M/S Jindal Steel And Power Ltd. vs Chattisgarh State Elect. Reg. Commn..

M/s. Jindal Steel and Power Limited … APPELLANT(S)

Vs.

The Chhattisgarh State Electricity Regulatory Commission and Ors. ... RESPONDENT(S)

WITH

CIVIL APPEAL NOS.4104­4107 OF 2008

Tirumala Balaji Alloys Pvt. Ltd. … APPELLANT(S)

Vs.

M/s. Jindal Steel and Power Ltd. and Ors. Etc. ... RESPONDENT(S)

JUDGMENT

NAGARATHNA, J.

1. These Civil Appeals filed under Section 125 of the Electricity

Act, 2003 arise out of common impugned Judgment dated

07.05.2008 passed by the Appellate Tribunal for Electricity, New

1 Delhi (‘Appellate Tribunal’, for short). By the said judgment, the

Appellate Tribunal has set aside the order of respondent No.1 dated

29.11.2005 and cancelled the distribution licence granted to the

appellant in C.A. Nos.3607­3610 of 2008. Hence, these appeals.

2. Since the questions of law and facts which arise in both the

above captioned Civil Appeals are similar, these appeals are being

disposed of by this common judgment.

Re: Civil Appeal Nos. 3607­3610 of 2008:

3. The appellant­Jindal Steel and Power Ltd. (‘JSPL’, for short) in

this civil appeal established a sponge iron / steel plant at Raigarh,

Chhattisgarh in the year 1990. A captive power plant was also set up

by JSPL at a distance of 40 km from the aforesaid steel plant.

4. Respondent No.1 is Chhattisgarh State Electricity Regulatory

Commission (‘Commission’, for short), respondent No.2 is

Chhattisgarh State Electricity Board (‘CSEB’, for short) later became

‘Chhattisgarh State Power Distribution Company’ and respondent

No.3 is Chhattisgarh Vidyut Mandal Abhiyanta Sangh (‘CVMAS’, for

short).

5. The newly created State of Chhattisgarh formulated its

industrial policy for 2001­2006 which encouraged the establishment

2 of industrial estates in private­public partnership as well as the

installation of captive power plant.

6. A proposal for permission to set up an industrial estate in 500

acres of land, adjacent to the existing land at Raigarh, was submitted

by JSPL vide letter dated 28.12.2001. The land was to comprise of

villages of Kosampali, Dhanagar, Barmuda or at a site in the Tehsil of

Gharghoda comprising villages Tarai Mal and Ujjalpur. JSPL,

addressed a letter dated 09.04.2002 to the Department of Mineral

Resources, Commerce and Industries, Government of Chhattisgarh

seeking permission for establishing such an industrial estate at

Raigarh. A map showing the proposed industrial area was annexed

with the letter. The Government of Chhattisgarh, vide letter dated

26.04.2002 informed JSPL that the Energy Department was taking

action to grant permission for sale of power and to lay transmission

lines to various units in the private industrial estate being established

by JSPL and requested JSPL to prepare and submit a draft of

Memorandum of Understanding (‘MoU’, for short) for the said purpose

for approval. The facilities were to be provided as per the new

industrial policy dated 01.11.2001.

7. JSPL, on 16.07.2002, requested the Chief Minister of

Chhattisgarh to issue appropriate directions for grant of permission

to supply power to the units in the proposed industrial estate. The

3 Government of Chhattisgarh, on 14.08.2002, sent a reply to the

aforesaid request made by JSPL and informed that it shall have to

take certain actions / steps with regard to the supply of power to the

proposed industrial units. In compliance of the aforesaid letter on

04.09.2002, JSPL addressed a letter requesting for grant of

permission under Section 28 of the Indian Electricity Act, 1910 (‘1910

Act’, for short) for sale of power to the proposed units in the industrial

state from its captive power plant and for grant of permission to set

up transmission and distribution lines/system for supply of power to

the industrial units in the proposed industrial estate. JSPL further

stated that they will obtain necessary permission under the

Electricity Supply Act, 1948 (‘1948 Act’, for short) for setting up

transmission and distribution lines from CSEB.

8. A MoU was signed on 23.10.2002 between Chhattisgarh State

Industrial Development Corporation (‘CSIDC’, for short) acting on

behalf of Government of Chhattisgarh and JSPL for setting up the

industrial estate. The Government of Chhattisgarh, on 29.01.2003

granted permission for supply of power by JSPL to the new industrial

units being set up in the private industrial estate proposed in four

villages of Raigarh District i.e., Punjipathra, Tumdih, Jorapalli and

Dhanagarh from its captive power plant and laid down certain terms

and conditions. CSEB, on 31.05.2003 granted permission for laying

4 transmission and distribution lines of 220 KV for supply of power to

the prospective units at the Industrial Estate in Raigarh,

Chhattisgarh by tapping 220 KV from the captive power plant of

JSPL.

9. On 06.10.2003, JSPL made a formal application for sanction

under Section 28 of the 1910 Act wherein it provided details of the

project enclosing relevant documents. The Government of

Chhattisgarh passed two orders on 28.02.2004. Vide its first order

exercising power under Sections 68(1) and 68(3) of the Electricity Act,

2003 (‘2003 Act’, for short), the State Government accorded

permission for construction of transmission and distribution lines as

recommended by the CSEB on certain terms and conditions. Vide its

second order, relating to the No­Objection of the State Government

regarding direct power supply by JSPL from their power plant to the

industrial units proposed to be set up in the private industrial estate

in Raigarh, Chhattisgarh, the State Government of Chhattisgarh

opined that since the 2003 Act was in force in the State from

09.12.2003 and the 1910 Act stood repealed, no permission could be

granted under the latter Act.

10. JSPL commenced supply of electricity to the industrial units

which were already setup with effect from 01.03.2004.

5

11. Thereafter, on 15.09.2004, JSPL filed an application for grant of

distribution licence before the Commission under Section 14 of the

2003 Act. The same was returned by the Commission on 15.09.2004

for filing in the prescribed format. On 25.01.2005, JSPL applied for

the licence to the Commission in Form 1­A with all necessary

enclosures as per Regulation 3 (1) of the Chhattisgarh State

Electricity Regulatory Commission (License Regulations), 2004 (‘State

License Regulations’, for short) along with Demand Draft of Rs.5

Lakhs. In the said application, JSPL stated that the area to which

supply was to be made was the Jindal Industrial Park in the private

sector in Punjipathra and Tumdih villages of Garghoda Tehsil,

Raigarh District having an area of 750 acres and shall accommodate

seventy units. Pursuant to the filing of the said application, notices

were published in the newspapers and objections were invited under

Section 15 of the 2003 Act. Three objections were received, one each

from respondent Nos.2 and 3 and the third objection was from Mr.

R.K. Aggarwal. The objection of Mr. R.K. Aggarwal was subsequently

rejected by the Commission on 27.08.2005 being bereft of any locus

standi.

12. Various correspondences and pleadings were exchanged

between JSPL, CSEB, CVMAS and the Commission and thereafter the

6 Commission framed a total of five issues and vide its Order dated

29.09.2005, decided to grant distribution licence under Section 14 of

the 2003 Act. The pertinent findings of the Commission can be

encapsulated as under:

i. A harmonious reading of Sections 10(2), 42(2), 2(47) & 12 of the

2003 Act, clearly brings out that a generating company may

supply electricity to a consumer under the provisions of Section

10(2) of the 2003 Act only subject to the provisions of open

access. The scheme of the Act, particularly Part IV (Licensing)

thereof, is such that it cannot authorize a generator to supply

electricity to a consumer without a licence. That the present

application is not for supply through open access and the same

is for distribution of electricity to a significant number of

industries in an industrial area set up under specific permission

of the State Government.

ii. Section 28 of the 1910 Act is quite clear that supply of electricity

to the public mandates the previous sanction of the State

Government. That, by no stretch of the argument, can the letter

of the State Government dated 29.01.2003 be treated as sanction

of the State government. Therefore, the said letter does not confer

any right on JSPL under Section 28 of the 1910 Act to supply

electricity.

