REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5875 OF 2012
GUJARAT URJA VIKAS NIGAM LIMITED ...APPELLANT(S)
VERSUS
TARINI INFRASTRUCTURE LTD. & ORS. ...RESPONDENT(S)
WITH
CIVIL APPEAL NOS. 1973-1974 OF 2014
J U D G M E N T
RANJAN GOGOI, J.
1. Is the tariff fixed under a PPA (Power Purchase Agreement) sacrosanct
and inviolable and beyond review and correction by the State Electricity
Regulatory Commission which is the statutory authority for fixation of
tariff under the Electricity Act, 2003 (hereinafter for short ‘the Act’).
This is the short question that arises for determination in the present
appeals. The Regulatory Commission did not consider it appropriate to
confer on itself the said power upon a construction of the provisions of
the Act and the terms of the PPA(s) in question. The Appellate Tribunal
disagreed and held that the power would be available to the State
Regulatory Commission. This is how the matter has come up before us in the
present appeals filed at the instance of the distribution licensee which is
common in both the cases, namely, Gujarat Urja Vikas Nigam Limited.
2. A very brief resume of the relevant facts would be appropriate and
would assist a determination of the question arising identified
hereinabove.
The respondent No. 1 in Civil Appeal No. 5875 of 2012, namely, Tarini
Infrastructure Ltd., is a power producer which has set up/installed two
small hydro power projects in the State of Gujarat. In January, 2008 the
respondent No. 1-power producer entered into a PPA with the appellant-
distribution licensee for sale of electricity from the generating stations
to the extent of the contracted quantity for a period of 35 years at Rs.
3.29 per KWH subject to escalation of 3% per annum till date of commercial
operation. In March, 2010, just before commissioning of the generating
station, the respondent power producer sought an increase in the tariff to
Rs. 4.70 per unit on the ground that though under the Concession Agreement
power was to be evacuated at the nearest sub-station at Rakholi under the
jurisdiction of the Gujarat Electricity Transmission Company (GETCO) which
was at a distance of 4 Kms from its switch yard, it was later realized that
Rakholi was in Dadar Nagar Haveli. Consequently, the transmission line was
required to be laid up to a point known as Mota Pondha which involved a
total distance of 23 Kms. instead of the originally envisaged 4Kms. The
additional infrastructure, admittedly, cost about Rs. 10 crores which was
not envisaged in the Concession Agreement entered into between the
respondent-power producer and Narmada Water Resources Department
(respondent No. 2). In these circumstances, the power producer applied to
the State Regulatory Commission for a redetermination of the tariff. The
said request was refused by an order dated 03.09.2010, primarily, on the
ground that once the tariff was determined and thereafter incorporated in
the PPA there was no scope for redetermination of the same at the
unilateral request of the power producer.
3. Insofar as Civil Appeal Nos. 1973-1974 of 2014 are concerned, the
respondent-power producer, namely, Junagadh Power Projects Pvt. Ltd., has
set up a biomass based power generation plant and had entered into a PPA
with Gujarat Urja Vikas Nigam Limited (distribution licensee) on
26.11.2010. The tariff incorporated in the PPA was earlier approved by
the State Regulatory Commission by tariff order dated 17.05.2010 on the
basis of cost of biomass at Rs. 1600 per MT with escalation of 5% per annum
for a period of 20 years of operation. The Biomass Energy Developers
Association sought revision of the biomass fuel cost to Rs. 3000/- per MT
and for consequential redetermination of the tariff. The said review
petition was dismissed by the State Commission in November, 2010.
Thereafter, the power producer, on its own, moved the State Regulatory
Commission seeking modification of tariff on account of air cooled
condenser and also seeking increase in the biomass fuel cost and
consequential redetermination of the tariff on that basis. The State
Regulatory Commission by its order dated 05.12.2010, while allowing an
increase in tariff on account of air cooled condenser, rejected the request
of the power producer to review the price of biomass fuel cost, primarily,
on the ground that the review of the price of biomass fuel having been
earlier rejected in the case of Biomass Energy Developers Association, the
review of the said price at the request of the power producer cannot now be
allowed.
4. The learned Appellate Tribunal by the impugned orders overruled the
view taken by the State Regulatory Commission on a consideration of the
provisions of the Act and the terms and conditions of the PPA(s). The
above view of the learned Appellate Tribunal is primarily based on the
reasoning that under the Act it is the State Regulatory Commission which
has been statutorily vested with the power to determine the tariff and that
the tariff as may be fixed and incorporated in the PPA between the
distribution licensee and the power producer is liable to be reviewed in
the light of changes in the circumstances of a given case. In the case of
Junagadh Power Projects Pvt. Ltd. the learned Appellate Tribunal even went
to the extent of holding that if in the changed scenario occasioned by a
drastic alteration of the facts and circumstances surrounding the
determination of tariff, a review is declined/refused the power producer
will be left with no option but to shut down its plants. Therefore, a
review of the tariff in exercise of the statutory power vested in the State
Regulatory Commission would be fully justified. It is the correctness of
the aforesaid view that has been assailed in the present appeals under
Section 125 of the Act.
5. We have heard Shri C.A. Sundaram, learned senior counsel appearing
for the appellant and Shri Sanjay Sen, learned senior counsel appearing for
the respondent-power producers in both sets of appeals.
6. The arguments on behalf of the appellant-distribution licensee in
both the cases are more or less common. In the case of Tarini
Infrastructure Ltd. it is urged that under Clause 5.2 of the PPA the
appellant is required to pay tariff as determined by the State Commission
which is liable to escalation @ 3% per annum. The tariff order has not
been challenged by the power producer. Therefore, the tariff approved by
the State Regulatory Commission and incorporated in the PPA would remain in
force for the period of time agreed upon and the same cannot be altered
unilaterally. Reliance in this regard is placed on two recent decisions of
this Court in the case of Gujarat Urja Vikas Nigam Limited Vs. EMCO Ltd. &
Anr.[1] and Bangalore Electricity Supply Co. Vs. Konark Power Projects
Ltd.[2]. It is contended that in the said cases it has been held that a PPA
duly entered into and otherwise consistent with the tariff order of the
State Regulatory Commission cannot be reopened. A somewhat “discordant
note” struck by this Court in Transmission Corporation of Andhra Pradesh
Vs. Sai Renewable Power Pvt. Ltd.[3] has been sought to be explained by the
appellant by contending that in the PPA involved in that case there was a
specific clause that the tariff would be as revised by orders of the State
Regulatory Commission from time to time.
Specifically in the case of Junagadh Power Projects Pvt. Ltd. (respondent
No. 1 in Civil Appeal Nos. 1973-1974 of 2914) it is urged that the demand
raised by Biomass Energy Developers Association for redetermination of the
tariff by enhancing the fuel cost to Rs. 3000 per MT had been dismissed
earlier and the issue has attained finality in law. The PPA stood novated
to the extent of modification of tariff allowed on account of the issue of
air cooled condenser is concerned and no further, it is urged. For clarity
it may be noted that in an earlier proceeding a higher tariff had been
allowed to biomass based power plants with air cooled condensers.
