Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.36073610 OF 2008
M/s. Jindal Steel and Power Limited … APPELLANT(S)
Vs.
The Chhattisgarh State Electricity
Regulatory Commission and Ors. ... RESPONDENT(S)
WITH
CIVIL APPEAL NOS.41044107 OF 2008
Tirumala Balaji Alloys Pvt. Ltd. … APPELLANT(S)
Vs.
M/s. Jindal Steel and Power Ltd. and Ors. Etc. ... RESPONDENT(S)
J U D G M E N T
NAGARATHNA, J.
1. These Civil Appeals filed under Section 125 of the Electricity
Act, 2003 arise out of common impugned Judgment dated
07.05.2008 passed by the Appellate Tribunal for Electricity, New
1
Delhi (‘Appellate Tribunal’, for short). By the said judgment, the
Appellate Tribunal has set aside the order of respondent No.1 dated
29.11.2005 and cancelled the distribution licence granted to the
appellant in C.A. Nos.36073610 of 2008. Hence, these appeals.
Since the questions of law and facts which arise in both the
2.
above captioned Civil Appeals are similar, these appeals are being
disposed of by this common judgment.
Re: Civil Appeal Nos. 36073610 of 2008:
3. The appellantJindal Steel and Power Ltd. (‘JSPL’, for short) in
this civil appeal established a sponge iron / steel plant at Raigarh,
Chhattisgarh in the year 1990. A captive power plant was also set up
by JSPL at a distance of 40 km from the aforesaid steel plant.
Respondent No.1 is Chhattisgarh State Electricity Regulatory
4.
Commission (‘Commission’, for short), respondent No.2 is
Chhattisgarh State Electricity Board (‘CSEB’, for short) later became
‘Chhattisgarh State Power Distribution Company’ and respondent
No.3 is Chhattisgarh Vidyut Mandal Abhiyanta Sangh (‘CVMAS’, for
short).
5. The newly created State of Chhattisgarh formulated its
industrial policy for 20012006 which encouraged the establishment
2
of industrial estates in privatepublic partnership as well as the
installation of captive power plant.
6. A proposal for permission to set up an industrial estate in 500
acres of land, adjacent to the existing land at Raigarh, was submitted
by JSPL vide letter dated 28.12.2001. The land was to comprise of
villages of Kosampali, Dhanagar, Barmuda or at a site in the Tehsil of
Gharghoda comprising villages Tarai Mal and Ujjalpur. JSPL,
addressed a letter dated 09.04.2002 to the Department of Mineral
Resources, Commerce and Industries, Government of Chhattisgarh
seeking permission for establishing such an industrial estate at
Raigarh. A map showing the proposed industrial area was annexed
with the letter. The Government of Chhattisgarh, vide letter dated
26.04.2002 informed JSPL that the Energy Department was taking
action to grant permission for sale of power and to lay transmission
lines to various units in the private industrial estate being established
by JSPL and requested JSPL to prepare and submit a draft of
Memorandum of Understanding (‘MoU’, for short) for the said purpose
for approval. The facilities were to be provided as per the new
industrial policy dated 01.11.2001.
7. JSPL, on 16.07.2002, requested the Chief Minister of
Chhattisgarh to issue appropriate directions for grant of permission
to supply power to the units in the proposed industrial estate. The
3
Government of Chhattisgarh, on 14.08.2002, sent a reply to the
aforesaid request made by JSPL and informed that it shall have to
take certain actions / steps with regard to the supply of power to the
proposed industrial units. In compliance of the aforesaid letter on
04.09.2002, JSPL addressed a letter requesting for grant of
permission under Section 28 of the Indian Electricity Act, 1910 (‘1910
Act’, for short) for sale of power to the proposed units in the industrial
state from its captive power plant and for grant of permission to set
up transmission and distribution lines/system for supply of power to
the industrial units in the proposed industrial estate. JSPL further
stated that they will obtain necessary permission under the
Electricity Supply Act, 1948 (‘1948 Act’, for short) for setting up
transmission and distribution lines from CSEB.
8. A MoU was signed on 23.10.2002 between Chhattisgarh State
Industrial Development Corporation (‘CSIDC’, for short) acting on
behalf of Government of Chhattisgarh and JSPL for setting up the
industrial estate. The Government of Chhattisgarh, on 29.01.2003
granted permission for supply of power by JSPL to the new industrial
units being set up in the private industrial estate proposed in four
villages of Raigarh District i.e., Punjipathra, Tumdih, Jorapalli and
Dhanagarh from its captive power plant and laid down certain terms
and conditions. CSEB, on 31.05.2003 granted permission for laying
4
transmission and distribution lines of 220 KV for supply of power to
the prospective units at the Industrial Estate in Raigarh,
Chhattisgarh by tapping 220 KV from the captive power plant of
JSPL.
On 06.10.2003, JSPL made a formal application for sanction
9.
under Section 28 of the 1910 Act wherein it provided details of the
project enclosing relevant documents. The Government of
Chhattisgarh passed two orders on 28.02.2004. Vide its first order
exercising power under Sections 68(1) and 68(3) of the Electricity Act,
2003 (‘2003 Act’, for short), the State Government accorded
permission for construction of transmission and distribution lines as
recommended by the CSEB on certain terms and conditions. Vide its
second order, relating to the NoObjection of the State Government
regarding direct power supply by JSPL from their power plant to the
industrial units proposed to be set up in the private industrial estate
in Raigarh, Chhattisgarh, the State Government of Chhattisgarh
opined that since the 2003 Act was in force in the State from
09.12.2003 and the 1910 Act stood repealed, no permission could be
granted under the latter Act.
10. JSPL commenced supply of electricity to the industrial units
which were already setup with effect from 01.03.2004.
5
11. Thereafter, on 15.09.2004, JSPL filed an application for grant of
distribution licence before the Commission under Section 14 of the
2003 Act. The same was returned by the Commission on 15.09.2004
for filing in the prescribed format. On 25.01.2005, JSPL applied for
the licence to the Commission in Form 1A with all necessary
enclosures as per Regulation 3 (1) of the Chhattisgarh State
Electricity Regulatory Commission (License Regulations), 2004 (‘State
License Regulations’, for short) along with Demand Draft of Rs.5
Lakhs. In the said application, JSPL stated that the area to which
supply was to be made was the Jindal Industrial Park in the private
sector in Punjipathra and Tumdih villages of Garghoda Tehsil,
Raigarh District having an area of 750 acres and shall accommodate
seventy units. Pursuant to the filing of the said application, notices
were published in the newspapers and objections were invited under
Section 15 of the 2003 Act. Three objections were received, one each
from respondent Nos.2 and 3 and the third objection was from Mr.
R.K. Aggarwal. The objection of Mr. R.K. Aggarwal was subsequently
rejected by the Commission on 27.08.2005 being bereft of any locus
standi .
Various correspondences and pleadings were exchanged
12.
between JSPL, CSEB, CVMAS and the Commission and thereafter the
6
Commission framed a total of five issues and its Order dated
vide
29.09.2005, decided to grant distribution licence under Section 14 of
the 2003 Act. The pertinent findings of the Commission can be
encapsulated as under:
A harmonious reading of Sections 10(2), 42(2), 2(47) & 12 of the
i.
