BSES Rajdhani Power Ltd. vs Delhi Electricity Regulatory Commission

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(S). 4324 OF 2015

BSES RAJDHANI POWER LTD. …APPELLANT(S)

VERSUS DELHI ELECTRICITY REGULATORY COMMISSION …RESPONDENT(S)

WITH

CIVIL APPEAL NO(S). 4323 OF 2015

BSES YAMUNA POWER LTD. …APPELLANT(S)

VERSUS DELHI ELECTRICITY REGULATORY COMMISSION …RESPONDENT(S)

JUDGMENT

S. ABDUL NAZEER, J.

Signature Not Verified

1. Digitally signed by SONIA BHASIN Date: 2022.10.18 These two appeals have been filed by BSES Rajdhani Power 17:29:54 IST Reason:

Ltd. (C.A. No.4324 of 2015) and BSES Yamuna Power Ltd. (C.A.

1 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 2008­09 and FY

2009­10 and Aggregate Revenue Requirement (‘ARR’) for FY 2011­

12. DERC has also filed appeals (C.A. Nos.8660­61 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.

2

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.

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 day­to­day operations which, in turn, have also dried up

leaving the Appellants without adequate monies to pay their

suppliers.

3

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 above­mentioned 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

4 BSES Rajdhani Power Ltd. and BSES Yamuna Power Ltd. and are

subject­matter 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:

(a) Determination of ARR and Tariff for FY 2011­12;

and

(b) Truing up of financials for FY 2008­09 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.

5

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.

6

Part­III of the 1910 Act dealt with Supply, Transmission and Use of

Energy by Non­licensees. Part­IV 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.

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

7 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. Chapter­VI 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 re­structuring 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.

8

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. 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,

9 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 vis­à­vis recovery of cost of

electricity in a reasonable manner as envisaged under Section 61 of

the 2003 Act.

10

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 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

11 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.

Provided xxx xxx xxx

12 (2) & (3) xxx xxx xxx”

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) multi­year tariff principles;

(g) that the tariff progressively reflects the cost of supply of electricity and also, reduces cross­subsidies in the manner specified by the Appropriate Commission;

(h) the promotion of co­generation 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

13 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.”

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

14 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 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.

15 (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.

(5) Notwithstanding anything contained in Part X, the tariff for any inter­State 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.

16 (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 rule­making

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 Sec­

tion 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 17 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 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. The expression ‘appeal’ has not been defined in the CPC.

Black’s Law Dictionary (10th Edn.) defines an ‘appeal’ as “a

proceeding undertaken to have a decision reconsidered by bringing

it to a higher authority.” An appeal is judicial examination of a

decision of a subordinate court by a higher court to rectify any

possible error(s) in the order under appeal. The law provides the

18 remedy of an appeal in recognition of the fact that those manning

the judicial tiers too may commit errors.

29. The test to determine whether a question is a substantial

question of law or not was laid down by a Constitution Bench of

this Court in Sir Chunilal V. Mehta & Sons Ltd. v. The Century

Spg. & Mfg. Co. Ltd.1 as under : (AIR p. 1318, para 6)

“6. … The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.”

30. Thus, the word ‘substantial’ as qualifying ‘question of law’

means, of having substance, essential, real, of sound worth,

important or considerable. It is to be understood as something in

contradistinction with technical, of no substance or consequence,

1 1962 Supp (3) SCR 549 : AIR 1962 SC 1314 19 or academic. For determining whether a case involves substantial

question of law, the test is not merely the importance of the

question, but its importance to the case itself necessitating the

decision of the question. The appropriate test for determining

whether the question of law raised in the case is substantial would

be to see whether it directly and substantially affects the rights of

the parties. If it is established that the decision is contrary to law or

the decision has failed to determine some material issue of law or if

there is substantial error or defect in the decision of the case on

merits, the court can interfere with the conclusion of the lower

court or tribunal. The stakes involved in the case are immaterial as

long as the impact or effect of the question of law has a bearing on

the lis between the parties.

31. Thus, in a second appeal, the appellant is entitled to point out

that the order impugned is bad in law because it is de hors the

pleadings, or it was based on no evidence or it was based on

misreading of material documentary evidence or it was recorded

against the provision of law or the decision is one which no Judge

acting judicially could reasonably have reached. Once the appellate

20 court is satisfied, after hearing the appeal, that the appeal involves

a substantial question of law, it has to formulate the question and

direct issuance of notice to the respondent/s.

