# M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v. STATE OF KERALA AND OTHERS

- **Citation:** [2021] 13 S.C.R. 136
- **Court:** Supreme Court of India
- **Decided:** 2021-09-06
- **Case number:** Civil Appeal Nos.9845-9846 of 2016
- **Bench:** Uday Umesh Lalit, Vineet Saran
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-indsil-hydro-power-and-manganese-limited-v-state-of-kerala-and-others-35241
- **Pages:** 54

## Headnote

Electricity: Hydel schemes for generation of electricity -
Royalty for use of water - Demand of - On facts, in terms of the
Government policy, the appellant-Captive Power Producers
established Hydro Electric Project as Captive Generation Station
for its industrial unit - Agreement between the appellant and the
State Electricity Board wherein Clause 14 provided that royalty would
be charged for controlled supply of water - Appellants paying
wheeling charges for consumption of electricity, as also charges
for the use of controlled supply of water at the rate specified in
Agreement - Appellant then sought exemption from payment of
charges for controlled release of water or royalty in respect of
electricity generated by it at its Hydel Project - Rejection of the
appellant's claim by the High Court - On appeal, held: Reasonable
charges for benefit derived by private entities justified - Since the
private entity or agency would stand to gain from and out of the
capital outlay and infrastructure put in place by the State, some
reasonable charges for such benefit would naturally be imposed -
It was only under such Policy that both the appellants were given
permissions to set up their electricity generating units and such
term was consciously accepted by them - Thus, the concerned Clause
in the Agreement as well as the terms of the Policy cannot be termed
unconscionable, arbitrary or unreasonable - Furthermore, the
royalty would be in terms of the agreement between the parties and
normally has direct relationship with the benefit or privilege
conferred upon the grantee as against tax which is imposed under
a statutory power without reference to any special benefit conferred
on the payer of the tax - Whatever be the nomenclature, the charges
for use of controlled release of water were for the privilege enjoyed
by the CPPs, on basis of the arrangement between the parties.
[2021] 13 S.C.R.136
136
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Dismissing the appeals, the Court
HELD: 1.1 The location of the project of CUMI is at a place
where the discharge of water from Moozhiyar Power House of
the Board is diverted to Kakkad Power House of the Board,
which gets steady supply of water in the form of "tail race" benefit
of the Moozhiyar Power House. After generation of electricity at
the Kakkad Power House, the water is allowed to flow back into
the river. The capacity of Kakkad Power House is 50 MW while
that of CUMI is 12 MW. The supply of water even if meant for a
powerhouse situated at a height and with larger capacity thus
definitely ensures consistent and controlled supply of water to
the project of CUMI located at a lower altitude. Similarly, the
water from a larger reservoir namely, Anayirankal Dam is allowed
to flow so as to reach Paniyar Power House having a capacity of
32 MW electricity. Before reaching Paniyar Power House, the
water passes through the area where the project of INDSIL is
situated, which has a capacity of 21 MW. The location of the project
of INDSIL would thus have natural advantage of consistent and
controlled supply of water. [Para 31, 32][170-D-G]
1.2 The facts on record thus show that both the projects
have certainly derived advantage of controlled supply of water as
contemplated in Clause 14 of the Policy. How much benefit of
controlled supply of water each of the projects has received or
will receive in future would be a matter of computation and
calculation. [Para 33][170-G-H]
1.3 The Agreements entered into by CUMI and INDSIL
show that the terms and conditions of the Policy including Clause
14 thereof were consciously incorporated in the Agreements.
Both CUMI and INDSIL were alive to the fact that because of
peculiar location, their units would certainly have the advantage
of controlled supply of water. Thus, the absence of a specific clause,
akin to Clause 14 of CUMI Agreement, in INDSIL Agreement,
would be of no consequence. The relationship between the parties
would be governed by Clause 14 of the Policy, as incorporated in
the r

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[2021] 13 S.C.R.
M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED
v.
STATE OF KERALA AND OTHERS
(Civil Appeal Nos.9845-9846 of 2016)
SEPTEMBER 06, 2021
[UDAY UMESH LALIT AND VINEET SARAN, JJ.]
