MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD. versus UNION OF INDIA AND OTHER on 28 February 2020

SUPREME COURT REPORTS

[2020] 3 S.C.R.

AMAHARASHTRA STATE ELECTRICITYDISTRIBUTION CO. LTD.

v.

UNION OF INDIA AND OTHER

B(Civil Appeal No. 4304 of 2007)

FEBRUARY 28, 2020

[ARUN MISHRA, M. R. SHAH AND B. R. GAVAI, JJ.]

Electricity Regulatory Act, 1998 – The Maharashtra StateElectricity Regulatory Commission (MERC) quashed circular No.C602 dated 23.07.1998, Circular No. 619 dated 25.05.1999, CircularNo. 627 dated 02.09.1999, Circular No. 651 dated 19.09.2000 andCircular No. 663 dated 05.10.2001, insofar as they purport toimpose “take or pay” obligation and minimum off-take requirementas also of any additional tariff for captive power plant holders onDthe ground that there was no approval of the MERC constituted interms of the provisions of the Electricity Regulatory Act, 1998 –The appellant-MSEDCL was directed to make refund to respondentnos. 3 to 7 – Appeal preferred by MSEDCL was dismissed by theAppellate Tribunal for Electricity (APTEL) – Before the SupremeCourt, the appellant-MSEDCL contended that MERC wasEconstituted on 05.08.1999, its approval was not required with regardto two circulars issued before the said date – Held: The circularissued before the Commission was constituted could not have beenquashed on the ground that Maharashtra State Electricity Board(MSEB) had no power to issue them without the approval of theFCommission – In Binani Zinc Limited, the Supreme court held thatbefore Commission came into existence, the power was to beexercised by the State Electricity Board – Therefore, the circularsand the policy decisions issued before the establishment of theCommission were illegally set aside – Insofar as refund order isconcerned, it is apparent from the additional affidavit filed by theGappellant-MSEDCL that the respondents used supply of electricityto manufacture their products – The cost incurred on productionhas been passed on to the buyers/ consumers buying their products– In the peculiar facts of the case, as the Commission earlier opinedin order dated 10.01.2002 that Captive Power Plant Policy is aH

MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.LTD. v. UNION OF INDIA

policy matter and it did not decide as to the merits of subject matteras prayer for approval was made by the appellant- MSEDCL – TheCommission without considering on merits the reasonableness ofthe demand, quashed the circulars – It would not be appropriate inthe peculiar facts of the case to direct refund to be made by theappellant-MSEDCL of the amount recovered by it as it wouldtantamount to unjust enrichment – Consequently, the orders passedby the Commission as well as the APTEL set aside and in the peculiarfacts and circumstances of the case, the order concerning a refundof amount recovered also set aside.

Allowing the appeal, the Court

HELD:1. The first question for consideration is whetherthe Commission could have quashed circulars issued by theappellant-MSEDCL before its formation. The Commission wasconstituted under the Act of 1998 on 5.8.1999. The circular issuedbefore that could not have been quashed on the ground that MSEBhad no power to issue them without the approval of theCommission. The decisions in that regard of Commission as wellas of APTEL are liable to be set aside. In Binani Zinc Limited,this Court held that before Commission came into existence, thepower was to be exercised by the State Electricity Board. [Para24][1058-F-G]

Binani Zinc Limited v. Kerala State Electricity Boardand Ors. (2009) 11 SCC 244 – relied on.

2. Concerning circular dated 2.9.1999, which remained inforce till 28.4.2000, the Commission as well as the APTEL wererequired to consider impact of Commission earlier order passedon 10.1.2002 and also its observations made in the said orderthat CPP is a policy matter and that Commission was recentlyconferred with the power under Section 22(2) of the Act of 1998,it ought to have gone into the merits of the claim. It was alsopointed out on behalf of appellant-MSEDCL that it had submittedcirculars for approval to Commission, which has not gone intothe merits of the subject matter and later quashed circulars onthe ground of competence. The MSEDCL filed circulars alongwith tariff proposal for approval as that was an essence of thetariff. [Para 25][1059-G-H; 1060-A]

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A3. It has also been pointed out that in subsequent ordersalso, circulars as to CPP were relied upon by the Commission. Itwas incumbent upon the Commission to consider the effect of itsorders and the prayer made by the appellant-MSEDCL to considermerits of various circulars while fixing the tariff. [Para 26][1060-B]B

4. As dispute pertains to the period from 2.9.1999 to28.4.2000, and it is apparent from the additional affidavit filed bythe appellant-MSEDCL that the respondents used supply ofelectricity to manufacture their products. The cost incurred onproduction has been passed on to the buyers/consumers buyingCtheir products. Hence, it would tantamount to unjust enrichmentin case a refund is ordered. In the peculiar facts of the case, asthe Commission earlier opined in order dated 10.1.2002 that CPPis a policy matter and it did not decide as to the merits of subjectmatter as a prayer for approval was made by the appellant-DMSEDCL. The Commission observed that it would consider thematter in the future, but later on, without considering on meritsthe reasonableness of the demand, the Commission quashed thecirculars. It is apparent that the liability was passed on to thebuyers/consumers by the respondent nos.3 to 7 as electricity wasused to manufacture their products sold in the market, workingEout the price based on expenditure. It would not be appropriatein the peculiar facts of the case to direct refund to be made by theappellant-MSEDCL of the amount recovered by it as it wouldtantamount to unjust enrichment. Thus, in the peculiar facts andcircumstances of the case, it is not considered appropriate toFremit the matter to decide the dispute on merits after two decadesfor the period from 2.9.1999 to 28.4.2000, during which circulardated 2.9.1999 was in force. [Para 27][1060-C-F]

5. Consequently, this Court set aside the orders passed bythe Commission as well as the APTEL and hold that circularsGand the policy decisions issued before the establishment of theCommission were illegally set aside and in the peculiar facts andcircumstances of the case this Court set aside the orderconcerning a refund of amount recovered by MSEB. [Para 28][1060-G]

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MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.LTD. v. UNION OF INDIA

Case Law Reference

[2009] 4 SCR 636relied onPara 17

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4304of 2007.

