Maharashtra State Electricity Distribution Co. Ltd. v. Union of India and Other
ARUN MISHRA, J.
1.The appeal has been preferred by Maharashtra State Electricity
Distribution Company Limited (for short, ‘the MSEDCL’) against the
order dated 30.5.2007, passed by Appellate Tribunal for Electricity (for
short, ‘the APTEL’), dismissing the appeal against the o rder dated
21.5.2004 passed by Maharashtra State Electricity R egulatory
Commission (for short, ‘the MERC’), quashing Circular No.602 dated
23.7.1998, Circular No.619 dated 25.5.1999, Circular No.627 dated
2.9.1999, Circular No.651 dated 19.9.2000 and Circular No.663 dated
5.10.2001, insofar as they purport to impose “take or pay” obligation and
minimum off-take requirement as also of any additional tariff for captive
power plant holders on the ground that there was no approval of the
MERC constituted in terms of the provisions of the Electricity Regulatory
Act, 1998 (for short, ‘the Act of 1998’). The aforesaid circular s dealt
with Captive Power Plant Policy (for short, ‘the CPP Po licy’). The
appellant-MSEDCL has been directed to make refund to respondent
nos.3 to 7. The financial liability has been imposed upon the appellant-
MSEDCL. The MERC was constituted on 5.8.1999. The appellant-
MSEDCL had submitted all its circulars to MERC for approval and the
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
LTD. v. UNION OF INDIA
MERC after four years has quashed the circulars with retrospec tive
effect. The financial condition of the appellant-MSEDCL is not sound
enough to sustain such kind of liability for refund. It was unable to pay a
sum of Rs.504 crores as against liability to other parties.
2. Respondent no.3-M/s. NRC Ltd. initially had its two units on
Plot No.E 23. Unit Nos.1 and 2 had a contract demand of 3500 KVA
and 1800 KVA respectively. In 1995, an independent connection was
sought by respondent no.3 for its Unit No.2. Representation was made
that two units were separate units and on that basis, two i ndependent
connections were given. After that, respondent no.3 filed an application
dated 5.4.1997 to set up a CPP of 7MW capacity. In respect of contract
demand, it was proposed to retain total contract demand for 8-12 months
after the CPP was fully operational and to surrender around 50% of the
contract demand after that. Prayer was also made to provide stand-by
power.
3. The Government of Maharashtra issued a notification da ted
20.12.1997, whereby it empowered Maharashtra State Electricity Board
(for short, ‘the MSEB’) to finalise the technical a nd commercial
arrangements between captive power purchasers and t heir party
purchasers. No objection certificate dated 7.1.1998 wa s issued by
appellant-MSEDCL subject to the Condition No.4, which permitte d
respondent no.3 to decide the level of contract dem and after the
commissioning of the set and any changes for interconnection would be
governed as per the Board’s Condition of Supply framed from time to
time and its policies as no rules were framed.
4. Circular No.602 dated 23.7.1998 was issued vesting power
with the Board to permit the CPP holder for sale of their CPP power to
any third party through the Board’s grid, grant of permissio n to those
persons to use their CPP power for self use only and to charge wheeling
and transmission loss charges.
5. The Act of 1998 was enacted on 25.4.1998. Before that, field
of electricity was regulated by Electricity Supply Act, 1948 (for short,
‘the Act of 1948’). Section 49 of the Act of 1948 em powered the
respective Electricity Boards to come up with their tariffs, which could
have differential. Section 79(j) of the Act empowered the Board to make
regulations pertaining to supply of electricity to the licensees under Section
49. Section 44 further provided that for establishing the CPP unit, prior
consent of the Board was mandatory. MSEB was regulating the field of
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CPP as per notifications issued by the Government and the provisions
contained in the Act of 1948.
6.On 23.9.1998, respondent no.3 sought clubbing of the contract
demand and subsequent reduction to 3000 KVA for both the units. The
clubbing of two units would increase the total contract demand to 5300
KVA and would necessitate the installation of an EHV Line. Thus, the
same could not be done. Respondent no.3 was not entitled to reduction
of contract demand in view of the application dated 5.11.1997. Hence,
it was not permitted as per letter dated 23.9.1998.
