Case Number: Civil Appeal No(s). 4324 of 2015] and [Civil Appeal No(s). 4323 of 2015

Judges Name: Hon’ble Judge S. Abdul Nazeer, J.

Order dated: 18.10.2022

Facts of the case: 

1. Two appeals, filed by BSES Rajdhani Power Ltd. and BSES Yamuna Power Ltd. were heard together. The appellants are distribution licensees (“Discoms”) in terms of Section 2(17) of the Electricity Act, 2003 whose primary function is to give supply to any premises upon an application being made by a consumer in compliance with the applicable laws, including paying requisite charges, except when prevented by force majeure conditions like cyclones or floods. The appeals challenged certain findings of the Appellate Tribunal for Electricity, New Delhi (‘APTEL’) in the common judgment. The appeal to APTEL challenged certain findings of the Delhi Electricity Regulatory Commission (‘DERC’) in the Tariff Order dated 26.08.2012 for Truing Up of financials for FY 200809 and FY 200910 and Aggregate Revenue Requirement (‘ARR’) for FY 2011 Appellants have no control over the tariff to be paid to the Central Generating Stations.
2. It is the case of the Appellants that since privatization, the ARR determined by the DERC was not even sufficient to meet the actual power purchase cost which has led to creation of a huge revenue gap. It is also contended that the DERC in   repeated disregard to its statutory regulations and its own statutory advice has refused to make periodic increase in the tariff rate. The actions of the DERC have resulted in a situation where the Appellants are deeply indebted and have been forced to borrow/take loans to fund their   day-to-day operations which in turn, have   also   dried   up leaving   the   Appellants   without   adequate   monies   to   pay   their suppliers.

Supreme Court observed/held as follows:

