# BSES RAJDHANI POWER LTD v. DELHI ELECTRICITY REGULATORY COMMISSION CIVIL APPEAL NO(S). 4324 OF 2015

- **Citation:** [2022] 14 S.C.R. 790
- **Court:** Supreme Court of India
- **Decided:** 2022-10-18
- **Case number:** Civil Appeal No. 4324 of 2015
- **Bench:** S. Abdul Nazeer, Krishna Murari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bses-rajdhani-power-ltd-v-delhi-electricity-regulatory-commission-civil-appeal-35751
- **Pages:** 38

## Headnote

Electricity Act, 2003 : ss. 2(17), 12, 14, 43, 61, 62 and 64 -
Determination of tariff - Exercise of 'truing up' - Appellants are
distribution licensees, involved in distributing and supplying
electricity in their designated areas within the NCT of Delhi - In
terms of the 2003 Act, Delhi Electricity Regulatory CommissionDERC, regulated the Annual revenue requirement-ARR of the
appellants to conduct the licensed business and consequently the
tariff to be recovered from the consumers - DERC made
disallowances in Tariff orders dated 26.08.2012 for determination
of ARR and Tariff for FY 2011-12 and truing up of financials for
FY 2008-09 and FY 2009-10 - DERC changed methodology of
computation of ARR at the stage of true up - Challenged by the
appellants before the appellate tribunal for Electricity - Appellants
contented that since privatization, the ARR determined by the DERC
was not even sufficient to meet the actual power purchase cost which
led to creation of a huge revenue gap; that the DERC in repeated
disregard to its statutory regulations and its own statutory advice
refused to make periodic increase in the tariff rate, leading to the
indebtness of appellants - Findings of DERC confirmed by APTEL
- On appeal, held: It is not permissible to amend the tariff order
during true up exercise - On the pretext of prudence check and
truing up, DERC could not have amended the tariff order -
Regulator cannot 'change the rules after it has begun' in the 'truing
up exercise' - Thus, the findings of the DERC, as confirmed by the
APTEL in the on issues pertaining to change in methodology in
computation of AT&C losses; change in methodology for
computation of depreciation; disallowance of salary for FR/SR
Structure; and disallowance of Fringe Benefit Tax, are contrary to
the order of the original MYT determination Tariff Order dated
23.02.2008 and 28.05.2009, thus, set aside - As regards the
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disallowance of interest incurred on Consumer Security Deposit
retained by DPCL, the appellants are entitled to recover interest on
Consumers Security Deposit as held by the DPCL - As regards,
reduction in million units in relation to enforcement sale for the
purpose of calculation of Aggregate Technical and Commercial
losses, pertaining to theft/unauthorized use of electricity, the
assessed energy has to be considered as supply by the appellants in
the enforcement cases - DERC to consider assessed energy for
calculation of enforcement sales and allow the impact of the same
along with carrying costs - Thus, the order of the DERC and the
judgment of the APTEL impugned herein are set aside.
s. 64 - Procedure for tariff order - Amendment of tariff order
made u/s. 64 during the 'truing up' exercise - Permissibility of -
Held: A tariff order is quasi-judicial in nature which becomes final
and binding on the parties unless it is amended or revoked u/s.
64(6) or set aside by the appellate authority - 'Truing up' stage is
not an opportunity for the DERC to rethink de novo on the basic
principles, premises and issues involved in the initial projections of
the revenue requirement of the licensee - 'Truing up' exercise cannot
be done to retrospectively change the methodology/principles of
tariff determination and re- opening the original tariff determination
order thereby setting the tariff determination process to a naught at
'true-up' stage - Revision or re-determination of the tariff already
determined by DERC on the pretext of prudence check and truing
up would amount to amendment of the tariff order, which can be
done only as per the provisions of sub-Section (6) of s.64 within the
period for which the Tariff Order was applicable - DERC cannot
amend the tariff order for the period 01.04.2008 to 31.03.2010 in
the guise of 'true-up' after the relevant financial year is over and
the same is replaced by a subsequent tariff Order - This would
amount to a retrospective revision of tariff when the relevant period
for such tariff order is alrea

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SUPREME COURT REPORTS
[2022] 14 S.C.R.
 [2022] 14 S.C.R. 790
790
BSES RAJDHANI POWER LTD.
v.
DELHI ELECTRICITY REGULATORY COMMISSION
CIVIL APPEAL NO(S). 4324 OF 2015
OCTOBER 18, 2022
[S. ABDUL NAZEER AND KRISHNA MURARI, JJ.]
