Full Judgment Text
REPORTABLE
2025 INSC 857
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 12883 OF 2024
THE STATE OF HIMACHAL PRADESH & ANR. ...APPELLANT(S)
VERSUS
JSW HYDRO ENERGY LIMITED & ORS. …RESPONDENT(S)
J U D G M E N T
PAMIDIGHANTAM SRI NARASIMHA, J.
Table of Contents
I. Introduction ............................................................................................ 2
II. Facts ...................................................................................................... 4
III. Impugned Order .................................................................................. 14
IV. Submissions ........................................................................................ 16
V. Issue..................................................................................................... 29
Signature Not Verified
VI. Analysis ............................................................................................... 29
Digitally signed by
KAPIL TANDON
Date: 2025.07.16
16:08:45 IST
Reason:
VII. Regulation of Electricity Generation Under the Electricity Act ............. 33
1
VIII. Legal Effect of Note 3 of Regulation 55 ................................................ 36
i) Interpretation of the CERC Regulations, 2019…….……………….36
ii) CERC’s Order dated 17.03.2022 ................................................ 41
IX. Maintainability of the Writ Petition: ...................................................... 44
i) CERC as an Expert and Specialised Regulator, and Extent of
Judicial Interference ........................................................................ 44
ii) Grant of Relief by the High Court ............................................... 50
X. Conclusion ........................................................................................... 53
I . Introduction:
1. Respondent no. 1, a generating company, installed and
commissioned a 1045MW hydroelectric power project pursuant to
a grant followed by an Implementation Agreement with the
appellant-State of Himachal Pradesh. Under this Agreement,
respondent no. 1 undertook to supply as consideration 18% of net
1
generation free of cost to the appellant-State. At the
commencement of the obligation to supply 18% free power,
respondent no. 1 approached the High Court by way of a writ
petition to align the Implementation Agreement with the CERC
1
The obligation to supply free power is 12% of net generation from 12.09.2011 to 12.09.2023,
and 18% thereafter till 12.09.2051.
2
2
(Terms and Conditions of Tariff) Regulations, 2019 , which provide
for a maximum of 13% free power to the State Government, on the
ground that contractual agreements, to the extent that they are
inconsistent with the applicable regulations, shall stand
overridden by their operation. Accepting the argument, the High
Court entertained the writ petition and directed that the
Implementation Agreement stood modified.
2. We have allowed the appeal by the State of Himachal Pradesh
3
by interpreting the provisions of the Electricity Act, 2003 and the
CERC Regulations, 2019 in the context of the subsisting and
continuing contractual relationship between the parties. We have
4
held that the Central Electricity Regulatory Commission shall give
effect to the Regulations and provide a pass-through to the extent
of 13% free power but the remaining part of the obligation is
contractual in nature and will be governed by the provisions of the
Implementation Agreement. On interpreting the cap under Note 3
of Regulation 55 of the CERC Regulations, 2019, we have held that
it does not restrain or prohibit respondent no. 1 from supplying
free power beyond 13% but it is only meant for the calculation and
2
Hereinafter “CERC Regulations, 2019”.
3
Hereinafter “Electricity Act”.
4
Hereinafter “CERC”.
3
fixation of tariff. Further, considering the expertise and
specialisation of the CERC as a statutory regulator and the wide-
ranging jurisdiction it exercises under the Electricity Act, as well
as respondent no. 1’s conduct in not seeking relief against the
appellant before the CERC, we have held that the present writ
petition was not maintainable before the High Court as the
interpretation of the Regulations falls within the exclusive domain
of the regulator.
II . Facts:
3. The facts, to the extent necessary are as follows. By a
5
Memorandum of Understanding dated 28.08.1993, the appellant-
State allotted the Karcham Wangtoo Hydroelectric Project for an
installed capacity of 900 MW to one Jaiprakash Industries
6
Limited , which is a power generating company and the
predecessor of respondent no. 1. Under Clause 6 of the MoU, JIL
agreed to supply 12% of the power generated to the appellant-State
free of cost.
3.1 Pursuant to the MoU, the appellant entered into an
Implementation Agreement with JIL for an enhanced capacity of
5
Hereinafter “MoU”.
6
Hereinafter “JIL”.
4
1000 MW. The relevant clauses of the Implementation Agreement
are as follows:
i. Article 1.2 is the definitions clause that defines “Law” as
any Act, rule, regulation, notification, order, or instruction
having the force of Law enacted or issued by any
competent legislature, government, or statutory authority
in India.
ii. Further, the Effective Date of the Agreement is defined as
the date of signing, and the Scheduled Commercial
7
Operation Date is defined as 120 months from the
Effective Date.
iii. Article 3.2 stipulates that the Implementation Agreement
shall remain in force for a period of 40 years from the
8
Commercial Operation Date of the Project (Agreement
Period), unless terminated earlier as per its provisions. It
reads:
“ 3.2 Agreement Period
a) This Agreement shall remain in force up to a period of
forty (40) years from the Commercial Operation Date of the
Project (Agreement Period), unless terminated earlier in
accordance with the provisions of the Agreement. ”
7
Hereinafter “SCOD”.
8
Hereinafter “COD”.
5
iv. Article 4 delineates the obligations of the appellant-State
under the Agreement, which include the grant of various
consents and permissions to JIL to establish, operate, and
maintain the Project; to acquire land and prepare a
rehabilitation and resettlement plan for local residents; to
enter into leases for government land required for the
works; to upgrade roads and bridges for the Project; and
to provide necessary assistance to JIL as per the
Agreement.
v. Article 5 deals with the obligations of JIL, of which the
most relevant is the supply of power to the appellant-State
without any cost or charges under Article 5.1. Sub-clause
(a) stipulates the quantum of such supply as 12% of the
net generation for the first 12 years from the COD, and
18% of the net generation for the next 28 years. Further,
sub-clause (b) stipulates that JIL shall ensure that any
9
Power Purchase Agreement entered into by it shall not be
detrimental to the rights of the appellant-State envisaged
in this clause. It reads:
“ 5.1 Government Supply
(a) The Company shall supply to the Government or its
Agent, during the Agreement Period, at the Interconnection
9
Hereinafter “PPA”.
6
Point without any cost or charges to the Government, the
quantum of electrical energy generated as specified below
(Government Supply):
i) Commencing from the date
of synchronisation of the first
Unit and for the first twelve
(12) years from
Commercial Operation Date
(COD)
Twelve (12) percent of
Net Generation
ii) For the next twenty eight
(28) years after expiry of the
period specified in (i) above.
Eighteen (18) percent
of Net Generation
This quantum of Government Supply is applicable in case the
Project achieves Commercial operation on Scheduled
Commercial Operation Date. In the event of early or delayed
commissioning of the Project, the same shall be as per
provision specified in Clause 5.19 and 5.20 respectively.
In case the Government levies any duty/tax on generation
and supply of power, the same shall be borne by the
Government in respect of Government Supply. Further
modalities for providing the Government Supply shall be
mutually agreed between the Company and the Board.
(b) The Company shall ensure that any Power Purchase
Agreement entered into by it shall not be detrimental to the
rights of the Government envisaged in this Clause. ”
vi. Article 9 provides that the rights and obligations under or
pursuant to the Agreement shall be governed by and
construed according to Law.
vii. Article 10 provides for dispute resolution through mutual
discussions, and in case of failure of the same, arbitration.
3.2 By an addendum to the Implementation Agreement dated
24.05.2001, the time-period for commencing construction was
extended from 36 to 48 months from the Effective Date, but the
COD was unamended.
7
3.3 Subsequently, by a tripartite agreement dated 30.12.2002
between the appellant, JIL, and one Jaypee Karcham Hydro
10
Corporation Limited that was incorporated by JIL as per Clause
8 of the MoU, the rights and liabilities of the Project were
transferred from JIL to JKHCL.