7 iii. No­objection letter dated 28.02.2004 also does not confer any

such right on the applicant. If the said letter conveyed any right,

either the application for licence would not have been made or a

claim of existing right should have been made. The application of

JSPL clearly stated that it had no licence. Further, the second

letter of the said date, conveying No­objection of the State

Government cannot be said to be valid since there is no provision

for such no objection from the State Government. Therefore, as

on that date, distribution of electricity by JSPL was without any

legal authority.

iv. On the aspect of area for which the licence had been applied for,

it was observed that the present case ought to be treated as an

exception to Rule 3 of the Distribution License Rules and to Para

5.4.7 of the National Electricity Policy since effective steps for

setting up of the industrial estate herein and an understanding

with the State Government to the effect that JSPL would provide

electricity from its captive power plant were taken much before

the National Electrical Policy was notified. As per the application,

supply of electricity commenced with effect from 01.03.2004 to

some industries on the basis of the letter dated 28.02.2004 and

therefore, the National Electrical Policy notified subsequently

cannot be invoked to deny distribution licence in this case.

8

v. That if a distribution licence is refused at this stage, which is

approximately one and half years after supply of electricity has

commenced, whether with or without legal authority, the same

shall impact the consumers of JSPL. CSEB also conveyed its no

objection to lay transmission and distribution network as early

as on 30.05.2003. That JSPL had gone way ahead with the

industrial estate project in full, including distribution of power on

the basis of the understanding with the State Government. A

large investment of Rs.17.79 Crores was made, and there were

twenty­four industries, most of which were power intensive. If a

distribution licence was denied, they will have to close down their

industries. Apart from that, the consumers will be forced to buy

power from CSEB at a much higher rate than at present.

Therefore, the grant of distribution licence in this case may be in

the interest of the competition and in the interest of consumers

who have already entered into a long­term supply contract with

JSPL.

vi. Further, in view of the overall position of the case, the balance of

convenience would lie in grant of a distribution licence to JSPL

and there was an adequate justification for the same. Moreover,

the CSEB could not clarify as to why it was in opposition to a

distribution licence in a limited area when CSEB was itself not in

9 a position to supply quality power to their existing industrial

consumers.

vii. In respect of JSPL’s eligibility for grant of such distribution

licence, it was observed that JSPL met all the requirements of

capital adequacy, creditworthiness and code of conduct as laid

down by the Central Government in the Distribution License

Rules.

viii. In respect of levy of cross­subsidy charges on the consumer of

JSPL, the Commission held that there was no justification in

such levy since the same was not a case of open access. The

scheme of the 2003 Act is such that a distribution licensee

cannot recover cross­subsidy surcharge from another

distribution licensee and that JSPL had undertaken to supply

electricity to all its consumers in the area for which licence was

proposed to be granted.

ix. Lastly, it was held that JSPL was liable to pay a penalty of Rs.

One Lakh for contravention of Section 12 of the 2003 Act which

mandates licence to be obtained for supply of electricity and

violation of the same was punishable under Section 142 of the

2003 Act.

10

13. The following conditions, apart from the general and special

conditions applicable to such licenses under the Regulations, were

imposed on JSPL by the Commission for grant of distribution license:

“(i) The license will be for the area of the two villages, Tumdih and Punjipathra of Gharghoda Tehsil of Raigarh District. However, the number of industrial consumers in the Jindal Industrial Park shall be limited to 70 and their total demand for electricity not increasing 299 MW, as agreed with the State Government.

(ii) The applicant shall lay necessary distribution lines and put­up sub­station at his own cost in the two villages for supply of electricity to any person who may apply for it and supply electricity at a rate not more than Rs.2.50 per unit or at the supply rate of the Board for that category of consumer, which is lower. This will include domestic, agriculture, industrial and other consumers. The option to choose between the licensee and the Board shall be with the consumer.

(iii) All other general and special conditions applicable to a distribution licensee as per the provisions of the License Regulations.”

14. Respondent Nos.2 and 3 on 07.10.2005, filed objections to the

order dated 29.09.2005 before the Commission. Thereafter,

respondent No.2 filed Appeal No.179/2005 and respondent No.3 filed

Appeal No.188/2005 before the Appellate Tribunal. The appellant

herein challenged the imposition of penalty of Rs. One Lakh before

the Appellate Tribunal in Appeal No.27/2006.

11

15. On hearing the respective parties, the Commission, vide its

Order dated 29.11.2005, granted licence to JSPL on the following

terms and conditions:

“(i) The distribution license shall be valid for a period of twenty­five years from the date of issue, as per the provision of Section 15(8) of the Act, unless revoked earlier.

(ii) The area of the license shall be the geographical area of the villages Tumdih and Punjipathra, including the Jindal Industrial Park aforementioned, of Gharghoda tahsil of Raigarh District of the State as indicated in the map enclosed herewith.

(iii) The distribution licensee shall abide by all the relevant provisions of the Electricity Act, 2003, the National Electricity Policy, i.e. Rules 1956 and Electricity Rules 2005, as amended from time to time.

(iv) The licensee shall abide by the general conditions of license as given in chapter III and the other conditions applicable to a distribution licensee as given in chapter V of the CSERC (Licence) Regulations 2005, as amended from time to time. He shall also comply with the relevant provisions of all the regulations issued or as may be issued by the Commission, as amended from time to time.

(v) The licensee shall abide by all the relevant provisions of the Chhattisgarh State Electricity Supply Code, 2005.

(vi) The licensee shall lay necessary distribution lines and put­up sub­stations at his own cost in the two villages for supply of electricity to any person who may apply for it and supply electricity at a provisional rate of not more than

12 Rs.2.50 per unit or at the supply rate of the Board for that category of consumer, whichever is lower, till the tariff for supply is determined by the Commission. This will include domestic, agriculture, industrial and other consumers.

(vii) The consumers of the area other than area of Jindal Industrial Park (JIP) shall have the option to choose between the licensee and the Chhattisgarh State Electricity Board (CSEB) or its successor entity/entities.

(viii)The existing tariff being charged from the industrial consumers in the designated area of JIP shall continue to be charged by the licensee till the tariff is determined by the Commission.

(ix) For determination of tariff in the area of supply, the distribution licensee shall file the necessary application under Section 64 of the Act and clause 10 of the CSERC (Details to be ' furnished by licensee or generating company for determination of tariff and manner of making application) Regulations, 2004 before the Commission on or before 31st March 2006, and thereafter in terms of the provisions of the same Regulations.

(x) The licensee shall abide by the safety rules and safety standards issued by the Central Electricity Authority, Ministry of Power, Govt. of India and other Government agency/department.

(xi) The licensee shall not transfer or assign, by sale, lease exchange or otherwise, this license or part thereof to any other person without prior approval of the Commission.

(xii) The licensee shall undertake electrification of villages Tumdih and Punjipathra as per the norms laid down for rural electrification within a period of six months, i.e., before 29.05.2006. It shall also provide public lamps in adequate

13 number in these two villages on the request of the concerned Gram Panchayat and maintain the same.

(xiii) All issues relating to interpretation of this licence and its terms and conditions, shall be a matter for determination by the Commission and the decision of the Commission on such issues shall be final, subject only to the right of appeal.

(xiii) The conditions of the license may be altered or amended by the Commission at any time, if it deems fit in the public interest, in terms of Section 18 of the Act.”