From the Judgment and Order dated 30.05.2007 of the AppellateTribunal for Electricity in Appeal No. 29 of 2007.

Abdulrahiman Tamboli, Abdulazeem Kalebudde, Preetam Shah,Pratik Bombarde, G. Umapati, Ravi Prakash, Varun Agarwal, Ms. KrishnaDayama, Lakshmi Raman Singh, Advs. for the Appellant.

Sudheer Chandra, Bharat Sangal, Sr. Advs., K.V. Viswanathan,Ms. Liz Mathew, Ms. Sonali Jain, R. Venkat Raman, Navneet R.,Ravindra Kumar Verma, Anmol Chandan, A.K. Verma, G.S. Makker,Nagorkathi Kartik Uday, Vijender, Ms. Babita Kushwaha, Anuj Bhandari,Kinshuk Chatterjee, Kushal Bansal, Shijit Chakravarty, Arjun Harkauzi,Bhargava V. Desai, U.A. Rana, Himanshu Mehta, M/s. Gagrat & Co.,Advs. for the Respondents.

The Judgment of the Court was delivered by ARUN MISHRA, J.

1. The appeal has been preferred by Maharashtra State ElectricityDistribution Company Limited (for short, ‘the MSEDCL’) against theorder dated 30.5.2007, passed by Appellate Tribunal for Electricity (forshort, ‘the APTEL’), dismissing the appeal against the order dated21.5.2004 passed by Maharashtra State Electricity RegulatoryCommission (for short, ‘the MERC’), quashing Circular No.602 dated23.7.1998, Circular No.619 dated 25.5.1999, Circular No.627 dated2.9.1999, Circular No.651 dated 19.9.2000 and Circular No.663 dated5.10.2001, insofar as they purport to impose “take or pay” obligation andminimum off-take requirement as also of any additional tariff for captivepower plant holders on the ground that there was no approval of theMERC constituted in terms of the provisions of the Electricity RegulatoryAct, 1998 (for short, ‘the Act of 1998’). The aforesaid circulars dealtwith Captive Power Plant Policy (for short, ‘the CPP Policy’). Theappellant-MSEDCL has been directed to make refund to respondentnos.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 A

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AMERC after four years has quashed the circulars with retrospectiveeffect. The financial condition of the appellant-MSEDCL is not soundenough to sustain such kind of liability for refund. It was unable to pay asum of Rs.504 crores as against liability to other parties.

2. Respondent no.3-M/s. NRC Ltd. initially had its two units onBPlot No.E 23. Unit Nos.1 and 2 had a contract demand of 3500 KVAand 1800 KVA respectively. In 1995, an independent connection wassought by respondent no.3 for its Unit No.2. Representation was madethat two units were separate units and on that basis, two independentconnections were given. After that, respondent no.3 filed an applicationdated 5.4.1997 to set up a CPP of 7MW capacity. In respect of contractCdemand, it was proposed to retain total contract demand for 8-12 monthsafter the CPP was fully operational and to surrender around 50% of thecontract demand after that. Prayer was also made to provide stand-bypower.

3. The Government of Maharashtra issued a notification datedD20.12.1997, whereby it empowered Maharashtra State Electricity Board(for short, ‘the MSEB’) to finalise the technical and commercialarrangements between captive power purchasers and their partypurchasers. No objection certificate dated 7.1.1998 was issued byappellant-MSEDCL subject to the Condition No.4, which permittedErespondent no.3 to decide the level of contract demand after thecommissioning of the set and any changes for interconnection would begoverned as per the Board’s Condition of Supply framed from time totime and its policies as no rules were framed.

4. Circular No.602 dated 23.7.1998 was issued vesting powerFwith the Board to permit the CPP holder for sale of their CPP power toany third party through the Board’s grid, grant of permission to thosepersons to use their CPP power for self use only and to charge wheelingand transmission loss charges.

5. The Act of 1998 was enacted on 25.4.1998. Before that, fieldGof electricity was regulated by Electricity Supply Act, 1948 (for short,‘the Act of 1948’). Section 49 of the Act of 1948 empowered therespective Electricity Boards to come up with their tariffs, which couldhave differential. Section 79(j) of the Act empowered the Board to makeregulations pertaining to supply of electricity to the licensees under Section49. Section 44 further provided that for establishing the CPP unit, priorHconsent of the Board was mandatory. MSEB was regulating the field of CPP as per notifications issued by the Government and the provisionscontained in the Act of 1948.

6. On 23.9.1998, respondent no.3 sought clubbing of the contractdemand and subsequent reduction to 3000 KVA for both the units. Theclubbing of two units would increase the total contract demand to 5300KVA and would necessitate the installation of an EHV Line. Thus, thesame could not be done. Respondent no.3 was not entitled to reductionof 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 ofMaharashtra 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. Theproposal for revision of tariff was under consideration of the StateGovernment in the year 1999. Still, no final decision was taken and thedelay was owing to the imposition of Model Code of Conduct due toelections and on 5.8.1999 MERC was constituted. The Governmentadvised the MSEB to submit proposal for tariff revision to Commissionfor its approval and accordingly, the proposal was submitted to the MERC.

