Full Judgment Text
REPORTABLE
2024 INSC 439
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8978/2019
M/S SUNDEW PROPERTIES LIMITED …APPELLANTS
VERSUS
TELANGANA STATE ELECTRICITY REGULATORY
COMMISSION & ANR. …RESPONDENTS
J U D G M E N T
DIPANKAR DATTA, J.
THE CHALLENGE
1. This is a statutory appeal before us under section 125 of the Indian
1
Electricity Act, 2003 . It registers a challenge to the judgment and order
th 2
dated 27 September, 2019 passed by the Appellate Tribunal for Electricity
Signature Not Verified
Digitally signed by
Deepak Guglani
Date: 2024.05.17
17:58:00 IST
Reason:
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Electricity Act
2
APTEL
Page 1 of 24
dismissing an appeal carried under section 111 of the Electricity Act by the
th
appellant from the judgment and order dated 15 February, 2016 passed
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by the Telangana State Electricity Regulatory Commission . Consequently,
the impugned judgment and order of the TSERC was upheld.
BRIEF FACTS
2. The basic facts giving rise to this appeal are not disputed. A brief
overview of the facts and the trajectory of proceedings, relevant for a
decision on the present appeal, are set out hereunder:
a) The appellant was notified by the Ministry of Commerce &
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Industry (Department of Commerce), Government of India as
a ‘Developer’, in terms of sections 3 and 4 of the Special
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Economic Zones Act, 2005 , to establish a sector-specific
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Special Economic Zone unit for Information
Technology/Information Technology Enabled Services sector in
Madhapur, Ranga Reddy District, Hyderabad, in the former
State of Andhra Pradesh.
rd
b) MoCI, vide a Notification bearing No.SO 528(E) dated 3
7
March, 2010 introduced a proviso to section 14(b) of the
Electricity Act. The proviso accords upon the developer of a
SEZ, the status of a deemed distribution licensee under the
provisions of the Electricity Act.
3
TSERC
4
MoCI
5
SEZ Act
6
SEZ
7
2010 Notification
Page 2 of 24
c) Pursuant to the 2010 Notification, the appellant filed an
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application before the erstwhile Andhra Pradesh Electricity
Regulatory Commission seeking identification as a deemed
distribution licensee, in terms of the proviso to section 14(b) of
the Electricity Act read with regulation 13 and Schedule-2 of
the Andhra Pradesh Electricity Regulatory Commission
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(Distribution Licence) Regulations, 2013 and section 49 of the
SEZ Act. Upon the Andhra Pradesh Reorganisation Act, 2014
coming into force, the application was transferred to the
TSERC.
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d) By its aforesaid judgment and order dated 15 February, 2016,
the TSERC identified and accorded the status of a deemed
licensee to the appellant. However, this grant of status was
made conditional upon the appellant satisfying the
requirements stipulated in rule 3 of the Distribution of
Electricity Licence (Additional Requirements of Capital
Adequacy, Creditworthiness and Code of Conduct) Rules,
10
2005 , compliance whereof was mandatory per regulation 12
[which stipulates that an applicant for grant of distribution
licence shall, in addition to regulations 4 to 11, comply with the
2005 Rules] read with regulation 49 of the 2013 Regulations
[which stipulates that all the general conditions applicable to a
8
O.P. No. 10 of 2015
9
2013 Regulations
10
2005 Rules
Page 3 of 24
distribution licensee are also equally applicable to a deemed
licensee]. The appellant was, therefore, directed to infuse an
additional capital of Rs. 26.90 crore as equity share capital,
contributed by its promoters, into its power distribution
st
business via account payee cheques by 31 March, 2016 . The
relevant part of the judgment and order of the TSERC is
extracted hereunder:
“16. […] On a close reading of the provisions of section 14,
we are of the view that the 'provisos' to section 14 are not
applicable to a deemed licensee. The status of a deemed
licence to a person under Section 14(b) of the Electricity
Act, 2003 emanates from the Notification given under
Section 49(1) of the SEZ Act to a developer of SEZ provided
the deemed Licensee satisfies the other provisions of the
Act.
[…]
18. We are of the view that the provisions contained in sub-
section (2), (3), (4), (5) & (6) of Section 15 of the Act are
not applicable to a deemed licensee. Moreover, [A.P.