7. On the other hand, on behalf of the power producers it is argued that
determination and fixation of tariff are instances of the exercise of the
statutory powers of the State Regulatory Commission under Section 62 read
with Section 86(1)(a) of the Act. The mere incorporation of the tariff in
a PPA between the generating company and the distribution licensee would
not make the tariff a consensual decision by and between the contracting
parties which, can only be altered by the Commission with the mutual
consent of the parties.
8. The decisions relied upon in Gujarat Urja Vikas Nigam Limited Vs.
EMCO Ltd. & Anr. (supra) and Bangalore Electricity Supply Co. Vs. Konark
Power Projects Ltd. (supra) have sought to be distinguished by reference to
the facts in the context of which the same have been rendered. The
observations of this Court in Transmission Corporation of Andhra Pradesh
Vs. Sai Renewable Power Pvt. Ltd. (supra) (para 64) with regard to the role
and authority of the Regulatory Commission in the matter of fixation of
tariff have been relied upon. Furthermore, the language appearing in
Section 86(1)(b) of the Act has been specifically relied upon to contend
that the said provision of the Act confers on the State Regulatory
Commission the power “to regulate the price at which electricity shall be
procured from the generating companies or licensees …….. through agreements
for purchase of power for distribution and supply within the State.”
Reliance has also been placed on the decisions on this Court in Sri Venkata
Setaramanjaneya Rice & Oil Mills and Ors. Vs. State of A.P.[4], K.
Ramanathan Vs. State of T.N. & Anr.[5] and D.K. Trivedi & Sons Vs. State of
Gujarat & Ors.[6] with regard to wide meaning of word “regulate”. It is
further pointed out that power production for purposes of supply on the
terms envisaged in the PPA is commercially not viable resulting in closure
of the Junagadh Power Projects Ltd. for the past 3 years and the possible
loss of the huge investment made.
9. The Electricity Act of 2003 has been enacted to consolidate and
upgrade the existing laws relating to generation, transmission,
distribution, trade and use of electricity; for taking measures conducive
to development of electricity as an industry; to promote competition
therein and to protect the interest of consumers; rationalize tariff and
promote efficient and environment friendly policies besides creating
different regulatory and appellate bodies to deal with highly complex
technical issues with regard to production, distribution and sale of
electricity including fixation of tariff. A reading of the provisions of
the 2003 Act would go to show that apart from fixation of tariff in a
“situation of open access” or in a situation of competitive bidding covered
by Section 63 of the Act, determination and fixation of tariff is a
statutory function to be performed by the State Regulatory Commissions
constituted under the Electricity Regulatory Commissions Act, 1988 and
exercising powers in consonance with the principles enunciated by the
Electricity Act, 2003. Insofar as fixation of tariff is concerned, Part
VII of the Act read with the functions of the State Commission contained in
Section 86 thereof are relevant and would require to be specifically
noticed. Sections 61, 62 64 and Section 86 of the Act therefore are being
extracted herein below.
“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;
1[(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 (54 of 1948), the Electricity Regulatory
Commission Act, 1998 (14 of 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.”
“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 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.”
“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.
(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
interstate 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.”
“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;
(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.”
10. While Section 61 of the Act lays down the principles for
determination of tariff, Section 62 of the Act deals with the different
kinds of tariffs/charges to be fixed. Section 64 enumerates the manner in
which determination of tariff is required to be made by the Commission. On
the other hand Section 86 which deals with the functions of the Commission
reiterates determination of tariff to be one of the primary functions of
the Commission which determination includes, as noticed above, a regulatory
power with regard to purchase and procurement of electricity from
generating companies by entering into PPA(s). The power of tariff
determination/ fixation undoubtedly is statutory and that has been the view
of this Court expressed in paragraphs 36 and 64 of Transmission
Corporation of Andhra Pradesh Vs. Sai Renewable Power Pvt. Ltd. (supra).
This, of course, is subject to determination of price of power in open
access (Section 42) or in the case of open bidding (Section 63). In the
present case, admittedly, the tariff incorporated in the PPA between the
generating company and the distribution licensee is the tariff fixed by the
State Regulatory Commission in exercise of its statutory powers. In such a
situation it is not possible to hold that the tariff agreed by and between
the parties, though finds mention in a contractual context, is the result
of an act of volition of the parties which can, in no case, be altered
except by mutual consent. Rather, it is a determination made in the
exercise of statutory powers which got incorporated in a mutual agreement
between the two parties involved.
11. The principles on which tariff is to be determined by the Commission
as set out in Section 61 have already been noticed. Generation,
transmission, distribution and supply of electricity is required to be
conducted on commercial principles; while the consumers’ interest is to be
safeguarded, recovery of cost of electricity in a reasonable manner has
also to be ensured. Under Section 64(6) a tariff order continues to remain
in force for such period as may be specified. In the State of Gujarat,
currently, the Gujarat Electricity Regulatory Commission (multi-year
tariff) Regulations, 2016 govern the fixation of tariff by the State
Commission. As per Regulation 31 the Commission is required to determine
the tariff of a generating company, transmission licensee, SLDC and
distribution licensee for each financial year during the control period
(control period is 5 years) (financial year 2016 to financial year 2021)
having regard to the following factors:
“(a) The approved forecast of Aggregate Revenue Requirement and expected
revenue from tariff and charges of the Generating company, Transmission
Licensee, SLDC and Distribution Licensee for such financial year, including
modification approved at the time of mid-term review, if any, and
(b) Approved gains and losses, including the incentive available to be
passed through in tariffs, following the Truing Up of previous year.
12. Not only the tariff fixed is subject to periodic review, furthermore
the above Regulations provide for taking into consideration the force
majeure events. Any force majeure is considered as an uncontrollable
factor. In fact Regulation 23 provides that the approved aggregate gain or
loss on account of uncontrollable factor shall be passed through as an
adjustment in the tariff over such period as may be specified in the Order
of the Commission.
13. Regulations 23 and 31 of the Gujarat Electricity Regulatory
Commission (multi-year tariff) Regulations, 2016 are reproduced hereunder.
23. Mechanism for pass through of gains or losses on account of
uncontrollable factors
23.1 The approved aggregate gain or loss to the Generating Company or
Transmission Licensee or SLDC or Distribution Licensee on account of
uncontrollable factors shall be passed through as an adjustment in the
tariff of the Generating Company or Transmission Licensee or SLDC or
Distribution Licensee over such period as may be specified in the Order of
the Commission passed under these Regulations.
23.2 The Generating Company or Transmission Licensee or SLDC or
Distribution Licensee shall submit such details of the variation between
expenses incurred and revenue earned and the figures approved by the
Commission, in the prescribed format to the Commission, along with the
detailed computations and supporting documents as may be required for
verification by the Commission.
23.3 Nothing contained in this Regulation 23shall apply in respect of any
gain or loss arising out of variations in the price of fuel and power
purchase, which shall be dealt with as specified by the Commission from
time to time.
31. Annual determination of tariff
The Commission shall determine the tariff of a Generating Company,
Transmission Licensee, SLDC and Distribution Licensee covered under a Multi-
Year Tariff framework for each financial year during the Control Period, at
the commencement of such financial year, having regard to the following:
(a) The approved forecast of Aggregate Revenue Requirement and expected
revenue from tariff and charges of the Generating Company, Transmission
Licensee, SLDC and Distribution Licensee for such financial year, including
modifications approved at the time of mid-term review, if any; and
(b) Approved gains and losses, including the incentive available to be
passed through in tariffs, following the Truing Up of previous year.”
