Torrent Power Limited vs. U.P. Electricity Regulatory Commission

2025 INSC 838
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 23514 OF 2017



TORRENT POWER LIMITED ….APPELLANT

VERSUS

U.P. ELECTRICITY REGULATORY
COMMISSION & ORS. .... RESPONDENTS




J U D G M E N T






Signature Not Verified
Digitally signed by
CHANDRESH
Date: 2025.07.14
18:51:40 IST
Reason:



J.B. PARDIWALA, J.
For the convenience of exposition, this judgment is divided into the
following parts:
INDEX
A. FACTUAL MATRIX ...................................................................... 2
(i) Order passed by the UPERC .................................................. 7
(ii) Impugned Order passed by the APTEL .................................. 9
(iii) Report of the Expert Committee ........................................ 16
B. SUBMISSIONS ON BEHALF OF THE APPELLANT ....................... 27
C. SUBMISSIONS ON BEHALF OF THE RESPONDENT NO.4 ........... 29
D. ANALYSIS ................................................................................ 32
(i) Relevant provisions of the Act, 2003 .................................. 32
(ii) Whether the Electricity Regulatory Commission has the
jurisdiction to consider matters in public interest? ............ 49
(iii) Whether the petition filed by the respondent no. 4 under
Section 128 of the Act, 2003 was maintainable in law? ...... 63
(iv) Whether the ERCs have the jurisdiction to review the
functioning of a distribution licensee to supply electricity
through a franchisee? ........................................................ 79
E. CONCLUSION ........................................................................... 87






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1. This statutory appeal filed under Section 125 of the Electricity Act,
2003 arises from the judgment and order passed by the Appellate
Tribunal for Electricity, New Delhi (“ APTEL ”) dated 28.07.2016 in
Appeal No. 188 of 2015. The appeal filed by the appellant herein,
under Section 111 of the Electricity Act, 2003 (for short, the “ Act,
2003 ”) came to be dismissed by the APTEL, thereby affirming the
order dated 16.07.2015 passed by the Uttar Pradesh Electricity
Regulatory Commission (“ UPERC ”).

A. FACTUAL MATRIX

2. The facts giving rise to this appeal may be summarized as under:

i. The respondent no. 4 had preferred Petition No. 816 of 2012
dated 25.07.2012 before the UPERC, questioning the legality,
validity and propriety of the Distribution Franchisee Agreement
dated 18.05.2009 and Supplementary Agreement dated
17.03.2010 respectively (together referred to as the “ DFA ”)
entered and executed between the appellant (distribution
franchisee) and the respondent no. 3 (distribution licensee).
The respondent no. 4 prayed for investigation of the conduct of
respondent nos. 2 and 3 respectively in appointing the
appellant herein as a franchisee for distribution of electricity in
the urban area of Agra without purportedly seeking prior
approval of the UPERC for transfer of its utility to the appellant,
which is violative of Section 17 of the Act, 2003.

ii. The appellant herein had filed the preliminary objections in the
said petition inter alia raising the grounds of jurisdiction and
maintainability of the petition, before the UPERC. The said
preliminary objections of the appellant were disposed of by the
UPERC vide its order dated 16.07.2015 on the grounds of
public interest.


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iii. The appellant herein preferred an appeal bearing no. 188 of
2015 under Section 111 of the Act, 2003 before the APTEL
assailing the order dated 16.07.2015 referred to above on inter
alia twin grounds that first, the Electricity Regulatory
Commissions (“ ERCs ”) lack the jurisdiction under the Act,
2003 to consider issues in public interest as well as contractual
matters concerning the appointment of a distribution
franchisee and secondly, the grievance of an individual person
who is not even a consumer is not maintainable before the ERC
under the provisions of the Act, 2003.


3. The following list of dates and events would make the picture more
clear:-

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(i) Order passed by the UPERC

4. The UPERC vide the order dated 16.07.2015 held that the petition
was maintainable on the grounds of public interest and the ERCs were
empowered to look into the DFA to assess the benefits of such
franchisee for the DISCOMs as well as for the general public. In
furtherance of this finding, the UPERC ordered for the formation of an
Expert Committee to give its finding on the aspects of the yearly
reduction in loss levels by the appellant as well as the improvement
in collection efficiency with information as to how such benefits have
been passed on to the consumers.

5. Some of the observations made by the UPERC are reproduced herein
below:
“v. In view of above provisions, it is established that at the
time, of signing the Agreement, DVVNL was a deemed
licensee and they were authorized to sign such agreement
with its franchisee TPL for the urban area of Agra. The
provision of section 5 of the Act does not restrain DVVNL
from entering into franchisee agreement in urban area with
TPL as it only facilitates franchisee in rural area. It does not
bar franchisee in urban areas which has been facilitated in
section 2 (27) and seventh proviso of section 14 of the Act.
DWNL was further granted license on 21.1.2010 by this
Commission.
vi. As far as the issue of transfer of inventory by DVVNL to
the Franchisee, without approval of the Commission as per
section 17 pf the Electricity Act, 2003, is concerned it is
sufficiently evident from the above provisions that the
franchisee agreement does not fall under the purview of
section 17.
vii. The issue of lack of jurisdictional and maintainability of
this petition has been raised by DWNL and TPL. Although
the submissions made in this reference are primarily based


CIVIL APPEAL NO. 23514 OF 2017 Page 7 of 88



on certain 'v, pending PILs before the Hon’ble High Court,
Allahabad but in view of Hon’ble APTEL's specific directions
to pass the consequential orders and also as there is no stay
order from any superior Court, the Commission concluded
that the petition is maintainable and therefore, decided to
proceed with the matter. The Commission's jurisdiction is
further reinforced in a similar case by the Hon’ble High
Court Bombay order dated 12.2.2008 [2008 (110) Bom L R
598] through which the MERC was given mandate to judge
the facts and figures, discounting factor and stipulations
etc., taken in ' the agreement.
9. Issue of investigation of conduct: The franchisee has been
allowed under the provisions of the Act with the primary
object of facilitating reduction of Distribution losses and
improvement in Collection efficiency. There is no doubt that
the concept of franchisee has been promoted in the Act to
ensure better quality of supply and services to the
consumer. The Agreement must have been entered into with
these motives only. As now about five years have passed,
which is a substantial period to show the improvements in
efficiencies, the question would arise as to whether the
objectives have been met and whether the trend of
improvements are visible.
As the Commission has already concluded that the petition
was maintainable and well within its jurisdiction, it
becomes incumbent upon the Commission to further assess
the benefits of such franchisee for the Discoms as also for
general public. With this view, for preliminary examination,
vide order dated 12.5.2014 reply and data on certain points
were sought from DVVNL and TPL. DVVNL has not made
submissions on this stating that they do not want to make
any additional submission. UPPCL has seconded this.
Although TPL has made submissions but insufficient. As the
matter has already prolonged for more than two years and
about five years have lapsed since the agreement has
become effective, the Commission decides to form a


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Committee with the specific purpose to ascertain the
answers to the following questions:
i. What has been the yearly reduction in loss levels since
2009-10 to till date?
ii. What has been improvement in the collection efficiency
from 2009-10 level?
iii. How much arrears have been recovered from the due
amount of 2009-10?
iv. Have the benefits of such improvements, if any, have
been passed on to the consumer and if yes, how?
Apart from above specific questions the Committee would
also examine the year wise technical and commercial
performance of TPL The Committee would be at liberty to,
investigate and examine any sort of data and accounts so
as to assess the performance of TPL. The work shall be
completed within two months of this order.
10. The Committee shall consists of (1) Sri Arun, Retired
Ombudsman and Director, UPPCL
(2) Sri Sandeep Das, Chartered Accountant, Park Road,
Lucknow.”

(ii) Impugned Order passed by the APTEL
6. The APTEL took a diverging opinion on the aspect of maintainability
and held that the Act, 2003 does not have any provision for
entertaining of a public interest litigation by the ERCs. However, the
APTEL was of the view that the case on hand was not a public interest
litigation at all and concluded that the petition before the UPERC was
maintainable. It was observed that the ERCs are empowered to
exercise regulatory oversight on distribution licensees. Since the
franchisees undertake distribution of electricity on behalf of the


CIVIL APPEAL NO. 23514 OF 2017 Page 9 of 88



distribution licensee then the impact of the activities of the
franchisees can be considered by the UPERC.

7. Some of the observations made by the Appellate Tribunal are
reproduced herein below:
“11.12) We are fully conscious of the fact that this Appellate
Tribunal does not have any power to entertain any public
interest litigation under the Electricity Act, 2003 because
there is no provision in the said Act to empower this
Appellate Tribunal to hear and decide the public interest
litigation. The matter in hand before us is, not really a public
interest litigation. The only purpose of the present Petition
before the State Commission is whether by giving franchisee
to Torrent Power Ltd. by a distribution licensee, namely
Respondent No.3, DVVNL, some benefit has accrued to the
consumers in general or not. What is to be seen is whether
as a result of franchisee given to Torrent Power Ltd. the
consumers of the area would be benefited or not? If all the
liability, responsibility of the "franchisee still remain with
the distribution licensee, then its- impact is also to be
considered by the State Commission.
11.13) We are unable to accept this contention of the
appellant that this Appellate Tribunal in judgment dated
th
28 November, 2013 in Appeal No.239 of 2012 and batch
did not remand the matter to the State Commission, hence
the Impugned Order is manifestly erroneous and illegal. We
have already cited the relevant part of the judgment dated
th
28 November, 2013, in paragraph 74, thereof this
Appellate Tribunal clearly held that since any money excess
paid or recovered from Rosa Power will necessarily be a
pass through in tariff it becomes a tariff issue. It means that
the learned State Commission is bound to decide the said
issue in the light of the observations made by this Appellate
Tribunal in the said judgment as the same issue becomes a
tariff issue, the effect on the consumers of the State,
particularly within the area of Respondent No.3, DWNL.


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Thus the whole impact of the franchisee and its
consequences, are to be considered to determine the tariff
in the light as observed by this Appellate Tribunal.
11.14) The Petition No.816 of 2012 (Impugned Petition) was
filed before the State Commission under Section 128 and
129 of the Electricity Act, 2003, read with Section 26 and
27 of the UP Electricity Reforms Act, 1999, praying, inter
alia, for the following reliefs:
“29 That in view of the aforesaid facts and circumstances,
it is expedient in the interest of justice that this Hon’ble
Commission may graciously be pleased to investigate the
conduct of the Respondent No.1 and 2 for acting in sheer
disregard and gross violation of the statutory mandatory^
provisions of the Act, 2003 and declare that the utility of the
Licensee has been transferred in favour of the Respondent
No.3 without prior permission of the State Commission as
mandated by Section 17 of the Act, 2003 and further that
the Respondent No.1 and 2 acted in breach of the License,
2000 and annul the License No.3 of 2010 dated 21.01.2010
of the Respondent No.2 in respect of Urban Area of Agra and
also agreement dated 18.05.2009 and supplementary
agreement dated 17.3.2010”.
11.15) The learned State Commission while passing the
Impugned Order appears to have thought, on the formation
of Committee, which should ascertain the loss level since
2009-10 till date, to ascertain the improvement in the
collection efficiency, from 2009-10 level and to see the
improvement, if any, have been passed on to consumers in
its right perspective and correctness.
11.16) We find that the franchisee system is allowed under
the Electricity Act, 2003 with the primary objective of
facilitating reduction of distribution loss and improvement
in. collection efficiency. Further the concept of franchisee
has been permitted in the Electricity Act, 2003 .to ensure
better quality of supply and services to the consumers.


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Apparently, the agreement between the appellant. Torrent
Power Ltd., franchisee and Respondent No.3, a distribution
licensee had been entered with the said motives and
purposes. Since five years had already elapsed since the
agreement and to enable the franchisee to show the
improvements the State Commission appear to be on the
right path to ascertain whether the said objectives as
provided under the Electricity Act, 2003 have been met or
accomplished and further whether the trends of
improvements are visible.
11.17) The learned State Commission vide order dated
12.05.2014, i.e. more than one year before passing of the
Impugned Order sought reply and data from Respondent
No.3, DVVNL and the appellant in that regard which they
did not give. Since the said data and information as sought
by the State Commission's order dated 12.05.2014 were not
given, the State Commission has to pass the Impugned
Order and decide to form the aforesaid Committee for the
aforesaid purposes.
11.18) On careful consideration, we are unable to accept
this contention of Mr. Pradeep Misra, learned counsel for the
Respondent, UPPCL that the petitioner Mr. Rama Shapkar
Awasthi has no locus standi to maintain the petition
because the consumers, most of the time, remain
unrepresented when such kind of decisions are taken and
only a few consumers come forward to actively participate
in such kind of proceedings. The present matter cannot be
said to be a public interest litigation by any stretch of
imagination.
11.19) Section 61 dealing with Tariff Regulations and
Section 62 dealing with determination of tariff, of Electricity
Act, 2003 clearly specify the Terms and Conditions for
determination of tariff with certain guidelines like the
factors which would encourage competition, efficiency,
economic use of the resources, good performance and
optimum investments and further safeguarding of


CIVIL APPEAL NO. 23514 OF 2017 Page 12 of 88



consumers interest and at the same time recovery of cost of
electricity in a reasonable manner and the principles
regarding efficiency in performance. National Electricity
Policy and Tariff Policy. A proviso to Section 62 of the.
Electricity Act 2003 states that in case of distribution of
electricity in the same area by two or more distribution
licensees, the appropriate Commission may, for promoting
competition among distribution licensees, fix only maximum
ceiling of tariff for retail sale of electricity. Sub-section 2
further provides that the appropriate Commission may
require a licensee or a generating company to furnish
separate details, as may be specified in respect of
generation, transmission and distribution for determination
of tariff. Sub-section 6 to Section 62 of the Act says that if
any licensee or a generating company recovers a price or
charge exceeding the tariff determination under this Section,
the excess amount shall be recoverable by the person who
has paid such price or charge along with interest equivalent
to the Bank rate without prejudice to any other liability
incurred by the licensee. From the perusal of the provisions
of the Electricity Act, 2003, it is evidently clear that the tariff
for a distribution licensee for its area of supply shall be
determined by the respective State Commissions as per
Terms and Conditions of the Act and relevant Tariff
Regulations in compliance with the National Electricity
Policy and Tariff Policy.
11.20) We have been informed during the arguments in this
matter that in the State of Uttar Pradesh, Respondent No.2,
UPPCL, procures bulk power from various sources and then
supply it to the distribution licensees namely, Purvanchal
Vidyut Vitran Nigam Ltd., Paschimanchal Vidyut Vitran
Nigam Ltd., Madhyanchal Vidyut Vitran Nigam Ltd. and
Dakshinanchal Vidyut Vitran Nigam Ltd. which are the
Government Discoms besides a private Discom namely
Noida Power. All the PPAs or agreements are executed
between UPPCL and the relevant utility without any active
role of the distribution licensee of Uttar Pradesh. A uniform