Electricity: Hydel schemes for generation of electricity -
Royalty for use of water - Demand of - On facts, in terms of the
Government policy, the appellant-Captive Power Producers
established Hydro Electric Project as Captive Generation Station
for its industrial unit - Agreement between the appellant and the
State Electricity Board wherein Clause 14 provided that royalty would
be charged for controlled supply of water - Appellants paying
wheeling charges for consumption of electricity, as also charges
for the use of controlled supply of water at the rate specified in
Agreement - Appellant then sought exemption from payment of
charges for controlled release of water or royalty in respect of
electricity generated by it at its Hydel Project - Rejection of the
appellant's claim by the High Court - On appeal, held: Reasonable
charges for benefit derived by private entities justified - Since the
private entity or agency would stand to gain from and out of the
capital outlay and infrastructure put in place by the State, some
reasonable charges for such benefit would naturally be imposed -
It was only under such Policy that both the appellants were given
permissions to set up their electricity generating units and such
term was consciously accepted by them - Thus, the concerned Clause
in the Agreement as well as the terms of the Policy cannot be termed
unconscionable, arbitrary or unreasonable - Furthermore, the
royalty would be in terms of the agreement between the parties and
normally has direct relationship with the benefit or privilege
conferred upon the grantee as against tax which is imposed under
a statutory power without reference to any special benefit conferred
on the payer of the tax - Whatever be the nomenclature, the charges
for use of controlled release of water were for the privilege enjoyed
by the CPPs, on basis of the arrangement between the parties.
[2021] 13 S.C.R.136
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Dismissing the appeals, the Court
HELD: 1.1 The location of the project of CUMI is at a place
where the discharge of water from Moozhiyar Power House of
the Board is diverted to Kakkad Power House of the Board,
which gets steady supply of water in the form of "tail race" benefit
of the Moozhiyar Power House. After generation of electricity at
the Kakkad Power House, the water is allowed to flow back into
the river. The capacity of Kakkad Power House is 50 MW while
that of CUMI is 12 MW. The supply of water even if meant for a
powerhouse situated at a height and with larger capacity thus
definitely ensures consistent and controlled supply of water to
the project of CUMI located at a lower altitude. Similarly, the
water from a larger reservoir namely, Anayirankal Dam is allowed
to flow so as to reach Paniyar Power House having a capacity of
32 MW electricity. Before reaching Paniyar Power House, the
water passes through the area where the project of INDSIL is
situated, which has a capacity of 21 MW. The location of the project
of INDSIL would thus have natural advantage of consistent and
controlled supply of water. [Para 31, 32][170-D-G]
1.2 The facts on record thus show that both the projects
have certainly derived advantage of controlled supply of water as
contemplated in Clause 14 of the Policy. How much benefit of
controlled supply of water each of the projects has received or
will receive in future would be a matter of computation and
calculation. [Para 33][170-G-H]
1.3 The Agreements entered into by CUMI and INDSIL
show that the terms and conditions of the Policy including Clause
14 thereof were consciously incorporated in the Agreements.
Both CUMI and INDSIL were alive to the fact that because of
peculiar location, their units would certainly have the advantage
of controlled supply of water. Thus, the absence of a specific clause,
akin to Clause 14 of CUMI Agreement, in INDSIL Agreement,
would be of no consequence. The relationship between the parties
would be governed by Clause 14 of the Policy, as incorporated in
the respective Agreements. [Para 34][171-A-B]
M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v.
STATE OF KERALA AND OTHERS
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1.4 In cases where a term of contract or agreement entered
into between the parties is completely one sided, unfair and
unreasonable, where the other party having less bargaining power
had to accept such term by force of circumstances, the relief in
terms of the decision of this Court in Central Inland Water
Transport Corporation's case can be extended. It may be stated
that the Agreements were entered into after long deliberations
where both CUMI and INDSIL had the advantage of legal counsel.
It cannot be said that CUMI and INDSIL were in a position with
lesser bargaining power or were so vulnerable that by force of
circumstances they were forced to accept such term. Therefore,
the concerned Clause 14 in CUMI Agreement as well as the terms
of the Clause 14 of the Policy that stood incorporated in the
respective Agreements, cannot be termed unconscionable and/
or manifestly arbitrary. [Para 40][173-E-G]
1.5 The Policy had made it quite clear that the benefit of
controlled supply of water would normally be confined to the
electricity generating units or power houses in public sector. The
reason for such Policy statement would clearly be that
considerable amount of insfrastructure and development had been
and would be made by the State in erecting and maintaining dams
and reservoirs and as such the incremental advantage or benefit
of such investment must go back to the public through units in
public sector. If the advantage was, however, allowed to be given
to a private entity or agency, the Policy contemplated impostion
of charges for the use of such controlled supply of water. There
is nothing arbitrary or unreasonable in having such term in the
Policy. Since the private entity or agency would stand to gain
from and out of the capital outlay and infrastructure put in place
by the State, some reasonable charges for such benefit would
naturally be imposed. It was only under such Policy that both
CUMI and INDSIL were given permissions to set up their
electricity generating units and such term was consciously
accepted by them. The submission that the relevant Clause 14 of
the Policy would be manifestly arbitrary, therefore, does not merit
acceptance. [Para 42][175-B-F]
1.6 Qualitatively, the Capive Power Producers (CPPs) and
Independent Power Producers (IPPs) have a basic distinction.