16. Respondent No.2 filed Appeal No.16/2006 before the Appellate

Tribunal challenging the order dated 29.11.2005 passed by the

Commission. The Appellate Tribunal, vide it Order dated 11.05.2006,

upheld the order granting distribution licence dated 29.11.2005

passed by the Commission. Aggrieved by the order dated 11.05.2006

passed by the Appellate Tribunal, respondent Nos.2 and 3 filed

appeals before this Court being Civil Appeal Nos. 3996 of 2006 and

4268 of 2006. JSPL also preferred an appeal before this Court being

Civil Appeal No.4529 of 2006. This Court, vide its order dated

19.09.2007, allowed the aforesaid appeals, set­aside the order dated

11.05.2006 passed by the Appellate Tribunal and remanded the

matter to the Appellate Tribunal for fresh determination.

17. On remand, the Appellate Tribunal reconsidered the matter and

all the aforesaid appeals (Appeal No.179/2005, Appeal No.188/2005,

14 Appeal No.27/2006 and Appeal No.16/2006) were allowed vide

common impugned order dated 07.05.2008 which is challenged

before this Court by way of the present appeals. The pertinent

observations and decision of the Appellate Tribunal are encapsulated

as under:

i. With respect to JSPL’s argument that the MoU had a specific

clause that allowed JSPL to directly sell power to the industrial

units set up in the proposed industrial estate, it was held that it

was not the correct way to read the MoU. The MoU was entered

into when the estate had not even come into existence and the

terms therein only envisioned what would happen in the future.

Therefore, it was too early to grant licence for supply or

distribution of electricity by JSPL. It was further held that JSPL

itself did not treat this clause in the MoU as grant of license. Had

the MoU itself meant grant of license, there would have been no

occasion for the subsequent correspondence between the JSPL

and the Government of Chhattisgarh. Therefore, neither the State

Government nor JSPL was acting under an understanding that

JSPL had already been granted a license.

ii. That the letter dated 29.01.2003 which is a ‘No­Objection’ from

the Government of Chhattisgarh had a clear stipulation that

JSPL was required to take permission under Section 28 of the

15 1910 Act for direct power supply from its captive power plant to

the industrial estate and the said letter cannot be read as

Government’s promise to give license.

iii. On examining the two letters dated 28.02.2004, it was found by

the Appellate Tribunal that the first order accorded permission

for construction of power, transmission and distribution lines

under Sections 68(1) and (3) of the 2003 Act and the second

order dealt with prayer for approval under Section 28 of the 1910

Act. Vide the second order, it was made sufficiently clear that

JSPL will have to get the permission/licence from the

Commission since Section 28 of the 1910 Act stood repealed and

no permission thereof could be given.

iv. That there cannot be an estoppel against the statute. The

relevant authority at that time was the Commission and the

licence was to be obtained under Section 14 of the 2003 Act from

the Commission, after fulfilling the requisite terms and

conditions. JSPL could not have taken advantage of the doctrine

of promissory estoppel since, even if the aforesaid letters were

construed to be a promise, the same would only be binding on

the Government of the State of Chhattisgarh and not the

Commission which is not subordinate to the Government or its

successor or assignee.

16 v. The Appellate Authority, on considering the issue as to whether

JSPL was entitled to the license/minimum area of supply under

Section 14 of the 2003 Act observed that on the date when the

application for licence filed by JSPL under the 2003 Act was

under consideration, the Commission was required to apply the

regulation in force at that point of time which included the rule of

minimum area of supply. It was observed that the Commission

was incorrect in ignoring the said rule and granting the licence in

violation thereof. No exception to the aforesaid rule could have

been made out by the Commission.

vi. While interpreting Section 10(2) of the 2003 Act that allowed a

generating company to supply electricity to any licensee or to any

consumer, it was held that the JSPL is a captive power plant and

is governed by Section 9 of the 2003 Act and not by Section 10 of

the said Act.

vii. That JSPL had applied for a distribution licence because it

intended to purchase power from another generating company

called Jindal Power. JSPL, being a captive power plant and not a

generating company at the relevant time could not have made

any supply to any third person without a license.

viii. On considering CSEB’s argument that the supply from a captive

power plant or even under Section 10(2) of the 2003 Act is

17 permissible only when the same is made by use of the grid or the

transmission lines of distribution licensee or transmission

licensee by use of open access and that unless open access is

availed, the supply cannot be made, it was held that open access

is an enabling provision that helps expansion of the electricity

sector and not to limit its development. If it was the intention of

the 2003 Act that no sale was possible except by availing open

access, it would have said so. It was further observed that

Section 10(2) of the 2003 Act prescribes that the supply to a

consumer will be subject to Regulations made under sub­section

(2) of Section 42 of the 2003 Act. While interpreting the use of the

words ‘subject to the rules made under sub­section (2) of Section

42’, it was held that the provision under Section 42(2) of the

2003 Act would only be attracted when the access through the

existing distribution was sought; when such access was not

sought, the aforesaid provision shall not apply.

ix. With respect to the Commission’s order imposing penalty of Rs.

One Lakh on JSPL, the same was set­aside. This was because,

although JSPL did not have a licence when it started supplying

electricity to Jindal Industrial Park, a penalty was not

automatically attracted. As per Section 142 of the 2003 Act, a

person sought to be punished has to be given an opportunity to

18 be heard. Admittedly, the said opportunity was not given to JSPL.

It was found that the Commission was merely hearing the

application for grant of distribution license. The issue as to

whether JSPL had rendered itself liable to punishment at all was

never an issue before the Commission.

Re: Civil Appeal Nos. 4104­4107 of 2008:

18. The facts and circumstances in both these appeals are similar

and therefore have not been reproduced to avoid repetition except to

the extent it is necessary to do so.

19. The appellant in these civil appeals is the consumer of

electricity in Jindal Industrial Park in Raigarh, Chhattisgarh who is

aggrieved by the cancellation of distribution licence granted in favour

of JSPL and due to unavailability of an alternative distribution

licensee. It is the grievance of the appellant herein that it was not a

party before the Appellate Tribunal.

20. JSPL, on 08.05.2008, by way of its notice, informed the

appellant in this appeal that since its distribution licence had been

cancelled, it had to stop supplying power to all the industries in the

Jindal Industrial Park whereafter on 09.05.2008, at 1:00 p.m., the

electricity supply to all the units of the appellant was disconnected.

The appellant contends that all the units were brought to a standstill

19 and the appellant has been facing losses running to crores of rupees.

The appellant avers that it is a third party and an end consumer of

JSPL who is deprived of electricity in the absence of any alternative

distributor in place. Hence these appeals.

21. We have heard Sri Sanjay Sen, learned senior counsel for the

appellant in C.A. Nos. 3607­3610 of 2008 and Sri C.S. Vaidyanathan,

learned senior counsel for the appellant in C.A. Nos. 4104­4107 of

2008 duly assisted by their instructing counsel; Ms. Swapna

Seshadri, learned counsel for the respondent No.1, Sri Raj Kumar

Mehta, learned counsel for the respondent No.2 and perused the

material on record.

22. The submissions of the learned senior counsel for the appellant­

JSPL in Civil Appeal Nos.3607­3610 of 2008 are epitomised as under:

22.1 That the Commission in its order dated 29.11.2005, after taking

note of the Distribution of Electricity (Additional Requirement of

Capital and Adequate Creditworthiness and Code of Conduct)

Rules, 2005 (‘2005 Rules’, for short) had proceeded to grant

licence keeping in view the historical background, investment

made by the appellant­JSPL and the benefits that accrued in

favour of industrial consumers who had set up their industrial

plants and had no other source of power supply at the relevant

time. By its Order dated 29.09.2005, the Commission had

20 specifically noticed the inability of CSEB to provide electricity

for want of physical infrastructure and unavailability of surplus

power. In fact, the State of Chhattisgarh was suffering from

power shortages and was buying power from the captive power

plant of this appellant­JSPL. On the basis of the permission

granted by the State Government/CSEB, in terms of MoU dated

23.10.2002, the construction of transmission and distribution

network was undertaken and completed and supply of power on

the basis of the long­term agreement had commenced on or

about 01.03.2004 which was much prior to the coming in to

existence of the Commission and the 2005 Rules. Further, the

State Government with the concurrence of CSEB had acted

substantially in terms of powers vested under the repealed law

i.e., Section 28 of the 1910 Act and the State’s Industrial and

Energy Policies. The original application for grant of licence filed

on 15.09.2004 and revised application for grant of licence filed

on 25.01.2005 were both before notification of the 2005 Rules.

