A.P. Electricity Regulatory Commission Vs. M/S. R.V.K. Energy Pvt.
Ltd. & ANR.  INSC 946 (16
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 8094 OF 2002 A.P. Electricity
Regulatory Commission ... Appellant Versus M/s. R.V.K. Energy Pvt. Ltd. and
another ... Respondents WITH
CIVIL APEPAL NOS. 8101, 8102, 8096, 8095 AND 8093 OF 2002
S.B. SINHA, J.
2 Interpretation and/or
application of the provisions of the Andhra Pradesh Electricity Reforms Act,
1998 (for short the 1998 Act) vis-a-vis the orders passed by the Andhra Pradesh
Electricity Regulatory Commission (for short `the Commission') are involved in
these appeals which arise out of the judgments and orders passed by a Division
Bench of the Andhra Pradesh High Court.
The matter relating to generation,
supply and distribution of electrical energy in the State of Andhra Pradesh
used to be governed by the provisions of the Electricity (Supply) Act, 1948
(For short, the 1948 Act).
With a view to bring reforms in the
Power Sector and to meet shortages in power supply, the State of Andhra adopted
a policy decision for generation of power through MPPs of 30 MW capacity in
private sector. For the said purpose it issued two G.Os. being G.O. No.116
dated 5th August, 1995 and G.O. No. 152 dated 29th November, 1995.
In the said Government orders, the
liberalization policy of the state in respect of its industrial economy so as
to enable the State Government to attract investment from other parts of the
country as also from outside 3 the country was highlighted. It intended to
bring about competition in the industry. It is stated to have taken a series of
measures for augmenting power including privatization. It took into
consideration the fact that the power plants costing less than Rs.100 crores
and which do not require Central Electricity Authority's clearance, and in
respect of which project clearance at the State level would suffice as a result
thereof the period may be reduced considerably.
The relevant extract of G.O.
No.116 dated 5th August, 1985 reads :- "The state government have
therefore felt that it would be appropriate to setup mini power plants based on
residual fuels in the industrial estates to relieve the burden of the
industrial load centres and tail end areas which are suffering from stress on
account of transmission and distribution problem."
It further provided:
"The Government have also
felt it necessary to take up mini power plants of 30 MW capacity which could be
implemented within a period of 12-18 months at suitable locations where
industries are concentrated and the power plants can meet the demand of
industries without any interruption."
4 The G.O. further provided that
the residual fuel shall be used and that the pricing arrangement was subject to
fixation of tariff by the Commission.
In this context, the supply of
electricity generated by the MPP to the identified consumers was allowed.
We, may, however, notice that at a
later stage the capital costs invested for the said purpose was raised to
By G.O. Ms. No.152 dated 29th
November, 1995 the terms and conditions of setting up of MPPs were laid down,
some of which read thus :- "3. Energy from the mini power plants can be
supplied to identified consumers using either Andhra Pradesh State Electricity
Board's existing distribution network of setting up a dedicated transmission
after obtaining a licence under section (3) of the Indian Electricity Act,
1910. In the case of the former, Andhra Pradesh State Electricity Board may on
request, lease out the distribution net work to the developer.
Detailed arrangements like lease,
rent etc., will be worked out on mutually acceptable terms between the Andhra
Pradesh State Electricity Board and the Mini Power plant developers.
Similar arrangement can also be
finalised for the dedicated net works established by Mini 5 Power Plant
developers so as to confirm to statutory requirement.
6. In the event of the mini power
plants generating power in excess of the requirement of their consumers, the same
can be purchased by the Andhra Pradesh State Electricity Board.
Such purchases by the Andhra
Pradesh State Electricity Board may be upto 15% of individual Mini Power Plant
capacity. The Andhra Pradesh State Electricity Board may also purchase power beyond
15% of the Mini Power Plant capacity, at Andhra Pradesh State Electricity
Board's option without conferring any pre-emptive right of sale on the Mini
Power Plant. The price for supplies made to the Andhra Pradesh State
Electricity Board will be weighted average price of purchase of power made by
the Andhra Pradesh state Electricity Board from Central and other State
Electricity Enterprises on a monthly basis. Settlement of accounts will be on a
monthly basis. The above procedure would be in force upto the end of December
2000 AD and would be subject to review thereafter.
8. The Mini Power Plant developer
shall necessarily sell power to the consumers above the Board's High Tension
Indisputably, pursuant to or in
furtherance of the said policy decision, 31 companies in the private sector
showed their interest for setting up MPPs. The Government of Andhra Pradesh,
upon taking into consideration the said applications allowed the respondents
herein to set 6 up MPPs capacity in private sector with residual fuel in
industrial load centres in the State, whereafter, approval for the same had
We may at this stage notice the
fact of the mater involved in the respective appeals including the proceeding
before the Commission.
CIVIL APPEAL NO. 8093 OF 2002
Permission was granted to LVS Power Ltd. to set up a 37.8 MW residual fuel
based power plant at Visakhapatnam so as to enable it to generate and supply
power directly to specified industrial consumers by using the existing
transmission and distribution network of APT. In the letter for grant of
permission issued to LVS Power Ltd. by the Secretary to the State Government
letter dated 24th July, 1996. Clauses 1 and 4 of the permission letter read :-
"1. The total completed cost of the project (MPP) including the cost of
land and the total EPC cost shall not exceed Rs.100 crores".
4. The copies of actual supply
agreements with the identified consumers shall be furnished to the 7 A.P. State
Electricity Board in advance of commencement of supply. Along with the
agreements, 3 months notices seeking termination of the Agreements with the
A.P. State Electricity Board by the identified consumers of generating company,
if they so desire, shall be submitted to the A.P. State Electricity Board."
Alongwith the said letter it
annexed the names of the consumers with their possible demand, which read :-
"S.No. Name of the Consumer Demand
1. Hindustan Shipyard Ltd.,
Visakhapatnam 6,000 KVA
2. Hindustan Zinc Ltd.,
Visakhapatnam 22,000 KVA
3. Essar Steels Ltd.,
Visakhapatnam 40,000 KVA
4. Andhra Cements Ltd.,
Visakhapatnam 9,000 KVA ___________ 77,000 KVA"
___________ All the aforementioned
industries are located in the State of Andhra Pradesh.
8 The proposal of the company was
accepted in terms of Section 18A(a) of the 1948 Act.. The MPP was allowed to be
operated on multifuels (LSHS/Furnace Oil/Naptha) alongwith tie-line.
The terms and conditions of
setting up of the MPP were amended from time to time in terms of letter dated
20th October, 1997; 18th May, 1999 and 21st August, 2001. We are not concerned
with the details thereof.
Pursuant to or in furtherance of
the approval granted by the Government of Andhra Pradesh to the company for
setting up of MPP it entered into Wheeling Agreement with APTRANSC wheeling
power from generating station to the consumers. In terms of the Wheeling
Agreement, the company was required to pay 8 % to 12 % of power generated as
wheeling charges to APTRANSCO for utilizing their transmission lines. It also
entered into Power Sales Agreements with 13 industrial consumers for sale of
In the meantime in the year 1998,
the Parliament enacted The Electricity Reforms Act, 1998. The State of Andhra
Pradesh also enacted 9 the 1998 Act; in terms whereof, Andhra Pradesh Electricity
Regulatory Commission (for short `the Commission') was constituted on or about
23rd January, 2000.
Indisputably, after coming into
force of the 1998 Act the MPPs applied for grant of exemption under the said
Act as envisaged in Section 14 thereof, before the Commission.
The said Act provided for grant of
licence and the exemption therefrom. The Company applied for grant of licence
as provided in Section 15 of the Act. By an order dated 18th May, 2000 the
Commission directed the company to come back to it for the said purpose four
months prior to the commencement of commercial operation. In view of the said
direction of the Commission, the company commenced construction of the project
in June, 2000. For the said purpose it drew `equity' from the promoters and
investors and term loans from the lenders. The total cost of the project was
said to be Rs.133 crores.
When the said plant was nearing
completion, having regard to the said direction dated 18th May, 2000, the
company approached the Commission on 5th March, 2001 as the project was
expected to be completed by July, 2001. The Commission, however, by a letter
dated 4th 10 May, 2001 informed the company that it was of the opinion that no
third party sale of power should be permitted and asked it to send specific
proposals to APTRANSCO for sale of entire power from the project purported to
be in terms of Central Government's Notifications within fifteen days.
It appears that before the
Commission the Andhra Pradesh State Electricity Board Engineers Association
intervened. The said intervention was entertained by the Commission.