Electricity Act, 2003 : ss. 2(17), 12, 14, 43, 61, 62 and 64 -
Determination of tariff - Exercise of 'truing up' - Appellants are
distribution licensees, involved in distributing and supplying
electricity in their designated areas within the NCT of Delhi - In
terms of the 2003 Act, Delhi Electricity Regulatory CommissionDERC, regulated the Annual revenue requirement-ARR of the
appellants to conduct the licensed business and consequently the
tariff to be recovered from the consumers - DERC made
disallowances in Tariff orders dated 26.08.2012 for determination
of ARR and Tariff for FY 2011-12 and truing up of financials for
FY 2008-09 and FY 2009-10 - DERC changed methodology of
computation of ARR at the stage of true up - Challenged by the
appellants before the appellate tribunal for Electricity - Appellants
contented that since privatization, the ARR determined by the DERC
was not even sufficient to meet the actual power purchase cost which
led to creation of a huge revenue gap; that the DERC in repeated
disregard to its statutory regulations and its own statutory advice
refused to make periodic increase in the tariff rate, leading to the
indebtness of appellants - Findings of DERC confirmed by APTEL
- On appeal, held: It is not permissible to amend the tariff order
during true up exercise - On the pretext of prudence check and
truing up, DERC could not have amended the tariff order -
Regulator cannot 'change the rules after it has begun' in the 'truing
up exercise' - Thus, the findings of the DERC, as confirmed by the
APTEL in the on issues pertaining to change in methodology in
computation of AT&C losses; change in methodology for
computation of depreciation; disallowance of salary for FR/SR
Structure; and disallowance of Fringe Benefit Tax, are contrary to
the order of the original MYT determination Tariff Order dated
23.02.2008 and 28.05.2009, thus, set aside - As regards the
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disallowance of interest incurred on Consumer Security Deposit
retained by DPCL, the appellants are entitled to recover interest on
Consumers Security Deposit as held by the DPCL - As regards,
reduction in million units in relation to enforcement sale for the
purpose of calculation of Aggregate Technical and Commercial
losses, pertaining to theft/unauthorized use of electricity, the
assessed energy has to be considered as supply by the appellants in
the enforcement cases - DERC to consider assessed energy for
calculation of enforcement sales and allow the impact of the same
along with carrying costs - Thus, the order of the DERC and the
judgment of the APTEL impugned herein are set aside.
s. 64 - Procedure for tariff order - Amendment of tariff order
made u/s. 64 during the 'truing up' exercise - Permissibility of -
Held: A tariff order is quasi-judicial in nature which becomes final
and binding on the parties unless it is amended or revoked u/s.
64(6) or set aside by the appellate authority - 'Truing up' stage is
not an opportunity for the DERC to rethink de novo on the basic
principles, premises and issues involved in the initial projections of
the revenue requirement of the licensee - 'Truing up' exercise cannot
be done to retrospectively change the methodology/principles of
tariff determination and re- opening the original tariff determination
order thereby setting the tariff determination process to a naught at
'true-up' stage - Revision or re-determination of the tariff already
determined by DERC on the pretext of prudence check and truing
up would amount to amendment of the tariff order, which can be
done only as per the provisions of sub-Section (6) of s.64 within the
period for which the Tariff Order was applicable - DERC cannot
amend the tariff order for the period 01.04.2008 to 31.03.2010 in
the guise of 'true-up' after the relevant financial year is over and
the same is replaced by a subsequent tariff Order - This would
amount to a retrospective revision of tariff when the relevant period
for such tariff order is already over - Thus, not permissible to amend
the tariff order made u/s. 64 during the 'truing up' exercise.
s.125 - Appeal to Supreme Court - Exercise of jurisdiction
under - Held: Existence of a 'substantial question of law' arising
from the judgment of the APTEL is sine qua non for exercise of
jurisdiction by this Court u/s. 125 - Code of Civil Procedure - s.100.
Words and Phrases:
BSES RAJDHANI POWER LTD. v. DELHI ELECTRICITY
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'Truing up' - Meaning of - Held: 'Truing up' is the adjustment
of actual amounts incurred by the licensee against the estimated/
projected amounts determined under the Annual revenue
requirement-ARR.
'Substantial Question of Law' - Meaning of - Discussed.
'Appeal' - Meaning - Discussed.
