The State Of Himachal Pradesh vs Jsw Hydro Energy Limited

2025 INSC 857 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 12883 OF 2024

THE STATE OF HIMACHAL PRADESH & ANR. ...APPELLANT(S)

VERSUS

JSW HYDRO ENERGY LIMITED & ORS. …RESPONDENT(S)

JUDGMENT

PAMIDIGHANTAM SRI NARASIMHA, J.

Table of Contents

I. Introduction ............................................................................................ 2

II. Facts ...................................................................................................... 4

III. Impugned Order .................................................................................. 14

IV. Submissions ........................................................................................ 16

V. Issue..................................................................................................... 29 Signature Not Verified

VI. Analysis ............................................................................................... 29 Digitally signed by KAPIL TANDON Date: 2025.07.16 16:08:45 IST Reason:

VII. Regulation of Electricity Generation Under the Electricity Act ............. 33

1 VIII. Legal Effect of Note 3 of Regulation 55................................................ 36

i) Interpretation of the CERC Regulations, 2019…….……………….36

ii) CERC’s Order dated 17.03.2022 ................................................ 41

IX. Maintainability of the Writ Petition:...................................................... 44

i) CERC as an Expert and Specialised Regulator, and Extent of

Judicial Interference ........................................................................ 44

ii) Grant of Relief by the High Court ............................................... 50

X. Conclusion ........................................................................................... 53

I. Introduction:

1. Respondent no. 1, a generating company, installed and

commissioned a 1045MW hydroelectric power project pursuant to

a grant followed by an Implementation Agreement with the

appellant-State of Himachal Pradesh. Under this Agreement,

respondent no. 1 undertook to supply as consideration 18% of net

generation free of cost1 to the appellant-State. At the

commencement of the obligation to supply 18% free power,

respondent no. 1 approached the High Court by way of a writ

petition to align the Implementation Agreement with the CERC

1 The obligation to supply free power is 12% of net generation from 12.09.2011 to 12.09.2023,

and 18% thereafter till 12.09.2051.

2

(Terms and Conditions of Tariff) Regulations, 20192, which provide

for a maximum of 13% free power to the State Government, on the

ground that contractual agreements, to the extent that they are

inconsistent with the applicable regulations, shall stand

overridden by their operation. Accepting the argument, the High

Court entertained the writ petition and directed that the

Implementation Agreement stood modified.

2. We have allowed the appeal by the State of Himachal Pradesh

by interpreting the provisions of the Electricity Act, 2003 3 and the

CERC Regulations, 2019 in the context of the subsisting and

continuing contractual relationship between the parties. We have

held that the Central Electricity Regulatory Commission 4 shall give

effect to the Regulations and provide a pass-through to the extent

of 13% free power but the remaining part of the obligation is

contractual in nature and will be governed by the provisions of the

Implementation Agreement. On interpreting the cap under Note 3

of Regulation 55 of the CERC Regulations, 2019, we have held that

it does not restrain or prohibit respondent no. 1 from supplying

free power beyond 13% but it is only meant for the calculation and

2 Hereinafter “CERC Regulations, 2019”.

3 Hereinafter “Electricity Act”.

4 Hereinafter “CERC”.

3 fixation of tariff. Further, considering the expertise and

specialisation of the CERC as a statutory regulator and the wide-

ranging jurisdiction it exercises under the Electricity Act, as well

as respondent no. 1’s conduct in not seeking relief against the

appellant before the CERC, we have held that the present writ

petition was not maintainable before the High Court as the

interpretation of the Regulations falls within the exclusive domain

of the regulator.

II. Facts:

3. The facts, to the extent necessary are as follows. By a

Memorandum of Understanding 5 dated 28.08.1993, the appellant-

State allotted the Karcham Wangtoo Hydroelectric Project for an

installed capacity of 900 MW to one Jaiprakash Industries

Limited 6, which is a power generating company and the

predecessor of respondent no. 1. Under Clause 6 of the MoU, JIL

agreed to supply 12% of the power generated to the appellant-State

free of cost.

