quashing Circular No.602 dated
23.7.1998, Circular No.619 dated 25.5.1999, Circular No.627 dated
2.9.1999, Circular No.651 dated 19.9.2000 and Circular No.663 dated
5.10.2001, insofar as they purport to impose “take or pay” obligation
and minimum offtake requirement as also of any additional tariff for
Signature Not Verified
captive power plant holders on the ground that there was no approval
Digitally signed by
JAYANT KUMAR ARORA
Date: 2020.02.29
12:35:19 IST
Reason:
of the MERC constituted in terms of the provisions of the Electricity
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Regulatory Act, 1998 (for short, ‘the Act of 1998’). The aforesaid
circulars dealt with Captive Power Plant Policy (for short, ‘the CPP
Policy’). The appellantMSEDCL has been directed to make refund to
respondent nos.3 to 7. The financial liability has been imposed upon
the appellantMSEDCL. The MERC was constituted on 5.8.1999. The
appellantMSEDCL had submitted all its circulars to MERC for
approval and the MERC after four years has quashed the circulars
with retrospective effect. The financial condition of the appellant
MSEDCL is not sound enough to sustain such kind of liability for
refund. It was unable to pay a sum of Rs.504 crores as against
liability to other parties.
2. Respondent no.3M/s. NRC Ltd. initially had its two units on
Plot No.E 23. Unit Nos.1 and 2 had a contract demand of 3500 KVA
and 1800 KVA respectively. In 1995, an independent connection was
sought by respondent no.3 for its Unit No.2. Representation was
made that two units were separate units and on that basis, two
independent connections were given. After that, respondent no.3 filed
an application dated 5.4.1997 to set up a CPP of 7MW capacity. In
respect of contract demand, it was proposed to retain total contract
demand for 812 months after the CPP was fully operational and to
surrender around 50% of the contract demand after that. Prayer was
also made to provide standby power.
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3. The Government of Maharashtra issued a notification dated
20.12.1997, whereby it empowered Maharashtra State Electricity
Board (for short, ‘the MSEB’) to finalise the technical and commercial
arrangements between captive power purchasers and their party
purchasers. No objection certificate dated 7.1.1998 was issued by
appellantMSEDCL subject to the Condition No.4, which permitted
respondent no.3 to decide the level of contract demand after the
commissioning of the set and any changes for interconnection would
be governed as per the Board’s Condition of Supply framed from time
to time and its policies as no rules were framed.
4. Circular No.602 dated 23.7.1998 was issued vesting power with
the Board to permit the CPP holder for sale of their CPP power to any
third party through the Board's grid, grant of permission to those
persons to use their CPP power for self use only and to charge
wheeling and transmission loss charges.
The Act of 1998 was enacted on 25.4.1998. Before that, field of
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electricity was regulated by Electricity Supply Act, 1948 (for short, 'the
Act of 1948'). Section 49 of the Act of 1948 empowered the respective
Electricity Boards to come up with their tariffs, which could have
differential. Section 79(j) of the Act empowered the Board to make
regulations pertaining to supply of electricity to the licensees under
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Section 49. Section 44 further provided that for establishing the CPP
unit, prior consent of the Board was mandatory. MSEB was
regulating the field of CPP as per notifications issued by the
Government and the provisions contained in the Act of 1948.
6. On 23.9.1998, respondent no.3 sought clubbing of the contract
demand and subsequent reduction to 3000 KVA for both the units.
The clubbing of two units would increase the total contract demand to
5300 KVA and would necessitate the installation of an EHV Line.
Thus, the same could not be done. Respondent no.3 was not entitled
to reduction of contract demand in view of the application dated
5.11.1997. Hence, it was not permitted as per letter dated 23.9.1998.
7. MSEB submitted a proposal on 4.5.1999 to the Government of
Maharashtra for revision of its retail distribution tariff w.e.f. 1.6.1999,
keeping in view the requirements of Section 59 of the Act of 1948. The
proposal for revision of tariff was under consideration of the State
Government in the year 1999. Still, no final decision was taken and
the delay was owing to the imposition of Model Code of Conduct due to
elections and on 5.8.1999 MERC was constituted. The Government
advised the MSEB to submit proposal for tariff revision to
Commission for its approval and accordingly, the proposal was
submitted to the MERC.