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CPPs produce electricity for self consumption. In the instant case,
both CUMI and INDSIL generate electricity to be consumed in
their factories or industrial units. Under the terms of their
Agreements, if anything is produced in excess of their
requirements, the surplus or excess electricity would be accepted
by the Board. However, the principal purpose and end use would
be self consumption. As against that, IPPs produce electricity
not for self consumption but for the use of the Board. The
electricity generated by IPPs becomes part of the grid of the
Board to be supplied by the Board to its consumers like electricity
produced by the generating units or power houses of the Board.
If the charges towards controlled supply of water were to be
imposed uniformly for CPPs and IPPs, the effect would be that
the electricity supplied through IPPs to common consumers and
general public would necessarily have an additional burden or
load towards proportionate element of water charges. In these
circumstances, if the Board decided not to apply Clause 14 of the
Policy in case of all IPPs, such decision would not be termed as
discriminatory. The distinction or classification brought out was
based on a clear rationale with the object of reducing the additional
burden on the consumers. Since the electricity generated by CPPs
would be self consumed, there would be no such question of putting
any ultimate or resultant burden on the common consumers. The
basis for such distinction or classification was quite correct and
as such this question was rightly answered by the Division Bench
of the High Court against CUMI and INDSIL. Rather than being
unnatural or irrational, the classification had a clear nexus or
relationship with the object of reducing resultant burden on the
common consumers. This submission therefore, is, meritless and
rejected. [Para 44][176-C-H]
1.7 As rightly observed, the basis or genesis of imposition
of royalty or charges on controlled supply of water was Clause 14
of the Policy which, as agreed between the parties, stood
incorporated in the respective Agreements. The appellants
submitted that the royality or charges for controlled supply of
water would be nothing but compulsory exaction and in the
absence of any statutory sanction behind such imposition, the
actions on part of the Board would be without jurisdiction and
the case of the State and the Board was that such royalty or charges
M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v.
STATE OF KERALA AND OTHERS
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had the genesis in respective contracts and as such the action on
part of the Board was fully justified. [Para 45, 46][177-B-D]
1.8 The expression 'Royalty' has consistently been
construed to be compensation paid for rights and privileges
enjoyed by the grantee and normally has its genesis in the
agreement entered into between the grantor and the grantee. As
against tax which is imposed under a statutory power without
reference to any special benefit to be conferred on the payer of
the tax, the royalty would be in terms of the agreement between
the parties and normally has direct relationship with the benefit
or privilege conferred upon the grantee. Whatever be the
nomenclature, the charges for use of controlled release of water
in the instant cases were for the privilege enjoyed by INDSIL
and CUMI. The controlled release of water made available to
INDSIL and CUMI, has always gone a long way in helping them
in generation of electricity. For such benefit or privilege conferred
upon them, the Agreements arrived at between the parties
contemplated payment of charges for such conferral of advantage.
Such charges, were perfectly justified. [Para 54][188-E-H;
189-A]
1.9 The submission that it was compulsory exaction and
thus assumed the characteristics of a tax was completely incorrect
and untenable. It was a pure and simple contractual relationship
between the parties and the Division Bench was right in rejecting
the submissions advanced by CUMI and INDSIL.[Para 55,
56][189-B-C]
Central Inland Water Transport Corporation v. Brojo
Nath Ganguly (1986) 3 SCC 156 : [1986] 2 SCR 278;
ICOMM Tele Limited v. Punjab State Water Supply and
Sewerage Board and Anr. (2019) 4 SCC 401 : [2019] 2
SCR 984; Pioneer Urban Land and Infrastructure Ltd.
v. Govindan Raghavan (2019) 5 SCC 725 : [2019] 5
SCR 1169; State of Maharashtra & Ors. v. Salvation
Army, Western India Territory (1975) 1 SCC 509 :
[1975] 3 SCR 475; S.K. Jain v. State of Haryana and
Another (2009) 4 SCC 357 : [2009] 2 SCR 1080; A.L.
Kalra v. Project and Equipment Corporation of India
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(1984) 3 SCC 316 : [1984] 3 SCR 646; Rajasthan State
Industrial Development and Investment Corporation
and Another v. Diamond and Gem Development
Corporation Limited and Another (2013) 5 SCC 470 :
[2013] 4 SCR 331; Hingir-Rampur Coal Co. Ltd. and
Others v. State of Orissa and Others [1961] 2 SCR 537
47; State of West Bengal vs. Kesoram Industries Limited
and Ors. (2004) 10 SCC 201 : [2004] 1 SCR 564; India
Cement Limited v. State of Tamil Nadu (1990) 1 SCC 12
: [1989] 1 Suppl. SCR 692; Himachal Pradesh and
Others v. Gujarat Ambuja Cement Ltd. and Another
(2005) 6 SCC 499 : [2005] 1 Suppl. SCR 684; Jindal
Stainless Limited and Another v. State of Haryana and
Others (2017) 12 SCC 1 : [2016] 10 SCR 1; Mineral
Area Development Authority and Others v. Steel
Authority of India and Others (2011) 4 SCC 450 : [2011]
4 SCR 19; Inderjeet Singh Sial and another v. Karam
Chand Thapar and Others (1995) 6 SCC 166 : [1995]
4 Suppl. SCR 53; Union of India and Others v. Motion
Picture Association and Others (1999) 6 SCC 150 :
[1999] 3 SCR 875 - referred to.