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tariff for the respective category of consumers is fixed for the
whole State of Uttar Pradesh viz. for each of the Government
Discoms. It means that the tariff shall remain the same for
the whole State for each Discom, irrespective of the
performance level of that Discom and its collection
efficiency. Thus the consumers category-wise are charged
the tariff at the same level. In other words, we can elucidate
that the performance of the Discom of a particular area is
never taken into account and all are to be treated alike.
-xxx-
11.23) This Appellate Tribunal in a separate batch of
appeals, being Appeal No. 15 of 2008 & others, vide
judgment dated 09.10.2009, while dealing with the
determination of tariff for each distribution licensee, also
observed and noted as under:
"Analysis and decision
27. The determination of tariff for each distribution licensee
is based on the cost- and expenses, power availability for
the particular distribution licensee, consumer base and
consumer mix of the distribution licensee, their efficiency of
operations, distribution losses etc. etc. In order to encourage
efficient operation, it is only necessary that the different
licensees have competition amongst themselves to carry out
their operations in more efficient manner. In view of this,
this Tribunal held that the Commission may determine
differential tariff, according to the geographical location of
the, consumers, different distribution licensees could have
differential tariffs for their respective area of operations. The
letter dated September 26, 2007 from the Government of
Karnataka to Secretary, KERC relied upon by the appellant
ends with the following para.
"In this connection, i am directed to reiterate that the
Government is not in favour of differential tariffs at this
stage. This may be brought to the notice of the Commission"


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28. We are inclined to agree with the contention of the
Commission that the aforesaid letter dated September 26,
2007 relied upon by the appellant is not any policy direction
in terms of Section 108 which has not even been quoted in
the letter. This is only an innocuous suggestion. In this view
of the matter, the appeal is not allowed and we uphold the
decision of the Commission.”
11.24) Thus this Appellate Tribunal has reiterated the view
that there should be separate determination of tariff for each
distribution licensee in the State. Uniform or common retail
tariff for the several distribution licensees is not proper and
is wrong.
12) In view of the above discussion, we find and observe
that the learned State Commission is fully competent and
has jurisdiction to entertain the Petition, being Petition
No.816 of 2012, because the pleadings and reliefs sought
therein do not fall under the category of Public Interest
Litigation. Further the grievances mentioned in the said
Petition can legally be raised before a State Commission. In
this view of the matter, we do not find any illegality or
infirmity in the Impugned. Order and both these issues are
decided against the appellant. The appeal is liable to be
dismissed.

ORDER
The Instant Appeal, being Appeal No. 188 of 2015, is
hereby dismissed and the Impugned Order is hereby
affirmed. In the facts and circumstances of the matter no
cost is being imposed. The Interim Order or any other Order,
passed by this Appellate Tribunal, in this instant Appeal are
hereby discharged.
th
Pronounced in the open court on this 28 day of July,
2016.”
(Emphasis supplied)


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(iii) Report of the Expert Committee
8. The Expert Committee constituted in compliance with the order of the
UPERC dated 16.07.2015, gave its report on 09.01.2017. As regards
the question of how the activities of the appellant were beneficial to
the consumers, the Expert Committee gave the finding that though
the consumers were not happy with the appellant’s services in respect
of providing new connections, yet the supply of electricity and
customer service of the appellant were appreciated by the consumers.
The Expert Committee, however, also pointed out that the financial
benefits of appointing the appellant as the distribution franchisee
could not be reaped by the retail consumers due to slow rate of
reduction of distribution losses and slow growth of collection
efficiency. Nevertheless, the consumers informed the Expert
Committee about the satisfactory performance of the appellant in
reducing the duration of power failure which has resukted in better
supply of power to the consumers.

9. The findings of the Expert Committee are reproduced below:

“Findings:
As per provision of DFA, AT & C losses should be 15 % by
the end of FY 2016-17. This seems to be not achievable on
the present parameters. TPL should take more effective
steps to reduce the losses. TPL should also identify the high
loss level area by segregating it to 33/11 KV Substation
level and further to 11 KV feeder level. These steps will help
in yielding better results.
As per DFA Para 5.8.2 "If the Distribution Franchisee fails
to achieve 15% AT&C loss level based on year end ATC
Losses actually achieved at the end of 7 years from the
effective date then without prejudice to the other actions
which DVVNL can initiate against the Distribution
Franchisee under this Agreement, a penalty equivalent to


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lost due to non achievement of the target shall be
recoverable by DWNL from the distribution franchisee".
As per DFA Para 5.8.3 “The penalty amount shall be
computed similarly at the end or each year till the overall
year end ATC Loss Level of 15% is achieved by the
distribution franchisee”.
As per DFA Para 5.8.4 “The Distribution Franchisee shall be
liable to pay the penalty amount within 30 days of the claim
made by DWNL failing which the same shall be adjusted
against the performance guarantee submitted by the
Distribution Franchisee in terms of Article 11.”
2. What has been improvement in the collection efficiency
from 2009-10 level:-
Collection Efficiency means the ratio of revenue actually
realized from the consumes (including subsidy amount if
any) and energy amount billed as per methodology.
Collection Efficiency=Revenue Realised from Consumers
(Rs) x100
Energy Billed to Consumers(R8)

Revenue billed and realized from consumers as reported by
M/s Torrent Power Ltd. (TPL) is as below.

As per para 4.5 of the annual report of F.Y. 2010-11 of
Franchisee Audit of Agra Urban Area under the control of
TPL conducted by M/s, KPMG, validated collection


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efficiency for the base year FY 2008-09 has been 75.31%.
Thus M/s Torrent Power Ltd has shown regular
improvement in the collection efficiency as shown above i.e.
from 79.50 in the FY 2010-11 to 98.82 in FY 2015-16.
There has been slight dip in the collection efficiency from
99.94 in F.Y. 2014-15 to 98.82 in FY 2015-16. According to
the DFA signed between DVVNL & TPL there is no
benchmark defined to be achieved by TPL. As such the
action taken by TPL towards the improvement in collection
efficiency seems proper.
However, it is to be noted here that collection reported
yearwise by TPL includes non - revenue items i.e. meter
damage charges, fuse charges, other SLC recoveries and
other miscellaneous revenue also. Thus, actual revenue
realized toward energy bills must be lower than the
reported collection figures. This means that the collection
efficiency mentioned in the table above shall be lower to
some extent.
TPL has explained that the separation of nonrevenue item
realization is extremely difficult activity. It is therefore
necessary that realization of non – revenue items should be
kept separately in books of accounts so that Actual
Collection efficiency of TPL could be worked out.
Findings:-
Since there has be no Benchmark Collection Efficiency
figure to be achieved in DFA and TPL has regularly
improved the Collection Efficiency figure and has reached
98.82 % in FY 2015-16, the performance towards this
parameter is being achieved by TPL. However, it is
recommended that TPL should maintain the collection of
non-revenue items separately in their books of account so
that actual collection efficiency may be worked out and
monitored in future reports.


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3. How much arrears have been recovered from the due
amount of 2009- 10:
As per para 8.4, 8.5 and 8.8 of DFA, M/s Torrent Power Ltd
has to recover the arrear of revenue pertaining to DVVN of
pre take over period.
"8.4 - Distribution Franchisee shall be liable to collect the
arrears from current live consumers accrued in last month
prior to effective date on account of charges for usage of
electricity. These arrears shall be collected and remitted to
DVVNL by Distribution Franchisee(DF). The DF shall collect
and remit the amount at least equivalent to the prevailing
collection efficiency taking into account the collection
efficiency in the corresponding month of last year including
the amount already recovered."
"8.5 - Distribution Franchisee shall make best endeavor to
collect arrears other than those specified in 8.4 from current
live consumers."
"8.8 - Distribution Franchisee shall make best endeavor to
collect arrears accrued prior to effective date from PD
consumers." As per DFA signed between DVVNL & TPL
revenue of pretakeover period is to be realized by TPL and
remitted to DVVNL.
As per report submitted by TPL on dt 19.10.2016, the
position is as below.
DVVNL Arrears Recovery: Rs. Cr

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The statement submitted by TPL does not mention the actual
arrear opening balance as on 01.04.2010 and actual arrear
of closing 31.03.2016. TPL has only mentioned the recovery
position of DVVNL arrears. This does not fulfill the
requirement of review for recovery of DVVNL arrears. During
site visit on dt 01.12.2016 by Expert Committee, the
statement regarding arrears were put up by M/s Torrent
Power Ltd (TPL) and is as below.
Opening (Uploaded Data) August 2010: Rs in Crores

Balance as on 31.10.2016

According to the statement submitted by TPL total DVVNL
arrear pending for realization in Aug. 2010 is Rs. 1692.00


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Cr. This arrear has increased to 2173.88 eras on
31.10.2016. TPL has explained that increase in arrears is
dye to levy of late payment surcharge on the outstanding
amount of arrears. Thus the recovery of DVVNL arrears can
be split into following.
i. What is the actual opening balance of recovery of DVVNL
arrears as on 01,04.2010.
ii. What efforts have been made for the recovery of DVVNL
arrears.
iii. How much arrears have been recovered & remitted to
DWNL from F.Y. 2010-11 to 2015-16.
Actual opening balance of DVVNL arrears as on 01.04.2010.
M/s Torrent Power Ltd. has intimated that DVVNL has not
given the opening balance as on 01.04.2010. DVVNL has
intimated in August 2010 the arrears to be recovered as
below:

Thus according to TPL, they have received the details of
Rs.1692.00 Cr. As DVVNL arrears in August 2010.
Infrastructure Advisory Report of CRISIL for the month of
September 2016 has been provided by UPPCL. According to
this report Para 1.2 (v) reads as below.
1.2(V) Arrears : The opening status of the arrears in the Agra
city was Rs.1845.0 Crores, which has now increased to
Rs.2160.99 crores permanently disconnected consumers) in
the month of August 2016. With respect to the above
quantum of arrears in the region, TPL has been able to remit


CIVIL APPEAL NO. 23514 OF 2017 Page 21 of 88



only 37.39 Cr. of arrears to DVVNL till August 2016. There
has been reduction in total principal amount on the account
of corrections and collective efforts both from TPL & DVVNL."
However Annual Audit report submitted by M/s KPMG for
the F.Y. 2010-11, para 4.7 speaks as below.
"We have noticed In our endeavor to review the opening level
of arrear that the "opening level of arrear has not been
frozen till date and a final data Is not available for audit."
Again Annual Audit report for the F.Y. 2014-15 by KPMG
regarding opening level of arrears mentions as below:
We have noticed in our endeavor to review the opening level
of arrear that the "opening level of arrear has not been
frozen till date and a final data is not available for audit."
From the above it is dear that TPL, CRISIL and KPMG have
different views & figures regarding actual arrears opening
balance as on 01.04.2010 to be recovered & remitted to
DVVNL. The position is alarming arid it is to be finalisedS
final figures is to be worked out and needs to be audited
and accounted for.
(ii) What efforts has been made for recovery of DVVNL
arrears:
From the report putup by TPL on dL 01.12.2016 as
mentioned above in the table it is reported that opening
(uploaded data) in August 2010 DVVNL arrears to be
recovered by TPL is Rs.1165.85 Crores (Prindpal amount).
This principal amount of arrears has come down to
Rs.1066.21 crores. This means that in more than 06 years
of operations, TPL has only recovered (Rs.1165.85 -
Rs.1066.21) Rs.99.64 Crores i.e. less than 10% of opening
arrears. This figure does not include late payment
surcharge. This reflects that TPL is not interested in
recovering DVVNL arrears.
It has treen observed that module for payment of bill of M/s.
Torrent Power Ltd has the following provisions.


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(i) Any payment made by consumer shall first go to arrears
outstanding towards TPL.
(ii) Balance payment shall go to current bill of the consumer.
(iii) Any extra payment done by consumer if any shall go to
DVVNL arrears. Due to this reason TPL is recovering ail its
arrears & its current bills and almost no. payment is done
by the consumer against DWNL arrears. This matter has
been examined in details and found that DVVNL arrears are
increasing as TPL is recovering all its current bills & arrears.
Ten sample bills of consumers have been examined & found
as below (Annexure 9):

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Further from the above table it Is clear that no effort is being
made to recover DVVNL arrears by TPL.
(iii) How much arrears has been recovered and remitted to
DVVNL from F.Y. 2010-11 to F.Y. 2015-16.
M/s Torrent Power Ltd. (TPL) has submitted on dt.
1.12.2016 that principal amount of DWNL arrears in August
2010 was 1165.85 Cr. This has been reduced to
Rs.1066.21 Cr. as on 31.10.2016. Thus a reduction of
Rs.99.64 Cr. has been done. Against this reduction
Rs.22.21 Cr. has been shown as received by TPL as per
annexure Point 3 of report submitted by TPL on dt.
19.10.2016. Difference of Rs.99.64 and 22.21 Cr. has not
been explained by TPL in this report. These figures need
verification by the competent authorities.

Finding:
(a) Opening amount of DWNL arrears as on 01.04.2010 is
required to be finalised immediately and audited by
competent auditors.
(b)Neither the opening balance of DVVNL arrears are
finalised nor any effort is being made to recover these arrear
by M/s. TPL.
(c) TFL should make more effort to recover DVVNL arrears
by disconnecting live consumers and other possible means
of recovery against PD consumers in consultation with
DVVNL so that arrears be liquidated by the end of F.Y.
2016-17.
(d) Recovery made by TPL towards DWNL arrears should be
verified and remitted to DVVNL account. Any adjustment
done in the arrears be properly verified so that balance of
arrears & payment made to DVVNL must match the figures
of outstanding arrears.


CIVIL APPEAL NO. 23514 OF 2017 Page 24 of 88



4. Have the benefits of such improvements, if any, been
passed on to the Consumers.
M/s Torrent Power Ltd, (TPL) has putup the details of
benefits passed onto consumers on dt. 19.10.2016 which
are annexed with the report. Pointwise comments are as
below:
Para-1. It was reported that higher input rates were quoted
by TPL which has led to reduction in ARR and resulting into
lower tariff to retail consumer. Since retail tariff rate are
same all over U.P. as such it could not be said that TPL has
contributed to reduction in retail tariff/rate.
Para-2. Reduction in distribution losses has reduced power
requirement of the city resulting into saving cost of
purchasing costly power. This point is also not correct as the
power purchase by TPL is being made from DVVNL and on
the fixed rate as provided in DFA. Higher rate could only-be
applied if the input energy level is exceeded beyond the
provisions made in DFA. As seen from the record of input
energy as put up by TPL(Annexure 4) and UPPCL (Annexure
8) it is almost fixed every year where as 3% increase every
year has been provided in DFA.
Input energy year wise is as below:

Para-3. Old network has been replaced by TPL as reported
by them. This has been seen on site and found that
improvement has been done by TPL. Following is the Capex
year wise as reported.