However, the Appellate Tribunal has taken a narrow and

pedantic view solely on the basis of Explanation to Rule 3 of the

2005 Rules.

22.2 It was contended that an ‘explanation’ to a provision is merely

meant to explain or clarify certain ambiguities and cannot be

21 treated as a substantive provision. In this regard, the learned

senior counsel appearing on behalf of the appellant­JSPL has

placed reliance on S. Sundaram Pillai v. V.R. Pattabiraman

(1985) 1 SCC 591 and Global Energy Ltd. v. Central

Electricity Regulatory Commission (2009) 15 SCC 570. He

further states that the Explanation to Rule 3 is not a part of the

statute’s provisions or primary legislation but is in the context

of subordinate legislation. From a conjoint reading of Section

2(3), Section 14 and sixth proviso thereof, Section 86 and

Section 176(2)(b) of the 2003 Act, it is clear that the Central

Government has not been vested with the jurisdiction to define

the area of supply. It is clear that the statute required the

Central Government to specify conditions only on three subjects

namely capital adequacy, credit worthiness and code of

conduct. If the Central Government indeed had delegated the

power to define the area of supply of a distribution licensee, it

would have made a substantive rule and not inserted it through

an Explanation. According to learned senior counsel,

Explanation to Rule 3, at the highest, can act as a guideline for

discharge of regulatory functions which should be generally

followed.

22 22.3 The position that the Explanation to Rule 3 is in the nature of a

guideline is strengthened by the fact that Clause 5.4.7 of the

National Electricity Policy has a similar provision relating to

minimum area of supply that acts only as a guidance in

discharge of statutory functions. Sections 61(i) and 86(4) of the

2003 Act clearly states that both the National Electricity Policy

and the Tariff Policy will act as a guidance.

22.4 The learned senior counsel for the appellant­JSPL reiterated

that the Central Government’s power to introduce a substantive

rule defining the area of licence cannot be traced to any

provision under the statute. On the contrary, the area of supply

has to be prescribed in the licence issued by the State

Government under Sections 2(3), 14, 15 and 86(1)(d) of the

2003 Act to each and every supplier. Therefore, Explanation to

Rule 3 is without authority of law. In this behalf, the learned

senior counsel for the appellant placed reliance on Bhaskar

Shrachi Alloys Ltd. v. Damodar Valley Corporation (2018)

8 SCC 281, Kerala Samsthana Chethu Thozhilali Union v.

State of Kerala & Ors. (2006) 4 SCC 327 and

Bharathidasan University & Anr. v. All India Council for

Technical Education & Ors. (2001) 8 SCC 676.

23 22.5 It was further contended that in the instant case, the

distribution licence was granted on 29.09.2005 and the same

was confirmed by the Appellate Authority vide order dated

11.05.2006 in Appeal No.27 of 2006. Therefore, there was no

occasion to challenge the vires of 2005 Rules. Even if the Rules

have not been specifically challenged, the same cannot be

applied if found to violate any provision.

22.6 It was submitted that if the Explanation to Rule 3 is applied to

the present case as a substantive rule, it would result in

impairment of vested/accrued rights of the appellant­JSPL and

the consumers of Jindal Industrial Park. At the time of making

a formal application on 15.09.2004, the 2005 Rules were not in

existence. The appellant­JSPL had acted bonafide, in terms of

concurrence/permission of the State Government under the

repealed 1910 Act and also under the present 2003 Act, the

same cannot be now made to suffer on account of delay in grant

of licence and introduction of the 2005 Rules. The learned

senior counsel for the appellant stated that the same cannot be

done in terms of various judgments passed by this Court viz. P.

Mahendran v. State of Karnataka (1990) 1 SCC 411, A.A.

Calton v. Director of Education (1983) 3 SCC 33 and Gopal

24 Krushna Rath v. M.A.A. Baig (dead) by LRs (1999) 1 SCC

544. Placing reliance on Federation of Indian Mineral

Industries & Ors. v. Union of India & Anr. (2017) 16 SCC

186, the learned senior counsel urged that a subordinate

legislation cannot be made to have a retrospective effect unless

the parent statute, expressly or by necessary implication

authorizes it to do so.

22.7 The next limb of argument was that the exercise of power by the

State Government in allowing the appellant­JSPL in these

appeals to proceed with supply of electricity manifests in the

form of the terms of the MoU dated 23.10.2002 as well as letters

dated 29.01.2003 and 28.02.2004. These permissions were no

less than a sanction contemplated under Section 28 of the 1910

Act and thus saved in terms of Section 6 of the General Clauses

Act, 1897 and Section 185 of the 2003 Act. In this regard, the

learned senior counsel for the appellant­JSPL banked upon

Hindustan Unilever Ltd. v. State of Madhya Pradesh (2020)

10 SCC 751 and Gujarat Electricity Board v. Shantilal R.

Desai (1969) 1 SCR 580.

22.8 It was further submitted that on the basis of amendment that

came into effect on 27.01.2004, the legislature replaced the

25 word ‘including’ with ‘relating to’ in sixth proviso to Section 14

of the 2003 Act. The word ‘including’ makes the provision

expansive as has been held by this Court in the cases of DAV

College Trust and Management Society & Ors. v. Director

of Public Instructions & Ors. 2019 (9) SCC 185 and C.I.T

Andhra Pradesh v. M/s. Taj Mahal Hotel, Secunderabad

1971 (3) SCC 550. Further, the Parliament curtailed the power

of the Central Government and by an amendment removed the

word ‘including’ and instead used the term ‘relating to’. For

something to be treated as ‘relating to’ a provision, it has to

established that ‘the dominant purpose and theme of the

provision is one and one only’ as was observed in the case of

Madhav Rao Jivaji Rao Scindia v. Union of India (1971) 1

SCC 85. Therefore, a restrictive meaning must be given to the

sixth proviso.

22.9 Placing reliance on Ramana Dayaram Shetty v.

International Airport Authority of India (1979) 3 SCC 489,

it was further urged that the appellant­JSPL has been supplying

electricity to its consumers since 01.03.2004 and has taken

regulatory/contractual/legal steps thereof and the decision to

26 deny distribution licence is detrimental to the interest of the

appellant­JSPL as well as the consumers.

23. The submissions of the learned senior counsel Sri Vaidyanathan

for the appellant in Civil Appeal Nos.4104­4107 of 2008 are

encapsulated as under:

23.1 The appellant herein is a consumer of electricity supplied by

JSPL in Jindal Industrial Park. The judgment of the Appellate

Tribunal in so far as the same sets aside the grant of

distribution licence by the Commission without appointing any

alternative distribution licence is ultra vires the 2003 Act read

with the 2005 Rules.

23.2 The Appellate Tribunal failed to appreciate the scheme of the

2003 Act that does not permit the Commission or the Tribunal

to cancel a distribution licence without hearing the consumers.

The entire purpose and object of the 2003 Act was to liberalise

the generation, transmission, distribution and supply of

electricity to prevent monopolies from demanding heavy

electrical charges from consumers and open access was

permitted so that any trader or distributor could, as of right,

distribute and supply electricity to industries or consumers who

demanded electricity through the particular trader or

27 distributor. The sixth proviso to Section 14 of the 2003 Act

makes the aforesaid position even clearer by providing for more

than one licensee distributing and supplying power in the same

area.

23.3 The area of supply is defined under Section 2(3) of the 2003 Act

and nowhere, the Act has defined the area of supply as

restricted to mean an entire district or an entire area of the

municipality under Article 243Q of the Constitution of India.