Case Law Reference
[1986] 2 SCR 278
referred to
Para 26
[2019] 2 SCR 984
referred to
Para 26
[2019] 5 SCR 1169
referred to
Para 26
[1975] 3 SCR 475
referred to
Para 37
[2009] 2 SCR 1080
referred to
Para 37
[1984] 3 SCR 646
referred to
Para 41
[2013] 4 SCR 331
referred to
Para 43
[1961] 2 SCR 537
referred to
Para 47
[2004] 1 SCR 564
referred to
Para 48
[1989] 1 Suppl. SCR 692
referred to
Para 48
[2005] 1 Suppl. SCR 684
referred to
Para 49
[2016] 10 SCR 1
referred to
Para 50
M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v.
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[2011] 4 SCR 19
referred to
Para 51
[1995] 4 Suppl. SCR 53
referred to
Para 51
[1999] 3 SCR 875
referred to
Para 53
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 98459846 of 2016.
From the Judgment and Order dated 03.04.2014 of the High Court
of Kerala at Ernakulam in W.A. No. 1345 of 2013 & W.A. No.18 of
2014.
With
Civil Appeal Nos. 9847-9850 of 2016
C.A. Sundaram, V. Giri, Joseph Kodiantara, Sr. Advs., Anand
Sukumar, Bhupesh Kr. Pathak, S. Sukumaran, Ms. Rohini Musa, Arjun
Singh, Zaffer Inayak, Ms. Meera Mathur, Amit Krishnan,
R. Gopalakrishnan, Advs. for the Appellant.
P.V. Surendranath, Jaideep Gupta, Sr. Advs., C. K. Sasi, Ms. Lekha
Sudhakaran, Ms. Nayantara Roy, Abdulla Naseeh V.T., P. V. Dinesh,
Ms. Sindhu T.P., Mukund P. Unny, Advs. for the Respondents.
The Judgment of the Court was delivered by
UDAY UMESH LALIT, J.
1. Civil Appeal Nos.9845-9846 of 2016 preferred by M/s Indsil
Hydro Power and Manganese Limited (hereinafter referred to as
"INDSIL") and Civil Appeal Nos.9847-9850 of 2016 preferred by
Carborundum Universal Limited (hereinafter referred to as "CUMI") are
directed against the common judgement and order dated 03.04.2014
passed by the Division Bench of the High Court1 allowing Writ Appeal
Nos.1345 and 1355 of 2013 preferred by State of Kerala against INDSIL
and CUMI respectively.
2. On 07.12.1990, the Government2 framed a policy vide
G.O.(MS)No.23/90/PD (the Policy, for short) allowing private agencies
and public undertakings to set up hydel schemes for generation of electricity
at their own cost. As per the Policy, the matters concerning the
construction, operation and maintenance of the hydel scheme were to be
1 The High Court of Kerala at Ernakulam.
2 The Government of Kerala
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managed as per the stipulations made by the Government/Board3. Clauses
2, 14 and 15 of the Policy were as under: -
"2. Private agencies/ public undertakings shall be allowed the
setting up of sanctioned hydel schemes of the category small/
mini/ micro at their own cost, the construction, operation and
maintenance being managed by them as per the stipulations insisted
upon by Government/ Board. (The stipulated conditions as per
Indian Electricity Act, 1910. Electricity (Supply) Act, 1948, other
related rules and orders from Central and State Governments).
14. Royalty for the use of water together with the tax and duties
on generation of power as fixed by Government/Board from time
to time have to be paid by the agency.
Normally generation of power from schemes of the category small/
mini/micro utilizing the storage benefits of existing reservoirs and
tailrace benefit of existing power stations will not be entrusted
with private agencies. But, Government may under special
circumstances allow such schemes to be set up by private parties.
In such cases, in order to account for the additional advantage
gained by the agency by way of getting the Controlled releases,
the agency will have to pay to Government or the Board, as the
case may be, in tariff equivalent to the cost component for the
controlled release utilized by the agency for the energy generated
from the scheme. This will be in addition to the royalty of water if
any, to be paid. The tariff storage/controlled release as above are
to be worked out in respect of each scheme separately taking into
account the above factors.
15. For assessment of water quantity used, the application of the
formula BH-Power in KW where Q is in NI/Sec and H is the net
head in meter for which the machines are designed by the
manufacturers, will be made use of."
3. CUMI has three factories in State of Kerala and is in the
business of manufacturing electro minerals using electric arc furnaces,
which process requires continuous supply of electricity. CUMI filed an
application with the State for allotment of "Maniyar Hydel Scheme" in
the River Kakkad Basin. After the Scheme was allotted vide order dated
18.01.1991, CUMI undertook to establish the Maniyar Hydro Electric
3 Kerala State Electricity Board
M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v.