The Commission noted that out of
31 MPPs which received permission/sanctions of the State to generate energy
based at residual fuels, only 19 survived. The name of the respondent company
was also found therein. The Commission also noticed the essential features of
the grant of such permission, one of which being clause 5, which reads :
"(v) Copies of the supply
agreements entered into with the identified consumers should be supplied to the
APSEB. The agreement with the APSEB for wheeling shall reflect the conditions
No.152 dated 29.11.1995 besides
11 At paragraph 14 of the said
order, the Commission recorded that various Associations of the officers of the
Andhra Pradesh State Electricity Board inter alia submitted that third party
right should not be allowed as it affected the financial viability of the main
licensee, APTRANSCO, apart from the fact that they should not be permitted to
generate power with residual fuel as the same is too costly for the purchase by
the grid. It was also noted that third party sale should not be allowed as MPPs
would not suffer Transmission and Distribution losses which the Licensee
suffers and the Tariffs of the Licensee for industrial consumers include
The Government of Andhra Pradesh,
was, however, not represented. A contention, however, was raised by a letter
representing that the permission may be given to MPPs for third party sales to
HT Industrial consumers and in the event APTRNASCO loses on account of the said
arrangement, the Commission can fix appropriate wheeling charges taking into
account the cross subsidization forgone by APTRANSCO on account of third party
The Commission stated that it was
not inclined to permit third party sale for the following reasons :- 12
"(19). For reasons already stated elaborately in our order in O.P.
No.2/1999 (GBR Projects Ltd.) and O.P.
No.348/2000 (Astha Power
Corporation Pvt. Ltd.) the Commission is not inclined to permit third party
Currently the tariffs include
substantial cross subsidy to the tune of about Rs.2,000 crores by industrial
and commercial consumers. If these consumers are supplied power by MPPs,
instead of the Licensee, the cross subsidy element now existing will come down,
calling for increased tariffs for agriculture and domestic consumers giving
rise to a rate shock to them or alternatively, the GoAP may have to bear the
increased burden in terms of subsidy. Further, to the extent the government
subsidy is limited the burden of cross subsidy will increase on those
industrial and commercial consumers who stay with the Licensee.
This would in turn lead to these
consumers going out of the system as they would not be competitive for their
products in the market with such high tariffs.
Finally, the Licensee would be
left with agricultural and domestic consumers who are highly subsidized.
This would effect totally the
viability of the Licensee and will result in failure of Licensee to discharge
its functions in the matter of supply of power. It is, therefore, evident that
permitting mushroom growth of MPPs and third party sales would not at all be in
the interest of the organized growth of the electricity industry which is
essential for the progress of any civil society. Permitting third party sales
would create discrimination between industrial consumers drawing power from
IPPs and the industrial consumers drawing power from APTRANSCO DISCOMS who will
be paying for power at different rates. Further, the cost for supply of power
for the Licensee includes cross subsidization and transmission and distribution
losses in the system spread over the entire State and approved by the
Commission whereas, the cost to the MPP developer does not include cross
subsidization and transmission and distribution loss cost. Thus, allowing third
party 13 sales by MPPs at the same rate at which the Licensee supplies to HT
consumers, would result in either unjust enrichment of developers which is
neither contemplated nor permissible in a regulatory industry, or in supply of
power at lower prices than prescribed resulting in differential prices for the
same categories of consumers, leading to discriminatory treatment.
(20) In O.P. No.2/1999 and O.P.
No.348/2000, the Commission has directed the developers to approach APTRANSCO
and negotiate the sale of power on the basis of their project cost. It would be
appropriate if directions are also issued to the eight developers mentioned in
para 18 above to make an offer of price on the basis of the various Government
of India Notifications (including the Notifications dated 30.03.1992). These
Notifications set out the method and manner of calculation of tariff for
generating companies mutually agree on the price for the pwer to be supplied
and other conditions, a PPA may be drawn up and submitted to the Commission for
its approval under Section 21 of APER Act. If on the other hand they are not
able to agree on the price and other terms and conditions, they may apply to
the Commission for appropriate orders."
It noticed that pursuant to its
interim order, the company had entered into a Wheeling Agreement with APTRNASCO
on 25th February, 1999. While directing renegotiations regarding price and
other terms and conditions at which they would be willing to supply power to
APT it was directed:- "(22). The Commission hereby directs that the eight
MPPs mentioned above send a specific proposal in writing based on the existing
Central Government 14 Notifications on the basis of their project costs to
APTRANSCO within a fortnight of the receipt of this order, with a copy to the
Commission. APTRANSCO shall respond by communicating views on the offer to the
MPPs and the Commission within another fortnight. If the parties need more time
for negotiations in the matter, they are free to approach the Commission in the
matter. If APTRANSCO and the MPPs agree on the price and the other terms and
conditions, a (fresh) PPWA may be drawn up and sent for the consent of the
(23). If there is no agreement
between APTRANSO and the MPPs on supply terms within a month's time, the
Commission will hear the eight MPPs and APTRANSCO on 4.6.2001 for further
Pursuant to and in furtherance of
the said order of the Commission the Company submitted a proposal on or about
18th May, 2001 for sale of its entire power from the project as per the norms
laid down or set up by the Central Electricity Authority alongwith necessary
supporting documents assuming the cost of the project at about Rs. 125 crores.
Negotiations took place inter alia
on 17th August, 2001 when the company agreed to the proposal of the APTRANSCO
to sell power as per the said norms assuming the project cost at Rs.125 crores.
The said proposal of the company was accepted in its entirety by the APTRANSCO.
According to it the tariff could be re-fixed after the capital cost is approved
by the Government of Andhra Pradesh 15 whereafter the consent of the Commission
to purchase power from the company was sought for.
The Commission accorded its
consent to the said proposal by its letter dated 18th August, 2001. Keeping in
view the aforementioned consent of the Commission on 24th August, 2001 the
company terminated the power sales agreements entered into by it with the industrial
consumers to avoid any liability The project was completed on 18th October,
2001. APTRANSCO asked for extension of time from the Commission to purchase
power from the company by its letter dated 30th November, 2001 till the end of
February, 2001 on the purported ground that firm proposal (PPA) could not be
sent since the project cost was yet to be approved by the Government of Andhra
Pradesh. A reminder was also sent by APTRANSC on 9th November, 2001 to the
Commission. The Commission again by its letter dated 26th November, 2001
granted permission sought for by APTRANSCO stating :- "With reference to
letter (1) and (2) cited above, Commission accepts the proposal of APTRANSCO to
purchase power from M/s. LVS Power Limited at the rates specified in letter (3)
cited above and extends the period of purchase of power from 31.10.2001 to
30.11.2001 purely as an interim measure. This is 16 without prejudice to the
rights of the Commission to pass any further order in this matter.
APTRANSCO is directed to send the
Firm Proposal with the approved Project cost from competent Authority latest by
30.11.2001, for the Commission to pass appropriate orders."
On or about 26th November, 2001 by
a letter addressed to the Government of Andhra Pradesh, the APTRANSCO sought
for its approval of the project cost stating that it was willing to purchase
power from the company if the project cost was restricted to Rs.125 crores. As
the said consent was not forthcoming another extension was sought for by the
APTRANSCO from the Commission for purchase of power till the end of January,
2002 by its letter dated 3rd December, 2001. The Commission by its letter dated
27th December, 2001 directed the APTRANSCO to submit firm proposal alongwith
the approval of the capital cost of the project from the competent authority by
31st January, 2001. The matter was posted for hearing on 7th February, 2002.
The Government of Andhra Pradesh
in the meantime sought for the opinion of the Central Electricity Authority as
regards the reasonableness of the project cost. It may be noticed that the
Central Electricity Authority by a letter dated 26th February, 2002 stated that
the 17 capital cost of the company is lowest among the similar type of plants
in the country by observing :- "Reference is invited to GOAP letter dated
29.12.2001 seeking the advice of CEA under Section 3 of Electricity
(Supply) Act, 1948. The matter has been examined based on the subsequent
details/clarifications received vide APTRANSCO letters dated 28.1.2002 &
4.2.2002 and GOAP letter dated 15.2.2002. The following observations are made :
Clarifications furnished vide GOAP letter dated 15.2.2002 do not indicate as to whether GOAP Order dated
29.11.1995 giving revised policy guidelines regarding generation of power
through Mini Power Plants in Private Sector had been reviewed as contemplated
in Para 6 of the said order w.r.t. capital costs. Etc.
It is seen that the
clarification on the increase in capial cost ceiling from Rs.100 crores as
earlier contemplated to Rs.250 crores was given to M/s. LVS only w.r.t. their
request. It is not clear whether all the MPP developers were informed of this
increase in capital cost ceiling and whether any reference is made to capacity
of the plant to be generated within the capital cost of Rs.250 crores.
The capacity of the LVS
plant has been reduced from 55 MW as originally approved in July, 1996 to 46.08
MW vide GOAP letter dated 9.7.1997 and again to 37.8 MW vide GOAP letter dated
11.4.2001 whereas the capital cost ceiling was increased from Rs.100 crores as
originally approved in July, 1996 to Rs.250 crores in January, 1999. The compulsions for reduction in
plant capacity are not clear from the documents received from GOAP/APTRANSCO.
The APTRANSCO's consultant
had in their report indicated that revised capital copst of Rs.125.23 crores
for 2 x 18.9 MW was without complete audit of the cost incurred and 18 physical
verification. As now the project has been completed, it will be necessary to
look into the final audited cost corrected to the admissible provisions.