Distribution Licence Regulations] contains the Rules
relating to procedure for granting of a distribution licensee
from Rules 4 to 11 […] The Rule 13 of the Regulation
stipulates that Rules contained in 4 to 11 are not applicable
to a deemed licensee and these Rules contain the
procedure for granting of a distribution licence to a person.
[…]
19. The Rule 13 of the [A.P. Distribution Licence
Regulations] stipulates that a deemed licensee shall make
an application in the form specified in Schedule - 2 to the
Commission to get identified as a deemed licensee and
rules 4 to 11 in the Regulations are not applicable to a
deemed licensee, Thus, the Rule 13 […] has excluded the
application of Rules laid down from Rules 4 to 11 […] As
observed earlier, the Rules 4 to 11 basically deal with the
procedure to be followed by a person for obtaining a licence
from the Commission. By implication, Rule 12 is applicable
to a deemed licensee also […]
20. We are not able to appreciate the argument of the
petitioner that Rule 12 is not applicable to a deemed
licensee. In our view, Rule 49 stipulates that all the general
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conditions applicable to a distribution licensee are also
equally applicable to a deemed licensee. Thus, in our view,
the Rule 12 is applicable to the petitioner.
21. The next issue that arises is whether the petitioner has
complied with the provisions of Rule 12? […] As a stand-
alone entity the petitioner does riot fulfil the. conditions laid
down in Rule 3 of the Capital Adequacy Rules. However,
the Rule 3(2) also stipulates that the net worth of the
promoters of the petitioner can be considered for the
purpose of computation of the Debt Equity ratio of 30:70
[…].
26(A). The [Commission], in exercise of the powers
conferred under Section 14 (b) of the Electricity Act, hereby
identifies and recognises M/s. Sundew Properties Ltd. […]
as a deemed licensee.
26(D). […] the promoters have to contribute 30% of the
total anticipated investment of Rs. 89.53 Crores which
works out to Rs.26.9 Crores on or before 31.03.2016.”
11
e) Aggrieved, the appellant carried an appeal from the aforesaid
order of the TSERC to the APTEL. According to the appellant,
the directions of the TSERC were in excess of jurisdiction.
APTEL dismissed the appeal, as noticed above. It held that the
TSERC was justified in ordering infusion of additional equity by
the appellant to the tune of Rs.26.90 crore (being 30% of the
total anticipated investment of Rs.89.53 crore) as a pre-
condition for being identified as a deemed distribution licence.
The operative part of the judgment and order passed by the
APTEL reads as follows:
“8.14 […] while the Appellant is not required to apply for
grant of license but being a deemed distribution licensee
has to fulfil other technical and financial requirements as
per prevailing rules and regulations of the State
Commission which is mandated to regulate the Electricity
business in the state whether it is a DISCOM or any other
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Appeal No.3 of 2017
Page 5 of 24
deemed distribution licensee as in the present case.
Accordingly, we are of the opinion that the State
Commission has passed the impugned order with careful
consideration and proper interpretation of the statute and
also considering the judgments passed by Hon'ble
Supreme Court in Sesa Sterilite [sic] case (supra) […]”
f) It is this judgment and final order that the appellant has
subjected to challenge in this statutory appeal by invoking the
appellate jurisdiction of this Court under section 125 of the
Electricity Act.
SUBMISSIONS
3. Mr. Singh, learned senior counsel appearing for the appellant,
challenged the validity of the orders of the TSERC and the APTEL by
advancing the following submissions:
a) The TSERC and the APTEL erred in failing to recognize that
under section 14(b) of the Electricity Act, a developer of an SEZ
is ipso facto and unconditionally deemed to be a distribution
licensee, thus eliminating the need for a separate licence
application. Recognition of the status of a deemed distribution
licensee is a ministerial act, effected automatically upon
fulfilment of conditions laid down in the SEZ Act, independent
of rule 3(2) of the 2005 Rules read with regulation 12 of the
2013 Regulations.
b) The status of deemed distribution licensee stands bestowed
upon the appellant by virtue of the 2010 Notification, requiring
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no further action. This position has been recognized and
approved by both the TSERC and the APTEL.