14. When the tariff order itself is subject to periodic review it is
difficult to see how incorporation of a particular tariff prevailing on the
date of commissioning of the power project can be understood to bind the
power producer for the entire duration of the plant life (20 years) as has
been envisaged by Clause 4.6 of the PPA in the case of Junagadh. That
apart, modification of the tariff on account of air cooled condensers and
denying the same on account of claimed inadequate pricing of biogas fuel is
itself contradictory.
15. As already noticed, Section 86(1)(b) of the Act empowers the State
Commission to regulate the price of sale and purchase of electricity
between the generating companies and distribution licensees through
agreements for power produced for distribution and supply. As held by this
Court in Sri Venkata Setaramanjaneya Rice & Oil Mills and Ors.
Vs. State of A.P. (supra), K. Ramanathan Vs. State of T.N. & Anr. (supra)
and D.K. Trivedi & Sons Vs. State of Gujarat & Ors. (supra) the power of
regulation is indeed of wide import. The following extracts from the
reports in the above cases would illuminate the issue.
Sri Venkata Setaramanjaneya Rice & Oil
Mills and Ors. Vs. State of A.P. (supra)
“20. Then it was faintly argued by Mr. Setalvad that the power to regulate
conferred on the respondent by Section 3(1) cannot include the power to
increase the tariff rate; it would include the power to reduce the rates.
This argument is entirely misconceived. The word “regulate” is wide enough
to confer power on the respondent to regulate either by increasing the
rate, or decreasing the rate, the test being what is it that is necessary
or expedient to be done to maintain, increase, or secure supply of the
essential articles in question and to arrange for its equitable
distribution and its availability at fair prices.
…………………………………………………..”
K. Ramanathan Vs. State of T.N. & Anr. (supra)
“18. The word “regulation” cannot have any rigid or inflexible meaning as
to exclude “prohibition”. The word “regulate” is difficult to define as
having any precise meaning. It is a word of broad import, having a broad
meaning, and is very comprehensive in scope. There is a diversity of
opinion as to its meaning and its application to a particular state of
facts, some courts giving to the term a somewhat restricted, and others
giving to it a liberal, construction. The different shades of meaning are
brought out in Corpus Juris Secundum, Vol. 76 at p. 611:
“‘Regulate’ is variously defined as meaning to adjust; to adjust, order, or
govern by rule, method, or established mode; to adjust or control by rule,
method, or established mode, or governing principles or laws; to govern; to
govern by rule; to govern by, or subject to, certain rules or restrictions;
to govern or direct according to rule; to control, govern, or direct by
rule or regulations.
‘Regulate’ is also defined as meaning to direct; to direct by rule or
restriction; to direct or manage according to certain standards, laws, or
rules; to rule; to conduct; to fix or establish; to restrain; to restrict.”
See also: Webster’s Third New International Dictionary, Vol. II, p. 1913
and Shorter Oxford Dictionary, Vol. II, 3rd Edn., p. 1784.
19. It has often been said that the power to regulate does not necessarily
include the power to prohibit, and ordinarily the word “regulate” is not
synonymous with the word “prohibit”. This is true in a general sense and in
the sense that mere regulation is not the same as absolute prohibition. At
the same time, the power to regulate carries with it full power over the
thing subject to regulation and in absence of restrictive words, the power
must be regarded as plenary over the entire subject. It implies the power
to rule, direct and control, and involves the adoption of a rule or guiding
principle to be followed, or the making of a rule with respect to the
subject to be regulated. The power to regulate implies the power to check
and may imply the power to prohibit under certain circumstances, as where
the best or only efficacious regulation consists of suppression. It would
therefore appear that the word “regulation” cannot have any inflexible
meaning as to exclude “prohibition”. It has different shades of meaning and
must take its colour from the context in which it is used having regard to
the purpose and object of the legislation, and the Court must necessarily
keep in view the mischief which the legislature seeks to remedy.”
D.K. Trivedi & Sons Vs. State of Gujarat & Ors. (supra)
“30. Bearing this in mind, we now turn to examine the nature of the rule-
making power conferred upon the State Governments by Section 15(1).
Although under Section 14, Section 13 is one of the sections which does not
apply to minor minerals, the language of Section 13(1) is in pari materia
with the language of Section 15(1). Each of these provisions confers the
power to make rules for “regulating”. The Shorter Oxford English
Dictionary, 3rd Edn., defines the word “regulate” as meaning “to control,
govern, or direct by rule or regulations; to subject to guidance or
restrictions; to adapt to circumstances or surroundings”. Thus, the power
to regulate by rules given by Sections 13(1) and 15(1) is a power to
control, govern and direct by rules the grant of prospecting licences and
mining leases in respect of minerals other than minor minerals and for
purposes connected therewith in the case of Section 13(1) and the grant of
quarry leases, mining leases and other mineral concessions in respect of
minor minerals and for purposes connected therewith in the case of Section
15(1) and to subject such grant to restrictions and to adapt them to the
circumstances of the case and the surroundings with reference to which such
power is exercised. It is pertinent to bear in mind that the power to
regulate conferred by Sections 13(1) and 15(1) is not only with respect to
the grant of licences and leases mentioned in those sub-sections but is
also with respect to “purposes connected therewith”, that is, purposes
connected with such grant.”
16. All the above would suggest that in view of Section 86(1)(b) the
Court must lean in favour of flexibility and not read inviolability in
terms of the PPA insofar as the tariff stipulated therein as approved by
the Commission is concerned. It would be a sound principle of
interpretation to confer such a power if public interest dictated by the
surrounding events and circumstances require a review of the tariff. The
facts of the present case, as elaborately noted at the threshold of the
present opinion, would suggest that the Court must lean in favour of such a
view also having due regard to the provisions of Sections 14 and 21 of the
General Clauses Act, 1898. In this context, the views of this Court on the
purport and effect of Sections 14 and 21 of the General Clauses Act may be
re-noticed by extracting paragraphs 47, 48 and 49 of the decision of this
Court in D.K. Trivedi & Sons Vs. State of Gujarat & Ors. (supra).
“47. The next contention was that though under Section 15(1) the State
Governments may have the power to make rules providing for payment of
royalty and dead rent, sub-section (3) showed that such power did not
extend to amending the rules so as to enhance the rate of dead rent. The
submission in this behalf was that the power to enhance the rate of royalty
by amending the rules was expressly provided for in sub-section (3) by the
use of the words “at the rate prescribed for the time being in the rules
framed by the State Government in respect of minor minerals” but there was
no such provision in Section 15 with respect to dead rent. We are unable to
accept this submission. Rules under Section 15(1), though made by the State
Governments, are rules made under a Central Act and the provisions of the
General Clauses Act, 1897, apply to such rules. Under Section 21 of the
General Clauses Act, where by any Central Act, a power to make rules is
conferred, then that power includes a power, exercisable in the like manner
and subject to the like sanction and conditions if any, to add to, amend,
vary or rescind any rules so made. The power to amend the rules is
therefore, comprehended within the power to make rules and as Section 15(1)
confers upon the State Governments the power to make rules providing for
payment of dead rent and royalty, it also confers upon the State
Governments the power to amend those rules so as to alter the rates of
royalty and dead rent so prescribed, either by enhancing or reducing such
rates. …………… …………. …………. ………….
