DAMODAR VALLEY CORPORATION versus CENTRAL ELECTRICITY REGULATORY COMMISSION & OTHERS on 3 December 2018

[2018] 14 S.C.R. 433

DAMODAR VALLEY CORPORATION

v.

CENTRAL ELECTRICITY REGULATORY COMMISSION& OTHERS

(Civil Appeal No. 4881 of 2010)

DECEMBER 03, 2018

[RANJAN GOGOI, CJI, SANJAY KISHAN KAUL AND

K. M. JOSEPH, JJ.]

Damodar Valley Corporation Act, 1948: s.38 – Computationof tariff – Benefit of interest on capital – Claim for benefit unders.38 on the ground that though interest was given on the loan portionand the return on equity was also ensured on the normative equityportion still over and above the same, appellant was entitled to thebenefit of interest on capital on the whole amount as provided ins.38 – Appellate Tribunal held that DVC Act provided for intereston capital which is contributed by the participating Governmentsand that under the Act, if there is any deficit in the capital contributedby the participating Governments, it is to be made good by takingloan on behalf of the participating Governments and said debtwould attract interest – The average interest rate of the repaymentpayable is to be applied on a 50:50 normative debt capital whichmeans that out of the aggregate equity including reserves, equityconsidering the normative debt ratio of 50:50 would be eligible forreturn on equity as specified in the Regulations and the excess ofequity if any over the equity earning ratio of 14% is to be consideredas interest bearing debt – On the basis of remand, the Commissionworked out the debt equity ratio as directed by the Appellate Tribunal– Thus, appellant was already given return on equity in terms ofTariff Regulation in respect of capital on the basis of debt equityratio which was fixed by Appellate Tribunal on a ratio which becamefinal between the parties – Electricity Act, 2003.

Damodar Valley Corporation Act, 1948: Claim for treatingcumulative depreciation as repayment of loan and thereby reducingthe notional loan component in the capital cost – The said plea wasnot taken in the first round of litigation in the appeal before the

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Aappellate authority – First order of appellate tribunal having becomefinal, the matter cannot be reopened in the appeal from the orderpassed pursuant to remand.

Bhaskar Shrachi Alloys Limited & Ors. v. DamodarValley Corporation & Ors (2018) 8 SCC 281 ; DelhiBElectricity Regulatory Commission v. BSES YamunaPower Limited & Others (2007) 3 SCC 33 : [2007] 2SCR 747 – referred to Case Law Reference

(2018) 8 SCC 281referred toPara 4C[2007] 2 SCR 747referred toPara 8CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4881of 2010.

From the Judgment and Order dated 10.05.2010 of the AppellateDTribunal for Electricity in Appeal No. 146 of 2009.

M. G. Ramachandran, K. V. Mohan, Ms. Anushree Bardhan,Ms. Poorva Saigal, Shubham Arya, Advs. for the Appellant.

A. N. S. Nadkarni, ASG, Basava Prabhu Patil, Sr. Adv.,Pukhrambam Ramesh Kumar, K. Amrit Kumar Sharma, Rajiv Yadav,ERajiv Shankar Dvivedi, Ms. Arti Dvivedi, S. K. Sarkar, Nikhil Nayyar,N. Sai Vinod, Dhananjay Baijal, Divyanshu Rai, Naveen Hegde, HirenDasan, Harish Dasan, Chand Qureshi, Mrs. Sarla Chandra, MohanPrasad Gupta, Liz Mathew, Sachin Sharma, A. K. Verma, G. S. Makker,Anil K. Jha, Ms. Sharmila Upadhyay, Partha Sil, Arvind Kumar Sharma,FSaurabh Mishra, Abhishek Singh, Sunil Kumar Jain, Devashish Bharuka,Abhijit Sengupta, Advs. for the Respondents.

The Judgment of the Court was delivered by

K. M. JOSEPH, J.

G1. By this appeal maintained under Section 125 of the ElectricityAct 2003 (hereinafter referred to as ‘the Act of 2003), the appellantseeks to challenge the order passed by the Appellate Tribunal dismissingthe appeal filed by the appellant against the order of the Central ElectricityRegulatory Commission (hereinafter referred to as ‘the Commission’).