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8. Circular No.619 dated 25.5.1999 was issued by the Board to
grant permission for installation of CPP for self use only, reduction in
contract demand to CPP holders would not be permitted and levy of
penal charges at the rate of 2 times/3 times the prevailing tariff to the
CPP holders in their energy bills for over drawal of power on their
agreed contract demand under planned/unplanned shutdown as
stipulated in the Government of Maharashtra resolution dated
20.12.1997. On 29.8.1998, respondent no.3 had commissioned its
CPP and withdrew its earlier application dated 18.6.1999 for reduction
in contract demand and resubmitted two applications and sought
reduction in contract demand of Unit No.1 from 3500 KVA to zero and
increasing contract demand of Unit No.2 from 1800 to 3000 KVA. The
fresh application could not be granted as the then existing policy of
the appellantMSEDCL was not to grant any reduction in contract
demand to existing CPP holders as notified vide letter dated
18.6.1999.
9. Vide circular dated 2.9.1999, the policy contained in circular
dated 25.5.1999 was partially modified insofar as it related to a
reduction in contract demand. It permitted CPP holders to reduce
contract demand to 2.5 MVA or 50% of the contract demand of 5 MVA
or above. It was specifically provided that CPP holders with a contract
demand of less than 5 MVA would not be permitted reduction in
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contract demand. As respondent no.3 had two independent
connections, each having a contract demand of less than 5 MVA, it
was not entitled to reduction in contract demand. As per policy
contained in the aforesaid circular, all the CPP holders were required
to draw at least 25% energy of their monthly consumption from the
appellantMSEDCL and in case of drawal of less quantity of electricity,
they would be billed for 25% of the energy. The energy supplied would
be charged at the rate of 110% of the tariff applicable was the
condition of supply for interconnection and standby power.
Respondent nos.3 to 7 had sought standby power. The appellant
MSEDCL had invested huge amount for establishing the necessary
infrastructure. It was incumbent upon the appellantMSEDCL to keep
available at all material time the requisite infrastructure for supply of
electricity to respondent nos.3 to 7. The NOC was issued as per the
prevailing policy subject to the condition of supply for paralleling
connection or further changes in policy. Thus, circular dated
2.9.1999 was issued.
10. On 28.4.2000, the State Government issued a guidance to the
appellantMSEDCL to withdraw the said condition for compulsory
drawal of 25% energy as it was not in line with the Government of
Maharashtra policy decision as mentioned in the resolution dated
25.4.2000.
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11. It was submitted on behalf of appellantMSEDCL that MERC
passed an order on 5.5.2000, pointing out that it would look into the
matter of sale of surplus power by CPPs to MSEB at a later stage
under Section 22(1)(c) of the Act of 1998. The Commission directed
the MSEB to follow Section 44 of the Act of 1948 in its true spirit and
clear all pending applications by 30.6.2000. Refusal to the captive
units, on the other hand, was contradictory.
12. The appellantMSEDCL modified their policy dated 19.9.2000 in
line with Government of Maharashtra CPP Policy reflected in the
resolution dated 25.4.2000 and withdrew the condition of compulsory
drawl of 25% of the energy of MSEB grid by CPP holders prospectively
with effect from 28.4.2000. No sanction for connecting the additional
load of the unit at Plot No.E1 to the CPP was granted. Respondent
no.3, however, illegally connected the said load of the unit at Plot
No.E1 to the CPP.
On 31.8.2001, the appellantMSEDCL submitted its proposals to
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MERC along with a tariff petition. The circulars dated 23.7.1998,
25.5.1999, 2.9.1999 and 19.9.2000 were submitted to MERC for its
approval. MERC passed order dated 10.1.2002 on the tariff petition of
the appellantMSEDCL, in which it was held:
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“The Commission is of the opinion that the ‘Captive Power
Policy’ is a policy matter under the jurisdiction of the
Government of Maharashtra, and the Commission has very
recently been conferred with additional powers under S. 22[2]
of the ERC Act, 1998, which includes the power to aid and
advise the GoM in the formulation of the State Power Policy.