In view of the above mentioned
observations, it is not possible for CEA to advise on the reasonableness of the
capital cost specific to LVS project. It may, however, be mentioned that CEA,
while granting TEC for similar type of projects for IPPs have cleared the
estimated completion capital cost in the range of Rs..3.62 crores to Rs.3.8
crores per MW as the ceiling cost depending on the scope of work, site specific
features, financial package, debt-equity ratio, exchange rate, taxes and
duties, foreign exchange etc.
GOAP may please take further
action based on the above."
In the meanwhile, the APTRANSCO
informed the Commission by its letters dated 6th February, 2002 that the plant
may have to be backed down on account of high tariff cost as such the company
may be advised to sell the power outside the State by paying wheeling charges
as per the order of the Commission. The matter was heard on 7th February, 2002.
APTRANSCO took a complete turn
around stating that it was unable to purchase power on the ground that the
plant may have to be backed down in the merit order dispatch due to high
variable cost. A protest was made thereto by the company in terms of its order
dated 22nd February, 2002.
The discussion was held between
the Managing Director of the Company and the Chief Engineer of APTRANSCO on
22nd March, 2002 when the 19 company agreed to the demands of APTRANSCO for
reduction in the cost of power to prevent further losses to the investors and
APTRANSCO increased the wheeling
charges four fold.
It may, however, be noticed that
the Commission by its order dated 23rd April, 2002 observed :- "At the
hearing the applicant argued that it had always complied with the orders of the
APERC and on-off-on attitude of ANTRANSCO was very confusing not only to LVS
but also to other energy developers and the credibility of APTRANSCO and GoAP
was at stake. It requested the APTRANSCO should be directed to enter into PPA
on the basis of the latest negotiations. On the other hand, Shri Manmohan Rao,
CE, APTRANSCO, stated the APTRANSCO is unable to buy power as the purchase cost
might not pass muster in the merit order and APTRANCO might not be able to buy
any power from LVS and end up only paying fixed charges, even if a PPA is
The Commission for all intent and
purport took a policy decision that the electricity generated by the company
would be transferred to APTRANSCO. Whereas most of the respondents could not
start production, LVS Power did. We will state the facts of the same at some
details at an appropriate place but suffice it to point that pursuant to the 20
interim decision taken by the Commission, LVS Power cancelled the agreements it
had entered into with the consumers. Negotiations were held for fixing the rate
of the tariff. It did not succeed. The Commission by its order dated 23rd
April, 2002 stated that:
"The Commission can only
grant or withhold consent for a PPA submitted to the Commission. If APTRANSCO
does not wish to enter into PPA with LVS there is no way the Commission can
compel APTRANSCO to do the same. In the circumstances, there is no need to pass
any order u/s. 21(4) of the A.P.
Electricity Reform Act, 1998
either granting or withholding consent."
The writ petition filed by the
company before the High Court was allowed directing :- "65. In the light
of the above infirmities, the order of the Commission is liable to be set aside
and we are of the opinion that there are sufficient grounds to allow the
66. In the result, the appeal is
allowed with costs by setting aside the order of the A.P.
Electricity Regulatory Commission
in OP No.
70-A(LVS)/2001 dated 23-4-2002
holding that APTRANSCO cannot go back from its promise and refuse to purchase
the power on the pretext of surplus power position in the State. We direct the
Commission to consider the matter afresh as per the norms of Central
Electricity Authority and the directions given in the appeal 21 and to direct
the APTRANSCO to enter into Power Purchase Agreement and purchase the power
from the appellant.
67. Now the further question that
falls for consideration by this Court would be, what should happen to the
generation plant which is ready for commercial operation till the Commission
decides the issue as per law, in the light of the directions given by us?
68. It is not in dispute that
apart from the investment made by the private entrepreneur, about 104 crores of
rupees of public money was invested by various financial institutions, under
the leadership of Industrial Development Bank of India (IDBI) and everyday the
appellant has to suffer a loss of about rupees 8 lakhs towards interest
component itself. If we allow the situation to continue, the losses of the unit
will be mounting up and it may reach a point of no return and the public monies
invested will go waste. The burden will again fall on the man with loin cloth
in the shape of indirect taxes.
Hence, we cannot allow the
situation to continue further, more so, in the light of the permission given by
the Commission on 18-8- 2001 to the APTRANSCO to purchase the power from the
appellant. We therefore direct the APTRANSCO to purchase the power at the rate
at which it purchased during the trial operations, subject to the final orders
to be passed by the Commission, or to takeover the plant from the appellant and
to perform the duties of a generating company, as provided under Section
18-A(2) of the Electricity (Supply) Act, 1948, until it enters into Power
Purchase Agreement with the appellant after fixation of the terms by the
Commission. The above arrangement made to save the plant will 22 be subject to
final orders to be passed by the Commission in the matter.
69. Before we part with the case,
we place on record our displeasure over the unhelpful and un-cooperative
attitude of APTRANSCO in accepting a reasonable suggestion made by this Court
i.e., the power generated by the appellant may be purchased at the rate at
which it is purchasing from other units, pending disposal of the appeal, since
we are pre-occupied in hearing a batch of electricity appeals preferred against
the orders of the A.P. State Electricity Regulatory Commission regarding
Wheeling Charges and Grid Support Charges wherein the senior Advocates from
other States are advancing arguments and granted sufficient time to think over
the matter and report to the Court. The learned senior Counsel appearing for
APTRANSCO expressed his inability to convince his client in accepting the suggestion
made by the Court. Therefore, in order to dispose of this matter, we were made
to take up this appeal by stopping arguments in those cases and complete the
hearing by sitting in the Court beyond Court hours."
Re: Civil Appeal No. 8094 of 2002
On 29.2.96, permission was granted to RVK Energy Pvt. Ltd. to set up a 32.7 MW
residual fuel based power plant at Medak district so as to enable it to
generate and supply power directly to specified industrial consumers by using
the existing transmission and distribution network of APT. On 5.12.98, the
State Government on a request made by RVK Ltd., 23 allowed the change of
location for the project to Krishna district. On 1.2.99, the 1998 Act was
brought into force whereby the licensing provision under Section 14 became
applicable in the State of Andhra Pradesh. In terms of Section 14(4), the State
Government issued provisional licenses to all persons who were engaged in the
business of supply of electricity. On 23.2.99, the State government permitted
RVK to partly change the fuel for the project from Residual Fuel to Natural
On 2.4.99, the Andhra Pradesh
Electricity Regulatory Commission (APERC) was constituted under the Reform Act.
On 6.5.99, a Power Purchase Agreement was signed between RVK Pvt. Ltd. and
Indian Cements Ltd. The Agreement inter-alia provided that as RVK was in the
process of signing the Power Wheeling Agreement with APTRANSCO, India Cements
thus had notice of the execution of the Wheeling Agreement between the parties
as a pre-requisite of the implementation of the Agreement between it and RVK
Pvt. Ltd. On 10.9.99, APTRANSCO requested APERC to approve the drafts of the
Power Purchase and Wheeling Agreement with RVK Pvt. Ltd. On 20.9.99, RVK made
an application being O.P. No. 2 of 1999 to APERC seeking exemption from the
requirement of license to supply electricity to its consumers under Section 16
of the Reform Act. In response to the application of APTRANSCO dated 10.9.99,
APERC by its letter dated 24 22.9.99, listed the requirements to be complied
with which inter-alia included RVK Pvt. Ltd. to obtain a licence or exemption
from APERC and to agree to APERC deciding third party sales including the
extent and manner of the supply and affixing the tariff, transmission and
wheeling charges. APTRANSCO was called upon to amend the draft agreement with
Vide its letter dated 24.9.1999,
RVK requested APERC to process the exemption application dated 20.9.1999
On 14.10.1999, the Power Purchase
and the Wheeling Agreement was signed between RVK and APTRANSCO. In terms of
the Agreement, it was agreed by RVK to set up a power generating plant to
generate electricity upto 20.31 MW with natural gas as fuel in Krishna district
and to sell power through APTRANSCO to identified consumers via the APTRANSCO
grid. It was also agreed by RVK to pay the transmission (wheeling) and banking
charges as per the provisions of Section 26 of the 1998 Act. RVK agreed to take
a licence as required under Section 15 or an exemption under Section 16 of the
Reform Act for third party sale including supply to (other than a licensee)
regardless of the general approval granted under G.O.M. No. 152 dated 29.11.95.
The agreement 25 also provided for RVK to take the consent of APERC for
wheeling of power and submit a list to APERC for its consent of the consumers
to whom RVK proposed to sell the power. The agreement stipulated the submission
of all disputes regarding third party sale and supply to sister concerns
including the extent and manner of such supply and the tariff charged to the
On 9.12.1999, RVK entered into a
Power Purchase agreement with Super Spinnings/Precott mills for sale of
electricity. The agreement noted that Super Spinnings/Precott Mills had notice
of the terms of the Power Wheeling Agreement that had been entered into between
RVK and APTRANSCO.
By its letter dated 10.12.99, RVK
sought orders from APERC to sell electricity to third parties so as to avoid
paying minimum guarantee charges of Rs. 2.40 lacs per day to the Gas Authority
of India for non- utilization of the gas so allocated to generate electricity
in the power project. In the light of the urgency shown by RVK, APERC by its
interim order dated 3.1.2000 approved the W heeling Agreement and third party
sales which specifically stated that the order would not prejudice the power of
APERC to pass such an order as it may consider necessary at 26 any stage of the
proceedings. The proceedings were however kept pending.