2003 Act, clearly brings out that a generating company may
supply electricity to a consumer under the provisions of Section
10(2) of the 2003 Act only subject to the provisions of open
access. The scheme of the Act, particularly Part IV (Licensing)
thereof, is such that it cannot authorize a generator to supply
electricity to a consumer without a licence. That the present
application is not for supply through open access and the same
is for distribution of electricity to a significant number of
industries in an industrial area set up under specific permission
of the State Government.
ii. Section 28 of the 1910 Act is quite clear that supply of electricity
to the public mandates the previous sanction of the State
Government. That, by no stretch of the argument, can the letter
of the State Government dated 29.01.2003 be treated as sanction
of the State government. Therefore, the said letter does not confer
any right on JSPL under Section 28 of the 1910 Act to supply
electricity.
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iii. Noobjection letter dated 28.02.2004 also does not confer any
such right on the applicant. If the said letter conveyed any right,
either the application for licence would not have been made or a
claim of existing right should have been made. The application of
JSPL clearly stated that it had no licence. Further, the second
letter of the said date, conveying Noobjection of the State
Government cannot be said to be valid since there is no provision
for such no objection from the State Government. Therefore, as
on that date, distribution of electricity by JSPL was without any
legal authority.
iv. On the aspect of area for which the licence had been applied for,
it was observed that the present case ought to be treated as an
exception to Rule 3 of the Distribution License Rules and to Para
5.4.7 of the National Electricity Policy since effective steps for
setting up of the industrial estate herein and an understanding
with the State Government to the effect that JSPL would provide
electricity from its captive power plant were taken much before
the National Electrical Policy was notified. As per the application,
supply of electricity commenced with effect from 01.03.2004 to
some industries on the basis of the letter dated 28.02.2004 and
therefore, the National Electrical Policy notified subsequently
cannot be invoked to deny distribution licence in this case.
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v. That if a distribution licence is refused at this stage, which is
approximately one and half years after supply of electricity has
commenced, whether with or without legal authority, the same
shall impact the consumers of JSPL. CSEB also conveyed its no
objection to lay transmission and distribution network as early
as on 30.05.2003. That JSPL had gone way ahead with the
industrial estate project in full, including distribution of power on
the basis of the understanding with the State Government. A
large investment of Rs.17.79 Crores was made, and there were
twentyfour industries, most of which were power intensive. If a
distribution licence was denied, they will have to close down their
industries. Apart from that, the consumers will be forced to buy
power from CSEB at a much higher rate than at present.
Therefore, the grant of distribution licence in this case may be in
the interest of the competition and in the interest of consumers
who have already entered into a longterm supply contract with
JSPL.
Further, in view of the overall position of the case, the balance of
vi.
convenience would lie in grant of a distribution licence to JSPL
and there was an adequate justification for the same. Moreover,
the CSEB could not clarify as to why it was in opposition to a
distribution licence in a limited area when CSEB was itself not in
9
a position to supply quality power to their existing industrial
consumers.
vii. In respect of JSPL’s eligibility for grant of such distribution
licence, it was observed that JSPL met all the requirements of
capital adequacy, creditworthiness and code of conduct as laid
down by the Central Government in the Distribution License
Rules.
viii. In respect of levy of crosssubsidy charges on the consumer of
JSPL, the Commission held that there was no justification in
such levy since the same was not a case of open access. The
scheme of the 2003 Act is such that a distribution licensee
cannot recover crosssubsidy surcharge from another
distribution licensee and that JSPL had undertaken to supply
electricity to all its consumers in the area for which licence was
proposed to be granted.
ix. Lastly, it was held that JSPL was liable to pay a penalty of Rs.
One Lakh for contravention of Section 12 of the 2003 Act which
mandates licence to be obtained for supply of electricity and
violation of the same was punishable under Section 142 of the
2003 Act.
10
13. The following conditions, apart from the general and special
conditions applicable to such licenses under the Regulations, were
imposed on JSPL by the Commission for grant of distribution license:
“(i) The license will be for the area of the two
villages, Tumdih and Punjipathra of Gharghoda
Tehsil of Raigarh District. However, the number
of industrial consumers in the Jindal Industrial
Park shall be limited to 70 and their total
demand for electricity not increasing 299 MW,
as agreed with the State Government.
(ii) The applicant shall lay necessary distribution
lines and putup substation at his own cost in
the two villages for supply of electricity to any
person who may apply for it and supply
electricity at a rate not more than Rs.2.50 per
unit or at the supply rate of the Board for that
category of consumer, which is lower. This will
include domestic, agriculture, industrial and
other consumers. The option to choose between
the licensee and the Board shall be with the
consumer.
(iii) All other general and special conditions
applicable to a distribution licensee as per the
provisions of the License Regulations.”
14. Respondent Nos.2 and 3 on 07.10.2005, filed objections to the
order dated 29.09.2005 before the Commission. Thereafter,
respondent No.2 filed Appeal No.179/2005 and respondent No.3 filed
Appeal No.188/2005 before the Appellate Tribunal. The appellant
herein challenged the imposition of penalty of Rs. One Lakh before
the Appellate Tribunal in Appeal No.27/2006.
11
15. On hearing the respective parties, the Commission, vide its
Order dated 29.11.2005, granted licence to JSPL on the following
terms and conditions:
“(i) The distribution license shall be valid for a
period of twentyfive years from the date of
issue, as per the provision of Section 15(8) of the
Act, unless revoked earlier.
(ii) The area of the license shall be the geographical
area of the villages Tumdih and Punjipathra,
including the Jindal Industrial Park
aforementioned, of Gharghoda tahsil of Raigarh
District of the State as indicated in the map
enclosed herewith.
(iii) The distribution licensee shall abide by all the
relevant provisions of the Electricity Act, 2003,
the National Electricity Policy, i.e. Rules 1956
and Electricity Rules 2005, as amended from
time to time.
(iv) The licensee shall abide by the general
conditions of license as given in chapter III and
the other conditions applicable to a distribution
licensee as given in chapter V of the CSERC
(Licence) Regulations 2005, as amended from
time to time. He shall also comply with the
relevant provisions of all the regulations issued
or as may be issued by the Commission, as
amended from time to time.
(v) The licensee shall abide by all the relevant
provisions of the Chhattisgarh State Electricity
Supply Code, 2005.
(vi) The licensee shall lay necessary distribution lines
and putup substations at his own cost in the
two villages for supply of electricity to any
person who may apply for it and supply
electricity at a provisional rate of not more than
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Rs.2.50 per unit or at the supply rate of the
Board for that category of consumer, whichever
is lower, till the tariff for supply is determined by
the Commission. This will include domestic,
agriculture, industrial and other consumers.
(vii) The consumers of the area other than area of
Jindal Industrial Park (JIP) shall have the option
to choose between the licensee and the
Chhattisgarh State Electricity Board (CSEB) or
its successor entity/entities.
(viii)The existing tariff being charged from the
industrial consumers in the designated area of
JIP shall continue to be charged by the licensee
till the tariff is determined by the Commission.
(ix) For determination of tariff in the area of supply,
the distribution licensee shall file the necessary
application under Section 64 of the Act and
clause 10 of the CSERC (Details to be ' furnished
by licensee or generating company for
determination of tariff and manner of making
application) Regulations, 2004 before the
Commission on or before 31st March 2006, and
thereafter in terms of the provisions of the same
Regulations.
(x) The licensee shall abide by the safety rules and
safety standards issued by the Central
Electricity Authority, Ministry of Power, Govt. of
India and other Government
agency/department.
(xi) The licensee shall not transfer or assign, by sale,
lease exchange or otherwise, this license or part
thereof to any other person without prior
approval of the Commission.