The Commission would not like to comment on the captive
power policy at this stage, but would like to state that the
MSEB has appended the captive power policy along with the
Tariff Proposal for the information of the consumers, and the
Commission’s silence on this policy should not be taken as
approval of the same.”
14. Respondent nos.3 to 6 had filed writ petitions before the High
Court. The High Court relegated them to MERC. It was not pointed
out that there was a provision as to arbitration in case of dispute
between the appellantMSEDCL and CPP holders. It was also
submitted that on 3.3.2004, MERC has passed an order in Case No.55
of 2003, in which it observed:
“7. …The Commission was seized of the matter relating to the
CPP Policy as a whole, but the previous Circulars continue to
operate since the Commission had not kept them in abeyance,
and they are also not the subject to challenge in the present
proceedings.”
Ultimately, vide order dated 21.5.2004, the MERC allowed the
15.
petition filed by respondent nos.3 to 7 and set aside the
abovementioned circulars issued by appellantMSEDCL from 1998
onwards on the issue of CPP. Even though MERC was not in
existence at the time when certain circulars were issued, they have
been quashed on the ground that no approval from MERC had been
obtained. Aggrieved thereby, an appeal was preferred before the
APTEL and the same was dismissed. Hence, the appeal.
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16. It was submitted by the learned counsel appearing on behalf of
appellantMSEDCL that policy for CPP was evolved by the Government
resolution dated 20.12.1995 onwards. Thus, circular dated 25.5.1999
provided for contract demand and “take or pay” obligations were result
of the policies of the State Government. Circular dated 25.5.1999
provided for charging of energy drawn from the appellantMSEDCL by
CPP at the rate of 110% of the applicable tariff. It was altered to 125%
vide circular dated 2.9.1999 of the energy from the appellantMSEDCL
of the monthly consumption based on preceding 12 months before the
commissioning of CPP.
17. The MERC was established on 5.8.1999 though the Act came
into force w.e.f. 25.4.1998. MERC observed that it was within the
power of State to continue with or alter tariff related
decisions/arrangements to decide about the continuance of tariff on
the ground that CPP policy was in the domain of the State
Government as observed in tariff order dated 5.5.2000 (Case No.1 of
1999), tariff order dated 10.1.2002 (Case No.1 of 2001) and order
dated 3.3.2004 (Case Nos.55 and 56 of 2003). It was submitted that
MERC was constituted on 5.8.1999, its approval was not required
with regard to two circulars were issued before the said date. Reliance
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has been placed on
Binani Zinc Limited v. Kerala State Electricity Board
and Ors., (2009) 11 SCC 244.
18. It was also submitted on behalf of appellantMSEDCL that it
incurred costs for additional generation, strengthening of transmission
network and distribution system and for establishing of EHV sub
station transformation. The appellantMSEDCL has taken various
decisions. The circulars had not imposed an additional financial
burden on CPP holders. The appellantMSEDCL agreed to allow CPP
holders, who consented for expansion load, for using against the
existing load and also reduction in contract demand, as such, it is
clear that financial health was affected.
19. It was further submitted on behalf of appellantMSEDCL that
circulars as per the policy of the State Government could not have
been invalidated. The Commission could have passed appropriate
order on merits concerning matters after its constitution. It could not
have quashed the circulars issued before its establishment. The
appellantMSEDCL had the power to alter the tariff when the
Commission was not established and the Government has authorised
it also. Under Section 44 of the Act of 1948, the CPP industry would
be bound by the policy of the Board and directions of the Government
of Maharashtra. The APTEL has failed to consider that circular dated
2.9.1999 does not amount to a revision of tariff, it pertained to the
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policy regarding the CPP. The APTEL did not consider that huge
amount has been spent on infrastructure which was to be kept
available for the standby facility. The Government of India letter dated
22.8.1994 contemplated both the units of respondent no.3 as separate
units. The policy decision dated 20.12.1997 of the Government of
Maharashtra has also not been considered. The APTEL failed to take
note of the letter dated 13.10.1999 issued by the appellantMSEDCL
to respondent no.3 in respect of unauthorised act of connecting
supply from Plot No.E23 to Plot No.E1 without any sanction from the
appellantMSEDCL. The APTEL also failed to consider that circulars,
which have been quashed, were only explanations/clarifications to the
earlier notifications coercing the policy of CPPs.