Allowing the appeals, the Court
HELD: 1.1 An appeal to this Court under Section 125 could
be filed on the grounds specified in Section 100 of the CPC. Under
Section 100 of the CPC, an appeal could be filed only when the
case involves 'a substantial question of law', as may be framed
by the appellate court. Thus, the existence of a 'substantial
question of law' arising from the judgment of the APTEL is sine
qua non for exercise of jurisdiction by this Court under Section
125 of the 2003 Act. [Para 27][807-H; 808-A-B]
1.2. A tariff order is quasi•judicial in nature which becomes
final and binding on the parties unless it is amended or revoked
under Section 64(6) or set aside by the Appellate Authority. Apart
from this, at the stage of 'truing up', the DERC cannot change
the rules/methodology used in the initial tariff determination by
changing the basic principles, premises and issues involved in
the initial projection of ARR. [Para 51][816-C-D]
1.3. 'Truing up' means the adjustment of actual amounts
incurred by the Licensee against the estimated/projected amounts
determined under the ARR. 'Truing up' stage is not an opportunity
for the DERC to rethink de novo on the basic principles, premises
and issues involved in the initial projections of the revenue
requirement of the licensee. 'Truing up' exercise cannot be done
to retrospectively change the methodology/principles of tariff
determination and re•opening the original tariff determination
order thereby setting the tariff determination process to a naught
at 'trueup' stage. [Para 52, 53][816-D-E; 817-B-C]
1.4 Revision or re-determination of the tariff already
determined by DERC on the pretext of prudence check and truing
up would amount to amendment of the tariff order, which can be
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done only as per the provisions of sub•Section (6) of Section 64
of the 2003 Act within the period for which the Tariff Order was
applicable. DERC cannot amend the tariff order for the period
01.04.2008 to 31.03.2010 in the guise of 'true-up' after the
relevant financial year is over and the same is replaced by a
subsequent tariff Order. This would amount to a retrospective
revision of tariff when the relevant period for such tariff order is
already over. Therefore, it is not permissible to amend the tariff
order made under Section 64 of the 2003 Act during the 'truing
up' exercise. [Para 55][817-E-G]
1.5 In the original MYT determination (Tariff Order dated
28.05.2009), the DERC took into account the full late payment
surcharge ('LPSC') revenue as also the DVB arrears while
computing the targets of Collection Efficiency. However, while
truing up for the year in question, the DERC has retrospectively
sought to take away part of the LPSC revenue by deducting the
Financing Cost on LPSC in comparing the actual Collection
Efficiency with the projected Collection Efficiency. Hence,allowing
the Financing Costs on LPSC revenue and then deducting it from
the LPSC revenue would tantamount to giving by one hand and
taking it away by the other. This order of the DERC is contrary
to the original MYT determination. [Para 57, 58][818-A-B; 819E-F]
1.6 In the Original Determination Order dated 28.05.2009
(F.Y. 2008-09), DERC has allowed depreciation on the assets
funded by consumer contributions. However, DERC changed the
methodology of computation of ARR at the stage of true up.
According to the learned counsel for the respondent, DERC had
inadvertently made an error and adopted an approach contrary
to the mandate of 2007 MYT Regulations while computing the
depreciation when originally issuing the tariff order, which was
rectified in the true up exercise. However, learned counsel for
the appellants submit that no error has been committed by the
DERC in the tariff order dated 28.05.2009 and it is only after
considering the relevant MYT Regulations that depreciation to
the appellants on the assets that were funded by consumer
contributions was allowed. Perusal of the Tariff Order dated
28.05.2009 would clearly indicate that after considering the
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contentions of the parties the aforesaid depreciation has been
allowed. The Court has already held that it is not permissible to
amend the tariff order during true up exercise. On the pretext of
prudence check and truing up, DERC could not have amended
the tariff order. [Paras 59, 60][819-F-H; 820-A-B]
1.7. During projection of expenses for the entire control
period, the Tariff Order dated 23.02.2008 had projected employee
expenses considering inter alia the impact of the anticipated Sixth
Central Pay Commission Report. However, contrary to its own
undertaking, the DERC in Tariff Order dated 26.08.2011 has
erroneously changed its own methodology at the stage of truing
up, by not allowing employee expenses of FR/SR employees as
per actuals. The DERC, at the stage of truing up, has changed
the methodology and disallowed the actual salary of FR&SR
employees, which is impermissible. The DERC in the Tariff Order
dated 26.08.2011 has acted contrary to its own undertaking of
truing up the impact of employee expenses on account of the
Sixth Central Pay Commission Report. [Paras 61,63][820-B-C;
822-F-H]
1.8 As regards the issue is in relation to disallowance of
fringe benefit tax, the DERC has allowed fringe benefit tax in the
MYT Order dated 23.02.2008. The DERC, at the stage of truing
up for the F.Y. 2008•09, has changed the methodology and
disallowed the fringe benefit tax incurred by the appellants. DERC
cannot re•open the basis of determination of tariff at the stage of
'truing up'. Revision or redetermination of the tariff already
determined by the DERC on the pretext of prudence check and
truing up would amount to amendment of tariff order, which is
not permissible in law. Truing up stage is not an opportunity for
DERC to re•think de novo the basic principles, premises and
issues involved in the initial projection of the revenue
requirements of the licensee. Therefore, the findings of the
DERC, as confirmed by the APTEL in the impugned order, on
issue nos. 1, 2, 3 and 5 are contrary to the order of the original
MYT determination (Tariff Order(s) dated 23.02.2008 and
28.05.2009) which are accordingly set aside. [Paras 64-67][823A-B, D-G]
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1.9. As regards disallowance of interest incurred on
Consumers Security Deposit retained by Delhi Power Company
Limited ('DPCL'), the DERC in the tariff order dated 26.08.2011
has disallowed the interest on Consumers Security Deposit paid
for pre•privatization period received by DVB, which is yet to be
transferred to the appellants. The APTEL has confirmed this order
of the DERC. At the time of unbundling of the erstwhile DVB
(w.e.f. 01.07.2022), the quantum of Consumers Security Deposit
reflected in the opening balance sheet notified in terms of
statutory transfer scheme, was not transferred by the DPCL (the
Holding Company wholly owned by the Government of NCT of
Delhi) to the appellants and other successor private Discoms.