3.4 JKHCL entered into a PPA dated 21.03.2006 with respondent
no. 4, i.e., PTC India Limited, which is an inter-state trading
licensee, for sale of 704 MW of power. PTC then entered into Power
11
Sale Agreements with respondent nos. 5 to 10, which are
distribution companies in the States of Punjab, Haryana, Uttar
Pradesh and Rajasthan, to sell the power which it purchased from
JKHCL. In the PPA as well as the PSAs, “free power” is defined in
the same manner as Article 5.1 of the Implementation Agreement.
3.5 The appellant and JKHCL entered into a Second
Supplementary Implementation Agreement on 20.12.2007 to
extend the SCOD to 144 months from the Effective Date, i.e.
18.11.2011.
3.6 The Project achieved commercial operation on 12.09.2011,
i.e., within the extended SCOD. It is relevant to note that this is
the date from which JKHCL’s obligation to supply free power to the
10
Hereinafter “JKHCL”.
11
Hereinafter “PSAs”.
8
appellant-State commenced as per Article 5.1 of the
Implementation Agreement. For the first 12 years from
12.09.2011, the quantum of free power to be supplied is 12%, and
18% thereafter for the next 28 years.
3.7 By a tripartite agreement dated 29.08.2015, the rights and
liabilities in the Project were transferred from JKHCL to Himachal
12
Baspa Power Company Limited , which is the predecessor of
respondent no. 1, with effect from 01.09.2015. As per clause 3 of
this agreement, HBPCL agreed to be bound by and liable for the
contractual undertakings as specified in the Implementation
Agreement, Addendum, tripartite agreement dated 30.12.2002,
and the Second Supplementary Implementation Agreement.
3.8 In 2018, HBPCL changed its name to JSW Hydro Energy
Limited, which is the present respondent no. 1 company. The
parties signed the Third Supplementary Implementation
Agreement dated 21.10.2019 for effecting the change in name
while also agreeing that the other contractual undertakings would
remain unamended.
3.9 During this time, the CERC (Terms and Conditions of Tariff)
Regulations, 2014 governed the field with respect to tariff
12
Hereinafter “HBPCL”.
9
determination of generating stations, including the specific
provision with respect to free power supply under Note 3 of
Regulation 42. This provided that “ FEHS = Free energy for home
State, in percent and shall be taken as 13% or actual whichever is
less. ” Respondent no. 1 sought for relaxation of this cap in its tariff
petition for the 2014-2019 period. This was decided by the CERC’s
order dated 30.03.2017, wherein it did not consider this issue as
the free power supply obligation during this period was only 12%,
which is below the 13% cap prescribed in the CERC Regulations,
2014. However, respondent no. 1 was given liberty to claim this
relief at an appropriate time.
3.10 In 2019, the CERC framed the CERC Regulations, 2019
determining tariffs for generating stations and transmission units
from 01.04.2019 to 31.03.2024. At this stage, it is relevant to refer
to Note 3 of Regulation 55 that provides that free energy to home
State (FEHS) shall be taken as 13% or actual, whichever is lesser.
Further, Regulation 44 deals with the computation and payment
of capacity and energy charges for generating station, and
Regulation 55(2) provides for billing and payments. The relevant
portions of these provisions are extracted hereinbelow:
10
Regulation 44:
“ 44. Computation and Payment of Capacity Charge and Energy
Charge for Hydro Generating Stations: (1) The fixed cost of a hydro
generating station shall be computed on annual basis, based on
norms specified under these regulations, and shall be recovered on
monthly basis under capacity charge (inclusive of incentive) and
energy charge, which shall be payable by the beneficiaries in
proportion to their respective allocation in the saleable capacity of the
generating station, i.e., in the capacity excluding the free power to the
home State:…
*
(4) The energy charge shall be payable by every beneficiary for the
total energy scheduled to be supplied to the beneficiary, excluding
free energy, if any, during the calendar month, on ex-bus basis, at the
computed energy charge rate. Total energy charge payable to the
generating company for a month shall be:
Energy Charges = (Energy charge rate in Rs. / kWh) x {Scheduled
energy (ex-bus) for the month in kWh} x (100 – FEHS) / 100
(5) Energy charge rate (ECR) in Rupees per kWh on ex-power plant
basis, for a hydro generating station, shall be determined up to three
decimal places based on the following formula, subject to the
provisions of clause (7) of this Regulation:
ECR = AFC X 0.5 x 10 / {DE x (100 – AUX) x (100 – FEHS)}
Where,
DE = Annual design energy specified for the hydro generating station,
in MWh, subject to the provision in clause (6) below.
FEHS = Free energy for home State, in per cent, as mentioned in Note
3 under Regulation 55 of these regulations …”
Regulation 55:
“ 55. Billing and Payment of charges:
*
(2) … Payment of capacity charge and energy charge for a hydro
generating station shall be shared by the beneficiaries of the
generating station in proportion to their shares (inclusive of any
allocation out of the unallocated capacity) in the saleable capacity (to
be determined after deducting the capacity corresponding to free
energy to home State as per Note 3 herein.
*
Note 3 FEHS= Free energy for home State, in percent and shall be
taken as 13% or actual whichever is less… ”
3.11 In 2019, respondent no. 1 filed a petition before the CERC
for approval of its tariff between 2019-2024, as well as truing up
11
the tariff for 2014-2019 period. In the tariff petition, respondent
no. 1 inter alia prayed for relaxation of the 13% cap on free power
under Note 3 of Regulation 55 of the 2019 Regulations, since its
free power obligation under the Implementation Agreement is 18%
of net generation after the completion of 12 years from COD.
3.12 This was decided by the CERC’s order dated 17.03.2022
wherein it rejected the prayer for relaxation of the 13% cap on free
power supply. The CERC held that it was bound by the CERC
Regulations, 2019 while determining the tariff and that the
regulations will override inconsistent contractual provisions in the
PPA and PSAs executed by respondent no. 1 in respect of free
power to the appellant-State. We will be dealing with the findings
of the CERC in more detail in our analysis.
3.13 In the meanwhile, the Central Electricity Authority
approved an increase in the Project capacity from 1000MW to
1091MW in two stages by a letter dated 29.04.2021. Pursuant to
this, the capacity of the Project was enhanced to 1045 MW by the
Fourth Supplementary Implementation Agreement dated
08.07.2021. It was further agreed that respondent no. 1 would be
required to supply an additional 3% free power to the appellant-
State on the enhanced 45MW capacity.
12
3.14 In 2022, the present dispute arose between the parties as
respondent no. 1 issued various letters to the appellant that Note
3 of Regulation 55 of the CERC Regulations, 2019 caps the free
power supplied to the State at 13%. Further, that the CERC’s order
dated 17.03.2022 requires inconsistent contractual provisions to
be aligned with the Regulations. Relying on these, respondent no.
1 requested the appellant to align the Implementation Agreement
with the CERC Regulations, 2019 and the order dated 17.03.2022
such that its free power supply obligation is confined to 13%. On
the other hand, the appellant-State replied that the quantum of
free power must be determined as per the Implementation
Agreement and the Supplementary Implementation Agreements,
which comes to 18.46% commencing from 13.09.2023. The
appellant also issued a notice to respondent no. 1 dated
13.09.2023 to adhere to the contractual terms, failing which
consequential action would be initiated against it. It also issued a
notice dated 16.09.2023 to the Northern Regional Load Dispatch
Centre to schedule 18.46% free power to the appellant.
3.15 This led respondent no. 1 to file the present writ petition
before the High Court to direct the appellant to align the provisions
of the Implementation Agreement and Supplementary
13
Implementation Agreements on free power with the CERC
Regulations, 2019 and the CERC’s order dated 17.03.2022, as well
as to quash the notices issued by the appellant.
III . Impugned Order:
4. By the order 28.05.2024, which is impugned before us, the
High Court allowed the writ petition and directed the appellant to
align the Implementation Agreement and Supplementary
Implementation Agreements in respect of the quantum of free
power with the provisions of the CERC Regulations, 2019 till they
remain in force. Further, it directed that if respondent no. 1
supplied any free power above the maximum ceiling limit under
the Regulations, the same shall be adjusted. For arriving at this
conclusion, the High Court adopted the following reasoning:
4.1 First, it held that the writ petition is maintainable inspite of
the arbitration clause in Article 10.1 of the Implementation
Agreement as the issues of whether the CERC Regulations, 2019
will override the Implementation Agreement and whether the
contractual provisions need to be aligned pertain to enforcement
of statutory regulations. Hence, the arbitration clause does not
stand in the way of invoking writ jurisdiction.