CIVIL APPEAL NO. 23514 OF 2017 Page 25 of 88

Para-4 to 14: These points are for the betterment of services
to the consumer. Work can not be verified by the Expert
Committee and a separate agency is needed to verify the
claims of TPL. However, the final outcome can be verified by
the Expert Committee. For this reason DVVNL was
requested to fix a public meeting of consumers. On our
request DWNL has arranged meeting on dt. 02.12.2016 In
the meeting hall of DVVNL at 12:30 p.m. Copy of press
cutting is being annexed with the report as Annexure 10.
Twenty two consumers attended the meeting. Officers from
DVVNL and TPL were also present. Consumer put up their
views before the Expert Committee (Annexure 11). Some of
them have put up their comments in writing about their
satisfaction level regarding the services rendered by TPL.
The list of comments are attached as annexure.
Feedback received by the consumers are pointing towards
a satisfactory performance of TPL, As regards the
improvement in the system upgradation is concerned, TPL
has provided following services.
1. Round the Clock Call Centre.
2. Customer Care Centre.
3. Distribution Transformer failure rate has been reduced.
4. SCADA implementation for network management.

On account of the above, duration of power failure has
reduced resulting into better supply to consumers.

Findings:


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From the above it is evident that the consumers have
appreciated the working of TPL; so far as the Supply and
Customer Service is concerned. On the front of Assessment
of Capital Cost in new Connections, consumers are not
happy with the services of TPL. Also in cases where the
consumers ask for correction of old arrears of DVVNL, the
same takes a long time to settle. These areas need to be
handled in a more effective manner.”
(Emphasis supplied)


B. SUBMISSIONS ON BEHALF OF THE APPELLANT

10. The learned counsel appearing on behalf of the appellant vehemently
submitted that all that the APTEL did was to mechanically accept the
erroneous findings recorded by the UPERC. According to the learned
counsel, there was no application of any mind at the end of the APTEL.

11. The APTEL failed to appreciate that the DFA entered into between the
appellant and the respondent no. 3, was a contract under Section
2(27) of the Act, 2003 read with the seventh proviso to Section 14 and
that the respondent no. 3 as the Distribution Licensee was the only
regulated entity.

12. The APTEL failed to appreciate that the Act, 2003 ushered in a novel
feature of appointment of franchisees under Section 2(27). The
seventh proviso to Section 14 read with Section 2(27) and Section 13
confers power on a Distribution Licensee to appoint another person
to undertake distribution of electricity for a specified area within his
area of supply (Agra in the present case) and that the Distribution
Licensee continues to remain responsible for the distribution of
electricity in such specified area of supply. Therefore, Section 2(27) of
the Act, 2003 read with the seventh proviso to Section 14 permits a
Distribution Licensee to appoint an agent for a specified area. The


CIVIL APPEAL NO. 23514 OF 2017 Page 27 of 88



agent, therefore, would not fall within the jurisdiction of the UPERC
in its capacity as a regulatory authority.

13. The APTEL erred in coming to the conclusion that the respondent no.
4 has the locus to approach the UPERC for fulfillment of the social
obligations of the respondent no.4 as stated in the original Petition
No. 816 of 2012.

14. The APTEL erred in ignoring the settled law propounded by this Court
relating to individual consumers approaching the State ERC, in the
case of Maharashtra State Electricity Distribution Co. Ltd. v.
Reliance Energy Ltd. reported in (2007) 8 SCC 381. In the said,
case this Court categorically held that Section 86(1)(f) of the Act, 2003
which prescribes the adjudicatory functions of the State Commission
does not encompass within its domain, complaints of individual
consumers and that it only provides that the Commission can
adjudicate upon the disputes between the licensees and generating
companies and to refer any such dispute to arbitration. This Court
affirmed that Section 86(1)(f) does not include in it a grievance of an
individual consumer.

15. The APTEL failed to appreciate the true purport and object of the DFA
entered into between the appellant and the respondent no. 3 as well
as the express provisions of the Act, 2003 namely Section 2(27) read
with the seventh proviso to Section 14.

16. In such circumstances referred to above, the learned counsel prayed
that there being merit in her appeal, the same may be allowed and the
impugned judgment and order passed by the APTEL be set aside.




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C. SUBMISSIONS ON BEHALF OF THE RESPONDENT NO.4

17. The respondent no. 4 has filed submissions in writing. The same reads
as under:
1. The issues raised by the Appellant are:
a) Jurisdiction of the State Commission to pass directions
against the Appellant, who is only a franchisee and not the
licensee itself; and
(b) The locus standi of the Respondent No.4 to invoke the
jurisdiction of the State Commission under the Electricity
Act, as the Respondent No.4 is not a consumer in Agra.
2. It is submitted that the above issues are erroneous and
are liable to be rejected.
3. The proceedings before the State Commission were
under Sections 128 and 129 of the Electricity Act, in regard
to violation of the provisions of Section 17, 43, 62 and the
terms and conditions of the license issued to the distribution
licensee.
4. One of the primary issues raised was the supply of power
by the Respondent Nos.2 and 3 – distribution licensees to
the Appellant at a tariff, not approved by the State
Commission, and which was much lower than the cost of
supply to the Respondent Nos.2 and 3.
5. The entire annual revenue requirements/total costs and
expenses of the Respondent Nos.2 and 3 are recovered from
the tariff of the consumers in Uttar Pradesh. Therefore, if
there is a subsidized supply by the Respondent Nos.2 and
3 to the Appellant, it affects the tariff for the consumers of
the licensee.
6. The tariff for such supply by Respondent Nos.2 and 3 to
the Appellant is mutually decided, without the approval of


CIVIL APPEAL NO. 23514 OF 2017 Page 29 of 88



the State Commission. This, affecting the tariff of the
consumers, is contrary to the Electricity Act.
7. The specific allegation of the Respondent No.4 before the
State Commission was that the price of supply as mutually
decided is contrary to the Electricity Act, the terms of the
Franchisee Agreement are not in accordance with license
terms and conditions, the input price of electricity has been
decided without the audited accounts and is undervalued,
the State Commission has restrained another distribution
licensee in Uttar Pradesh from appointing an input based
franchisee.
8. The Respondent No.4 herein had sought for investigation
by the State Commission of the licensees, which are
Respondent Nos.2 and 3 herein. The prayer was not for
investigation into the affairs of the Appellant herein.
9. The powers of the State Commission under Sections 128,
129 are not adjudicatory in nature of a lis between two
parties, but the regulatory jurisdiction of the State
Commission. The role of the Respondent No.4 is to bring to
the attention of the State Commission the relevant facts. It
is for the State Commission to investigate in such manner
and pass such orders in terms of law as a regulatory
authority.
10. The State Commission had by order dated 16.07.2015
only directed a report to be submitted on specific aspects of
the functioning of the franchisee agreement and the
improvements in the distribution function in the City of Agra.
11. The report was submitted by the Committee on
09.01.2017. Various issues and remedial measures were
also suggested.
12. In fact, the Appellant had itself filed a petition seeking
approval of the Infrastructure Roll Out plan before the State
Commission. In the said proceedings, the Commission by
order dated 18.12.2017 had relied on various aspects of the


CIVIL APPEAL NO. 23514 OF 2017 Page 30 of 88



Expert Committee Report on the loss reduction and passed
directions on the costs to be allowed.
13. It is submitted that the Appellant is only seeking to avoid
the scrutiny of the State Commission on the terms of the
Franchisee Agreement and its implementation, which has
an impact on all the consumers in the State. The impact is
not merely restricted to consumers in Agra, as the input
price being not regulated, any loss on the input price of the
Respondent Nos.2 and 3 supplying to the Appellant affects
tariff of all the consumers of Respondent Nos.2 and 3.
14. With regard to the locus of Respondent No.4 to file a
petition, it is submitted that the jurisdiction and powers of
the State Commission under Section 128 and 129 of the
Electricity Act are not adjudicatory, but inquisitive and
regulatory in nature. The proceedings under Section 128
and 129 can be undertaken even suo moto. The role of the
Respondent No.4 is only to bring to the notice of the State
Commission the factual position and that there is violation.
Any orders passed by the State Commission and benefits if
any accruing are not only qua the Respondent No.4, but all
the consumers whose tariff is affected.
15. With regard to the contention that the Appellant is
merely an agent of the Respondent Nos.2 and 3 and there
is no separate jurisdiction over the Appellant, it is submitted
that the Petition filed was against both the Appellant and
the Respondent Nos.2 and 3.
16. In fact, the petition for network roll out was filed by the
Appellant and the Respondent No.3 before the State
Commission, in which the Order dated 18.12.2017 was
passed by the State Commission.
17. When the Appellant has itself invoked the jurisdiction of
the State Commission on tariff issues, it is not open to the
Appellant to contend that the State Commission has no
jurisdiction over the affairs of the Appellant. 18. As
submitted hereinabove, the issues involved impact on tariff


CIVIL APPEAL NO. 23514 OF 2017 Page 31 of 88



and therefore is within the jurisdiction of the State
Commission.”

D. ANALYSIS

18. Having heard the learned counsel appearing for the parties and having
gone through materials on record, the following questions fall for our
consideration:
i) Whether any individual can invoke the jurisdiction of a State ERC
on the plea of public interest? In other words, whether an ERC has
the jurisdiction to consider matters in public interest?
ii) Whether the Act, 2003 confers jurisdiction on the State ERCs to
consider and adjudicate the efficacy of a distribution franchisee
agreement entered between a distribution licensee and a distribution
franchisee? In other words, whether ERCs have the jurisdiction to
review the functioning of a distribution licensee to supply the
electricity through a franchisee?

(i) Relevant provisions of the Act, 2003
19. Before adverting to the rival submissions canvassed on either side, we
must look into few relevant provisions of law.


20. Section 2(15) of Electricity Act, 2003 reads as under:
“ (15) "consumer" means any person who is supplied
with electricity for his own use by a licensee or the
Government or by any other person engaged in the
business of supplying electricity to the public under this
Act or any other law for the time being in force and
includes any person whose premises are for the time
being connected for the purpose of receiving electricity
with the works of a licensee, the Government or such
other person, as the case may be;”


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21. Section 2(17) of Electricity Act, 2003 reads as under:
"(17) “distribution licensee" means a licensee
authorised to operate and maintain a distribution
system for supplying electricity to the consumers in his
area of supply ;”


22. Section 2(27) of Electricity Act, 2003 reads as under:
“(27) “franchisee” means a persons authorised by a
distribution licensee to distribute electricity on its
behalf in a particular area within his area of supply;”


23. Section 12 of Electricity Act, 2003 reads as under:
“Section 12. (Authorised persons to transmit, supply,
etc., electricity): 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”.

24. The seventh proviso to Section 14 reads thus:
“(…) 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: (…)”



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25. Part VII of the Electricity Act, 2003 reads thus:
“TARIFF
Section 61. (Tariff regulations): The Appropriate
Commission shall, subject to the provisions of this Act,
specify the terms and conditions for the determination
of tariff, and in doing so, shall be guided by the
following, namely:-
(a) the principles and methodologies specified by the
Central Commission for determination of the tariff
applicable to generating companies and transmission
licensees;
(b) the generation, transmission, distribution and
supply of electricity are conducted on commercial
principles;
(c) the factors which would encourage competition,
efficiency, economical use of the resources, good
performance and optimum investments;
(d) safeguarding of consumers' interest and at the same
time, recovery of the cost of electricity in a reasonable
manner;
(e) the principles rewarding efficiency in performance;
(f) multi year tariff principles;
(g) that the tariff progressively reflects the cost of
supply of electricity and also, reduces cross-subsidies
in the manner specified by the Appropriate
Commission;
(h) the promotion of co-generation and generation of
electricity from renewable sources of energy;
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for
determination of tariff under the Electricity (Supply) Act,
1948, the Electricity Regulatory Commission Act, 1998
and the enactments specified in the Schedule as they
stood immediately before the appointed date, shall
continue to apply for a period of one year or until the
terms and conditions for tariff are specified under this
section, whichever is earlier.



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Section 62. (Determination of tariff): --- (1) The
Appropriate Commission shall determine the tariff in
accordance with the provisions of this Act for –
(a) supply of electricity by a generating company to a
distribution licensee:
Provided that the Appropriate Commission may, in case
of shortage of supply of electricity, fix the minimum and
maximum ceiling of tariff for sale or purchase of
electricity in pursuance of an agreement, entered into
between a generating company and a licensee or
between licensees, for a period not exceeding one year
to ensure reasonable prices of electricity;
(b) transmission of electricity ;
(c) wheeling of electricity;
(d) retail sale of electricity:
Provided that in case of distribution of electricity in the
same area by two or more distribution licensees, the
Appropriate Commission may, for promoting
competition among distribution licensees, fix only
maximum ceiling of tariff for retail sale of electricity.
(2) The Appropriate Commission may require a licensee
or a generating company to furnish separate details, as
may be specified in respect of generation, transmission
and distribution for determination of tariff.
(3) The Appropriate Commission shall not, while
determining the tariff under this Act, show undue
preference to any consumer of electricity but may
differentiate according to the consumer's load factor,
power factor, voltage, total consumption of electricity
during any specified period or the time at which the
supply is required or the geographical position of any
area, the nature of supply and the purpose for which
the supply is required.
(4) No tariff or part of any tariff may ordinarily be
amended, more frequently than once in any financial
year, except in respect of any changes expressly
permitted under the terms of any fuel surcharge
formula as may be specified.
(5) The Commission may require a licensee or a
generating company to comply with such procedures as


CIVIL APPEAL NO. 23514 OF 2017 Page 35 of 88



may be specified for calculating the expected revenues
from the tariff and charges which he or it is permitted
to recover.
(6) If any licensee or a generating company recovers a
price or charge exceeding the tariff determined under
this section, the excess amount shall be recoverable by
the person who has paid such price or charge along
with interest equivalent to the bank rate without
prejudice to any other liability incurred by the licensee.

Section 63. (Determination of tariff by bidding process):
Notwithstanding anything contained in section 62, the
Appropriate Commission shall adopt the tariff if such
tariff has been determined through transparent process
of bidding in accordance with the guidelines issued by
the Central Government.