(xii) The licensee shall undertake electrification of
villages Tumdih and Punjipathra as per the
norms laid down for rural electrification within a
period of six months, i.e., before 29.05.2006. It
shall also provide public lamps in adequate
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number in these two villages on the request of
the concerned Gram Panchayat and maintain
the same.
(xiii) All issues relating to interpretation of this
licence and its terms and conditions, shall be a
matter for determination by the Commission and
the decision of the Commission on such issues
shall be final, subject only to the right of appeal.
(xiii) The conditions of the license may be altered or
amended by the Commission at any time, if it
deems fit in the public interest, in terms of
Section 18 of the Act.”
16. Respondent No.2 filed Appeal No.16/2006 before the Appellate
Tribunal challenging the order dated 29.11.2005 passed by the
Commission. The Appellate Tribunal, vide it Order dated 11.05.2006,
upheld the order granting distribution licence dated 29.11.2005
passed by the Commission. Aggrieved by the order dated 11.05.2006
passed by the Appellate Tribunal, respondent Nos.2 and 3 filed
appeals before this Court being Civil Appeal Nos. 3996 of 2006 and
4268 of 2006. JSPL also preferred an appeal before this Court being
Civil Appeal No.4529 of 2006. This Court, its order dated
vide
19.09.2007, allowed the aforesaid appeals, setaside the order dated
11.05.2006 passed by the Appellate Tribunal and remanded the
matter to the Appellate Tribunal for fresh determination.
17. On remand, the Appellate Tribunal reconsidered the matter and
all the aforesaid appeals (Appeal No.179/2005, Appeal No.188/2005,
14
Appeal No.27/2006 and Appeal No.16/2006) were allowed
vide
common impugned order dated 07.05.2008 which is challenged
before this Court by way of the present appeals. The pertinent
observations and decision of the Appellate Tribunal are encapsulated
as under:
i.
With respect to JSPL’s argument that the MoU had a specific
clause that allowed JSPL to directly sell power to the industrial
units set up in the proposed industrial estate, it was held that it
was not the correct way to read the MoU. The MoU was entered
into when the estate had not even come into existence and the
terms therein only envisioned what would happen in the future.
Therefore, it was too early to grant licence for supply or
distribution of electricity by JSPL. It was further held that JSPL
itself did not treat this clause in the MoU as grant of license. Had
the MoU itself meant grant of license, there would have been no
occasion for the subsequent correspondence between the JSPL
and the Government of Chhattisgarh. Therefore, neither the State
Government nor JSPL was acting under an understanding that
JSPL had already been granted a license.
ii. That the letter dated 29.01.2003 which is a ‘NoObjection’ from
the Government of Chhattisgarh had a clear stipulation that
JSPL was required to take permission under Section 28 of the
15
1910 Act for direct power supply from its captive power plant to
the industrial estate and the said letter cannot be read as
Government’s promise to give license.
iii. On examining the two letters dated 28.02.2004, it was found by
the Appellate Tribunal that the first order accorded permission
for construction of power, transmission and distribution lines
under Sections 68(1) and (3) of the 2003 Act and the second
order dealt with prayer for approval under Section 28 of the 1910
Act. Vide the second order, it was made sufficiently clear that
JSPL will have to get the permission/licence from the
Commission since Section 28 of the 1910 Act stood repealed and
no permission thereof could be given.
iv. That there cannot be an estoppel against the statute. The
relevant authority at that time was the Commission and the
licence was to be obtained under Section 14 of the 2003 Act from
the Commission, after fulfilling the requisite terms and
conditions. JSPL could not have taken advantage of the doctrine
of promissory estoppel since, even if the aforesaid letters were
construed to be a promise, the same would only be binding on
the Government of the State of Chhattisgarh and not the
Commission which is not subordinate to the Government or its
successor or assignee.
16
v. The Appellate Authority, on considering the issue as to whether
JSPL was entitled to the license/minimum area of supply under
Section 14 of the 2003 Act observed that on the date when the
application for licence filed by JSPL under the 2003 Act was
under consideration, the Commission was required to apply the
regulation in force at that point of time which included the rule of
minimum area of supply. It was observed that the Commission
was incorrect in ignoring the said rule and granting the licence in
violation thereof. No exception to the aforesaid rule could have
been made out by the Commission.
vi.
While interpreting Section 10(2) of the 2003 Act that allowed a
generating company to supply electricity to any licensee or to any
consumer, it was held that the JSPL is a captive power plant and
is governed by Section 9 of the 2003 Act and not by Section 10 of
the said Act.
vii. That JSPL had applied for a distribution licence because it
intended to purchase power from another generating company
called Jindal Power. JSPL, being a captive power plant and not a
generating company at the relevant time could not have made
any supply to any third person without a license.
viii. On considering CSEB’s argument that the supply from a captive
power plant or even under Section 10(2) of the 2003 Act is
17
permissible only when the same is made by use of the grid or the
transmission lines of distribution licensee or transmission
licensee by use of open access and that unless open access is
availed, the supply cannot be made, it was held that open access
is an enabling provision that helps expansion of the electricity
sector and not to limit its development. If it was the intention of
the 2003 Act that no sale was possible except by availing open
access, it would have said so. It was further observed that
Section 10(2) of the 2003 Act prescribes that the supply to a
consumer will be subject to Regulations made under subsection
(2) of Section 42 of the 2003 Act. While interpreting the use of the
words ‘ subject to the rules made under subsection (2) of Section
42’ , it was held that the provision under Section 42(2) of the
2003 Act would only be attracted when the access through the
existing distribution was sought; when such access was not
sought, the aforesaid provision shall not apply.
ix. With respect to the Commission’s order imposing penalty of Rs.
One Lakh on JSPL, the same was setaside. This was because,
although JSPL did not have a licence when it started supplying
electricity to Jindal Industrial Park, a penalty was not
automatically attracted. As per Section 142 of the 2003 Act, a
person sought to be punished has to be given an opportunity to
18
be heard. Admittedly, the said opportunity was not given to JSPL.
It was found that the Commission was merely hearing the
application for grant of distribution license. The issue as to
whether JSPL had rendered itself liable to punishment at all was
never an issue before the Commission.
Re: Civil Appeal Nos. 41044107 of 2008:
18. The facts and circumstances in both these appeals are similar
and therefore have not been reproduced to avoid repetition except to
the extent it is necessary to do so.
19. The appellant in these civil appeals is the consumer of
electricity in Jindal Industrial Park in Raigarh, Chhattisgarh who is
aggrieved by the cancellation of distribution licence granted in favour
of JSPL and due to unavailability of an alternative distribution
licensee. It is the grievance of the appellant herein that it was not a
party before the Appellate Tribunal.
JSPL, on 08.05.2008, by way of its notice, informed the
20.
appellant in this appeal that since its distribution licence had been
cancelled, it had to stop supplying power to all the industries in the
Jindal Industrial Park whereafter on 09.05.2008, at 1:00 p.m., the
electricity supply to all the units of the appellant was disconnected.
The appellant contends that all the units were brought to a standstill
19
and the appellant has been facing losses running to crores of rupees.
The appellant avers that it is a third party and an end consumer of
JSPL who is deprived of electricity in the absence of any alternative
distributor in place. Hence these appeals.
We have heard Sri Sanjay Sen, learned senior counsel for the
21.
appellant in C.A. Nos. 36073610 of 2008 and Sri C.S. Vaidyanathan,
learned senior counsel for the appellant in C.A. Nos. 41044107 of
2008 duly assisted by their instructing counsel; Ms. Swapna
Seshadri, learned counsel for the respondent No.1, Sri Raj Kumar
Mehta, learned counsel for the respondent No.2 and perused the
material on record.
