9911796707
TMI Blog2009 (5) TMI 906X X X X Extracts X X X X X X X X Extracts X X X X ..... arashtra Electricity Regulatory Commission (MERC) was set aside. THE PARTIES Whereas Appellants, the Tata Power Company Ltd. (TPC) has two divisions - `Generation' [TPC (G)] and `Distribution' [TPC (D)]; the Brihan Mumbai Electricity and Transport Corporation (BEST) is a distribution company; Respondent - Reliance Energy Ltd. now named as Reliance Infrastructure Ltd. (RInfra) is a generating as well as a distributing company within the meaning and provisions of the 2003 Act. All of them have been operating in the city of Mumbai including Suburban Mumbai of having approximately 384 sq. Km in area and the city of Mumbai having approximately 60 sq. Km in area. We may place on record that the aggregate capacity to generate electricity of TPC is 1777 MW of power. The generation capacity of the respondent RInfra is 500 MW, but it uses its power, as per its license, only to serve its own consumers. BACKGROUND FACTS The following factual matrix relevant for proper appreciation of the legal issues arising in the present case may be noticed. Indisputably TPC has been generating and supplying electricity to distribution licensees like RInfra and BEST for over a cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Government of Maharasthtra for the purpose of studying the techno commercial feasibility of new power generation projects at Bhivpuri (500 MW) and Palghar (495 MW) proposed to be set up by TPC and RInfra respectively. It is accepted that before the said Committee, RInfra took the stand that it wanted to supply to its existing consumers with the power generation from its own proposed project instead of providing power from TPC. The committee submitted its report on or about 26th May, 1998. In its report it recommended for grant of approval for both the said projects. It was furthermore recommended that the additional power generated from RInfra's project be used only to meet the future growth in demand arising from the consumers of Mumbai. The Kukde Committee also recommended that first the then existing generation facility of TPC be fully utilized to meet the requirements of the current consumers of RInfra so as not to disturb the existing technical and commercial arrangement between TPC and RInfra. Subsequent thereto a `Principles of Agreement' (POA) was executed between TPC and RInfra on or about 31st January, 1998 inter alia providing that there be a minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no `legal justification' or `tenable reason' for entering into such an agreement. On or about 23rd August, 2005 the Commission made Regulations known as MERC (Terms and Conditions of Tariff) Regulations, 2005, Part-D whereof required all power purchase agreements/arrangements entered into by the Distribution Licensees to be approved by MERC. The regulation also provided that any amendment to such an agreement or arrangement would require prior permission of the MERC irrespective of whether such an agreement or arrangement was approved by the commission or not. MERC, on an application, filed by RInfra for direction to TPC to provide additional outlets, agreed to the position that distribution licensees, such as RInfra, can procure their power from any generating company in India and because of the said flexibility in the 2003 Act also directed it to enter into a PPA with TPC. On or about 18th January, 2006, BEST executed a PPA with TPC for purchase of 800 MW of power for a period of 10 years which was subsequently revised in terms of the MERC's order dated 7th July, 2006. The said PPA was submitted for approval of MERC on 27th December, 2006 which was registe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2003 Act before MERC seeking direction against TPC (G) to allocate 762 MW to it and to enter into a PPA with RInfra on the said basis, which was marked as Case No. 30 of 2007. By reason of a judgment and order dated 6th November, 2007 the Commission approved PPA between TPC (G) and BEST and the arrangement between TPC (G) and TPC (D) for supply of 800 MW and 477 MW of power respectively with effect from 1st April, 2008. In relation to its own jurisdiction it was, however, opined that it can issue direction upon the generating companies in terms of Section 23 of 2003 Act. RInfra preferred an appeal thereagainst which was marked as Appeal No.143 of 2007. Two separate appeals were preferred by BEST and TPC questioning the interpretation of Section 23 of 2003 Act by the Commission which were marked as Appeal No.159 of 2007 and Appeal No. 14 of 2008 respectively. MERC while dealing with the application filed by RInfra for continuing the tariff for financial year 2007-2008 even beyond 31st March, 2008 till the tariff year 2008-2009, by an order dated 1 st April, 2008 clearly indicated that for the purpose of fixing the distribution tariff of all the three distribution lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tribution division including RInfra's intervention application. It also noticed the details in regard to the public hearing in the