BACKGROUND FACTS

2. The appellant is a statutory body constituted under the DamodarValley Corporation Act, 1948 (hereinafter referred to as ‘the DVC Act’).It was entrusted with multifarious functions. One of the functions it wasentrusted was that it was duty bound to carry out generation, transmissionand distribution of electrical energy both hydro electrical and thermal. Itwas also called upon to, operate schemes for irrigation, water supplyand drainage besides flood control in the Damodar river and its tributaries.Acting under Section 20 of the DVC Act, the appellant was fixing thetariff for the electricity which it was generating and transmitting to itsconsumers. With the enactment of the Electricity Act in 2003, a suomotu proceeding was taken by the Commission with respect to thedetermination of the tariff of the appellant. Pursuant to the order dated29.3.2005, the appellant filed Petition No. 66/2005 seeking determinationof its tariff for the period from 2004 to 2009. By order dated 3.10.2006,the Commission proceeded to determine the tariff. The Commissionproceeded to take note of the multifarious functions with which theappellant was entrusted. Its case that it was following a cost plus policyfor fixation of its tariff as also the difficulties that would be posed byimposing the tariff under the Act of 2003 with effect from 1.4.2004 wasnoticed. It was ordered that the tariff fixed by the Commission wouldapply from 2005-2006 and it was to operate from 1.4.2006. TheCommission had also appointed one-man Commission. Besides the sameit appreciated the scope of the Fourth proviso to Section 14 of the DVCAct and found that the provisions of the DVC Act which were notinconsistent with the 2003 Act would continue to hold good even afterthe enactment of the 2003 Act. Even if there was inconsistency betweenthe DVC Act and the regulation made under the 2003 Act, the DVC Actwould continue to operate. After settling the legal position, in this regard,the Commission proceeded to decide upon the various contentions relatingto elements which were to constitute the tariff.

3. This order came to be challenged by the appellant before theAppellate Tribunal for Electricity. There were also appeals filed by theconsumers. By order dated 23.11.2007 the Appellate Tribunal allowedthe appeal filed by the appellant and ordered as follows:

“In view of the above the subject Appeal No.273 of 2006 againstthe impugned order of Central Commission passed on October 3,2006 is allowed to the extent described in this judgment and we A

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Aremand the matter to Central Commission for de novoconsideration of the tariff order dated October 3, 2006 in terms ofour findings and observations made hereinabove and according tothe law. Appeal No.271, 272 and 275 of 2006 and No.08 of 2007are also disposed of, accordingly.”

B4. Pursuant to the said order of the Appellate Tribunal remandingthe matter back for consideration, a revised tariff order came to bepassed on 6.8.2009 by the Commission. The order dated 6.8.2009 cameto be impugned by the appellant before the Appellate Tribunal and saidappeal came to be dismissed. It is said order by the Appellate Tribunalwhich is challenged in the present appeal. It may be noted at this junctureCitself that the first order of the Appellate Tribunal dated 23.11.2007 cameto be challenged before this Court by certain consumers of the appellant.Those appeals were taken up earlier and they came to be dismissed bythis Court and the said decision is reported in the judgment of this Courtin the case of Bhaskar Shrachi Alloys Limited & Ors. Vs. DamodarDValley Corporation & Ors2018 (8) SCC 281. This Court agreed withthe Appellate Tribunal that the effect of the Fourth proviso to Section 14of the Act of 2003 was to countenance the continued application of thecertain provisions contained in the DVC Act which were not inconsistentwith the 2003 Act. This Court also took the view that having regard tothe fact that the appellant in addition to generation, transmission andEdistribution of electricity is under the Act obliged to undertake certainsocial security/ beneficial matters like flood control, control of soil erosion,afforestation, navigation, promotion of public health etc, the grant of thetransitory period could not be interfered with. It was reiterated that theprovisions of the DVC Act would also have an overriding effect over Fthe inconsistent provisions of the tariff regulations.

CONTENTIONS IN THE PRESENT APPEAL

5. Mr. M.G. Ramachandran, learned counsel for the appellant hasnarrowed down the scope of the appeal by limiting his submissions totwo in number. The first complaint which is raised is that both theGCommission and the Appellate Tribunal have not given the benefit ofSection 38 of the DVC Act to the appellant in the computation on tariff.The second contention relates to the question of treating cumulativedepreciation as on 31.3.2006 as repayment of loan and thereby reducingthe notional loan component in the capital cost after applying the debtHequity ratio. The substantial question of law apparently relating to thesame are as follows:- “Whether the Appellate Tribunal has correctly interpreted andapplied the provisions of Section 38 of the DVC Act in regard tothe claim of the Appellant on interest on capital despite the samehad been considered and directed to be allowed in the earlier Orderdated 23.11.2007 passed in Appeal No.273 of 2006?