14
4.2 The High Court then took note of various provisions of the
Electricity Act, the CERC Regulations, 2019, and the CERC’s order
dated 17.03.2022 and rejected the appellant’s argument that these
do not affect the obligations under the Implementation Agreement
and held that the CERC’s order has a direct bearing on the supply
of free power by respondent no. 1 to the appellant. Noting that the
appellant-State was a party before the CERC and did not contest
respondent no. 1’s prayer for relaxing the cap on free power, the
Court held that such cap is not only to determine the tariff but is
relevant for every other incidental and connected purpose .
4.3 While the CERC in its order dated 17.03.2022 held that
inconsistent provisions in the PPA and PSAs stand overridden by
the Regulations, the High Court observed that these provisions are
the same as in the Implementation Agreement and Supplementary
Implementation Agreements. In a composite scheme for generation
and sale of electricity, it held that there cannot be any mismatch
in respect of the quantum of supply of free electricity. Hence, the
corollary of the CERC’s order that the PPA and PSAs stand
overridden is that the Implementation Agreement becomes
unworkable and must be aligned with the CERC Regulations,
2019.
15
4.4 Further, since the appellant-State accepted the CERC’s
order, respondent no. 1 was within its right to seek alignment of
the Implementation Agreement with the CERC Regulations, 2019
and the CERC’s order.
4.5 The High Court also relied on this Court’s decision in PTC
13
India Ltd. v. Central Electricity Regulatory Commission where it
was held that statutory regulations under the Electricity Act will
override existing contracts between regulated entities. On this
basis, the High Court concluded that the CERC Regulations, 2019
will have supremacy over contractual undertakings and the
provisions of the Implementation Agreement must be aligned
accordingly.
IV. Submissions:
5. We have heard Mr. Kapil Sibal and Mr. Parag Tripathi,
learned senior counsel for the appellant, and Mr. P. Chidambaram
and Dr. A.M. Singhvi, learned senior counsel for respondent nos.
1 and 2. We also heard Mr. Nikhil Nayyar, learned senior counsel
for respondent no. 11 (CERC), Ms. Preetika Dwivedi, learned
counsel for respondent nos. 7-9 (distribution companies operating
in the State of Rajasthan), and Mr. Gurminder Singh, learned
13
(2010) 4 SCC 603.
16
senior counsel for respondent no. 10 (distribution company
operating in the State of Punjab). Their submissions can be
recapitulated as follows:
5.1 Mr. Tripathi and Mr. Sibal appearing for the appellant-State
have broadly submitted that the quantum of free power to be
supplied under the Implementation Agreement is not regulated or
curtailed by the CERC Regulations, 2019 or the CERC’s order
dated 17.03.2022. While taking us through the sequence of events,
the following submissions have been made:
i. Regulation 2 provides the scope and extent of application
of the CERC Regulations, 2019, which is to determine the
tariff for generating and transmission companies.
ii. The purport of Note 3 of Regulation 55, which stipulates
the 13% cap on free power, is for calculating the bill
amount that the generating company can recover from
beneficiaries. It does not prohibit respondent no. 1 from
supplying free power beyond this cap. The effect of the cap
is that the CERC Regulations, 2019 provide a pass-
through to the extent of 13% free power while determining
the tariff. Any further supply of free power must be borne
by the generating companies from their resources.
17
iii. Further, that the Regulations govern agreements between
the generation and distribution companies but do not
extend to the Implementation Agreement, which was
executed even prior to the commencement of generation.
In the written submissions, it is further submitted that the
Implementation Agreement is a contract for natural
resources, and not a tariff agreement. It hence falls outside
the ambit of the CERC Regulations, 2019.
iv. In this vein, the learned senior counsel have also referred
us to the relevant portions of the CERC’s order dated
17.03.2022 wherein respondent no. 1 prayed for relaxation
of the 13% cap while calculating tariff in view of its
contractual obligations under the Implementation
Agreement. This was rejected by the CERC and it held that
the PPA and PSAs executed by respondent no. 1 are
overridden by the Regulations . The learned senior counsel
submit that respondent no. 1 did not appeal this order
14
before the Appellate Tribunal for Electricity and instead
filed a writ petition in 2023 seeking amendment of the
Implementation Agreement.
14
Hereinafter “APTEL”.
18
v. Coming to the impugned order of the High Court, they
submit that the High Court has proceeded on the basis
that the appellant-State is a regulated entity under the
Electricity Act, and thereby relied on PTC (supra) where
this Court held that contracts between regulated entities
stand overridden by statutory regulations under the
Electricity Act. They submitted that this is incorrect as the
State Government is not a deemed licensee under the third
proviso of Section 14 as it is not engaging in transmission,
distribution, or trading of electricity.
vi. They also submitted that contractual terms could not have
been amended in exercise of writ jurisdiction, and the only
remedy available to respondent no. 1 was to challenge the
validity of the Regulation itself, which it had not done.
Regarding the exercise of writ jurisdiction to align the
contractual terms with the Regulations, it is further
contended in the written submissions that the High Court
has rewritten the Implementation Agreement by relying on
the PPA and PSAs being overridden as per the CERC’s
order dated 17.03.2022. However, the High Court ignored
that these agreements are not on the same footing and
19
Article 5.1(b) of the Implementation Agreement provides
that it shall not be affected by the PPA.
vii. In the written submissions, the appellant submitted that
the quantum of free power was arrived after a series of
negotiations with JIL, which was awarded the Project
through the MoU route rather than through competitive
bidding. In order to avoid competitive bidding, JIL agreed
to supply 18% free power during a certain portion of the
Agreement period.
viii. The learned senior counsel further submitted that despite
a similar cap on free power in the Hydroelectric Policy,
1998 @ 12%, respondent no. 1 knowingly agreed to supply
18% free power in the Implementation Agreement that was
executed in 1999. Further, this obligation has been
reiterated in all the Supplementary Agreements. Moreover,
the Fourth Supplementary Implementation Agreement was
executed in 2021 for additional free power on the
enhanced capacity, which was executed after the CERC
Regulations, 2019 came into force. Hence, once
respondent no. 1 consented to supplying free power @ 18%
20
despite a similar cap existing all through, the same cannot
be avoided by filing a writ petition.
5.2 Mr. Chidambaram, learned senior counsel for respondent no.
1 submitted that the Implementation Agreement, which was
negotiated prior to the CERC Regulations, 2019 stands overridden
by the Regulations.
i. Referring to Article 9 of the Implementation Agreement, he
submitted that the rights and obligations under the
Agreement are subject to “Law”, which has been widely
defined as including regulations. The regulations in this
case are framed under the Electricity Act, which was
enacted in 2003, after the Implementation Agreement was
executed. Prior to this, there was no law restricting the
quantum of free power at the time of execution of the
Implementation Agreement.
ii. The State Government is a regulated entity under the
Electricity Act as it is a deemed licensee as per the third
proviso of Section 14. He referred us to certain portions of
the writ petition before the High Court, where respondent
no. 1 contended that the appellant-State is a deemed
licensee and the same was not denied by the appellant in
21
its reply. He also referred to Section 10(2) of the Electricity
Act to submit that generating companies can supply
electricity to licensees only. On this basis, he submitted
that respondent no. 1 is supplying electricity to the
appellant-State as a licensee, albeit free of cost.
iii. Relying on the decisions of this Court in PTC (supra) as
well as Transmission Corporation of A.P. Ltd. v. Rain
15
Calcining Ltd. , he submitted that even concluded
contracts between regulated entities are overridden by
regulations. Since the State Government is a licensee, the
Implementation Agreement stands overridden by the
Regulations. Further, he submitted that performance of a
contract must be in conformity with the law in force at the
16
time.
iv. He then referred us to Regulation 30 of the CERC
17
Regulations, 2019 that provides for Return on Equity to
hydro-electric generating companies @ 16.5%, which the
generating company earns through tariff on saleable
power. The tariff is calculated by considering the free
15
(2021) 13 SCC 674.