22. The submissions of the learned senior counsel for the appellant
JSPL in Civil Appeal Nos.36073610 of 2008 are epitomised as under:
22.1 That the Commission in its order dated 29.11.2005, after taking
note of the Distribution of Electricity (Additional Requirement of
Capital and Adequate Creditworthiness and Code of Conduct)
Rules, 2005 (‘2005 Rules’, for short) had proceeded to grant
licence keeping in view the historical background, investment
made by the appellantJSPL and the benefits that accrued in
favour of industrial consumers who had set up their industrial
plants and had no other source of power supply at the relevant
time. By its Order dated 29.09.2005, the Commission had
20
specifically noticed the inability of CSEB to provide electricity
for want of physical infrastructure and unavailability of surplus
power. In fact, the State of Chhattisgarh was suffering from
power shortages and was buying power from the captive power
plant of this appellantJSPL. On the basis of the permission
granted by the State Government/CSEB, in terms of MoU dated
23.10.2002, the construction of transmission and distribution
network was undertaken and completed and supply of power on
the basis of the longterm agreement had commenced on or
about 01.03.2004 which was much prior to the coming in to
existence of the Commission and the 2005 Rules. Further, the
State Government with the concurrence of CSEB had acted
substantially in terms of powers vested under the repealed law
i.e., Section 28 of the 1910 Act and the State’s Industrial and
Energy Policies. The original application for grant of licence filed
on 15.09.2004 and revised application for grant of licence filed
on 25.01.2005 were both before notification of the 2005 Rules.
However, the Appellate Tribunal has taken a narrow and
pedantic view solely on the basis of Explanation to Rule 3 of the
2005 Rules.
22.2 It was contended that an ‘explanation’ to a provision is merely
meant to explain or clarify certain ambiguities and cannot be
21
treated as a substantive provision. In this regard, the learned
senior counsel appearing on behalf of the appellantJSPL has
placed reliance on S. Sundaram Pillai v. V.R. Pattabiraman
(1985) 1 SCC 591 and Global Energy Ltd. v. Central
. He
Electricity Regulatory Commission (2009) 15 SCC 570
further states that the Explanation to Rule 3 is not a part of the
statute’s provisions or primary legislation but is in the context
of subordinate legislation. From a conjoint reading of Section
2(3), Section 14 and sixth proviso thereof, Section 86 and
Section 176(2)(b) of the 2003 Act, it is clear that the Central
Government has not been vested with the jurisdiction to define
the area of supply. It is clear that the statute required the
Central Government to specify conditions only on three subjects
namely capital adequacy, credit worthiness and code of
conduct. If the Central Government indeed had delegated the
power to define the area of supply of a distribution licensee, it
would have made a substantive rule and not inserted it through
an Explanation. According to learned senior counsel,
Explanation to Rule 3, at the highest, can act as a guideline for
discharge of regulatory functions which should be generally
followed.
22
22.3 The position that the Explanation to Rule 3 is in the nature of a
guideline is strengthened by the fact that Clause 5.4.7 of the
National Electricity Policy has a similar provision relating to
minimum area of supply that acts only as a guidance in
discharge of statutory functions. Sections 61(i) and 86(4) of the
2003 Act clearly states that both the National Electricity Policy
and the Tariff Policy will act as a guidance.
22.4 The learned senior counsel for the appellantJSPL reiterated
that the Central Government’s power to introduce a substantive
rule defining the area of licence cannot be traced to any
provision under the statute. On the contrary, the area of supply
has to be prescribed in the licence issued by the State
Government under Sections 2(3), 14, 15 and 86(1)(d) of the
2003 Act to each and every supplier. Therefore, Explanation to
Rule 3 is without authority of law. In this behalf, the learned
senior counsel for the appellant placed reliance on
Bhaskar
Shrachi Alloys Ltd. v. Damodar Valley Corporation (2018)
8 SCC 281 , Kerala Samsthana Chethu Thozhilali Union v.
State of Kerala & Ors. (2006) 4 SCC 327 and
Bharathidasan University & Anr. v. All India Council for
Technical Education & Ors. (2001) 8 SCC 676 .
23
22.5 It was further contended that in the instant case, the
distribution licence was granted on 29.09.2005 and the same
was confirmed by the Appellate Authority vide order dated
11.05.2006 in Appeal No.27 of 2006. Therefore, there was no
occasion to challenge the vires of 2005 Rules. Even if the Rules
have not been specifically challenged, the same cannot be
applied if found to violate any provision.
22.6 It was submitted that if the Explanation to Rule 3 is applied to
the present case as a substantive rule, it would result in
impairment of vested/accrued rights of the appellantJSPL and
the consumers of Jindal Industrial Park. At the time of making
a formal application on 15.09.2004, the 2005 Rules were not in
existence. The appellantJSPL had acted in terms of
bonafide,
concurrence/permission of the State Government under the
repealed 1910 Act and also under the present 2003 Act, the
same cannot be now made to suffer on account of delay in grant
of licence and introduction of the 2005 Rules. The learned
senior counsel for the appellant stated that the same cannot be
done in terms of various judgments passed by this Court viz. P.
Mahendran v. State of Karnataka (1990) 1 SCC 411 , A.A.
and
Calton v. Director of Education (1983) 3 SCC 33 Gopal
24
Krushna Rath v. M.A.A. Baig (dead) by LRs (1999) 1 SCC
544 . Placing reliance on Federation of Indian Mineral
Industries & Ors. v. Union of India & Anr. (2017) 16 SCC
, the learned senior counsel urged that a subordinate
186
legislation cannot be made to have a retrospective effect unless
the parent statute, expressly or by necessary implication
authorizes it to do so.
22.7 The next limb of argument was that the exercise of power by the
State Government in allowing the appellantJSPL in these
appeals to proceed with supply of electricity manifests in the
form of the terms of the MoU dated 23.10.2002 as well as letters
dated 29.01.2003 and 28.02.2004. These permissions were no
less than a sanction contemplated under Section 28 of the 1910
Act and thus saved in terms of Section 6 of the General Clauses
Act, 1897 and Section 185 of the 2003 Act. In this regard, the
learned senior counsel for the appellantJSPL banked upon
Hindustan Unilever Ltd. v. State of Madhya Pradesh (2020)
10 SCC 751 and Gujarat Electricity Board v. Shantilal R.
Desai (1969) 1 SCR 580 .
22.8 It was further submitted that on the basis of amendment that
came into effect on 27.01.2004, the legislature replaced the
25
word ‘including’ with ‘relating to’ in sixth proviso to Section 14
of the 2003 Act. The word ‘including’ makes the provision
expansive as has been held by this Court in the cases of DAV
College Trust and Management Society & Ors. v. Director
and
of Public Instructions & Ors. 2019 (9) SCC 185 C.I.T
Andhra Pradesh v. M/s. Taj Mahal Hotel, Secunderabad
1971 (3) SCC 550 . Further, the Parliament curtailed the power
of the Central Government and by an amendment removed the
word ‘including’ and instead used the term ‘relating to’. For
something to be treated as ‘relating to’ a provision, it has to
established that ‘the dominant purpose and theme of the
provision is one and one only’ as was observed in the case of
Madhav Rao Jivaji Rao Scindia v. Union of India (1971) 1
. Therefore, a restrictive meaning must be given to the
SCC 85
sixth proviso.
