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.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5875 OF 2012
GUJARAT URJA VIKAS NIGAM LIMITED
V
TARINI INFRASTRUCTURE LTD. & ORS.
RANJAN GOGOI, J.
Dated:JULY 05, 2016.
Citation:(2016) 8 SCC743
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 appellantdistribution
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 UrjaPage 7
7
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
1 2016 (2) SCALE 75
2 2015(5) SCALE 711
3
(2011) 11 SCC 34Page 8
8
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 thePage 9
9
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
4 AIR 1964 SC 1781
5
(1985) 2 SCC 116
6
(1986) Supp. SCC 20Page 10
10
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.Page 11
11
“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 andPage 12
12
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 aPage 13
13
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 thePage 14
14
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 Others7 may
7
(2011) 3 SCC 193
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.
Print Page
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.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5875 OF 2012
GUJARAT URJA VIKAS NIGAM LIMITED
V
TARINI INFRASTRUCTURE LTD. & ORS.
RANJAN GOGOI, J.
Dated:JULY 05, 2016.
Citation:(2016) 8 SCC743
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 appellantdistribution
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 UrjaPage 7
7
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
1 2016 (2) SCALE 75
2 2015(5) SCALE 711
3
(2011) 11 SCC 34Page 8
8
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 thePage 9
9
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
4 AIR 1964 SC 1781
5
(1985) 2 SCC 116
6
(1986) Supp. SCC 20Page 10
10
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.Page 11
11
“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 andPage 12
12
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 aPage 13
13
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 thePage 14
14
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 Others7 may
7
(2011) 3 SCC 193
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.
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