8. Circular No.619 dated 25.5.1999 was issued by the Board togrant permission for installation of CPP for self use only, reduction incontract demand to CPP holders would not be permitted and levy ofpenal charges at the rate of 2 times/3 times the prevailing tariff to theCPP holders in their energy bills for over drawal of power on their agreedcontract demand under planned/unplanned shutdown as stipulated in theGovernment of Maharashtra resolution dated 20.12.1997. On 29.8.1998,respondent no.3 had commissioned its CPP and withdrew its earlierapplication dated 18.6.1999 for reduction in contract demand andresubmitted two applications and sought reduction in contract demandof Unit No.1 from 3500 KVA to zero and increasing contract demand ofUnit No.2 from 1800 to 3000 KVA. The fresh application could not begranted as the then existing policy of the appellant-MSEDCL was not togrant any reduction in contract demand to existing CPP holders as notifiedvide letter dated 18.6.1999.

9. Vide circular dated 2.9.1999, the policy contained in circulardated 25.5.1999 was partially modified insofar as it related to a reductionin contract demand. It permitted CPP holders to reduce contract demandto 2.5 MVA or 50% of the contract demand of 5 MVA or above. It wasspecifically provided that CPP holders with a contract demand of less A

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Athan 5 MVA would not be permitted reduction in contract demand. Asrespondent no.3 had two independent connections, each having a contractdemand of less than 5 MVA, it was not entitled to reduction in contractdemand. As per policy contained in the aforesaid circular, all the CPPholders were required to draw at least 25% energy of their monthlyconsumption from the appellant-MSEDCL and in case of drawal of lessBquantity of electricity, they would be billed for 25% of the energy. Theenergy supplied would be charged at the rate of 110% of the tariffapplicable was the condition of supply for interconnection and stand-bypower. Respondent nos.3 to 7 had sought stand-by power. The appellant-MSEDCL had invested huge amount for establishing the necessaryCinfrastructure. It was incumbent upon the appellant-MSEDCL to keepavailable at all material time the requisite infrastructure for supply ofelectricity to respondent nos.3 to 7. The NOC was issued as per theprevailing policy subject to the condition of supply for parallelingconnection or further changes in policy. Thus, circular dated 2.9.1999was issued.D

10. On 28.4.2000, the State Government issued a guidance to theappellant-MSEDCL to withdraw the said condition for compulsory drawalof 25% energy as it was not in line with the Government of Maharashtrapolicy decision as mentioned in the resolution dated 25.4.2000.

E11. It was submitted on behalf of appellant-MSEDCL that MERCpassed an order on 5.5.2000, pointing out that it would look into thematter of sale of surplus power by CPPs to MSEB at a later stage underSection 22(1)(c) of the Act of 1998. The Commission directed the MSEBto follow Section 44 of the Act of 1948 in its true spirit and clear allpending applications by 30.6.2000. Refusal to the captive units, on theFother hand, was contradictory.

12. The appellant-MSEDCL modified their policy dated 19.9.2000in line with Government of Maharashtra CPP Policy reflected in theresolution dated 25.4.2000 and withdrew the condition of compulsorydrawl of 25% of the energy of MSEB grid by CPP holders prospectivelyGwith effect from 28.4.2000. No sanction for connecting the additionalload of the unit at Plot No.E-1 to the CPP was granted. Respondentno.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 proposalsHto MERC along with a tariff petition. The circulars dated 23.7.1998, MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO.LTD. v. UNION OF INDIA [ARUN MISHRA, J.]

25.5.1999, 2.9.1999 and 19.9.2000 were submitted to MERC for itsapproval. MERC passed order dated 10.1.2002 on the tariff petition ofthe 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 ofMaharashtra, and the Commission has very recently beenconferred with additional powers under S. 22[2] of the ERC Act,1998, which includes the power to aid and advise the GoM in theformulation of the State Power Policy. The Commission wouldnot like to comment on the captive power policy at this stage, butwould like to state that the MSEB has appended the captive powerpolicy along with the Tariff Proposal for the information of the consumers, and the Commission’s silence on this policy shouldnot be taken as approval of the same.”

14. Respondent nos.3 to 6 had filed writ petitions before the HighCourt. The High Court relegated them to MERC. It was not pointed outthat there was a provision asto arbitration in case of dispute between theappellant-MSEDCL and CPP holders. It was also submitted that on3.3.2004, MERC has passed an order in Case No.55 of 2003, in which itobserved:

“7. …The Commission was seized of the matter relating to theCPP Policy as a whole, but the previous Circulars continue tooperate since the Commission had not kept them in abeyance,and they are also not the subject to challenge in the presentproceedings.”

15. Ultimately, vide order dated 21.5.2004, the MERC allowedthe petition filed by respondent nos.3 to 7 and set aside theabovementioned circulars issued by appellant-MSEDCL from 1998onwards on the issue of CPP. Even though MERC was not in existenceat the time when certain circulars were issued, they have been quashedon the ground that no approval from MERC had been obtained. Aggrievedthereby, an appeal was preferred before the APTEL and the same wasdismissed. Hence, the appeal.