23.4 The Appellate Tribunal failed to note that CSEB was not

operating in the Jindal Industrial Park and therefore cancelling

the distribution licence on this ground was incorrect. CSEB

itself expressed its inability to supply power in the Jindal

Industrial Park during the hearing before the Appellate

Tribunal.

23.5 Further, Explanation to Rule 3 does not indicate that the

second licensee must have a minimum area of supply as

construed by the Appellate Tribunal. The term ‘same area’

appearing in the Explanation states what should be the area for

which the two licensees may be said to be operating ‘within the

same area’. The term same area has not been explained in the

2003 Act or in the 2005 Rules and the Explanation, gives the

28 meaning that the overlapping must be at least of an area

comprised within a Municipal Corporation or a revenue district,

etc.

23.6 The Central Government in making rules under Section 14 of

the 2003 Act has added an Explanation to Rule 3(2) of the 2005

Rules by which it has restricted the concept of same area in

terms of the sixth proviso to Section 14 of the 2003 Act to ‘the

area comprising a municipal council or a municipal corporation

as defined in Article 243Q of the Constitution of India or a

revenue district, which shall be the minimum area of supply.

The said construction is fully inconsistent and violative of the

express provision of sixth proviso to Section 14 of the said 2003

Act and goes counter to the entire spirit, purpose and object of

the 2003 Act.

23.7 The grant of distribution licence is an administrative function of

the Commission and the Appellate Tribunal had no jurisdiction

to interfere as was rightly held in the earlier judgment of the

Appellate Tribunal dated 11.05.2006. That under the 2003 Act,

the Appellate Tribunal is neither empowered to grant licence nor

to cancel the same.

23.8 By virtue of Section 19 of the 2003 Act, only the Commission is

empowered to revoke a license, that too, after complying with

29 the procedural safeguards therein and no such power has been

conferred upon the Appellate Tribunal. Further, no appeal can

lie from an executive order passed by the Commission.

23.9 There are more than thirty industries that have been set up in

Jindal Industrial Park by investing more than Rs.600 crores.

More than 4000 direct employees are provided employment.

Therefore, cancelling the said distribution licence is opposed to

public policy.

23.10 Learned senior counsel, Sri C.S. Vaidyanathan appearing for the

appellant in C.A. Nos. 4104­4107 of 2008 contended that the

said appellant was one of the consumers of electricity being

supplied by JSPL and on account of the cancellation of the

licence, the appellant had been adversely affected and therefore

the impugned judgment of Appellate Tribunal may be set aside

and the Order of the respondent No.1 may be given effect to.

24. The submissions of the learned counsel for respondent No.1 in

Civil Appeal Nos.3607­3610 of 2008 are summarised as under:

24.1 The term ‘within the same area’ appearing in the Explanation to

Rule 3 of the 2005 Rules has to be read as being an area

comprising of a Municipal Council or a Municipal Corporation

as defined in Article 243(Q) of the Constitution of India or a

revenue district. The said Explanation provides for a minimum

30 area of supply for grant of a parallel/ second distribution

license. For a minimum area to be provided as a qualifying

condition for grant of distribution license, an interpretation that

the area should merely fall within a revenue district or the

municipal council, would negate the very provision of a

minimum area as a qualifying criterion. Thus, the concept of a

minimum area would be inherently inconsistent or

contradictory to the interpretation that the area needs to fall

within and not equivalent to the area comprised of a municipal

corporation or a revenue district.

24.2 A distribution licensee has a universal supply obligation under

Section 43 of the 2003 Act, i.e., to supply electricity to any

person requiring the same within the area of its operation. It

was submitted that Para 5.4.7 of the National Electricity Policy

makes clear the intention of Government of India on the

minimum area to be provided for grant of a second/parallel

distribution license. The purpose of prescription of minimum

area as comprising of a municipal corporation/council or a

revenue district is that there would be a mix of all categories of

consumers within the said area. Thus, the second distribution

licensee would also be under an obligation to supply electricity

to all consumers within such area, and not only to high paying

31 consumers. Hence, cherry picking of the consumers has to be

avoided and therefore the Government of India thought it fit to

prescribe a minimum area for which a second distribution

licence can be granted.

24.3 Thus, the minimum area condition specified in Explanation to

Rule 3 needs to be fulfilled for grant of the second distribution

license. The said distribution licence is neither co­terminus with

the existence of the revenue district nor would the distribution

licence be amended, revoked or in any manner affected by

delimitation or consolidation of revenue districts. Any

subsequent change to the area on account of consolidation of

revenue district etc. would not affect the area for which the

distribution licence has been granted which is the area of

minimum supply.

24.4 That the cancellation of licence granted by the State

Commission was not proper in the instant case as the State

Commission, after considering the entire factual situation and

while making an exception, has already directed that JSPL

would be required to supply electricity to two villages, namely,

Tumdih and Punjipathra.

32 24.5 It was therefore contended that the Appellate Tribunal was not

right in setting aside the order of the Commission.

25. The submissions of the learned counsel for respondent No.2 in

Civil Appeal Nos.3607­3610 of 2008 are encapsulated as follows:

25.1 That the National Electricity Policy framed by the Government of

India, Ministry of Power, under Section 3 of the 2003 Act

stipulates that the area of supply under a distribution licence

has necessarily to be a minimum area comprising a revenue

district, a municipal council for a smaller urban area or a

municipal corporation for a larger urban area. By virtue of

Section 86(4) of the 2003 Act, the State Commission is

statutorily bound to be guided by the said National Electricity

Policy. Placing reliance on the judgment of this Court in Energy

Watchdog v. Central Electricity Regulatory Commission

and Others (2017) 14 SCC 80, the learned counsel for

respondent No.2 submitted that in the context of Tariff Policy, a

tariff policy issued under Section 3 of the 2003 Act has the force

of law. Similarly, the aforesaid provision in National Electricity

Policy was statutorily embodied in the 2005 Rules.

33 25.2 Further, a combined reading of the above provisions of the

Electricity Act, 2003, the National Electricity Policy and 2005

Rules, the legal position that emerges is that the ‘minimum area

of supply’ for grant of a distribution licence has to comprise the

entire area of a municipal council or a municipal corporation or

a revenue district. No distribution licence can be granted for a

lesser area even though such lesser area forms a part of the

municipal council or a municipal corporation or a revenue

district.

25.3 The interpretation that it can be ‘any area’ which falls within a

municipal council or a municipal corporation or a revenue

district would defeat the very object sought to be achieved by

the legislature by providing for universal supply obligation of

the distribution licence to supply electricity in its area of supply

read with Explanation 3 of 2005 Rules. Such interpretation

would render the Explanation nugatory and redundant and it is

a settled principle of interpretation that redundancy cannot be

attributed to the legislature. Reliance in this regard was placed

on the judgment in the case of Thampanoor Ravi v.

Charupara Ravi (1999) 8 SCC 74.

34 25.4 The condition of minimum area of supply as mandated by sixth

proviso to Section 14 of the 2003 Act read with Explanation to

Rule 3(2) of the 2005 Rules is integral to ‘fair competition’ and

‘level playing field’. The same is necessary to fulfill the statutory

obligations of universal supply stipulated under Section 43 of

the 2003 Act. Further, in the regime of multiple licenses

introduced under the 2003 Act, insistence upon minimum area

of supply prevents any form of cherry picking of high end­

consumers only in a self­chosen area of supply as in the present

case.

25.5 While relying on the judgment of this Court in Peerless

General Finance & Investment Co. Ltd. v. Reserve Bank of

India (1992) 2 SCC 343 and Chief Forest Conservator

(Wildlife) & Ors. v. Nisar Khan (2003) 4 SCC 595, it was

urged that the Explanation to Rule 3 of the 2005 Rules was

enacted so as to effectuate the working of the 2003 Act and is

therefore a part of the said Act. Thus, the requirement of

minimum area of supply for grant of distribution licence is an

integral part of the scheme of grant of distribution licence under

the 2003 Act read with 2005 Rules.