The appellants being distribution licensees under the 2003 Act
are required to and are continuing to pay interest on the said
Consumers Security Deposit in terms of Section 47(4) of the 2003
Act even though the principal sum was never transferred to them
in its entirety by DPCL. The DERC by its order dated 23.04.2007
has held that it does not have power to issue any directions to
DPCL. [Para 68, 69][823-G-H; 824-A-C]
1.10. Disallowing interest paid by the appellants towards
Consumers Security Deposit held by DPCL in the ARR of the
appellants is wholly misconstrued. Interest on consumers' deposit
which is being paid by the appellants is a legitimate expense. It
is not in dispute that the security deposit was not transferred by
the DPCL to the appellants. However, the appellants were
required to bear the costs of the same. In case, the principal sum
on Consumers Security Deposit held by DPCL is transferred to
the appellants with interest, the appellants would, subject to their
legitimate expenditures, retain such interest and benefit of any
balance of excess interest received by the appellants would be
passed on to the consumers in tariff. Therefore, there is no merit
in the contention of the learned counsel for the respondent that
if the interest burden is passed on to the consumers presently,
the appellants would, in effect, receive a double benefit in case
they succeed in the writ petition pending before the High Court.
Therefore, the appellants are entitled to recover interest on
Consumers Security Deposit as held by the DPCL. The DERC is
directed to allow the interest on Consumers Security Deposit
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held by the DPCL and impact thereof to the appellants. The
findings of the DERC and the APTEL in this regard are set aside.
[Paras 71,72][824-E-H; 825-A-B]
1.11. As regards, the issue of enforcement sales i.e. sales
which are deemed to have been occurred in cases of electricity
theft, the question arose whether the impugned findings in the
order of the APTEL are against the legal principle that when the
statute creates a legal fiction i.e. energy assessed is 'deemed' to
be consumed, the same has to be given effect to with all its
consequences i.e. same quantum of energy is to be accounted
for as supplied. [Para 73][825-B-C]
1.12 Electricity transmitted may be stolen or used
unauthorizedly. While theft/unauthorized use was approximately
60% before privatization, it has now been brought down to 7 to
8%. Unauthorized use and theft are dealt with in Section 126 of
the 2003 Act. The Vigilance/Enforcement Department detects
theft/unauthorized use of electricity. After giving due opportunity,
the bills are generated for electricity stolen/unauthorized
use.These are called enforcement sales/assessed sales. The
statutory charge for such theft/unauthorized use is twice the
normal rate. While settling enforcement cases of small consumers,
Lok Adalats often provide discounts to errant consumers on the
assessed equivalent of the rupee amount and not on the assessed
units of energy. The assessment of units of energy as deemed to
be sales to the consumers is in accordance with Section 126 of
the 2003 Act read with provisions for such assessment specified
by the DERC itself. [Para 74-76][825-C-D; 826-A-C]
1.13. The methodology adopted by the DERC is contrary
to the settled principle of law that when the law deems a certain
imaginary state of affairs as real, DERC would not let its
imagination boggle at treating the 100 units as sales. Such
imaginary state of affairs must be taken to its logical end and
commend the treatment of 100 units as 'sales'. The assessed
energy has to be considered as supply by the appellants in
enforcement cases. Therefore, the DERC to consider assessed
energy for calculation of enforcement sales and allow the impact
of the same along with carrying costs. [Para 79, 80][827-C-E]
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1.15 The substantial questions of law are answered
accordingly. The order(s) of the DERC and the judgment of the
APTEL impugned, to the extent mentioned above are hereby
set aside. [Para 81][827-F]
Gujarat Urja Vikas Nigam Limited v. Tarini
Infrastructure Limited & Others (2016) 8 SCC 743 :
[2016] (5) SCR 990 - held inapplicable. Sir Chunilal
V. Mehta & Sons Ltd. v. The Century Spg. & Mfg. Co.
Ltd. 1962 Supp (3) SCR 549 : AIR 1962 SC 1314;
PTC India Limited v. Central Electricity Regulatory
Commission, Through Secretary (2010) 4 SCC 603 :
[2010] (3) SCR 609; SLDC v. GERC 2015 SCC Online
APTEL 50; NDPL v. DERC 2007 ELR (APTEL) 193
- referred to.
Case Law Reference
[1962] Supp (3) SCR 549
referred to
Para 29
[2010] (3) SCR 609
referred to
Para 48
[2016] (5) SCR 990
held inapplicable
Para 54
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4324
of 2015.
From the Judgment and Order dated 28.11.2014 of the Appellate
Tribunal for Electricity, New Delhi in Appeal No.61 of 2012.
With
Civil Appeal No.4323 of 2015.