16. It was submitted by the learned counsel appearing on behalfof appellant-MSEDCL that policy for CPP was evolved by theGovernment resolution dated 20.12.1995 onwards. Thus, circular dated25.5.1999 provided for contract demand and “take or pay” obligations A

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Awere result of the policies of the State Government. Circular dated25.5.1999 provided for charging of energy drawn from the appellant-MSEDCL by CPP at the rate of 110% of the applicable tariff. It wasaltered to 125% vide circular dated 2.9.1999 of the energy from theappellant-MSEDCL of the monthly consumption based on preceding 12months before the commissioning of CPP.B

17. The MERC was established on 5.8.1999 though the Act cameinto force w.e.f. 25.4.1998. MERC observed that it was within the powerof State to continue with or alter tariff related decisions/arrangements todecide about the continuance of tariff on the ground that CPP policywas in the domain of the State Government as observed in tariff orderCdated 5.5.2000 (Case No.1 of 1999), tariff order dated 10.1.2002 (CaseNo.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 approvalwas not required with regard to two circulars were issued before thesaid date. Reliance has been placed on Binani Zinc Limited v. KeralaDState Electricity Board and Ors., (2009) 11 SCC 244.

18. It was also submitted on behalf of appellant-MSEDCL that itincurred costs for additional generation, strengthening of transmissionnetwork and distribution system and for establishing of EHV sub-stationtransformation. The appellant-MSEDCL has taken various decisions.EThe circulars had not imposed an additional financial burden on CPPholders. The appellant-MSEDCL agreed to allow CPP holders, whoconsented for expansion load, for using against the existing load and alsoreduction in contract demand, as such, it is clear that financial healthwas affected.F19. It was further submitted on behalf of appellant-MSEDCL thatcirculars as per the policy of the State Government could not have beeninvalidated. The Commission could have passed appropriate order onmerits concerning matters after its constitution. It could not have quashedthe circulars issued before its establishment. The appellant-MSEDCLhad the power to alter the tariff when the Commission was not establishedGand the Government has authorised it also. Under Section 44 of the Actof 1948, the CPP industry would be bound by the policy of the Boardand directions of the Government of Maharashtra. The APTEL has failedto consider that circular dated 2.9.1999 does not amount to a revision oftariff, it pertained to the policy regarding the CPP. The APTEL did notHconsider that huge amount has been spent on infrastructure which was

to be kept available for the standby facility. The Government of Indialetter dated 22.8.1994 contemplated both the units of respondent no.3 asseparate units. The policy decision dated 20.12.1997 of the Governmentof Maharashtra has also not been considered. The APTEL failed to takenote of the letter dated 13.10.1999 issued by the appellant-MSEDCL torespondent no.3 in respect of unauthorised act of connecting supply fromPlot No.E-23 to Plot No.E-1 without any sanction from the appellant-MSEDCL. The APTEL also failed to consider that circulars, which havebeen quashed, were only explanations/clarifications to the earliernotifications coercing the policy of CPPs.

20. It was submitted that the APTEL did not consider order dated10.1.2002 passed by MERC, in which it observed that CPP is a policymatter under the jurisdiction of the Government of Maharashtra and theCommission has been recently conferred with the additional power underSection 22(2) of the Act of 1998, which includes the power to aid andadvise the Government of Maharashtra in the formulation of the StatePower Policy. The Commission kept silent on CPP at that stage. It wasfurther submitted that Commission mentioned in the order that it wasconferred with the powers under Section 22(2) of the Act of 1998 recently,thus, the Commission should not have struck down the CPP and thecirculars regarding that.

21. The copies of the circular were forwarded as in the case ofall other circulars issued by appellant-MSEDCL to its field officers.The appellant-MSEDCL had the power to alter the tariff, the circulardated 25.5.1999 was authorised one, which was partially modified on13.8.1999. One of the modifications was that CPP holders were requiredto draw at least 25% of their monthly consumption from the appellant-MSEDCL. There was no additional financial burden imposed on CPPholders. The policy contained in the circular was a matter of economicpolicy. It was also submitted on behalf of appellant-MSEDCL that allthe circulars relating to CPP generation were submitted to Tribunal forapproval. The Tribunal did not decide the validity thereof vide orderdated 10.1.2002. The Tribunal could not have declared the said circularto be bad in law only on the ground that prior approval of the Tribunalwas not taken without deciding the issues on merits. Even if theCommission had the power, it ought to have gone into the merits of thecase and reasonableness of the claim made by the appellant-MSEDCLas reflected in circulars. The Government’s advice dated 28.4.2000 was AB

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Anon-binding advice upon the appellant-MSEDCL under Section 78A ofthe Act of 1948.

22. It was submitted on behalf of respondents that afterenforcement of the Act, there was no power with MSEB to issue circularsunder the Act of 1998. The Commission had sole and exclusive powerBto frame the tariff. Thus, no case for interference is made out in theappeal. The Government also directed MSEB to cancel its circular as itwas not in consonance with the policy of the State. Circulars could notbe said to be enforceable. The change in policy as per circular dated2.9.1999 was not informed; thus, the exercise of power was arbitraryand void. The levy of tariff for minimum consumption at 25% of theCenergy consumed in the preceding 12 months before the commissioningof the CPP at the rate of 110% of the tariff is wholly and utterlyunreasonable. Therefore, it was unsustainable. It was also submittedthat neither Section 44 nor any other provisions of the Act of 1948 enabledMSEB to impose any condition in the grant of consent, such asDmaintenance of contract demand at a particular level. The Board cannotunilaterally revise the charges in breach of such stipulations fixing thespecial tariff. A notification cannot be inconsistent with the terms of theagreement. If subsequent notification is quashed, it will not revive earliernotification.