32. Now, let us consider as to whether the present appeals involve

any substantial question(s) of law.

33. The APTEL has recorded findings on 35 issues raised by the

appellants. According to the appellants, six issues decided by the

APTEL give rise to substantial question of law which are as follows:

1. Change in methodology in computation of AT&C Losses.

2. Change in methodology for computation of Depreciation.

3. Disallowance of salary for FR/SR Structure.

4. Disallowance of interest incurred on Consumer Security Deposit retained by DPCL.

5. Disallowance of Fringe Benefit Tax.

6. Reduction in MUs in relation to Enforcement sale for the purpose of calculation of AT&C Losses (this issue deals with theft/unauthorized use of electricity).

21

34. Mr. Arvind P. Dattar and Mr. Dhruv Mehta, learned senior

counsel appearing for the appellants, would submit that the

findings of the APTEL on Issue Nos.1, 2, 3 and 5 are contrary to the

binding DERC Tariff Regulations. It is argued that the Regulator

cannot ‘change the rules of the game after it has begun’ in the

‘truing up exercise’. In this regard, they have taken us through the

findings of the DERC in the Tariff Order and also the findings of the

DERC after the truing up stage. It is further argued that the tariff

order is in the nature of a quasi­judicial determination and that in

the guise of truing up, the DERC cannot amend a tariff order.

35. On the other hand, Mr. Nikhil Nayyar, learned senior counsel

appearing for the respondent­DERC, submits that one of the facets

of the tariff determination exercise is the process of ‘truing up’.

Since the initial tariff order is prepared by the DERC, based on the

projections submitted by the Discoms as its ARR petition, the

subsequent tariff order is issued after the financial year pursuant to

the ‘truing up’ exercise. It is also pointed out that the findings on

the aforesaid six issues are neither contrary to law nor opposed to

any regulations.

22

36. Having considered the submissions of the learned counsels for

the parties and after perusing the Impugned Order, we are of the

view that these appeals involve the following substantial questions

of law:

“On Issue No.1

(a) Whether the impugned findings on Issue No.1 are contrary to the mandate of Sections 3, 61(b), (c), (d) and

(e), 62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in terms of which:

(i) Tariff must ensure recovery of all costs of undertaking distribution of electricity with reasonable return, rewarding efficiency in performance?

(ii) Regulator cannot “change the rules of the game after it has begun” in the ‘truing up exercise’?

(b) Whether the impugned findings violate the principles and methodology for tariff determination specified in the binding DERC’s Tariff Regulations?

On Issue No.2

(a) Whether the impugned Findings on Issue No.2 are contrary to the mandate of Sections 3, 61(b), (c), (d) and (e), 62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in terms of which:

(i) Tariff must ensure recovery of all costs of undertaking distribution of electricity with reasonable return, rewarding efficiency in performance?

23 (ii) Regulator cannot “change the rules of the game after it has begun” in the ‘truing up exercise’?

(b) Whether the impugned findings violate the principles and methodology for tariff determination specified in the binding DERC’s Tariff Regulations?

On Issue No.3

(a) Whether the impugned Findings on Issue No.3 are contrary to the mandate of Sections 3, 61(b), (c), (d) and (e), 62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in terms of which:

(i) Tariff must ensure recovery of all costs of undertaking distribution of electricity with reasonable return, rewarding efficiency in performance?

(ii) Regulator cannot “change the rules of the game after it has begun” in the ‘truing up exercise’?

(b) Whether the impugned findings violate the binding statutory Transfer Scheme and the Tri­Partite Agreements between the GONCTD, the DVB and the Employees’ Unions, which form the basis of the privatization of Discoms?

On Issue No.4

(a) Whether the impugned findings on Issue No.4 are contrary to the mandate of Sections 3, 61(b), (c), (d) and (e), 62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in terms of which tariff must ensure recovery of all costs of undertaking distribution of electricity with reasonable return, rewarding efficiency in performance?

On Issue No.5

(a) Whether the impugned Findings on Issue No.5 are contrary to the mandate of Sections 3, 61(b), (c), (d) and (e),

24 62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in terms of which:

(i) Tariff must ensure recovery of all costs of undertaking distribution of electricity with reasonable return, rewarding efficiency in performance?