STATE OF KERALA AND OTHERS [UDAY UMESH LALIT, J.]
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Project with 12 MW capacity on River Kakkad, as a Captive Generating
Station for its industrial units. An Agreement was entered into between
CUMI and the Board on 18.05.1991 (CUMI Agreement for short), which
specifically referred to the Policy and stated that the terms and conditions
of the Policy "shall form part of this agreement as if incorporated herein".
Clauses 8 and 14 of CUMI Agreement were as under:-
"8. The energy from Maniyar Hydro Electric Project fed into the
K.S.E.B. Grid will be metered at a location as detailed above
(using meter duly calibrated by K.S.E.B.) and this quantum of
energy less twelve percent towards wheeling charges and T & D
Lesses will be delivered free of cost to CUMI at their E.B.T.
Terminate at the point of supply in their installations. In the case
of supply or receipt made in LT Lines the allowance for lessee
and wheeling charges will be more and will be as stipulated by the
KSEB.
In case energy in excess of the requirement of CUMI is generated
from the projects during one accounting year such excess energy
shall be fed into the KSEB grid itself at rates to mutually agreed
upon. Under no circumstances shall CUMI be entitled for the
sale or transfer of any excess energy or any energy produced
from the project to any party other than the KSEB. The accounting
of the energy fed into the grid and supplied by KESB to CUMI or
operating their factories in Kerala at Palakkad, Koratty and
Kalamaooery will be settled on an annual basis, the year being
reckoned from lot of July to 30th June.
...
...
...
14. Royalty for the use of water together with the tax and duties
on generation of power as fixed by govt/KESB from time to time
have to be paid by CUMI, to K.S.E.B.
Maniyar Hydro Electric Projects will utilize the existing head works
benefit of the Maniyar Irrigation Dam of P.W.D. which is fed
mainly by the controlled release of water from existing Moozhiar
Power House of KSEB. In order to account for the additional
advantage gained by way of getting such controlled released, CUMI
will have to pay to KSEB the cost components for the energy
generated from the scheme. This will be in addition to the royalty
on water to be paid. The charges for controlled release as above
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as well as royalty on water, will be reckoned on the quantum of
energy generated and shall be ten percent of energy tariff rate for
E.H.T. consumer current from time to time for every unit of energy
generated and shall be paid to the K.S.E.B."
4. By 1994 the Project was commissioned by CUMI at a cost of
Rs.22 crores and since then CUMI has been generating electricity which
is used for self consumption in terms of CUMI Agreement.
5. INDSIL has a factory in the State for the manufacture of Ferro
Alloys and was availing supply of electric energy from the Board.
6. INDSIL having expressed interest in setting up a small hydel
scheme, due negotiations and meetings were held. In a meeting held
with the Board on 08.04.1994, one of the decisions was :-
"i) Royalty to be charged on water - It was decided that Irrigation
Dept. will be requested not to charge the cess or royalty especially
where water is being retained in the same basin and there is no
consumptive use."
7. An Agreement (INDSIL Agreement, for short) was thereafter
entered into between INDSIL and the Board on 30.12.1994 for setting
up "Kuthungal Phase I and II Project" in Idukki district of the State with
21 MW installed capacity for generation of electricity. INDSIL
Agreement referred inter alia to the terms and conditions set out in the
Policy and stated that said terms and conditions "shall form part of this
Agreement as if incorporated herein." Clauses 10 and 19 of INDSIL
Agreement were to the following effect: -
"10. The energy from KUTHUNGAL PHASE I AND PHASE
II project fed into the KSEB grid will be metered, at a location as
detailed above (using meter duly calibrated by KSEB) and this
quantum of energy less 12% (Twelve percent) towards wheeling
charges and T & D losses will be delivered free of cost to the
company and their associate M/s. Sun Metals & Alloys Pvt. Ltd.,
Kanjikode, Palaghat at the EHT Terminals at the point of supply in
their installations if any, or it will be banked by the KSEB if the
company so desires. The KSEB will collect 1% (One percent) of
the energy so banked as its commission. This will be in addition to
wheeling and loss towards transmission and distribution charges.
... ... ...
M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v.
STATE OF KERALA AND OTHERS [UDAY UMESH LALIT, J.]
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19. Cess/ Royalties for use of water, if decided by the Government
together with tax/ duties as fixed by the Government from time to
time shall be paid by the company to Government."
8. Since the setting up of the project by June, 2001 at a cost of
Rs.50 crores, INDSIL has been generating electricity which is essentially
used by it and its associates as stated in Clause 10 of INDSIL Agreement.