E23. An affidavit in compliance with the order dated 11.7.2019 hasbeen 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 buyers/consumers buying their products. Hence, it would tantamount to unjustenrichment in case a refund is ordered.F

24. The first question for consideration is whether the Commissioncould have quashed circulars issued by the appellant-MSEDCL beforeits formation. The Commission was constituted under the Act of 1998on 5.8.1999. The circular issued before that could not have been quashedon the ground that MSEB had no power to issue them without the approvalGof the Commission. The decisions in that regard of Commission as wellas of APTEL are liable to be set aside. In Binani Zinc Limited (supra),this Court held that before Commission came into existence, the powerwas to be exercised by the State Electricity Board. This Court held thus:

“31. The State Electricity Boards are entitled to frame tariff inHterms of the provisions contained in the 1948 Act. The tariff so framed is legislative in character. The Board, as a statutoryauthority, is bound to exercise its jurisdiction within the four cornersof the statute. It must act in all fields, including the field of framingtariff by adopting the provisions laid down in the 1948 Act or theRules and the Regulations framed thereunder.

32. It is one thing to say that while framing tariff the Board canonly take into consideration the provisions laid down in the Scheduleappended to the Act and/or the directions contained in the policydecisions issued by the State as also other statutory principlesgoverning the same but then a tariff framed by it cannot be heldto be ultra vires only because it did not take into considerationcertain principles laid down in clauses (c) to (g) of sub-section (2)of Section 29 of the 1998 Act.

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41. We have, however, no hesitation in finding that the StateElectricity Board had the requisite jurisdiction to revise a tariff tillsuch time as the Commission was constituted and the purposes ofthe 1998 Act could be achieved through it. Till the time theRegulatory Commission was not constituted by the State of Kerala,the power to determine tariff remained with the Board under theElectricity (Supply) Act, 1948 as it was not repealed by theElectricity Regulatory Commissions Act, 1998. Parliament couldnot have intended to bring about a situation where no authoritywould be empowered to determine the tariff between the date ofcoming into force of the ERC Act, 1998 and the constitution ofthe Commission. It is only after the Regulatory Commission isconstituted that it will be the sole authority to determine the tariff.”

The decision of BSES Ltd. v. Tata Power Co. Ltd., (2004) 1SCC 195, has been explained in Binani Zinc Limited (supra).

25. Concerning circular dated 2.9.1999, which remained in forcetill 28.4.2000, the Commission as well as the APTEL were required toconsider impact of Commission earlier order passed on 10.1.2002 andalso its observations made in the said order that CPP is a policy matterand that Commission was recently conferred with the power underSection 22(2) of the Act of 1998, it ought to have gone into the merits ofthe claim. It was also pointed out on behalf of appellant-MSEDCL thatit had submitted circulars for approval to Commission, which has not A

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Agone into the merits of the subject matter and later quashed circulars onthe ground of competence. The MSEDCL filed circulars along with tariffproposal for approval as that was an essence of the tariff.

26. It has also been pointed out that in subsequent orders also,circulars as to CPP were relied upon by the Commission. It wasBincumbent upon the Commission to consider the effect of its orders andthe prayer made by the appellant-MSEDCL to consider merits of variouscirculars 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 manufactureCtheir products. The cost incurred on production has been passed on tothe buyers/consumers buying their products. Hence, it would tantamountto unjust enrichment in case a refund is ordered. In the peculiar facts ofthe case, as the Commission earlier opined in order dated 10.1.2002 thatCPP is a policy matter and it did not decide as to the merits of subjectDmatter as prayer for approval was made by the appellant-MSEDCL.The Commission observed that it would consider the matter in the future,but later on, without considering on merits the reasonableness of thedemand, the Commission quashed the circulars. It is apparent that theliability was passed on to the buyers/consumers by the respondent nos.3to 7 as electricity was used to manufacture their products sold in theEmarket, working out the price based on expenditure. It would not beappropriate in the peculiar facts of the case to direct refund to be madeby the appellant-MSEDCL of the amount recovered by it as it wouldtantamount to unjust enrichment. Thus, in the peculiar facts andcircumstances of the case, it is not considered appropriate to remit thematter to decide the dispute on merits after two decades for the periodFfrom 2.9.1999 to 28.4.2000, during which circular dated 2.9.1999 was inforce.

28. Consequently, we set aside the orders passed by theCommission as well as the APTEL and hold that circulars and the policydecisions issued before the establishment of the Commission were illegallyGset aside and in the peculiar facts and circumstances of the case we setaside the order concerning refund of amount recovered by MSEB.

29. The appeal is allowed to the aforesaid extent. The parties aredirected to bear their own cost incurred.

Ankit GyanH

HARYANA POWER PURCHASE CENTRE

v.

MAGNUM POWER GENERATION LIMITED & ANR

(Civil Appeal Nos. 4407-4408 of 2011)

JANUARY 21, 2020

[R. F. NARIMAN AND V. RAMASUBRAMANIAN, J]

Electricity Act – A Power Purchase Agreement (PPA) dated12.08.1998 was entered into between the appellant and therespondent for sale by the appellant of energy produced by it aftersetting up of a power plant – The Commission issued a tariff orderdated 12.08.2003 and held that the fixed costs were to be paid tothe generator irrespective of whether energy is purchased or not –Despite this order, the HERC by order dated 23.3. 2010 dismissedthe appellant’s appeal filed u/s. 86(1)(F) of the Act – An appealfrom this order was also dismissed by the Appellate Tribunal –Appellant demanded fixed cost from the respondent – On appeal,held: The Commission’s tariff order of 12.8.2003 had made it clearthat fixed costs during the currency of the agreement for generatingelectricity must be paid despite no supply having been made becausethe tariff order itself interdicted such supply in consumer interest –It is also clear that fixed cost that was demanded by the appellantfrom the respondent has in fact been collected from the consumerbut not paid over to the appellant, which would result in an unjustwindfall for the respondent – On this ground, therefore, theimpugned order of the Appellate Tribunal set aside and it is declaredthat the demanded amount by the appellant towards fixed cost ofrunning their unit @ 1.29 per unit be paid by the respondent.