Whether the decision of the Appellate Tribunal in approving theOrder of the Central Commission equating cumulative depreciationrecovered as adjustment towards loan repayment during the periodtill 31.3.2006 is not contrary to the decision of this Hon’ble Courtin the case of Delhi Electricity Regulatory Commission v. BYPLLimited, (2007) 3 SCC 33 and also the decision of the AppellateTribunal itself in the case of judgment and orders dated 16.3.2009passed in Appeals No. 133/08, 135/08, 136/08 & 148/08 and orderdated 13.6.2007 passed in Appeals No.139 to 142 etc. of 2006?”

6. Section 38 of the DVC Act reads as follows:

“38. Payment of interest – The Corporation shall pay intereston the amount of capital provided by each participating Governmentat such rate as may, from time to time, be fixed, by the CentralGovernment and such interest shall be deemed to be part of theexpenditure of the Corporation.”

7. It is the case of the appellant that this Court in the judgment inBhaskar Shrachi Alloys Limited & Ors. Vs. Damodar ValleyCorporation & Ors2018 (8) SCC 281 has approved of Section 38being available to the appellant despite passing of Act of 2003 and theregulations. Appellant is entitled to interest on the capital. It is the caseof the appellant that interest on capital under Section 38 is to be allowedto the appellant in addition to the other tariff elements including the intereston loan, return on equity etc. permissible under the tariff regulation.Appellant would point out that interest on capital is not to be mixed upwith interest on loan including interest on normative loan. Interest oncapital, it is contended is a distinct element from interest on loan orreturn on equity. The contention of the respondents that interest on capitalhas also being considered by the Commission, is described as patentlywrong as it is pointed out that this aspect was the subject matter of theappeal by the Central Commission in the appeal leading to the decisionof this Court and this Court affirmed the availability of the element ofinterest under Section 38. In the second order passed by the Commission A

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Ain pursuance to remand, it is contended that there is no reference to anyinterest on capital as contemplated under Section 38 which has not beengiven and the appellant must be held entitled to the same.

8. Regarding the second contention namely, reducing thecumulative depreciation from the notional loan, it is the case of theBappellant that what is serviced under the tariff is the interest on loan andnot the repayment of loan. The interest being computed on the outstandingduring the financial year when the loan gets repaid in a progressivemanner, the loan gets reduced and therefore the amount of interest to beallowed in the tariff towards the loan is lessened. Till the enactment ofthe Act of 2003 and the transition period allowed till 1.4.2006, the entireCcapital cost has to be treated as equity alone. There cannot be a loanand therefore there cannot be repayment of loan or progressive reductionof loan reducing the outstanding loan to be serviced through interest onloan among other things. It is contended that these implications would befrom 1.4.2006. Reference is made to Section 30 and 32 of the DVCDAct. It is contended that the entire capital of the DVC was to be treatedas equity. The capital cost as on 1.4.2006 should have been consideredto be the total amount of gross fixed asset. This cost was to be totallydivided to debt and equity for generating project at the rate of 50:50established prior to 30.3.1992 and at the rate of 70:30 for generationproject established after 30.03.1992. The Tribunal had gone wrong inEholding that there was deemed repayment of the above loan in the pastyears prior to 1.4.2006 on the basis of cumulative depreciation of theassets in the past. The tariff regulation of 2004 for the period 1.4.2004 to31.3.2009 though relevant, does not provide for any such adjustment ofcumulative depreciation towards repayment of loan. In this regard,Fappellant relies on orders passed by the Appellate Tribunal in the case ofNTPC which took the view that cumulative depreciation cannot be treatedas deemed repayment of loan. Reference is also placed on the judgmentof this Court in the case of Delhi Electricity Regulatory CommissionVs. BSES Yamuna Power Limited & Others2007 (3) SCC 33 for theproposition that depreciation is not repayment of loan and therefore, byGthe cumulative depreciation, the quantum of loan cannot be reduced. Yetit is pointed out that the Commission has applied the concept of cumulativedepreciation as resulting in deemed repayment for the period prior to31.3.2006, which is impermissible.

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CONTENTIONS OF THE RESPONDENTS

9. As far as the respondents are concerned, they would supportthe order passed by the Tribunal. In regard to the complaint of the appellantthat interest on capital under Section 38 was not applied though thiscourt also held that Section 38 would continue to operate, it is contendedthat as a matter of fact appellant has been given the benefit of intereston capital. It is the case of the respondent that what the appellant isseeking is the grant of a double benefit. On the basis of debt equity ratioof 50:50, it is pointed out that authorities have already calculated returnto the appellant by way of interest on the loan component of 50% andalso vouchsafed for the appellant return on equity on the equity part.What the appellant is asking is over and above the same further intereston the entire capital on the basis of Section 38 which is impermissible.