On 10.2.2000, RVK entered into a
Power Purchase agreement with Super Nagarjuna Agro-Tech for sale of
electricity. The agreement referred to the Power Purchase agreement entered
into between RVK and APTANSCO.
After hearing RVK on 28.3.2000,
APERC by its order dated 31.3.2000. rejected the request of RVK for grant of
licence/exemption from licence. It was held that G.O. Nos. 116 and 152 did not
give any vested right to the mini power plants to get a licence or an exemption
after the Reform Act had come into force. APERC directed RVK to sell
electricity to APTRANSCO only and not to third parties at a fair and reasonable
price to be mutually agreed to by the parties or in the event of the failure to
do so, to be decided by the APERC.
Aggrieved by the said order, RVK
preferred an appeal under Section 39 of the 1998 Act before the Andhra Pradesh
High Court wherein the prohibition of the third party sales was challenged. By
an order and judgment dated 8.6.2001, the High Court dismissed the said 27
appeal. Upholding the order of APERC, the High Court was of the opinion that
the license or sanction under the Reform Act was necessary, notwithstanding any
previous licence or sanction that was granted under the 1910 Act. It
furthermore held that any approval envisaged under Section 43 A of the 1948 Act
granted to a generating company for sale of electricity did not authorize the
supply of electricity to the consumers.
Re: Civil Appeal No. 8101 of 2002
On 9.12.1995, the State Government under Section 18A of the 1948 Act granted
permission to M/s Astha Power Corporation Pvt. Ltd.
to set up a 28.7 MW residual fuel
based power plant at Balanagar, Hyderabad so as to enable it to generate and
supply power directly to specified industrial consumers by using the existing
transmission and distribution network of APT. Further, permission was granted
by the state government under Section 28 of the 1910 Act to Astha Power Pvt.
Ltd. for supplying energy to the
identified consumers and also under Section 43A of the 1948 Act for entering
into a contract for the sale of electricity to the consumers.
28 On 12.11.1996, the State
Government on a request made by Astha Power Pvt. Ltd., allowed the change of
location for the project to Pashamylaram, Medak district.
By a notification dated 19.8.1999
issued by APERC, the public was informed that a licence was required to be
taken from APERC for the transmission or supply of electricity in the state.
On 10.9.1999, APTRANSCO requested
the Commission to approve the Power Purchase and Wheeling Agreement with Astha
On 23.10.1999, the Power Purchase
and the Wheeling Agreement was signed between Astha and APTRANSCO. In terms of
the Agreement, it was agreed by Astha to set up a power generating plant to
generate electricity of about 28 MW with H.F.O. as fuel in Medak district and
to sell power through APTRANSCO to identified consumers via the APTRANSCO grid.
It was also agreed by RVK to pay the transmission (wheeling) and banking
charges as per the provisions of Section 26 of the Reform Act. Astha agreed to
take a licence as required under Section 15 or an exemption under Section 16 of
the Reform Act for the third party sale including supply to (other than a
licensee) 29 regardless of the general approval granted under G.O.M. No. 152
dated 29.11.1995. The agreement also provided for Astha to take the consent of
APERC for wheeling of power and submit a list to APERC for its consent of the
consumers to whom Astha proposed to sell the power.
The agreement stipulated the
submission of all disputes regarding third party sale and supply to sister
concerns including the extent and manner of such supply and the tariff charged
to the APERC.
On 23.12.1999, Astha made an
application to APERC seeking exemption from the requirements of taking license
to supply electricity to its consumers under Sections 15 & 16 of the Reform
After hearing Astha on 18.4.2000,
APERC by its order dated 1.7.2000. rejected its request for grant of
licence/exemption from licence.
It was held that G.O. Nos. 116 and
152 did not give any vested right to the mini power plants to get a licence or
an exemption after the Reform Act had come into force.
APERC directed Astha to sell
electricity to APTRANSCO only and not to third parties at a fair and reasonable
price to be mutually agreed to by the parties or in the event of the failure to
do so, to be decided by the APERC.
30 Aggrieved by the said order, on
24.7.00, Astha preferred an appeal under Section 39 of the Reform Act before
the Andhra Pradesh High Court wherein the prohibition of the third party sales
In the meanwhile, on 23.4.01,
APERC after observing that Astha had not approached APTRANSCO as per its
directions to arrive at an agreement for sale of electricity, directed Astha
again to negotiate with APTRANSCO so as to arrive at an agreement.
By an order and judgment dated
8.6.01, the High Court dismissed the said appeal. Upholding the order of
Commission. The High Court was of the opinion that the license or sanction
under the Reform Act was necessary notwithstanding any previous licence or
sanction that was granted under the 1910 Act. It furthermore held that any
approval envisaged under Section 43 A of the 1948 Act granted to a generating
company for sale of electricity did not authorize the supply of electricity to
Entry 38 of the Concurrent List in
the Indian Constitution provides for "Electricity".
31 The Parliament enacted the
Indian Electricity Act (for short the 1910 Act). Section 3 of 1910 Act provides
for issue of licence to the undertakings generating, supplying and distributing
Section 28 of the 1910 Act
provides for grant of sanction required by non-licensees in certain cases.
The State is an appropriate
Authority both for grant of licence in terms of Section 3 and sanction in terms
of Section 28 of 1910 Act.
In the year 1948, the Parliament
enacted the Electricity (Supply) Act, 1948 (for short the 1948 Act) in terms
whereof each State was statutorily obliged to constitute Electricity Boards in
their respective States. Electricity Boards are `deemed licenses' in terms of the
In terms thereof licence cannot be
granted to any private party.
Sections 2(4)(A), 2(5), 2(6) of
the 1948 Act provide for the definitions of "Generating Company",
"Generating Station" and "licensee", respectively.
Section 18A specifies the duties
of a generating company.
32 Section 26A of the 1948 Act
provides for exemption grant of a licence so far as a generating company is
Section 43A of the 1948 Act
provides for terms, conditions and sale of electricity by generating company.
The State of Andhra Pradesh
enacted the 1998 Act to provide for the constitution of an Electricity
Regulatory Commission, restructuring of the Electricity Industry,
rationalisation of the generation, transmission, distribution and supply of
electricity avenues for participation of private sector in the Electricity
Industry and generally for taking measures conducive to the development and
management of the Electricity industry in an efficient, economic and
competitive manner and for matters connected therewith or incidental thereto.
"APTRANSCO" has been
defined in Section 2(b) of the 1998 Act to mean Transmission Corporation of
Andhra Pradesh Limited incorporated as a transmission company under the Companies Act, 1956
(Central Act 1 of 1956) and as referred to in Section 13 thereof.
33 "Commission" has been
defined in Section 2(c) of 1998 Act to mean the Andhra Pradesh Electricity
Regulation Commission constituted under sub-section (1) of Section 3.
"licence holder" has been defined in Section 2(e) of 1998 Act to mean
a person licensed under Section 14 of the Act to transmit or supply energy
Section 3 of 1998 Act provides for
establishment and constitution of the Commission.
Functions of the Commission have
been dealt with in Section 11 of the 1998 Act, clauses (e) and (f) whereof read
as under :- "11. Functions of the Commission, :- (e) to regulate the
purchase, distribution, supply and utilization of electricity, the quality of
service, the tariff and charges payable keeping in view both the interest of
the consumer as well as the consideration that the supply and distribution
cannot be maintained unless the charges for the electricity supplied are adequately
levied and duly collected.
34 (f) to promote competitiveness
and progressively involve the participation of private sector, while ensuring
fair deal to the customers."
Section 12 provides for the
general powers of the State Government to issue policy directions on matters
concerning electricity in the State including the overall planning and
co-ordination. All policy directions are required to be issued by the State
Government consistent with the objects sought to be achieved by the said Act and
accordingly shall not adversely affect or interfere with the functions and
powers of the Commission including but not limited to determination of the
structure of tariffs for supply of electricity to various classes of consumers.
Section 13 of the 1998 Act
provides for constitution and functions of APTRANSCO. Section 14 provides for
licensing, sub-section (1) whereof reads as under :- "14. Licensing:- (1)
No person, other than those authorized to do so by licence or by virtue of
exemption under this Act or authorized to or exempted by any other authority
under the Electricity
(Supply) Act, 1948, shall engage in the Sate in the business of, - 35 (a)
transmitting electricity ; or (b) supplying electricity."
Section 15 of 1998 Act provides
for grant of licences by the Commission in respect of transmission of
electricity in a specified area of transmission and supply electricity in a
specified area of supply including bulk supply to licensees or any person.
Section 16 of 1998 Act provides
for exemption from the requirements of having a licence.
Section 17 of 1998 Act provided
for general duties and powers of the licensees. Section 21 imposes restrictions
on licensees and generating companies.
The Parliament enacted Indian
Electricity Act, 2003 (in short 2003 Act).