(ii) Regulator cannot “change the rules of the game after it has begun” in the ‘truing up exercise’?

(b) Whether the impugned findings violate the principles and methodology for tariff determination specified in the binding DERC’s Tariff Regulations?

On Issue No.6

(a) Whether the impugned Findings on Issue No.6 are contrary to the mandate of Sections 3, 61(b), (c), (d) and

(e), 62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in terms of which Tariff must ensure recovery of all costs of undertaking distribution of electricity with reasonable return, rewarding efficiency in performance?

(b) Whether the impugned findings are against settled law that when a 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?

37. One of the substantial questions of law raised on four issues

(Issue Nos.1, 2, 3 and 5) is whether it is permissible to amend the

tariff order made under Section 64 of the 2003 Act during the

‘truing up’ exercise which needs to be answered before answering

each of the aforesaid issues.

25

38. Section 82 of the 2003 Act envisages the constitution of a

State Electricity Regulatory Commission. By virtue of Section 84 of

the Act, such State Commission comprises of a Chairperson and

Members, being persons possessing “ability, integrity and standing

who have adequate knowledge of, and have shown capacity in,

dealing with problems relating to engineering, finance, commerce,

economics, law or management”, with the Chairperson being a

person who is, or has been, a Judge of a High Court.

39. DERC, constituted under Section 82 of the 2003 Act, is an

expert body vested with wide powers and functions under the Act.

This includes the power to frame regulations and the power to

determine tariff.

40. Under Section 86 of the 2003 Act, the State Commission

carries out various functions including determination of “the tariff

for generation, supply, transmission and wheeling of electricity,

wholesale, bulk or retail, as the case may be, within the State”. The

process of determination of tariff in the present case, as part of the

broader regulatory power of the Commission, is to be done in

accordance with Section 62 and 64 of the 2003 Act. As per Section 26 62, the Appropriate Commission (the State Commission in the

present case) shall determine the tariff in accordance with the

provisions of the Act for inter alia retail supply of electricity.

41. In addition to the above functions, the State Commission is

also vested with the power to make regulations, under Section 181

of the 2003 Act, ­ dealing with inter alia “the terms and conditions

for determination of tariff under Section 61” and “issue of tariff order

with modifications or conditions under sub­section (3) of Section 64”.

42. It is pertinent to note that while framing the Regulations, the

State Commission is required to be guided by the principles

specified in Section 61 of the 2003 Act.

43. In framing such regulations, the Commission, as an expert

policy making body, is entrusted with the duty of striking a balance

between the various competing concerns and interests. This

balance is expressed in the DERC (Terms and Conditions for

Determination of Wheeling Tariff and Retail Supply Tariff)

Regulations, 2007 (“2007 MYT Regulations”) which are the relevant

regulations governing the issues in the present case.

27

44. DERC, for a given Multi­Year period (also called the Control

Period), frames regulations for determination of tariff. DERC then

determines the ARR for the said Control Period in a Tariff Order

known as the Multi­Year Tariff Order based on the data available.

45. It is also necessary to note that sub­section (6) of Section 62 of

the 2003 Act mandates that the Tariff Order shall continue to be in

force for such period as may be specified in the Tariff Order unless

amended or revoked. Therefore, if any of the parties are aggrieved

by any of the clauses in the Tariff Order, they are at liberty to seek

its amendment or revocation under this provision. Secondly, the

said order is also appealable under Section 111 of the 2003 Act

before the Appellate Tribunal and thereafter before this Court under

Section 125. The Tariff Order made under Section 64 is quasi­

judicial in nature and it is binding as­it­is on the parties unless it is

amended or modified in a process known to law.

46. Mr. Arvind Datar and Mr. Dhruv Mehta, learned senior coun­

sel appearing for the appellants have submitted that ‘truing up’

cannot be used to upset the methodology used for determination of

ARR. According to them, such a conduct essentially amounts to

28 ‘changing the rules of the game after the game has started’ or

‘changing the goal post’ with the sole intention to deny legitimate al­

lowances to the appellants. It is also argued that ‘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

revenue requirement of the licensee. It was also argued that DERC

has no unfettered power to control the tariff determination process

as well as ‘truing up’ exercise.

