2008 (5) TMI 680 - SC - Indian Laws

Doctrine of promissory estoppel - Interpretation and/or application of the provisions of the Andhra Pradesh Electricity Reforms Act, 1998 vis-a-vis the orders passed by the Andhra Pradesh Electricity Regulatory Commission - generation, supply and distribution of electrical energy in the State of Andhra Pradesh used to be governed by the provisions of the Electricity (Supply) Act, 1948 - HELD THAT - Indisputably, pursuant to or in furtherance of the said policy decision, 31 companies in the private sector showed their interest for setting up MPPs. The Government of Andhra Pradesh, upon taking into consideration the said applications allowed the respondents herein to set up MPPs capacity in private sector with residual fuel in industrial load centres in the State, whereafter, approval for the same had been granted - at this stage notice the fact of the matter involved in the respective appeals including the proceeding before the Commission. The Commission for all intent and purport took a policy decision that the electricity generated by the company would be transferred to APTRANSCO. Whereas most of the respondents could not start production, LVS Power did. We will state the facts of the same at some details at an appropriate place but suffice it to point that pursuant to the interim decision taken by the Commission, LVS Power cancelled the agreements it had entered into with the consumers. Negotiations were held for fixing the rate of the tariff. It did not succeed. When an application for grant of exemption is filed, the same is required to be dealt with independently. What was necessary for the said purpose was interest of the consumers as well as the consideration that supply and distribution cannot be maintained unless the charges for electricity supply are adequately levied and duly collected - The Commission, therefore, was bound to strike a balance. It should have given due consideration as to how and in what manner the MPPs were established. They were not per se inconsistent with the object sought to be achieved by the 1998 Act. It is strange that while Commission was so conscious of is own power as envisaged under Clause (e) of Sub-section (1) of Section 11 of the Act in prohibiting third party sale so far as MPPs are concerned, it even could not take its own order to its logical conclusion. It is with some displeasure that we must notice as to how Commission mis- directed itself at every stage. Despite the State supported the application for grant of exemption, the third party sale was prohibited - The Commission itself is responsible for the said situation. If it has the power to regulate, as it has been contending, it should have proceeded progressively and not regressively. It could have taken into consideration the provisions of Section 11 (1)(f) whereby one of its function is to promote competitiveness and progressively involve the participation of private sector, while ensuring fair deal to the customers. The Commission had been waiting for some directions of the Government of Andhra Pradesh. It is from that angle it must be held that the decision of the State to allow MPPs. to generate electricity was a matter of policy. The Commission for all intent and purport has frustrated the policy and object of the Act. APTRANSCO in terms of Chapter V of the Act also acts as a statutory authority. The Commission must function within the fourcorners of the 1998 Act. It is again subject to the power of the State Government under Section 12. It has referred the matter again and again to the State and when the State asked it to proceed in the manner, it backed out and APTRANSCO was constituted with the principal object of engaging the business of promoting and supply of electrical energy. The licence under Section 14 is necessary but the same is only for transmission and supply and not for generation of electrical energy. Such a licence is required so as to enable the Commissioner to effectively control and regulate transmission and supply. It is also relevant to note that Section 21 provides for restriction on licensees and generating companies. Sub-section (4) empowers a holder of supply or transmission licence to enter into arrangements for the purchase of electricity. Sub-section (5) provides that any agreement relating to any transaction of the nature described in any of the sub-sections unless made with or subject to such consent as aforesaid, shall be void. It, therefore, restricts the power and activities of APTRANSCO. It is in the aforementioned situation that the doctrine of promissory estoppel should be held to be applicable. In this case interest of justice would be subserved if in modification of the order passed by the High Court, the impugned judgments are set aside and the Commission constituted under the 2003 Act is directed to consider the matter afresh in the light of the new statute - Appeal disposed off.

Summary

Issues Involved:
1. Interpretation and application of the Andhra Pradesh Electricity Reforms Act, 1998.
2. Orders passed by the Andhra Pradesh Electricity Regulatory Commission.
3. Permissions and agreements for setting up Mini Power Plants (MPPs) and their operational conditions.
4. Disputes regarding third-party sale of electricity by MPPs.
5. Jurisdiction and powers of the Andhra Pradesh Electricity Regulatory Commission.
6. Doctrine of promissory estoppel in the context of permissions and agreements.

Detailed Analysis:

1. Interpretation and Application of the Andhra Pradesh Electricity Reforms Act, 1998:
The primary issue was the interpretation and application of the Andhra Pradesh Electricity Reforms Act, 1998 (1998 Act) vis-a-vis the orders passed by the Andhra Pradesh Electricity Regulatory Commission (the Commission). The Act aimed to restructure the electricity industry, promote private sector participation, and ensure efficient management. The Commission was established to regulate the purchase, distribution, supply, and utilization of electricity.

2. Orders Passed by the Andhra Pradesh Electricity Regulatory Commission:
The Commission's orders were challenged, particularly its refusal to permit third-party sales by MPPs and its direction to sell electricity only to APTRANSCO. The Commission justified this by citing the need to maintain cross-subsidies for agricultural and domestic consumers. The High Court set aside these orders, directing the Commission to reconsider the matter and direct APTRANSCO to enter into Power Purchase Agreements (PPAs) with the MPPs.

3. Permissions and Agreements for Setting Up Mini Power Plants (MPPs) and Their Operational Conditions:
The State of Andhra Pradesh had issued permissions to several companies to set up MPPs with conditions such as using residual fuel and supplying electricity to identified consumers. These permissions were granted under the Electricity (Supply) Act, 1948, and the Indian Electricity Act, 1910. Subsequent agreements included Wheeling Agreements with APTRANSCO and Power Sales Agreements with industrial consumers.

4. Disputes Regarding Third-Party Sale of Electricity by MPPs:
The core dispute was whether MPPs could sell electricity to third parties. The Commission initially allowed third-party sales but later prohibited them, directing MPPs to sell only to APTRANSCO. This led to financial and operational difficulties for the MPPs, which had already invested heavily based on the initial permissions and agreements.

5. Jurisdiction and Powers of the Andhra Pradesh Electricity Regulatory Commission:
The Commission's jurisdiction and powers under the 1998 Act were scrutinized. The Commission argued that it had the authority to regulate supply and prohibit third-party sales to maintain cross-subsidies. However, the High Court found that the Commission overstepped its jurisdiction by prohibiting third-party sales and failing to balance the interests of all stakeholders, including the MPPs and financial institutions.

6. Doctrine of Promissory Estoppel in the Context of Permissions and Agreements:
The doctrine of promissory estoppel was invoked, arguing that the State and the Commission could not go back on their initial permissions and agreements, which led the MPPs to make substantial investments. The Court recognized that the MPPs had altered their position based on the State's promises and suffered losses due to the Commission's subsequent prohibitions.

Conclusion:
The Supreme Court directed the Commission constituted under the 2003 Act to reconsider the matter afresh, taking into account all material factors and potentially allowing third-party sales. The Court emphasized the need to balance public interest, the interests of financial institutions, and the viability of the MPPs. The interim orders passed by the Court were to continue until the Commission issued new directions.