Section 64. (Procedure for tariff order): --- (1) An
application for determination of tariff under section 62
shall be made by a generating company or licensee in
such manner and accompanied by such fee, as may be
determined by regulations.
(2) Every applicant shall publish the application, in
such abridged form and manner, as may be specified
by the Appropriate Commission.
(3) The Appropriate Commission shall, within one
hundred and twenty days from receipt of an
application under sub-section (1) and after considering
all suggestions and objections received from the
public,-
(a) issue a tariff order accepting the application with
such modifications or such conditions as may be
specified in that order;
(b) reject the application for reasons to be recorded in
writing if such application is not in accordance with the
provisions of this Act and the rules and regulations
made thereunder or the provisions of any other law for
the time being in force: Provided that an applicant shall
be given a reasonable opportunity of being heard before
rejecting his application.


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(4) The Appropriate Commission shall, within seven
days of making the order, send a copy of the order to
the Appropriate Government, the Authority, and the
concerned licensees and to the person concerned.
(5) Notwithstanding anything contained in Part X, the
tariff for any inter State supply, transmission or
wheeling of electricity, as the case may be, involving
the territories of two States may, upon application
made to it by the parties intending to undertake such
supply, transmission or wheeling, be determined under
this section by the State Commission having
jurisdiction in respect of the licensee who intends to
distribute electricity and make payment therefor.
(6) A tariff order shall, unless amended or revoked,
continue to be in force for such period as may be
specified in the tariff order.

Section 65. (Provision of subsidy by State Government):
If the State Government requires the grant of any
subsidy to any consumer or class of consumers in the
tariff determined by the State Commission under
section 62, the State Government shall,
notwithstanding any direction which may be given
under section 108, pay, in advance and in such manner
as may be specified, the amount to compensate the
person affected by the grant of subsidy in the manner
the State Commission may direct, as a condition for the
licence or any other person concerned to implement the
subsidy provided for by the State Government:
Provided that no such direction of the State Government
shall be operative if the payment is not made in
accordance with the provisions contained in this
section and the tariff fixed by State Commission shall
be applicable from the date of issue of orders by the
Commission in this regard.
Section 66. (Development of market): The Appropriate
Commission shall endeavour to promote the
development of a market (including trading) in power in
such manner as may be specified and shall be guided


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by the National Electricity Policy referred to in section 3
in this regard.”

26. Section 82 of the Electricity Act, 2003 reads as under:
“Section 82. (Constitution of State Commission): --- (1)
Every State Government shall, within six months from
the appointed date, by notification, constitute for the
purposes of this Act, a Commission for the State to be
known as the (name of the State) Electricity Regulatory
Commission:
Provided that the State Electricity Regulatory
Commission, established by a State Government under
section 17 of the Electricity Regulatory Commissions
Act, 1998 and the enactments specified in the
Schedule, and functioning as such immediately before
the appointed date, shall be the State Commission for
the purposes of this Act and the Chairperson, Members,
Secretary, and other officers and other employees
thereof shall continue to hold office, on the same terms
and conditions on which they were appointed under
those Acts:
Provided further that the Chairperson and other
Members of the State Commission appointed, before the
commencement of this Act under the Electricity
Regulatory Commissions Act, 1998 or under the
enactments specified in the Schedule, may on the
recommendations of the Selection Committee
constituted under sub-section (1) of Section 85 be
allowed to opt for the terms and conditions under this
Act by the concerned State Government.
(2) The State Commission shall be a body corporate by
the name aforesaid, having perpetual succession and
a common seal, with power to acquire, hold and
dispose of property, both movable and immovable, and
to contract and shall, by the said name, sue or be sued.
(3) The head office of the State Commission shall be at
such place as the State Government may, by
notification, specify.


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(4) The State Commission shall consist of not more than
three Members, including the Chairperson.
(5) The Chairperson and Members of the State
Commission shall be appointed by the State
Government on the recommendation of a Selection
Committee referred to in section 85.”

27. Section 86 of the Electricity Act, 2003 reads thus:
“Section 86. (Functions of State Commission): --- (1) The
State Commission shall discharge the following
functions, namely: -
(a) determine the tariff for generation, supply,
transmission and wheeling of electricity, wholesale,
bulk or retail, as the case may be, within the State:
Provided that where open access has been permitted to
a category of consumers under section 42, the State
Commission shall determine only the wheeling charges
and surcharge thereon, if any, for the said category of
consumers;
(b) regulate electricity purchase and procurement
process of distribution licensees including the price at
which electricity shall be procured from the generating
companies or licensees or from other sources through
agreements for purchase of power for distribution and
supply within the State;
(c) facilitate intra-State transmission and wheeling of
electricity;
(d) issue licences to persons seeking to act as
transmission licensees, distribution licensees and
electricity traders with respect to their operations
within the State;
(e) promote co-generation and generation of electricity
from renewable sources of energy by providing suitable
measures for connectivity with the grid and sale of
electricity to any person, and also specify, for purchase
of electricity from such sources, a percentage of the
total consumption of electricity in the area of a
distribution licensee;


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(f) adjudicate upon the disputes between the licensees,
and generating companies and to refer any dispute for
arbitration;
(g) levy fee for the purposes of this Act;
(h) specify State Grid Code consistent with the Grid
Code specified under clause (h) of sub-section (1) of
section 79;
(i) specify or enforce standards with respect to quality,
continuity and reliability of service by licensees;
(j) fix the trading margin in the intra-State trading of
electricity, if considered, necessary; and
(k) discharge such other functions as may be assigned
to it under this Act.
(2) The State Commission shall advise the State
Government on all or any of the following matters,
namely :-.
(i) promotion of competition, efficiency and economy in
activities of the electricity industry;
(ii) promotion of investment in electricity industry;
(iii) reorganization and restructuring of electricity
industry in the State;
(iv) matters concerning generation, transmission ,
distribution and trading of electricity or any other
matter referred to the State Commission by that
Government.
(3) The State Commission shall ensure transparency
while exercising its powers and discharging its
functions.
(4) In discharge of its functions, the State Commission
shall be guided by the National Electricity Policy,
National Electricity Plan and tariff policy published
under section 3”.

28. Section 107 of the Electricity Act, 2003 reads thus:
“Section 107. (Directions by Central Government): --- (1)
In the discharge of its functions, the Central
Commission shall be guided by such directions in


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matters of policy involving public interest as the Central
Government may give to it in writing.
(2) If any question arises as to whether any such
direction relates to a matter of policy involving public
interest, the decision of the Central Government
thereon shall be final.”

29. Section 108 of the Electricity Act,2003 reads thus:
“Section 108. (Directions by State Government): ---- (1)
In the discharge of its functions, the State Commission
shall be guided by such directions in matters of policy
involving public interest as the State Government may
give to it in writing.
(2) If any question arises as to whether any such
direction relates to a matter of policy involving public
interest, the decision of the State Government thereon
shall be final”.


30. Section 111 of the Electricity Act, 2003 reads thus:
“Section 111. (Appeal to Appellate Tribunal): --- (1) Any
person aggrieved by an order made by an adjudicating
officer under this Act (except under section 127) or an
order made by the Appropriate Commission under this
Act may prefer an appeal to the Appellate Tribunal for
Electricity:
Provided that any person appealing against the order
of the adjudicating officer levying any penalty shall,
while filing the appeal , deposit the amount of such
penalty:
Provided further that wherein any particular case, the
Appellate Tribunal is of the opinion that the deposit of
such penalty would cause undue hardship to such
person, it may dispense with such deposit subject to
such conditions as it may deem fit to impose so as to
safeguard the realisation of penalty.
(2) Every appeal under sub-section (1) shall be filed
within a period of fortyfive days from the date on which


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a copy of the order made by the adjudicating officer or
the Appropriate Commission is received by the
aggrieved person and it shall be in such form, verified
in such manner and be accompanied by such fee as
may be prescribed: Provided that the Appellate
Tribunal may entertain an appeal after the expiry of the
said period of forty-five days if it is satisfied that there
was sufficient cause for not filing it within that period.
(3) On receipt of an appeal under sub-section (1), the
Appellate Tribunal may, after giving the parties to the
appeal an opportunity of being heard, pass such orders
thereon as it thinks fit, confirming, modifying or setting
aside the order appealed against.
(4) The Appellate Tribunal shall send a copy of every
order made by it to the parties to the appeal and to the
concerned adjudicating officer or the Appropriate
Commission, as the case may be.
(5) The appeal filed before the Appellate Tribunal under
sub-section (1) shall be dealt with by it as expeditiously
as possible and endeavour shall be made by it to
dispose of the appeal finally within one hundred and
eighty days from the date of receipt of the appeal:
Provided that where any appeal could not be disposed
of within the said period of one hundred and eighty
days, the Appellate Tribunal shall record its reasons in
writing for not disposing of the appeal within the said
period.
(6) The Appellate Tribunal may, for the purpose of
examining the legality, propriety or correctness of any
order made by the adjudicating officer or the
Appropriate Commission under this Act, as the case
may be, in relation to any proceeding, on its own motion
or otherwise, call for the records of such proceedings
and make such order in the case as it thinks fit.”

31. Section 128 of the Electricity Act, 2003 reads thus:
“Section 128. (Investigation of certain matters): ---- (1)
The Appropriate Commission may, on being satisfied


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that a licensee has failed to comply with any of the
conditions of licence or a generating company or a
licensee has failed to comply with any of the provisions
of this Act or rules or regulations made thereunder, at
any time, by order in writing, direct any person
(hereafter in this section referred to as “Investigating
Authority”) specified in the order to investigate the
affairs of any generating company or licensee and to
report to that Commission on any investigation made
by such Investigating Authority:
Provided that the Investigating Authority may,
wherever necessary, employ any auditor or any other
person for the purpose of assisting him in any
investigation under this section.
(2) Notwithstanding anything to the contrary
contained in section 235 of the Companies Act, 1956,
the Investigating Authority may, at any time, and shall,
on being directed so to do by the Appropriate
Commission, cause an inspection to be made, by one or
more of his officers, of any licensee or generating
company and his books of account; and the
Investigating Authority shall supply to the licensee or
generating company, as the case may be, a copy of his
report on such inspection.
(3) It shall be the duty of every manager,
managing director or other officer of the licensee or
generating company, as the case may be, to produce
before the Investigating Authority directed to make the
investigation under sub-section (1), or inspection under
sub-section (2), all such books of account, registers and
other documents in his custody or power and to furnish
him with any statement and information relating to the
affairs of the licensee or generating company, as the
case may be, as the said Investigating Authority may
require of him within such time as the said
Investigating Authority may specify.
(4) Any Investigating Authority, directed to make
an investigation under subsection (1), or inspection
under sub-section (2), may examine on oath any
manager, managing director or other officer of the


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licensee or generating company, as the case may be, in
relation to his business and may administer oaths
accordingly.
(5) The Investigating Authority, shall, if it has
been directed by the Appropriate Commission to cause
an inspection to be made, and may, in any other case,
report to the Appropriate Commission on any inspection
made under this section.
(6) On receipt of any report under sub-section (1)
or sub-section (5), the Appropriate Commission may,
after giving such opportunity to the licensee or
generating company, as the case may be, to make a
representation in connection with the report as in the
opinion of the Appropriate Commission, seems
reasonable, by order in writing—
(a) require the licensee or the generating company to
take such action in respect of any matter arising out of
the report as the Appropriate Commission may think fit;
or
(b) cancel the licenece; or
(c) direct the generating company to cease to carry on
the business of generation of electricity.
(7) The Appropriate Commission may, after giving
reasonable notice to the licensee or the generating
company, as the case may be, publish the report
submitted by the Investigating Authority under sub-
section (5) or such portion thereof as may appear to it
to be necessary.
(8) The Appropriate Commission may specify the
minimum information to be maintained by the licensee
or the generating company in their books, the manner
in which such information shall be maintained, the
checks and other verifications to be adopted by licensee
or the generating company in that connection and all
other matters incidental thereto as are, in its opinion,
necessary to enable the Investigating Authority to
discharge satisfactorily its functions under this section.
Explanation.- For the purposes of this section, the
expression “licensee or the generating company” shall
include in the case of a licensee incorporated in India—


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(a) all its subsidiaries formed for the purpose of
carrying on the business of generation or transmission
or distribution or trading of electricity exclusively
outside India; and
(b) all its branches whether situated in India or outside
India.
(9) All expenses of, and incidental to, any investigation
made under this section shall be defrayed by the
licensee or the generating company, as the case may
be, and shall have priority over that debts due from the
licensee or the generating company and shall be
recoverable as an arrear of land revenue.”

32. Section 129 of the Electricity Act, 2003 reads thus:
“Section 129. (Orders for securing compliance): --- (1)
Where the Appropriate Commission, on the basis of
material in its possession, is satisfied that a licensee is
contravening, or is likely to contravene, any of the
conditions mentioned in his licence or conditions for
grant of exemption or the licensee or the generating
company has contravened or is likely to contravene any
of the provisions of this Act, it shall, by an order, give
such directions as may be necessary for the purpose of
securing compliance with that condition or provision.
(2) While giving direction under sub-section (1), the
Appropriate Commission shall have due regard to the
extent to which any person is likely to sustain loss or
damage due to such contravention.”

33. Section 130 of the Electricity Act, 2003 reads thus:
“Section 130. (Procedure for issuing directions by
Appropriate Commission): The Appropriate
Commission, before issuing any direction under section
129, shall-- (a) serve notice in the manner as may be
specified to the concerned licensee or the generating
company; (b) publish the notice in the manner as may
be specified for the purpose of bringing the matters to


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the attention of persons, likely to be affected, or
affected; (c) consider suggestions and objections from
the concerned licensee or generating company and the
persons, likely to be affected, or affected.”


34. Section 181 of the Electricity Act, 2003 reads thus:

“Section 181. (Powers of State Commissions to make
regulations): --- (1) The State Commissions may, by
notification, make regulations consistent with this Act
and the rules generally to carry out the provisions of
this Act.