It was submitted that the APTEL did not consider order dated
20.
10.1.2002 passed by MERC, in which it observed that CPP is a policy
matter under the jurisdiction of the Government of Maharashtra and
the Commission has been recently conferred with the additional power
under Section 22(2) of the Act of 1998, which includes the power to
aid and advise the Government of Maharashtra in the formulation of
the State Power Policy. The Commission kept silent on CPP at that
stage. It was further submitted that Commission mentioned in the
order that it was conferred with the powers under Section 22(2) of the
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Act of 1998 recently, thus, the Commission should not have struck
down the CPP and the circulars regarding that.
21. The copies of the circular were forwarded as in the case of all
other circulars issued by appellantMSEDCL to its field officers. The
appellantMSEDCL had the power to alter the tariff, the circular dated
25.5.1999 was authorised one, which was partially modified on
13.8.1999. One of the modifications was that CPP holders were
required to draw at least 25% of their monthly consumption from the
appellantMSEDCL. There was no additional financial burden
imposed on CPP holders. The policy contained in the circular was a
matter of economic policy. It was also submitted on behalf of
appellantMSEDCL that all the circulars relating to CPP generation
were submitted to Tribunal for approval. The Tribunal did not decide
the validity thereof vide order dated 10.1.2002. The Tribunal could
not have declared the said circular to be bad in law only on the ground
that prior approval of the Tribunal was not taken without deciding the
issues on merits. Even if the Commission had the power, it ought to
have gone into the merits of the case and reasonableness of the claim
made by the appellantMSEDCL as reflected in circulars. The
Government’s advice dated 28.4.2000 was nonbinding advice upon
the appellantMSEDCL under Section 78A of the Act of 1948.
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22. It was submitted on behalf of respondents that after enforcement
of the Act, there was no power with MSEB to issue circulars under the
Act of 1998. The Commission had sole and exclusive power to frame
the tariff. Thus, no case for interference is made out in the appeal.
The Government also directed MSEB to cancel its circular as it was
not in consonance with the policy of the State. Circulars could not be
said to be enforceable. The change in policy as per circular dated
2.9.1999 was not informed; thus, the exercise of power was arbitrary
and void. The levy of tariff for minimum consumption at 25% of the
energy consumed in the preceding 12 months before the
commissioning of the CPP at the rate of 110% of the tariff is wholly
and utterly unreasonable. Therefore, it was unsustainable. It was
also submitted that neither Section 44 nor any other provisions of the
Act of 1948 enabled MSEB to impose any condition in the grant of
consent, such as maintenance of contract demand at a particular
level. The Board cannot unilaterally revise the charges in breach of
such stipulations fixing the special tariff. A notification cannot be
inconsistent with the terms of the agreement. If subsequent
notification is quashed, it will not revive earlier notification.
23. An affidavit in compliance with the order dated 11.7.2019 has
been filed on behalf of appellantMSEDCL stating that supply of
electricity, made available, was used by respondents to manufacture
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their products. The cost incurred on production has been passed on
to the buyers/consumers buying their products. Hence, it would
tantamount to unjust enrichment in case a refund is ordered.
24. The first question for consideration is whether the Commission
could have quashed circulars issued by the appellantMSEDCL before
its formation. The Commission was constituted under the Act of 1998
on 5.8.1999. The circular issued before that could not have been
quashed on the ground that MSEB had no power to issue them
without the approval of the Commission. The decisions in that regard
of Commission as well as of APTEL are liable to be set aside. In Binani
Zinc Limited (supra), this Court held that before Commission came into
existence, the power was to be exercised by the State Electricity
Board. This Court held thus:
“31. The State Electricity Boards are entitled to frame tariff in
terms of the provisions contained in the 1948 Act. The tariff so
framed is legislative in character. The Board, as a statutory
authority, is bound to exercise its jurisdiction within the four
corners of the statute. It must act in all fields, including the
field of framing tariff by adopting the provisions laid down in
the 1948 Act or the Rules and the Regulations framed
thereunder.