35 25.6 Therefore, in light of the aforesaid submission, JSPL was not

entitled to a licence under Section 14 of the 2003 Act as it does

not satisfy the condition of ‘minimum area of supply’.

25.7 The Commission, while granting license, vide order dated

29.09.2005 was well­aware that the appellant JSPL did not

satisfy the requirement of the ‘minimum area of supply’ as

specified in the Explanation to Rule 3 and was not in a position

to fulfill its statutory duty/universal obligation under Section 43

of the 2003 Act. Therefore, the Commission imposed a special

condition on the appellant by granting distribution licence to

JSPL for two villages namely Tumdih and Punjipathra of Tehsil

Gharghoda, District Raigarh and remaining area of these two

villages. Even the said special condition imposed does not

amount to compliance of the condition regarding ‘minimum area

of supply’ for grant of a second licence as mandated in the

Explanation to Rule 3(2).

25.8 The appellant was duty bound by the special condition in the

order granting distribution licence to provide supply of power to

consumers of the aforesaid two villages. However, the appellant­

JSPL has been making huge profits by supplying electricity only

to twenty­five industries in the Jindal Industrial Park and has

36 completely failed to fulfill its obligation to supply power to two

villages namely Tumdih and Punjigraha of Tehsil Gharghoda,

District Raigarh.

25.9 Due to this gross and flagrant violation by the appellant­JSPL of

the special condition imposed by the Commission, the

Distribution Company i.e., the Chhattisgarh State Power

Distribution Company Limited has been deprived of revenue to

the extent of Crores of rupees per month. Thus, keeping in view

the above, the licence granted needs to be quashed on this

ground too.

25.10 The appellant’s contention that the 2005 Rules were not in

existence at the time of filing of the application for distribution

licence by the appellant­JSPL and that the grant of such licence

cannot be faulted with on the ground of violation of Rule, is

highly misconceived, since, it is a settled position of law that the

Authority is required to apply the Rules and legal provisions in

force on the date when the application is considered. Further,

the argument of the appellant­JSPL that the Explanation is only

in the nature of a guideline is also devoid of any merit. In this

regard, the counsel for respondent No.2 placed reliance on the

following judgment passed by this Court in Howrah Municipal

37 Corporation and Ors. v. Ganges Rope Co. Ltd. and Ors.

(2004) 1 SCC 663, Union of India and Ors. v. Indian Charge

Chrome and Anr. (1999) 7 SCC 314, M/s. Hiralal Rattanlal

etc. etc. v. State of U.P. and Anr. etc. etc. (1973) 1 SCC 216

and Dattatraya Govind Mahajan v. State of Maharashtra

(1977) 2 SCC 548.

25.11 Explanation to Rule 3 of the 2005 Rules cannot be said to have

no authority of law. The 2005 Rules have been enacted in

exercise of power under Section 176(1) and Section 176(2)(b) of

the 2003 Act. Further since the appellant­JSPL has not even

challenged the vires of the 2005 Rules, the appellant­JSPL is

estopped from raising the contention that Explanation to Rule 3

of the 2005 Rules has no authority of law.

25.12 The contention that the appellant­JSPL acted bonafide in terms

of the concurrence/permission of the State Government as the

same are saved under Section 6 of the General Clauses Act,

1897 as also Section 185 of the 2003 Act is also misconceived

and untenable. The counsel for respondent No.2 urged that the

Appellate Tribunal in the impugned judgment rightly pointed

out that all the permissions given by the State Government and

other authorities were specifically made subject to and

38 conditional upon the licence being granted by the Commission

under the 2003 Act. It is, therefore, incorrect for the appellant

to rely on the permissions/concurrences given by the State

Government since the appellant does not satisfy the

requirement of minimum area of supply as mandated under

Explanation to Rule 3 of 2005 Rules.

25.13 The submission of the appellant­JSPL that the sixth proviso to

Section 14 has been amended to narrow down the scope of

Rule­making power is also misconceived. The substitution of the

word ‘relating to’ in place of the word ‘including’ does not

amount to restricting the scope of the rule­making power. The

term ‘relating to’ is of wide amplitude and cannot be restrictive

in any manner.

25.14 Further, the submission of appellant that the grant of

distribution licence was in public interest is devoid of any merit

since the appellant has only been furthering its own interest.

25.15 To sum up, the counsel for respondent No.2 strenuously

contended that the ‘minimum area of supply’ as provided in the

Explanation to Rule 3 of 2005 Rules is a mandatory

requirement for grant of second or subsequent distribution

licence in the area of supply of an existing distribution license.

39 It was thus contended by respondent No.2 that the Tribunal

was correct in setting aside the order granting licence to the

appellant.

26. Having heard learned senior counsel and counsel for the

respective parties, it is noted that the appellants in both the appeals

are challenging the order dated 07.05.2008 whereby the Appellate

Tribunal allowed the appeals filed by the respondents herein and set­

aside the order passed by the Commission dated 29.05.2005, thereby,

canceling the distribution licence granted in favour of the appellant

for supply of power by the appellant from its captive power plant to

the industrial units in Jindal Industrial Park.

27. Before delving further upon the various issues in the present

matter, we shall analyse relevant provisions of the 2003 Act. The

2003 Act, came into force on 10.06.2003 insofar as Sections 1 to 120

and Sections 122 to 185 are concerned. The Preamble of the 2003 Act

states that it has been enacted to consolidate the laws relating to

generation, transmission, distribution, trading and use of electricity

and generally for taking measures conducive to development of

electricity industry, promoting competition therein, protecting interest

of consumers and supply of electricity to all areas, rationalization of

electricity tariff, ensuring transparent policies regarding subsidies,

promotion of efficient and environmentally benign policies,

40 constitution of Central Electricity Authority, Regulatory Commissions

and establishment of Appellate Tribunal and for matters connected

therewith or incidental thereto.

28. Section 2 of the 2003 Act is the definition clause and the

relevant definitions for the purposes of the present cases read as

under:

“Section 2. (Definitions): ­­­ In this Act, unless the context otherwise requires, ­­ xxxxxxxxx (3) "area of supply” means the area within which a distribution licensee is authorised by his licence to supply electricity;

4) "Appropriate Commission” means the Central Regulatory Commission referred to in sub­Section (1) of Section 76 or the State Regulatory Commission referred to in Section 82 or the Joint Commission referred to in Section 83, as the case may be;

xxxxxx (38) “licence” means a licence granted under Section 14;

(39) “licensee” means a person who has been granted a licence under Section 14;

xxxxxxxx (41) “local authority” means any Nagar Panchayat, Municipal Council, Municipal Corporation, Panchayat constituted at the village, intermediate

41 and district levels, Body of Port Commissioners or other authority legally entitled to, or entrusted by the Union or any State Government with, the control or management of any area or local fund;

xxxxxxxx (64) "State Commission" means the State Electricity Regulatory Commission constituted under sub­Section (1) of Section 82 and includes a Joint Commission constituted under sub­ Section (1) of Section 83;”

29. Part II of the 2003 Act deals with National Electricity Policy and

Plan. In compliance with section 3 of the 2003 Act, the Central

Government has notified the National Electricity Policy dated 12 th

February, 2005, the relevant portions of which are extracted as

under:

“1.0 INTRODUCTION

X.X.X.

1.5 Electricity industry is capital­intensive having long gestation period. Resources of power generation are unevenly dispersed across the country. Electricity is a commodity that can not be stored in the grid where demand and supply have to be continuously balanced. The widely distributed and rapidly increasing demand requirements of the country need to be met in an optimum manner.

42 1.6 Electricity Act, 2003 provides an enabling framework for accelerated and more efficient development of the power sector. The Act seeks to encourage competition with appropriate regulatory intervention.