7.MSEB submitted a proposal on 4.5.1999 to the Government of
Maharashtra for revision of its retail distribution tariff w.e.f. 1.6.1999,
keeping in view the requirements of Section 59 of the Act of 1948. The
proposal for revision of tariff was under consideration of the State
Government in the year 1999. Still, no final decision was taken and the
delay was owing to the imposition of Model Code of Conduct due to
elections and on 5.8.1999 MERC was constituted. The Government
advised the MSEB to submit proposal for tariff revision to Commission
for its approval and accordingly, the proposal was submitted to the MERC.
8. Circular No.619 dated 25.5.1999 was issued by the Board to
grant permission for installation of CPP for self use only, reduction in
contract demand to CPP holders would not be permitted and levy of
penal charges at the rate of 2 times/3 times the prevailing tariff to the
CPP holders in their energy bills for over drawal of power on their agreed
contract demand under planned/unplanned shutdown as stipulated in the
Government of Maharashtra resolution dated 20.12.1997. On 29.8.1998,
respondent no.3 had commissioned its CPP and withdrew its earlier
application dated 18.6.1999 for reduction in contract d emand and
resubmitted two applications and sought reduction in contract demand
of Unit No.1 from 3500 KVA to zero and increasing contract demand of
Unit No.2 from 1800 to 3000 KVA. The fresh application could not be
granted as the then existing policy of the appellant-MSEDCL was not to
grant any reduction in contract demand to existing CPP holders as notified
vide letter dated 18.6.1999.
9. Vide circular dated 2.9.1999, the policy contained in circular
dated 25.5.1999 was partially modified insofar as it related to a reduction
in contract demand. It permitted CPP holders to reduce contract demand
to 2.5 MVA or 50% of the contract demand of 5 MVA or above. It was
specifically provided that CPP holders with a contract dema nd of less
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
LTD. v. UNION OF INDIA [ARUN MISHRA, J.]
than 5 MVA would not be permitted reduction in contract demand. As
respondent no.3 had two independent connections, each having a contract
demand of less than 5 MVA, it was not entitled to reduction in contract
demand. As per policy contained in the aforesaid circular, all the CPP
holders were required to draw at least 25% energy of their monthly
consumption from the appellant-MSEDCL and in case of drawal of less
quantity of electricity, they would be billed for 25% of the energy. The
energy supplied would be charged at the rate of 110% of the tariff
applicable was the condition of supply for interconnection and stand-by
power. Respondent nos.3 to 7 had sought stand-by power. The appellant-
MSEDCL had invested huge amount for establishing the nec essary
infrastructure. It was incumbent upon the appellant-MSEDCL to keep
available at all material time the requisite infrastruc ture for supply of
electricity to respondent nos.3 to 7. The NOC was issued as per the
prevailing policy subject to the condition of supply for p aralleling
connection or further changes in policy. Thus, circular dated 2.9.1999
was issued.
10.On 28.4.2000, the State Government issued a guidance to the
appellant-MSEDCL to withdraw the said condition for compulsory drawal
of 25% energy as it was not in line with the Government of Maharashtra
policy decision as mentioned in the resolution dated 25.4.2000.
11.It was submitted on behalf of appellant-MSEDCL that MERC
passed an order on 5.5.2000, pointing out that it would look into t he
matter of sale of surplus power by CPPs to MSEB at a later stage under
Section 22(1)(c) of the Act of 1998. The Commission directed the MSEB
to follow Section 44 of the Act of 1948 in its true spirit and c lear all
pending applications by 30.6.2000. Refusal to the captive units, on the
other hand, was contradictory.
12.The appellant-MSEDCL modified their policy dated 19.9.2000
in line with Government of Maharashtra CPP Policy reflected in the
resolution dated 25.4.2000 and withdrew the condition of compulsory
drawl of 25% of the energy of MSEB grid by CPP holders prospectively
with effect from 28.4.2000. No sanction for connecting the additional
load of the unit at Plot No.E-1 to the CPP was granted. Res pondent
no.3, however, illegally connected the said load of the unit at Plot No.
E-1 to the CPP.