48. It was then contended that the very language of sub-section (1) of
Section 15 shows that it does not confer any power upon the State
Governments to enhance the rate of royalty or dead rent because the rules
which are to be made under that sub-section are for regulating the grant of
quarry leases, mining leases and other mineral concessions in respect of
minor minerals and, therefore, the rules under that sub-section can be made
only with respect to the time when such leases or concessions are granted
and not with respect to any point of time subsequent thereto and there
being no provision similar to sub-section (3) of Section 15 with respect to
dead rent, any rule providing for increase in the rate of dead rent during
the subsistence of a lease would be ultra vires Section 15. This submission
is devoid of substance. As pointed out earlier, sub-section (3) of Section
15 does not confer any power to amend the rules made under Section 15(1),
for the power to amend the rules is comprehended within the power to make
the rules conferred by sub-section (1) of Section 15. The construction
sought to be placed upon the word “grant” in Section 15(1) also cannot be
accepted. While granting a lease it is open to the grantor to prescribe
conditions which are to be observed during the period of the grant and also
to provide for the forfeiture of the lease on breach of any of those
conditions. If the grant of a lease were not to prescribe such conditions,
the lessee could with impunity commit breaches of the conditions of the
lease. Ordinary leases of immovable property at times provide for periodic
increases of rent and there is no reason why such increases should not be
made in a mining or quarry lease or other mineral concession granted under
a regulatory statute intended for the benefit of the public and even less
reason why such a statute should not confer power to make rules providing
for increases in the rate of dead rent during the subsistence of the lease.
……………… ……………… …………… ……………
49. In support of the above contention it was also submitted that in the
absence of a provision like the one contained in Section 15(3) the power to
enhance the rate of dead rent cannot be so exercised as to affect
subsisting leases and that unless this construction were placed upon sub-
section (1), the power conferred by that sub-section would be bad in law as
being an arbitrary power. It was submitted that a mining lease is the
result of a contract entered into between two parties and dead rent is part
of the consideration for the grant of the lease, and just as in the case of
a contract of sale of goods, it cannot be left to the sweet will of the
seller to charge what price he liked, in the same way in the case of leases
and concessions granted under Section 15(1), it cannot be left to the State
Governments to amend the rules so as to charge whatever dead rent they like
and whenever they like during the subsistence of the lease. We find no
substance in either of these submissions. A quarry lease, mining lease or
other mineral concession in respect of a minor mineral does not stand on
the same footing as an ordinary contract. These leases and concessions are
granted by the State Governments pursuant to rules made under the statutory
power conferred upon them by a regulatory Act. Minerals are part of the
material resources which constitute a nation’s natural wealth and if the
nation is to advance industrially and if its economy is to be benefited by
the proper development and exploitation of these resources, they cannot be
permitted to be frittered away and exhausted within a few years by
indiscriminate exploitation without any regard to public and national
interest. The same view was expressed by the Court in State of Tamil Nadu
v. Hind Stone. ………… …………… ………… The presumption is that an authority
clothed with a statutory power will exercise such power reasonably, and if
in the public interest and for the efficacious regulation of mines and
quarries of minor minerals and the proper development of such minerals, a
State Government as the delegate of the Union Government thinks fit to
amend the rules so as to enhance the rate of dead rent, it cannot be said
that it is prevented from doing so by the principles of the ordinary law of
contracts. It may be that in certain cases by enhancing the rate of dead
rent the holders of leases in respect of certain types of minor minerals
may be adversely affected but private interest cannot be permitted to
override public interest. Conservation of minerals and their proper
exploitation result in securing the maximum benefit to the community and it
is open to the State Governments to enhance the rate of dead rent so as to
ensure the proper conservation and development of minor minerals even
though it may affect a lessee’s liability under a subsisting lease.”
17. A similar view expressed in Shree Sidhbali Steels Ltd. and Others
Vs. State of Uttar Pradesh and Others[7] may also be noticed.
“41. By virtue of Sections 14 and 21 of the General Clauses Act, when a
power is conferred on an authority to do a particular act, such power can
be exercised from time to time and carries with it the power to withdraw,
modify, amend or cancel the notifications earlier issued, to be exercised
in the like manner and subject to like conditions, if any, attached with
the exercise of the power. It would be too narrow a view to accept that
chargeability once fixed cannot be altered. Since the charging provision in
the Electricity (Supply) Act, 1948 is subject to the State Government’s
power to issue notification under Section 49 of the Act granting rebate,
the State Government, in view of Section 21 of the General Clauses Act, can
always withdraw, rescind, add to or modify an exemption notification. No
industry can claim as of right that the Government should exercise its
power under Section 49 and offer rebate and it is for the Government to
decide whether the conditions are such that rebate should be granted or
not.”
18. Before parting, a word about the recent pronouncements of this Court
in Gujarat Urja Vikas Nigam Limited Vs. EMCO Ltd. & Anr. (supra) and
Bangalore Electricity Supply Co. Vs. Konark Power Projects Ltd. (supra),
relied upon by the appellant. All that would be necessary to note in this
regard is the context in which the bar of a review of the terms of a PPA
was found by this Court in the above cases. In Gujarat Urja Vikas Nigam
Limited Vs. EMCO Ltd. & Anr. (supra) the power purchaser sought the benefit
of a second tariff order made effective to projects commissioned after
29.01.2012 (the power purchaser had commissioned its project on 02.03.2012)
though under the PPA it was to be governed by the first tariff order of
January, 2010. Under the first tariff order for such projects which were
not commissioned on or before the date fixed under the said order, namely,
31.11.2011 the tariff payable was to be determined by the Gujarat
Electricity Regulatory Commission. The power producer in the above case did
not seek determination of a separate tariff but what was sought was a
declaration that the second tariff order dated 27.01.2012 applicable to
PPA(s) after 29.01.2012 would be applicable. It is in this context that
this Court had taken the view that the power producer would not be relieved
of its contractual obligations under the PPA. In the case of Bangalore
Electricity Supply Co. Vs. Konark Power Projects Ltd. (supra), this Court
held that it was beyond the power of State Commission to vary the tariff
fixed under the approved PPA in view of the specific provisions in
Regulations 5.1 and 9 of the KERC(Power Procurement from Renewable Sources
by Distribution Licensee) Regulations, 2004 and 2011 respectively as the
same specifically excluded a PPA concluded prior to the date of
notification of the Regulations in question.
19. In view of the above, the appeals are dismissed and the orders dated
31.05.2012 and 02.12.2013 of the Appellate Tribunal are affirmed. In the
facts and circumstances of the case, the parties are left to bear their own
costs.
….……......................,J.
[RANJAN GOGOI]
….……......................,J.
[PRAFULLA C. PANT]
NEW DELHI;
JULY 05, 2016.