10. As far as the point relating to non-availability of cumulativedepreciation for reduction of the loan, the contention taken is that theappellant did not take this contention in the first round of litigation in theappeal before the appellate Tribunal. 10 contentions were taken beforethe Appellate Tribunal in the first round. In regard to 5 contentions, theAppellate Tribunal agreed with the complaint of the appellant andremanded the matter back for de novo consideration in accordance withthe observations which were contained in the order. In regard to 5 otherissues, the matter was decided against the appellant. There is no appealcarried further by the appellant. Therefore, the first order of the AppellateTribunal has become final, particularly, after the dismissal of the appealwhich was carried out not by appellant but by the respondents which isreported in the case of Bhaskar Shrachi Alloys Limited & Ors. Vs.Damodar Valley Corporation & Ors.2018 (8) SCC 281. They alsohave taken the contention that the orders passed by the Appellate Tribunalin the case of NTPC does not bear out the contentions of the appellant.It is their further contention that even in the order dated 3.10.2006 whichis the first order passed by the Commission, the Commission had madeuse of the cumulative depreciation for reducing the loan and consequentlyreducing the interest on loan. The appellant had not complained againstthe methodology employed by the Commission. Matters which havebecome final cannot be allowed to be reopened in the appeal from theorder passed pursuant to remand.

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ADISCUSSION AND FINDINGS

11. An appeal under Section 125 of the Act of 2003 is permittedonly if there are substantial questions of law. We may also bear in mindthe view taken by this Court in the order in earlier batch of appealsbetween the parties reported in Bhaskar Shrachi Alloys Limited &BOrs. Vs. Damodar Valley Corporation & Ors.2018 (8) SCC 281,namely, “Having considered the matter in the conspectus of aforesaiddeclaration of law we must proceed to examine the complaint of theappellant, whether the approach of the appellate Tribunal is fundamentallyflawed and therefore there is merit in the appellant’s case.”

C12. We have already referred to Section 38 of the DVC Act.There can be no dispute that Section 38 of the DVC Act will survivedespite the enactment of the Act of 2003. In other words, it cannot be inthe region of dispute that appellant would be entitled to interest on capitalunder Section 38, in the computation of the tariff which the appellant isallowed to charge from its consumers. The question, however, is whetherDthe appellant has been actually given the benefit of interest on capitalunder Section 38 of the DVC Act.

In order to consider the question, it is necessary for us to considerthe orders which have been passed by the Commission and also theAppellate Tribunal. The order dated 3.10.2006 passed by the CommissionEwhich was the first order passed by it referred to the recommendationsof the one Member Bench regarding the capital cost in a total sum ofRs.3146.01 crores and decided to accept the same insofar as generatingassets were concerned. The Commission also accepted the 70:30 debtequity ratio which was recommended by the one Member Commission.FIt referred to the return on equity in terms of 2004 Regulations andadopted a rate of return on equity at 14% which is allowed on 30% ofthe capital cost in terms of the debt equity ratio. Thereafter, theCommission dealt with interest on loan. The matter was dealt withunder the 2004 Regulations. After extracting the relevant regulation, theCommission proceeded to take the view that the normative loanGoutstanding for individual station as on 31.03.2004 was to be computedby applying normative debt-equity ratio of 70:30 to the capital cost withweighted average rate of interest of the loan on appellant’s Corporationas a whole. The Commission thereafter, in fact, refers to the cumulativedepreciation as on 30.03.2004 or notional loan amount whichever is lowerHbeing taken as loan repayment and has been allowed to be serviced till it is fully repaid. The weighted average rate of interest thereafter arrivedas shown in the table at paragraph 57 of its order and the loan for variousprojects were given.

13. This order was appealed against by the appellant. The appealculminated in the order dated 23.11.2007. Let us examine what theappellate Tribunal said about the complaint of the appellant based onSection 38 of the DVC Act. The main order was written by the TechnicalMember with whom the Chairman agreed with the separate concurringjudgment.

14. The debt equity ratio which was fixed by the Commission at70:30 was altered to 50:50 in respect of the old projects commissionedprior to 1992 on a normative basis and in respect of recent projects suchas MEJIA, they were to be aligned with 70:30 capital structure specifiedin the Regulations. We may also refer to the following findings:

“A-9. The Appellant has contended that DVC having been createdwith the functions of deemed state to support the state’s socialfunctions of West Bengal and Jharkhand, it serves public interestat large and, therefore, by statute equity has been primary sourceof capital. It has further added that business risks, financials risks,etc. are largely, therefore, carried by the owner Governmentswho, therefore, by fundamental principles of risk and return areentitled to return on their entire share of capital investment.