aforementioned case which was held on 29th August, 2007. Similarly the application filed by RInfra which was marked as Case No.30 of 2007 was considered in great details. Submissions of learned counsel appearing for the parties were noticed. Part IV of its judgment contains `the decision with reasons'. It took into consideration the relevant provisions of law. It noticed its functions under Section 86 of the 2003 Act as also various Regulations framed thereunder. It placed on record that it had issued certain directives to the distribution licensees from time to time. It opined that submission of Power Purchase Agreements (PPA) for approval are imperative as the objective thereof is to remove any uncertainty that may be faced by the consumers of a distribution licensee who does not have any written terms and conditions. It opined that RInfra's recalcitrant attitude in seeking approval of the terms and conditions of its power procurement deserved to be deprecated, whereupon a warning was administered. Submissions of BEST before the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It furthermore noted that Section 23 of the 2003 Act brought within its fold a generating company but no case had been made for issuance of any direction thereunder while considering the question of grant of approval of a long term PPA. On the aforementioned findings the Commission approved the PPA of BEST and TPC (D). It was directed :- (C) REL-D is directed to file long-term Power Purchase Agreements for procurement of power from generating Companies and other sources at the earliest. Also, REL-D should submit Power Purchase Arrangement for procurement of power from its own generating unit REL-G, for the Commission's approval, within one month of the issue of this Order. (D) In the past, in view of the prevailing supply shortage situation, the Commission has invoked its powers under Section 23 of the EA 2003, and has directed the distribution licensees to share the available generation capacity in a particular ratio, based on the share of non-coincident peak demand for FY 2006-07, and subsequently based on the share of the coincident peak demand for FY 2007- 08, since the coincident peak demand data was available by then. The situation in the previous years w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission has the power to disapprove the PPA and allocate the power of a generating company amongst the distribution licensees by regulating the supply in terms of Section 23 of the Act? The Appellate Tribunal did not disturb the findings of the Commission in regard to its interpretation of Section 60 as also Section 23 of the 2003 Act. It, however, held that having regard to the purpose and object of the Act, the Commission should have taken into consideration the need of the first respondent in regard to the allocation of quantity of supply Upon considering the provisions of the Act and the Regulations, the Tribunal held : 102. We note from the above regulations that the Commission itself recognizes an agreement or an arrangement for long-term power procurement by a Distribution Licensee. Regulations require prior approval of the Commission for any change to an existing arrangement or agreement for long term procurement. When an arrangement for power procurement between TPC and BEST as also between TPC and REL does exist, how the Commission failed to consider the claim of REL. 103. We conclude from the aforementioned that the Commission has wide powers to regulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had no jurisdiction to interfere with the functions of the generating company and its jurisdiction was restricted to regulate the terms of the agreement between a generating company and a distribution company, particularly when no fault with the approval of the PPA entered into by and between TPC and BEST and TPC (G) and TPC (D) was found by it. ii) RInfra also filed an application and the same having been considered in great details, it has incorrectly been held by the Appellate Tribunal that the principle of natural justice had not been complied with. iii) Direction of the Tribunal to the Commission to take into consideration contribution towards depreciation and interest on loan elements of fixed costs of TPC generation capacity while considering the claim of RInfra is without any basis inasmuch as :- (a) Such direction of the Appellate Tribunal has the effect of recognizing ownership of consumers over the generation assets. The Act does not recognize any such right of ownership of consumers over the generating assets. (b) RInfra consumers have only paid towards costs of the generation of the power consumed by them, which the developer is entitled to recover as rea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer and various interconnected and interrelated issues which have a bearing on generation of electricity. (iv) It is not that the 2003 Act merely empowers the Commission to fix only the generating tariff and to otherwise adopt a hands off attitude towards the generation company on the alleged ground that the Commission did not have any other