Sub-section (2) of Section 10 of
the said Act enables a generating company to supply electricity to third
parties. It reads :- 36 "Section 10 - Duties of generating companies (2) A
generating company may supply electricity to any licensee in accordance with
this Act and the rules and regulations made thereunder and may, subject to the
regulations made under sub-section (2) of section 42, supply electricity to any
Section 14 of 2003 Act provides
for grant of licence.
The Schemes of 1910 Act, 1948 Act
and 1998 Act being different, any licence or sanction granted in terms of
Section 3 and 28 of the 1910 Act or permission under Section 43A of the 1948
Act would not mean that no licence was required in terms of 1998 Act. The
Regulatory Commission in absence of any direction issued by the State in terms
of Section 12 of the Act, that too being an expert body was entitled to take
its own decision. The power of the Commission to regulate supply would include
a power to issue necessary direction (s) to supply electrical energy only to
the licenses under the 1948 Act. The 1998 Act stipulates that the manner in
which the power to regulate would be exercised has been left with only an
There are principally two
categories of cases before us, viz.:
37 i) Where the State of Andhra
Pradesh had granted express permission to establish Mini Power Plants (for
short MPP) prior to 1995 where residual fuel which were to be used as raw-material
had been specified.
ii) The Government of Andhra
Pradesh also permitted the producer of electricity to supply it to heavy
industrial units including public sector undertakings.
The issues involved in relation to
these industries are two fold.
Where the industries had been
asked to sell electrical energy to the APTRANSCO, writ petitions filed
thereagainst had been allowed by one Division Bench of the High Court. It,
however, appears that another batch of cases where interim order had been passed
by the Commission to supply power to the APTRANSCO at one stage and pursuant to
the said directions, supply of energy had been taken for sometime but while
negotiations were going on for fixation of price between the parties at first
instance, which having failed, when the matter came up again before the
Commission, the APTRANSCO refused to enter into such an agreement resulting in
an order passed by the Commission, that it cannot enforce the APTRANSCO to
enter into such an agreement.
38 These orders were subject
matter of writ petitions before the Andhra Pradesh High Court. Another Division
Bench of the said High Court, keeping in view the stand taken from the very
beginning by the State of Andhra Pradesh; the power of the Commission as also
the orders passed by it from time to time as also the negotiations held between
the parties, directed APTRANSCO to enter into an agreement with the MPPs.
Mr. Shanti Bhushan, learned senior
counsel appearing on behalf of the appellant- APTRANSCO, would submit :- 1) Whereas
the Commission has the requisite power to regulate supply of electrical energy
in terms of Section 11 of the 1998 Act, it had no jurisdiction to compel the
APTRANSCO to enter into a Power Purchase Agreement.
2) Power of the Commission in
terms of sub-section (4) of Section 21 being limited, the High Court committed
a serious error in issuing the impugned directions.
39 3) The High Court while
exercising its appellate jurisdiction in terms of Section 39 of 1998 Act could
not have issued any direction which was beyond the power of the Commission.
4) In any event the High Court
being not an expert body should not have ordinarily interfered with an order of
the Commission which is an expert body, as has been held by this Court in West
Bengal Electricity Regulatory Commission vs. C.E.S.C. Ltd. etc. etc : (2002) 8
Mr. Ramachandran, learned counsel,
appearing on behalf of the Commission would submit :
That sanction granted in terms
of Section 28 of 1910 Act or permission granted under Section 43 A of the 1948
Act would not lead to the conclusion that the MPPs were not required to take
fresh licence or apply for grant of exemption.
Applications for grant of
exemptions were filed by the MPPs, as even they as also the financial
institutions thought that the same was necessary.
40 The Commission in its order
did not interfere with the agreements which had been entered into by and
between the MPPs and the third party prior to coming into force of the 1998
The decision to direct the MPPs
to supply power to APTRANSCO was taken with a view to adjust the equities
between the parties, as otherwise, whereas on the one hand MPPs would be
supplying power to industrial companies and commercial concerns which would
attract a higher tariff, the APTRANSCO would have been left with only
agricultural consumers and domestic consumers for whom the tariff was on a
lower side resulting in sufferance of loss by it
The Commission had the
jurisdiction to issue such directions, apart from its power to grant licence or
grant exemption in terms of Section 14 of the 1998 Act but also in exercise of
its power to regulate supply and all that is contained in Section 11 thereof.
Apart from LVS Power, as no
other company, had set up the power plant, although the Commission in its order
dated 4th May, 2001, in purported exercise of its suo motu power, 41 expressed
its disinclication to permit third party sales and fixation of rate, it asked
the parties to negotiate thereabout and only in the event such negotiations
failed, they were given the liberty to approach the Commission in the matter.
When, however, it was found
that the cost of supply would be beyond the capacity of APTRANSCO to bear, the
Commission refused to issue to it to make compulsory purchase of electricity
The Commission had no intention
to restrict sale of electricity to third party by MPPs, particularly when
APTRANSCO itself was unable to take supply.
Mr. Harish N. Salve, learned
senior counsel appearing on behalf of the respondent LVS Power, on the other
hand, urged :-
21(4) of the 1998 Act has no application to the facts of the present case.
Sections 11(1)(e) and (f) of
1998 Act clearly postulate a wide power in the Commission, which in effect and
substance, clearly go to show that while exercising its power to regulate
supply of electrical energy by generating station 42 to a consumer, it, while
directing the MPPs to supply electrical energy to APTRANSCO had the requisite
power to direct the APTRANSCO to purchase the same.
In any event the APTRANSCO
itself having invited the order and furthermore having suffered two directions
of the Commission as contained in its orders dated 18th August, 2001 and 26th
November, 2001 whereby and whereunder the Commission directed the APT to
purchase electrical energy from the company subject to fixation of rate by
negotiations, and in the event of failure, to come back to the Commission
cannot now turn round and question its jurisdiction to do so and, thus the High
Court was within its jurisdiction to issue the directions.
APTRANSCO had been changing its
stand from stage to stage, in so far as at one point of time it complained of
the capital costs being too high; when the company came down to fix costs, it
did not accept the same and asked for the factor of variable costs for the
purpose of fixation of tariff and when the company, as an act of desperation,
keeping in view its commitments to various financial institution, had 43 even
agreed therefor, took a complete turn about to contend that they do not require
The Government of Andhra
Pradesh having referred the matter to Central Electricity Authority for its
opinion and having obtained the same, the Commission was bound to compel APTRANSCO to agree thereto.
6) In any event, as by reason of
the stand taken by APTRANSCO, the company had to cancel all the agreements of
supply entered into by and between the parties for supply of electrical energy,
it could not have resciled from its representation and refused to purchase
electrical energy from it.
7) Once it is contended by the
APTRANSCO that the Commission had the power to direct the MMPs to sell their
produce only to it, as a matter of policy, could not have contended that the
Commission can have only half a power and it had no power to ask it to purchase
Commission which itself has made a mess of everything, was bound as an expert
body to take the interim direction of the Commission to its logical conclusion.
44 The State having the power
to lay down the policy decision in terms of Section 12 of the 1998 Act, the
Commission is bound to give effect thereto having regard to its functions as
envisaged in Section 11(1)(f) of the Act. It was, thus, bound to promote
competitiveness involving participation of private sector progressively and not
11) APTRANSCO having been
constituted under the Act and its functions being subject to supervision by the
Commission, was bound to obey the directions of the Commission.
Mr. Narsimhan and Mr. Dushyant
Dave, learned senior counsel appearing on behalf of G.V.K. and Astha Power
submitted that having regard to the fact that the MPPs had been granted
licences by the State in terms of Section 28 of 1910 Act and Section 43A (1)(c)
of 1948 Act the provisions of the 1998 Act as regards grant of licences would
not be applicable in their cases.
The learned counsel submitted that
the Commission had no jurisdiction to ignore the policy decision of the State,
particularly when the consumers to whom the MPPs would supply power upon
generation thereof had been fixed. Such a policy decision, in view of Section
12 of 45 the Act was binding on the Commission. Respondents were ill advised to
approach the Commission for grant of exemption which was not necessary as has
been found by the High Court. The Commission in any event had no jurisdiction
to direct sale of electricity only to APTRANSCO. The power to regulate sale and
supply of electrical energy as contained in Section 11 of the 1998 Act must be
held to be subject to other provisions of the Act and in particular Sections
15(1)(h) and 15(1(k) and Section 17 thereof.
The permission granted in terms of
Section 43A of 1948 Act having been repealed by 1998 Act, the Central
Government had recognized the same by introducing the Electricity (Removal of
Difficulties) Second Order, 2005 in the light of Section 10(2) of the
Electricity Act, 2003 The sanction and permission granted by the State, which
was the only competent authority therefor, having conferred a benefit upon the
MPPs by granting licences, as a result whereof the legal rights vested in them,
the same could not have been taken away.
While issuing a direction that
MPPs must sell the electricity only to APTRANSCO the Commission had not only
failed to address the question raised before., it passed an order only on the
basis of misplaced conception.