16
Ganga Retreat and Towers Ltd. v. State of Rajasthan
Relied on , (2003) 12 SCC 91.
17
Hereinafter “RoE”.
22
power cap @ 13% as per Note 3 of Regulation 55. However,
if the actual free power supply is 18% as per the
Agreement, this will negatively impact the RoE. Further, to
ensure that RoE is maintained, respondent no. 1 will be
required to sell the remaining 82% of power at a higher
rate to PTC and the distribution companies, which will
ultimately be passed on to the consumers thereby affecting
consumer interest. In the written submissions, respondent
no. 1 also contended that the cost of generation and supply
of electricity must be recovered through tariff as per
Section 61 of the Electricity Act. However, if it is required
to supply 18% free power despite the 13% cap in the
Regulations, it will not recover revenue for 5% of the power
it generates and supplies, and this will negatively impact
its RoE.
5.3 Dr. Singhvi supplemented these submissions with the
following arguments:
i. The consequence of a change in law (i.e., the cap on free
power supply) must be borne by both parties, and cannot
be unilaterally imposed on the generating company.
23
ii. The State Government is a regulated entity as per the third
proviso to Section 14 as well as under Section 10(2) of the
Electricity Act. Hence, the CERC Regulations, 2019 govern
and override the contractual obligations under the
Implementation Agreement.
iii. Since this is a composite scheme for generation and
distribution of electricity, there can be no mismatch on the
quantum of free power stipulated in the Implementation
Agreement, which is an upstream agreement with the
State Government, and the PPA and PSAs, which are
downstream agreements with distribution companies.
5.4 We also heard Mr. Nikhil Nayyar for the CERC, who
submitted the following:
i. The CERC Regulations, 2019 are only concerned with tariff
fixation and neither deal with the Implementation
Agreement nor impose restrictions on the quantum of free
power supply to the appellant-State. The purport of the
Regulations is to cap the free power that will be considered
while fixing tariff and whose costs can be passed onto the
distribution companies and consumers. Since the actual
quantum of free power supply is determined by contract,
24
respondent no. 1 must use contractual remedies to
challenge the same.
ii. Relying on PTC (supra), he submitted that the CERC is
bound by its Regulations, including the cap on free power
supply, while determining the tariff. Any further supply is
to be met by the generating company from its own
resources, which is also stipulated in the Hydro Power
Policy, 2008 that forms the basis of the CERC Regulations,
2019.
iii. RoE for respondent no. 1 is stipulated as 16.5% under
Regulation 30(2), which is arrived at after considering
commercial principles and consumer interest, as per
Section 61(b) and (d) of the Electricity Act. Referring to
Regulations 14(4), 15, and 18 of the CERC Regulations,
2019, he submitted that the RoE is part of the Annual
Fixed Cost, which is used to derive capacity charges that
is in turn used to determine the tariff. Hence, RoE forms a
part of the tariff itself and the tariff is structured on this
basis. RoE is not the same as the net profit of respondent
no. 1. In its written submissions, the CERC further
submitted that RoE is calculated on the equity component
25
of the Project, which has been granted in full to respondent
no. 1 for the 2014-19 and 2019-24 periods.
iv. The CERC’s order dated 17.03.2022 only directs that the
PPA and PSAs must be aligned with the Regulations. It
does not deal with or decide on the Implementation
Agreement. This order was not challenged by respondent
no. 1 before the APTEL, and they instead relied on the
same to file a writ petition before the High Court to seek
the relief of aligning the Implementation Agreement. The
filing of the writ petition is a way to avoid the CERC order
dated 17.03.2022 and an attempt to achieve the same
result through a different prayer.
5.5 Mr. Gurminder Singh, learned senior counsel submits that
the State Government cannot be treated as a deemed licensee in
the present case. Further, he submits that the CERC’s role of tariff
determination does not extend to allocating or apportioning the
power supplied by the generating company to various entities. It
only relates to fixation of tariff for such supply, after the generating
company has decided the allocation.
5.6 Ms. Preetika Dwivedi submitted that PTC (supra) does not
apply as tariff regulation is not concerned with a contract between
26
the State Government and a generating company. When
respondent no. 1 consented to supply 18% free power, a similar
cap of 12% with respect to free power supply was provided in the
Hydroelectric Policy, 1998. Finally, that the burden of free power
cannot be passed on to the distribution companies or consumers.
5.7 Finally, Mr. Sibal responded to the submissions made on
behalf of respondent nos. 1 and 2. He disputed the status of the
appellant-State as a deemed licensee by contending that there is
no transmission, distribution, or trading of electricity in this case.
Specifically referring to Section 2(71) of the Electricity Act which
defines “trading” as purchase of electricity for resale, he submitted
that the State Government is not purchasing any power as it is
supplied free of cost. Since the State Government is not a deemed
licensee, it does not fall under the CERC’s jurisdiction and the
terms and conditions of free power supply cannot be regulated
under the Electricity Act. Second, he submitted that the tariff order
dated 17.03.2022 provides for more than 16.5% RoE to respondent
no. 1, and the only impact of free power supply beyond 13% is on
the net profit, which is not guaranteed under the CERC
Regulations, 2019. Finally, he submitted that the Implementation
Agreement falls outside the jurisdiction of the Regulatory
27
Commissions constituted under the Electricity Act, which deal
with tariff determination. Rather, this is a case of free supply of
electricity to the State Government that it can dispose of in a
manner it deems fit as per the Electricity [Removal of Difficulty]
(Third) Order, 2005.
5.8 Mr. Tripathi also submitted that while RoE is guaranteed by
the Regulations, net profit is not guaranteed. He submitted that
this issue was raised by respondent no. 1 in its tariff petition and
the prayer for relaxation of the cap on free power supply was
rejected by the CERC, which was not subsequently challenged.
5.9 Regarding the status of the State Government as a deemed
licensee, respondent no. 1 has submitted the following in its
written submissions: First , although power is supplied free of
monetary cost, there is purchase as there is non-monetary
consideration for the power under the Implementation Agreement.
Second , the State Government undertakes trading of such
electricity through respondent no. 3, the Himachal Pradesh State
Electricity Board, which is its agent/instrumentality. Considering
these factors, the State Government is a regulated entity and is
governed by the CERC Regulations, 2019. As per PTC (supra) as
well as Article 9 of the Implementation Agreement, the contractual
28
rights and obligations relating to free power are subject to the
CERC Regulations, 2019.
5.10 Further, in its written submissions, respondent no. 1 has
also contended that the policies relied on by the appellant,
including the Hydro Power Policy 2008, do not apply to it as the
Project was awarded through MoU and not competitive bidding.
V. Issue:
6. Having considered the sequence of events and the subject-
matter of the dispute, as well as the extensive oral and written
submissions of the parties, we find that the primary issues arising
for our consideration are: first , whether the CERC Regulations,
2019 bar respondent no. 1 from supplying free power to the
appellant-State beyond 13%; and second , whether respondent no.
1 could have invoked the High Court’s writ jurisdiction for aligning
the Implementation Agreement with the CERC Regulations, 2019.
In this context, we will also examine the scope and ambit of the
Electricity Act and the rights and liabilities of the entities governed
thereunder.
VI . Analysis:
7. The Electricity Act, 2003 is a complete and comprehensive
code for regulating the generation, transmission, distribution,
29
trading and use of electricity. One of the core features of the Act is
that it unbundles the functions of electricity generation,
transmission, and distribution that were erstwhile performed by
18
State Electricity Boards into separate utilities, and provides for
19
their regulation through independent Regulatory Commissions.
8. The need for an independent and transparent regulatory
mechanism was felt due to the regulatory failures under the
20
erstwhile legal regime , wherein SEBs constituted by the State
21
Governments were entrusted with regulation. It was experienced
that various problems plagued the power sector, including lack of
rational retail tariffs, high level of cross-subsidies, poor planning
and operation, inadequate capacity, neglect of consumer interest,
and limited involvement of the private sector’s skills and
22
resources. It is in this context that the Electricity Regulatory
23
Commissions Act, 1998 was enacted to reform the governance of
the sector by establishing an independent and transparent
24
regulatory mechanism .