jurisdiction over the generating companies. (v) The principle of `purposive interpretation' should be resorted to for interpreting a statute regulating generation, distribution and supply of electrical energy which is in short supply in the country wherefor endeavour should be made to ascertain the object and purport not only by reading one of the provisions of the Act but the preamble thereof as also the other important provisions, namely Sections 2(70) ; 7 ; 10 ; 11 ; 23 ; 60 ; 86(1)(b) and 86(1)(f) of the 2003 Act. (vi) Only because the generation of electricity was taken outside the purview of the licensing regime, the same would not mean that a generator of an electrical energy would be entitled to free wheel its entire supply to any person it likes and in any quantity it likes. (vii) The chapter heading and the marginal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utely no necessity to take recourse to the said principle. (xv) As TPC (G)'s acts and omission, despite its status as commercial entity, constitutes an abuse of its dominant position, which cannot be permitted to take rccourse to cherry picking of RInfra's high end consumers. ISSUES ARISING HEREIN Although before us a large number of contentions had been raised, the core questions, which arise for our consideration, are :- (A) Whether recourse to Section 23 of the Act can be taken for issuance of any direction to the generating company? (B) Whether the Commission while applying the provisions of Section 86(1)(b) of the Act could also take recourse to Sections 23 and 60 thereof? (C) Whether equitable allocation of power generated by a generating company is permissible? LEGISLATIVE HISTORY 1910 ACT The earliest statute relating to control of generation of supply, distribution of electrical energy which governed the field was Indian Electricity Act, 1910 (1910 Act). Part-II of the said Act provided for supply of energy. Section 3 thereof provided for grant of licence to any person to supply energy in any specified area and also to lay down or place electric sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or works pertaining to the generation of electricity in a generating station. 1998 ACT The Parliament enacted Electricity Regulatory Commissions Act, 1998 (for short, the 1998 Act ) to provide for the establishment of a Central Electricity Regulatory Commission and State Electricity Regulatory Commissions, rationalization of electricity tariff, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies and for matters connected therewith and incidental thereto. In terms of the 1998 Act, the Regulatory Commission was conferred with the power to determine tariff for all sales by a generating company in terms of Section 22(1)(c) thereof. It further required in line with the provisions of the 1910 Act as also the 1948 Act, for the State Commission constituted thereunder to regulate investment approval for generation, transmission, distribution and supply of electricity to require the licensees to formulate prospective plans and schemes for the promotion of generation, transmission, distribution and supply of electricity and to devise proper power purchase and procurement process, and to regulate the assets and properties related to the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... city Board and the responsibilities of the State Government and the State Electricity Board with respect to regulating licensees. There is also need to provide for newer concepts like power trading and open access. There is also need to obviate the requirement of each State Government to pass its own Reforms Act. The Bill has progressive features and endeavours to strike the right balance given the current realities of the power sector in India. It gives the State enough flexibility to develop their power sector in the manner they consider appropriate. The Electricity Bill, 2001 has been finalized after extensive discussions and consultations with the States and all other stake holders and experts. 4. The main features of the Bill are as follows:- (i) Generation is being delicensed and captive generation is being freely permitted. Hydro projects would, however, need approval of the State Government and clearance from the Central Electricity Authority which would go into the issues of dam safety and optimal utilization of water resources. (ii) There would be a Transmission Utility at the Central as well as State level, which would be a Government company and have the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regulations made under this Act; (71) trading means purchase of electricity for resale thereof and the expression trade shall be construed accordingly Section 3 provides for the National Electricity Policy and Plan enabling the Central Government to prepare the National Electrcity Policy and tariff policy, in consultation with the State Government and the Authority for development of the power system based on optimal utilization of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy. Part III of the Act provides for generation of electricity. Section 7 enables a generating