(2) In particular and without prejudice to the generality
of the power contained in sub-section (1), such
regulations may provide for all or any of the following
matters, namely: -
(a) period to be specified under the first proviso of
section 14;
(b) the form and the manner of application under sub-
section (1) of section 15;
(c) the manner and particulars of application for licence
to be published under sub-section (2) of section 15;
(d) the conditions of licence section 16;
(e) the manner and particulars of notice under clause(a)
of subsection (2) of section 18;
(f) publication of the alterations or amendments to be
made in the licence under clause (c) of sub-section (2)
of section 18;
(g) levy and collection of fees and charges from
generating companies or licensees under sub-section
(3) of section 32;
(h) rates, charges and the term and conditions in
respect of intervening transmission facilities under
proviso to section 36;
(i) payment of the transmission charges and a
surcharge under subclause (ii) of clause(d) of sub-
section (2) of section 39;


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(j) reduction of surcharge and cross subsidies under
second proviso to sub-clause (ii) of clause (d) of sub-
section (2) of section 39;
(k) manner and utilisation of payment and surcharge
under the fourth proviso to sub-clause(ii) of clause (d) of
sub-section (2) of section 39;
(l) payment of the transmission charges and a
surcharge under subclause(ii) of clause (c) of section 40;
(m) reduction of surcharge and cross subsidies under
second proviso to sub-clause (ii) of clause (c) of section
40;
(n) the manner of payment of surcharge under the
fourth proviso to sub-clause (ii) of clause (c) of section
40;
(o) proportion of revenues from other business to be
utilised for reducing the transmission and wheeling
charges under proviso to section 41;
(p) reduction of surcharge and cross-subsidies under
the third proviso to sub-section (2) of section 42;
(q) payment of additional charges on charges of
wheeling under subsection (4) of section 42;
(r) guidelines under sub-section (5) of section 42;
(s) the time and manner for settlement of grievances
under sub-section (7) of section 42;
(t) the period to be specified by the State Commission
for the purposes specified under sub-section (1) of
section 43;
(u) methods and principles by which charges for
electricity shall be fixed under sub-section (2) of section
45;
(v) reasonable security payable to the distribution
licensee under sub-section (1) of section 47;
(w) payment of interest on security under sub-section
(4) of section 47;
(x) electricity supply code under section 50;
(y) the proportion of revenues from other business to be
utilised for reducing wheeling charges under proviso to
section 51;
(z) duties of electricity trader under sub-section (2) of
section 52;


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(za) standards of performance of a licensee or a class
of licensees under sub-section (1) of section 57;
(zb) the period within which information to be furnished
by the licensee under sub-section (1) of section 59;
(zc) the manner of reduction of cross-subsidies under
clause (g) of section 61;
(zd) the terms and conditions for the determination of
tariff under section 61;
(ze) details to be furnished by licensee or generating
company under sub-section (2) of section 62;
(zf) the methodologies and procedures for calculating
the expected revenue from tariff and charges under
sub-section (5) of section 62;
(zg) the manner of making an application before the
State Commission and the fee payable therefor under
sub-section (1) of section 64;
(zh) issue of tariff order with modifications or conditions
under subsection(3) of section 64;
(zi) the manner by which development of market in
power including trading specified under section 66;
(zj) the powers and duties of the Secretary of the State
Commission under sub-section (1) of section 91;
(zk) the terms and conditions of service of the secretary,
officers and other employees of the State Commission
under sub-section (2) of section 91;
(zl) rules of procedure for transaction of business under
sub-section (1) of section 92;
(zm) minimum information to be maintained by a
licensee or the generating company and the manner of
such information to be maintained under sub-section
(8) of section 128;
(zn) the manner of service and publication of notice
under section 130;
(zo) the form of preferring the appeal and the manner in
which such form shall be verified and the fee for
preferring the appeal under sub-section (1) of section
127;
(zp) any other matter which is to be, or may be,
specified.



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(3) All regulations made by the State Commission under
this Act shall be subject to the condition of previous
publication”.

(ii) Whether the Electricity Regulatory Commission has the
jurisdiction to consider matters in public interest?

35. Under Section 61 of the Act, 2003, the Central and State ERCs are
required to specify the terms and conditions for determination of tariff,
and in doing so, are required to safeguard the interests of consumers
[Section 61(d)]. Pertinently, ERCs are also required to consider the
principles enshrined under Section 61 of the Act, 2003 whilst
adopting or determining tariff under Sections 62 and 63 respectively
of the Act, 2003.

36. Similarly, Sections 18 and 19 respectively of the Act, 2003 empower
the ERCs to amend/alter the terms of any license (Distribution,
Transmission or Trading) issued by them or to revoke such license in
public interest. Consequently, under Section 20(1), an ERC may direct
the sale of a utility, in the public interest. These are a part of the
regulatory functions of ERCs.

37. Furthermore, Sections 107 and 108 respectively of the Act, 2003
mandate the ERCs to be guided by directions in matters of policy
involving public interest as the Central/State Government may give
to it in writing. In this context, we may refer to the decision of this
Court in the case of Paschimanchal Vidyut Vitran Nigam Ltd. v.
Adarsh Textiles reported in (2014) 16 SCC 212 . We may reproduce
paras 21, 22 and 23 respectively as under:
“21. The Electricity Act, 2003 was enacted by
Parliament. Section 62 whereof confers the power upon
the Commission to determine the tariff. Section 65 of
the Electricity Act, 2003 enables the State Government


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to grant subsidy to any consumer or class of consumers
in the tariff determined by the State Commission under
Section 62. Section 108 of the 2003 Act deals with the
power to issue directions by the State Government. The
Commission shall be guided by such directions in the
matter of policy involving public interest as the State
Government may give to it in writing.
---xxx---
23. It is apparent from a bare reading of the aforesaid
provisions of the Electricity Act, 2003 and the Reforms
Act, 1999 that in discharge of its functions, the State
Commission shall be guided by such directions in
matters of policy involving public interest as the State
Government may give to it in writing. Such
decision/direction of the State Government in the
matter of policy, subsidy and public interest shall be
final. Under Section 65 it is a prerogative of the State
Government to grant any subsidy to any consumer or
class of consumers in the tariff determined by the
Commission under Section 62. It is apparent from the
provisions contained in Sections 65 and 108 of the
2003 Act that to grant subsidy to any consumer or class
of consumers is the prerogative of the State Government
and such other direction issued in the public interest
shall be binding upon the Commission.”

38. Electricity being a natural resource that vests in the State, the
provisions of the Act, 2003 keep consumers’ interest at the core of all
processes that are sought to be governed under the Act, 2003 namely,
generation, transmission and distribution of electricity.

39. Following the observation in Energy Watchdog v. CERC reported in
(2017) 14 SCC 80 that “ the appropriate Commission does not act as a
mere post office...” for the purpose of tariff determination but must
ensure transparency in the procedure for such determination, this
Court, in M.P. Power Management Co. Ltd. v. Sky Power Southeast
Solar India (P) Ltd . , reported in (2023) 2 SCC 703 , has observed


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that any impact on the electricity tariff, directly affects consumer
interest and therefore, implicates public interest and such a concern
finds statutory recognition under Sections 61 to 63 of the Act, 2003.
Para 133 reads thus:
“133. In the said case, the Court further held that the
moment the electricity tariff gets affected, the consumer
interest comes in and public interest gets affected and
further that there is a statutory recognition for the same
in Sections 61 to 63 of the Electricity Act, 2003.
Therefore, this judgment, though in the context of a
statutory appeal, has laid down that consumer interest
in tariff is intertwined with public interest.”

40. Similarly, in Jaipur Vidyut Vitran Nigam Ltd. v. MB Power (M.P.)
Ltd., reported in (2024) 8 SCC 513 , this Court reiterated the
requirement of balancing consumer interest with that of the interest
of the generators. Para 127 reads thus:
“127. It is needless to state that this Court, time and
again, in various judgments including the one in GMR
Warora Energy [GMR Warora Energy Ltd. v. CERC,
(2023) 10 SCC 401 : 2023 INSC 398] has recognised
the requirement of balancing the consumers’ interest
with that of the interest of the generators. It will not be
permissible to take a lopsided view only to protect the
interest of the generators ignoring the consumers’
interest and public interest.”

41. This Court, in All India Power Engineer Federation v. Sasan
Power Ltd., reported in (2017) 1 SCC 487 , while rendering the
judgment in the context of a statutory tariff appeal, has underscored
that consumer interest in tariff is intertwined with public interest.
Para 30 reads thus:
" 31. (…) This is for the reason that what is adopted by
the Commission under Section 63 is only a tariff


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obtained by competitive bidding in conformity with
Guidelines issued. If at any subsequent point of time
such tariff is increased, which increase is outside the
four corners of the PPA, even in cases covered by
Section 63, the legislative intent and the language of
Sections 61 and 62 make it clear that the Commission
alone can accept such amended tariff as it would
impact consumer interest and therefore public interest ."
(Emphasis supplied)



42. What is pertinent to note is that all the judgments referred to
hereinabove pertain to the adoption of tariff under Section 63 of the
Act, 2003 in a manner that seeks to balance consumers’ interest in
the arena of procurement of electricity from generating stations. The
said judgments are not in respect of the relationship between
distribution licensees or franchisees. While consumer interest is an
important consideration in the overall scheme of the Act, 2003, it
remains to be seen whether the ERCs have jurisdiction to entertain
petitions in respect of disputes between consumers and distribution
licensees/franchisees.

43. The ERCs, being creatures of a statute, derive their jurisdiction and
powers from the provisions of that statute i.e., the Act, 2003.
Therefore, it would not be permissible for them to exercise powers not
expressly vested in them. In this context, we may refer to the decision
of this Court in the case of Rajeev Hitendra Pathak v. Achyut
Kashinath Karekar , reported in (2011) 9 SCC 541 . Para 34 reads
thus:
“34. On a careful analysis of the provisions of the Act,
it is abundantly clear that the Tribunals are creatures
of the statute and derive their power from the express
provisions of the statute. The District Forums and the
State Commissions have not been given any power to
set aside ex parte orders and the power of review and


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the powers which have not been expressly given by the
statute cannot be exercised.”

44. An authority created by a statute must act under the statute and not
beyond it. In C hiranjilal Shrilal Goenka v. Jasjit Singh , reported
in (1993) 2 SCC 507 , this Court observed thus:
“17. (…) In this country, jurisdiction can be exercised
only when provided for either in the Constitution or in
the laws made by the legislature. Jurisdiction is thus
the authority or power of the court to deal with a matter
and make an order carrying binding force in the facts.
Oza, J. supplementing the question held that the
jurisdiction to try a case could only be conferred by law
enacted by the legislature. The Supreme Court could
not confer jurisdiction if it does not exist in law. Ray, J.
held that the Court cannot confer a jurisdiction on itself
which is not provided in the law. In the dissenting
opinion Venkatachaliah, J., as he then was, lay down
that the expression jurisdiction or prior determination is
a “verbal coat of many colours”. In the case of a
tribunal, an error of law might become not merely an
error in jurisdiction but might partake of the character
of an error of jurisdiction. But, otherwise, jurisdiction is
a ‘legal shelter’ and a power to bind despite a possible
error in the decision. The existence of jurisdiction does
not depend on the correctness of its exercise. The
authority to decide embodies a privilege to bind despite
error, a privilege which is inherent in and indispensable
to every judicial function. The characteristic attribute of
a judicial act is that it binds whether it be right or it be
wrong. Thus this Court laid down as an authoritative
proposition of law that the jurisdiction could be
conferred by statute and this Court cannot confer
jurisdiction or an authority on a tribunal. In that case
this Court held that Constitution Bench has no power
to give direction contrary to Criminal Law Amendment


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Act, 1952. The direction per majority was held to be
void.”
(Emphasis supplied)

45. In A.R. Antulay v. R.S. Nayak , reported in (1988) 2 SCC 602 , in
para 91, this Court observed thus:
“91. (…) Instances of conferment of jurisdiction by
specific law are very common. The laws of procedure
both criminal and civil confer jurisdiction on different
courts. Special jurisdiction is conferred by special
statute. It is thus clear that jurisdiction can be exercised
only when provided lower either in the Constitution or
in the laws made by the legislature. Jurisdiction is thus
the authority or power of the court to deal with a matter
and make an order carrying binding force in the facts.
In support of judicial opinion for this view reference
may be made to the Permanent Edition of “Words und
Phrases” Vol. 23-A at page 164. It would be
appropriate to refer to two small passages occurring at
pages 174 and 175 of the volume. At page 174,
referring to the decision in Carlile v. National Oil &
Development Co. it has been stated.
Jurisdiction is the authority to hear and determine, and
in order that it may exist the following are essential: (1)
A court created by law, organized and sitting; (2)
authority given to it by law to hear and determine
causes of the kind in question; (3) power given to it by
law to render a judgment such as it assumes to render;
(4) authority over the parties to the case if the judgment
is to bind them personally as a judgment in personam,
which is acquired over the plaintiff by his appearance
and submission of the matter to the court, and is
acquired over the defendant by his voluntary
appearance, or by service of process on him; (5)
authority over the thing adjudicated upon its being
located within the court's territory, and by actually
seizing it if liable to be carried away; (6) authority to
decide the question involved, which is acquired by the


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question being submitted to it by the parties for
decision. ”
(Emphasis supplied)

46. In Bhadreshwar Vidyut (P) Ltd. v. Maharashtra ERC , reported in
2024 SCC OnLine APTEL 47 in para 149, this Court observed thus:
“149. As noted hereinabove, the possibility of
inconvenience or hardship would not confer jurisdiction
on the CERC, since jurisdiction can be conferred only
by a statutory enactment and not by judicial
pronouncement. In the present case, it is evident that
the jurisdiction, to adjudicate on whether or not the
Appellant is a Captive Generation Plant in terms of
Section 2(8) read with Section 9 of the Electricity
Act and Rule 3(1) of the Electricity Rules, 2005, lies
with the State Commission under Section 86(1)(f) of
the Electricity Act, and not with the CERC under
Section 79(1)(f).”

47. With respect to the ERCs in particular, this Court in Gujarat Urja
Vikas Nigam Ltd. v. Solar Semiconductor Power Co. (India) (P)
Ltd. , reported in (2017) 16 SCC 498 , has held that such statutory
authorities cannot act beyond the powers vested in them by their
parent statute. The relevant paras are reproduced below:
" 39. The Commission being a creature of statute cannot assume
to itself any powers which are not otherwise conferred on it. In
other words, under the guise of exercising its inherent power, as
we have already noticed above, the Commission cannot take
recourse to exercise of a power, procedure for which is otherwise
specifically provided under the Act…
---xxx---
59. The inherent power is not a provision of law to grant any
substantive relief. But it is only a procedural provision to make
orders to secure the ends of justice and to prevent abuse of


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process of the Court. It cannot be used to create or recognize
substantive rights of the parties."
(Emphasis supplied)

48. Under the scheme of the Act, 2003, the Central and State ERCs are
vested with regulatory functions, tariff determination functions, and
adjudicatory functions, in particular under Sections 79 and 86
respectively. Whilst in the exercise of regulatory functions, the ERCs
are also required to comply with the various Regulations made by the
respective Central and State Commissions under Sections 178 and
181 respectively of the Act, 2003. A close reading of most of the
Regulations framed by the ERCs i.e., Regulations pertaining to Open
Access, Connectivity Regulations, Regulations on Renewable Power
Purchase Obligations etc., indicate that regulatory powers and
functions of the ERCs must be exercised in public or consumer
interest alongside commercial principles. The function of tariff
adoption or determination is also mandated to be carried by ERCs in
accordance with public interest and to safeguard consumer needs. It
is noteworthy that Section 61 of the Act, 2003 also requires ERCs to
consider commercial principles in matters of tariff and therefore ERCs
are expected to undertake a balancing act between commercial
prudence and consumer interest.