c) Under the 2013 Regulations, there are two types of licensees:
first, those who apply for a distribution licence under
regulations 2(d) and 12, and secondly, those already deemed
licensees, seeking recognition of their status as such, under
regulations 2(h) and 13. The appellant belongs to the latter
category.
d) Regulation 12 of the 2013 Regulations applies to general
applicants seeking a distribution licence, mandating compliance
with both the 2005 Rules and the procedures prescribed in
regulations 4 to 11. It cannot apply to a deemed licensee under
regulation 13. The TSERC’s finding, as approved by the APTEL,
that the 2005 Rules are in-built into the 2013 Regulations and
therefore have to be satisfied by the appellant because of
implied application of regulation 12 to deemed licensees, is
contrary to the provisions of the Electricity Act and the very
scheme of the 2013 Regulations.
e) APTEL erred by agreeing with the TSERC’s reasoning that the
requirement to infuse Rs. 26.90 crore in equity was imposed
on the appellant under section 16 of the Electricity Act, despite
recognising the appellant as a deemed distribution licensee.
Conditions under section 16, whether general or specific, must
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be ‘specified’ by the Appropriate Commission through
regulations according to section 2(62) of the Electricity Act.
4. Resting on the aforesaid submissions, learned senior counsel
urged this Court to allow the appeal and set-aside the orders of the TSERC
and the APTEL to the extent requiring the appellant to comply with the
conditions stipulated in rule 3 of the 2005 Rules and infuse additional capital
to gain the status of a deemed licensee.
5. Per contra, Mr. Vaidyanathan, learned senior counsel appearing
for the second respondent (Southern Power Distribution Company of
Telangana Limited), joined by Mr. Goud, learned counsel appearing for
respondent no. 1 (TSERC), supported the impugned judgment and order
and advanced the following submissions:
a) No doubt, the appellant, a SEZ developer, may be granted the
status of a deemed licensee; however, the 2005 Rules and the
2013 Regulations will be applicable to the appellant as per the
law laid down by this Court in Sesa Sterlite Limited. v.
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Orissa Electricity Regulatory Commission and others .
b) The appellant cannot be deemed to be a distribution licensee
on its own without making an application under regulation 13.
c) There is a necessity to harmoniously interpret the SEZ Act and
the Electricity Act to uphold the provisions of both enactments.
12
(2014) 8 SCC 444
Page 8 of 24
The appellant cannot argue that the 2005 Rules and the 2013
Regulations do not apply to it, being a SEZ developer.
d) TSERC is empowered to impose general and specific conditions
at its discretion. The purpose of requiring the appellant to
infuse an additional capital under the 2005 Rules was to assess
the credit-worthiness of the appellant as it had accumulated
losses at the end of the financial year 2013-2014 and more
than 50% of its net-worth has been wiped-out, a fact which is
reflected from the Statutory Auditor’s report.
6. No case for interference having been set up by the appellant,
learned counsel for respondents prayed for dismissal of the appeal.
STATUTORY FRAMEWORK
7. Before proceeding further, it is imperative to refer to certain
statutory provisions.