Arvind Datar, Dhruv Mehta, Nikhil Nayyar, Sajan Poovayya, Rahul
Mehra, S. Wasim A. Qadri, Sr. Advs., Amit Kapur, Anupam Varma,
Buddy R. Ranganathan, Pukhrambam Ramesh Kumar, Rahul Kinra,
Aditya Ajay, Karun Sharma, Ms. Manu Tiwari, Wahengbam Immanuel
Meitei, Ms. Neha Mathen, Naveen Hegde, Ms. Pritha Srikumar, Viresh
B. Saharya, Akshat Agarwal, Ms. Molshree Bhatnagar, Ms. Parichita
Chowdhary, Utkarsh Singh, Ms. Nishtha Kumar, Chirag M. Shroff, Viksit
Arora, Amandeep Mehta, Lakshmi Raman Singh, Tamim A. Qadri, Saeed
Qadri, Shaffi Mather, Siddhartha Chowdhury, Venkatesh, Ms. Kanika
Chugh, Nitin Saluja, Ashutosh K. Srivastava, Azeem Samuel, Nihal
Bharadwaj, Ms. Priyanka Prasanta, Satyakam, Hasan Murtaza, K. V.
BSES RAJDHANI POWER LTD. v. DELHI ELECTRICITY
REGULATORY COMMISSION
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Mohan, K. V. Balakrishnan, T. V. S. Raghavendra Sreyas, Satya Mitra,
Vivek Singh, K. K. Singh, K. K. Sinha, Pramod Dayal, Arjun Krishnan,
Piyush Beriwal, Ms. Shraddha Deshmukh, Shyam Gopal, Ms. Chinmayee
Chandra, Gurmeet Singh Makker, B. Krishna Prasad, Ms. Manali Singhal,
Santosh Sachin, Ms. Aanchal Kapoor, Deepak Singh Rawat, Aakarsh
Kamra, Advs. for the appearing parties.
Ms. Radhika Chaturvedi, Hitesh Kumar Sharma, Akhileshwar Jha,
Ms. Madhu Sukla, Ms. Deepti S. Rane, Amit Kumar, Advs. for the
Intervenor.
The Judgment of the Court was delivered by
S. ABDUL NAZEER, J.
1. These two appeals have been filed by BSES Rajdhani Power
Ltd. (C.A. No.4324 of 2015) and BSES Yamuna Power Ltd. (C.A.
No.4323 of 2015) (hereinafter referred to as 'Appellants') challenging
certain findings of the Appellate Tribunal for Electricity, New Delhi
('APTEL') in the common judgment and order dated 28.11.2014
('Impugned Order') passed in Appeal Nos.61 and 62 of 2012 ('Tariff
Appeals'). The Tariff Appeals were filed by the appellants before the
APTEL challenging certain findings of the Delhi Electricity Regulatory
Commission ('DERC') in the Tariff Order dated 26.08.2012 for Truing
Up of financials for FY 2008-09 and FY 2009-10 and Aggregate Revenue
Requirement ('ARR') for FY 2011-12. DERC has also filed appeals
(C.A. Nos.8660-61 of 2015) challenging certain findings in the common
impugned order and the said appeals will be heard and decided separately.
2. The Appellants are Distribution Licensees ("Discoms") in terms
of Section 2(17) of the Electricity Act, 2003 ('2003 Act'). The primary
function of a Discom is to give supply to any premises upon an application
being made by a consumer in compliance with the applicable laws,
including paying requisite charges, except where prevented by force
majeure conditions like cyclones or floods.
3. The Appellants purchase 90% to 95% of the power from Central
and State Generating Companies. Tariff of Central Generating Stations
is determined by the Central Electricity Regulatory Commission ('CERC')
and, therefore, the Appellants have no control over the tariff to be paid
to the Central Generating Stations. Simultaneously, the tariff for the State
Generating Companies is determined by the State Regulator i.e. DERC.
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4. It is the case of the Appellants that since privatization, the ARR
determined by the DERC was not even sufficient to meet the actual
power purchase cost which has led to creation of a huge revenue gap. It
is also contended that the DERC in repeated disregard to its statutory
regulations and its own statutory advice has refused to make periodic
increase in the tariff rate. The actions of the DERC have resulted in a
situation where the Appellants are deeply indebted and have been forced
to borrow/take loans to fund their day-to-day operations which, in turn,
have also dried up leaving the Appellants without adequate monies to
pay their suppliers.
5. The Appellants have challenged the finding of the APTEL in
the Impugned Order on the following issues:
A.
Change in methodology in computation of Aggregate
Technical and Commercial (AT&C) losses [Issue 14 in
Impugned Order]
B.
Change in methodology for computation of Depreciation
[Issue 15 in Impugned Order]
C.
Disallowance of salary for Fundamental Rules and
Supplementary Rules (FR/SR) structure [Issue 23 in
Impugned order]
D.
Disallowance of interest accrued on Consumer Security
Deposit retained by Delhi Power Corporation Limited
(DPCL) [Issue 29 in Impugned Order]
E.