22.9 Placing reliance on Ramana Dayaram Shetty v.
International Airport Authority of India (1979) 3 SCC 489 ,
it was further urged that the appellantJSPL has been supplying
electricity to its consumers since 01.03.2004 and has taken
regulatory/contractual/legal steps thereof and the decision to
26
deny distribution licence is detrimental to the interest of the
appellantJSPL as well as the consumers.
23. The submissions of the learned senior counsel Sri Vaidyanathan
for the appellant in Civil Appeal Nos.41044107 of 2008 are
encapsulated as under:
23.1 The appellant herein is a consumer of electricity supplied by
JSPL in Jindal Industrial Park. The judgment of the Appellate
Tribunal in so far as the same sets aside the grant of
distribution licence by the Commission without appointing any
alternative distribution licence is ultra vires the 2003 Act read
with the 2005 Rules.
23.2 The Appellate Tribunal failed to appreciate the scheme of the
2003 Act that does not permit the Commission or the Tribunal
to cancel a distribution licence without hearing the consumers.
The entire purpose and object of the 2003 Act was to liberalise
the generation, transmission, distribution and supply of
electricity to prevent monopolies from demanding heavy
electrical charges from consumers and open access was
permitted so that any trader or distributor could, as of right,
distribute and supply electricity to industries or consumers who
demanded electricity through the particular trader or
27
distributor. The sixth proviso to Section 14 of the 2003 Act
makes the aforesaid position even clearer by providing for more
than one licensee distributing and supplying power in the same
area.
23.3 The area of supply is defined under Section 2(3) of the 2003 Act
and nowhere, the Act has defined the area of supply as
restricted to mean an entire district or an entire area of the
municipality under Article 243Q of the Constitution of India.
23.4 The Appellate Tribunal failed to note that CSEB was not
operating in the Jindal Industrial Park and therefore cancelling
the distribution licence on this ground was incorrect. CSEB
itself expressed its inability to supply power in the Jindal
Industrial Park during the hearing before the Appellate
Tribunal.
23.5 Further, Explanation to Rule 3 does not indicate that the
second licensee must have a minimum area of supply as
construed by the Appellate Tribunal. The term ‘same area’
appearing in the Explanation states what should be the area for
which the two licensees may be said to be operating ‘within the
same area’. The term same area has not been explained in the
2003 Act or in the 2005 Rules and the Explanation, gives the
28
meaning that the overlapping must be at least of an area
comprised within a Municipal Corporation or a revenue district,
etc.
23.6 The Central Government in making rules under Section 14 of
the 2003 Act has added an Explanation to Rule 3(2) of the 2005
Rules by which it has restricted the concept of same area in
terms of the sixth proviso to Section 14 of the 2003 Act to ‘the
area comprising a municipal council or a municipal corporation
as defined in Article 243Q of the Constitution of India or a
revenue district, which shall be the minimum area of supply.
The said construction is fully inconsistent and violative of the
express provision of sixth proviso to Section 14 of the said 2003
Act and goes counter to the entire spirit, purpose and object of
the 2003 Act.
23.7 The grant of distribution licence is an administrative function of
the Commission and the Appellate Tribunal had no jurisdiction
to interfere as was rightly held in the earlier judgment of the
Appellate Tribunal dated 11.05.2006. That under the 2003 Act,
the Appellate Tribunal is neither empowered to grant licence nor
to cancel the same.
23.8 By virtue of Section 19 of the 2003 Act, only the Commission is
empowered to revoke a license, that too, after complying with
29
the procedural safeguards therein and no such power has been
conferred upon the Appellate Tribunal. Further, no appeal can
lie from an executive order passed by the Commission.
23.9 There are more than thirty industries that have been set up in
Jindal Industrial Park by investing more than Rs.600 crores.
More than 4000 direct employees are provided employment.
Therefore, cancelling the said distribution licence is opposed to
public policy.
23.10 Learned senior counsel, Sri C.S. Vaidyanathan appearing for the
appellant in C.A. Nos. 41044107 of 2008 contended that the
said appellant was one of the consumers of electricity being
supplied by JSPL and on account of the cancellation of the
licence, the appellant had been adversely affected and therefore
the impugned judgment of Appellate Tribunal may be set aside
and the Order of the respondent No.1 may be given effect to.
The submissions of the learned counsel for respondent No.1 in
24.
Civil Appeal Nos.36073610 of 2008 are summarised as under:
24.1 The term ‘within the same area’ appearing in the Explanation to
Rule 3 of the 2005 Rules has to be read as being an area
comprising of a Municipal Council or a Municipal Corporation
as defined in Article 243(Q) of the Constitution of India or a
revenue district. The said Explanation provides for a minimum
30
area of supply for grant of a parallel/ second distribution
license. For a minimum area to be provided as a qualifying
condition for grant of distribution license, an interpretation that
the area should merely fall within a revenue district or the
municipal council, would negate the very provision of a
minimum area as a qualifying criterion. Thus, the concept of a
minimum area would be inherently inconsistent or
contradictory to the interpretation that the area needs to fall
within and not equivalent to the area comprised of a municipal
corporation or a revenue district.
24.2 A distribution licensee has a universal supply obligation under
Section 43 of the 2003 Act, i.e., to supply electricity to any
person requiring the same within the area of its operation. It
was submitted that Para 5.4.7 of the National Electricity Policy
makes clear the intention of Government of India on the
minimum area to be provided for grant of a second/parallel
distribution license. The purpose of prescription of minimum
area as comprising of a municipal corporation/council or a
revenue district is that there would be a mix of all categories of
consumers within the said area. Thus, the second distribution
licensee would also be under an obligation to supply electricity
to all consumers within such area, and not only to high paying
31
consumers. Hence, cherry picking of the consumers has to be
avoided and therefore the Government of India thought it fit to
prescribe a minimum area for which a second distribution
licence can be granted.
24.3 Thus, the minimum area condition specified in Explanation to
Rule 3 needs to be fulfilled for grant of the second distribution
license. The said distribution licence is neither coterminus with
the existence of the revenue district nor would the distribution
licence be amended, revoked or in any manner affected by
delimitation or consolidation of revenue districts. Any
subsequent change to the area on account of consolidation of
revenue district etc. would not affect the area for which the
distribution licence has been granted which is the area of
minimum supply.
24.4 That the cancellation of licence granted by the State
Commission was not proper in the instant case as the State
Commission, after considering the entire factual situation and
while making an exception, has already directed that JSPL
would be required to supply electricity to two villages, namely,
Tumdih and Punjipathra.
32
24.5 It was therefore contended that the Appellate Tribunal was not
right in setting aside the order of the Commission.
25. The submissions of the learned counsel for respondent No.2 in
Civil Appeal Nos.36073610 of 2008 are encapsulated as follows:
25.1 That the National Electricity Policy framed by the Government of
India, Ministry of Power, under Section 3 of the 2003 Act
stipulates that the area of supply under a distribution licence
has necessarily to be a minimum area comprising a revenue
district, a municipal council for a smaller urban area or a
municipal corporation for a larger urban area. By virtue of
Section 86(4) of the 2003 Act, the State Commission is
statutorily bound to be guided by the said National Electricity
Policy. Placing reliance on the judgment of this Court in Energy
Watchdog v. Central Electricity Regulatory Commission
, the learned counsel for
and Others (2017) 14 SCC 80
respondent No.2 submitted that in the context of Tariff Policy, a
tariff policy issued under Section 3 of the 2003 Act has the force
of law. Similarly, the aforesaid provision in National Electricity
Policy was statutorily embodied in the 2005 Rules.