8. Section 14 of the Electricity Act deals with the grant of a licence:
“ 14. Grant of Licence – The Appropriate Commission may, on
an application made to it under section 15, grant a licence to any
person –
(a) to transmit electricity as a transmission licensee; or
(b) to distribute electricity as a distribution licensee; or
(c) to undertake trading in electricity as an electricity trader,
in any area as may be specified in the licence:
Provided that any person engaged in the business of
transmission or supply of electricity under the provisions of the
repealed laws or any Act specified in the Schedule on or before
the appointed date shall be deemed to be a licensee under this Act
for such period as may be stipulated in the licence, clearance or
approval granted to him under the repealed laws or such Act
specified in the Schedule, and the provisions of the repealed laws
or such Act specified in the Schedule in respect of such licence
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shall apply for a period of one year from the date of
commencement of this Act or such earlier period as may be
specified, at the request of the licensee, by the Appropriate
Commission and thereafter the provisions of this Act shall apply
to such business:
Provided further that the Central Transmission Utility or the
State Transmission Utility shall be deemed to be a transmission
licensee under this Act:
Provided also that in case an Appropriate Government
transmits electricity or distributes electricity or undertakes trading
in electricity, whether before or after the commencement of this
Act, such Government shall be deemed to be a licensee under this
Act, but shall not be required to obtain a licence under this Act:
Provided also that the Damodar Valley Corporation,
established under sub-section (1) of section 3 of the Damodar
Valley Corporation Act, 1948, shall be deemed to be a licensee
under this Act but shall not be required to obtain a licence under
this Act and the provisions of the Damodar Valley Corporation Act,
1948, in so far as they are not inconsistent with the provisions of
this Act, shall continue to apply to that Corporation:
Provided also that the Government company or the
company referred to in sub-section (2) of section 131 of this Act
and the company or companies created in pursuance of the Acts
specified in the Schedule, shall be deemed to be a licensee under
this Act:
Provided also that the Appropriate Commission may grant
a licence to two or more persons for distribution of electricity
through their own distribution system within the same area,
subject to the conditions that the applicant for grant of licence
within the same area shall, without prejudice to the other
conditions or requirements under this Act, comply with the
additional requirements [relating to the capital adequacy, credit-
worthiness, or code of conduct] as may be prescribed by the
Central Government, and no such applicant, who complies with all
the requirements for grant of licence, shall be refused grant of
licence on the ground that there already exists a licensee in the
same area for the same purpose:
Provided also that in a case where a distribution licensee
proposes to undertake distribution of electricity for a specified
area within his area of supply through another person, that person
shall not be required to obtain any separate licence from the
concerned State Commission and such distribution licensee shall
be responsible for distribution of electricity in his area of supply:
Provided also that where a person intends to generate and
distribute electricity in a rural area to be notified by the State
Government, such person shall not require any licence for such
generation and distribution of electricity, but he shall comply with
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the measures which may be specified by the Authority under
section 53:
Provided also that a distribution licensee shall not require
a licence to undertake trading in electricity.”
9. To determine who qualifies as a deemed licensee under the
Electricity Act, we may refer to the 2013 Regulations.
10. Regulation 2(i)(h) of the 2013 Regulations defines “deemed
licensee” as follows:
“(h) ‘Deemed Licensee’ means a person authorised under sub-
section (b) of Section 14 and also under the first, second, third,
and fifth provisos to section 14 of the Act to operate and maintain
a distribution system for supply of electricity to the consumers in
his area of supply.”
11. Regulation 13 of the 2013 Regulations stipulates the procedure to
get identified as a deemed distribution licensee. It reads:
“13. The deemed licensees shall make application in the form
specified in Schedule- 2 to the Commission to get identified as the
deemed Licensee. Provided that nothing in Regulations 4 to 11
shall apply to deemed licensees.”
12. Insofar as a developer under the SEZ Act is concerned, a reference
may be made to the scheme of the SEZ Act to ascertain its status as deemed
distribution licensee.
13. The policy for SEZs was introduced with an objective to create a
competitive export environment and to attract foreign investment. It levels
the playing field for domestic businesses globally and introduces favourable
policies in investment, taxation, trade, customs, and labour regulations. In
line with this, for the purpose of ensuring consistent and high-quality power
supply to these SEZ units, the MoCI, vide the 2010 Notification [under
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clause (b) of sub-section (1) of section 49 of the SEZ Act] has specified that
the ‘developer’ of the SEZ shall be deemed to be a ‘distribution licensee’
under the provisions of the Electricity Act. The proviso inserted in clause (b)
of section 14 of the Electricity Act, vide the 2010 Notification, reads as
follows:
“Provided that the Developer of a Special Economic Zone notified
under sub-section (1) of Section 4 of the Special Economic Zones
Act, 2005, shall be deemed to be a licensee for the purpose of this
clause, with effect from the date of notification of such Special
Economic Zone.”
14. With the inclusion of the aforementioned proviso to section 14(b)
of the Electricity Act, it is evident that a SEZ developer is deemed to be a
distribution licensee.