Competition is expected to yield efficiency gains and in turn result in availability of quality supply of electricity to consumers at competitive rates.

1.7 Section 3 (1) of the Electricity Act 2003 requires the Central Government to formulate, inter alia, the National Electricity Policy in consultation with Central Electricity Authority (CEA) and State Governments. The provision is quoted below:

"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 utilization of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy".

Section 3 (3) of the Act enables the Central Government to review or revise the National Electricity Policy from time to time.

1.8 The National Electricity Policy aims at laying guidelines for accelerated development of the power sector, providing supply of electricity to all areas and protecting interests

43 of consumers and other stakeholders keeping in view availability of energy resources, technology available to exploit these resources, economics of generation using different resources, and energy security issues.

X.X.X.

5.4 DISTRIBUTION

X.X.X.

5.4.7 One of the key provisions of the Act on competition in distribution is the concept of multiple licensees in the same area of supply through their independent distribution systems. State Governments have full flexibility in carving out distribution zones while restructuring the Government utilities. For grant of second and subsequent distribution licence within the area of an incumbent distribution licensee, a revenue district, a Municipal Council for a smaller urban area or a Municipal Corporation for a larger urban area as defined in the Article 243(Q) of Constitution of India (74th Amendment) may be considered as the minimum area. The Government of India would notify within three months, the requirements for compliance by applicant for second and subsequent distribution licence as envisaged in Section 14 of the Act. With a view to provide benefits of competition to all section of consumers, the second and subsequent licensee for distribution in the same area shall have obligation to supply to all consumers in accordance with provisions of section 43 of the Electricity Act, 2003. The SERCs are required

44 to regulate the tariff including connection charges to be recovered by a distribution licensee under the provisions of the Act. This will ensure that second distribution licensee does not resort to cherry picking by demanding unreasonable connection charges from consumers.”

30. Part III deals with generation of electricity. Part IV of the 2003

Act is of relevance to these cases as it concerns licensing. Section 12

states that no person shall (a) transmit electricity; or (b) distribute

electricity; or (c) undertake trading in electricity, unless he is

authorised to do so by a licence issued under Section 14, or is exempt

under Section 13. The power to exempt is prescribed in Section 13.

The grant of licence is as per Section 14 and the procedure for grant

of licence is dealt with in Section 15 while the conditions of licence

are in terms of Section 16. Section 18 of the said Act speaks of

Amendment of licence while Section 19 concerns revocation of

licence.

31. Section 14 of the 2003 Act which deals with grant of licence

reads as under:

14. Grant of licence­ The Appropriate Commission may, on an application made to it under Section 15, grant a licence to any person –

(a) to transmit electricity as a transmission licensee; or

45

(b) to distribute electricity as a distribution licensee; or

(c) to undertake trading in electricity as an electricity trader, in any area as may be specified in the licence:

Provided that any person engaged in the business of transmission or supply of electricity under the provisions of the repealed laws or any Act specified in the Schedule on or before the appointed date shall be deemed to be a licensee under this Act for such period as may be stipulated in the licence, clearance or approval granted to him under the repealed laws or such Act specified in the Schedule, and the provisions of the repealed laws or such Act specified in the Schedule in respect of such licence shall apply for a period of one year from the date of commencement of this Act or such earlier period as may be specified, at the request of the licensee, by the Appropriate Commission and thereafter the provisions of this Act shall apply to such business:

Provided further that the Central Transmission Utility or the State Transmission Utility shall be deemed to be a transmission licensee under this Act:

Provided also that in case an Appropriate Government transmits electricity or distributes electricity or undertakes trading in electricity, whether before or after the commencement of this Act, such Government shall be deemed to be a licensee under this Act, but shall not be required to obtain a licence under this Act: Provided also that the Damodar Valley Corporation, established under sub­Section (1) of Section 3 of the Damodar Valley

46 Corporation Act, 1948, (14 of 1948), shall be deemed to be a licensee under this Act but shall not be required to obtain a licence under this Act and the provisions of the Damodar Valley Corporation Act, 1948, in so far as they are not inconsistent with the provisions of this Act, shall continue to apply to that Corporation:

Provided also that the Government company or the company referred to in sub­Section (2) of Section 131 of this Act and the company or companies created in pursuance of the Acts specified in the Schedule, shall be deemed to be a licensee under this Act:

Provided also that the Appropriate Commission may grant a licence to two or more persons for distribution of electricity through their own distribution system within the same area, subject to the conditions that the applicant for grant of licence within the same area shall, without prejudice to the other conditions or requirements under this Act, comply with the additional requirements relating to the capital adequacy, credit­worthiness, or code of conduct as may be prescribed by the Central Government, and no such applicant, who complies with all the requirements for grant of licence, shall be refused grant of licence on the ground that there already exists a licensee in the same area for the same purpose:

Provided also that in a case where a distribution licensee proposes to undertake distribution of electricity for a specified area within his area of supply through another person, that person shall not be required to obtain any separate licence from the concerned State Commission and such distribution licensee shall be responsible for

47 distribution of electricity in his area of supply:

Provided also that where a person intends to generate and distribute electricity in a rural area to be notified by the State Government, such person shall not require any licence for such generation and distribution of electricity, but he shall comply with the measures which may be specified by the Authority under Section 53:

Provided also that a distribution licensee shall not require a licence to undertake trading in electricity.

32. On a reading of Section 14 of the 2003 Act, it is clear that the

appropriate Commission may, on an application made to it under

Section 15 grant a licence to any person (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 as may be specified in the licence.

33. The first three provisos to Section 14 of the 2003 Act are in the

nature of saving clauses. The fourth and fifth provisions are not

relevant to these cases. The sixth proviso which is under

consideration states that the appropriate Commission may grant a

licence to two or more persons for distribution of electricity through

their own distribution system within the same area, subject to the

conditions that the applicant for grant of licence within the same

area, shall, without prejudice to the other conditions or requirement

48 under the Act comply with the additional requirements relating to the

capital adequacy, creditworthiness, or code of conduct as may be

prescribed by the Central Government, and no such applicant, who

complies with all the requirements for grant of licence, shall be

refused grant of licence on the ground that there already exists a

licensee in the same area for the same purpose.

34. The Central Government had enunciated the 2005 Rules w.e.f.

23.03.2005 as per Section 176 of the 2003 Act. Rule 3 is relevant for

the purpose of these cases is extracted as under:

3. Requirements of capital adequacy and creditworthiness.— (1) The Appropriate Commission shall, upon receipt of an application for grant of licence for distribution of electricity under sub­Section (1) of Section 15 of the Electricity Act, 2003, decide the requirement of capital investment for distribution network after hearing the applicant and keeping in view the size of the area of supply and the service obligation within that area in terms of Section 43.

(2) The applicant for grant of licence shall be required to satisfy the Appropriate Commission that on a norm of 30% equity on cost of investment as determined under sub­rule (1), he including the promoters, in case the applicant is a company, would be in a position to make available resources for such equity of the project on the basis of the networth and generation of internal resources of his business including of promoters in the preceding three years

49 after excluding his other committed investments.

Explanation—For the grant of a licence for distribution of electricity within the same area in terms of sixth proviso to Section 14 of the Act, the area falling within a Municipal Council or a Municipal Corporation as defined in the article 243(Q) of the Constitution of India or a revenue district shall be the minimum area of supply.