33
25.2 Further, a combined reading of the above provisions of the
Electricity Act, 2003, the National Electricity Policy and 2005
Rules, the legal position that emerges is that the ‘minimum area
of supply’ for grant of a distribution licence has to comprise the
entire area of a municipal council or a municipal corporation or
a revenue district. No distribution licence can be granted for a
lesser area even though such lesser area forms a part of the
municipal council or a municipal corporation or a revenue
district.
25.3 The interpretation that it can be ‘any area’ which falls within a
municipal council or a municipal corporation or a revenue
district would defeat the very object sought to be achieved by
the legislature by providing for universal supply obligation of
the distribution licence to supply electricity in its area of supply
read with Explanation 3 of 2005 Rules. Such interpretation
would render the Explanation nugatory and redundant and it is
a settled principle of interpretation that redundancy cannot be
attributed to the legislature. Reliance in this regard was placed
on the judgment in the case of
Thampanoor Ravi v.
.
Charupara Ravi (1999) 8 SCC 74
34
25.4 The condition of minimum area of supply as mandated by sixth
proviso to Section 14 of the 2003 Act read with Explanation to
Rule 3(2) of the 2005 Rules is integral to ‘fair competition’ and
‘level playing field’. The same is necessary to fulfill the statutory
obligations of universal supply stipulated under Section 43 of
the 2003 Act. Further, in the regime of multiple licenses
introduced under the 2003 Act, insistence upon minimum area
of supply prevents any form of cherry picking of high end
consumers only in a selfchosen area of supply as in the present
case.
25.5 While relying on the judgment of this Court in
Peerless
General Finance & Investment Co. Ltd. v. Reserve Bank of
India (1992) 2 SCC 343 and Chief Forest Conservator
(Wildlife) & Ors. v. Nisar Khan (2003) 4 SCC 595 , it was
urged that the Explanation to Rule 3 of the 2005 Rules was
enacted so as to effectuate the working of the 2003 Act and is
therefore a part of the said Act. Thus, the requirement of
minimum area of supply for grant of distribution licence is an
integral part of the scheme of grant of distribution licence under
the 2003 Act read with 2005 Rules.
35
25.6 Therefore, in light of the aforesaid submission, JSPL was not
entitled to a licence under Section 14 of the 2003 Act as it does
not satisfy the condition of ‘minimum area of supply’.
25.7 The Commission, while granting license, vide order dated
29.09.2005 was wellaware that the appellant JSPL did not
satisfy the requirement of the ‘minimum area of supply’ as
specified in the Explanation to Rule 3 and was not in a position
to fulfill its statutory duty/universal obligation under Section 43
of the 2003 Act. Therefore, the Commission imposed a special
condition on the appellant by granting distribution licence to
JSPL for two villages namely Tumdih and Punjipathra of Tehsil
Gharghoda, District Raigarh and remaining area of these two
villages. Even the said special condition imposed does not
amount to compliance of the condition regarding ‘minimum area
of supply’ for grant of a second licence as mandated in the
Explanation to Rule 3(2).
25.8 The appellant was duty bound by the special condition in the
order granting distribution licence to provide supply of power to
consumers of the aforesaid two villages. However, the appellant
JSPL has been making huge profits by supplying electricity only
to twentyfive industries in the Jindal Industrial Park and has
36
completely failed to fulfill its obligation to supply power to two
villages namely Tumdih and Punjigraha of Tehsil Gharghoda,
District Raigarh.
25.9 Due to this gross and flagrant violation by the appellantJSPL of
the special condition imposed by the Commission, the
Distribution Company i.e., the Chhattisgarh State Power
Distribution Company Limited has been deprived of revenue to
the extent of Crores of rupees per month. Thus, keeping in view
the above, the licence granted needs to be quashed on this
ground too.
25.10 The appellant’s contention that the 2005 Rules were not in
existence at the time of filing of the application for distribution
licence by the appellantJSPL and that the grant of such licence
cannot be faulted with on the ground of violation of Rule, is
highly misconceived, since, it is a settled position of law that the
Authority is required to apply the Rules and legal provisions in
force on the date when the application is considered. Further,
the argument of the appellantJSPL that the Explanation is only
in the nature of a guideline is also devoid of any merit. In this
regard, the counsel for respondent No.2 placed reliance on the
following judgment passed by this Court in
Howrah Municipal
37
Corporation and Ors. v. Ganges Rope Co. Ltd. and Ors.
(2004) 1 SCC 663 , Union of India and Ors. v. Indian Charge
,
Chrome and Anr. (1999) 7 SCC 314 M/s. Hiralal Rattanlal
etc. etc. v. State of U.P. and Anr. etc. etc. (1973) 1 SCC 216
and Dattatraya Govind Mahajan v. State of Maharashtra
(1977) 2 SCC 548 .
25.11 Explanation to Rule 3 of the 2005 Rules cannot be said to have
no authority of law. The 2005 Rules have been enacted in
exercise of power under Section 176(1) and Section 176(2)(b) of
the 2003 Act. Further since the appellantJSPL has not even
challenged the vires of the 2005 Rules, the appellantJSPL is
estopped from raising the contention that Explanation to Rule 3
of the 2005 Rules has no authority of law.
25.12 The contention that the appellantJSPL acted bonafide in terms
of the concurrence/permission of the State Government as the
same are saved under Section 6 of the General Clauses Act,
1897 as also Section 185 of the 2003 Act is also misconceived
and untenable. The counsel for respondent No.2 urged that the
Appellate Tribunal in the impugned judgment rightly pointed
out that all the permissions given by the State Government and
other authorities were specifically made subject to and
38
conditional upon the licence being granted by the Commission
under the 2003 Act. It is, therefore, incorrect for the appellant
to rely on the permissions/concurrences given by the State
Government since the appellant does not satisfy the
requirement of minimum area of supply as mandated under
Explanation to Rule 3 of 2005 Rules.
25.13 The submission of the appellantJSPL that the sixth proviso to
Section 14 has been amended to narrow down the scope of
Rulemaking power is also misconceived. The substitution of the
word ‘relating to’ in place of the word ‘including’ does not
amount to restricting the scope of the rulemaking power. The
term ‘relating to’ is of wide amplitude and cannot be restrictive
in any manner.
25.14 Further, the submission of appellant that the grant of
distribution licence was in public interest is devoid of any merit
since the appellant has only been furthering its own interest.
25.15 To sum up, the counsel for respondent No.2 strenuously
contended that the ‘minimum area of supply’ as provided in the
Explanation to Rule 3 of 2005 Rules is a mandatory
requirement for grant of second or subsequent distribution
licence in the area of supply of an existing distribution license.
39
It was thus contended by respondent No.2 that the Tribunal
was correct in setting aside the order granting licence to the
appellant.
26. Having heard learned senior counsel and counsel for the
respective parties, it is noted that the appellants in both the appeals
are challenging the order dated 07.05.2008 whereby the Appellate
Tribunal allowed the appeals filed by the respondents herein and set
aside the order passed by the Commission dated 29.05.2005, thereby,
canceling the distribution licence granted in favour of the appellant
for supply of power by the appellant from its captive power plant to
the industrial units in Jindal Industrial Park.
27.