47. On the other hand, Mr. Nikhil Nayyar, learned senior counsel

appearing for the respondent­DERC, has submitted that one of the

facets of tariff determination exercise is the process of ‘truing up’.

Since the initial tariff order is prepared by the DERC based on pro­

jections submitted by the Discoms with its ARR petition, the subse­

quent tariff order is issued after the financial year pursuant to the

‘truing up’ exercise. The process of ‘truing up’ requires the DERC

to carry out a prudence check. A prudence check is not a mere ac­

counting or mathematical exercise. A prudence check requires a

scrutiny of reasonableness of the expenditure incurred or proposed

to be incurred by the Discoms and also such other factors that the 29 DERC considers appropriate for determination of tariff. DERC being

an expert body, due deference ought to be given to their under­

standing as recorded in various regulations. It is argued that the

controlling factor throughout the entire ‘truing up’ exercise is the

MYT Regulations itself. It is further argued that the tariff determina­

tion exercise carried out by the DERC is a continuous process. The

tariff determination exercise includes the initial tariff order ­ in the

instant case it is 23.02.2008 ­ a ‘truing up’ inter alia the ARR and

Multi­Year Tariff Order for the years, F.Y. 2007­08 to F.Y.2010­11,

as well as the subsequent Tariff Order dated 26.08.2011, inter alia,

‘true up’ for F.Y. 2008­09 and F.Y. 2009­10. Mr. Nayyar has placed

reliance on the judgment of this Court in Gujarat Urja Vikas Nigam

Limited v. Tarini Infrastructure Limited & Others 2 in support of

his submissions.

48. We have carefully considered the submissions of the learned

senior counsel for the parties. We have already noticed that the

State Electricity Regulatory Commissions constituted under Section

82 of the 2003 Act are a multi­member body comprising a Chairper­

2 (2016) 8 SCC 743 30 son and members being persons having adequate knowledge, of

ability, integrity and standing who have adequate knowledge, and

have shown capacity, in dealing with problems relating to engineer­

ing, finance, commerce, economics, law or management, with the

Chairperson being a person who is or has been Judge of a High

Court. Under Section 86 of the 2003 Act, the State Commission

carries out various functions including determination of tariff for

generation, supply, transmission and wheeling of electricity in

wholesale, bulk or retail as the case may be within the State. The

process of determination of tariff has to be done in accordance with

Sections 62 and 64 of the 2003 Act. It is well settled that the Com­

mission (in this case, the DERC) performs a quasi­judicial function

while determining tariff. This has been expressly recognized by the

Constitution Bench of this Court in PTC India Limited v. Central

Electricity Regulatory Commission, Through Secretary3 as un­

der:

“50. Applying the above test, price fixation exercise is re­ ally legislative in character, unless by the terms of a par­ ticular statute it is made quasi­judicial as in the case of

3 (2010) 4 SCC 603 31 tariff fixation under Section 62 made appealable under Section 111 of the 2003 Act, though Section 61 is an en­ abling provision for the framing of regulations by CERC. If one takes “tariff” as a subject­matter, one finds that under Part VII of the 2003 Act actual determination/fixa­ tion of tariff is done by the appropriate Commission un­ der Section 62 whereas Section 61 is the enabling provi­ sion for framing of regulations containing generic propo­ sitions in accordance with which the appropriate Com­ mission has to fix the tariff. This basic scheme equally applies to the subject­matter “trading margin” in a differ­ ent statutory context as will be demonstrated by discus­ sion hereinbelow.”

49. The DERC determines the tariff of the licensee under Section

62 in such a manner as determined by the 2007 MYT Regulations.

This function is governed, inter alia, by safeguarding all consumers’

interest and at the same time recovering the cost of electricity in a

reasonable manner, such that ‘distribution and supply of electricity

are conducted on commercial principles’ which encourage and re­

ward competition, efficiency, economic use of resources, good per­

formance and optimum investments.

50. DERC determines ARR of the licensee i.e. costs of undertaking

the licensed business which are permitted in accordance with the

requirement specified by DERC which is to be recovered from the

tariff in the year end. ARR determined by DERC is based on projec­ 32 tions. Since the tariff and the ARR are regulated, the Discoms can­

not recover anything more than from its consumers than what is al­

lowed by the DERC.