3.1 Pursuant to the MoU, the appellant entered into an

Implementation Agreement with JIL for an enhanced capacity of

5 Hereinafter “MoU”.

6 Hereinafter “JIL”.

4 1000 MW. The relevant clauses of the Implementation Agreement

are as follows:

i. Article 1.2 is the definitions clause that defines “Law” as

any Act, rule, regulation, notification, order, or instruction

having the force of Law enacted or issued by any

competent legislature, government, or statutory authority

in India.

ii. Further, the Effective Date of the Agreement is defined as

the date of signing, and the Scheduled Commercial

Operation Date 7 is defined as 120 months from the

Effective Date.

iii. Article 3.2 stipulates that the Implementation Agreement

shall remain in force for a period of 40 years from the

Commercial Operation Date 8 of the Project (Agreement

Period), unless terminated earlier as per its provisions. It

reads:

“3.2 Agreement Period

a) This Agreement shall remain in force up to a period of forty (40) years from the Commercial Operation Date of the Project (Agreement Period), unless terminated earlier in accordance with the provisions of the Agreement.”

7 Hereinafter “SCOD”.

8 Hereinafter “COD”.

5 iv. Article 4 delineates the obligations of the appellant-State

under the Agreement, which include the grant of various

consents and permissions to JIL to establish, operate, and

maintain the Project; to acquire land and prepare a

rehabilitation and resettlement plan for local residents; to

enter into leases for government land required for the

works; to upgrade roads and bridges for the Project; and

to provide necessary assistance to JIL as per the

Agreement.

v. Article 5 deals with the obligations of JIL, of which the

most relevant is the supply of power to the appellant-State

without any cost or charges under Article 5.1. Sub-clause

(a) stipulates the quantum of such supply as 12% of the

net generation for the first 12 years from the COD, and

18% of the net generation for the next 28 years. Further,

sub-clause (b) stipulates that JIL shall ensure that any

Power Purchase Agreement 9 entered into by it shall not be

detrimental to the rights of the appellant-State envisaged

in this clause. It reads:

“5.1 Government Supply

(a) The Company shall supply to the Government or its Agent, during the Agreement Period, at the Interconnection

9 Hereinafter “PPA”.

6 Point without any cost or charges to the Government, the quantum of electrical energy generated as specified below (Government Supply):

i) Commencing from the date Twelve (12) percent of of synchronisation of the first Net Generation Unit and for the first twelve (12) years from Commercial Operation Date (COD)

ii) For the next twenty eight Eighteen (18) percent (28) years after expiry of the of Net Generation period specified in (i) above.

This quantum of Government Supply is applicable in case the Project achieves Commercial operation on Scheduled Commercial Operation Date. In the event of early or delayed commissioning of the Project, the same shall be as per provision specified in Clause 5.19 and 5.20 respectively. In case the Government levies any duty/tax on generation and supply of power, the same shall be borne by the Government in respect of Government Supply. Further modalities for providing the Government Supply shall be mutually agreed between the Company and the Board.

(b) The Company shall ensure that any Power Purchase Agreement entered into by it shall not be detrimental to the rights of the Government envisaged in this Clause.”

vi. Article 9 provides that the rights and obligations under or

pursuant to the Agreement shall be governed by and

construed according to Law.

vii. Article 10 provides for dispute resolution through mutual

discussions, and in case of failure of the same, arbitration.

3.2 By an addendum to the Implementation Agreement dated

24.05.2001, the time-period for commencing construction was

extended from 36 to 48 months from the Effective Date, but the

COD was unamended.

7 3.3 Subsequently, by a tripartite agreement dated 30.12.2002

between the appellant, JIL, and one Jaypee Karcham Hydro

Corporation Limited10 that was incorporated by JIL as per Clause

8 of the MoU, the rights and liabilities of the Project were

transferred from JIL to JKHCL.