Disallowance of Fringe Benefit Tax [Issue 34 in Impugned
Order]
F.
Reduction in Million Units (MUs) in relation to Enforcement
sale for the purpose of calculation of AT&C Loss [Issue 14
in Impugned Order]
6. It is to be noticed that the above-mentioned Issue 'C' has been
challenged only by BSES Rajdhani Power Ltd. in C.A. No.4324 of 2015
while the remaining issues have been challenged by both BSES Rajdhani
Power Ltd. and BSES Yamuna Power Ltd. and are subject-matter of
C.A. No.4324 of 2015 and C.A.No. 4323 of 2015.
7. The Tariff Appeals were filed by the Appellants challenging
the disallowances in their respective Tariff Orders dated 26.08.2012
passed by the DERC for:
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(a) Determination of ARR and Tariff for FY 2011-12; and
(b) Truing up of financials for FY 2008-09 and FY 2009-10.
8. According to the appellants, the present Civil Appeals give rise
to substantial questions of law under Section 125 of the 2003 Act on six
issues. It is contended that the said substantial questions of law have
arisen primarily because the DERC has, inter alia, deliberately refused
to follow statutory regulations while truing up. Further, it is contended
that APTEL's Impugned Order has failed to note the illegal manner of
truing up followed by DERC and, more importantly, APTEL has failed
to follow its own rulings in previous cases.
9. However, the respondents have contended that the appellants
have entirely failed to establish the existence of any substantial question
of law as required under Section 125 of the 2003 Act, read with Section
100 of the Code of Civil Procedure, 1908 ('CPC') on any of the above
issues.
10. Before considering the detailed submissions on each of the
above issues, it is necessary to provide an overview of the current and
historical legal framework of electricity laws in India, including the tariff
determination process, and the role and powers of the DERC in the
tariff determination process.
11. Prior to independence, the Indian Electricity Act, 1910 ('1910
Act') governed the supply and use of electrical energy in India. Part-II
of the 1910 Act was related to supply of electricity and contained
provisions concerning:
(a) Grant of license for supply of electricity by the State
Government in consultation with the State Electricity Boards
("SEB") and
(b) Obligation and rights of licensees, consumers, etc. along
with other modalities.
Part-III of the 1910 Act dealt with Supply, Transmission and Use
of Energy by Non-licensees. Part-IV of the 1910 Act provided for
constitution, duties of advisory boards at the State and Central levels
along with other authorities such as electrical inspectors and Central
Electricity Board ("CEB"). CEB, under Section 37 of the 1910 Act, was
empowered to make rules to regulate the generation, transmission, supply,
and use of energy.
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12. On 10.09.1948, the Electricity (Supply) Act, 1948 ("Supply
Act, 1948") was notified to provide for: (a) the rationalization of the
production and supply of electricity, (b) taking of measures conducive to
electrical development; and (c) all matters incidental to the above. The
Supply Act, 1948 was a more detailed and comprehensive code and
provided for establishment of SEBs to control generation, distribution,
and utilization of electricity within their respective states and the Central
Electricity Authority ('CEA') for planning and development of the national
power system.
13. On 02.07.1998, the Electricity Regulatory Commissions Act,
1998 ('Commissions Act, 1998') was notified with effect from 25.04.1998
as an Act to provide for the establishment of a Central Electricity
Regulatory Commission ("CERC") and State Electricity Regulatory
Commission ("SERC"), for rationalization of electricity tariff, transparent
policies regarding subsidies, promotion of efficient and environmentally
benign policies and other matters connected therewith or incidental
thereto. Chapter-VI of the Commissions Act, 1998 was related to energy
tariff and provided for the determination of tariff by Central and State
Commissions.
14. Insofar as the National Capital Territory ("NCT") of Delhi is
concerned, on 08.03.2001, the Delhi Electricity Reforms Act, 2000
("Reforms Act, 2000") was notified to:
(a) provide re-structuring of the electricity industry (unbundling
of generation, transmission, and distribution),
(b) increasing avenues for participation of private sector in the
electricity industry; and
(c) generally, for taking measures conducive to the development
and management of the electricity industry in an efficient,
commercial, economic, and competitive manner in the NCT of
Delhi and for matters connected therewith or incidental thereto.
15. With effect from 01.07.2002, pursuant to the unbundling,
restructuring and reform of the erstwhile Delhi Vidyut Board ("DVB")
and privatization of distribution of electricity, the appellants succeeded
to the respective Distribution Undertakings and Business in their area of
supply. The appellants have been granted Distribution and Retail Supply
License by DERC to undertake distribution (wheeling) and retail supply
of electricity in their respective areas of supply in the NCT of Delhi.
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REGULATORY COMMISSION [S. ABDUL NAZEER, J.]
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From 01.07.2002 till 31.03.2007, the Delhi Transco Ltd. ("DTL") was
entrusted with the responsibility of bulk procurement and bulk supply of
power in the NCT of Delhi.