Disposing of the appeals, the Court

Conclusion

Disposing of the appeals, the Court

HELD: These appeals can be disposed of on the shortground that the Commission’s Tariff Order of 12.08.2003 hadmade it clear that fixed costs during the currency of the agreementfor generating electricity must be paid despite no supply havingbeen made because the tariff order itself interdicted such supplyin consumer interest. This Court has also noted that the fixedcost that has been demanded by the appellant from the respondenthas in fact been collected from the consumer but not paid over to

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Athe appellant, which would result in an unjust windfall for therespondent. On this ground, therefore, the impugned order, isset aside and it is declared that the demanded amount by theappellant towards fixed cost of running their unit @ Rs. 1.29 perunit be paid by the respondent. [Para 4][1070-B-C]

BCIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 4407-4408 of 2011.

From the Judgment and Order dated 16.03.2011 of the AppellateTribunal for Electricity in I.A. No. 57 of 2011 in DFR No. 270 of 2011.

WithCCivil Appeal Nos. 7446-7447 of 2012.

Jayant Bhushan, Ranjit Kumar, Gurinder Singh Gill, Sr. Advs.,Mohit Paul, Prashant Mehta, Ms. Neha Tanwar, Ms. Sunaina Phul, KelanPaul, Tushar Bhushan, Amartya Bhushan, Shekhar Raj Sharma, P.P.DNayak, Ajay Pal, S. S. Shroff, Advs. for the appearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J.

Civil Appeal Nos. 7446-7447 OF 2012:E1. The present appeals arise from an Appellate Tribunal forElectricity order dated 23.03.2012, which, in turn, upheld the HERCorder dated 23.03.2010. The brief facts necessary for decision of theseappeals are as follows:-

(i) A Power Purchase Agreement (PPA) dated 12.08.1998 wasFentered into between the appellant and the respondent for sale by theappellant of energy produced by it after setting up of a power plant. Thesalient terms of this PPA are as follows:- “5.1. Terms of Agreement:This Agreement shall become effectiveupon execution and delivery by the Parties here to and unlessGearlier terminated pursuant to Article 5 shall have a term from thedate here of until fifteen (15) years from the Synchronization Dateof last Unit. (180) days prior to the end of the full (15) Year termdescribed above the HSEB shall have the right for an extensionof this Agreement for an additional period as required on the same H

HARYANA POWER PURCHASE CENTRE v. MAGNUMPOWER GENERATION LIMITED & ANR [R. F. NARIMAN, J.]

terms except the Tariff (as defined in Schedule 4) which shall bere-negotiated. Such extension shall begin upon the end of the fullfifteen (15) Year term.

In the event the term is not extended, the company shall have theoption to sell power to third party.

In the alternative HSEB shall have the first right to refusal to buythe Project at the book value.

5.2. Company Default

The following events unless occurring as a result of a breachby HSEB of its obligations under this agreement or an event offorce majeure, shall constitute an event of default by the Company:- (a) The Company is adjudicated bankrupt or dissolved or a receiveris appointed for its assets or proceedings for the company’sliquidation (except for the purpose of amalgamation or restructuringon terms not detrimental to HSEB) are continuing more than 120days after they were commenced.

(b) Any license or consent required by the company to performits obligation under this Agreement is revoked or is not renewedbecause of the company’s default.

(c) The Company fails to commence construction of the Powerstation to a material extent within (6) months after the date offinancial closing or abandons the Power Station due to thecompany’s default or repudiates this Agreement, contrary to theterms of this Agreement.

(d) The Company declares neither generating unit available, or nogenerating unit is capable of generating any electricity due tocompany’s default for a continuous period of six (6) months.

(e) The Company commits a serious breach of this Agreementand which results in the Company being unable to carry out itsobligations and where the breach is capable of being remedied ithas not been remedied within 60 days after HSEB notified thecompany in writing of the nature of the breach and required it tobe remedied.

5.3 HSEB DEFAULT

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The following events unless occurring as a result of a breachby the company of its obligations under the agreement or an eventof Force Majeure, shall constitute an event of default by the HSEB.

(a) HSEB is adjudicated bankrupt or dissolved or a receiver isappointed of the whole or any part of its assets or proceedings forBits liquidation (other than for the purpose of amalgamation orrestructuring on terms not detrimental to the company) which arecontinuing more than 120 days after they were commenced.

(b) If an amount due equal to one months billing at 75% PLF,payable by HSEB to the company shall remain unpaid more than60 days after the payment became due.

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(c) Any license or consent required by the HSEB or any of itsentitled successors pursuant to clause 18.10 to purchase electricityin bulk from the company or to transmit that electricity for thepurpose of supplying electricity to consumers or any licensee inDthe State of Haryana is revoked or expires for any reasonwhatsoever.

(d) HSEB commits a serious breach of this Agreement whichresults in the company being unable to carry out its obligation andwhere the breach is capable of being remedied it has not beenEremedied within 60 days after the company notified HSEB in writingof the nature of the breach and required it to be remedied.

(e) HSEB fails to provide, maintain, restore or replenish the letterof Credit and Escrow Account as per provisions of thisAgreement.”