46 The State took a policy
decision. It was with a view to develop growth of generation and supply of
electrical energy. Monopoly of the State Electricity Board was sought to be
given a go bye. The intention of the State to lay down the policy decision in
regard to privatization of generation and supply of electrical energy is
manifest from the GOMs.
issued by it.
There is absolutely no doubt
whatsoever that the Commission, which is a statutory authority, is bound by the
direction of the State but it would not be so bound if it is contrary to or
inconsistent with any of the provisions contained in 1998 Act. Respondents
herein sought for an exemption from the provisions thereof. They filed
applications in terms of Section 16 of 1998 Act. Whether such an application
was filed on a mistaken belief or not is one question but the action taken by
the Commission must be construed upon taking a holistic view of the matter.
Respondents herein acted pursuant
to the promise made by the State. They altered their position. They have
invested a huge amount.
They secured foreign
collaboration, raised huge loans from financial institutions. They not only
entered into Power Purchase Agreements but also entered into Power Wheeling
Agreements with APTRANSCO. The 47 said arrangements were entered into in view
of the fact that the private generating companies did not have the requisite
infrastructure for transmission of electrical energy from their generating
stations to the consumers.
It was in the aforementioned
background, we must take into account that the applications for exemptions were
filed pursuant to the order passed by the Commission as indicated hereinbefore.
It was the Commission which opined that such an application for exemption was
not required to be filed. However, while dealing with the application,
Commission issued a direction that the power generated by MPPs must be sold to
APTRANSCO only and the sale to the 3rd party was prohibited. Direction was
issued in this behalf in great details. The said direction was the subject
matter of appeal before the Andhra Pradesh High Court.
Indisputably the letter dated 29th
February, 1996 issued by the State to the private entrepreneurs is also in
consonance with the said objective.
48 The power of the Commission in
terms of 1998 Act must be considered having regard to the provisions of Section
11 thereof. We may at the outset notice two different functions specified under
Section 11 of 1998 states about
the functions of the Commission whereas Section 12 thereof states about the
powers of the State Government.
No doubt the functions of the
Commission is wide. It, in terms of clause (e) of sub-section (1) of Section 11
of the 1998, is entitled to regulate the purchase, distribution and supply as
also utilization of electricity but when the Act speaks of regulation, the same
would not ordinarily mean that it can totally prohibit supply to third parties.
It may do so in exceptional situations. Such an order is not to be passed.
The Commission, keeping in view
the purported object of the Act, ordinarily was bound to give effect to the
policy decision of the State.
The Act was enacted to encourage
competition. It speaks of privatization of generation of power. The
Commissioner's power to regulate supply of power must be considered keeping in
view the purport and object of the Act.
49 In Advanced Law Lexicon, 3rd
edition, page 4026 "Regulation"
has been defined as under :-
"A regulation is a rule or order prescribed by a superior for the
management of some business or for the government of a company or society or
the public generally."
In State of Tripura and others vs.
Sudhir Ranjan Nath : (1997) 3 SCC 665, this Court held :- "This in turn
raises the question, what is the meaning and ambit of the expression
"regulate" in Section 41 (1) of the Act? (Section 41(1) empowers the
State government "to regulate the transit of all timber and other
forest-produce".) The expression is not defined either in the Act or in
the rules made by the State of Tripura. We must, therefore, go by its normal
meaning having regard to the context in which, and the purpose to achieve
which, the expression is used.
As held by this Court in Jiyajee Cotton
Mills Ltd. and Anr. v. Madhya Pradesh Electricity Board and Anr.
 Suppl. 2 S.C.C. 52 the
'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 relevant provisions, and as has been repeatedly
observed, the court while interpreting the expression must necessarily keep in
view the object to be achieved and the mischief sought to be remedied" (at
Having regard to the context and
other relevant circumstances, it has been held in some cases that the
expression "regulation" does not include "prohibition"
50 whereas in certain other
contexts, it has been understood as taking within its fold
"prohibition" as well.:
It has been held by this Court in
Jiyajeerao Cotton Mills Ltd. and another vs. Madhya Pradesh Electricity Board
and another : 1989 Supp (2) SCC 52 that the power to regulate does not include
power to prohibit.
The Court held :- " The
expression "regulate" occurs in other statutes also, as for example,
the Essential Commodities Act, 1955, and it has been found difficult to give
the word a precise definition. 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 relevant provisions, and as has been repeatedly observed, the
Court while interpreting the expression must necessarily keep in view the
object to be achieved and the mischief sought to be remedied."
In Talcher Municipality vs. Talcher
Regulated Market Committee and another : (2004) 6 SCC 178, this Court held :-
51 "14. The power to regulate buying and selling of agricultural produce
must be interpreted in the context in which the same has been used. Each person
whoever is engaged in buying and selling of the agricultural produce in the
market shall be subject to the regulation for which the same has been enacted.
"regulation" is a term which is capable of interpreted broadly. It
may in a given case amount to prohibition."
If the State had accorded sanction
for sale of electrical energy generated by the MPPs, the Commission save and
except for cogent and compelling reasons could not have directed the sale of
entire production of electricity energy to APTRANSCO. If that was the stand of
the Commission and the APTRANSCO, the question of entering into any Wheeling
Agreement did not arise. It is one thing to say that the privileges conferred
by G.O.Ms. issued by the State Government were prior to the coming into force of
the 1998 Act and appointment of the Commission, but then the Commission was
bound to give due weight to the policy decision taken by the State even prior
to its establishment and coming into force of the 1998 Act, particularly when
the Act was enacted in furtherance thereof.
Indisputably respondents were
entitled to produce electrical energy under Section 28 of 1910 Act. They were
authorized to generate 52 electrical energy. The question which arises is as to
whether they were required to file appropriate applications for grant of
licence or for exemption which should have been dealt with accordingly. At that
point of time, the Commission was not exercising its other functions. A
condition, which is per se unreasonable should not have been imposed.
It is one thing to say that the
statutory authority exercised its powers one way or the other but it is other
thing to say that in the garb of exercising power of grant of licence and/or
exemption thereunder, it issued a direction which has nothing to do directly
Commercial relationship between a
generating company and the consumer has all along been accepted. Public
interest would not mean the interest of APTRANSCO alone. Equity in favour of
one of the generating companies could not have been the sole ground for coming
out with such a policy decision and that too while considering application for
grant of exemption from the purview of the licensing provision..
We will assume that the
Legislature of the State with some purpose in mind provided for taking of
licence under the 1998 Act but the very fact that they had the requisite
licence in terms of the provisions 53 of 1910 Act, itself was one of the
relevant considerations for the purpose of grant of exemption. It could have
been rejected in which event the MPPs would have applied for grant of licence.
Indisputably the State Government has the power to grant provisional licence.
In terms of sub- section (4) of Section 14 of 1998 Act, the provisional
licences are also issued by the State Government. Indisputably again the said
provisional licences have been granted to avoid a situation as a result whereof
the MPPs would be forced to stop their function during interregnum period.
Even if the licences were required
to be issued, each case should have been considered on its own merit.
When an application for grant of
exemption is filed, the same is required to be dealt with independently. What
was necessary for the said purpose was interest of the consumers as well as the
consideration that supply and distribution cannot be maintained unless the
charges for electricity supply are adequately levied and duly collected.
The Commission, therefore, was
bound to strike a balance. It should have given due consideration as to how and
in what manner the MPPs were established. They were not per se inconsistent
with the object sought to be achieved by the 1998 Act.
54 Reliance in this behalf has
been placed on Andhra Pradesh Gas Power Corporation Ltd. vs. Andhra Pradesh
State Regulatory Commission : (2004) 10 SCC 511 and Grid Corporation of Orissa
vs. Indian Charge Chrome Ltd. :
(1998) 5 SCC 438 para 15, which reads :- "15. Another question which was
seriously contested on behalf of GRIDCO before the Regulatory Commission as
well as before the High Court was that ICCL is not a licensee within the
meaning of Section 2(h) of the Indian Electricity
Act, 1910 and also under Sections 2(e) and (f) of the Reform Act, 1995.
The High Court recorded a finding
that ICCL is a licensee under the Indian Electricity
Act, 1910 and it continued to be a licensee even after the Reform Act, 1995
came into force.
The High Court placed reliance on
Section 14 (1) of the Reform Act and held that ICCL is authorised by the State
Authority in the business of supplying the electricity. It was thus concluded
that ICCL in view of Section 14 of the Reform Act, 1995 shall continue to be a
licensee. In view of this finding the High Court held that the dispute is
arbitrable under Section 37(1) read with Section 33 of the Reform Act, 1995. It
is not seriously disputed that ICCL after a long-drawn correspondence with the
Orissa Government had received no objection to put up the Captive Power Plant
at Choudwar to generate power. Accordingly in 1989 the Captive Power Plant
started generating power which was supplied to the OSEB. This arrangement
continued till 1994 when MOU 55 and agreement were entered into between ICCL
and OSEB. The GRIDCO being a successor of OSEB, naturally the MOU of 1994 and
agreement of 1995 will be binding upon the GRIDCO in the absence of any
material to the contrary. It is not the contention of the GRIDCO that ICCL did
not supply any power at all during the period for which the bills were raised
on ICCL. Despite this factual position it appears that no formal licence was
issued under Section 2(h) of the Indian Electricity
Act, 1910 or under the Reform Act, 1995. It cannot be ignored that the
investment of ICCL in putting up a Captive Power Plant at Choudwar is running
into few hundred crores. Sections 2(e) and (f) of the Reform Act read as under:
"(e) `licence' means a licence
granted under Chapter VI;
(f) `licence' or `licence-holder'
means a person licensed under Chapter VI to transmit or supply energy including
Chapter VI deals with licensing of
transmission and supply.