18
Hereinafter “SEBs”.
19
PTC (supra), para 17.
20
Electricity Act, 1910 (hereinafter “the 1910 Act”); the Electricity (Supply) Act, 1948
(hereinafter “the 1948 Act”).
21
K.C. Ninan v. Kerala State Electricity Board , (2023) 14 SCC 431, para 6.
22
Statement of Objects and Reasons of the Electricity Regulatory Commissions Act, 1998.
23
Hereinafter “the 1998 Act”.
24
W.B. Electricity Regulatory Commission v. CESC Ltd. , (2002) 8 SCC 715, para 52; PTC
Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission
(supra), para 17; , (2014) 8 SCC
444, para 22.
30
9. Within a few years thereafter, the Electricity Act, 2003 was
enacted as a comprehensive legislation for regulating the sector
25
and it replaced the 1910 Act, the 1948 Act, and the 1998 Act.
26
The following salient features emerge from the Preamble of the
Electricity Act:
9.1 The Act consolidates laws , and therefore comprehensively
deals with all aspects of the electricity sector, from production to
usage.
27 28
9.2 Electricity being a public good and a basic amenity , it has
29
been recognised as a part of the right to shelter and right to life .
In this light, the Act covers the entire process of production,
transfer, and sale of electricity and also deals with the utilisation
of electricity. These are covered under generation, transmission,
distribution, trading and use of electricity .
9.3 The Act is also concerned with the development of the
electricity sector so as to ensure that there is sufficient amount of
25
Section 185 of the Electricity Act.
26
The Preamble of the Electricity Act reads:
“ An Act to consolidate the laws relating to generation, transmission, distribution,
trading and use of electricity and generally for taking measures conducive to
development of electricity industry, promoting competition therein, protecting
interest of consumers and supply of electricity to all areas, rationalisation of
electricity tariff, ensuring transparent policies regarding subsidies, promotion of
efficient and environmentally benign policies, constitution of Central Electricity
Authority, Regulatory Commissions and establishment of Appellate Tribunal and
for matters connected therewith or incidental thereto .”
27
See K.C. Ninan (supra), para 93.
28
Dilip v. Satish
, 2022 SCC OnLine SC 810, para 9.
29
Chameli Singh v. State of U.P. , (1996) 2 SCC 549, para 8.
31
electricity available to all. In furtherance of this goal of enhancing
the availability of electricity, the Act envisages private sector
participation and promotion of competition.
9.4 These measures are ultimately intended to protect and
subserve consumer interests by making electricity supply
accessible at cheaper rates for those who cannot afford it, as well
as making supply accessible in all areas and regions. In this vein,
the Act provides for the need for transparent subsidy policies.
9.5 Taking the ecological impact of the electricity sector’s
activities, the Act provides for promotion of efficient and
environmentally benign policies.
9.6 Finally, the Act provides for the constitution of permanent
expert bodies, i.e., Central and State Electricity Regulatory
Commissions, to regulate the production, transfer and use of
electricity, as well as for the development of the sector through
private sector participation and competitiveness to subserve
consumer interests. Considering the specialised nature of
functions performed by these bodies, the Act also provides for an
appellate forum to challenge the Central and State Commissions’
decisions, i.e., the APTEL, which can appreciate the technicalities
and nuances of the sector.
32
10. Since the facts of this case relate to hydro-power generation,
we will now examine the relevant statutory provisions for its
regulation.
VII . Regulation of Electricity Generation Under the Electricity Act :
11. Part III of the Electricity Act deals with generation of
electricity. Section 7 of the Electricity Act permits generating
companies to establish, operate and maintain a generating station
30
without obtaining a license under the Electricity Act. However, in
cases of hydro-electric generation, the concurrence of the Central
31
Electricity Authority is required as per Section 8.
12. Section 10 lays down the duties of generating companies.
While sub-section (1) requires a generating company to establish,
operate and maintain generating stations, sub-section (2) provides
that a generating company may supply electricity to any licensee
in accordance with the Act and rules and regulations made
thereunder, and it may supply electricity to any consumer subject
30
Section 7 of the Electricity Act reads:
“ Section 7. (Generating company and requirement for setting up of
generating station): Any generating company may establish, operate and
maintain a generating station without obtaining a licence under this Act if it
complies with the technical standards relating to connectivity with the grid referred
to in clause (b) of section 73. ”
31
The relevant portion of Section 8 of the Electricity Act reads:
“ Section 8. (Hydro-electric generation): --- (1) Notwithstanding anything
contained in section 7, any generating company intending to set-up a
hydrogenerating station shall prepare and submit to the Authority for its
concurrence, a scheme estimated to involve a capital expenditure exceeding such
sum, as may be fixed by the Central Government, from time to time, by
notification… ”
33
to the regulations under Section 42(2). Section 10 is extracted
hereinbelow for ready reference:
“ (1) Subject to
Section 10. (Duties of generating companies): ---
the provisions of this Act, the duties of a generating company shall be
to establish, operate and maintain generating stations, tie-lines, sub-
stations and dedicated transmission lines connected therewith in
accordance with the provisions of this Act or the rules or regulations
made thereunder.
(2) A generating company may supply electricity to any licensee in
accordance with this Act and the rules and regulations made
thereunder and may, subject to the regulations made under sub-
section (2) of section 42, supply electricity to any consumer.
(3) Every generating company shall –
(a) submit technical details regarding its generating stations
to the Appropriate Commission and the Authority;
(b) co-ordinate with the Central Transmission Utility or the
State Transmission Utility, as the case may be, for
transmission of the electricity generated by it.”
13. While the Electricity Act has done away with the licensing
requirement for generating companies, it continues to regulate
electricity generation as the tariff at which the generating company
supplies electricity to a distribution licensee is determined by the
Central or State Commission, as is appropriate, as per Section
32
62(1)(a) read with Section 79 and Section 86 of the Act. We will
further deal with the tariff determination function of the CERC at
a later stage.
32
Section 62(1)(a) of the Electricity Act reads:
“ (1) The Appropriate Commission shall
Section 62. (Determination of tariff): ---
determine the tariff in accordance with the provisions of this Act for –
(a) supply of electricity by a generating company to a distribution licensee:
Provided that the Appropriate Commission may, in case of shortage of
supply of electricity, fix the minimum and maximum ceiling of tariff for sale or
purchase of electricity in pursuance of an agreement, entered into between a
generating company and a licensee or between licensees, for a period not exceeding
one year to ensure reasonable prices of electricity;… ”
34
14. At this juncture, it is also relevant to note this Court’s
33
decision in Tata Power Co. Ltd. v. Reliance Energy Ltd. . It was
observed that delicensing of generation under the Electricity Act,
2003 marks a shift from the position under the 1910 Act, the 1948
34
Act, and the 1998 Act. The Court held that delicensing electricity
generation is intended to encourage the setting up of generating
stations and to promote competition among generating companies.
Hence, courts must ensure that while interpreting the Electricity
Act and the regulations made thereunder, they do not bring back
35
licensing requirements through the backdoor.
14.1 The primary issue before the Court was whether the State
Commission could have directed a generating company to allot
additional quantities of power to a particular distribution company
based on its requirements and number of consumers. Answering
the question in the negative, this Court held that generating
companies have the freedom to enter into agreements for the sale of
generated electricity, including the freedom to allocate the quantum
36
of electricity to be sold to each distribution company . However,
such freedom is not entirely unregulated as the generating
33
(2009) 16 SCC 659.
34
ibid, paras 68-73.
35
ibid, paras 83-84.
36
ibid, paras 108-109.
35
company is subject to tariff determination by the appropriate
Regulatory Commission, and its agreements with distribution
companies are subject to the approval of State Commissions under
Section 86(1)(b), who will examine whether the allocation of power
37
and terms and conditions of the agreement are reasonable.