49. The adjudicatory functions of ERCs are specifically governed by
Sections 79 and 86 respectively of the Act, 2003. The ERCs also have
the discretion to refer disputes to arbitration. Adjudicatory
jurisdiction of the Central Commission is specified under Section
79(1)(f) and is limited to adjudication of disputes involving generating
companies or transmission licensee, in regard to matters connected
with clauses (a) to (d), which are extracted below:

a) to regulate the tariff of generating companies owned or
controlled by the Central Government;


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b) to regulate the tariff of generating companies other than those
owned or controlled by the Central Government specified in
clause (a), if such generating companies enter into or otherwise
have a composite scheme for generation and sale of electricity
in more than one State;

c) to regulate the inter-State transmission of electricity;
d) to determine tariff for inter-State transmission of electricity.

50.
The State ERCs have a comparatively broader jurisdiction under
Section 86, to adjudicate upon all disputes between the licensees and
generating companies, without being limited to categories specified in
(a) to (d) of Section 79. However, even this enlarged jurisdiction of the
State ERCs, more particularly the UPERC, does not include within its
fold the power to adjudicate disputes involving consumers and by
extension their grievances, irrespective of whether such issue is raised
in furtherance of public interest. However, a perusal of the petition
filed by the respondent no. 4 shows that there is no occasion for
application of Section 86, as the said petition was filed praying for an
investigation under Section 128 of the Act, 2003 against the
respondent nos. 2 and 3 as well as the appellant. To this extent, we
agree with the impugned order of the APTEL.

51. To contest the jurisdiction of the UPERC to decide the petition of the
respondent no. 4, the appellant has relied on this Court’s dictum in
Maharashtra Electricity Regulatory Commission v. Reliance
Energy Ltd. , reported in (2007) 8 SCC 381 wherein it was held that
in view of the mechanism for redressal of consumers’ grievance
provided under Section 42(5) of the Act, 2003, there is no occasion for
the State ERC to exercise jurisdiction over such matters in place of
the forum created under the Act, 2003 for this very purpose. It was
further held that the ERCs are empowered to adjudicate upon
disputes under Section 86(1)(f) but the said provision does not
appertain to the individual consumers’ disputes. The relevant
observations from the said decision are reproduced below:


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CIVIL APPEAL NO. 23514 OF 2017 Page 58 of 88

CIVIL APPEAL NO. 23514 OF 2017 Page 59 of 88

(Emphasis supplied)

52. Although we are in respectful agreement with the principles
enunciated in the decision in Reliance Energy (supra) to the extent
that it observes that a State ERC cannot usurp the jurisdiction of the
consumer grievance redressal forum established under Section 42(5),
yet we are of the view that in the specific case on hand, the said
judgment is not applicable. The present matter pertains to the State
of Uttar Pradesh where the UPERC had enacted the Uttar Pradesh
Electricity Regulatory Commission (Consumer Grievance Redressal
Forum & Electricity Ombudsman) Regulations, 2007 dated
04.10.2007 (hereinafter referred to as “ UPERC Consumer Grievance
Regulations ”) under Section 181 of the Act, 2003. Regulation 5
thereof relates to the jurisdiction of the consumer grievance redressal
forum wherein it has been specified that the forum is not empowered
to entertain a complaint pertaining to matters under Section 128 of
the Act, 2003. The relevant regulations are extracted below:

“5.0 Jurisdiction of the Forum-
5.1 The Forum shall not entertain a complaint, if it
pertains to matters mentioned in Section 126, 127, 128,
135 to 139, 143, 152 and 161 of the Electricity Act, 03.
5.2 The Forum shall have the jurisdiction to take up
complaints, except those under Regulation 5.1, on an
application before it or suo-moto if it considers
appropriate in the interest of justice.


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5.3 The Forum shall not entertain a complaint if it
pertains to the same subject matter for which any
proceedings before any court, authority or any other
Forum is pending or a decree, award or a final order
has already been passed by any competent court,
authority or Forum.”
(Emphasis supplied)

53. We now examine the provision of law under Section 128 of the Act,
2003. Sub-section (1) of the provision reads thus:
“(1) The Appropriate Commission may, on being
satisfied that a licensee has failed to comply with any
of the conditions of licence or a generating company or
a licensee has failed to comply with any of the
provisions of this Act or rules or regulations made
thereunder, at any time, by order in writing, direct any
person (hereafter in this section referred to as
“Investigating Authority”) specified in the order to
investigate the affairs of any generating company or
licensee and to report to that Commission on any
investigation made by such Investigating Authority”

54. The language of the Section is clear inasmuch as it places the onus of
initiating an investigation on the appropriate commission, which is
either the Central ERC or the State ERCs. Read with Regulation 5.1
of the UPERC Consumer Grievance Regulations, it is clear that a
request for investigation under Section 128 cannot be made by an
individual before the consumer forum for the simple reason that
directing such investigation is out of the scope of the said body as it
does not exercise regulatory powers under the Act, 2003. Therefore,
this Court’s observations in Reliance Energy (supra) are of no avail
to the appellant.



CIVIL APPEAL NO. 23514 OF 2017 Page 61 of 88




55. Having dealt with the said submission, we now proceed to ascertain
whether the ERCs have suo motu power to initiate a proceeding under
Section 128. For this purpose, we may refer to the Uttar Pradesh
Electricity Regulatory Commission (Conduct of Business) Rules, 2004
(the “ Conduct of Business Rules, 2004 ”), more particularly,
Regulation 14 thereof, which deals with initiation of proceedings. The
Regulation is extracted below:

“14. Initiation of Proceedings:
a. The Commission may initiate any proceeding suo
moto or on a Petition filed by any affected person.
b. When the Commission initiates the Proceedings, it
shall be by a notice issued by the Office of the
Commission through Secretary and the Commission
may give such orders and directions as may be deemed
necessary, for service of notices to the affected parties,
for the filing of replies and rejoinder in opposition or in
support of the Petition in such form as the Commission
may direct. The Commission may, if it considers
appropriate, issue orders for advertisement of the
Petition inviting comments on the issue involved in the
Proceedings in such form as the Commission may
direct.
c. While issuing the notice of inquiry the Commission
may, in appropriate cases, designate an Officer of the
Commission or any other person whom the Commission
considers appropriate to present the matter in the
capacity of the Party, which cannot afford to engage its
representative”
(Emphasis supplied)

56. A perusal of the Regulation compels us to conclude that the UPERC
had jurisdiction to entertain a petition praying for investigation under
Section 128. Therefore, in our considered view, the first issue must be


CIVIL APPEAL NO. 23514 OF 2017 Page 62 of 88



answered against the appellant. In the same breath, we also clarify
that as a principle of law, the ERCs are not competent to entertain a
matter on the singular ground of public interest. Accordingly, we
answer this issue in negative.

(iii) Whether the petition filed by the respondent no. 4 under
Section 128 of the Act, 2003 was maintainable in law?

57. We may now look into the “satisfaction” required under Section 128.
Such satisfaction must be on either of the two grounds: (1) that a
licensee has contravened the conditions of its license; or (2) that a
licensee has failed to act in accordance with the provisions of the Act,
2003 and/or the regulations made thereunder. In the case at hand,
the respondent no. 4 had approached the UPERC under Section 128
to investigate the respondent no. 3 along with the appellant on the
following grounds:
(i) First, the entire assets of the respondent no. 3 (i.e., the
distribution licensee) deployed in the urban area of Agra were
transferred to the appellant without the prior approval of the
UPERC under Section 17.
(ii) Secondly, the grant of franchisee for an urban area by a
distribution licensee is not permissible under Section 13.
(iii) Lastly, the appellant and respondent no. 3 were in violation of
the tariff orders passed by the UPERC under Section 62, by
adopting their own fixed schedule of annualized input rates.

58. As regards the first objection, we are of the view that the same does
not afford any ground for investigation under Section 128 in the
present case. Section 17 places the requirement of a prior approval on
a licensee in respect of transactions with other licensees and not with
a franchisee. In terms of the seventh proviso to Section 14 read with
Sections 2(27) and 2(49), a franchisee is not required to obtain a
separate license and therefore, is not considered to be a licensee under


CIVIL APPEAL NO. 23514 OF 2017 Page 63 of 88



Section 2(38) and Section 14. The Uttar Pradesh Electricity Regulatory
Commission (General Conditions of Distribution License) Regulations,
2004 (the “ Conditions of Distribution License Regulations, 2004 ”)
reiterate the aforesaid explanation of Section 17. Regulation 5.8 of the
said Regulations permits a distribution licensee to undertake
distribution in a particular area through a franchisee, and Regulation
5.11 thereof clarifies that a distribution licensee is not restricted from
transferring or assigning its functions under its license to a
franchisee. As such, the facts of the case on hand fall outside the
scope of an enquiry under Section 17 and no request for investigation
under Section 128 can be made on this count. The relevant
Regulations are extracted hereinbelow:
“ 5. ACTIVITIES OF THE DISTRIBUTION LICENSEE

5.8 The Licensee may undertake distribution of
electricity for a specified area (franchise) within his
Area of Supply through another Person. Such Person
shall not be required to obtain any separate Licence
from the Commission. The Licensee shall continue to be
responsible for distribution of electricity in its Area of
Supply and –
(a) Such Person shall operate under the overall
supervision and control of the Licensee and upon the
terms and conditions of the Licence and comply with all
Regulations, guidelines or orders of the Commission;
(b) Establishment of such arrangements shall not alter
the Licensee’s duties and obligations pursuant to
general or specific conditions of Licence;
(c) The cost of providing service shall not be higher than
if the Licensee performed such tasks itself; and
(d) For any act or omission of such Person, the Licensee
shall be responsible.

---xxx---

5.10 The Distribution Licensee may establish
Subsidiaries or associated companies or grant a


CIVIL APPEAL NO. 23514 OF 2017 Page 64 of 88



Franchisee or enter into management contracts
including appointment of billing agent to conduct or
carry out any of the functions, which the Distribution
Licensee is authorised to conduct or carry under the
Licence Provided that the Licensee shall be responsible
for all actions of the Subsidiaries or associated
companies or Franchisees or agents or contractors.

5.11 Except as provided in clause 5.8 above the
Distribution Licensee shall not transfer or assign the
Licence or any of the functions under the Licence to any
other Person without the prior approval of the
Commission. ”



59. The second objection, in our view, does not serve as a ground for
initiating an investigation under Section 128. The respondent no. 4
may argue that appointment of the appellant as a distribution
franchisee in the urban area is inconsistent with Section 5 of the Act,
2003, however, in our considered opinion, the said argument is devoid
of substance. Section 5 lays down the “National policy on
electrification and local distribution in rural areas” wherein
franchisees have been identified as important stakeholders to achieve
this policy but such provision cannot be taken to mean that the Act,
2003 restricts the role of franchisees to rural areas. A conjoint reading
of Sections 2(27), 2(49), 13 and seventh proviso of Section 14 indicates
that distribution franchisees may be appointed for urban areas as well
and the Act, 2003 places no limitation on the area of operation of such
franchisees. [See: Citizen Forum, Maharashtra v. State of
Maharashtra , reported in 2008 SCC OnLine Bom 165 ]

60. As regards the last objection, we understand such objection to be one
that challenges the very concept of “input-rate model of distribution
of franchisee”. The crux of the objection raised by the respondent no.
4 is that the appellant herein is benefiting from the fixation of lower
rates as annualized input rates in the DFA between it and the


CIVIL APPEAL NO. 23514 OF 2017 Page 65 of 88



respondent no. 3. According to the respondent no. 4, such input rates
are lower than the bulk supply rate of the respondent no. 2 and
therefore, the difference between such rates has to be subsidized by
public money, that is, by consumers who consume electricity supplied
by the respondent no. 2 in areas other than the urban area of Agra.

61. For the purpose of discussing this objection, we find it apposite to first
explain the “input-rate model of distribution franchisee”. In this
model, a franchisee buys electricity from a distribution licensee at
defined input point(s) at a pre-determined rate which is annualized
for consistency on a yearly basis. This pre-determined rate that has
to be paid by the franchisee to the distribution licensee for purchase
of electricity, is usually fixed by way of bids received from private
players interested in assuming the role of a franchisee. The private
party that quotes the highest rate is awarded the bid subject to other
terms and conditions of the bidding process. It is for this reason that
quoting of such annualized rates is required even by the Ministry of
Power’s “Standard Bidding Document for Appointment of Input based
Distribution Franchisee, June 2012”

62. Once a franchisee signs an input-based franchisee agreement, it has
to pay the distribution licensee or any utility it is purchasing
electricity from, the agreed input rate for all the energy received by it.
However, it is pertinent to note that the franchisee collects revenue
from the consumers by raising bills at the tariff decided by the
appropriate ERC. Therefore, after collecting the revenue from the
consumers, the surplus left with it after paying the input rate to the
distribution licensee or utility is its profit. This profit margin can be
increased by the franchisee by reducing the aggregate technical and
commercial losses (“ AT&C losses ”) and increasing efficiency in
improving collection of revenue for the same specified quantity of
power or energy purchased by it from the distribution licensee or
utility. In the same breath, we must also clarify that generally, the
level of investments and expenses anticipated by the franchisee for


CIVIL APPEAL NO. 23514 OF 2017 Page 66 of 88



increasing efficiency is incorporated in the input rates quoted by it in
the bid. The higher the level of investment is required, the lower the
input rate is likely to be. In other words, the input price that a private
player proposes in its bid is inversely proportional to the capital
expenditure that a private player believes it will have to make to
ensure that the distribution exercise is profitable.


63. It is because there is no fixed incentive for the franchisee envisaged in
such a model that the franchisees are motivated to reduce all kinds of
losses to earn more revenue to increase their profit margin. Even
though the model is advantageous for the purpose of reducing losses
through theft and non-payment, yet it is also considered to be prone
to misuse and not without its demerits. A bidding franchisee may
over-project the investments and expenses required to distribute
electricity efficiently, which in turn would lead to a reduction in the
input rate fixed between the distribution licensee and the franchisee,
as operation in the particular area that the franchisee is bidding for
will be considered to be a loss-making venture. Lack of data about
baseline loss levels puts the distribution licensee in a weaker position
vis-à-vis the distribution franchisee. One could argue that this is a
demerit of the input-rate model. However, it does not seem to be a
plausible criticism of the model considering that most distribution
licensees would ideally have the knowledge of AT&C loss levels
prevailing in an area that they used to service before the franchisee
came into picture.