Section 14(1) reads as under:
No person, other than those
authorised to do so by licence or by virtue of exemption under this Act or
authorised or exempted by any other authority under the Electricity (Supply)
Act, 1948 shall engage in the State in the business of (a) transmitting; or (b)
From the facts noted hereinabove
and in view of Section 14(1) of the Reform Act it is 56 quite clear that ICCL
was/is authorised and engaged in supplying the electricity to OSEB and
thereafter to GRIDCO and if this be so the dispute between the GRIDCO and ICCL
could be arbitrable under Section 37 (1) read with Section 33 of the Reform
Reference made to the decision of
Grid Corporation of Orissa Ltd.
(supra) is not apposite. The same
was rendered in a different fact situation. The question as regards the effect
of Section 14 has not been considered therein.
We are, therefore, of the opinion
that it was necessary for the MPPs to apply for licence under Section 14 of the
We are, however, of the opinion
that while considering the application for grant of exemption, the Commission
did not have any jurisdiction to issue a direction that all MPPs must supply
electricity to APTRANSCO only. The power and extent of jurisdiction of the
Commission to regulate supply is a wide one but the same, in our opinion, does
not extend to prohibition or positive direction that the supply of total energy
produced must be made to APTRNASCO while exercising the said jurisdiction. In
fact there was no occasion for issuing 57 such a direction. It is one thing to
say that the Commission is entitled to fix tariff but therefor then it cannot
take into consideration the case of APTRANSCO alone.
What should be the basis for
issuing any tariff could have been the question which was to be posed by the Commission
to itself. For the said purpose, the Commission was required to take into
consideration all aspects of the matter including the fact that Wheeling
Agreement had already been entered into and only by reason thereof, the
APTRANSCO may generate a lot of revenue. The decision of the Commission,
therefore, being illegal has rightly been set aside by the High Court.
This takes us to the case of LVS
Powers Ltd.. So far as LVS Powers Ltd. is concerned it had acted on the basis
of the directions of the Commission. It for all intent and purport proceeded on
the basis thereof.
It not only held negotiations with
APTRNASCO for the purpose of arriving at a mutually settled tariff, it having
regard to huge loan taken by it and presumably on the pressure of IDBI accepted
almost all the suggestions made by APTRANSCO.
58 From the letter dated 24th
July, 1996 to M/s. LVS Power Ltd. it is evident that its consumers were
Hindustan Shipyard Ltd.; Hindustan Zinc Ltd.; Essar Steels Ltd. and Andhra
Cements Ltd. all situated at Visakhapatnam i.e. within the State of Andra
Pradesh. The Commission appears to have even succumbed to the pressure of the
employees of the State Electricity Board. It allowed the employees to be
impleaded as parties. It heard them. Why the employees of APTRANSCO had to be
heard is beyond our comprehension.
From the order dated 4th May, 2001
it appears that APSEB Engineers' Association and Assistant Engineers'
Association, APSEB were heard. The main contention appears to have been
advanced was as to whether MPPs should be allowed to generate power with
The Commission noticed that out of
31 MPPs permission granted to 12 were cancelled. Out of 19, LVS Power Ltd.
It noticed that some of the MPPs
changed their capacities. It furthermore took notice of the fact that LVS had
already drawn moneys from the financiers and the extension granted by GOAP in
their case was to expire on 30th April, 2001.
59 Interestingly the State of
Andhra Pradesh did not put in their appearance before the Commission. The
Commission merely received a communication from the Principal Secretary to the
Government which was noticed as under:- "Nobody appeared on behalf of the
GoAP. But a letter has been filed in which the principal Secretary to Government
has urged that permission may be given to MPPs for third party sales to HT
Industrial consumers. If APTRANSCO loses on account of this arrangement, the
Commission can fix appropriate wheeling charges taking into account the cross
subsidization foregone by APTRANSCO on account of third party sales."
The same per se was illegal.
It took into consideration the
question of subsidy. The Commission reiterated that it was not inclined to
permit third party sale.
It unfortunately laid serious
emphasis on the contentions raised by civil societies at the relevant time. It
furthermore noticed that its earlier order, and directions were issued to eight
developers to make an offer of price on the basis of the various Government of
India notifications, by abdicating its own jurisdiction. On the one hand, it
was conscious of its functions but, on the other hand, it failed to determine
the issues between the parties.
60 However, the order dated 30th
March, 1992 was not challenged by APTRANSCO. The Commission furthermore noticed
that wheeling agreement had been entered into by and between the parties on or
about 25th February, 1999. After taking into consideration some submissions of
the parties, directions were issued as has been noticed hereinbefore.
What for, it asked the parties to
negotiate is evident from that in the event of their failure to agree on the
price and the other terms and conditions, the Commission itself would do it.
The aforementioned order dated 4th May, 2001 has also not been challenged by
It is in the aforementioned
backdrop that we will notice the letter dated 17th August, 2001 written by
Chief Engineer, Vidyut Soudha to the Commission where after duly noticing that
since finalization of PPA has to be done after the abovecited GoAP approvals
are received, it was proposed to purchase power produced at the above cited
rate from the COI as the plant, subject to consent of the Commission. From the
said letter it appears that APTRANSCO had reviewed the capital cost furnished
by the developer. They were agreeable to the levelised tariff mentioned therein
with payment on year to year basis as per CEA norms 61 and variable charge. As
per CEA, APTRANSCO was permitted to purchase the power from LVS Powers Ltd. at
the rate specified in paragraph 5 of the letter which is to the following
effect:- "5. APTRANSCO's consultants have reviewed the capital cost
furnished by the developer and opined that the capital cost can be brought down
to the order of Rs.125.00 Crs. The revised tariffs with this capital cost and
CEA norms for unit generated will work out to as follows:
Unit generated FC VC Total With FE
variation - 115.4 157.5 272.9 Without FE variation - 112.6 157.5 270.2 The
above tariff projections have been informed to the developer on 17.8.2001. In
reply, the project company has informed that they are agreeable to the
levelised tariff of 115.4 FC 157.5 VC per unit generated and with foreign
exchange variation on ROE, presently accepting the capital cost of Rs. 125 Crs.
Subject to condition that the tariff is to be re- fixed after the capital cost
is approved by the GoAP."
62 Supply commenced in September,
2001. On the aforementioned basis only the private agreements were terminated.
Important developments took place in the next three months.
By a letter dated 26th November,
2001, APTRANSCO asked the Principal Secretary to the Government of Andhra
Pradesh inter alia the following :- " In view of the above, it is
requested that the capital cost of the project may be limited to that of
Rs.125.33 Crs. It is also to inform that in case APTRANSCO is unable to
purchase power from this MPP, the MPP may be permitted to sell the power
outside the State subject to consent of APERC allowing APTRANSCO to collect
wheeling charges. It is requested that the approval of the capital cost may be
communicated early to fix the final fixed cost of the tariff and seek the
approval of APERC to continue purchase of power if it is found on part with the
earlier ad hoc tariff fixed. Early action is solicited since the permission given
by APERC for purchase of power from the developer has expired on
It was suggested that the capital
cost is too high and, therefore, the tariff should be fixed on the basis of
fixed costs. It was opined that there was no need to consider variable costs.
What would be the effect of 63 power purchase beyond 30th November, 2001 was
stated in the letter of APTRANSCO dated 3rd December, 2001 to the Commission,
which was in the following terms :- "This has reference to the
correspondence cited regarding purchase of power from M/s. LVS Power Ltd.
2) In the reference 4 dated
26.11.2001 cited above. APERC permitted the APTRANSCO to purchase power from
M/s. LVS Power Ltd. at the rate as per APERC Order in the reference (2) cited
and extended the period of purchase of power from 31.10.2001 to 30.11.2001
purely as an interim measure and directed APTRANSCO to send the firm tariff
proposal with the approved project cost from competent authority latest by
30.11.2001 for the commission to pass appropriate order.
3) In this connection, the
following are submitted -
The GOAP have been requested vide this office
letter dated 26.11.2001 ref (5) cited to limit the capital cost of the LVS
Power Ltd. to Rs.125.33 Crs. and for approval of the capital cost to fix the
final fixed cost of the tariff and seek the approval of APERC to continue
purchase of power.
After the project cost is
approved by GOAP the tariff is to be worked out and a firm proposal is to be
submitted to APERC for approval.
It may take some time for
approval of capital cost and finalization of tariff and 64 approval of power
purchase from APERC.
APTRANSCO cannot take power
from the project in the absence of provisional approval from APERC.
4) In view of the above, it is
requested that the time limit of power purchase from M/s.