15. The main contention of the parties that whether the TSERC
imposed condition to infuse additional capital per rule 3(2) of the 2005 Rules
read with regulation 12 of the 2013 Regulations is justifiable or extraneous
is deliberated at length in a later part of this judgment. Regulation 12
provides that a person applying for a grant of a distribution licence shall, in
addition to regulations 4 to 11, comply with the 2005 Rules. Regulation 12
is extracted below:
“ 12. Application for grant of Distribution Licence in the area
of supply of an existing Distribution Licensee – A person
applying for grant of a licence for distribution of electricity through
his own distribution system within the same area of supply of an
existing Distribution Licensee shall, in addition to the provisions of
Regulation 4 to 11, comply with “Distribution of Electricity Licence
(additional requirements of Capital Adequacy, Creditworthiness
and Code of Conduct) Rules, 2005” issued by the Central
Government.”
16. Rule 3 is extracted hereunder:
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“ 3. Requirements of capital adequacy and
creditworthiness. –
(1) The Appropriate Commission shall, upon receipt of an
application for grant of licence for distribution of electricity under
sub-section (1) of section 15 of the Electricity Act, 2003, decide
the requirement of capital investment for distribution network
after hearing the applicant and keeping in view the size of the area
of supply and the service obligation within that area in terms of
section 43.
(2) The applicant for grant of licence shall be required to satisfy
the Appropriate Commission that on a norm of 30% equity on cost
of investment as determined under sub-rule (1), he including the
promoters, in case the applicant is a company, would be in a
position to make available resources for such equity of the project
on the basis of net worth and generation of internal resources of
his business including of promoters in the preceding three years
after excluding his other committed investments.”
ISSUES
17. Having noticed the relevant statutory framework, we are now
tasked with deciding two short issues:
a) Whether the designation of an entity as a SEZ developer by the
MoCI ipso facto qualifies the entity to be a deemed distribution
licensee, obviating the need for an application under section 14
of the Electricity Act?
b) Whether regulation 12 of the 2013 Regulations, and by
implication rule 3(2) of the 2005 Rules, are applicable to a SEZ
developer recognised as a deemed distribution licensee under
the proviso to section 14(b) of the Electricity Act read with
regulation 13 of the 2013 Regulations?
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ANALYSIS
18. We have considered the submissions advanced by learned counsel
for the parties and have also perused the materials on record.
Issue (a)
19. It would not be inapt to be reminded of what was stated by a
Bench of two Hon’ble Judges of this Court in State of Bombay v.
13
Pandurang Vinayak Chaphalkar nearly seventy years ago:
“11. […] When a statute enacts that something shall be deemed
to have been done, which in fact and truth was not done, the court
is entitled and bound to ascertain for what purposes and between
what persons the statutory fiction is to be resorted to and full
effect must be given to the statutory fiction and it should be
carried to its logical conclusion.”
20. In view of the existing facts, we are inclined to the view that the
very purpose of the deeming fiction in the proviso to section 14(b) of the
Electricity Act is to confer upon an entity like the appellant a status which
is otherwise available in accordance with the Electricity Act. In other words,
as an effect of the 2010 Notification inserting the proviso to section 14(b),
the appellant is entitled to the privilege of being acknowledged as a
(deemed) distribution licensee under the Electricity Act for supply of power
within its SEZ area. Once the appellant is a (deemed) distribution licensee,
certain benefits and/or privileges do enure in its favour.
21. The respondents have heavily relied on Sesa Sterlite Limited
(supra) to assert that there has to be a harmonious construction of both
13
(1953) 1 SCC 425
Page 14 of 24
the SEZ Act and the Electricity Act to give effect to the provisions of both
the enactments, so long as they are not inconsistent with each other.
22. A Bench of two Hon’ble Judges of this Court in Sesa Sterlite
Limited (supra) held:
“43. The reading of Section 49 of the SEZ Act would reveal that
the Central Government has got the authority to direct that any
of the provisions of a Central Act and the rules and regulations
made thereunder would not apply or to declare that some of the
provisions of the Central Acts shall apply with exceptions,
modifications and adaptation to the special economic zone. So,
under the scheme of the Special Economic Zones Act, the Central
Government has to first notify as to what extent the provision of
the other Acts are to be made applicable or applicable with
modification or not applicable for the special economic zone area.
It is in furtherance thereto, the Government of India, Ministry of
Commerce and Industry through its Notification dated 21-3-2012,
with regard to power generation in special economic zone, has
declared that all the provisions of the Electricity Act, 2003 and the
Electricity Rules, 2005 shall be applicable to the generation,
transmission and distribution of power, whether stand-alone or
captive power. This notification would clarify that there is no
inconsistency between the Special Economic Zones Act, 2005 and
the Electricity Act, 2003.