13.On 31.8.2001, the appellant-MSEDCL submitted its proposals
to MERC along with a tariff petition. The circulars dated 23.7.1998,
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25.5.1999, 2.9.1999 and 19.9.2000 were submitted to MERC for its
approval. MERC passed order dated 10.1.2002 on the tariff petition of
the appellant-MSEDCL, in which it was held:
“The Commission is of the opinion that the ‘Captive Power Policy’
is a policy matter under the jurisdiction of the Government of
Maharashtra, and the Commission has very recently b een
conferred with additional powers under S. 22[2] of the ERC Act,
1998, which includes the power to aid and advise the GoM in the
formulation of the State Power Policy. The Commission would
not like to comment on the captive power policy at this stage, but
would like to state that the MSEB has appended the captive power
policy along with the Tariff Proposal for the information of t he
consumers, and the Commission’s silence on this policy should
not be taken as approval of the same.”
14.Respondent nos.3 to 6 had filed writ petitions before the High
Court. The High Court relegated them to MERC. It was not pointed out
that there was a provision asto arbitration in case of dispute between the
appellant-MSEDCL and CPP holders. It was also submitted tha t on
3.3.2004, MERC has passed an order in Case No.55 of 2003, in which it
observed:
“7. …The Commission was seized of the matter relating to the
CPP Policy as a whole, but the previous Circulars continue to
operate since the Commission had not kept them in abeyance ,
and they are also not the subject to challenge in the present
proceedings.”
15. Ultimately, vide order dated 21.5.2004, the MERC allowed
the petition filed by respondent nos.3 to 7 and set aside the
abovementioned circulars issued by appellant-MSEDCL from 1998
onwards on the issue of CPP. Even though MERC was not in existence
at the time when certain circulars were issued, they have been quashed
on the ground that no approval from MERC had been obtained. Aggrieved
thereby, an appeal was preferred before the APTEL and the same was
dismissed. Hence, the appeal.
16. It was submitted by the learned counsel appearing on behalf
of appellant-MSEDCL that policy for CPP was evolved by the
Government resolution dated 20.12.1995 onwards. Thus, circular dated
25.5.1999 provided for contract demand and “take or pay” obligations
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
LTD. v. UNION OF INDIA [ARUN MISHRA, J.]
were result of the policies of the State Government. Circula r dated
25.5.1999 provided for charging of energy drawn from the appellant -
MSEDCL by CPP at the rate of 110% of the applicable t ariff. It was
altered to 125% vide circular dated 2.9.1999 of the energy from th e
appellant-MSEDCL of the monthly consumption based on preceding 12
months before the commissioning of CPP.
17.The MERC was established on 5.8.1999 though the Act came
into force w.e.f. 25.4.1998. MERC observed that it was within the power
of State to continue with or alter tariff related decisions/arrangements to
decide about the continuance of tariff on the ground that CPP poli cy
was in the domain of the State Government as observed in tariff order
dated 5.5.2000 (Case No.1 of 1999), tariff order dated 10.1.2002 (Case
No.1 of 2001) and order dated 3.3.2004 (Case Nos.55 and 56 of 2003).
It was submitted that MERC was constituted on 5.8.1999, its approval
was not required with regard to two circulars were issued be fore the
said date. Reliance has been placed on Binani Zinc Limited v. Kerala
State Electricity Board and Ors., (2009) 11 SCC 244.
18.It was also submitted on behalf of appellant-MSEDCL that it
incurred costs for additional generation, strengthening of transmission
network and distribution system and for establishing of EHV sub-station
transformation. The appellant-MSEDCL has taken various decision s.
The circulars had not imposed an additional financial burden on CP P
holders. The appellant-MSEDCL agreed to allow CPP holders, who
consented for expansion load, for using against the existing load and also
reduction in contract demand, as such, it is clear that fina ncial health
was affected.
19.It was further submitted on behalf of appellant-MSEDCL that
circulars as per the policy of the State Government could not have been
invalidated. The Commission could have passed appropriate orde r on
merits concerning matters after its constitution. It could not have quashed
the circulars issued before its establishment. The appella nt-MSEDCL
had the power to alter the tariff when the Commission was not established
and the Government has authorised it also. Under Section 44 of the Act
of 1948, the CPP industry would be bound by the policy of the Board
and directions of the Government of Maharashtra. The APTEL has failed
to consider that circular dated 2.9.1999 does not amount to a revision of
tariff, it pertained to the policy regarding the CPP. The APTEL did not
consider that huge amount has been spent on infrastructure which was
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to be kept available for the standby facility. The Gover nment of India
letter dated 22.8.1994 contemplated both the units of respondent no.3 as
separate units. The policy decision dated 20.12.1997 of the Government
of Maharashtra has also not been considered. The APTEL failed to take
note of the letter dated 13.10.1999 issued by the appellant-MSEDCL to
respondent no.3 in respect of unauthorised act of connecting supply from
Plot No.E-23 to Plot No.E-1 without any sanction from the appellan t-
MSEDCL. The APTEL also failed to consider that circulars, which have
been quashed, were only explanations/clarifications t o the earlier
notifications coercing the policy of CPPs.