Before delving further upon the various issues in the present
matter, we shall analyse relevant provisions of the 2003 Act. The
2003 Act, came into force on 10.06.2003 insofar as Sections 1 to 120
and Sections 122 to 185 are concerned. The Preamble of the 2003 Act
states that it has been enacted 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, rationalization of
electricity tariff, ensuring transparent policies regarding subsidies,
promotion of efficient and environmentally benign policies,
40
constitution of Central Electricity Authority, Regulatory Commissions
and establishment of Appellate Tribunal and for matters connected
therewith or incidental thereto.
28. Section 2 of the 2003 Act is the definition clause and the
relevant definitions for the purposes of the present cases read as
under:
“ In this
Section 2. (Definitions):
Act, unless the context otherwise
requires,
x x x x x x x x x
(3) "area of supply” means the area
within which a distribution licensee is
authorised by his licence to supply
electricity;
4) "Appropriate Commission” means the
Central Regulatory Commission referred
to in subSection (1) of Section 76 or the
State Regulatory Commission referred
to in Section 82 or the Joint
Commission referred to in Section 83,
as the case may be;
xxxxxx
(38) “licence” means a licence granted
under Section 14;
(39) “licensee” means a person who has
been granted a licence under Section
14;
xxxxxxxx
(41) “local authority” means any Nagar
Panchayat, Municipal Council,
Municipal Corporation, Panchayat
constituted at the village, intermediate
41
and district levels, Body of Port
Commissioners or other authority
legally entitled to, or entrusted by the
Union or any State Government with,
the control or management of any area
or local fund;
xxxxxxxx
(64) "State Commission" means the
State Electricity Regulatory Commission
constituted under subSection (1) of
Section 82 and includes a Joint
Commission constituted under sub
Section (1) of Section 83;”
29. Part II of the 2003 Act deals with National Electricity Policy and
Plan. In compliance with section 3 of the 2003 Act, the Central
th
Government has notified the National Electricity Policy dated 12
February, 2005, the relevant portions of which are extracted as
under:
| “1.0 INTRODUCTION | |
|---|---|
| X.X.X. | |
| 1.5 Electricity industry is capitalintensive<br>having long gestation period. Resources of<br>power generation are unevenly dispersed<br>across the country. Electricity is a commodity<br>that can not be stored in the grid where<br>demand and supply have to be continuously<br>balanced. The widely distributed and rapidly<br>increasing demand requirements of the<br>country need to be met in an optimum<br>manner. |
42
| 1.6 Electricity Act, 2003 provides an enabling<br>framework for accelerated and more efficient<br>development of the power sector. The Act<br>seeks to encourage competition with<br>appropriate regulatory intervention.<br>Competition is expected to yield efficiency<br>gains and in turn result in availability of<br>quality supply of electricity to consumers at<br>competitive rates. | ||
| 1.7 Section 3 (1) of the Electricity Act 2003<br>requires the Central Government to formulate,<br>inter alia, the National Electricity Policy in<br>consultation with Central Electricity Authority<br>(CEA) and State Governments. The provision is<br>quoted below: | ||
| "The Central Government shall, from<br>time to time, prepare the National<br>Electricity Policy and tariff policy, in<br>consultation with the State<br>Governments and the Authority for<br>development of the power system<br>based on optimal utilization of<br>resources such as coal, natural gas,<br>nuclear substances or materials,<br>hydro and renewable sources of<br>energy". | ||
| Section 3 (3) of the Act enables the Central<br>Government to review or revise the National<br>Electricity Policy from time to time. | ||
| 1.8 The National Electricity Policy aims at<br>laying guidelines for accelerated development<br>of the power sector, providing supply of<br>electricity to all areas and protecting interests |
43
| of consumers and other stakeholders keeping<br>in view availability of energy resources,<br>technology available to exploit these resources,<br>economics of generation using different<br>resources, and energy security issues. | |
|---|---|
| X.X.X. | |
| 5.4 DISTRIBUTION | |
| X.X.X. | |
| 5.4.7 One of the key provisions of the Act on<br>competition in distribution is the concept of<br>multiple licensees in the same area of supply<br>through their independent distribution<br>systems. State Governments have full<br>flexibility in carving out distribution zones<br>while restructuring the Government utilities.<br>For grant of second and subsequent<br>distribution licence within the area of an<br>incumbent distribution licensee, a revenue<br>district, a Municipal Council for a smaller<br>urban area or a Municipal Corporation for a<br>larger urban area as defined in the Article<br>243(Q) of Constitution of India (74th<br>Amendment) may be considered as the<br>minimum area. The Government of India<br>would notify within three months, the<br>requirements for compliance by applicant for<br>second and subsequent distribution licence as<br>envisaged in Section 14 of the Act. With a view<br>to provide benefits of competition to all section<br>of consumers, the second and subsequent<br>licensee for distribution in the same area shall<br>have obligation to supply to all consumers in<br>accordance with provisions of section 43 of the<br>Electricity Act, 2003. The SERCs are required |
44
to regulate the tariff including connection
charges to be recovered by a distribution
licensee under the provisions of the Act. This
will ensure that second distribution licensee
does not resort to cherry picking by
demanding unreasonable connection charges
from consumers.”
30. Part III deals with generation of electricity. Part IV of the 2003
Act is of relevance to these cases as it concerns licensing. Section 12
states that no person shall (a) transmit electricity; or (b) distribute
electricity; or (c) undertake trading in electricity, unless he is
authorised to do so by a licence issued under Section 14, or is exempt
under Section 13. The power to exempt is prescribed in Section 13.
The grant of licence is as per Section 14 and the procedure for grant
of licence is dealt with in Section 15 while the conditions of licence
are in terms of Section 16. Section 18 of the said Act speaks of
Amendment of licence while Section 19 concerns revocation of
licence.
Section 14 of the 2003 Act which deals with grant of licence
31.
reads as under:
The Appropriate
14. Grant of licence
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
45
(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 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 subSection
(1) of Section 3 of the Damodar Valley
46
Corporation Act, 1948, (14 of 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 subSection (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, creditworthiness, 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
47
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 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.
32. On a reading of Section 14 of the 2003 Act, it is clear that 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.
33. The first three provisos to Section 14 of the 2003 Act are in the
nature of saving clauses. The fourth and fifth provisions are not
relevant to these cases. The sixth proviso which is under
consideration states 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 requirement
48
under the Act comply with the additional requirements relating to the
capital adequacy, creditworthiness, 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.
34. The Central Government had enunciated the 2005 Rules w.e.f.
23.03.2005 as per Section 176 of the 2003 Act. Rule 3 is relevant for
the purpose of these cases is extracted as under:
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 subSection
(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
subrule (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 the networth and generation of internal
resources of his business including of
promoters in the preceding three years
49
after excluding his other committed
investments.
Explanation—For the grant of a licence for
distribution of electricity within the same
area in terms of sixth proviso to Section 14
of the Act, the area falling within a
Municipal Council or a Municipal
Corporation as defined in the article 243(Q)
of the Constitution of India or a revenue
district shall be the minimum area of
supply.
35. The controversy in these cases surrounds the interpretation to
be given to the Explanation to Rule 3. As already noted, the 2005
Rules, under consideration have been prescribed having regard to the
sixth proviso to Section 14 of the Act. The said proviso would apply
only when the appropriate Commission considers it necessary to
grant a licence to two or more persons for distribution of electricity
through their own distribution system within the same area, in which
case, there are certain additional requirements which the applicant
must fulfil relating to capital adequacy, creditworthiness or code of
conduct. It is only with regard to the aforesaid three aspects that the
2005 Rules have been prescribed.
36. In response to the arguments of learned senior counsel for the
appellants, the contention of respondent No.2 herein is that the
appellantJSPL does not fulfil the condition mentioned in the
Explanation to Rule 3 inasmuch as the said appellant does not fulfil
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the condition of minimum area of supply as the area that the said
appellant is supplying, is not for an entire Municipal Council or a
Municipal Corporation or a Revenue District. The area of supply as
per the licence of the appellantJSPL is for the area comprised in the
industrial park set up by the appellant and for two other villages only.