A-10. It is true that the owners take upon themselves businessrelated risks and are entitled for return on their share of capitalinvestment. But the return is to be governed by the scheme ofdetermination of tariff for supply of electricity as mandated bythe law in place. The scheme provides for an assured ROE, aspermissible under the Tariff Regulations, at the rate of 14%, onthe equity deployed for the purpose of supplying electricity. Thescheme does not permit return on investments made on projectsother than supply of electricity, to be recovered through tariff forsupply of electricity.

A-13. Some of the Respondents have submitted that “combinedreading of Sections 30, 31 and 38 of the DVC Act clearlyindicates that the entire capital invested on the projects asper the DVC Act is the loan capital and interest is a part ofthe expenditure. There is no provision of any equity capitalunder the DVC Act.”

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A-14. The DVC Act provides for infusion of capital by theparticipating Governments and for payment of interest thereon.The DVC Act does not categorize such capital as borrowingsand there is no reference about repayment of such capital to theparticipating Governments. It is difficult to assume a commercialorganization running solely on borrowed funds. Lenders invariablyprescribe for a margin money to be invested by the borroweralso. In our opinion the capital infused by the participatingGovernments is in the nature of equity capital and for the purposeof determination of tariff, same would be eligible for return onequity, as may be permitted by the Tariff Regulations 2004.

A-15. It is to be noted that DVC provides interest on capitalcontributed by the participating Governments. The accrued interesthas been allowed to be retained by DVC and is ploughed backinto capital with the tacit consent of the participating Governments.This has to be provided to DVC as per the provisions of Section38 of the DVC Act.

A-16. It is observed that the DVC Act envisages the projects tobe built only on capital contributed by the participating Governmentsand any deficit in the capital amount is to be made good by takingloan on behalf of the participating Government. The debt takenwill obviously attract interest. The average interest rate ofrepayment payable during the tariff year is to be applied on 50:50normative debt capital for tariff purposes. This would mean that out of aggregate equity including reserves, equity considering anormative Debt Equity Ratio of 50:50 would be eligible for ROE,at the rates prescribed in the Tariff Regulations and excess ofequity if any over the equity earning ROE @14% shall beconsidered as interest bearing debt. For example, if the actualDebt Equity Ratio comes to 40:60, ROE would be available on50% portion of the equity and interest would be available on 10%portion of equity and interest would be available on 10% portionof equity and 40% loan, as reduced by repayments.”

It is also relevant to notice paragraph E-13 and the same is extractedbelow:

“E-13. As regards the liability arising under section 38 of theDVC Act on account of interest on capital provided by each ofthe participating Governments, we have to keep in mind that the total capital to be serviced has to be equal to the value of operatingassets when they are first put to commercial use. Subsequently,the loan component gets reduced on account of repayments whileequity amount remain static. As per the scheme of thedetermination of tariff as per Tariff Regulations 2004, the recoveryis in two forms; either by way of ROE or by way of interest onloans. We direct the Central Commission to ensure that capitaldeployed in financing operating assets is getting fully servicedeither through Return on Equity or interest on loan (including onthe equity portion not covered as part of equity eligible for Returnof Equity).”

THE ORDER DATED 6.8.2009 PASSED BY THE COMMISSIONPURSUANT TO THE AFORESAID ORDER OF THE APPELLATETRIBUNAL

15. In paragraph 38 of the order dated 6.8.2009, the Commissionworked out the return on capital, interest on loan and depreciation oncommon assets and apportioned to each of the productive generatingstations/ transmission system in terms of the capital cost which is alreadyallocated as on 31.03.2004. This is purportedly done in terms of whatwas stated by the Appellate Tribunal in paragraphs 1.3 and 1.4 of itsorder dated 23.11.2007. Paragraph 37 reads as under:

“1.3. With the above process it is true that the cost of operatingand maintaining the above facilities would be recovered but therecovery of capital cost in the form of depreciation and return oncorresponding equity, interest on loans, if any, would be missedout without any justification.

1.4. We feel that once the Commission has agreed to treat theseassets as part of the generating and transmission activities of theAppellate by permitting recovery of their O&M cost, these assets,after due prudence check, should also be included in the capitalcost and consequential effect be given through determination oftariff.”

16. The total capital cost as on 1.4.2004 is shown as Rs.314601lakhs. The additional capitalisation allowed for 2004-05 and 2005-06 atparagraph 35 was also reckoned and the total average capital was shownas Rs.322797 lakhs for the year 2004-05 and Rs.326786 lakhs for 2005-06. Thereafter, the Commission also referred to the debt equity ratio A

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Afixed by the Appellate Tribunal in paragraph A-8 which we have extractedhereinabove. Thereafter, the commission proceeded to work out returnon equity under the heading ‘Interest on Loan’. This is what theCommission has stated in paragraph 48.