LVS Limited may kindly be extended
for a further period of two months i.e. from 30.11.2001 to 31.1.2002 early to
enable APTRANSCO to avail supply beyond 30.11.2001."
A stand appears to have been taken
by the Commission in its letter dated 27th December, 2001 addressed to the
Chief Engineer, APTRANSCO by the Commission stating :- "This is to inform
you that further proceedings in the above matter will be held at 11 AM on 7th
February 2002 at the Commissions office with the APTRANSCO, GOAP and LVS
representatives must attend. In the meanwhile APTRANSCO shall finalise all the
documents and issue outstanding including with the Government of Andhra Pradesh
as stated in the letter dated 03.12.2001 addressed to the Commission and file
with the Commission relevant documents, details etc. by 31.01.2002."
65 In the meantime the State
referred the matter to the Central Electricity Authority seeking advise under
Section 3 of the 1948 Act about the reasonableness of the capital cost of the
project proposed by APTRANSCO in view of the experience and expertise of the
Authority in Power Projects.
APTRANSCO thereafter filed its
written submissions before the Commission expressing its inability to purchase
power from the MPPs.
The Government of Andhra Pradesh
was asked to consider the question as to whether they can sell power outside
the State duly permitting APTRANSCO to collect wheeling charge as per the
Several other new contentions were
raised with which we are not concerned but we are noticing the same only for
the purpose of showing as to how and in what manner APTRANSCO has been changing
its stand from stage to stage.
However, it is of some
significance to notice that Central Electricity Authority in terms of its
letter dated 26th February, 2002 opined that the capital costs works out to be
on lower side from the other projects by stating :- 66 "It may, however,
be mentioned that CEA, while granting TEC for similar type of projects for IPPs
have cleared the estimated completion capital cost in the range of Rs.3.62
crores to Rs.3.8 crores per MW as the ceiling cost depending on the scope of
work, site specific features, financial package, debt-equity ratio, exchange
rate, taxes and duties, foreign exchange etc.
GOAP may please take further
action based on the above."
The Government of Andhra Pradesh
in view of that letter asked APTRANSCO to proceed with the exercise for
arriving at PPA and submit the same to the Commission for approval. APTRANSCO
by its letter dated 11th April, 2002 addressed to the Commission, inter alia
stated :- "After detailed examination of the above offer by APTRANSCO, I
am directed to convey that in the context of surplus power situation and
APTRANSCO's proposal to surrender NTPC Eastern Region Power and not to draw
Power from Central Generating units due to Merit Order Dispatch, dispatch from
the power station poses a serious problem. Further, APTRANSCO's inability to
dispatch the station will lead to payment of fixed charges irrespective of
generation by this power station.
In view of the above, it is
requested to take 67 necessary action and pass appropriate orders in this
It is in the aforementioned
background that the order of the Commission dated 23rd April, 2002 stating that
it had no jurisdiction to direct APTRANSCO to purchase power from LVS must be
It is strange that while
Commission was so conscious of is own power as envisaged under clause (e) of
sub-section (1) of Section 11 of the Act in prohibiting third party sale so far
as MPPs are concerned, it even could not take its own order to its logical
conclusion. It is with some displeasure that we must notice as to how
Commission mis- directed itself at every stage. Despite the State supported the
application for grant of exemption, the third party sale was prohibited.
Parties were asked to negotiate and come back for fixation of tariff but then
without realizing the consequence which has to be suffered by the parties, it
says it could not do anything in the matter. If APTRANSCO was not agreeable to
the orders passed by the Commission, which might have been passed during the
pendency of the proceedings, it could have questioned the same. It did not do
that. It accepted the orders. It for all intent and purport forced the
respondent to alter its position to its great detriment. The Commission itself
is responsible for the said situation.
68 If it has the power to
regulate, as it has been contending, it should have proceeded progressively and
not regressively. It could have taken into consideration the provisions of
Section 11 (1)(f) whereby one of its function is to promote competitiveness and
progressively involve the participation of private sector, while ensuring fair
deal to the customers.
The Commission, as we have
noticed, hereinbefore had been waiting for some directions of the Government of
Andhra Pradesh. It is from that angle it must be held that the decision of the
State to allow MPPs. to generate electricity was a matter of policy. The Commission
for all intent and purport has frustrated the policy and object of the Act.
APTRANSCO in terms of Chapter V of
the Act also acts as a statutory authority. The Commission must function within
the fourcorners of the 1998 Act. It is again subject to the power of the State
Government under Section 12. It has referred the matter again and again to the
State and when the State asked it to proceed in the manner, it backed out and
APTRANSCO was constituted with the principal object of engaging the business of
promoting and supply of electrical energy. It is required to obtain licence for
the said purpose. Sub-sections (4) and (5) of Section 13 of the 1998 read as
under :- 69 "13.(4) APTRANSCO shall undertake the functions specified in
this section and such other functions as may be assigned to it by the licence
to be granted to it by the Commission under this Act.
(5) Upon the grant of licence to
the APTRNASCO under clause (a) of sub-section (1) of Section 15 of this Act,
the APTRNASCO shall discharge such powers and perform such duties and functions
of the Andhra Pradesh State Electricity Board including those under the Indian Electricity
Act, 1910 and the Electricity
(Supply) Act, 1948 or the rules framed thereunder as the Commission may
specify in the licence and it shall be the statutory obligation of the
APTRNASCO to undertake and duly discharge the powers, duties and functions so
We have held hereinbefore that
licence under section 14 is necessary but the same is only for transmission and
supply and not for generation of electrical energy. Such a licence is required
so as to enable the Commissioner to effectively control and regulate
transmission and supply. It is also relevant to note that Section 21 provides
for restriction on licensees and generating companies. Sub-section (4) empowers
a holder of supply or transmission licence to enter into arrangements for the
purchase of electricity. Sub-section (5) provides that any agreement relating
to any transaction of the nature described in any of the sub- 70 sections
unless made with or subject to such consent as aforesaid, shall be void. It,
therefore, restricts the power and activities of APTRANSCO.
It is in the aforementioned
situation that the doctrine of promissory estoppel should be held to be
In Southern Petrochemical
Industries Co. Ltd. vs. Electricity Inspector and ETIO and others : (2007) 5
SCC 447, on the question of doctrine of promissory estoppel, it was held :-
"121. The doctrine of promissory estoppel would undoubtedly be applicable
where an entrepreneur alters his position pursuant to or in furtherance of the
promise made by a State to grant inter alia exemption from payment of taxes or
charges on the basis of the current tariff. Such a policy decision on the part
of the State shall not only be expressed by reason of notifications issued
under the statutory provisions but also under the executive instructions. The
appellants had undoubtedly been enjoying the benefit of (sic exemption from)
payment of tax in respect of sale/consumption of electrical energy in relation
to the cogenerating power plants."
The Court further opined :
"128. In MRF Ltd. it was held
that the doctrine of promissory estoppel will also apply to statutory
71 As regards setting up of MPPs
the principle of estoppel shall also apply. It is now a well settled principle
of law that nobody should suffer for the wrong done to by a quasi-judicial
body. In view of the principle analogous to `actus curiae neminem grvabit', we
are of the opinion that because of the unreasonable stand taken by APTRANSCO
before the Commission, LVS Powers should not suffer. In the aforementioned
situation the High Court has issued the directions.
APTRANSCO did not intend to
increase its efficiency. It did not equip itself so as to be able to compete
with others. It might have been in a disadvantageous position. On the one hand
the Commission asked for total prohibition for third party sale on the premise
that it had to supply electricity to agriculturist, but then when a situation
came that it must purchase the power pursuant to the impugned directions of the
Commission from MPPs it made a contradictory stand that MPPs can sell the power
outside the State.
Before us IDBI intervened.
Indisputably it had granted financial assistance to the first respondent-LVS
Power. IPDB granted loan only on the basis that the unit shall be functional.
72 This Court on 11th October,
2002 and 2nd December, 2002 passed interim orders Mr. Shanti Bhushan states
that the first respondent has been paid a huge amount pursuant to the said
orders and this Court may issue a direction for refund thereof. We do not
agree. The interim order by this Court was passed to maintain a balance and in
the interest of the parties.
We are, therefore, of the opinion
that in this case interest of justice would be subserved if in modification of
the order passed by the High Court, the impugned judgments are set aside and
the Commission constituted under the 2003 Act is directed to consider the
matter afresh in the light of the new statute.
We hope and trust that the
Commission shall pass appropriate orders upon taking into consideration all the
material factors. It would be at liberty to vary, modify, rescind the order of
the old Commission and issue directions as may be considered just and
reasonable. It may, in the changed situation, also allow the parties to effect
third party sale. It will be at liberty to evolve a scheme for revival of the
companies, keeping in 73 view the public interest involved and in particular
the interest of the financial institutions. The time granted for completion of
the projects should be extended by one year. Till such time as the Commission
may not pass an appropriate interim order, the interim order passed by this
court shall continue.
The appeals are disposed of in the
abovesaid terms. In the facts and circumstances of the case, there shall be no
order as to costs.
[ D.K. Jain ] New Delhi;