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ii) The appellant covenanted and agreed with the HSEB to design,construct and complete the Project, arrange fuel for the Plant andmake available to the HSEB not later than the RequiredSynchronization Date, the Contracted energy and the ContractedOperating Characteristics of each Unit. Clause 8.2 which dealswith “operation” is important and is set out herein below:

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“8.2 Operation

(a) The HSEB shall issue daily Dispatch Instructions directingthe Company’s generating plant operator to comply with clause5.2(a) of Schedule 6 but ensuring annual PLF of 75% failing whichthe Company will be compensated for the Constant Component H

HARYANA POWER PURCHASE CENTRE v. MAGNUMPOWER GENERATION LIMITED & ANR [R. F. NARIMAN, J.]

of the tariff for the short fall. The adjustment for PLF will be onsemi annual basis. However, if in subsequent six months declaredavailability is not sufficient to achieve 75% PLF then the overallannual PLF shall be considered on the basis of declared availabilityover the year.

(b) Procedures for despatch of the Project shall be in accordancewith despatch procedures set out in Schedule 6.

(c) The HSEB shall have the right to request that the Project beshutdown subject to ensuring annual PLF of 75%.

(d) The company shall not be required to operate the Project otherthan in accordance with Prudent Utility Practices or except asprovided in Section 8.4, the Technical Limits as such limits maybe temporarily modified.

(e) The company shall make reasonable efforts to employ qualifiedpersonnel preferably from within the State of Haryana in theoperation and maintenance of the Project and to instituteappropriate training programs for such personnel; provided,however, that the Company shall have sole discretion as to thepersonnel employed for the operation and maintenance of theproject within the bounds permitted by law.”

(iii) Schedule-3 of the PPA laid down a Formula for ContractedElectrical Output as well as Annual Plant Load Factor as follows:- “3.1 Formula for Contracted Electrical Output Contracted Electrical output per year in Million KWH (MU)

=(8760x0.75x1000)(1-Aux Cons%) x Tested Capacity in MW

1000000

3.2 Annual Plant Load Factor (PLF) shall be calculated as under:

PLF% =Actual net electrical output in interconnectionpoint, in MU by theproject x 100

Net electrical output plant is capable of delivery atthe interconnection point as per tested capacity ofthe project.

Note: Auxiliary consumption maximum allowed 3.5% includingtransformation losses.”

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(iv) Schedule-4 which spoke of “determination of tariff” laid downthe tariff as the applicable rate upto 75% Plant Load Factor (PLF)which shall be Rs. 2.40 for every KWH respondent delivered outof Rs.2.40; Rs. 1.29 shall be the constant component during theterm of the PPA and Rs. 1.11 is adjustable as per a certain formulawith which we are not directly concerned.

(v) Under Schedule-6, which speaks of Despatch Procedure, theappellant is first to make an Availability Declaration as follows:

“Availability Declaration:

Magnum Power Generation Ltd. shall, by not later than 10.00hrs each day, submit HSEB an Availability Declaration, preparedas a best estimate on good faith, in respect of an AvailabilityPeriod during the following Scheduled Day.”

The respondent is then to give the appellant a Generation Scheduleunder Clause 5 as follows:- “5. Generation Schedule 5.1. HSEB shall issue to the Company a schedule of its energyrequirement with respect to the generation by the Power Plantduring each Schedule day by 17:00 hrs on the proceeding Day,provided that the Company had submitted an AvailabilityDeclaration containing all the necessary information by 10:00 hrson such proceeding Schedule Day. However, if HSEB is unableto furnish its energy requirements by the stipulated time of 17.00hrs. on preceding day, the energy generated as per the availabilitydeclaration shall be deemed to be the energy requirement.

5.2 Each Generation Schedule will contain the following informationin respect of each relevant Schedule day:

(a) The level of Active Power which the Power Plant is requiredto produce by way of base load generation. The level of ActivePower shall be within (-) 10% (minus ten per cent) of the DeclaredAvailability of that Schedule Day; subject to minimum of 75% ofthe contracted energy.

(b) HSEB shall ensure that the Power Station is despatched asper the Generation Schedule given to the Company for the ScheduleDay.

(c) In exceptional cases during the monsoon season, HSEB shallhave the right to despatch below 75% PLF, irrespective of theprovisions of Clause 5.2 (a) above.”

(vi) The Commission issued a Tariff Order dated 12.08.2003 inwhich it heard the Haryana Vidyut Prasaran Nigam Limited, the HERCand members of the public. In the finding insofar as the present appellantis concerned, the Commission in sub-para (G) held as follows:- “G. Availability of power from IPPs (Magnum)

Magnum (liquid fuel based plant) provided 94.9 MUs toHVPNL during FY 2002-03. HVPNL has proposed to procure160 MUs from this source. This being the most expensivesource is being dis-allowed by the Commission.”

The Commission then held as follows:-

“The Commission has not allowed any power to be sourcedfrom Magnum. However, against the volume of 160 MUsproposed by the licensee the fixed cost at the rate of Rs. 1.29per unit is being allowed.”

Ultimately, the Commission concluded:

“For Magnum, the fixed cost of Rs. 206.4 million based on theHVPNL projected volume of 160 MUs and per unit fixedcharge of Rs. 1.29 has been considered. The Commission has not approved any purchase from this source in FY 2003-04,however, Commission recognizes the Fixed Cost that has tobe paid to the generator irrespective of the fact whether anyenergy is purchased or not.”

(vii) This Tariff Order which binds both parties was a final order,not being challenged by either party.