“48. The petitioner has submitted that it has not availed any loansBto meet the expenditure towards additional capitalization. Basedon the additional capitalization allowed and the revised debt-equityratio and depreciation considered in line with the directions of theAppellate Tribunal, the interest on loan has been worked out withthe weighted average rate of interest considered as per theCommission’s order dated 3.10.2006. Depreciation calculatedCfor the year has been treated as repayment of loan during thatyear.”

17. Now let us see how in the order which was impugned beforeus, the Appellate Tribunal has dealt with the issue relating to interest oncapital under Section 38 of the DVC Act. We may note paragraph 70Dwhere the Appellate Tribunal holds as follows:

70. We have carefully considered the above grounds urged bythe Appellant. On going through records, as indicated above, theoperation of the limited remand order would relate to this issuealso. The operations of the DVC which have to be implementedEhave been clearly spelt out in the following paragraphs of RemandOrder:

“E-13. As regards the liability arising under section 38 of theDVC Act on account of interest on capital provided by eachof the participating Governments we have to keep in mind thatthe total capital to be serviced has to be equal to the value ofoperating assets when they are first put to commercial use.Subsequently the loan component gets reduced on account ofrepayments while equity amount remain static. As per thescheme of the determination of tariff as per Tariff Regulations2004, the recovery is in two forms, either by way of Return onEquity or by way of interest on loans. We direct the CentralCommission to ensure that capital deployed in financingoperating assets is getting fully serviced either through Returnon Equity or interest on loan (including on the equity portionnot covered as part of equity eligible for Return of Equity).”

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18. Thereafter, the Appellate Tribunal undoubtedly notes that inits remand order dated 23.11.2007, it has directed the Central Commissionto ensure that the capital employed in financing the operating assets isgetting fully serviced either through return on equity or on interest onloan. The Appellate Tribunal goes on to hold that in compliance of thesaid order the Commission allowed debt equity ratio on the total capitalemployed. It further provided return of 14% on the normative equitycapital in terms of Regulation 21(1)(iii), i.e., return on equity. TheCommission also provided interest on loan of the normative type inaccordance with Regulation 21(1)(i).

19. It is in the light of these orders that we must consider thecontention of the appellant that despite appellant being entitled to thebenefit of interest on capital it was not given the benefit despite the finalpronouncement of this Court in 2018(8) SCC 281 upholding the view ofthe Appellate Tribunal itself that Section 38 of the DVC Act will continueto apply for the benefit of the appellant-corporation. On the other hand,the contention of the contesting respondents is that the benefit underSection 38 of the DVC Act as claimed by the appellant would result inappellant getting a benefit which would be a duplication of claims insofaras on the total capital, applying the normative debt equity ratio, appellanthas been given the benefit of return on capital on the normative equityportion and it has also been allowed interest on the loan portion. Thecase of the appellant on the other hand, is that even after interest hasbeen given on the loan portion and the return on equity has also beenensured on the normative equity portion by the impugned order, over andabove the same, the appellant is entitled to the benefit of interest oncapital on the whole amount as that is so provided under Section 38 ofthe DVC Act.

20. In the order of the Appellate Tribunal dated 23.11.2007 thematter came to be dealt with under the heading ‘debt equity ratio’. TheTribunal went on to accept the case of the appellant in respect of all oldprojects of DVC and normative debt equity of 50:50 was assigned,commissioned prior to 1992. In respect of recent projects such as Mejina,it was assigned debt equity ratio of 70:30 on capital structure as specifiedin the Regulations. This finding has become final. It was contended onbehalf of the appellant that equity has been the primary source of capital.Thereafter, in paragraph A-10, it was found by the Appellate Tribunalthat owners take upon themselves business related risk and are entitled AB

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Ato interest on capital investment, but the return is to be governed by thescheme of determination of tariff for the supply of electricity as mandatedby the law in place. The Appellate Tribunal further proceeds to hold thatthe scheme provides for assured Return on Equity (ROE) which is atthe rate of 14% on the equity employed for the purpose of supplyingelectricity. The scheme does not permit return on investment made onBprojects other than for supply of electricity to be recovered from supplyof electricity. The Tribunal went on to hold that the DVC Act does notrecognise capital as borrowings and there is no reference aboutrepayment of such capital to the participating Governments. TheAppellate Tribunal proceeds to hold that the capital infused by participatingCGovernments is in the nature of equity capital and for the determinationof tariff, the same would be eligible for return on equity but the AppellateTribunal does not end there. It clearly provides that the return on equityis as may be permitted by the tariff Regulation of 2004. It is thereafterthat the Appellate Tribunal in para 15 proceeded to hold that the DVC