company to establish, operate and maintain a generating station without obtaining a licence if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of Section 73. Section 8, however, provides that a generating company intending to set up a hydro-generating station shall prepare and submit to the Authority for its concurrence, a scheme estimated to involve a capital expenditure exceeding such sum, as may be fixed by the Central Government from time to time by Notification. Section 9 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensees. Section 21 provides for vesting of utility in purchaser. Section 23, which is relevant for our purpose, reads as under :- 23 - Directions to licensees If the Appropriate Commission is of the opinion that it is necessary or expedient so to do for maintaining the efficient supply, securing the equitable distribution of electricity and promoting competition, it may, by order, provide for regulating supply, distribution, consumption or use thereof. Section 24 provides for suspension of distribution licence and sale of utility. Part V deals with transmission of electricity. Section 60 provides for market domination. It reads :- The Appropriate Commission may issue such directions as it considers appropriate to a licensee or a generating company if such licensee or generating company enters into any agreement or abuses its dominant position or enters into a combination which is likely to cause or causes an adverse effect on competition in electricity industry. Section 86 provides for functions of State Commission, clauses (a), (b) and (f) of sub-section (1) whereof, read as under :- Section 86 - Functions of State Commission (1) The State Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving the arrangements between TPC (G) and TPC (D), despite the fact that REL (RInfra) not only filed objections to the application for grant of approval of PPA filed by the parties herein, it also filed independent application; took part in the deliberations and all its contentions had been considered. On what basis the Tribunal opined that the decision of the Commission is in violation of the principle of natural justice is beyond anybody's comprehension. It furthermore took into consideration an irrelevant fact, namely that the Commission in determining the issue between the parties should have regard to the fact that the consumers of respective areas have been bearing the `depreciation' and interest on loan elements of the Fixed Cost of tariff. It furthermore without assigning any reason dismissed the appeals being Nos. 159 of 2007 and 14 of 2008. INTERPRETATION OF THE STATUTORY PROVISIONS A statute, as is well known, must be construed having regard to Parliamentary intent. For the said purpose it is open to a court not only to take into consideration the history of the legislation including the mischief sought to be remedied but also the objects and purpose it seeks to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnments adopted liberalized polices. They invited private operators to generate electrical energy not only through conventional modes, namely, Hydro Electric Power and Thermal Power but also generation of power by using other raw-materials, for example gas, naptha etc. The 1998 Act, as notice hereinbefore, did not envisage delicensing of generating companies. It provided for approval by the Board therefor. It provided for imposition of other conditions for generation of electricity. The Parliament by making 2003 Act clearly acknowledged the necessity of providing a greater room for generation of electrical energy so as to enable the country to meet its requirements. It is only in that view of the matter, the liberalization policy of the State provided for de-licensing of the generating companies. In terms of the said provision, the activities of the erstwhile licensees of power generation on the one hand and those of transmission and distribution in electricity on the other were separated. The concept of trading was brought thereunder for the first time. Trading activities are permitted subject to grant of licenses. Distribution of electricity was defined as licensed activit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to exercise complete control, provide for equitable distribution thereof amongst the consumers. For the purpose of deciphering the object and purport of the Act, it is well known, the Court can look to the statement of objects and reasons thereof. One of the principal purposes which had been taken note of for enactment of 2003 Act by the Parliament is the poor performance of the State Electricity Boards. The Government intended to have an independent body for determining the tariff which was required to be carried on in a professional and independent manner. It was felt that cross-subsidies have reached to unsustainable levels. The enactment provides for establishment of the Electricity Regulatory Commissions. Encouraging private sector participation, generation, transmission and the distribution of electricity became the statutory policy. The Parliament felt the need of harmonizing and