-----------------------
[1] 2016 (2) SCALE 75
[2] 2015(5) SCALE 711
[3] (2011) 11 SCC 34
[4] AIR 1964 SC 1781
[5] (1985) 2 SCC 116
[6] (1986) Supp. SCC 20
[7] (2011) 3 SCC 193
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5875 OF 2012
GUJARAT URJA VIKAS NIGAM LIMITED ...APPELLANT(S)
VERSUS
TARINI INFRASTRUCTURE LTD. & ORS. ...RESPONDENT(S)
WITH
CIVIL APPEAL NOS. 1973-1974 OF 2014
J U D G M E N T
RANJAN GOGOI, J.
1. Is the tariff fixed under a PPA (Power Purchase Agreement) sacrosanct
and inviolable and beyond review and correction by the State Electricity
Regulatory Commission which is the statutory authority for fixation of
tariff under the Electricity Act, 2003 (hereinafter for short ‘the Act’).
This is the short question that arises for determination in the present
appeals. The Regulatory Commission did not consider it appropriate to
confer on itself the said power upon a construction of the provisions of
the Act and the terms of the PPA(s) in question. The Appellate Tribunal
disagreed and held that the power would be available to the State
Regulatory Commission. This is how the matter has come up before us in the
present appeals filed at the instance of the distribution licensee which is
common in both the cases, namely, Gujarat Urja Vikas Nigam Limited.
2. A very brief resume of the relevant facts would be appropriate and
would assist a determination of the question arising identified
hereinabove.
The respondent No. 1 in Civil Appeal No. 5875 of 2012, namely, Tarini
Infrastructure Ltd., is a power producer which has set up/installed two
small hydro power projects in the State of Gujarat. In January, 2008 the
respondent No. 1-power producer entered into a PPA with the appellant-
distribution licensee for sale of electricity from the generating stations
to the extent of the contracted quantity for a period of 35 years at Rs.
3.29 per KWH subject to escalation of 3% per annum till date of commercial
operation. In March, 2010, just before commissioning of the generating
station, the respondent power producer sought an increase in the tariff to
Rs. 4.70 per unit on the ground that though under the Concession Agreement
power was to be evacuated at the nearest sub-station at Rakholi under the
jurisdiction of the Gujarat Electricity Transmission Company (GETCO) which
was at a distance of 4 Kms from its switch yard, it was later realized that
Rakholi was in Dadar Nagar Haveli. Consequently, the transmission line was
required to be laid up to a point known as Mota Pondha which involved a
total distance of 23 Kms. instead of the originally envisaged 4Kms. The
additional infrastructure, admittedly, cost about Rs. 10 crores which was
not envisaged in the Concession Agreement entered into between the
respondent-power producer and Narmada Water Resources Department
(respondent No. 2). In these circumstances, the power producer applied to
the State Regulatory Commission for a redetermination of the tariff. The
said request was refused by an order dated 03.09.2010, primarily, on the
ground that once the tariff was determined and thereafter incorporated in
the PPA there was no scope for redetermination of the same at the
unilateral request of the power producer.
3. Insofar as Civil Appeal Nos. 1973-1974 of 2014 are concerned, the
respondent-power producer, namely, Junagadh Power Projects Pvt. Ltd., has
set up a biomass based power generation plant and had entered into a PPA
with Gujarat Urja Vikas Nigam Limited (distribution licensee) on
26.11.2010. The tariff incorporated in the PPA was earlier approved by
the State Regulatory Commission by tariff order dated 17.05.2010 on the
basis of cost of biomass at Rs. 1600 per MT with escalation of 5% per annum
for a period of 20 years of operation. The Biomass Energy Developers
Association sought revision of the biomass fuel cost to Rs. 3000/- per MT
and for consequential redetermination of the tariff. The said review
petition was dismissed by the State Commission in November, 2010.
Thereafter, the power producer, on its own, moved the State Regulatory
Commission seeking modification of tariff on account of air cooled
condenser and also seeking increase in the biomass fuel cost and
consequential redetermination of the tariff on that basis. The State
Regulatory Commission by its order dated 05.12.2010, while allowing an
increase in tariff on account of air cooled condenser, rejected the request
of the power producer to review the price of biomass fuel cost, primarily,
on the ground that the review of the price of biomass fuel having been
earlier rejected in the case of Biomass Energy Developers Association, the
review of the said price at the request of the power producer cannot now be
allowed.
4. The learned Appellate Tribunal by the impugned orders overruled the
view taken by the State Regulatory Commission on a consideration of the
provisions of the Act and the terms and conditions of the PPA(s). The
above view of the learned Appellate Tribunal is primarily based on the
reasoning that under the Act it is the State Regulatory Commission which
has been statutorily vested with the power to determine the tariff and that
the tariff as may be fixed and incorporated in the PPA between the
distribution licensee and the power producer is liable to be reviewed in
the light of changes in the circumstances of a given case. In the case of
Junagadh Power Projects Pvt. Ltd. the learned Appellate Tribunal even went
to the extent of holding that if in the changed scenario occasioned by a
drastic alteration of the facts and circumstances surrounding the
determination of tariff, a review is declined/refused the power producer
will be left with no option but to shut down its plants. Therefore, a
review of the tariff in exercise of the statutory power vested in the State
Regulatory Commission would be fully justified. It is the correctness of
the aforesaid view that has been assailed in the present appeals under
Section 125 of the Act.
5. We have heard Shri C.A. Sundaram, learned senior counsel appearing
for the appellant and Shri Sanjay Sen, learned senior counsel appearing for
the respondent-power producers in both sets of appeals.
6. The arguments on behalf of the appellant-distribution licensee in
both the cases are more or less common. In the case of Tarini
Infrastructure Ltd. it is urged that under Clause 5.2 of the PPA the
appellant is required to pay tariff as determined by the State Commission
which is liable to escalation @ 3% per annum. The tariff order has not
been challenged by the power producer. Therefore, the tariff approved by
the State Regulatory Commission and incorporated in the PPA would remain in
force for the period of time agreed upon and the same cannot be altered
unilaterally. Reliance in this regard is placed on two recent decisions of
this Court in the case of Gujarat Urja Vikas Nigam Limited Vs. EMCO Ltd. &
Anr.[1] and Bangalore Electricity Supply Co. Vs. Konark Power Projects
Ltd.[2]. It is contended that in the said cases it has been held that a PPA
duly entered into and otherwise consistent with the tariff order of the
State Regulatory Commission cannot be reopened. A somewhat “discordant
note” struck by this Court in Transmission Corporation of Andhra Pradesh
Vs. Sai Renewable Power Pvt. Ltd.[3] has been sought to be explained by the
appellant by contending that in the PPA involved in that case there was a
specific clause that the tariff would be as revised by orders of the State
Regulatory Commission from time to time.
Specifically in the case of Junagadh Power Projects Pvt. Ltd. (respondent
No. 1 in Civil Appeal Nos. 1973-1974 of 2914) it is urged that the demand
raised by Biomass Energy Developers Association for redetermination of the
tariff by enhancing the fuel cost to Rs. 3000 per MT had been dismissed
earlier and the issue has attained finality in law. The PPA stood novated
to the extent of modification of tariff allowed on account of the issue of
air cooled condenser is concerned and no further, it is urged. For clarity
it may be noted that in an earlier proceeding a higher tariff had been
allowed to biomass based power plants with air cooled condensers.