51. As noticed above, a tariff order is quasi­judicial 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 Appel­

late Authority. Apart from this, we are also of the view that at the

stage of ‘truing up’, the DERC cannot change the rules/methodol­

ogy used in the initial tariff determination by changing the basic

principles, premises and issues involved in the initial projection of

ARR.

52. ‘Truing up’ has been held by APTEL in SLDC v. GERC4 to

mean the adjustment of actual amounts incurred by the Licensee

against the estimated/projected amounts determined under the

ARR. Concept of ‘truing up’ has been dealt with in much detail by

the APTEL in its judgment in NDPL v. DERC5 wherein it was held

as under:­

4 2015 SCC Online APTEL 50 [Para. 17]

5 2007 ELR (APTEL) 193 33 “60. Before parting with the judgment we are constrained to remark that the Commission has not properly understood the concept of truing up. While considering the Tariff Petition of the utility the Commission has to reasonably anticipate the Revenue required by a particular utility and such assessment should be based on practical considerations. … The truing up exercise is meant (sic) to fill the gap between the actual expenses at the end of the year and anticipated expenses in the beginning of the year. When the utility gives its own statement of anticipated expenditure, the Commission has to accept the same except where the Commission has reasons to differ with the statement of the utility and records reasons thereof or where the Commission is able to suggest some method of reducing the anticipated expenditure. This process of restricting the claim of the utility by not allowing the reasonably anticipated expenditure and offering to do the needful in the truing up exercise is not prudence.”

53. This view has been consistently followed by the APTEL in its

subsequent judgments and we are in complete agreement with the

above view of the APTEL. In our opinion, ‘truing up’ stage is not an

opportunity for the DERC to rethink de novo on the basic princi­

ples, 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

34 determination and re­opening the original tariff determination order

thereby setting the tariff determination process to a naught at ‘true­

up’ stage.

54. In Gujarat Urja Vikas Nigam Ltd. (supra), this Court was

considering a case where tariff was incorporated in the power

purchase agreement between a generating company and a

distribution licensee. This Court held that it is not possible to hold

that the tariff agreed by and between the parties, though finding a

mention in a contractual context, is the result of an act of volition of

the parties which can, in no case, be altered except by mutual

consent. We are of the view that this judgment is not applicable to

the facts of the present case.

55. Revision or re­determination 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 sub­Section (6) of Section 64 of the 2003 Act

within the period for which the Tariff Order was applicable. In our

view, DERC cannot amend the tariff order for the period 01.04.2008

to 31.03.2010 in the guise of ‘true­up’ after the relevant financial 35 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, we

hold that it is not permissible to amend the tariff order made under

Section 64 of the 2003 Act during the ‘truing up’ exercise.

56. Issue Nos. 1, 2, 3, and 5: We have already noticed that one

of the substantial questions of law involved in Issue Nos.1, 2, 3 and

5 is whether the Regulator can ‘change the rules of the game after

it has begun’ in the ‘truing up exercise’.

57. Issue No. 1: In the original MYT determination (Tariff Order

dated 28.05.2009), the DERC took into account the full late pay­

ment surcharge (‘LPSC’) revenue as also the DVB arrears while

computing the targets of Collection Efficiency as under:­

“3.10. An analysis of the components of AT&C loss level indicates that the revenue collection on account of sale of energy was Rs.2810.3 Crs. However, this amount could not be verified from the audited accounts of the peti­ tioner. The petitioner has, instead, submitted a daily col­ lection sheet to substantiate its collection of Rs.2810.3 Crs.

36 3.11 The Commission is not receptive to the methodology of verifying the collection from the Daily Collection Sheet as proposed by the petitioner. Accordingly, the petitioner was directed during the validation session to reconcile the amount of cash collected bases on the opening levels of debtors, sales made during the year, DVB arrears col­ lected and the closing level of debtors, with the total col­ lections shown for FY 07­08. However, the petitioner ex­ pressed inability to reconcile the figures using this methodology.

3.12.The petitioner was, thereafter, directed to provide a copy of the daily collection sheet duly audited by its Statutory Auditors. The petitioner was also directed that the Statutory Auditors should establish that the amount mentioned in the Daily Collection Sheet does not in­ cluded any collections on account of other sources of rev­ enue like sale of power through bilateral, intra­state, UI, etc. and revenue from operations (non­energy).