[…]
46. To recapitulate briefly, in the present case no doubt by virtue
of the status of a developer in the SEZ area, the appellant is also
treated as deemed distribution licensee. However with this, it only
gets exemption from specifically applying for licence under Section
14 of the Act.”
23. The question in Sesa Sterlite Limited (supra), was whether the
appellant - a deemed distribution licensee, being a developer of Special
Economic Zone (SEZ) and having a unit in the SEZ, is liable to pay Cross-
Subsidy Surcharge (CSS). It was held that the appellant would be liable to
pay CSS for several reasons, including on the facts that it was using
dedicated transmission lines belonging to the distribution licensee for the
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area in question. This Court interpreted the expression 'open access' and
the rationale behind CSS and additional surcharge to observe that the
former was payable by a distribution licensee and the latter was to meet
the fixed cost of the distribution licensee of the area. The provision of open
access, it is observed, balances the right of the consumers to purchase from
a source of their choice. The rationale and the ratio of the decision,
therefore, is that a deemed distribution licensee is treated at par and not
different from a distribution licensee. Accordingly, if CSS is payable by a
distribution licensee, the deemed distribution licensee is equally liable to
pay the same. This decision, in other words, equates deemed distribution
licensee with the distribution licensee for the purpose of supply of electricity
to the consumers. Sesa Sterlite Limited (supra) is not a decision for the
proposition that deemed distribution licensee, to qualify as a deemed
distribution licensee, must meet the criteria, including the capital
requirements as applicable by regulations to a distribution licensee.
24. Further, the provisos to section 14 of the Electricity Act distinguish
between entities that are ipso facto deemed distribution licensees and those
that are merely declared as deemed licensees without clarity on the
necessity of making an application to obtain a licence. For instance, the
third and fourth provisos to section 14 not only confer the status of deemed
licensees to the State Government and the Damodar Valley Corporation,
respectively, but also explicitly exempt them from the requirement to obtain
a licence. Entities not covered by these specific provisos would, therefore,
be required to obtain a licence. The requirement of obtaining a license has
to be read into the other provisos to section 14 since, for instance, the
Page 16 of 24
second and fifth provisos to section 14 grant deemed licensee status to
Central/State Transmission Utility and a government company,
respectively, but neither specifies the requirement to obtain a license nor
exempts them from obtaining license.
25. As far as the 2010 Notification is concerned, the proviso to section
14(b) introduced by the said Notification, confers deemed licensee status
on SEZ developers. However, such conferment does not explicitly exclude
the requirement of obtaining a licence. This lack of specificity, especially
when compared with the clear provisions for other entities, suggests that
the legislative intent was not to ipso facto grant SEZ developers the status
of deemed distribution licensees, thereby obliging them to obtain a licence
by making an application in terms of regulation 13. TSERC is, therefore,
empowered to scrutinise such applications in accordance with law, however,
only limited to the provisions which are applicable to deemed licensees.
Verification and acceptance recognise their status as deemed licensees.
Issue (b):
26. Issue (b) revolves around rule 3(2) of the 2005 Rules, which per
the TSERC and the APTEL, the appellant is bound to adhere by infusing
additional capital in order to qualify as a deemed licensee. While the
appellant contends that the 2010 Notification, by necessary consequence,
grants upon the appellant the status of a deemed licensee, the respondents
submit that the identification of the appellant as a deemed distribution
licensee is conditional upon the appellant satisfying the other requirements
of the Electricity Act, specifically the sixth proviso to section 14 of the
Page 17 of 24
Electricity Act which provides for compliance with additional requirements
like capital adequacy which as per the respondents includes rule 3 of the
2005 Rules read with regulation 12 of the 2013 Regulations.
27. It is contended by the respondents that the application of 2005
Rules to the appellant, a SEZ developer, stems from the sixth proviso to
section 14 read with regulation 12 of the 2013 Regulations.
28. Let us now deal with the provisos to section 14. Upon a bare
reading of the provision, it becomes crystal clear that not only does the
sixth proviso, but none of the nine provisos to section 14, apply to the
appellant, a SEZ developer. Even the TSERC and the APTEL are ad idem
with this view. The status of a SEZ developer as a deemed licensee
emanates from the 2010 Notification, which introduced the proviso to
section 14(b), conferring deemed licensee status to SEZ developers.