7. On the other hand, on behalf of the power producers it is argued that
determination and fixation of tariff are instances of the exercise of the
statutory powers of the State Regulatory Commission under Section 62 read
with Section 86(1)(a) of the Act. The mere incorporation of the tariff in
a PPA between the generating company and the distribution licensee would
not make the tariff a consensual decision by and between the contracting
parties which, can only be altered by the Commission with the mutual
consent of the parties.
8. The decisions relied upon in Gujarat Urja Vikas Nigam Limited Vs.
EMCO Ltd. & Anr. (supra) and Bangalore Electricity Supply Co. Vs. Konark
Power Projects Ltd. (supra) have sought to be distinguished by reference to
the facts in the context of which the same have been rendered. The
observations of this Court in Transmission Corporation of Andhra Pradesh
Vs. Sai Renewable Power Pvt. Ltd. (supra) (para 64) with regard to the role
and authority of the Regulatory Commission in the matter of fixation of
tariff have been relied upon. Furthermore, the language appearing in
Section 86(1)(b) of the Act has been specifically relied upon to contend
that the said provision of the Act confers on the State Regulatory
Commission the power “to regulate the price at which electricity shall be
procured from the generating companies or licensees …….. through agreements
for purchase of power for distribution and supply within the State.”
Reliance has also been placed on the decisions on this Court in Sri Venkata
Setaramanjaneya Rice & Oil Mills and Ors. Vs. State of A.P.[4], K.
Ramanathan Vs. State of T.N. & Anr.[5] and D.K. Trivedi & Sons Vs. State of
Gujarat & Ors.[6] with regard to wide meaning of word “regulate”. It is
further pointed out that power production for purposes of supply on the
terms envisaged in the PPA is commercially not viable resulting in closure
of the Junagadh Power Projects Ltd. for the past 3 years and the possible
loss of the huge investment made.
9. The Electricity Act of 2003 has been enacted to consolidate and
upgrade the existing laws relating to generation, transmission,
distribution, trade and use of electricity; for taking measures conducive
to development of electricity as an industry; to promote competition
therein and to protect the interest of consumers; rationalize tariff and
promote efficient and environment friendly policies besides creating
different regulatory and appellate bodies to deal with highly complex
technical issues with regard to production, distribution and sale of
electricity including fixation of tariff. A reading of the provisions of
the 2003 Act would go to show that apart from fixation of tariff in a
“situation of open access” or in a situation of competitive bidding covered
by Section 63 of the Act, determination and fixation of tariff is a
statutory function to be performed by the State Regulatory Commissions
constituted under the Electricity Regulatory Commissions Act, 1988 and
exercising powers in consonance with the principles enunciated by the
Electricity Act, 2003. Insofar as fixation of tariff is concerned, Part
VII of the Act read with the functions of the State Commission contained in
Section 86 thereof are relevant and would require to be specifically
noticed. Sections 61, 62 64 and Section 86 of the Act therefore are being
extracted herein below.
“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;
1[(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 (54 of 1948), the Electricity Regulatory
Commission Act, 1998 (14 of 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.”
“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 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.”
“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.
(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
interstate 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.”
“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;
(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.”
10. While Section 61 of the Act lays down the principles for
determination of tariff, Section 62 of the Act deals with the different
kinds of tariffs/charges to be fixed. Section 64 enumerates the manner in
which determination of tariff is required to be made by the Commission. On
the other hand Section 86 which deals with the functions of the Commission
reiterates determination of tariff to be one of the primary functions of
the Commission which determination includes, as noticed above, a regulatory
power with regard to purchase and procurement of electricity from
generating companies by entering into PPA(s). The power of tariff
determination/ fixation undoubtedly is statutory and that has been the view
of this Court expressed in paragraphs 36 and 64 of Transmission
Corporation of Andhra Pradesh Vs. Sai Renewable Power Pvt. Ltd. (supra).
This, of course, is subject to determination of price of power in open
access (Section 42) or in the case of open bidding (Section 63). In the
present case, admittedly, the tariff incorporated in the PPA between the
generating company and the distribution licensee is the tariff fixed by the
State Regulatory Commission in exercise of its statutory powers. In such a
situation it is not possible to hold that the tariff agreed by and between
the parties, though finds mention in a contractual context, is the result
of an act of volition of the parties which can, in no case, be altered
except by mutual consent. Rather, it is a determination made in the
exercise of statutory powers which got incorporated in a mutual agreement
between the two parties involved.
11. The principles on which tariff is to be determined by the Commission
as set out in Section 61 have already been noticed. Generation,
transmission, distribution and supply of electricity is required to be
conducted on commercial principles; while the consumers’ interest is to be
safeguarded, recovery of cost of electricity in a reasonable manner has
also to be ensured. Under Section 64(6) a tariff order continues to remain
in force for such period as may be specified. In the State of Gujarat,
currently, the Gujarat Electricity Regulatory Commission (multi-year
tariff) Regulations, 2016 govern the fixation of tariff by the State
Commission. As per Regulation 31 the Commission is required to determine
the tariff of a generating company, transmission licensee, SLDC and
distribution licensee for each financial year during the control period
(control period is 5 years) (financial year 2016 to financial year 2021)
having regard to the following factors:
“(a) The approved forecast of Aggregate Revenue Requirement and expected
revenue from tariff and charges of the Generating company, Transmission
Licensee, SLDC and Distribution Licensee for such financial year, including
modification approved at the time of mid-term review, if any, and
(b) Approved gains and losses, including the incentive available to be
passed through in tariffs, following the Truing Up of previous year.
12. Not only the tariff fixed is subject to periodic review, furthermore
the above Regulations provide for taking into consideration the force
majeure events. Any force majeure is considered as an uncontrollable
factor. In fact Regulation 23 provides that the approved aggregate gain or
loss on account of uncontrollable factor shall be passed through as an
adjustment in the tariff over such period as may be specified in the Order
of the Commission.
13. Regulations 23 and 31 of the Gujarat Electricity Regulatory
Commission (multi-year tariff) Regulations, 2016 are reproduced hereunder.
23. Mechanism for pass through of gains or losses on account of
uncontrollable factors
23.1 The approved aggregate gain or loss to the Generating Company or
Transmission Licensee or SLDC or Distribution Licensee on account of
uncontrollable factors shall be passed through as an adjustment in the
tariff of the Generating Company or Transmission Licensee or SLDC or
Distribution Licensee over such period as may be specified in the Order of
the Commission passed under these Regulations.
23.2 The Generating Company or Transmission Licensee or SLDC or
Distribution Licensee shall submit such details of the variation between
expenses incurred and revenue earned and the figures approved by the
Commission, in the prescribed format to the Commission, along with the
detailed computations and supporting documents as may be required for
verification by the Commission.
23.3 Nothing contained in this Regulation 23shall apply in respect of any
gain or loss arising out of variations in the price of fuel and power
purchase, which shall be dealt with as specified by the Commission from
time to time.
31. Annual determination of tariff
The Commission shall determine the tariff of a Generating Company,
Transmission Licensee, SLDC and Distribution Licensee covered under a Multi-
Year Tariff framework for each financial year during the Control Period, at
the commencement of such financial year, having regard to the following:
(a) The approved forecast of Aggregate Revenue Requirement and expected
revenue from tariff and charges of the Generating Company, Transmission
Licensee, SLDC and Distribution Licensee for such financial year, including
modifications approved at the time of mid-term review, if any; and
(b) Approved gains and losses, including the incentive available to be
passed through in tariffs, following the Truing Up of previous year.”