35. The controversy in these cases surrounds the interpretation to

be given to the Explanation to Rule 3. As already noted, the 2005

Rules, under consideration have been prescribed having regard to the

sixth proviso to Section 14 of the Act. The said proviso would apply

only when the appropriate Commission considers it necessary to

grant a licence to two or more persons for distribution of electricity

through their own distribution system within the same area, in which

case, there are certain additional requirements which the applicant

must fulfil relating to capital adequacy, creditworthiness or code of

conduct. It is only with regard to the aforesaid three aspects that the

2005 Rules have been prescribed.

36. In response to the arguments of learned senior counsel for the

appellants, the contention of respondent No.2 herein is that the

appellant­JSPL does not fulfil the condition mentioned in the

Explanation to Rule 3 inasmuch as the said appellant does not fulfil

50 the condition of minimum area of supply as the area that the said

appellant is supplying, is not for an entire Municipal Council or a

Municipal Corporation or a Revenue District. The area of supply as

per the licence of the appellant­JSPL is for the area comprised in the

industrial park set up by the appellant and for two other villages only.

Hence, the licence issued to the said appellant is vitiated as the area

of supply prescribed in the licence does not conform to the

Explanation to Rule 3 of the 2005 Rules.

37. In order to answer the aforesaid contention, it would be

necessary to consider the sixth proviso to Rule 14 in light of the

definition of ‘area of supply’ and the Explanation to Rule 3 of the

2005 Rules. On a conjoint reading of the same, it is noted that the

sixth proviso to Section 14 applies to a situation where the

appropriate Commission may grant a licence to two or more persons

for distribution of electricity through their own distribution system

within the same area subject to the applicant­JSPL complying with

the additional requirements. Therefore, it is clear that within the

same area, there could be two or more persons for distribution of

electricity. As to what is the area within which there could be grant of

licence to two or more persons is concerned under the sixth proviso to

Section 14, the Explanation to Rule 3 prescribes the area falling

within a Municipal Council or a Municipal Corporation as defined

51 under Article 243 (Q) of the Constitution of India or Revenue District.

The area of supply authorised by the Appropriate Commission shall

be the minimum area of supply.

38. The ‘area of supply’ is defined under sub­section 3 of Section 2

to mean that area within which the distribution licensee is authorised

by his licence to supply electricity. This ‘area of supply’ must fall

‘within’ a Municipal Council or a Municipal Corporation as defined

under Article 243 (Q) of the Constitution of India or a Revenue

District. That means that the ‘area of supply’ must fall ‘within’ the

local authority of a Municipal Council or a Municipal Corporation as

defined in sub­section 41 of Section 2 of the Act or a Revenue

District, as the case may be, and within which area of supply, licence

is granted for distribution of electricity. Therefore, the expression area

in the sixth proviso of Section 14 is explained as the ‘area falling

within’ a Municipal Council or a Municipal Corporation as defined

under Article 243 (Q) of the Constitution of India or a Revenue

District which shall be the ‘area of supply’. As already noted, within

such area, there could be two or more persons who are granted a

licence to distribute electricity which is in terms of the provision

granting license. The ‘area within which they are authorised to supply

electricity’ is the ‘area of supply’ and such ‘area of supply’ in respect

52 of which authorisation is granted under the licence is the “minimum

area of supply”.

39. Therefore, when two or more persons are granted licence within

an area forming a Municipal Council or a Municipal Corporation or a

Revenue District, the authorisation to supply electricity granted to a

distribution licensee within the aforesaid area is the actual area of

supply and the actual area of supply in respect of which the

authorisation is granted under the licence is called the minimum area

of supply.

40. Thus, on a conjoint reading of the aforesaid provisions, it is

clear that the ‘minimum area of supply” would fall ‘within the area’

which is comprising of a Municipal Council or a Municipal

Corporation or a Revenue District but it does not imply that the

licence to supply electricity for an area or an ‘area of supply which is

the ‘minimum area of supply’ must extend to the ‘entire area falling

within’ a Municipal Council or a Municipal Corporation or a Revenue

District.

41. But if the interpretation as suggested by the respondent No.2 is

to be accepted, then the expression ‘area falling within’ in the

Explanation would become otiose or redundant. The object of

providing a Municipal Council or a Municipal Corporation or a

Revenue District as an area is to provide a standard area, within

53 which area, two or more persons could distribute electricity. It does

not mean that the licensee must distribute electricity in the entire

standard area. The words used are ‘the area falling within’ a

Municipal Council or a Municipal Corporation or a Revenue District.

The same does not mean that the area comprising of or an area

equivalent to a Municipal Council or a Municipal Corporation or a

Revenue District. It is only in an ‘area falling within’ a Municipal

Council or a Municipal Corporation or a Revenue District that two or

more persons could be granted licence for distribution of electricity

which interpretation is supported by the use of the expressions

‘within the same area’ used twice in the sixth proviso to Section 14 of

the 2003 Act. Also, the use of the expression ‘within the same area’ in

the sixth proviso as well as in the Explanation to Rule 3 have to carry

the same meaning.

42. Moreover, the expression ‘within the same area’ in the sixth

proviso to Section 14 of the 2003 Act and the Explanation is

analogous to the expression ‘the area falling within’ a Municipal

Council or a Municipal Corporation or a Revenue District in the

Explanation. Thus, the expression ‘within the same area’ cannot refer

to the entire Municipal Council or a Municipal Corporation or a

Revenue District but ‘the area falling within’ a Municipal Council or a

Municipal Corporation or a Revenue District in respect of which a

54 distribution licensee is authorised by its licence to supply electricity.

Therefore, by the aforesaid interpretation it is held that the

authorised ‘area of supply’ shall be ‘the minimum area of supply’.

43. Hence, the contention of respondent No.2 that the ‘minimum

area of supply’ must comprise of the ‘entire’ Municipal Council or a

Municipal Corporation or a Revenue District is not correct. The

argument in the instant case is that the appellant­JSPL, not

complying with the prescription in Explanation to Rule 3 of the 2005

Rules as per the terms of the licence cannot be permitted to supply

electricity and therefore, the licence was rightly cancelled by the

Appellate Tribunal also cannot be accepted.

44. On the other hand, on a reading of the licence granted to the

appellant, it is clear that the respondent No.1 was conscious of the

fact that it was granting licence to the appellant­JSPL having regard

to the fact that the said appellant had established an industrial park

for which it had the responsibility for distribution of electricity and in

addition, two more villages were added to the area comprised in the

industrial park for the purpose of distribution of electricity. The area

in respect of which the licence was granted and thereby authorisation

provided to supply electricity is the minimum area of supply. The

‘area of supply’ is ‘an area falling within’ a Municipal Council or a

Municipal Corporation or a Revenue District and in the instant case,

55 it is a Revenue District. Since, the ‘area of supply’ authorised in the

licence granted to the appellant­JSPL in the instant case is the

‘minimum area of supply’, the said appellant is bound to supply

electricity in the said area of supply. The licensee cannot resile from

the condition of supplying electricity as per the authorisation of the

area of supply indicated in the license. This would also mean that the

licensee cannot supply electricity in an area beyond the area of

supply authorised under the license. This is because in respect of an

area falling within a Municipal Council or a Municipal Corporation

or a Revenue District, there could be two or more persons who could

be granted licence and authorisation to distribute electricity in terms

of the respective area of supply specified.

45. In view of the aforesaid interpretation, we find no substance in

the contentions advanced on behalf of the respondent No.2. On the

other hand, on a reading of the order passed by the respondent No.1­

Commission in C.A. Nos. 3607­3610 of 2008, we find that there has

been an application of mind to the licence that was granted to the

appellant for distribution of the electricity.

46. In view of the aforesaid discussion, we find that the Appellate

Tribunal was not right in cancelling/setting aside the licence granted

to the appellant­JSPL and hence, the impugned judgment is liable to

be set aside.

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47. In the result, the appeals are allowed and the impugned

common judgment of the Appellate Tribunal is hereby set aside.

48. Consequently, pending applications stand disposed by reserving

liberty to the applicants seeking impleadment to seek remedies in

accordance with law, if so advised.

49. Parties to bear their respective costs.

..………….……………J. (AJAY RASTOGI)

..………….……………J. (B.V. NAGARATHNA)

NEW DELHI;

29th September, 2022.

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