VIII . Legal Effect of Note 3 of Regulation 55:
15. Interpretation of the CERC Regulations, 2019 : It is a settled
position of law that a regulation made by the CERC in exercise of
its powers under Section 178 of the Act will override existing
contracts between regulated entities. Contractual terms, insofar as
where the regulation operates, must be aligned or modified such
38
that they are in line with the regulation. For example, a
regulation for determining tariff will override inconsistent and
37
ibid, paras 77, 108, 110-113. This position has been reiterated in Transmission Corporation
of Andhra Pradesh Ltd. v. Sai Renewable Power (P) Ltd. , (2011) 11 SCC 34, para 64.
38
PTC (supra), paras 58 and 66. This has been consistently followed by the Court. See Gujarat
Urja Vikas Nigam Ltd. v. Renew Wind Energy (Rajkot) (P) Ltd. , 2023 SCC OnLine SC 411, para
48; Haryana Power Purchase Centre v. Sasan Power Ltd. , (2024) 1 SCC 247, paras 110-111.
The relevant portions from PTC (supra) are extracted hereinbelow for ready reference:
“ 58. … Further, it is important to bear in mind that making of a regulation under
Section 178 became necessary because a regulation made under Section 178 has
the effect of interfering and overriding the existing contractual relationship between
the regulated entities. A regulation under Section 178 is in the nature of a
subordinate legislation. Such subordinate legislation can even override the existing
contracts including power purchase agreements which have got to be aligned with
the regulations under Section 178 and which could not have been done across the
board by an order of the Central Commission under Section 79(1)(j).
66. While deciding the nature of an order (decision) vis-à-vis a regulation under the
Act, one needs to apply the test of general application. On the making of the
impugned 2006 Regulations, even the existing power purchase agreements (PPA)
had to be modified and aligned with the said Regulations. In other words, the
impugned Regulations make an inroad into even the existing contracts…
”
(emphasis supplied)
36
contrary provisions in an agreement to that extent. The crux of the
dispute between the parties in the present case is whether Note 3
of Regulation 55 prohibits the generating company from supplying
free power beyond 13% to the State, and consequently, whether it
overrides the contractual obligation of respondent no. 1 under the
Implementation Agreement.
16. The contractual obligation of respondent no. 1 to supply free
power can be understood as a form of “royalty” payable to the State
as compensation, in lieu of being allowed to utilise river water,
which is a public and commons resource, for undertaking its
commercial activity of power generation from which it derives
39
benefits through sale of power. Perusal of Article 4 of the
Implementation Agreement also shows that the appellant-State
fulfilled various other obligations like acquiring land, granting
permissions, and executing leases in favour of respondent no. 1 to
enable it to set up its hydropower generating station. In return,
respondent no. 1 undertook various obligations provided in Article
5 of the Implementation Agreement, including supplying free
power at a certain percentage. Therefore, it is clear that the free
39
Indsil Hydro Power & Manganese Ltd. v. State of Kerala
See , (2021) 10 SCC 165, paras 43-
43.1; 56-57.
37
power supply is a part of the consideration by respondent no. 1
under the Implementation Agreement.
17. Now the question is whether such a consideration is
impermissible or prohibited by virtue of the CERC Regulations,
2019. To answer the same, it is necessary to appreciate the context
in which Note 3 of Regulation 55, which stipulates that FEHS shall
be taken as 13% or actual, whichever is less , has been made.
Regulation 55 deals with billing and payment of charges to
generating companies. While sub-clause (1) deals with raising bills
for capacity and energy charges and payment, sub-clause (2) is
relevant for our purpose. It provides that payment of capacity and
energy charges for a hydro-generating station shall be shared by
40
its beneficiaries in proportion to their shares in saleable capacity,
which is to be determined after deducting the capacity
corresponding to FEHS as per Note 3 . Hence, Note 3 of Regulation
55 is relevant for the calculation of saleable power, which is in turn
40
“Beneficiary” has been defined in Regulation 3(8) of the CERC Regulations, 2019 as follows:
“ 3. Definitions. - In these regulations, unless the context otherwise requires:
*
(8) 'Beneficiary' in relation to a generating station covered under clauses (a) or (b) of
sub-section 1 of section 79 of the Act, means a distribution licensee who is
purchasing electricity generated at such generating station by entering into a Power
Purchase Agreement either directly or through a trading licensee on payment of
capacity charges and energy charges;
Provided that where the distribution licensee is procuring power through a trading
licensee, the arrangement shall be secured by the trading licensee through back to
back power purchase agreement and power sale agreement.
Provided further that beneficiary shall also include any person who has been
allocated capacity in any inter-State generating station by Government of India ”
38
relevant for the generating company to raise bills and for payments
by beneficiaries.
18. Regulation 44, which deals with the computation and
payment of capacity and energy charges for hydro-generating
stations also defines FEHS similarly. Sub-clause (1) provides that
the fixed cost of a hydro-generating station shall be recovered on a
monthly basis under capacity and energy charges, which are
payable by beneficiaries in proportion to their respective allocation
in saleable capacity, i.e., capacity excluding FEHS. Further, the
formula for calculating energy charges is provided in sub-clauses
(4) and (5), which also relies on FEHS as defined in Note 3 of
Regulation 55.
19. Therefore, the purpose and intendment of Note 3 of
Regulation 55 is for the State Commission to determine tariff by
assuming that FEHS is 13%, whenever it is higher in actuality ,
while calculating the energy and capacity charges. Neither the
language of Note 3 nor the context in which it appears in the CERC
Regulations, 2019 supports respondent no. 1’s contention that the
legal effect of this cap is to override its contractual obligations with
the appellant-State. On the other hand, use of the term “ shall be
taken as 13% or actual, whichever is less
” shows that the
39
Regulations cover a situation where the obligation to supply free
power is higher than 13%, and in such an eventuality, allow only
a certain portion of free supply to be considered for tariff
determination and payments by beneficiaries for the saleable
capacity.
20. Once the Regulation does not prohibit the supply of free
power beyond 13%, respondent no. 1 cannot rely on it to wriggle
out of its contractual obligations. Such an interpretation is
necessary to recognise and enforce the generating company’s
freedom of contract, which includes its choice of business dealings.
The Regulatory Commissions, APTEL, and the Courts must enforce
these contractual obligations and ensure that their interpretation
of regulations does not allow the party to circumvent and breach
its contractual undertakings when the same is not intended by the
regulation itself.
21. Further, the above interpretation of the regulation balances
the social justice obligation of the Regulatory Commission to
ensure that the tariff is not increased by allowing pass-through to
the extent of only a certain portion of free supply while balancing
the commercial viability and financial position of the generating
company. Public interest is also subserved since the State can
40
utilise the free power for its own purposes. This interpretation
balances the twin values of freedom of business choices and the
social justice obligations of the State, which the Regulatory
Commission channelises towards protecting consumer interests
and maintaining the health of the sector.
22. CERC’s Order dated 17.03.2022 : The relief sought by
respondent no. 1 in its tariff petition for 2019-2024 before the
CERC is relevant as it shows that the initial position taken by it
was not an attempt to wriggle out of the contract by seeking its
modification. In contrast to claiming that the Implementation
Agreement stands overridden and must be aligned with the 13%
cap, as is the case before the High Court and in this appeal,
respondent no. 1 sought relaxation of the cap itself. In other words,
respondent no. 1 sought a pass-through for the full extent of 18%
free power, rather than 13% as per the Regulations, in recognition
of its contractual obligations under the Implementation
Agreement.
23. In the tariff order dated 17.03.2022, the CERC rejected this
prayer on the following basis. It took note of the free power supply
obligation under Article 5.1 as being 12% of net generation for the
first 12 years from the COD, and 18% of net generation for the next
41
28 years. It also noted that the PPA executed with respondent no.