Reading anything beyond this would defeat the very purpose of the proviso
and the concept of the deemed licence. The sixth proviso does not pertain
to deemed licensees and, therefore, the 2005 Rules are not applicable to
the appellant.
29. Upon closer examination of regulation 12, it becomes apparent
that its application does not extend to applicants who are otherwise deemed
licensees. The interpretation of regulation 12 as requiring additional capital
infusion for an applicant for acceptance of a deemed licensee status appears
to be at odds with the language and intent of the 2013 Regulations itself.
TSERC has, in essence, interpreted regulation 12 by reading it up to mean
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that it also applies to a person who is a deemed licensee, and in doing so,
the TSERC has aimed to achieve indirectly what it could not directly.
30. Reading down and reading up are two principles often discussed
in legal contexts, particularly in the realm of statutory interpretation.
Reading down, which has been firmly ingrained in our jurisprudence, refers
to the practice of interpreting a statute narrowly, limiting its scope or
application to specific situations or individuals. This approach is commonly
employed when the language of a statute is ambiguous or when there is a
need to avoid potential conflicts with other laws or constitutional provisions.
For example, if a law is unclear about whether it applies to certain types of
businesses, a court may choose to read down the statute to only include
those businesses explicitly mentioned in the text. On the other hand,
reading up involves interpreting a statute broadly, extending its scope or
application beyond what is expressly stated in the text. Reading up is a
concept that is invoked with great caution within our legal framework
because it can lead to judicial activism or judicial overreach, where courts
expand the reach of laws beyond what the legislature intended.
31. A Constitution Bench of this Court in B.R. Kapur v. State of
14
Tamil Nadu , while stating that reading up of a statute is not permissible,
held thus:
“39. Section 8(4) opens with the words ‘notwithstanding anything
in sub-section (1), sub-section (2) or sub-section (3)’, and it
applies only to sitting members of Legislatures. There is no
challenge to it on the basis that it violates Article 14. If there were,
it might be tenable to contend that legislators stand in a class
apart from non-legislators, but we need to express no final
14
(2001) 7 SCC 231
Page 19 of 24
opinion. In any case, if it were found to be violative of Article 14,
it would be struck down in its entirety. There would be, and is no
question of so reading it that its provisions apply to all, legislators
and non-legislators, and that, therefore, in all cases the
disqualification must await affirmation of the conviction and
sentence by a final court. That would be ‘reading up’ the provision,
not ‘reading down’, and that is not known to the law.”
32. The literal rule of interpreting a statute empowers courts to iron
out the creases within legislation but without altering the very fabric of
which it is made. The practice of reading up a provision can only be justified
when it aligns with legislative intent, maintains the fundamental character
of the law, and ensures that the resulting interpretation remains consistent
with the original context to which the law applies. This holds especially true
for subordinate legislation, which require greater scrutiny in this regard.
Reading up a provision of subordinate legislation in a manner that it
militates against the primary legislation is not permissible.
33. The authority to craft subordinate legislation is derived from the
enabling/primary legislation and it is imperative that such legislation
harmonizes with the provisions outlined in the enabling/primary legislation.
The Electricity Act has conferred power on the Central Government to make
Rules [see section 175], and on the Central Electricity Authority and the
Central Commission to make Regulations [see sections 176 and 177,
respectively]. All such rules/regulations are to be made consistent with the
Electricity Act. Section 181 of the Electricity Act confers power on the State
Commissions to make Regulations but such regulations too must be
consistent with the provisions of the primary enactment and the rules
framed thereunder generally. Rules and Regulations are enacted to
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supplement the main provision, not to supplant it. They serve the crucial
role of bridging potential gaps within the primary legislation, yet, their
function is not to create webs and voids merely to clog and hamper their
implementation. Any gaps addressed by Rules and Regulations must be
discernible within the framework of the primary legislation.