9. The respective projects were thus set up by CUMI and INDSIL
for Captive Power Consumption and such producers of electricity for
own consumption are called Captive Power Producers (CPP) as against
Independent Power Producers (IPP) who generate electricity not for
self consumption but for supply in its entirety to the Board.
10. On 11.10.2002, Guidelines were issued by the Government
after noting the Policy and the recommendations of the Empowered
Committee set up vide G.O. dated 5.9.2002. These Guidelines dealt with
transmission and distribution losses in wheeling the energy to CPPs but
did not deal with royalty for the use of water. The relevant portion of
these Guidelines was: -
"The Empowered Committee constituted as per the GO read as
3rd paper above, to oversee the implementation of the reforms of
the KSEB and to examine the details for the erection of Small
and Mini Hydel Projects, in its meeting held on 5.9.02 and 12.09.02
considered the scope for taking small hydel projects and
recommended to Government that the small hydel projects excluding
dam toe and tail race projects should be opened up for captive
consumers and Independent Power Producers including public
sector undertakings and also made the following recommendations:-
1. The Public Sector undertakings and the power intensive
industries within the State may be given preference in allotment of
the small hydro projects.
2. The allowance to KSEB to compensate the T & D loss in
wheeling the energy from generating station to the consumption
point of Captive Power Producers (CPPs) which has been fixed
at 10% as per clause (9) of the G.O. (MS) No.23/90/PD dt.7.12.90
may continue to be allowed to KSEB.
3. Wheeling charges to KSEB which has been fixed at 2% as per
clause (9) of G.O. (MS No.23/90/PD. dt. 7.12.90 may be increased
to 5%."
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11. The Guidelines were revised vide G.O. dated 16.1.2003 which
dealt with CPPs and IPPs. As regards CPPs the revised Guidelines
stated: -
"...... As per G.O. (MS) 23/90/PD dt.7.12.1990, Government
laid down terms and conditions for allotment of small hydel projects.
Since the Government proposes to invite more private participation
in this sector, it has become necessary to prescribe revised
guidelines for allotment. Power schemes utilizing controlled releases
form the existing reservoirs and tailrace are reserved for KSE
Board."
Nothing was specified with regard to the royalty for the use of
water by CPPs but while dealing with IPPs, it was stipulated: -
"...15. Water Cess: Water Cess not required since, it will reflect
on tariff and hence not investor friendly."
12. Both CUMI and INDSIL have been paying wheeling charges
for consumption of electricity. Right from 1994 till April 2003, CUMI
had also paid charges for the use of controlled supply of water at the
rate specified in Clause 14 of the CUMI Agreement. In May 2003,
CUMI however made a representation that it be exempted, like other
projects from payment of such charges. Attempts on part of the Board
to charge royalty/cost component for controlled release of water from
CUMI and INDSIL in terms of clause 14 of the Policy has led to the
disputes in the instant matters which are subject matter of these appeals.
Before we set out the pleadings pertaining to such disputes, the locations
of the respective Projects and what kind of flow of water is used, must
be noted:-
CUMI: The water flowing down from Moozhiyar Power House
of the Board is diverted to the Kakkad Power House (50 MW) of the
Board for generation of electricity using "tail race" benefit of Moozhiyar
Power House. After power generation at the Kakkad Power House,
the water is allowed to flow back into the river and is then utilized for
irrigation and for the Maniyar Hydro Electric Project of CUMI.
INDSIL: Anayirankal Dam, one of the largest earthen dams in
State of Kerala was built in the 1960s and soon thereafter, the Paniyar
Power House having capacity of generating 32 MW electricity was built
by the Board. Kuthungal is situated in between Anayirankal Dam (at the
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higher altitude) and Paniyar Power Station of the Board (at the lower level).
Thus the water released from Anayirankal Dam for generation of
electricity at Paniyar Power Station passes through the area where the
project of INDSIL is situated.
13. CUMI filed O.P. No.6880 of 2003 praying, inter alia, that the
Board had no authority to levy, demand or collect any charges for
controlled release of water or royalty from CUMI in respect of electricity
generated by it at its Maniyar Hydel Project. The necessary pleadings
from the writ petition were:
"2. ... ... The 2nd respondent Board had set up its 2nd largest
Hydro-Electric project of Sabirigiri on River Pamba. The waters
of the said river were utilized by the 2nd respondent Board for
generating electricity at Moozhiyar Generating Station and part of
the water flowing down from Moozhiyar Generating Station after
generation of electricity was being utilized for irrigation purpose
and rest of it is flown down to Arabian Sea. Part of the water
flowing from the Generating Station at Moozhiyar is utilized also
for generating electricity at Maniyar Hydro Electric Project which
was taken up by the petitioner as a captive generating station for
the petitioner's industrial units at Kalamassery and Koratti to meet
part of its requirements. ...... Petitioner had no option but to sign
the agreement stipulated by the respondents and was compelled
to sign the same.