(viii) Despite this order and the clear direction of the Commissionthat fixed costs have to be paid to the generator irrespective ofwhether energy is purchased or not, the HERC order dated23.03.2010 ultimately dismissed the appellant’s appeal filed underSection 86(1)(f) of the Electricity Act as follows:- “Final Order The above order of the Commission on each issue needs tobe given a concrete shape by calculating the due amount payable A

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to the either party and whatever is the net to be paid to the petitioneras per the following directions:- After calculating the due amount within a period of onemonth, first instalment of the same may be paid within a period oftwo months and the balance amount two months thereafter. ThisBamount however would not be reimbursed by HERC through anyclaim or through FSA since the respondents have been claimingFSA in respect of MPGL under the head “Deemed GenerationCharges” and the same stands recovered from the electricityconsumers. Hence, whatsoever the excess recovery they havemade from the consumer on this account, after settlement ofCaccount with MPGL in the light of the findings in the earlierparagraphs, the remaining amount either be refunded back to theconsumer or to be adjusted against the future filing with the priorapproval of HERC. FSA formula approved by the Commissionitself provides for subsequent adjustment of/under/over recoveryDof the same.

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In passing, the Commission would wish for the revival ofthe plant to augment the generating capacity in the State. It isadvised that both the parties may request a generation expert atthe Central Electricity Authority (CEA) Govt. Of India to pay aEvisit to the site to check up the present state of the plant in presenceof both the parties. The fees for this maybe equally shared.Thereafter the parties may work out a scheme for operationalisingthe plant for the benefit of all the stakeholders by entering into afresh PPA/renegotiating the existing one which is workable andtakes into account the financial interest of both the parties and theFinterest of the consumers of Haryana at large.

(ix) An appeal from this order was also dismissed by the AppellateTribunal by judgment dated 23.03.2012 in which after setting out thevarious clauses of the PPA, the Appellate Tribunal held as follows:-

“33. The above analysis of Article 8.2 would indicate that theAppellant was under obligation to make available the plant togenerate atleast 148.79 MU at 75% PLF. This conclusion issupported by Article 6.1(j) & (k) under which the Appellant hasundertaken to supply the Contracted Capacity as defined inSchedule 3 of the PPA and works out to 143.79 for tested capacity G

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of the Plant. These provisions are reproduced below for betterunderstanding and completeness.

(i) Make available to HSEB not later than the RequiredSynchronization Date, the Contracted energy and the Contractedoperating Characteristics of each Units; and (k) Operate and maintain the Project so as to provide the HSEBwith the Contracted energy and the Contracted OperatingCharacteristics of the Units reliably over the Term of thisAgreement, taking into account permissible degradation.

3.1 Formula for Contracted Electrical Output Contracted Electrical output per year in Million Kwh (MU) =

-(8760 x 0.75 x 1000) (1AuxCons.%)xTested Capacity in MW

1000000

= 8760 x 0.75 x 0.965 x 22.67/1000 = 143.79 MU.

34. In the light of above analysis, we hold that the Appellant wasunder obligation to declare annual availability of the plant to atleast75% of tested capacity so as to obtain an annual PLF of 75%.”

2. Mr. Jayant Bhushan, learned senior counsel appearing on behalfof the appellant has argued that because of the Commission’s order of12.08.2002 and because the power generated by the appellant wouldimpact the consumer as electricity charges would then become veryhigh, the Commission made it clear that the appellant’s electrical energywas not a source of power which could at all be tapped as a result ofwhich not even a single mega watt of power was supplied or sold by theappellant to the respondent. He, however, contended that this veryCommission’s order made it clear that this was in the consumer interest,but that the appellant would be entitled to recover its fixed cost, whichunfortunately has been missed by both the Commission as well as theAppellate Tribunal in the impugned order. He also argued that both theorders were faulty in their reading of Clause 8.2 of the PPA whichcannot be read so that supply at atleast 75% of the Plant Load Factor bemade a condition precedent for claiming fixed energy charges, as thatclause when properly read makes it clear that the PPA itself made itclear that once the power project has been set up by the appellant, thefixed energy cost will have to be paid in any event.

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3. As against this, Mr. Gurinder Singh Gill, learned senior counselappearing on behalf of the respondent, supported the judgments of theCommission and the Tribunal, and argued that a proper reading of Article8.2 would make it clear that it would become operative only when declaredavailability is more than 75% of the Plant Load Factor.

B4. Having heard learned counsel for both sides, these appeals canbe disposed of on the short ground that the Commission’s Tariff Orderof 12.08.2003 had made it clear that fixed costs during the currency ofthe agreement for generating electricity must be paid despite no supplyhaving been made because the tariff order itself interdicted such supplyin consumer interest. We have also noted that for the years in question itCis clear that the fixed cost that has been demanded by the appellant fromthe respondent has in fact been collected from the consumer but notpaid over to the appellant, which would result in an unjust windfall forthe respondent. On this ground, therefore, we set aside the impugnedorder and declare that for the years in question the demanded amountDby the appellant towards fixed cost of running their unit @ Rs. 1.29 perunit be paid by the respondent within a period of 3 months from today.

5. Given the fact that the appellant has lost in both the originalforum as well as the appellate forum, and which has taken over 15 yearsto decide, and given the fact that the respondent is a Government-ECompany, we deem it appropriate that this amount be paid with simpleinterest @ 3% per annum. In case the amounts are not paid within threemonths from today, the interest component shall become 6% p.a. forpayment made beyond 3 months. The impugned judgment is set aside tothe extent that the appeals are decided against the respondent. Theappeals are accordingly allowed.F

Civil Appeal Nos. 4407-4408 OF 2011:

6. The appeals before the Appellate Tribunal were dismissed onthe ground that 327 days delay be not condoned. In any case, we findthat nothing survives in these appeals after we have partly allowed theGappeals in Civil Appeal Nos. 7446-7447 OF 2012. These appeals aredisposed of accordingly.

Ankit Gyan

Appeals disposed of.

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