4 defines free power in the same manner. Relying on this Court’s
decision in PTC (supra), it held that the provisions of the agreement
must be aligned with the Regulations. Hence, the provisions of the
PPA and PSAs executed by respondent no. 1 in respect of free power
are inconsistent and stand overridden by Note 3 of Regulation 55
such that FEHS is to be considered as 13% only. The relevant
portions of the CERC’s order are extracted below for ready
reference:
“ 145. The main contention of the Petitioner is that since the quantum
of free power to be supplied to the home State was based on the
agreement between the parties, which were executed prior to coming
into force of the Tariff Regulations notified by the Commission, the
same may be considered by the Commission in exercise of the power
to relax/power to remove difficulties. The Respondent HPPC has
submitted that in terms of the judgment of the Hon'ble Supreme Court
in PTC v CERC & ors. Tariff Regulations override existing contracts.
Note 3 under Regulation 55 of the 2019 Tariff Regulations provides
as under:
Note 3: FEHS = Free energy for home State, in percent and
shall be taken as 13% or actual whichever is less.
146. The Constitution Bench of the Hon'ble Supreme Court in PTC
India Ltd Vs CERC & ors (2010 4 SCC 603) has laid down the
principle of law, whereby any provision of an agreement, if it falls
within the domain of the Regulations of subordinate legislation, has
to be aligned with the Regulations. The relevant portion of the
judgment is quoted below…
147. Thus, the provisions of the PPA/PSAs executed by the Petitioner
in respect of free power to the home State is inconsistent and shall
accordingly stand overridden by Note 3 under Regulation 55 of the
2019 Tariff Regulations. We, therefore, find no reason to exercise the
power to relax and grant relief, as prayed for by the Petitioner.
Accordingly, the free energy to home state is to be considered as 13%
in this case. ”
42
24. There are two aspects of the CERC’s reasoning and decision
that we must note: first , the CERC was made aware of the
contractual obligation of respondent no. 1 under the
Implementation Agreement, but it did not hold the same as being
overridden by Note 3 of Regulation 55. This is in line with the
interpretation of the cap that we have elaborated hereinabove, i.e.,
it does not prohibit or restrain respondent no. 1 from entering into
or performing a contract for supplying a higher quantum of free
power. Second , the CERC only held that the PPA and PSAs stand
overridden to the extent that they are inconsistent with the
Regulation. The effect of this is that only 13% of free power would
be considered as a pass-through for tariff fixation and recovery of
charges from the beneficiary distribution companies as per the
Regulations. Since respondent no. 1 did not appeal this order
before the APTEL under Section 111 of the Electricity Act, these
findings are now final and binding on it.
25. We will now examine whether the High Court could have, in
exercise of its writ jurisdiction, granted the relief of aligning the
Implementation Agreement by relying on the CERC’s order dated
17.03.2022.
43
IX . Maintainability of the Writ Petition:
26. CERC as an Expert and Specialised Regulator, and Extent of
Judicial Interference : In order to appreciate the issue on
maintainability of the writ petition, it is necessary to take note that
postmodern legislation institutionalises governance through
regulation. Under the Electricity Act, we see such a statutory
incorporation of the regulators through the CERC and the State
Commissions that are expert and specialised bodies to perform
41
wide-ranging regulatory functions.
27. The jurisprudence on regulation is that independent
regulators, armed with statutory powers and duties, were
established to reduce the government’s control and interference
with the market while safeguarding consumer interests,
preventing abuse of monopoly, and enabling private participation
in the sector. Therefore, the regulator has socio-economic
obligations of ensuring accessibility of goods and services, as well
as the duties towards the development of the industry by
42
promoting efficiency and competition. The nature of functions
and the jurisdiction of these regulatory bodies are wide and
41
See PTC (supra), para 17; Sai Renewable (supra), paras 36 and 38; Reliance Infrastructure
Ltd. v. State of Maharashtra , (2019) 3 SCC 352, para 38.
42
Administrative Law
H.W.R. Wade and C.F. Forsyth, (11th edn, Oxford University Press
2014), 116-117.
44
extensive as they perform a mix of legislative, executive and
43
administrative, and judicial functions. Concomitantly, they are
sufficiently empowered under the statute, and legislative,
executive and adjudicatory powers are telescoped into one
institution. Regulators have the power to lay down rules and
regulations; issue licenses; fix prices and scope and areas of
operation; investigate and prosecute offences, and impose
penalties; adjudicate disputes and interpret the law; implement
and enforce the statute, the rules and regulations made
thereunder, and their decisions; and exercise incidental and
44
ancillary powers to deal with all aspects relating to the sector.
28. Specifically, in the context of the CERC under the Electricity
Act, Section 79 sets out its functions, including tariff
determination. The relevant portion is extracted hereinbelow:
“ Section 79. (Functions of Central Commission): --- (1) The
Central Commission shall discharge the following functions, namely:-
*
(b) to regulate the tariff of generating companies other than those
owned or controlled by the Central Government specified in clause (a),
if such generating companies enter into or otherwise have a composite
scheme for generation and sale of electricity in more than one State… ”
29. “Tariff” has not been defined under the Electricity Act, but it
has been interpreted by this Court on several occasions. This
43
ibid, 124.
44
Cellular Operators Assn. of India v. Union of India U.P.
ibid; , (2003) 3 SCC 186, para 33;
Power Corpn. Ltd. v. NTPC Ltd ., (2009) 6 SCC 235, paras 4, 22, 48.
45
Court in PTC (supra) held that “tariff” does not only mean fixation
45
of rates but also the rules and regulations relating to it . Further,
in Transmission Corporation of Andhra Pradesh Ltd. v. Sai
Renewable (supra), this Court relied on the meaning of the term in
general law or common parlance, and held its meaning to be as
follows:
“ 62. Therefore, in the absence of any specific definition in any of these
Acts we will have to depend upon the meaning attached to these
expressions under the general law or in common parlance. The
expression “tariff” has been explained in Law Lexicon With Legal
Maxims, Latin Terms And Words & Phrases (2nd Edn., 1997) as
“determination, ascertainment, a table of rates of export and import
duties, in which sense the word has been adopted in English and
other European languages and as defined by the law dictionaries
the word ‘tariff’ is a cartel of commerce; a book of rates; a table or
catalogue, drawn usually in alphabetical order, containing the
names of several kind of merchandise, with the duties or customs
to be paid for the same as settled by the authority or agreed
between the several princes and States that hold commerce
together.”
It has also been explained as a schedule, system, or scheme of duties
imposed by the Government of a country upon goods imported or
exported; published volume of rate schedules and general terms and
conditions under which a product or service will be supplied; a
document approved by the responsible regulatory agency listing the
terms and conditions including a schedule of prices, under which
46
utility services will be provided. ”
30. Determination of tariff must be in accordance with Section
61 of the Electricity Act, which requires the CERC to specify the
terms and conditions for the determination of tariff and stipulates
45
PTC (supra), para 26.
46
BSES Ltd. v. Tata Power Co. Ltd.
A similar definition has been adopted by this Court in ,
(2004) 1 SCC 195, para 16.
46
the principles that shall guide the CERC. These include
commercial principles, competition, efficiency, economical use of
resources, consumer interest, and cost-reflective tariffs. The
relevant portion of Section 61 has been extracted hereinbelow:
“ Section 61. (Tariff regulations): The Appropriate Commission shall,
subject to the provisions of this Act, specify the terms and conditions for the
determination of tariff, and in doing so, shall be guided by the following,
namely:-
*
(b) the generation, transmission, distribution and supply of electricity are
conducted on commercial principles;
(c) the factors which would encourage competition, efficiency, economical
use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same time, recovery of
the cost of electricity in a reasonable manner;
*
(g) that the tariff progressively reflects the cost of supply of electricity and
also, reduces cross-subsidies in the manner specified by the Appropriate
Commission;… ”
31. The CERC must weigh and balance these competing
principles during tariff determination, such that interests of
various stakeholders and the social justice obligation of the State
to ensure access to electricity are fulfilled. The Act empowers the
CERC to make regulations under Section 178, including on terms
and conditions for the determination of tariff. The relevant portions
of Section 178 of the Electricity Act read:
“ Section 178. (Powers of Central Commission to make
regulations): --- (1) The Central Commission may, by notification
make regulations consistent with this Act and the rules generally to
carry out the provisions of this Act.