64. The objection raised by the respondent no. 4 is two-pronged: (1) that
the Average Tariff Rate (ATR) for the base year 2008-09 derived by the
respondent nos. 2 and 3 is based on fabricated data without any
authentication thereof; and (2) that the input rate fixed between the
appellant and respondent no. 3 is undervalued with the ulterior
motive to enable the appellant to profit at the cost of public money.
The respondent no. 4 assailed such action on part of the respondent


CIVIL APPEAL NO. 23514 OF 2017 Page 67 of 88



no. 2 and the appellant to be a willful and deliberate violation of the
tariff order passed by the UPERC.

65. To get a better background of the operations of the appellant in the
urban city of Agra, we may refer to the APTEL’s decision in Amausi
Industries Association v. Uttar Pradesh Electricity Regulatory
Commission reported in 2013 SCC OnLine APTEL 138 , with profit.
The APTEL was faced with inter alia, the question whether Torrent
Power (the appellant herein) could be supplied power at a price below
the bulk power purchase price. The appellants therein argued that
despite the bulk supply price fixed by the State ERC for purchase of
power by the distribution licensees being Rs. 2.64 per unit for the FY
2011-12 and Rs. 3.75 per unit for FY 2012-13, such power was
supplied to Torrent Power at Rs. 1.54 per unit for FY 2010-11, Rs.
1.55 per unit for FY 2011-12 and Rs. 1.71 per unit for FY 2012-13.
The supply of electricity to Torrent Power at rates lower than the bulk
supply price fixed by the UPERC meant that the consumers of other
areas were cross subsidizing the supply of power by DVVNL to Torrent
Power. The appellants therein took strong exception to the consumers
of other areas bearing the tariff burden on account of cheaper supply
of power in Agra by DVVNL to Torrent Power. The APTEL succinctly
pointed out that due to high AT&C losses in the urban area of Agra,
the distribution licensee, DVVNL was unable to recover the bulk
supply rate of Rs. 2.64 per unit and was able to collect revenue to the
extent of Rs. 1.27 per unit by bearing a loss of Rs. 1.37 per unit. Such
loss of Rs. 1.37 per unit was being subsidized by consumers of other
areas. Therefore, to alleviate the situation, DVVNL called for bids on
the basis of input-rate model of distribution franchisee in which the
highest bidder was the appellant herein, Torrent Power. Accordingly,
an input rate of Rs. 1.54 per unit was decided among the distribution
licensee and franchise. DVVNL, which was initially recovering Rs. 1.27
initially started recovering Rs. 1.54. The APTEL observed that after
the introduction of the franchisee, the cross subsidization by


CIVIL APPEAL NO. 23514 OF 2017 Page 68 of 88



consumers of other areas was mitigated by 27 paise. The relevant
portion of the judgment is reproduced below:

“56. The fifth issue is regarding the Power Purchase
cost and other cost in excess of the legitimate claims
and allowing supply of bulk power to Torrent Power - a
franchisee at a price below the bulk power purchase
price.

57. The learned Counsel for the Appellant has made
the following submissions on this issue:
(a) The State Commission has allowed exaggerated
power purchase costs to the Distribution Licensees.
The Distribution Licensees are purchasing high cost
power on short term basis without proper planning
and without entering into long term PPAs at
competitive rates. The State Commission ought to
have initiated an enquiry into such power purchase
by the Distribution Licensees and held against them
for excess power purchase cost.
(b) One of the Distribution Licensees - Dakshin anchal
Vidyut Vitran Nigam Limited has given a franchisee
in the Agra area which has been given to Torrent
Power Limited. The bulk supply price fixed by the
State Commission for purchase of power by the
distribution licensees is Rs. 2.64 per unit for FY
2011–12 and Rs. 3.75 per unit of FY 2012–13 and
the same is being supplied to Torrent Power Limited
at Rs. 1.54 per unit for FY 2010–11, Rs. 1.55 per
unit for FY 2011–12 and Rs. 1.71 per unit 2012–13,
Therefore, the consumers in all other areas are
cross subsidizing the supply of power by
Dakshinanchal Vidyut Vitran Nigam Limited to
Torrent Power Limited.


CIVIL APPEAL NO. 23514 OF 2017 Page 69 of 88




(c) The issue is not with regard to the power of the
Distribution Licensee to appoint a franchisee but
that if a franchisee is given by a Distribution
Licensee in its area of operation, why should the
consumers of the other Distribution Licensees bear
the tariff burden on account of supply of cheaper
power by one of the Distribution Licensees to the
franchisee.
(d) The Rosa Power Plant was commissioned on
12/13.3.2010. However, the necessary
transmission evacuation facility (220 KV line) was
not available due to the mistakes of the distribution
licensee/transmission licensee/Rosa Power Supply
Co. Ltd and the power could not be evacuated from
the COD of Rosa Power Plant on 13.3.2010 for a
period of 6 months till the transmission facility
came. The power generated by Rosa in these 6
months was supplied to nearby rural areas. The
licensees received fix amount per month from such
consumers. The balance amount (i.e. the difference
between the tariff paid to Rosa and fix charges
recovered from rural consumers) cannot be passed
on to the consumers.
(e) Rosa Power is one of the generating companies
having entered into a PPA with the Holding
Company for supply of power to the consumers in
the State of Uttar Pradesh. Any money excess paid
to or recovered from Rosa Power will necessarily be
a pass through in tariff and therefore, becomes a
tariff issue.

58. In reply to above submissions, the learned counsel
for the State Commission has made the following
submission:


CIVIL APPEAL NO. 23514 OF 2017 Page 70 of 88




a) The aforesaid argument is irrelevant and
immaterial since in determining the ARR of the
distribution licensee the cost of power purchased by
the licensee is the same. The revenue realized by
the licensee is calculated at the rate at which energy
is sold to the consumer, whether by the licensee
directly or through its franchisee. Hence, the rate at
which the franchisee draws power from the licensee
is immaterial for the purpose of ARR determination
of the licensee.
b) In calculating the revenue of the licensee it is only
the rate which the consumer ultimately pays which
would be taken into account for determining the
revenue in the ARR. Hence, whatever may be the
transaction between the distribution licensee and
the franchisee will not alter in any way the ARR of
the licensee as a whole.
c) The Appellant has also been unable to establish as
to how the ARR has in any way been impacted by
the so called difference in rates as mentioned
above.

59. The learned Counsel for the Distribution Licensees
has made the following submissions:
a) The bulk supply price of Rs. 2.64 per unit has been
fixed for the distribution licensee. The Discoms are
unable to recover the bulk supply price of Rs. 2.64
per unit and are incurring heavy losses. The
distribution in Agra was recovering only Rs. 1.27
per unit.
b) In order to mitigate the situation, DVVNL initiated
bidding process for identifying the Franchisee on
the Input based Model, i.e., the franchisee will buy


CIVIL APPEAL NO. 23514 OF 2017 Page 71 of 88



the electricity from the utility and shall pay the
energy charges to the utility at a pre-determined
rate. The franchisee will have to collect revenues
from the consumers through raising bills so as to
have sustainable commercial operation. The Torrent
Power among all the bidders quoted the highest rate
of Rs. 1.54 per unit for the first year and consequent
increase every year. Accordingly, DVVNL entered
into agreement with Torrent to operate as their
franchisee.
c) The payment made by Torrent Power Ltd a
franchise of DVVNL is based on Input unit on the
basis of agreement entered into between Torrent
Power Ltd and DVVNL.

d) The Hon'ble High Court of Bombay, Nagpur Bench
in its judgment dated 12.02.2008 in W.P. No. 3701
of 2007; Citizen Forum Maharashtra v. state of
Maharashtra (Paras 45-51) has upheld the power of
distribution licensee to appoint distribution
franchisee for the benefit of consumers.
e) The delay in commissioning of Transmission lines
relates FY 2009–10 and UP Transmission Licensee
and the said issue cannot be raised in the present
Appeal relating to Discoms.

60. We have carefully considered the submissions
made by both the parities. The crux of the submissions
made by the Appellant is that the Franchisee is being
supplied power at rate lower than the bulk supply rate
of the Distribution Licensee itself. The shortfall in the
revenue of the licensee is to be recovered from the
consumers of the Licensee in the remaining area to
meet its ARR.



CIVIL APPEAL NO. 23514 OF 2017 Page 72 of 88



61. According to the Appellant, the State Commission
has allowed higher power purchase cost to the
Distribution Licensees. It is further stated that the
distribution licensees are purchasing high cost power
on short term basis without proper planning and
without entering into long term PPAs at competitive
rates. But the State Commission has failed to initiate
an enquiry into such power purchase by the
distribution licensees.

62. According to the State Commission the ground
urged by the Appellant is irrelevant and immaterial
since in determining the ARR of the distribution
licensee, the cost of power purchased by the licensee is
the same and hence, the rate at which franchise draws
power from the licensee is immaterial for the purpose of
ARR determination of the licensee.

63. The reply statements of the Respondent including
the State Commission are not only evasive but also not
to the core of the issue raised by the Appellant.

64. On going through the impugned order it is clear that
the State Commission has allowed the power purchase
cost as claimed by the distribution licensee without
considering the following salient aspects.
“i) One of the Distribution Licensees - Dakshin anchal
Vidyut Vitran Nigam Limited has given a franchisee in
the Agra area which has been given to Torrent Power
Limited. The bulk supply price fixed by the State
Commission for purchase of power by the distribution
licensees is Rs. 2.64 per unit for FY 2011–12 and Rs.
3.75 per unit of FY 2012–13 and Rs. and the same is
being supplied to Torrent Power Limited at Rs. 1.54 per


CIVIL APPEAL NO. 23514 OF 2017 Page 73 of 88



unit for FY 2010–11, Rs. 1.55 per unit for FY 2011–12
and Rs. 1.71 per unit 2012–13, Therefore, the
consumers in all other areas are subsidizing the supply
of power by Dakshin anchal Vidyut Vitran Nigam
Limited to Torrent Power Limited.
ii) The Rosa Power Plant was commissioned on
12/13.3.2010. However, the necessary transmission
evacuation facility (220KV line) was not available due
to the mistakes of the distribution
licensee/transmission licensee/Rosa Power Supply
Co. Ltd and the power could not be evacuated from the
COD of Rosa Power Plant on 12/13.3.2010 for a period
of 6 months, when the transmission facility came and
maximum power generated by Rosa supply to nearby
rural area in 6 months were licensees received fix
amount per month from such consumers. This amount
can not be passed on to the consumers. This aspect
was raised by the Appellants but no finding has been
given by the State Commission.

65. The finding of the State Commission is only this:—
“C) The Commission's view:— 3.8.6 The Commission
notes that M/s Torrent Power Ltd has been appointed
input based franchisee by the licensee.”

66. According to the distribution licensee, since the
Torrent Power was chose as a input based franchisee
which was improving recovery of the prices in a
particular franchisee area and the franchise
arrangement has been approved by the High Court of
Bombay in W.P. No. 3701 of 2007 and therefore there
is nothing wrong in appoint Torrent Power as a
franchisee. This contention by the Distribution Licensee


CIVIL APPEAL NO. 23514 OF 2017 Page 74 of 88



is not relevant. The issue raised by the Appellants is
not with reference to the power of the distribution
licensee to appoint a franchisee. The real question
arises is this - “When a franchisee has been given by
the distribution license in its area of operation, who
should the consumers of the other distribution licensees
bear the tariff burden on account of supply of cheaper
power by one of the Distribution Licensees to the
franchisee?”

67. The contention of the Appellant appears to be
attractive at first rush of blood. But there is something
deeper. The issue in the present case can be addressed
simply by saying that the Commission did not allow the
Licensee to recover its full ARR. The approved average
revenue recovery rate through tariff is only 77% of the
average cost of supply. Thus, the Commission has left
huge gap including the loss suffered due to lesser tariff
to the franchisee.

68. Let us tackle the issue from the root to settle it for
once and all.

69. The Licensee gathers power to distribute electricity
in its area of supply through another person
th
(Franchisee) from 7 Proviso to section 14 of the Act
reproduced below:
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


CIVIL APPEAL NO. 23514 OF 2017 Page 75 of 88



licensee shall be responsible for distribution of
electricity in his area of supply:

70. The question arises as to why a licensee should
appoint a franchise for a particular area. The licensee
control large area of supply. Some areas within its area
of supply have higher losses than the average loss. The
licensee may deem it fit to hand over such an area,
where system losses are higher than the average
losses in his area of supply to some franchise. It is to
be noted that when losses are higher, the average
revenue recovery rate would have to be lesser than
average revenue recovery rate of the licensee. The
franchise is expected to purchase power from the
licensee and supply to the consumers at the same tariff
fixed for other areas of the licensee. The franchise has
to incur capital expenditure to reduce the losses to
make the franchise business workable. If the franchise
purchase power at average power purchase cost of the
licensee and supply at tariff applicable to other areas,
the franchise business will never become viable.

71. There are many models of appointing the
Franchisee and one of such model is ‘on the basis of
Input costs’. Under this model the Franchisee is sold
electricity by the licensee at certain predetermined rate
and the franchisee distributes the electricity in its area
and recovers the costs at price not more than retail tariff
of the Licensee. The Franchisee is responsible for the
reduction of losses. The areas given to it for distribution
is high loss area. The franchisee would earn profit only
if he is able to reduce the losses to a certain level else
he would suffer loss.



CIVIL APPEAL NO. 23514 OF 2017 Page 76 of 88



72. The average revenue recovery rate of Agra was
only Rs. 1.27 per unit. The bulk supply rate for the
licensee was Rs. 2.64 per unit. Thus, the licensee was
suffering a loss of Rs. 1.37 per unit to supply power in
this area. Accordingly, the consumers of other areas
would have been subsidizing this amount. With the
appointment of a Franchisee at Bulk supply rate of Rs.
1.54 per unit, the cross subsidisation by the consumers
of other areas gets mitigated by 27 paise per unit.