Act provides for interest on capital which is contributed by theDparticipating Governments. The accrued interest due to the Governmentsapparently has been allowed to be retained by the appellant. The samehowever came to be ploughed back into the capital with the tacit consentof the participating Governments. Thereafter, it is stated that this has tobe provided to the DVC as per the provisions of Section 38 of the DVCEAct. It is thereafter paragraph A-16 which we have already extracted,the Tribunal proceeded to observe that under the DVC Act if there isany deficit in the capital contributed by the participating Governments, itis to be made good by taking loan on behalf of the participatingGovernments. The said debt would attract interest. The average interestrate of the repayment payable is to be applied on a 50:50 normative debtFcapital. This means that out of the aggregate equity including reserves,equity considering the normative debt ratio of 50:50 would be eligible forreturn on equity as specified in the Regulations and the excess of equity,if any, over the equity earning ratio of 14% is to be considered as interestbearing debt. In the example which has been given it is shown that if theGdebt equity ratio is 40:60, return on equity at 14% will be available on50% equity whereas interest would be available at 10% portion of equityand 40% loan which were reduced by repayments.

21. On the basis of the remand, the Commission has worked outthe debt equity ratio as directed by the Appellate Tribunal. It has furtherH

provided return on equity at the rate of 14% on the equity portion, namely50%. In respect of the debt portion, interest has been calculated nodoubt after deducting depreciation, the legality of which is the subjectmatter of the other contention which we will deal with separately. It isquite clear to us that appellant has already been given return on equity interms of the tariff Regulation in respect of capital on the basis of debtequity ratio which has been fixed by the Appellate Tribunal on a ratiowhich has become final between the parties.

22. Though a perusal of para A-9 of order dated 23.11.2007 mayappear to show that equity has been found to be the main source ofcapital, a perusal of paragraph A-10, A-16 and more importantly E-13would show that capital under Section 38 of the DVC Act has beenunderstood as the value of the operating assets when they were first putto commercial use. Capital is also understood not as equity alone but ithas been understood both as loan and equity. The ratio between loanand equity is also fixed in respect of the old projects at 50:50 and underthe new projects it is at 70:30. It is further clear from paragraph E-13 ofthe order of the Appellate Tribunal dated 23.11.2007 that the appellateTribunal contemplated that the equity component would remain staticand it would earn the rate of return as provided in the tariff Regulation.As far as the loan component is concerned, it would get reduced onaccount of repayments. Therefore, the recovery as contemplated underthe Regulations was found to be in two forms, namely, either as returnon equity in respect of the equity portion and as interest on the loancomponent.

23. There remains only one area of doubt. In paragraph A-15,the Appellate Tribunal noted that the interest due from DVC on thecapital employed by the participating Governments have been allowedto be retained by the appellant and it has been ploughed back into thecapital. To this portion also, the Appellate Tribunal directed to applyunder Section 38 of the DVC Act. However, firstly, it is after so providingthat the Appellate Tribunal has later in paragraph E-13 given its directionunder Section 38 of the DVC Act. Secondly, even in the writtensubmission made this aspect has not been taken up as such and at anyrate, the particulars are not given. Also in paragraph 73 of the impugnedorder which refers to the complaint of the appellant relating to cumulativedepreciation being employed to reduce the loan component being illegal AB

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Aand reference is made to the retained interest being ploughed back ascapital to the creation of capital assets resulting in the appellant enjoyingperpetual moratorium as it has never repaid the loan and the question ofadjustment of the depreciation for the loan did not arise. There is nocomplaint raised about interest under Section 38 of the Act not beinggiven in respect of interest which is ploughed back as capital.B

24. The next question relates to the legality of taking intoconsideration the cumulative depreciation for reducing the loan component.The complaint of the appellant is that both the Commission and the Tribunalhave calculated interest on the basis that cumulative depreciation willresult in a reduction of loan which is unsustainable. The answer to theCsame which is raised by the respondents is that it is not open to theappellant to raise this contention as this contention was not raised beforethe appellate Tribunal in the first round of litigation which culminated inthe order dated 23.11.2007 being passed by the Appellate Tribunal. Theappellant no doubt seeks support from the order of the Appellate TribunalDpassed in the case of NTPC. It is no doubt true that in the order of theAppellate Tribunal in the case of NTPC, the Tribunal discountenancedadjusting cumulative depreciation reducing the loan. As far as thejudgment of this Court in 2007 (3) SCC 33, there the question whichreally arose was related to the rate of depreciation. This Court took theview for power companies keeping in view the need to replace the assets,Ea higher rate of depreciation was necessary as it would reduce the numberof years required for replacing the assets. The observation made thereinincidentally may not have the effect which the appellant seeks to persuadeus to accept. But the question would be whether the appellant would beentitled to raise the complaint in this appeal. In the original order passedFon 3.10.2006 by the Central Commission, the Commission held asfollows:-