20.It was submitted that the APTEL did not consider order dated
10.1.2002 passed by MERC, in which it observed that CPP is a policy
matter under the jurisdiction of the Government of Maharashtra and the
Commission has been recently conferred with the additional power under
Section 22(2) of the Act of 1998, which includes the power to aid and
advise the Government of Maharashtra in the formulation of the State
Power Policy. The Commission kept silent on CPP at that stage. It was
further submitted that Commission mentioned in the order t hat it was
conferred with the powers under Section 22(2) of the Act of 1998 recently,
thus, the Commission should not have struck down the CPP and the
circulars regarding that.
21. The copies of the circular were forwarded as in the ca se of
all other circulars issued by appellant-MSEDCL to its field officers.
The appellant-MSEDCL had the power to alter the tariff, the circular
dated 25.5.1999 was authorised one, which was partially modified on
13.8.1999. One of the modifications was that CPP holders were required
to draw at least 25% of their monthly consumption from the appellant-
MSEDCL. There was no additional financial burden imposed on CPP
holders. The policy contained in the circular was a matter of economic
policy. It was also submitted on behalf of appellant-MSEDC L that all
the circulars relating to CPP generation were submitted to Tribunal for
approval. The Tribunal did not decide the validity thereof vide order
dated 10.1.2002. The Tribunal could not have declared the said circular
to be bad in law only on the ground that prior approval of the Tribunal
was not taken without deciding the issues on merits . Even if the
Commission had the power, it ought to have gone into the merits of the
case and reasonableness of the claim made by the appellant-MSEDCL
as reflected in circulars. The Government’s advice dated 28.4.2000 was
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
LTD. v. UNION OF INDIA [ARUN MISHRA, J.]
non-binding advice upon the appellant-MSEDCL under Section 78A of
the Act of 1948.
22. It was submitted on behalf of respondents that a fter
enforcement of the Act, there was no power with MSEB to issue circulars
under the Act of 1998. The Commission had sole and exclusive power
to frame the tariff. Thus, no case for interference is ma de out in the
appeal. The Government also directed MSEB to cancel its circular as it
was not in consonance with the policy of the State. Circulars could not
be said to be enforceable. The change in policy as per circ ular dated
2.9.1999 was not informed; thus, the exercise of power was arb itrary
and void. The levy of tariff for minimum consumption at 25% of t he
energy consumed in the preceding 12 months before the commissioning
of the CPP at the rate of 110% of the tariff is whol ly and utterly
unreasonable. Therefore, it was unsustainable. It was also s ubmitted
that neither Section 44 nor any other provisions of the Act of 1948 enabled
MSEB to impose any condition in the grant of consent , such as
maintenance of contract demand at a particular level. The Board cannot
unilaterally revise the charges in breach of such stipulations fixing the
special tariff. A notification cannot be inconsistent with the terms of the
agreement. If subsequent notification is quashed, it will not revive earlier
notification.
23.An affidavit in compliance with the order dated 11.7.2019 has
been filed on behalf of appellant-MSEDCL stating that supply of electricity,
made available, was used by respondents to manufacture their products.
The cost incurred on production has been passed on to the b uyers/
consumers buying their products. Hence, it would tantamount to unjust
enrichment in case a refund is ordered.
24.The first question for consideration is whether the Commission
could have quashed circulars issued by the appellant-MSEDCL before
its formation. The Commission was constituted under the Act of 1998
on 5.8.1999. The circular issued before that could not have been quashed
on the ground that MSEB had no power to issue them without the approval
of the Commission. The decisions in that regard of Commission as well
as of APTEL are liable to be set aside. In Binani Zinc Limited (supra),
this Court held that before Commission came into existence, the power
was to be exercised by the State Electricity Board. This Court held thus:
“31. The State Electricity Boards are entitled to frame tari ff in
terms of the provisions contained in the 1948 Act. The tariff s o
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framed is legislative in character. The Board, as a statutory
authority, is bound to exercise its jurisdiction within the four corners
of the statute. It must act in all fields, including the field of framing
tariff by adopting the provisions laid down in the 1948 Act or the
Rules and the Regulations framed thereunder.