(2) In particular and without prejudice to the generality of the power
contained in sub-section (1), such regulations may provide for all or
any of following matters, namely:-
*
47
(s) the terms and conditions for the determination of tariff under
section 61;… ”
32. This Court has time and again emphasised that since tariff
determination, including the power to make regulations for this
purpose, has been entrusted to a specialised and expert regulator
constituted under the statute itself, it would not be proper for
constitutional courts to interfere and assume these functions, or
to examine tariff fixation on its merits and substitute its own
determination for the one made by the expert body after duly
47
considering all material circumstances. We are of the opinion
that this is necessary not only to ensure that these specialised
functions are performed by expert regulators but to also facilitate
a systematic and consistent development of sectoral laws.
33. In this light, when a constitutional court is interpreting
statutes, rules, or regulations that fall within the regulator’s
domain, it must bear in mind the need to enable the regulator to
exercise comprehensive jurisdiction. Courts must not impair the
functioning of the regulator by taking away certain aspects of the
sector outside the regulator’s scope, thereby fragmenting
regulation and creating plurality of jurisdictions. It is in the
47
Sai Renewable (supra), paras 38, 40, 41; Reliance Infrastructure Ltd (supra), para 38;
Transmission Corpn. of A.P. Ltd. v. Rain Calcining Ltd. , (2021) 13 SCC 674, para 66;
Maharashtra State Electricity Distribution Co. Ltd. v. Adani Power Maharashtra Ltd
., (2023) 7
SCC 401, paras 118-121.
48
interest of good governance through regulation to ensure that
there is no proliferation of remedies and there are no parallel,
multiple remedial forums. Further, this also ensures that the
sectoral law is developed in a coordinated and systematic fashion
by the regulator that is equipped to deal with not only legal issues
but also has specialised knowledge in other areas.
34. The above principles are also reflected in a recent decision of
this Court in Jaipur Vidyut Vitran Nigam Ltd. v. MB Power (M.P.)
48
Ltd. . Here, the High Court exercised writ jurisdiction and directed
distribution companies to procure power from bidders, who are
generating companies, at the prices quoted in their bids till the
requisite quantum of power was procured. Allowing the appeal of
the distribution companies, this Court held that the High Court
was not justified in entertaining the writ petition as the Electricity
Act is an exhaustive code and all issues dealing with electricity
must be considered by the expert bodies, i.e., the Regulatory
Commissions constituted under the Act. The relevant portion is
extracted hereinbelow:
“ 128. We find that the High Court was not justified in entertaining the
petition. The Constitution Bench of this Court in PTC has held that the
Electricity Act is an exhaustive code on all matters concerning
electricity. Under the Electricity Act, all issues dealing with electricity
have to be considered by the authorities constituted under the said
48
(2024) 8 SCC 513.
49
Act. As held by the Constitution Bench of this Court, the State
Electricity Commission and the learned APTEL have ample powers to
adjudicate in the matters with regard to electricity. Not only that,
these Tribunals are tribunals consisting of experts having vast
experience in the field of electricity. As such, we find that the High
Court erred in directly entertaining the writ petition when Respondent
1 i.e. the writ petitioner before the High Court had an adequate
alternate remedy of approaching the State Electricity Commission.
129. This Court in Reliance Infrastructure Ltd. v. State of
Maharashtra has held that while exercising its power of judicial
review, the Court can step in where a case of manifest
unreasonableness or arbitrariness is made out.
130. In the present case, there is not even an allegation with regard
to that effect. In such circumstances, recourse to a petition under
Article 226 of the Constitution of India in the availability of efficacious
alternate remedy under a statute, which is a complete code in itself,
in our view, was not justified .”
(emphasis supplied)
35. Grant of Relief by the High Court : Applying these legal
principles, we will now analyse whether the High Court could have
granted relief of aligning the Implementation Agreement with the
CERC Regulations, 2019 by exercising writ jurisdiction. The High
Court proceeded on the basis that: (i) the appellant-State is a
deemed licensee; (ii) the CERC Regulations, 2019 are relevant not
only for determination of tariff but also for other purposes and are
binding on the appellant-State; and (iii) the 13% cap on free power
supply under Note 3, Regulation 55 has the effect of overriding the
free power supply clause in the Implementation Agreement since a
similar clause in the PPA and PSAs stands overridden as per the
CERC’s order dated 17.03.2022.
50
36. On the first aspect of whether the appellant-State is a deemed
licensee, it is clear from the impugned order that the High Court
has only cited the statutory provisions on licensing but has neither
delved into this issue nor arrived at any express conclusion
regarding the same. This is perhaps because the parties did not
raise or argue the issue before it. However, before us, respondent
no. 1 strongly contends that the appellant-State is a deemed
licensee, and the appellant has disputed the same.
37. We are of the opinion that this issue need not be determined
on merits, but is relevant to show respondent no. 1’s conduct in
taking contrary positions by filing the writ petition. On the one
hand, it is claiming that the appellant being a deemed licensee is
a regulated entity under the Electricity Act. The sequitur of this
would be that the appellant, and its contractual rights and
liabilities, are subject to the CERC’s regulatory jurisdiction.
However, respondent no. 1 never sought relief against the
appellant-State before the CERC, as we have indicated above, and
instead filed a writ petition. Considering the contradictory
positions of respondent no. 1, it cannot be allowed to approbate
and reprobate, or blow hot and cold at the same time to secure
relief under the law.
51
38. The second aspect pertains to the interpretation of CERC
Regulations, 2019 by the High Court. We have already dealt with
the interpretation of the Regulations hereinabove, and will
presently deal with the same in the context of maintainability of
the writ petition. Under the Electricity Act, the statutory regulator
has been entrusted with discharging the function of tariff
determination, including making regulations for the purpose and
interpreting the same. Constitutional courts must enable the
regulator to comprehensively regulate all aspects of the sector
such that remedies are not fragmented and certain issues are not
left outside the regulator’s domain. The regulator has the
expertise, specialisation, and institutional memory to conduct
such an interpretative exercise to further the objective of the
regulatory regime and systematically lay down legal principles. In
this light, the High Court should not have entered into the domain
of interpreting these Regulations which deal with tariff
determination, as the same falls within the exclusive domain of the
CERC. The Electricity Act itself provides the appellate mechanisms
by establishing a specialised and permanent tribunal, namely the
APTEL, and an appeal before this Court, against the CERC’s
orders. In view of the existence of a statutory regulatory forum, the
52
High Court should not have entertained the writ petition by
interpreting the CERC Regulations, 2019.
39. Equally, we are of the opinion that the High Court incorrectly
relied on the CERC’s order dated 17.03.2022 to grant relief to
respondent no. 1. As explained above, the CERC’s order only deals
with the PPA and PSAs despite taking note of Article 5.1 of the
Implementation Agreement. Upon reading the order, it is clear that
its effect is not that of restraining respondent no. 1 from supplying
free power beyond 13%. Hence, it does not in any way adversely
affect or prejudice the contractual rights of the appellant-State.
Hence, the High Court could not have proceeded on the basis of
this order to grant the relief of modifying the Implementation
Agreement.
. Conclusion:
X
40. In view of the above reasons, we hold that CERC Regulations,
2019 do not prohibit respondent no. 1 from supplying free power
beyond 13% to the appellant-State, and the Implementation
Agreement does not stand overridden by the operation of these
Regulations. Further, a writ petition before the High Court for
aligning the Implementation Agreement with the CERC
Regulations, 2019 and the CERC’s order dated 17.03.2022 is not
53
maintainable. Once respondent no. 1’s prayer for relief was
rejected by the CERC and it specifically held only the PPA and PSAs
to stand overridden, which finding was not further appealed, it
would not be open for respondent no. 1 to seek modification of the
Implementation Agreement by way of a writ petition before the
High Court.
41. For the reasons stated above, we allow Civil Appeal No.
12883/2024 and set aside the order and judgment of the High
Court in CWP 7667/2023 dated 28.05.2024.
42. Pending applications, if any, stand disposed of.
43. No order as to costs.
………………………………....J.
[PAMIDIGHANTAM SRI NARASIMHA]
………………………………....J.
[JOYMALYA BAGCHI]
NEW DELHI;
JULY 16, 2025
54