3.13. In response to the above, the petitioner submitted a copy of its Statutory Auditor’s certificate certifying the Day­wise Collection Statement for FY 07­08 vide its letter no.RCM/08­09/245 dated 16th February, 2009. The Cer­ tificate clarified the exclusion of collections made on ac­ count of trading of energy, non­energy charges, subsidy

37 received from GoNCTD, etc. and inclusion of LPSC, elec­ tricity duty, amount collected by BYPL on behalf of BRPL, etc.

3.14. Accordingly, based on the clarifications provided in the statutory auditor’s certificate and the audited finan­ cial statements, the amount mentioned in the Daily Col­ lection Sheet submitted by the petitioner has been taken into account.

…

3.24. In the light of the above background, the revised AT&C loss levels of the petitioner for the first year of the Control Period i.e. FY 07­08 is as summarized in the Table 6 below:

Table 6: Trued­up AT&C loss for FY 07­08 (Rs.crs.)

Particulars Amount Add:

Theft Collection 60.4 Subsidy 48.4 Rebate 47.8 DVB Arrears collected from 64.5 Government Bodies by DPCL Total Other Collections 221.0 during FY 07­08 (A) Total Collections in FY 3031.27 07­08 (B) Billed Revenue consid­ 2889.99 ered for AT&C 38 (C) Collection Efficiency (A/B) 104.89% Distribution Loss Level FY 07­08 30.89% AT&C Loss for FY 07­08 27.51%”

58. 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 Col­

lection 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.

59. Issue No.2: In the Original Determination Order dated

28.05.2009 (F.Y. 2008­09), 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. Ac­

cording to the learned counsel for the respondent, DERC had inad­

vertently made an error and adopted an approach contrary to the

mandate of 2007 MYT Regulations while computing the deprecia­

tion when originally issuing the tariff order, which was rectified in

39 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.

60. Perusal of the Tariff Order dated 28.05.2009 would clearly in­

dicate that after considering the contentions of the parties the

aforesaid depreciation has been allowed. We have already held that

it is not permissible to amend the tariff order during true up exer­

cise. On the pretext of prudence check and truing up, DERC could

not have amended the tariff order.

61. Issue No.3 : During projection of expenses for the entire con­

trol period, the Tariff Order dated 23.02.2008 had projected em­

ployee expenses considering inter alia the impact of the anticipated

Sixth Central Pay Commission Report. The relevant portion of the

said Tariff Order is as under:

“4.99 The Petitioner has submitted the employee expenses for FY07 as Rs 137.60 Cr and has considered the same as the base for the Control Period. The Petitioner has considered the following factors while projecting the 40 escalation factor for the employee expenses for the Control Period:

(a) Anticipated 6th Pay Commission report

(c) Research of lead HR consultants on salary trends in the country

(c) Initiatives undertaken to retain quality manpower and demand for employees in the power industry.

(d) Inflation during last 12 months € increase in employees to cater to growth of consumers.

4.100 The Petitioner has projected its total employee expenses for the Control Period considering different escalation rates for different components of the employee expenses. The annual growth rates for various components of employee expenses as proposed by the Petitioner are given below:

(a) Basic Salary: The year on year increase in basic salary for all the employees during the Control Period has been estimated at 23.2%, 11.1%, 11.3%, and 11.5% for FY08, FY09, FY10 and FY11 respectively.

(b) Dearness Allowance (DA): Annual estimated increase in DA is considered as 9%, 6%, 6%, and 6% for FY08, FY09, FY10 and FY11 respectively.

(c) Terminal Benefits: Contribution to terminal benefits/liability fund is considered at 26% of basic salary and dearness allowance for each year of the Control Period.

41

(d) Other Allowances and expenses including HRA:

Considered in proportion to the basic salary.”

62. The DERC, while projecting employee expenses for the entire

control period in its MYT Tariff Order dated 23.02.2008, had

categorically acknowledged the uncontrollable nature of the Sixth

Central Pay Commission Report as well as the impact of the same

on the salaries of FR&SR employees and held that since the salary

of FR&SR employees was an uncontrollable item and that it would

be trued up on actuals as under:

“4.108 During the privatization process, part of the employees of the erstwhile DVB were transferred to BRPL. As per the Transfer Scheme, the terms and conditions of service applicable to the erstwhile Board employees in the Transferee Company shall in no way be less favourable than or inferior to that applicable to them immediately before the Transfer. Further, their services shall continue to be governed by various rules and laws applicable to them prior to privatization. Thus the salary/compensation and promotion of the erstwhile DVB employees in BRPL are still governed by the rules and pay scales as specified by the GoNCTD.