rationalizing the provisions of the Act. De- licensing of generation as also grant of free permission of captive generation is one of the main features of the 2003 Act. It is clearly provided that only hydro-generating projects would need the approval of the State Commission and the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest. Interpretation clause contained in Section 2 of the Act prefixes the words unless the context otherwise requires . The word supply has separately been used even for generation and distribution. Thus, although a broad meaning may be assigned to the said term but the same must be held to be `subject to the context'. The word supply used in Section 23 of 2003 Act for bringing in efficient supply would mean regulate and consequentially licensing in respect of the generating company. For the aforementioned purpose it cannot be given a general or popular meaning denoting supplier and receiver. Once it is held that by reason thereof the Parliament aimed at ensuring the supply, the purported object it sought to achieve by enacting Section 7 would lose its purpose. It, however, does not mean that Section 23 itself becomes unworkable as it would not be possible to secure equitable distribution and supply. The agreement of distribution (PPA) being subject to approval, indisputably the Commission would have the public interest in mind. It has power to approve a MOU which subserves the public interest. It, while granting such approval may also take into consideration the q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otes or headings to sections, and gather what guidance they can from them. Thus Vinelott J said that the sidenote to the Income and Corporation Taxes Act, 1970 s 488 (repealed) was a permissible and useful guide that threw a light on the mischief at which the section was aimed. Upjohn LJ gave a precisely accurate indication of the role of the sidenote when he said : `While the marginal note to a section cannot control the language used in the section , it is at least permissible to approach a consideration of its general purpose and the mischief at which it is aimed with the note in mind.' The italicised words accurately show the relationship of this component to the informed interpretation rule. Earlier inconsistent dicta, a selection of which are now considered, must be treated as erroneous. In Interpretation of Statutes, Fourth Edition, by Vepa P. Sarathi at page 347 it is stated :- `The heading of a chapter may be referred to in order to determine the sense of any doubtful expression in a section ranged under it. But it cannot control unambiguous expressions. It is true that a heading cannot control the interpretation of a clause if its meaning is otherwise p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rginal notes and other `appendages' are not part of an Act, said of any Act, passed after the practice of actually engrossing Acts on the Parliament Roll ceased in 1849: `The Act, when passed, must be looked at just as if it were still entered upon a roll, which it may be again if Parliament should be pleased so to order; in which case it would be without these appendages...' It is, however, evident from the decision of this Court in Indian Aluminium Company v. Kerala State Electricity Board, [ AIR 1975 SC 1967 ], that the modern trend is to take into consideration the marginal note. It could be used, as has been held, in R.S. Joshi, Sales Tax Officer, Gujarat and Ors. v. Ajit Mills Limited and Anr., [ (1977) 4 SCC 98 ]. Relevance of marginal note was also taken note of in Ramesh Chand and Ors. v. State of U.P. and Ors., [ (1979) 4 SCC 776 ]. In Bombay Dyeing and Mfg. Co. Ltd. v. Bombay Environmental Action Group and Ors., [ (2006) 3 SCC 434 ], marginal note has been taken into consideration as an intrinsic part of the Section. In Deewan Singh and Ors. v. Rajendra Pd. Ardevi and Ors., [ 2007 (1) SCALE 32 ] it has been held that the marginal note may be taken into con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same meaning to the word supply in Section 23 of the Act, as is assigned in the interpretation section, it is, in our opinion, necessary to take recourse to the doctrine of harmonious construction and read the statute as a whole. Interpretation of Section indisputably must be premised on the scheme of the statute. For the purpose of construction of a statute and in particular for ascertaining the purpose thereof, the entire Act has to be read as a whole and then chapter by chapter, section by section and word by word. {See Reserve Bank of India, v. Peerless General Finance and Investment Co. Ltd, [ (1987) 1 SCC 424 ] ; Peerless General Finance and Investment Co. Ltd. v. Reserve Bank of India, [ (1992) 2 SCC 343 ] and National Insurance Co. Ltd. v. Swaran Singh, [ (2004) 3 SCC 297 ]. } Thus, in a case where interpretation of a Section vis-`-vis the scheme of the Act, the purport and object of the legislation, particularly having regard o the mischief it seeks to remedy; the chapter heading as also the marginal note, in our opinion, are relevant. PURPOSIVE CONSTRUCTION Legislation has