14. When the tariff order itself is subject to periodic review it is
difficult to see how incorporation of a particular tariff prevailing on the
date of commissioning of the power project can be understood to bind the
power producer for the entire duration of the plant life (20 years) as has
been envisaged by Clause 4.6 of the PPA in the case of Junagadh. That
apart, modification of the tariff on account of air cooled condensers and
denying the same on account of claimed inadequate pricing of biogas fuel is
itself contradictory.
15. As already noticed, Section 86(1)(b) of the Act empowers the State
Commission to regulate the price of sale and purchase of electricity
between the generating companies and distribution licensees through
agreements for power produced for distribution and supply. As held by this
Court in Sri Venkata Setaramanjaneya Rice & Oil Mills and Ors.
Vs. State of A.P. (supra), K. Ramanathan Vs. State of T.N. & Anr. (supra)
and D.K. Trivedi & Sons Vs. State of Gujarat & Ors. (supra) the power of
regulation is indeed of wide import. The following extracts from the
reports in the above cases would illuminate the issue.
Sri Venkata Setaramanjaneya Rice & Oil
Mills and Ors. Vs. State of A.P. (supra)
“20. Then it was faintly argued by Mr. Setalvad that the power to regulate
conferred on the respondent by Section 3(1) cannot include the power to
increase the tariff rate; it would include the power to reduce the rates.
This argument is entirely misconceived. The word “regulate” is wide enough
to confer power on the respondent to regulate either by increasing the
rate, or decreasing the rate, the test being what is it that is necessary
or expedient to be done to maintain, increase, or secure supply of the
essential articles in question and to arrange for its equitable
distribution and its availability at fair prices.
…………………………………………………..”
K. Ramanathan Vs. State of T.N. & Anr. (supra)
“18. The word “regulation” cannot have any rigid or inflexible meaning as
to exclude “prohibition”. The word “regulate” is difficult to define as
having any precise meaning. It is a word of broad import, having a broad
meaning, and is very comprehensive in scope. There is a diversity of
opinion as to its meaning and its application to a particular state of
facts, some courts giving to the term a somewhat restricted, and others
giving to it a liberal, construction. The different shades of meaning are
brought out in Corpus Juris Secundum, Vol. 76 at p. 611:
“‘Regulate’ is variously defined as meaning to adjust; to adjust, order, or
govern by rule, method, or established mode; to adjust or control by rule,
method, or established mode, or governing principles or laws; to govern; to
govern by rule; to govern by, or subject to, certain rules or restrictions;
to govern or direct according to rule; to control, govern, or direct by
rule or regulations.
‘Regulate’ is also defined as meaning to direct; to direct by rule or
restriction; to direct or manage according to certain standards, laws, or
rules; to rule; to conduct; to fix or establish; to restrain; to restrict.”
See also: Webster’s Third New International Dictionary, Vol. II, p. 1913
and Shorter Oxford Dictionary, Vol. II, 3rd Edn., p. 1784.
19. It has often been said that the power to regulate does not necessarily
include the power to prohibit, and ordinarily the word “regulate” is not
synonymous with the word “prohibit”. This is true in a general sense and in
the sense that mere regulation is not the same as absolute prohibition. At
the same time, the power to regulate carries with it full power over the
thing subject to regulation and in absence of restrictive words, the power
must be regarded as plenary over the entire subject. It implies the power
to rule, direct and control, and involves the adoption of a rule or guiding
principle to be followed, or the making of a rule with respect to the
subject to be regulated. The power to regulate implies the power to check
and may imply the power to prohibit under certain circumstances, as where
the best or only efficacious regulation consists of suppression. It would
therefore appear that the word “regulation” cannot have any inflexible
meaning as to exclude “prohibition”. It has different shades of meaning and
must take its colour from the context in which it is used having regard to
the purpose and object of the legislation, and the Court must necessarily
keep in view the mischief which the legislature seeks to remedy.”
D.K. Trivedi & Sons Vs. State of Gujarat & Ors. (supra)
“30. Bearing this in mind, we now turn to examine the nature of the rule-
making power conferred upon the State Governments by Section 15(1).
Although under Section 14, Section 13 is one of the sections which does not
apply to minor minerals, the language of Section 13(1) is in pari materia
with the language of Section 15(1). Each of these provisions confers the
power to make rules for “regulating”. The Shorter Oxford English
Dictionary, 3rd Edn., defines the word “regulate” as meaning “to control,
govern, or direct by rule or regulations; to subject to guidance or
restrictions; to adapt to circumstances or surroundings”. Thus, the power
to regulate by rules given by Sections 13(1) and 15(1) is a power to
control, govern and direct by rules the grant of prospecting licences and
mining leases in respect of minerals other than minor minerals and for
purposes connected therewith in the case of Section 13(1) and the grant of
quarry leases, mining leases and other mineral concessions in respect of
minor minerals and for purposes connected therewith in the case of Section
15(1) and to subject such grant to restrictions and to adapt them to the
circumstances of the case and the surroundings with reference to which such
power is exercised. It is pertinent to bear in mind that the power to
regulate conferred by Sections 13(1) and 15(1) is not only with respect to
the grant of licences and leases mentioned in those sub-sections but is
also with respect to “purposes connected therewith”, that is, purposes
connected with such grant.”
16. All the above would suggest that in view of Section 86(1)(b) the
Court must lean in favour of flexibility and not read inviolability in
terms of the PPA insofar as the tariff stipulated therein as approved by
the Commission is concerned. It would be a sound principle of
interpretation to confer such a power if public interest dictated by the
surrounding events and circumstances require a review of the tariff. The
facts of the present case, as elaborately noted at the threshold of the
present opinion, would suggest that the Court must lean in favour of such a
view also having due regard to the provisions of Sections 14 and 21 of the
General Clauses Act, 1898. In this context, the views of this Court on the
purport and effect of Sections 14 and 21 of the General Clauses Act may be
re-noticed by extracting paragraphs 47, 48 and 49 of the decision of this
Court in D.K. Trivedi & Sons Vs. State of Gujarat & Ors. (supra).
“47. The next contention was that though under Section 15(1) the State
Governments may have the power to make rules providing for payment of
royalty and dead rent, sub-section (3) showed that such power did not
extend to amending the rules so as to enhance the rate of dead rent. The
submission in this behalf was that the power to enhance the rate of royalty
by amending the rules was expressly provided for in sub-section (3) by the
use of the words “at the rate prescribed for the time being in the rules
framed by the State Government in respect of minor minerals” but there was
no such provision in Section 15 with respect to dead rent. We are unable to
accept this submission. Rules under Section 15(1), though made by the State
Governments, are rules made under a Central Act and the provisions of the
General Clauses Act, 1897, apply to such rules. Under Section 21 of the
General Clauses Act, where by any Central Act, a power to make rules is
conferred, then that power includes a power, exercisable in the like manner
and subject to the like sanction and conditions if any, to add to, amend,
vary or rescind any rules so made. The power to amend the rules is
therefore, comprehended within the power to make rules and as Section 15(1)
confers upon the State Governments the power to make rules providing for
payment of dead rent and royalty, it also confers upon the State
Governments the power to amend those rules so as to alter the rates of
royalty and dead rent so prescribed, either by enhancing or reducing such
rates. …………… …………. …………. ………….