3. ... ... Apart from unconstitutional impost the method of
imposition and rate of royalty and alleged controlled release of
water is totally irrational, arbitrary and unfair. The royalty can
only be based on the quantity of material or benefit consumed by
a person from the facility.
4. ... ... It is submitted that water required for generating electricity
at the Mooziyar Power House is a fixed quantity based on the
capacity of the turbine and whatever water is required for such
generation has to flow down from the turbine. There is absolutely
no controlled release of such water to the petitioner's HydroElectric Project at Maniyar in Kakkad river. The water flowing
down from Moozhiyar Power House supplemented by water from
the catchman area of river banks below the Moozhiyar Power
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Station was partly utilized for irrigation purpose and the remaining
water flows down earlier, it was only part of such water from
Moozhiyar Power Station and from catchman areas that is utilized
for generation of electricity by the petitioner at its Maniyar Hydel
Project. However, from the year 1998 the water flowing down
from Moozhiyar Power House was diverted to the Kakkad Power
House of the 2nd respondent and after generation of electricity at
Kakkad Power House the water flowing down flows back to the
same river at a lower stage and utilized for irrigation and partly
for the petitioner's Maniyar Project. It is submitted that the water
released from Moozhiyar Power House is thus diverted to Kakkad
Power House and utilized for power generation there. The alleged
controlled release of water from Moozhiyar Power House to the
petitioner's hydel project at Maniyar is no longer there and has
ceased to be available to the petitioner after commissioning of the
Kakkad Power Station by the 2nd respondent. It is therefore
submitted that the 2nd respondent cannot in any manner charge or
collect the so-called cost component for controlled release of water
from Moozhiyar Power House since there is no such release, much
less controlled release of water from Moozhiyar Power House to
the petitioner after 1998. Petitioner submits that in any event the
charge and collection of cost component from the petitioner after
1998 is totally without authority of law, arbitrary, illegal and unfair.
5. ... ... There is no provision in the Electricity Supply Act
conferring any power on the 2nd respondent to impose royalty or
any charges on generating company which have the same powers,
duties and functions for the flow of water in river Pamba or its
tributaries.
6. Petitioner submits that the respondents have granted permission
and rights to several other generating companies like the petitioner
to set up small hydel projects. Thus private industrial generating
companies like INDSIL Limited, Silcal Metallurgic Limited TECIL
Hydro Power Limited had all set up private hydro-electric stations
in which the respondents have not subjected them to any royalty
or alleged cost component of released water form the Hydroelectric projects upstream on the respective rivers. Petitioner
submits that the respondents have singled out the petitioner and
subjected the petitioner to discriminatory charges."
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14. In the counter affidavit filed on behalf of the Board, the assertions
made by CUMI in the writ petition were denied. It was submitted:
"2...... In the Ext.P1 Government Order dated 07.12.1990, it is
clearly stated in Clause 21 that before implementation of the
scheme, an agreement setting forth all the aspects in the
Government Order and such conditions as found necessary will
be entered into between the agency on the one part and the KSE
Board/Government on the other. Hence the allegation of the
petitioner that the 2nd respondent has no authority of law or
competency to stipulate or impose any conditions or agreement is
not true. Moreover, the respondents have not compelled the
petitioner to sign the agreement and hence the allegation in this
regard are not true and hence denied. The petitioner has applied
for the captive generation station in pursuance of the Ext.P1
Government Order dated 07.12.1990 and the Government have
granted permission strictly in accordance with stipulation in the
above said Government Order. Having executed the agreement
and setting up the plant the petitioner cannot now turn around and
say that the conditions were thrust upon him.
3....... The KSE Board had to construct and maintain dams and
reservoir for collection of water by investing crores of rupees.
The water stored in the dam is released periodically and controlled
release of water is effected by the Board to the petitioner licensee.
So the petitioner is getting sufficient water for generating power
regularly as per their requirement without any capital investment
for storage of water. ....... It is further stated that normally
generation of power from schemes of the category small/mini/
micro utilizing the storage benefit of the existing reservoir and
tailrace benefit of existing power stations will not be entrusted
with private agencies. But Government under special
circumstances allowed such schemes to be set up by private
parties. In such case, in order to account for the additional
advantage gained by the agency by way of getting the controlled
release, the agency will have to pay to government or the Board,
as the case may be, in tariff equivalent to the cost component for
energy generated from the scheme. This will be in addition to the
royalty of water if any, to be paid. The tariff storage/controlled
release as above are to be worked out in respect of each scheme
separately taking into account the above factors.