an aim, it seeks to obviate some mischief, to supply an inadequacy, to effect a change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers. Had the power of the Commission to issue direction in regard to supply of electrical energy was so pervasive, Section 23 could have been appropriately worded.. It could have been placed in an appropriate chapter and not in the chapter dealing with licensing. There was also no necessity to bring out transmission of electricity from the purview thereof as the same would also come within the purview of supply of electricity. If transmission of electricity can be kept outside the purview of direction by the Commission, there is no reason why generation thereof would not be. We, therefore, of the opinion that Section 23 of the 2003 Act does not contemplate issuance of any direction by the Commission. SECTION 86 - FUNCTION OF THE COMMISSION Section 86 provides for the functions of the State Commission, clause (a) of sub-section (1) whereof empowers it to determine the tariff for generation, supply, transmission and wheeling of electricity. Clause (b) empowers it to regulate electricity purchase and procurement process of distribution licensees. Inevitably it speaks of PPA. PPA may provide for short term plan, a mid term plan or a long term plan. Depending upon the tenur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectricity and supply the same to those who intend to enter into an agreement with it. Only in terms of the said statutory policy, he makes huge investment. If all his activities are subject to regulatory regime, he may not be interested in making investment. The business in regard to allocation of electricity at the hands of the generating company was the subject matter of the licensing regime. While interpreting the statute it must be borne in mind that such a mechanism should not come back. That, however, would not mean that the generating company is absolutely free from all regulations. Such regulations are permissible under the 2003 Act ; , one of them being fair dealing with the distributor. Thus, other types of regulations should not be brought in which were not contemplated under the statutory scheme. If he is exercising his dominant position, Section 60 would come into play. It is only in a situation where a generator may abuse or misuse his position the Commission would be entitled to issue a direction. The regulatory regime of the Commission, thus, can be enforced against a generating company if the condition precedent therefor becomes applicable. INTERRETATION OF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies or procured from the generating licensees or from other sources companies, generating stations or through agreements for purchase of from other sources for power for distribution and supply transmission, sale, distribution within the State; and supply in the State; A critical comparison of the said provisions would show that the agreements for purchase of power referred to therein is directly linked with the procurement process of distribution license either from the generating companies or licensees or from other sources. Regulation of transmission has been taken out of the regulatory provision. The words `through agreements for purchase of power' inserted in Section 86(1)(b) of the 2003 Act bring about a significance distinction. It is neither irrelevant nor immaterial as contended by Dr. Singhvi.A PPA may be a long term one or a short term one. Regulations have been made by the Commission by making MERC (Terms and Conditions of Tariff) Regulations, 2005. Short term power procurement refers to an agreement for procurement of power for a period of less than one year. Regulation 23.1 requires the distribution licensee to prepare a five year plan inter alia upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mply with the provisions of the Act , Rules and the Regulations. Section 14 of the Act categorically provides for grant of licnece to any person who is transmitting electricity or distributing supply or undertaking trading therein, indisputably, however, the generator of an electrical energy, although is not subject to the grant of licence but while supplying electrical energy to a distributing agency, in turn would be subject to approval and directions of the Commission. CONCLUSION 1) Activities of a generating company are beyond the purview of the licensing provisions. 2) The Parliament therefor did not think it necessary to provide for any regulation or issuance of directions except that which have expressly been stated in the Act. 3) Section 21 occurs in the chapter of licensing under which the generating companies would not be governed. 4) As almost all the sections preceding Section 23 as also Section 24 talk about licensee and licensee alone, the word supply if given its statutorily defined meaning as contained in Section 2(70) of the Act would lead to an anomalous situation as by reason thereof supply of electrical energy by the generating company ..... X X X X Extracts X X X X X X X X Extracts X X X X
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