Indian Railways as a Consumer Liable for Cross-Subsidy Surcharge Despite Status as Deemed Distribution Licensee

In brief

The question

1. Whether the activities provided under Section 11(g) and (h) of the Railways Act constitute "distribution" of electricity and qualify the Appellant as a DDL

The court held

The Supreme Court dismissed the appeals and upheld the APTEL judgment. It held that the Indian Railways is not a Deemed Distribution Licensee and is a "consumer" for the purpose of open access

It also directed

The Court ordered the Railways to pay the outstanding Cross-Subsidy Surcharge and Additional Surcharge as computed by the respective DISCOMS. The interim protection against the payment of these charges was vacated

01Facts

The Appellant, Indian Railways, sought to procure 100 MW of power via inter-state open access from Gujarat for its traction substations in Maharashtra

p. 3, para 5.1

Transmission utilities and various State Electricity Regulatory Commissions (SERCs) disputed the Railways' status, primarily whether it qualifies as a "deemed distribution licensee" (DDL) exempt from certain surcharges

p. 2, para 4

The Railways contended that under Section 11 of the Railways Act, 1989, it has independent statutory authority to distribute electricity

p. 4, para 5.2(b)

In 2015, the CERC ruled in favor of the Railways

p. 6, para 5.4

On 12.02.2024, the APTEL set aside the CERC order, holding that the Railways is primarily a consumer and not a DDL under the Electricity Act, 2003

p. 10, para 5.7

02Issues

i.1. Whether the activities provided under Section 11(g) and (h) of the Railways Act constitute "distribution" of electricity and qualify the Appellant as a DDL

p. 26, para 14(i)

ii.2. Whether the Indian Railways qualifies as an "Appropriate Government" under Section 2(5) and Section 14 of the Electricity Act

p. 26, para 14(ii)

iii.3. Whether the Indian Railways, even if held to be a DDL, is exempt from paying Cross-Subsidy Surcharge (CSS) and Additional Surcharge (AS) for open access under Section 42

p. 26, para 14(iii)

iv.4. Whether a proposed but unpassed legislation (Draft Electricity Amendment Bill, 2025) can be used as an aid to interpret existing statutory gaps

p. 26, para 14(iv)

03Law Applied

Electricity Act, 2003, specifically Section 2(17) defining a distribution licensee, Section 2(19) defining a distribution system, and Section 14, which provides for deemed licensee status

pp. 27-28

Section 11 of the Railways Act, 1989, regarding the power to erect electrical installations

p. 29, para 19

The precedent in Sesa Sterlite Ltd. v. OERC (2014), which established that an entity consuming electricity for its own use, even if technically a licensee, is a "consumer" for the purpose of surcharges

p. 50, para 58

Functional test for "Appropriate Government" from SAIL v. National Union Waterfront Workers (2001)

p. 40, para 42

Principle that a legislative casus omissus cannot be supplied by courts, as seen in Vodafone International Holdings BV v. Union of India (2012)

p. 56, para 67

Provisions in the judgment · 13 · Linked ones open on LawLens

Electricity Act, 2003 10 provisions

Section 2 Section 12 Section 14 Section 16 Section 42 Section 47 Section 61 Section 107 Section 125 Section 173

Railways Act, 1989 Section 2 Section 11 Section 18

04Reasoning

The Court reasoned that "distribution" under the Electricity Act requires the twin functions of maintaining a system and supplying electricity to third-party consumers

p. 27, para 16

It found that the Railways’ "distribution installations" under Section 11 of the Railways Act are for internal conveyance and self-consumption, not for sale to consumers, thus failing the definition of a distribution system

p. 30, para 21

Although the Court acknowledged the Railways functions under the authority of the Central Government (satisfying the functional test for "Appropriate Government"), it held that this nominal status does not grant DDL benefits without the substantive act of distribution

pp. 43-44, para 47-48

Applying the Sesa Sterlite functionality test, the Court determined that since the Railways uses the procured power for its own traction and operations, it is a "consumer" under Section 2(15)

p. 50, para 57

Consequently, it is liable to pay CSS and AS under Section 42(2) and 42(4) to compensate DISCOMS for stranded costs and the loss of cross-subsidy

pp. 46-47

Finally, the Court noted that the Draft Electricity (Amendment) Bill, 2025—which proposes a 5-year phase-out of CSS for Railways—proves that such an exemption does not exist in the current law

pp. 53-55, para 64-65

05Holding

The Supreme Court dismissed the appeals and upheld the APTEL judgment. It held that the Indian Railways is not a Deemed Distribution Licensee and is a "consumer" for the purpose of open access

pp. 57, para 69-71

p. 59

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