• The scheme of the 2003 Act is predicated on consolidating all laws governing electricity and repealing the existing laws. The intent and purpose of the 2003 Act is to liberalize the electricity sector and to ensure that the distribution and supply of electricity is conducted on commercial principles. The legislature intended to promote factors   that encourage and reward   efficiency, competition, economical use of resources and optimum investments and safeguard the interest of the consumers vis-à-vis recovery of cost of electricity in a reasonable manner as envisaged under Section 61 of the 2003 Act.
• DERC is vested with a substantial set of divergent powers – legislative, executive, adjudicatory and advisory – each being distinctly defined and governed by law. One of the critical issues arising in these Civil Appeals relates to sanctity of each such function and their interplay.
• Sections of the EA ACT, 2003 relied upon – Section 3 of the 2003 Act. Other sections relied upon: section 3, section 14, section 15, section 43, section 61, section 62, section 64, section 86, section 176
• Issue 1: whether the appeals involve any substantial question of law as required under Section 125 of the 2003 Act read with Section 100 of the CPC?
  Thus, an appeal to this Court under Section 125 could be filed on the grounds specified in Section 100 of the CPC.  Under Section 100 of the CPC, an   appeal   could   be   filed   only   when   the   case involves ‘a substantial question of law’, as may be framed by the appellate court. Thus, the existence of a ‘substantial question of law’ arising from the judgment of the APTEL is sine qua non for exercise of jurisdiction by this Court under Section 125 of the 2003 Act.
• The test to determine whether a question is a substantial question of law or not was laid down by a Constitution Bench of this Court in Sir Chunilal V. Mehta & Sons Ltd. v. The Century Spg. & Mfg. Co. Ltd.
• Thus, in a second appeal, the appellant is entitled to point out that the order impugned is bad in law because it is de hors the pleadings, or it was based on no evidence or it was based on misreading of material documentary evidence or it was recorded against the provision of law or the decision is one which no Judge acting judicially could reasonably have reached. Once the Appellate court is satisfied, after hearing the appeal, that the appeal involves a substantial question of law, it has to formulate the question and direct issuance of notice to the respondent/s.
• One of the substantial questions of law raised on four issues (Issue Nos.1, 2, 3 and 5) is whether it is permissible to amend the tariff order made under Section 64 of the 2003 Act during the ‘truing up’ exercise which needs to be answered before answering each of the aforesaid issues.
• It is pertinent to note that while framing the Regulations, the State   Commission   is   required   to   be   guided   by   the   principles specified in Section 61 of the 2003 Act. It is also necessary to note that sub-section (6) of Section 62 of the 2003 Act mandates that the Tariff Order shall continue to be in force for such period as may be specified in the Tariff Order unless amended or revoked. Therefore, if any of the parties are aggrieved by any of the clauses in the Tariff Order, they are at liberty to seek its amendment or revocation under this provision. Secondly, the said order is also appealable under Section 111 of the 2003 Act before the Appellate Tribunal and thereafter before this Court under Section 125.   The Tariff Order made under Section 64 is quasi-judicial in nature and it is binding as-it-is on the parties unless it is amended or modified in a process known to law.
• The process of determination of tariff has to be done in accordance with Sections 62 and 64 of the 2003 Act.  It is well settled that the Commission (in this case, the DERC) performs a quasi-judicial function while determining tariff.  This has been expressly recognized by the Constitution Bench of this Court in PTC India Limited v. Central Electricity Regulatory Commission, Through Secretary.
• Since the tariff and the ARR are regulated, the Discoms cannot recover anything more than from its consumers than what is allowed by the DERC. As noticed above, a tariff order is quasi-judicial in nature which becomes final and binding on the parties unless it is amended or revoked under Section 64(6) or set aside by the Appellate Authority. Apart from this, we are also of the view that at the stage of ‘truing up’, the DERC cannot change the rules/methodology used in the initial tariff determination by changing the basic principles, premises and issues involved in the initial projection of ARR. ‘Truing up’ has been held by APTEL in SLDC v. GERC4 to mean the adjustment of actual amounts incurred by the Licensee against the estimated/projected amounts determined under the ARR.
• In our opinion, ‘truing up’ stage is not an opportunity for the DERC to rethink de novo on the basic principles, premises and issues involved in the initial projections of the revenue requirement of the licensee. ‘Truing up’ exercise cannot be done to retrospectively change the methodology/principles of tariff 34 determination and re-opening the original tariff determination order thereby setting the tariff determination process to a naught at ‘true up’ stage.
• Revision or re-determination of the tariff already determined by DERC on the pretext of prudence check and truing up would amount to amendment of the tariff order, which can be done only as per the provisions of sub-section (6) of Section 64 of the 2003 Act within the period for which the Tariff Order was applicable.
• It is not permissible to amend the tariff order during true up exercise. On the pretext of prudence check and truing up, DERC could not have amended the tariff order. DERC cannot re-open the basis of determination of tariff at the stage of ‘truing up’.  Revision or redetermination of the tariff already determined by the DERC on the pretext of prudence check and truing up would amount to amendment of tariff order, which is not permissible in law.  Truing up stage is not an opportunity for DERC to re-think de novo the basic   principles, premises and issues involved in the initial projection of the revenue requirements of the licensee.
• We   are   of   the   view   that   disallowing   interest   paid   by   the appellants towards Consumers Security Deposit held by DPCL in the   ARR   of   the   appellants   is   wholly   misconstrued.   Interest   on consumers’   deposit   which   is   being   paid   by   the   appellants   is   a legitimate expense.
• Appellants are entitled to recover interest on Consumers Security Deposit as held by the DPCL. We direct   the   DERC   to   allow   the   interest   on   Consumers   Security Deposit held by the DPCL and impact thereof to the Appellants.
• The appeals are allowed and the order(s) of the DERC and the judgment of the APTEL impugned herein, to the extent mentioned above are hereby set aside. Parties to bear their respective costs. The Hon’ble Supreme Court allowed the Appeal and set aside the order of the Hon’ble NCLAT.