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5. It is submitted that from the year 1998, the water flowing down
from Moozhiyar Power House is collected in the reservoir of
Kakkad Power House of the 2nd respondent and after generation
of electricity at Kakkad Power House the water flowing down to
the same river and to the reservoir of the petitioner's Maniyar
Project. Thus, the water released from the Moozhiyar Power is
further controlled at Kakkad Power House. Maniyar Project thus
runs with the controlled release of water from the Kakkad Power
House which was commissioned after setting up of the Maniyar
Hydro Electric Project. Water utilized for generation in their project
is from absolute controlled release if it was either from Moozhiyar
Power House or later on form Kakkad Power House and hence
the allegation that charge and collection of cost compound from
the petitioner after 1998 is totally without authority of law, arbitrary,
illegal and unfair is baseless and untenable."
15. In its rejoinder to the aforestated counter affidavit, CUMI
submitted:
6. ... ... Whatever quality of water used at the Kakkad Power
House can only flow down and cannot be prevented by the 2nd
respondent from flowing down. There is no question of controlling
the water that has to flow down from the power house to the river.
In addition to the water flowing down that Kakkad Power Station
large quantity of water flows into the river from the river banks
flooding the river during heavy rains and there is no control on the
flow of water to the petitioner's Maniyar generating station, which
is about 6 kms. downstream from Kakkad generating station."
16. On 03.07.2004 an order was issued by the Government that in
terms of Clause 19 of INDSIL Agreement, INDSIL would be liable to
pay royalty and cost of controlled release of water. The order stated:
"The Kuthungal HEP (21 MW) is a CPP implemented by
M/s INDSIL. The project utilizes the water available from the
free catchment between Anayirankal Dam and Kuthungal weir
as well as the controlled releases from Anayirankal Dam.
The Maniyar HEP (12 MW) the first CPP owned by
M/s. Carbourandum Universal utilizes the controlled releases from
Sabarigiri and Kakkad Hydro Electric Project of KSEB. The royalty
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for this project is being charged at the rate of 10% of the energy
tariff rate for EHT Consumers and is paid to KSEB.
Government after detailed examination hereby order that the royalty
and cost of controlled release of water to the Kuthungal HEP
shall be reckoned on the quantum of energy generated and shall
be 10% of the energy tariff rate for EHT Consumers current from
time to time for every unit of energy generated and in addition, the
Company is liable to pay 1.2 paise per unit as electricity duty for
each unit of electricity generated in accordance with the provision
of the Kerala Electricity Duty Act.
The Chief Electrical Inspector shall collect the royalty from the
company and remit it to the State revenue."
17. INDSIL challenged the order dated 03.07.2004 by filing Writ
Petition (C) No.22187 of 2004 in the High Court. The Writ Petition
was however withdrawn with liberty to make an appropriate
representation to the Government. This led to some correspondence and
representations from INDSIL. The Government, however, refused to
recall its decision to recover royalty and cost of controlled release of
water, which was communicated vide order dated 23.01.2008. The action
on part of the Government was challenged by INDSIL by filing Writ
Petition (C) No.4596 of 2008 in the High Court.
18. With regard to the use of controlled water INDSIL submitted:-
"11. Kuthungal is situated between Anayriankal at the higher end
and Ponmudi at the lower end. Paniyar power station at Vellathooval
has a capacity to generate 30 MW of power. The said power
station funcitons on water flowing across Paniyar river. There
are two storages maintained by the KSEB for its Paniyar Power
Station. One is at Ponmudi and other is at Anayirankal which is
situated at a height of 1850 Meters above the sea level. As
submitted above, there is a reservoir at Anayirankal where the
water is stored. Water stored in the Anayirankal reservoir is
released by the KSEB during the peak summer months between
January and April for the generation of power at Paniyar Power
Station. This is done normally for a period of about 45 days out of
the afore mentioned three/four months from January to April such
release of water by the KSEB from Anayirankal is dictated by
the requirement in Paniyar Power Station at Vellathooval;
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commencement of the releases is decided by the KSEB; quantum
of water is controlled by the KSEB and determined by the
rquirements in Paniyar Power Station. Cessation of release is also
decided by the KSEB to sit the requirement of Paniyar Power
Station. As submitted above, Kuthungal Hydro Electric Project is
situated at Kuthungal which is at a lower level than Anayirankal
but higher than Paniyar Power Station.
... ... ...
When there is a release of water from the Anayirankal Reservoir
to enable generation of power at Paniyal Hydro Electric Station
at Vellathooval, petitioner company is also enabled to utilize the
said water for diversion into Kuthungal Hydro Electric facility for
generation of power there from. This is done only for a period of
about 45 days during the peak summer months and controlled
release of water from Anayirankal is effected by the KSEB only
in accordance with its own schedule to suit its own requirement of
generation of power at Paniyar Hydro Electric Station and such
release of water is not simply done to suit the requirement of
petitioner or to bring about any advantage to the petitioner as such."
Seeking to draw distinction between the project of CUMI and
that of INDSIL, it was stated:-
"....the agency under Exhibit-P2 agreement is dependent on the
controlled release of water from Sabarigiri and Kakkad Hydro
Electric Project. Such controlled release, quantum of release and
cessation of same are all made suited to the requirement of the
project in question.