16. In the year 2003, the Parliament repealed the previous three
laws viz., the 1910 Act, the Supply Act, 1948 and the Commissions Act,
1998, and enacted a comprehensive consolidated law called the Electricity
Act, 2003. The objectives of the Act are:-
(a) to consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity,
(b) taking measures conducive to development of electricity
industry, promoting competition therein, protecting interest of
consumers and supply of electricity to all areas,
(c) rationalization of electricity tariff, ensuring transparent policies
regarding subsidies, promotion of efficient and environmentally
benign policies,
(d) constitution of the CEA, Electricity Regulatory Commissions,
and establishment of an Appellate Tribunal and for matters
connected therewith or incidental thereto.
17. The scheme of the 2003 Act is predicated on consolidating all
laws governing electricity and repealing the existing laws. The legislative
policy of distancing the Government from the tariff determination was
carried forward in the 2003 Act. The intent and purpose of the 2003 Act
is to liberalize the electricity sector and to ensure that the distribution
and supply of electricity is conducted on commercial principles. The
legislature intended to promote factors that encourage and reward
efficiency, competition, economical use of resources and optimum
investments and safeguard the interest of the consumers vis-à-vis
recovery of cost of electricity in a reasonable manner as envisaged under
Section 61 of the 2003 Act.
18. Being regulated licensees responsible for distribution and retail
supply of electricity in their designated areas within the NCT of Delhi in
terms of Section 12 of 2003 Act, the annual revenue requirement of the
Appellants to conduct the licensed business and consequently the tariff
to be recovered from the consumers, is regulated by the DERC, being
the State Electricity Regulatory Commission. DERC is vested with a
substantial set of divergent powers - legislative, executive, adjudicatory
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and advisory - each being distinctly defined and governed by law. One
of the critical issues arising in these Civil Appeals relates to sanctity of
each such function and their interplay. In this regard, it is noteworthy
that Section 3 of the 2003 Act provides as under:
"Section 3. National Electricity Policy and Plan. -
(1) The Central Government shall, from time to time, prepare the
National Electricity Policy and tariff policy, in consultation with
the State Governments and the Authority for development of the
power system based on optimal utilisation of resources such as
coal, natural gas, nuclear substances or materials, hydro and
renewable sources of energy.
(2) The Central Government shall publish National electricity Policy
and tariff policy from time to time.
(3) The Central Government may, from time to time in consultation
with the State Governments, and the Authority review or revise
the National Electricity Policy and tariff policy referred to in subsection (1).
(4) The Authority shall prepare a National Electricity Plan in
accordance with the National Electricity Policy and notify such
plan once in five years.
Provided
xxx
xxx
xxx
(5) The Authority may review or revise the National Electricity
Plan in accordance with the National Electricity Policy."
19. Section 14 of the 2003 Act provides for grant of licences on
application made under Section 15 of the Act - (a) to transmit electricity
as a transmission licensee; or (b) to distribute electricity as a distribution
licensee; or (c) to undertake trading in electricity as an electricity trader,
in any area which may be specified in the licence.
20. Section 43 of the 2003 Act provides for the universal supply
obligation of the Discoms, which is as under:
"43. Duty to supply on request -
(1) Save as otherwise provided in this Act, every distribution
licensee, shall, on an application by the owner or occupier of any
premises, give supply of electricity to such premises, within one
month after receipt of the application requiring such supply.
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Provided
xxx
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(2) & (3)
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21. Section 61 of the 2003 Act lays down the guiding principles
for tariff which are as under:
"61. Tariff regulations.- The Appropriate Commission shall, subject
to the provisions of this Act, specify the terms and conditions for
the determination of tariff, and in doing so, shall be guided by the
following, namely:-
(a)
the principles and methodologies specified by the Central
Commission for determination of the tariff applicable to
generating companies and transmission licensees;
(b)
the generation, transmission, distribution and supply of
electricity are conducted on commercial principles;
(c)
the factors which would encourage competition, efficiency,
economical use of the resources, good performance and
optimum investments;
(d)
safeguarding of consumers' interest and at the same time,
recovery of the cost of electricity in a reasonable manner;
(e)
the principles rewarding efficiency in performance;
(f)
multi-year tariff principles;
(g)
that the tariff progressively reflects the cost of supply of
electricity and also, reduces cross-subsidies in the manner
specified by the Appropriate Commission;
(h)
the promotion of co-generation and generation of electricity
from renewable sources of energy;
(i)
the National Electricity Policy and tariff policy:
Provided that the terms and conditions for determination of tariff
under the Electricity (Supply) Act, 1948, the Electricity Regulatory
Commission Act, 1998 and the enactments specified in the
Schedule as they stood immediately before the appointed date,
shall continue to apply for a period of one year or until the terms
and conditions for tariff are specified under this section, whichever
is earlier."