Hence, the licence issued to the said appellant is vitiated as the area
of supply prescribed in the licence does not conform to the
Explanation to Rule 3 of the 2005 Rules.
37. In order to answer the aforesaid contention, it would be
necessary to consider the sixth proviso to Rule 14 in light of the
definition of ‘area of supply’ and the Explanation to Rule 3 of the
2005 Rules. On a conjoint reading of the same, it is noted that the
sixth proviso to Section 14 applies to a situation where 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 applicantJSPL complying with
the additional requirements. Therefore, it is clear that within the
same area, there could be two or more persons for distribution of
electricity. As to what is the area within which there could be grant of
licence to two or more persons is concerned under the sixth proviso to
Section 14, the Explanation to Rule 3 prescribes the area falling
within a Municipal Council or a Municipal Corporation as defined
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under Article 243 (Q) of the Constitution of India or Revenue District.
The area of supply authorised by the Appropriate Commission shall
be the minimum area of supply.
38. The ‘area of supply’ is defined under subsection 3 of Section 2
to mean that area within which the distribution licensee is authorised
by his licence to supply electricity. This ‘area of supply’ must fall
‘within’ a Municipal Council or a Municipal Corporation as defined
under Article 243 (Q) of the Constitution of India or a Revenue
District. That means that the ‘area of supply’ must fall ‘within’ the
local authority of a Municipal Council or a Municipal Corporation as
defined in subsection 41 of Section 2 of the Act or a Revenue
District, as the case may be, and within which area of supply, licence
is granted for distribution of electricity. Therefore, the expression area
in the sixth proviso of Section 14 is explained as the ‘area falling
within’ a Municipal Council or a Municipal Corporation as defined
under Article 243 (Q) of the Constitution of India or a Revenue
District which shall be the ‘area of supply’. As already noted, within
such area, there could be two or more persons who are granted a
licence to distribute electricity which is in terms of the provision
granting license. The ‘area within which they are authorised to supply
electricity’ is the ‘area of supply’ and such ‘area of supply’ in respect
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of which authorisation is granted under the licence is the “minimum
area of supply”.
Therefore, when two or more persons are granted licence within
39.
an area forming a Municipal Council or a Municipal Corporation or a
Revenue District, the authorisation to supply electricity granted to a
distribution licensee within the aforesaid area is the actual area of
supply and the actual area of supply in respect of which the
authorisation is granted under the licence is called the minimum area
of supply.
40. Thus, on a conjoint reading of the aforesaid provisions, it is
clear that the ‘minimum area of supply” would fall ‘within the area’
which is comprising of a Municipal Council or a Municipal
Corporation or a Revenue District but it does not imply that the
licence to supply electricity for an area or an ‘area of supply which is
the ‘minimum area of supply’ must extend to the ‘entire area falling
within’ a Municipal Council or a Municipal Corporation or a Revenue
District.
41. But if the interpretation as suggested by the respondent No.2 is
to be accepted, then the expression ‘area falling within’ in the
Explanation would become otiose or redundant. The object of
providing a Municipal Council or a Municipal Corporation or a
Revenue District as an area is to provide a standard area, within
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which area, two or more persons could distribute electricity. It does
not mean that the licensee must distribute electricity in the entire
standard area. The words used are ‘the area falling within’ a
Municipal Council or a Municipal Corporation or a Revenue District.
The same does not mean that the area comprising of or an area
equivalent to a Municipal Council or a Municipal Corporation or a
Revenue District. It is only in an ‘area falling within’ a Municipal
Council or a Municipal Corporation or a Revenue District that two or
more persons could be granted licence for distribution of electricity
which interpretation is supported by the use of the expressions
‘within the same area’ used twice in the sixth proviso to Section 14 of
the 2003 Act. Also, the use of the expression ‘within the same area’ in
the sixth proviso as well as in the Explanation to Rule 3 have to carry
the same meaning.
42. Moreover, the expression ‘within the same area’ in the sixth
proviso to Section 14 of the 2003 Act and the Explanation is
analogous to the expression ‘the area falling within’ a Municipal
Council or a Municipal Corporation or a Revenue District in the
Explanation. Thus, the expression ‘within the same area’ cannot refer
to the entire Municipal Council or a Municipal Corporation or a
Revenue District but ‘the area falling within’ a Municipal Council or a
Municipal Corporation or a Revenue District in respect of which a
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distribution licensee is authorised by its licence to supply electricity.
Therefore, by the aforesaid interpretation it is held that the
authorised ‘area of supply’ shall be ‘the minimum area of supply’.
43. Hence, the contention of respondent No.2 that the ‘minimum
area of supply’ must comprise of the ‘entire’ Municipal Council or a
Municipal Corporation or a Revenue District is not correct. The
argument in the instant case is that the appellantJSPL, not
complying with the prescription in Explanation to Rule 3 of the 2005
Rules as per the terms of the licence cannot be permitted to supply
electricity and therefore, the licence was rightly cancelled by the
Appellate Tribunal also cannot be accepted.
44. On the other hand, on a reading of the licence granted to the
appellant, it is clear that the respondent No.1 was conscious of the
fact that it was granting licence to the appellantJSPL having regard
to the fact that the said appellant had established an industrial park
for which it had the responsibility for distribution of electricity and in
addition, two more villages were added to the area comprised in the
industrial park for the purpose of distribution of electricity. The area
in respect of which the licence was granted and thereby authorisation
provided to supply electricity is the minimum area of supply. The
‘area of supply’ is ‘an area falling within ’ a Municipal Council or a
Municipal Corporation or a Revenue District and in the instant case,
55
it is a Revenue District. Since, the ‘area of supply’ authorised in the
licence granted to the appellantJSPL in the instant case is the
‘minimum area of supply’, the said appellant is bound to supply
electricity in the said area of supply. The licensee cannot resile from
the condition of supplying electricity as per the authorisation of the
area of supply indicated in the license. This would also mean that the
licensee cannot supply electricity in an area beyond the area of
supply authorised under the license. This is because in respect of an
area falling within a Municipal Council or a Municipal Corporation
or a Revenue District, there could be two or more persons who could
be granted licence and authorisation to distribute electricity in terms
of the respective area of supply specified.
45. In view of the aforesaid interpretation, we find no substance in
the contentions advanced on behalf of the respondent No.2. On the
other hand, on a reading of the order passed by the respondent No.1
Commission in C.A. Nos. 36073610 of 2008, we find that there has
been an application of mind to the licence that was granted to the
appellant for distribution of the electricity.
In view of the aforesaid discussion, we find that the Appellate
46.
Tribunal was not right in cancelling/setting aside the licence granted
to the appellantJSPL and hence, the impugned judgment is liable to
be set aside.
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47. In the result, the appeals are allowed and the impugned
common judgment of the Appellate Tribunal is hereby set aside.
Consequently, pending applications stand disposed by reserving
48.
liberty to the applicants seeking impleadment to seek remedies in
accordance with law, if so advised.
49. Parties to bear their respective costs.
..………….……………J.
(AJAY RASTOGI)
..………….……………J.
(B.V. NAGARATHNA)
NEW DELHI;
th
29 September, 2022.
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