4.109 In consideration of the above, the Commission has recognized the uncontrollable nature of the 6 th Pay Commission recommendations in determination of employee expenses during the Control Period. The Commission has assumed that the revision in pay, if any, shall be applicable from January 1, 2006. The 42 Commission has considered an increase of 10% in total employee expenses for the values in FY06 (3 months) and FY07 due to the same.

… 4.112 Similarly, the increase in salaries has been considered for each year, but the impact of such increase has only been taken from FY09 onwards. The th Commission shall true­up the impact on account of 6 Pay Commission recommendations based on the actual impact of the same.

4.113 The summary of the revised employees expenses considering the effect of 6th Pay Commission recommendations is given below:

Table 72: Revised Employee Expenses for FY06 and FY07 (Rs Cr) Particulars FY06 FY07 Employee Cost Approved in 167.5 184.0 True up 4 5 Less: SVRS Amortization (46.41 (46.45 approved ) ) Net Employee Expenses 121.1 137.6 3 0 Employee expenses pertaining 75.64 85.92 to DVB employees Employee expenses pertaining 45.50 51.68 to Non­DVB employees 10% escalation due to Pay 1.89 8.60 Commission recommendations Revised Employee Expenses 123.0 146.1 2 9 43 4.114 For the calculation of the employee expenses for the Control Period, the Commission has considered the following:

(a) Revised employee expenses for the base year have been escalated as per the escalation factors mentioned in Table 67 to arrive at the employee expenses for the Control Period.

(b) All arrears due to the impact of the 6th Pay Commission recommendations would be payable in FY09.

For the purpose of projecting the arrears arising due to recommendation of the 6th Pay Commission for FY08, the Commission has considered the difference between the employee expenses for FY08 arrived by escalating the revised employees expenses for FY07 (i.e. Rs 146.19 Cr) and the employees expenses for FY08 arrived by escalating the trued up employee expenses (net of SVRS amortization) for FY07 (i.e. Rs 137.60 Cr).”

63. 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. 44

64. Issue No.5 : This 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. Relevant extract of the MYT Order dated

23.02.2008 is as under:

“Commission’s Analysis

4.242 The Commission is of the opinion that projecting the actual tax liability for the Control Period is difficult and complex. Thus for simplicity, the Commission provisionally approves Rs 5.00 Cr each year towards income tax and fringe benefit expenses. The Commission would, however, true­up the tax expenses based on the actual tax liability at the end of each year of the Control Period. The Commission has allocated the tax expenses into Wheeling and Retail Supply in the ratio of 20:80, respectively.”

65. The DERC, at the stage of truing up for the F.Y. 2008­09, has

changed the methodology and disallowed the fringe benefit tax

incurred by the appellants.

66. We have already taken a view that DERC cannot re­open 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 45 up stage is not an opportunity for DERC to re­think de novo the

basic principles, premises and issues involved in the initial

projection of the revenue requirements of the licensee.

67. 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. In view of the above, it is unnecessary for us to consider

the other substantial questions of law on the aforesaid four issues.

68. Issue No.4: This issue relates to 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 pre­privatization period received by DVB, which is

yet to be transferred to the appellants. The APTEL has confirmed

this order of the DERC. It is to be stated here that, 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

46 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.

69. The DERC by its order dated 23.04.2007 has held that it does

not have power to issue any directions to DPCL.

70. Learned counsel for the respondent­DERC submits that the

appellants have sought transfer of deposits along with interest from

DPCL and the issue of DPCL to make this payment is pending

before the Delhi High Court in W.P. (Civil) No.2396/2008. It is

further submitted that, should the appellants succeed in their claim

against DPCL and receive the deposit amount along with interest,

the amount would be made over to the appellants along with

interest. As such, if the expenses were to be presently allowed in the

47 ARR, and interest burden was passed on to the consumers

presently, the Discoms would, in effect, receive double benefit at the

time of disposal of the writ petition since the consumers would have

already borne the costs of interest which would also be then made

over by DPCL to the appellants. It is argued that, as a Regulator, it

is incumbent upon the DERC to protect the consumers’ interest.

71. We are of the view that 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 48 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.