48. It was then contended that the very language of sub-section (1) of
Section 15 shows that it does not confer any power upon the State
Governments to enhance the rate of royalty or dead rent because the rules
which are to be made under that sub-section are for regulating the grant of
quarry leases, mining leases and other mineral concessions in respect of
minor minerals and, therefore, the rules under that sub-section can be made
only with respect to the time when such leases or concessions are granted
and not with respect to any point of time subsequent thereto and there
being no provision similar to sub-section (3) of Section 15 with respect to
dead rent, any rule providing for increase in the rate of dead rent during
the subsistence of a lease would be ultra vires Section 15. This submission
is devoid of substance. As pointed out earlier, sub-section (3) of Section
15 does not confer any power to amend the rules made under Section 15(1),
for the power to amend the rules is comprehended within the power to make
the rules conferred by sub-section (1) of Section 15. The construction
sought to be placed upon the word “grant” in Section 15(1) also cannot be
accepted. While granting a lease it is open to the grantor to prescribe
conditions which are to be observed during the period of the grant and also
to provide for the forfeiture of the lease on breach of any of those
conditions. If the grant of a lease were not to prescribe such conditions,
the lessee could with impunity commit breaches of the conditions of the
lease. Ordinary leases of immovable property at times provide for periodic
increases of rent and there is no reason why such increases should not be
made in a mining or quarry lease or other mineral concession granted under
a regulatory statute intended for the benefit of the public and even less
reason why such a statute should not confer power to make rules providing
for increases in the rate of dead rent during the subsistence of the lease.
……………… ……………… …………… ……………
49. In support of the above contention it was also submitted that in the
absence of a provision like the one contained in Section 15(3) the power to
enhance the rate of dead rent cannot be so exercised as to affect
subsisting leases and that unless this construction were placed upon sub-
section (1), the power conferred by that sub-section would be bad in law as
being an arbitrary power. It was submitted that a mining lease is the
result of a contract entered into between two parties and dead rent is part
of the consideration for the grant of the lease, and just as in the case of
a contract of sale of goods, it cannot be left to the sweet will of the
seller to charge what price he liked, in the same way in the case of leases
and concessions granted under Section 15(1), it cannot be left to the State
Governments to amend the rules so as to charge whatever dead rent they like
and whenever they like during the subsistence of the lease. We find no
substance in either of these submissions. A quarry lease, mining lease or
other mineral concession in respect of a minor mineral does not stand on
the same footing as an ordinary contract. These leases and concessions are
granted by the State Governments pursuant to rules made under the statutory
power conferred upon them by a regulatory Act. Minerals are part of the
material resources which constitute a nation’s natural wealth and if the
nation is to advance industrially and if its economy is to be benefited by
the proper development and exploitation of these resources, they cannot be
permitted to be frittered away and exhausted within a few years by
indiscriminate exploitation without any regard to public and national
interest. The same view was expressed by the Court in State of Tamil Nadu
v. Hind Stone. ………… …………… ………… The presumption is that an authority
clothed with a statutory power will exercise such power reasonably, and if
in the public interest and for the efficacious regulation of mines and
quarries of minor minerals and the proper development of such minerals, a
State Government as the delegate of the Union Government thinks fit to
amend the rules so as to enhance the rate of dead rent, it cannot be said
that it is prevented from doing so by the principles of the ordinary law of
contracts. It may be that in certain cases by enhancing the rate of dead
rent the holders of leases in respect of certain types of minor minerals
may be adversely affected but private interest cannot be permitted to
override public interest. Conservation of minerals and their proper
exploitation result in securing the maximum benefit to the community and it
is open to the State Governments to enhance the rate of dead rent so as to
ensure the proper conservation and development of minor minerals even
though it may affect a lessee’s liability under a subsisting lease.”
17. A similar view expressed in Shree Sidhbali Steels Ltd. and Others
Vs. State of Uttar Pradesh and Others[7] may also be noticed.
“41. By virtue of Sections 14 and 21 of the General Clauses Act, when a
power is conferred on an authority to do a particular act, such power can
be exercised from time to time and carries with it the power to withdraw,
modify, amend or cancel the notifications earlier issued, to be exercised
in the like manner and subject to like conditions, if any, attached with
the exercise of the power. It would be too narrow a view to accept that
chargeability once fixed cannot be altered. Since the charging provision in
the Electricity (Supply) Act, 1948 is subject to the State Government’s
power to issue notification under Section 49 of the Act granting rebate,
the State Government, in view of Section 21 of the General Clauses Act, can
always withdraw, rescind, add to or modify an exemption notification. No
industry can claim as of right that the Government should exercise its
power under Section 49 and offer rebate and it is for the Government to
decide whether the conditions are such that rebate should be granted or
not.”
18. Before parting, a word about the recent pronouncements of this Court
in Gujarat Urja Vikas Nigam Limited Vs. EMCO Ltd. & Anr. (supra) and
Bangalore Electricity Supply Co. Vs. Konark Power Projects Ltd. (supra),
relied upon by the appellant. All that would be necessary to note in this
regard is the context in which the bar of a review of the terms of a PPA
was found by this Court in the above cases. In Gujarat Urja Vikas Nigam
Limited Vs. EMCO Ltd. & Anr. (supra) the power purchaser sought the benefit
of a second tariff order made effective to projects commissioned after
29.01.2012 (the power purchaser had commissioned its project on 02.03.2012)
though under the PPA it was to be governed by the first tariff order of
January, 2010. Under the first tariff order for such projects which were
not commissioned on or before the date fixed under the said order, namely,
31.11.2011 the tariff payable was to be determined by the Gujarat
Electricity Regulatory Commission. The power producer in the above case did
not seek determination of a separate tariff but what was sought was a
declaration that the second tariff order dated 27.01.2012 applicable to
PPA(s) after 29.01.2012 would be applicable. It is in this context that
this Court had taken the view that the power producer would not be relieved
of its contractual obligations under the PPA. In the case of Bangalore
Electricity Supply Co. Vs. Konark Power Projects Ltd. (supra), this Court
held that it was beyond the power of State Commission to vary the tariff
fixed under the approved PPA in view of the specific provisions in
Regulations 5.1 and 9 of the KERC(Power Procurement from Renewable Sources
by Distribution Licensee) Regulations, 2004 and 2011 respectively as the
same specifically excluded a PPA concluded prior to the date of
notification of the Regulations in question.
19. In view of the above, the appeals are dismissed and the orders dated
31.05.2012 and 02.12.2013 of the Appellate Tribunal are affirmed. In the
facts and circumstances of the case, the parties are left to bear their own
costs.
….……......................,J.
[RANJAN GOGOI]
….……......................,J.
[PRAFULLA C. PANT]
NEW DELHI;
JULY 05, 2016.
-----------------------
[1] 2016 (2) SCALE 75
[2] 2015(5) SCALE 711
[3] (2011) 11 SCC 34
[4] AIR 1964 SC 1781
[5] (1985) 2 SCC 116
[6] (1986) Supp. SCC 20
[7] (2011) 3 SCC 193
No comments:
Post a Comment