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22. Sections 62 and 64 of the 2003 Act lay down the procedure
for determination of tariff for, inter alia, wheeling and retail sale of
electricity as under:
"62. Determination of tariff.-
(1) The Appropriate Commission shall determine the tariff in
accordance with the provisions of this Act for -
(a)
supply of electricity by a generating company to a distribution
licensee:
Provided that the Appropriate Commission may, in case of
shortage of supply of electricity, fix the minimum and
maximum ceiling of tariff for sale or purchase of electricity
in pursuance of an agreement, entered into between a
generating company and a licensee or between licensees,
for a period not exceeding one year to ensure reasonable
prices of electricity;
(b)
transmission of electricity;
(c)
wheeling of electricity;
(d)
retail sale of electricity:
Provided that in case of distribution of electricity in the same area
by two or more distribution licensees, the Appropriate Commission
may, for promoting competition among distribution licensees, fix
only maximum ceiling of tariff for retail sale of electricity.
(2) The Appropriate Commission may require a licensee or a
generating company to furnish separate details, as may be specified
in respect of generation, transmission and distribution for
determination of tariff.
(3) The Appropriate Commission shall not, while determining the
tariff under this Act, show undue preference to any consumer of
electricity but may differentiate according to the consumer's load
factor, power factor, voltage, total consumption of electricity during
any specified period or the time at which the supply is required or
the geographical position of any area, the nature of supply and the
purpose for which the supply is required.
(4) No tariff or part of any tariff may ordinarily be amended,
more frequently than once in any financial year, except in respect
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of any changes expressly permitted under the terms of any fuel
surcharge formula as may be specified. The Electricity Act, 2003.
(5) The Commission may require a licensee or a generating
company to comply with such procedures as may be specified for
calculating the expected revenues from the tariff and charges
which he or it is permitted to recover.
(6) If any licensee or a generating company recovers a price or
charge exceeding the tariff determined under this section, the
excess amount shall be recoverable by the person who has paid
such price or charge along with interest equivalent to the bank
rate without prejudice to any other liability incurred by the
licensee."
"64. Procedure for tariff order.-
(1) An application for determination of tariff under section 62
shall be made by a generating company or licensee in such manner
and accompanied by such fee, as may be determined by regulations.
(2) Every applicant shall publish the application, in such abridged
form and manner, as may be specified by the Appropriate
Commission.
(3) The Appropriate Commission shall, within one hundred and
twenty days from receipt of an application under sub-section (1)
and after considering all suggestions and objections received from
the public,-
(a) issue a tariff order accepting the application with such
modifications or such conditions as may be specified in that
order;
(b) reject the application for reasons to be recorded in writing
if such application is not in accordance with the provisions of
this Act and the rules and regulations made thereunder or the
provisions of any other law for the time being in force:
Provided that an applicant shall be given a reasonable
opportunity of being heard before rejecting his application.
(4) The Appropriate Commission shall, within seven days of making
the order, send a copy of the order to the Appropriate Government,
the Authority, and the concerned licensees and to the person
concerned.
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(5) Notwithstanding anything contained in Part X, the tariff for
any inter-State supply, transmission or wheeling of electricity, as
the case may be, involving the territories of two States may, upon
application made to it by the parties intending to undertake such
supply, transmission or wheeling, be determined under this section
by the State Commission having jurisdiction in respect of the
licensee who intends to distribute electricity and make payment
therefor.
(6) A tariff order shall, unless amended or revoked, continue to be
in force for such period as may be specified in the tariff order."
23. ARR of the Appellants, and consequently the tariff to be
recovered from the consumers, is regulated by the DERC, and determined
under Section 62 read with Section 61 of the 2003 Act.
24. Section 86 of the 2003 Act lays down the functions of the
State Commissions i.e. DERC in this case, and the rule-making power
of the Central Government is set out in Section 176 thereof.
25. Before considering the other questions, let us consider the
preliminary objection raised by learned counsel for the respondent-DERC
as to whether the appeals involve any substantial question of law as
required under Section 125 of the 2003 Act read with Section 100 of the
CPC?
26. Section 125 of the 2003 Act provides for an appeal to this
Court against the decision or order of the APTEL which reads as under:
"125. Appeal to Supreme Court.-
Any person aggrieved by any decision or order of the Appellate
Tribunal, may, file an appeal to the Supreme Court within sixty
days from the date of communication of the decision or order of
the Appellate Tribunal, to him, on any one or more of the grounds
specified in section 100 of the Code of Civil Procedure,1908 (5 of
1908):
Provided that the Supreme Court may, if it is satisfied that the
appellant was prevented by sufficient cause from filing the appeal
within the said period, allow it to be filed within a further period
not exceeding sixty days."
27. Thus, an appeal to this Court under Section 125 could be filed
on the grounds specified in Section 100 of the CPC. Under Section 100
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of the CPC, an appeal could be filed only when the case involves 'a
substantial question of law', as may be framed by the appellate court.
Thus, the existence of a 'substantial question of law' arising from the
judgment of the APTEL is sine qua non for exercise of jurisdiction by
this Court under Section 125 of the 2003 Act.
28.