Quasi-Judicial Authorities Must Disclose Evidence and Maintain Procedural Fairness During Prudence Checks

The Appellant, a distribution licensee in Delhi, challenged the Tariff Order dated 28.03.2018 passed by the Delhi Electricity Regulatory Commission (DERC/Respondent). The impugned order trued up the Aggregate Revenue Requirement (ARR) for FY 2016-17 and approved the ARR/Tariff for FY 2018-19

While 26 issues were originally raised, several were disposed of by previous orders or withdrawn.

The Tribunal ultimately adjudicated two surviving issues: (i) the disallowance of ₹17.43 Crores as expenses towards "Other Business Income" based on an undisclosed audit report [para. 11], and (ii) the disallowance of ₹1.60 Crores in water charges paid to the Delhi Jal Board under an amnesty scheme

1. Whether the State Commission’s disallowance of expenses towards Other Business, predicated on an undisclosed internal auditor's report and without affording an opportunity for rebuttal, violated principles of natural justice and transparency under Section 86(3) of the Electricity Act, 2003.

2. Whether the Appellant is entitled to a one-time pass-through of water charges paid for the pre-privatization (DVB) period under a statutory amnesty scheme, notwithstanding the normative nature of O expenses under the MYT Regulations, 2011.

Section 86(3) of the Electricity Act, 2003, which mandates transparency in the Commission's functions.

The court relied on Kothari Filaments v. Commr. of Customs and T. Takano v. SEBI, establishing that quasi-judicial authorities cannot base decisions on material not disclosed to the affected party.

DERC (MYT) Regulations, 2011, which classify O as a "controllable parameter" determined normatively.

Rule 8(3) of the Delhi Electricity Reform (Transfer Scheme) Rules, 2001, which permits liabilities from events prior to the transfer date to be included in the Discom’s revenue requirement (up to ₹1 Crore per annum) if approved by the Commission.

Regarding Issue 1, the Tribunal found that DERC's reliance on an internal auditor's finding—which alleged that the "Other Business" expenses were already covered under normative O—was legally flawed because the audit report was never shared with the Appellant.

This prevented the Appellant from contesting the data or explaining why these were distinct, incremental costs.

Regarding Issue 2, the Tribunal acknowledged the Respondent’s argument that O is generally normative and not trued-up [para. 36]; however, it noted that these specific water charges pertained to the DVB period (prior to 2002) and thus could not have been factored into the "Base Year" audited accounts used for current normative calculations.

The Tribunal reasoned that since the Appellant mitigated consumer burden by settling only the principal amount under an amnesty scheme, and because the Transfer Scheme Rules specifically provide for handling historical liabilities, a rigid application of normative limits would be unjust.

On Issue 1: DERC is directed to provide the audit report/findings to the Appellant and afford them a reasonable opportunity to explain the "Other Business" expenses before passing a reasoned order [para. 28]. On Issue 2: DERC is directed to conduct a prudence check on the water charges paid under the amnesty scheme, considering Rule 8(3) of the Transfer Scheme Rules [para. 42]. DERC must also examine the claim for carrying cost and pass orders within three months.