32. It is one thing to say that while framing tariff the Board
can only take into consideration the provisions laid down in
the Schedule appended to the Act and/or the directions
contained in the policy decisions issued by the State as also
other statutory principles governing the same but then a tariff
framed by it cannot be held to be ultra vires only because it
did not take into consideration certain principles laid down in
clauses ( c ) to ( g ) of subsection (2) of Section 29 of the 1998
Act.
*
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We have, however, no hesitation in finding that the State
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Electricity Board had the requisite jurisdiction to revise a tariff
till such time as the Commission was constituted and the
purposes of the 1998 Act could be achieved through it. Till the
time the Regulatory Commission was not constituted by the
State of Kerala, the power to determine tariff remained with
the Board under the Electricity (Supply) Act, 1948 as it was
not repealed by the Electricity Regulatory Commissions Act,
1998. Parliament could not have intended to bring about a
situation where no authority would be empowered to
determine the tariff between the date of coming into force of
the ERC Act, 1998 and the constitution of the Commission. It
is only after the Regulatory Commission is constituted that it
will be the sole authority to determine the tariff.”
The decision of BSES Ltd. v. Tata Power Co. Ltd., (2004) 1 SCC
195, has been explained in Binani Zinc Limited (supra).
25. Concerning circular dated 2.9.1999, which remained in force till
28.4.2000, the Commission as well as the APTEL were required to
consider impact of Commission earlier order passed on 10.1.2002 and
also its observations made in the said order that CPP is a policy
matter and that Commission was recently conferred with the power
under Section 22(2) of the Act of 1998, it ought to have gone into the
merits of the claim. It was also pointed out on behalf of appellant
MSEDCL that it had submitted circulars for approval to Commission,
which has not gone into the merits of the subject matter and later
quashed circulars on the ground of competence. The MSEDCL filed
circulars along with tariff proposal for approval as that was an essence
of the tariff.
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26. It has also been pointed out that in subsequent orders also,
circulars as to CPP were relied upon by the Commission. It was
incumbent upon the Commission to consider the effect of its orders
and the prayer made by the appellantMSEDCL to consider merits of
various circulars while fixing the tariff.
27. As dispute pertains to the period from 2.9.1999 to 28.4.2000,
and it is apparent from the additional affidavit filed by the appellant
MSEDCL that the respondents used supply of electricity to
manufacture their products. The cost incurred on production has
been passed on to the buyers/consumers buying their products.
Hence, it would tantamount to unjust enrichment in case a refund is
ordered. In the peculiar facts of the case, as the Commission earlier
opined in order dated 10.1.2002 that CPP is a policy matter and it did
not decide as to the merits of subject matter as prayer for approval
was made by the appellantMSEDCL. The Commission observed that
it would consider the matter in the future, but later on, without
considering on merits the reasonableness of the demand, the
Commission quashed the circulars. It is apparent that the liability
was passed on to the buyers/consumers by the respondent nos.3 to 7
as electricity was used to manufacture their products sold in the
market, working out the price based on expenditure. It would not be
appropriate in the peculiar facts of the case to direct refund to be
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made by the appellantMSEDCL of the amount recovered by it as it
would tantamount to unjust enrichment. Thus, in the peculiar facts
and circumstances of the case, it is not considered appropriate to
remit the matter to decide the dispute on merits after two decades for
the period from 2.9.1999 to 28.4.2000, during which circular dated
2.9.1999 was in force.
28. Consequently, we set aside the orders passed by the Commission
as well as the APTEL and hold that circulars and the policy decisions
issued before the establishment of the Commission were illegally set
aside and in the peculiar facts and circumstances of the case we set
aside the order concerning refund of amount recovered by MSEB.
29. The appeal is allowed to the aforesaid extent. The parties are
directed to bear their own cost incurred.
……………………………….J.
(Arun Mishra)
……………………………….J.
(M.R. Shah)
……………………………….J.
(B.R. Gavai)
New Delhi;
February 28, 2020.