34. In the present case, the TSERC, in paragraph 19, asserted that
regulation 12 applies implicitly to a deemed licensee as well. We do not
agree with this reasoning, mainly for two reasons. First, the primary
legislation, the Electricity Act, through the proviso inserted in section 14(b),
confers deemed licensee status upon SEZ developers without imposing any
specific conditions. Secondly, the 2013 Regulations make a clear distinction
between an applicant seeking a licence [as defined under regulation 2(d)]
and a deemed distribution licensee seeking recognition as such [as defined
under regulation 2(h)]. Regulation 2(d) defines an “applicant” as “a person
who has submitted an application to the Commission for the grant of a
distribution licence”. In contrast, regulation 2(h) defines a “deemed
licensee” as “a person authorized under sub-section (b) of Section 14, and
also under the first, second, third, and fifth provisos to section 14 of the
Act, to operate and maintain a distribution system for supplying electricity
to consumers in their area of supply”. The 2013 Regulations clearly
delineate distinct categories of licensees. Regulation 12 pertains solely to
regular distribution licensees as defined under regulation 2(h), not to
deemed licensees. ‘Reading up’ regulation 12 so as to expand its ambit to
include within it deemed licensees, especially when the Electricity Act does
not stipulate any such inclusion, runs counter to the subsequently inserted
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proviso to clause (b) of section 14 of the Electricity Act—an exercise which
is impermissible and which we cannot approve. Therefore, the recognition
of the status of a deemed distribution licensee cannot hinge on compliance
with rule 3(2) of the 2005 Rules read with regulation 12 of the 2013
Regulations.
35. The language of regulation 12 merits careful scrutiny. It states
that an applicant shall, “in addition to the provisions of Regulation 4 to 11”,
comply with the provisions of the 2005 Rules. It is evident that it is a normal
applicant [as defined under regulation 2(d)], which is tasked with complying
with regulations 4 to 11, that has to comply with the 2005 Rules. However,
the appellant herein, as discussed previously, is not a regular applicant but
a deemed distribution licensee [as defined under regulation 2(h)], and is
governed by regulation 13, the proviso to which specifically states that
nothing in regulations 4 to 11 would apply to deemed licensees. Having thus
been statutorily exempted from complying with regulations 4 to 11, we are
of the opinion that the appellant, being a deemed licensee, would also be
exempt from the concomitant obligation of complying with regulation 12, in
view of the language of the provision, which imposes the burden of
complying with regulation 12 only on those applicants who come within the
purview of regulations 4 to 11. The appellant falling outside the scope of
the latter, would thus necessarily fall outside the scope of the former too.
36. TSERC’s reliance on regulation 49 of the 2013 Regulations to
enforce the applicability of regulation 12 also appears to be flawed.
Regulation 49, situated within Chapter-4 [General Conditions of Distribution
Licence] of the 2013 Regulations, specifies that “these general conditions
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shall apply to distribution licensees and to all deemed distribution
licensees”. A straightforward reading reveals that the term ‘general
conditions’ in regulation 49 pertains exclusively to the general conditions
outlined in Chapter-4. By no stretch of imagination could the scope of this
provision be widened so as to include within its ambit regulation 12, which
forms part of Chapter-3 [Procedure for Grant of Distribution Licence] of the
2013 Regulations.
CONCLUSION
37. To sum up, being a SEZ developer in terms of the 2010 Notification
does not ipso facto confer upon the appellant the status of a deemed
licensee without any scrutiny and without being under any requirement to
apply; it is required to make an application in accordance with the 2013
Regulations. We have been apprised that this condition has been fulfilled as
the status of the appellant as a deemed licensee has already been upheld
pursuant to the application made in accordance with rule 13 of the 2013
Regulations. The first issue is answered accordingly. As far as the second
issue is concerned, the condition stipulated in rule 3(2) of the 2005 Rules,
as imposed by the TSERC with a direction to infuse an additional capital of
Rs. 26.90 crore is not justified and contrary to the statutory scheme as
discussed aforesaid. The judgments and orders of the TSERC and the APTEL
are set aside to this extent. The order of the TSERC, which grants the status
of a deemed licensee to the appellant, however, subject to the condition
that its promoters infuse additional capital is accordingly modified to the
extent of excluding such condition.
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38. The appeal is partly allowed in the aforesaid terms. No costs.
………………………………J
(SANJIV KHANNA)
………………………………J
(DIPANKAR DATTA)
New Delhi;
th
17 May, 2024.
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