57. Majority of the loans raised by the petitioner Corporationare not project specific. The normative loan outstanding forindividual station, as on 31.3.2004, has been computed by-Gapplying the normative debtequity structure of 70:30 (asmentioned above) to the capital cost with weighted averagerate of interest of the loan for the petitioner Corporation as awhole. The cumulative depreciation as on 31.3.2004 or notionalloan amount, whichever is lower, has been deemed as loan DVC v. CENTRAL ELECTRICITY REGULATORYCOMMISSION [K. M. JOSEPH, J.]

repayment and balance amount, if any, has been allowed to beserviced till it is fully repaid. Annual depreciation amount hasbeen treated as normative loan repayment. The weightedaverage rate of interest as claimed by the petitioner Corporationand as adopted for the tariff calculations is as follows:

Calculation of weighted average rate of interest Total Loan 2004-052005-062006-072007-082008-09Gross Loan opening 7709577095770957709577095Cumulative re-payment 614314948222812961439858of loan up to previous year Net Loan opening 7095262147548144748137237Increase/Decrease due 00000to FERV Increase/Decrease due 00000to ACE Total 7095262147548144748137237Re-payment of loan 881973337333102445165during the year Net Loan closing 6213354801474683722432059Average Net loan 6654358467511344234634641Rate of Interest on 11.19%10.67%10.50%10.23%9.56%loan including Guarantee fee Interest on Loan 74456239536743323311

25. Being dissatisfied by the same, the appellant approached theAppellate Tribunal. Apparently, 10 issues were agitated by the AppellateTribunal at the instance of the appellant. Since the matter has attainedfinality by the decision of this Court in 2018 (8) SCC 281, it is but appositethat we have set out paragraph 11 of the said judgment. Paragraph 11of the said judgment is extracted below:

11. Accordingly, the learned Appellate Tribunal while rejectingthe following five claims and upholding the order of CERC onthe aforesaid counts thought it proper to remand the matter,for a de novo consideration of the remaining five issues byCERC in the light of the findings recorded by it. The tabularchart, extracted below, would indicate the five issues that havebeen finalised by the learned Appellate Tribunal by upholding A

B

C

D

E

F

G

H

Athe order of CERC dated 3-10-2006 and the other five issueswhich have been remanded for redetermination by CERC:Issues finalised by the Issues remanded for learned Appellate redetermination by CERC Tribunal by upholding the order of CERC dated 3-10-2006 B(i) Higher return on equity; (i) Additional capitalisation for the period 2004-2005 and 2005-2006; (ii) Depreciation rate; (ii) Pension and gratuity contribution; C(iii)Resetting of operating (iii)Revenue to be allowed to norms at variance from the DVC under the DVC the operating norms Act; prescribed in the 2004 Regulations; (iv) Return on capital (iv) Operation and maintenance investment on Head expenses; DOffice, Regional Offices, administrative and other technical centres, etc.; and (v) Generation projects (v) Debt-equity ratio presently not operating.

E26. A perusal of the same would appear to suggest the substantivequestion of law sought to be raised as part of the second contention,does not remain open for adjudication.

27. When the matter went back pursuant to the remand order inthe first round of litigation which has become final in view of the dismissalFof appeal by this Court, the Central Commission has only reiterated theprocedure in the matter of calculating interest on loan by reducing theloan amount by the cumulative depreciation. This is a procedure to whichexception was not taken in the first round when the appellant could havetaken exception to the same. This is also for the period prior to 31.3.2006.GHaving regard to what is stated in paragraph 57 in the earlier round oflitigation, therefore, on a point which has become final in the earlierround, we are not persuaded to hold that it will be open for the appellantto raise the same issue in the second round in respect of a matter whichhas attained finality. On this ground, we think that the appellant is not H

DVC v. CENTRAL ELECTRICITY REGULATORYCOMMISSION [K. M. JOSEPH, J.]

entitled for consideration of the said point at our hands. Accordingly, werefuse to answer the question of law which is raised. The upshot of theabove discussion is that the appellant has not made out a case forinterference. The appeal fails and is dismissed. The parties will beartheir respective costs.

Devika Gujral

Appeal dismissed.

A

B

C

D

E

F

G

H