32. It is one thing to say that while framing tariff the Board can
only take into consideration the provisions laid down in the Schedule
appended to the Act and/or the directions contained in the policy
decisions issued by the State as also other statutory pri nciples
governing the same but then a tariff framed by it cannot be held
to be ultra vires only because it did not take into consider ation
certain principles laid down in clauses ( c) to ( g) of sub-section (2)
of Section 29 of the 1998 Act.
***
41. We have, however, no hesitation in finding that the State
Electricity Board had the requisite jurisdiction to revise a tariff till
such time as the Commission was constituted and the purposes of
the 1998 Act could be achieved through it. Till the time the
Regulatory Commission was not constituted by the State of Kerala,
the power to determine tariff remained with the Board under the
Electricity (Supply) Act, 1948 as it was not repealed by the
Electricity Regulatory Commissions Act, 1998. Parliament could
not have intended to bring about a situation where no authority
would be empowered to determine the tariff between the date of
coming into force of the ERC Act, 1998 and the constitution of
the Commission. It is only after the Regulatory Commiss ion is
constituted that it will be the sole authority to determine the tariff.”
The decision of BSES Ltd. v. Tata Power Co. Ltd., (2004) 1
SCC 195, has been explained in Binani Zinc Limited (supra).
25. Concerning circular dated 2.9.1999, which remained in force
till 28.4.2000, the Commission as well as the APTEL were required to
consider impact of Commission earlier order passed on 10.1.2002 and
also its observations made in the said order that CPP is a policy matter
and that Commission was recently conferred with the power und er
Section 22(2) of the Act of 1998, it ought to have gone into the merits of
the claim. It was also pointed out on behalf of appellant-MSEDCL that
it had submitted circulars for approval to Commission, which ha s not
MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.
LTD. v. UNION OF INDIA [ARUN MISHRA, J.]
gone into the merits of the subject matter and later quashed circulars on
the ground of competence. The MSEDCL filed circulars along with tariff
proposal for approval as that was an essence of the tariff.
26. It has also been pointed out that in subsequent orders al so,
circulars as to CPP were relied upon by the Commissi on. It was
incumbent upon the Commission to consider the effect of its orders and
the prayer made by the appellant-MSEDCL to consider merits of various
circulars while fixing the tariff.
27. As dispute pertains to the period from 2.9.1999 to 28.4.2000,
and it is apparent from the additional affidavit filed by the appellant-
MSEDCL that the respondents used supply of electricity to manufacture
their products. The cost incurred on production has been passed on to
the buyers/consumers buying their products. Hence, it would tantamount
to unjust enrichment in case a refund is ordered. In the peculiar facts of
the case, as the Commission earlier opined in order dated 10.1.2002 that
CPP is a policy matter and it did not decide as to the merits o f subject
matter as prayer for approval was made by the appellant-MS EDCL.
The Commission observed that it would consider the matter in the future,
but later on, without considering on merits the reasonablenes s of the
demand, the Commission quashed the circulars. It is appare nt that the
liability was passed on to the buyers/consumers by the respondent nos.3
to 7 as electricity was used to manufacture their produc ts sold in the
market, working out the price based on expenditure. It would not be
appropriate in the peculiar facts of the case to direct refund to be made
by the appellant-MSEDCL of the amount recovered by it as it would
tantamount to unjust enrichment. Thus, in the pecul iar facts and
circumstances of the case, it is not considered appropriate to remi t the
matter to decide the dispute on merits after two decades for the period
from 2.9.1999 to 28.4.2000, during which circular dated 2.9.1999 was in
force.
28. Consequently, we set aside the orders passed by the
Commission as well as the APTEL and hold that circulars and the policy
decisions issued before the establishment of the Commission were illegally
set aside and in the peculiar facts and circumstances of the case we set
aside the order concerning refund of amount recovered by MSEB.
29. The appeal is allowed to the aforesaid extent. The parties are
directed to bear their own cost incurred.
Ankit Gyan Appeal allowed.
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