72. Therefore, we hold that the appellants are entitled to recover

interest on Consumers Security Deposit as held by the DPCL. We

direct the DERC to allow the interest on Consumers Security

Deposit held by the DPCL and impact thereof to the appellants. The

findings of the DERC and the APTEL in this regard are set aside.

73. Issue No.6: This issue pertains to enforcement sales i.e.

sales which are deemed to have been occurred in cases of electricity

theft. The question for consideration is 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?

74. Electricity transmitted may be stolen or used unauthorizedly.

While theft/unauthorized use was approximately 60% before

49 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, relevant clauses whereof are as under:

“Section 126: (Assessment): ­­­ (1) If on an inspection of any place or premises or after inspection of the equipments, gadgets, machines, devices found connected or used, or after inspection of records maintained by any person, the assessing officer comes to the conclusion that such person is indulging in unauthorized use of electricity, he shall provisionally assess to the best of his judgement the electricity charges payable by such person or by any other person benefited by such use.

[…]

[(5) If the assessing officer reaches to the conclusion that unauthorised use of electricity has taken place, the assessment shall be made for the entire period during which such unauthorized use of electricity has taken place and if, however, the period during which such unauthorised use of electricity has taken place cannot be ascertained, such period shall be limited to a period of twelve 50 months immediately preceding the date of inspection.]

(6) The assessment under this section shall be made at a rate equal to twice the tariff rates applicable for the relevant category of services specified in sub­section (5).” (Emphasis supplied)

75. 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.

76. 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.

51

77. In a particular case of unauthorized use of electricity under

Section 126, suppose using the ‘LDHF formula’ (specified by DERC

itself), the appellants assess the consumer as having consumed 100

units of electricity.

(a) By virtue of the Supply Code Regulations framed by the DERC itself, these 100 units are to be treated as “sales”.

(b)Upon the assessment of 100 Units, the Appellant raises a bill on the said consumer. Under Section 126 of the Electricity Act, the bill has to be raised at twice the normal billing rate. If the normal ABR were Rs. 5 per Unit, the Section 126 Bill will be raised for Rs 1,000 (i.e. 100×[Rs 5×2]);

(c) By virtue of a Settlement which is entered into between the Appellant and the consumer before the Lok Adalat etc., suppose the Appellant agrees to give up Rs 200, the Appellant then recovers Rs 800/­ rather than Rs 1,000/­.

(d)Now, though the settlement is only for the Rupee equivalent of the Assessed Bill and not the ‘Units sold’, the DERC now takes Rs 800, divides it by Rs 10 (i.e. twice the ABR) and arrives at an imaginary ‘sales’ figure of electrical energy of 80 Units.

(e) This is in complete contrast to the Assessment of Energy sold of 100 Units in terms of the LDHF Formula specified by the DERC itself according to which the sales are “deemed to be” 100 units.

(f) Therefore, by entering into a settlement before the Lok Adalat (which is in harmony with the entire Lok Adalat philosophy), the Appellant first loses Rs 200 in monetary terms and then loses 20 Units of electricity which the Appellant is 52 deemed to have sold such consumer in the first place.

78. Learned counsel for the appellants submit that when the

statute creates a legal fiction, i.e. energy assessed is deem 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. However, learned counsel appearing for the respondent

DERC submitted that that concurrent findings of the DERC and the

APTEL cannot be reversed and the methodology adopted by the

Commission has to be maintained.

79. Having considered this question in detail, we are not in

agreement with the stand taken by the respondent. We are of the

view that 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. We are of the view that such

imaginary state of affairs must be taken to its logical end and

commend the treatment of 100 units as ‘sales’.

53

80. We are of the view that the assessed energy has to be

considered as supply by the appellants in enforcement cases.

Therefore, we direct the DERC to consider assessed energy for

calculation of enforcement sales and allow the impact of the same

along with carrying costs. In view of our conclusion as above, we do

not deem it necessary to answer the other contentions on this

issue.

81. The substantial questions of law are answered accordingly.

Resultantly, the appeals are allowed and the order(s) of the DERC

and the judgment of the APTEL impugned herein, to the extent

mentioned above. are hereby set aside. Parties to bear their

respective costs.

………………………………J. (S. ABDUL NAZEER)

………………………………J. (KRISHNA MURARI) New Delhi;

October 18, 2022.

54