73. Accordingly, the issue is decided against the
Appellants. ”
(Emphasis supplied)


66. What is worth noting is that the concept of cross subsidization is not
alien to the electricity distribution sector. It aims to balance social
objectives with the financial health of the electricity sector and is done
on the basis of population mix of an area or in some circumstances
even when there are high losses in an area. It is a well settled position
of law that the courts refrain from encroaching into the powers of the
Government or the legislature. Therefore, the courts cannot question
the rationale and wisdom behind cross subsidies. However, there is
not an iota of doubt in our minds that cross subsidization as a
standalone cause for challenging the fixation of an annualized input
rate lower than the bulk supply rate of the distribution licensee,
cannot be accepted. What can also be discerned from the aforesaid
exposition is that the input-rate model of distribution franchisee may
not always be successful in attracting bids that will entirely mitigate
the cost of cross subsidization. Bids for input rates lower than bulk
supply rate may be received for areas experiencing very high AT&C
losses as the investment required would be manifold. This is because,
the higher the anticipation of capital expenditure will be, the lower
will be the input rate quoted by a franchisee. Such low input rates


CIVIL APPEAL NO. 23514 OF 2017 Page 77 of 88



cannot be taken to mean that they are deliberately or mischievously
undervalued, without any substantial evidence that there has been
misrepresentation of the required investment and expenses.

67. We are dismayed to find that the respondent no. 4, though, has
levelled serious allegations against the respondent no. 2 and the
appellant, yet has not provided any reasons or documentation in
respect of how the appellant and respondent no. 2 are in violation of
tariff orders. Further, even the Expert Committee Report dated
09.01.2017 does not shed any light on how tariff orders are being
contravened by the appellant. The remit of the said Committee was to
study the levels of loss reductions, collection efficiency and extension
of benefit to the consumers. Even though the Expert Committee made
some suggestions in respect of all the points of study, yet it did not
make an adverse remark against the appellant that would translate
to blatant illegality.

68. What is discernible from the aforesaid is that unless some satisfactory
grounds are given for initiating an investigation, a petition or an
application under Section 128 cannot be held to be maintainable. The
ERCs are required to consider matters in public interest wherever
mandated by the Act, 2003, i.e., in matters relating to tariff
determination, procurement of power processes, and utility/licensee
management which requires safeguarding of consumer interest
alongside the commercial principles. We are, therefore, of the
considered view that in the present case, the petition of the
respondent no. 4 filed under Section 128 does not fulfill the
parameters of satisfaction required under the said Section.




CIVIL APPEAL NO. 23514 OF 2017 Page 78 of 88



(iv) Whether the ERCs have the jurisdiction to review the
functioning of a distribution licensee to supply
electricity through a franchisee?

69. Though we have held the petition under Section 128 to be not
maintainable in the case on hand, yet in our opinion, such
observation cannot have blanket application over distribution
licensees and franchisees.

70. Under the Act, 2003, the business of distribution/supply of electricity
can be undertaken by a Distribution Licensee licensed by the ERCs
under Section 12. However, according to the seventh proviso to
Section 14, the supply of electricity can be undertaken either by the
distribution licensee or through another person authorised by the
distribution licensee. It is pertinent to note herein that ERCs under
Section 181 of the Act, 2003 frame regulations to carry out the
provisions of the Act including the conditions of license as mandated
in Section 16. Under the Conditions of Distribution License
Regulations, 2004, the following are forthcoming:
" 4. COMPLIANCE OF LAWS, RULES AND
REGULATIONS

4.1 The Distribution Licensee shall comply with the
provisions of the Applicable Legal Framework, Rules,
Regulations, Orders, and Directions issued by the
Commission from time to time and the provisions of all
other applicable laws.

4.2 The Distribution Licensee shall act in accordance
with these General Conditions except where the
Distribution Licensee is exempted from any provisions
of these General Conditions at the time of the grant of
Licence or otherwise specifically by an approval of the
Commission to any deviation there from.



CIVIL APPEAL NO. 23514 OF 2017 Page 79 of 88



4.3 The Distribution Licensee shall duly comply with
the order and directions of the National Load Despatch
Centre, Regional Load Despatch Centre and the State
Load Despatch Centre and other statutory authorities
issued in the discharge of their functions under the
Applicable Legal Framework.

4.4 The Licensee shall comply with the Orders or
Directions issued by the Forum and Electricity
Ombudsman.

4.5 Licensee shall give consultancies / assignment to
its group companies /sister concerns/ subsidiary
companies only after prior approval of Commission

5. ACTIVITIES OF THE DISTRIBUTION LICENSEE

5.8 The Licensee may undertake distribution of
electricity for a specified area (franchise) within his
Area of Supply through another Person. Such Person
shall not be required to obtain any separate Licence
from the Commission. The Licensee shall continue to be
responsible for distribution of electricity in its Area of
Supply and –
(a) Such Person shall operate under the overall
supervision and control of the Licensee and upon the
terms and conditions of the Licence and comply with all
Regulations, guidelines or orders of the Commission;
(b) Establishment of such arrangements shall not alter
the Licensee’s duties and obligations pursuant to
general or specific conditions of Licence;
(c) The cost of providing service shall not be higher than
if the Licensee performed such tasks itself; and
(d) For any act or omission of such Person, the Licensee
shall be responsible.

5.10 The Distribution Licensee may establish
Subsidiaries or associated companies or grant a
Franchisee or enter into management contracts
including appointment of billing agent to conduct or


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carry out any of the functions, which the Distribution
Licensee is authorised to conduct or carry under the
Licence Provided that the Licensee shall be responsible
for all actions of the Subsidiaries or associated
companies or Franchisees or agents or contractors.

5.11 Except as provided in clause 5.8 above the
Distribution Licensee shall not transfer or assign the
Licence or any of the functions under the Licence to any
other Person without the prior approval of the
Commission.

7. PROVISION OF INFORMATION TO THE
COMMISSION

7.1 The Distribution Licensee shall furnish to the
Commission without delay such information,
documents and details related to the Licensed
Business or any Other Business of the Distribution
Licensee, as the Commission may require from time to
time for its own purposes or for the purposes of the
Government of India, State Government, the Central
Commission, the Central Electricity Authority, the State
Transmission Utility and State Load Dispatch Centre.

7.2 The Distribution Licensee shall duly maintain the
information as the Commission may directed under
Section 128 of the Act.”

71. Therefore, whilst an ERC may not directly regulate a franchisee, it
exercises regulatory oversight over the distribution licensee’s
functions and duties, including the process of a distribution licensee
delegating some of its functions and activities to a franchisee. Further,
Sections 16, 18, 19 and 20 of the Act, 2003 respectively, prescribe
that the ERC can stipulate/review the terms and conditions under
which a distribution licensee may delegate its electricity distribution


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responsibilities to a franchisee. Such stipulation/review occurs as a
part of ERC’s regulatory functions.

72. It is apposite to observe that the Act, 2003 does not provide for a direct
regulatory oversight by the ERCs in respect of the distribution
franchisees. Part IV of the Act, 2003, from Sections 12 to 24 deals
with licensing which inter-alia includes the procedure for grant of
licence, conditions of licence, actions that a licensee may not
undertake, amendment of licence, revocation of licence, sale of
utilities of licensees, directions to licensees, and suspension
of distribution licence and sale of utility. All these stipulations are
to regulate the distribution licensee. There is no such stipulation
provided to control or regulate the relationship between a licensee and
franchisee. Thus, the contractual terms and conditions of the
authorization by the distribution licensee provided to the franchisee
are privy to the said parties. [See: Global Feeds Feedback Energy
Distribution Company Private Ltd. v. Govt. of Odisha , reported in
2019 SCC OnLine Ori 205 ]


73. It is well settled that the relationship between the distribution licensee
and franchisee is one of agency. As a natural corollary, the franchisee
is accountable only to the distribution licensee, who in turn is
accountable to the consumers. We refer to the APTEL’s decision in
City Corporation Limited v. Maharashtra Electricity Regulatory
Commission and Anr. reported in 2024 SCC OnLine APTEL 103 to
fortify this point. The relevant observations therein read thus:

“40. Consequently, since Section 86(1)(f) of
the Electricity Act does not specifically provide for
the franchisee to file a petition questioning prescription
of a very low percentage towards distribution losses or
reimbursement charges, the MERC must be held to lack
jurisdiction, to entertain and adjudicate a petition filed
by them, under the said provision. The MERC can


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exercise jurisdiction to determine tariff of
a distribution licensee under Section 62(1)(d) of
the Electricity Act in the exercise of its regulatory
functions under Section 86(1)(b) on a petition filed by
a Distribution licensee. It lacks jurisdiction to entertain
and adjudicate a petition filed by anyone else, such as
a franchisee, nor can a tariff order, passed with respect
to a distribution licensee, be held to apply to
a franchisee.

41. In considering the question whether MERC has
jurisdiction to adjudicate a dispute between a
distribution licensee and its franchisee, it is useful to
examine the provisions of the Electricity Act relating to
a franchisee. Section 2(27) of the Electricity Act, 2003
stipulates that in the Electricity Act, unless the context
otherwise requires, “franchisee” shall mean a person
authorised by a distribution licensee to distribute
electricity on its behalf in a particular area within his
area of supply. Section 14 relates to grant of license
and, under Section 14(b), the Appropriate Commission
may, on an application made to it under Section 15,
grant a licence to any person to distribute electricity as
a distribution licensee. Under the seventh proviso to
Section 14, in 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 a separate licence from the concerned State
Commission, and such distribution licensee shall be
responsible for distribution of electricity in his area of
supply.



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42. The person, referred to in the seventh proviso to
Section 14, is the franchisee as defined in Section 2(27)
of the Electricity Act. It is clear, from a conjoint reading
of Section 2(27) and the seventh proviso to Section 14
of the Electricity Act, that (i) the franchisee is a person
authorised by a distribution licensee to distribute
electricity on its behalf, and (ii) such distribution of
electricity by a franchisee is confined to a particular
area within the area of supply of the distribution
licensee. In other words, a distribution licensee can
authorise another person as its franchisee to
distribution electricity on its behalf within an area as
may be specified by it, provided such a specified area
forms part of the area of supply of the distribution
licensee. Such a franchisee, in view of the seventh
proviso to Section 14, does not require a separate
licence since the responsibility to ensure distribution of
electricity in its area of supply (including the specified
area in which the franchisee supplies electricity on
behalf of the distribution licensee) is that of the
distribution licensee. In short, a distribution licensee is
the principal and the franchisee is its agent. While the
franchisee is, no doubt, accountable to the distribution
licensee in the discharge of its obligations under the
distribution franchisee agreement (entered into
between the distribution licensee and the franchisee),
it is the distribution licensee which is accountable to its
consumers including those consumers to whom
electricity is supplied, on its' behalf, by the franchisee.
Except Section 2(27) and the Seventh Proviso to Section
14, which make it clear that the franchisee is merely
the agent of the distribution licensee, and it is the
distribution licensee which is eventually responsible,
for distribution of electricity, to the consumers in its


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area of supply, there is no other provision in the
Electricity Act which specifically relates to a franchisee.

---xxx---

90. Unlike the tariff of a distribution licensee (including
the distribution losses it is permitted to incur) which is
statutorily required to be determined by the Regulatory
Commission under Section 62(1)(d) of the Electricity
Act, the distribution losses which a franchisee is
entitled to incur, and the reimbursement compensation
it is entitled to receive, are not governed by any
provision of the Electricity Act, but are those stipulated
in the contractual provisions of the Distribution
Franchisee Agreement which it enters into as an agent
with the Distribution licensee, its principal. It is clear,
therefore, that the tariff orders passed by MERC, for
retail sale of electricity by the second Respondent-
MSEDCL to the consumers in its area of supply, cannot
be said to be an order passed by the Commission with
respect to the Appellant franchisee, violation of which
would require the MERC to adjudicate the dispute on
its jurisdiction being invoked under Section 86(1)(k)
read with Section 142 of the Electricity Act.

---xxx---

95. The challenge to the other conditions stipulated in
the DFA are also matters which fall outside the
jurisdiction of the MERC. Since an appeal under Section
111 of the Electricity Act lies only against orders
passed by Regulatory Commissions, the Appellant
cannot agitate its grievance, relating to the validity of,
or the terms and conditions imposed under, the DFA in


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appellate proceedings before this Tribunal, as the
State Commission lacked jurisdiction to examine these
aspects. The issue of open access has been dealt with
earlier in this order, and is therefore not being dealt
with under this head.”
(Emphasis supplied)


74. Further, the Conditions of Distribution License Regulations, 2004,
more particularly Regulation 7.2 thereof, unequivocally places an
obligation on the distribution licensee to furnish any information that
the UPERC may ask for. Following the approach of decentralization of
electricity distribution adopted by the Act, 2003, the said Regulations
do not require furnishing of any information from the franchisee
directly.

75. The aforesaid exposition of law leaves no manner of doubt in our
minds that the Act, 2003 does not envisage direct regulatory oversight
as regards distribution franchisees and by virtue of their relationship
of agency, such franchisees can only be indirectly regulated through
the distribution licensee. Therefore, even an investigation under
Section 128 can only happen in respect of a distribution licensee and
not its franchisee. This is in consonance with the principle of agency.
Any action of the franchisee is equivalent to such action having been
committed by a distribution licensee. Therefore, only the distribution
licensee can be questioned for any action that its agent commits.

76. Although the Tribunal, in para 11.7 of its impugned order, upholds
the right of DVVNL as a distribution licensee, to appoint the appellant
as a franchisee for Agra, yet it seeks to review the progress of the
appellant without there being any specific provision in the Act, 2003
allowing for such review. The UPERC as well as the APTEL should
have been mindful of the fact that it cannot micromanage a
distribution franchisee transaction obliquely and question various
aspects of the functioning of such franchisee including its collection,


CIVIL APPEAL NO. 23514 OF 2017 Page 86 of 88



efficiency and the manner or quantum of reduction of distribution
losses.

77. Even otherwise, if we were to limit our observations on the issue
whether an investigation under Section 128 could be ordered against
DVVNL or respondent no. 2, we will be compelled to answer in the
negative. It goes without saying that the investigation to be conducted
by an authority under Section 128 is to be limited to only two
eventualities: (i) if the licensee fails to abide by the terms of its license,
and (ii) if the licensee acts in contravention to the provisions of the
Act, 2003 and the regulations thereunder. The exposition in the
aforesaid clarifies that the threshold of “satisfaction” required to order
an investigation under Section 128 was not met by the respondent no.
4 and even the Expert Committee did not present any findings as
regards these two considerations.

E. CONCLUSION

78. In the overall view of the matter, we have reached the conclusion that
the UPERC fell in serious error in entertaining the petition filed by the
respondent no. 4 and passing the order constituting an expert
committee. The APTEL also failed to look into the error committed by
the UPERC and dismissed the appeal filed by the appellant-herein.

79. In the result, the appeal succeeds and is hereby allowed. The
impugned order passed by the APTEL is hereby set aside. As a
consequence, the report of the Expert Committee also pales into
insignificance.

80. Pending application(s), if any, are disposed of.




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81. No orders as to cost.

…………………………………J.
(J.B. PARDIWALA)



………………………………….J.
(R. MAHADEVAN)

th
14 July 2025,
New Delhi.















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