3.4 JKHCL entered into a PPA dated 21.03.2006 with respondent

no. 4, i.e., PTC India Limited, which is an inter-state trading

licensee, for sale of 704 MW of power. PTC then entered into Power

Sale Agreements11 with respondent nos. 5 to 10, which are

distribution companies in the States of Punjab, Haryana, Uttar

Pradesh and Rajasthan, to sell the power which it purchased from

JKHCL. In the PPA as well as the PSAs, “free power” is defined in

the same manner as Article 5.1 of the Implementation Agreement.

3.5 The appellant and JKHCL entered into a Second

Supplementary Implementation Agreement on 20.12.2007 to

extend the SCOD to 144 months from the Effective Date, i.e.

18.11.2011.

3.6 The Project achieved commercial operation on 12.09.2011,

i.e., within the extended SCOD. It is relevant to note that this is

the date from which JKHCL’s obligation to supply free power to the

10 Hereinafter “JKHCL”.

11 Hereinafter “PSAs”.

8 appellant-State commenced as per Article 5.1 of the

Implementation Agreement. For the first 12 years from

12.09.2011, the quantum of free power to be supplied is 12%, and

18% thereafter for the next 28 years.

3.7 By a tripartite agreement dated 29.08.2015, the rights and

liabilities in the Project were transferred from JKHCL to Himachal

Baspa Power Company Limited 12, which is the predecessor of

respondent no. 1, with effect from 01.09.2015. As per clause 3 of

this agreement, HBPCL agreed to be bound by and liable for the

contractual undertakings as specified in the Implementation

Agreement, Addendum, tripartite agreement dated 30.12.2002,

and the Second Supplementary Implementation Agreement.

3.8 In 2018, HBPCL changed its name to JSW Hydro Energy

Limited, which is the present respondent no. 1 company. The

parties signed the Third Supplementary Implementation

Agreement dated 21.10.2019 for effecting the change in name

while also agreeing that the other contractual undertakings would

remain unamended.

3.9 During this time, the CERC (Terms and Conditions of Tariff)

Regulations, 2014 governed the field with respect to tariff

12 Hereinafter “HBPCL”.

9 determination of generating stations, including the specific

provision with respect to free power supply under Note 3 of

Regulation 42. This provided that “FEHS = Free energy for home

State, in percent and shall be taken as 13% or actual whichever is

less.” Respondent no. 1 sought for relaxation of this cap in its tariff

petition for the 2014-2019 period. This was decided by the CERC’s

order dated 30.03.2017, wherein it did not consider this issue as

the free power supply obligation during this period was only 12%,

which is below the 13% cap prescribed in the CERC Regulations,

2014. However, respondent no. 1 was given liberty to claim this

relief at an appropriate time.

3.10 In 2019, the CERC framed the CERC Regulations, 2019

determining tariffs for generating stations and transmission units

from 01.04.2019 to 31.03.2024. At this stage, it is relevant to refer

to Note 3 of Regulation 55 that provides that free energy to home

State (FEHS) shall be taken as 13% or actual, whichever is lesser.

Further, Regulation 44 deals with the computation and payment

of capacity and energy charges for generating station, and

Regulation 55(2) provides for billing and payments. The relevant

portions of these provisions are extracted hereinbelow:

10

Regulation 44:

“44. Computation and Payment of Capacity Charge and Energy Charge for Hydro Generating Stations: (1) The fixed cost of a hydro generating station shall be computed on annual basis, based on norms specified under these regulations, and shall be recovered on monthly basis under capacity charge (inclusive of incentive) and energy charge, which shall be payable by the beneficiaries in proportion to their respective allocation in the saleable capacity of the generating station, i.e., in the capacity excluding the free power to the home State:… *** (4) The energy charge shall be payable by every beneficiary for the total energy scheduled to be supplied to the beneficiary, excluding free energy, if any, during the calendar month, on ex-bus basis, at the computed energy charge rate. Total energy charge payable to the generating company for a month shall be:

Energy Charges = (Energy charge rate in Rs. / kWh) x {Scheduled energy (ex-bus) for the month in kWh} x (100 – FEHS) / 100 (5) Energy charge rate (ECR) in Rupees per kWh on ex-power plant basis, for a hydro generating station, shall be determined up to three decimal places based on the following formula, subject to the provisions of clause (7) of this Regulation:

ECR = AFC X 0.5 x 10 / {DE x (100 – AUX) x (100 – FEHS)} Where, DE = Annual design energy specified for the hydro generating station, in MWh, subject to the provision in clause (6) below. FEHS = Free energy for home State, in per cent, as mentioned in Note 3 under Regulation 55 of these regulations…”

Regulation 55:

“55. Billing and Payment of charges:

*** (2) … Payment of capacity charge and energy charge for a hydro generating station shall be shared by the beneficiaries of the generating station in proportion to their shares (inclusive of any allocation out of the unallocated capacity) in the saleable capacity (to be determined after deducting the capacity corresponding to free energy to home State as per Note 3 herein.

*** Note 3 FEHS= Free energy for home State, in percent and shall be taken as 13% or actual whichever is less…”

3.11 In 2019, respondent no. 1 filed a petition before the CERC

for approval of its tariff between 2019-2024, as well as truing up

11 the tariff for 2014-2019 period. In the tariff petition, respondent

no. 1 inter alia prayed for relaxation of the 13% cap on free power

under Note 3 of Regulation 55 of the 2019 Regulations, since its

free power obligation under the Implementation Agreement is 18%

of net generation after the completion of 12 years from COD.

3.12 This was decided by the CERC’s order dated 17.03.2022

wherein it rejected the prayer for relaxation of the 13% cap on free

power supply. The CERC held that it was bound by the CERC

Regulations, 2019 while determining the tariff and that the

regulations will override inconsistent contractual provisions in the

PPA and PSAs executed by respondent no. 1 in respect of free

power to the appellant-State. We will be dealing with the findings

of the CERC in more detail in our analysis.

3.13 In the meanwhile, the Central Electricity Authority

approved an increase in the Project capacity from 1000MW to

1091MW in two stages by a letter dated 29.04.2021. Pursuant to

this, the capacity of the Project was enhanced to 1045 MW by the

Fourth Supplementary Implementation Agreement dated

08.07.2021. It was further agreed that respondent no. 1 would be

required to supply an additional 3% free power to the appellant-

State on the enhanced 45MW capacity.

12 3.14 In 2022, the present dispute arose between the parties as

respondent no. 1 issued various letters to the appellant that Note

3 of Regulation 55 of the CERC Regulations, 2019 caps the free

power supplied to the State at 13%. Further, that the CERC’s order

dated 17.03.2022 requires inconsistent contractual provisions to

be aligned with the Regulations. Relying on these, respondent no.

1 requested the appellant to align the Implementation Agreement

with the CERC Regulations, 2019 and the order dated 17.03.2022

such that its free power supply obligation is confined to 13%. On

the other hand, the appellant-State replied that the quantum of

free power must be determined as per the Implementation

Agreement and the Supplementary Implementation Agreements,

which comes to 18.46% commencing from 13.09.2023. The

appellant also issued a notice to respondent no. 1 dated

13.09.2023 to adhere to the contractual terms, failing which

consequential action would be initiated against it. It also issued a

notice dated 16.09.2023 to the Northern Regional Load Dispatch

Centre to schedule 18.46% free power to the appellant.

3.15 This led respondent no. 1 to file the present writ petition

before the High Court to direct the appellant to align the provisions

of the Implementation Agreement and Supplementary

13 Implementation Agreements on free power with the CERC

Regulations, 2019 and the CERC’s order dated 17.03.2022, as well

as to quash the notices issued by the appellant.

III. Impugned Order:

4. By the order 28.05.2024, which is impugned before us, the

High Court allowed the writ petition and directed the appellant to

align the Implementation Agreement and Supplementary

Implementation Agreements in respect of the quantum of free

power with the provisions of the CERC Regulations, 2019 till they

remain in force. Further, it directed that if respondent no. 1

supplied any free power above the maximum ceiling limit under

the Regulations, the same shall be adjusted. For arriving at this

conclusion, the High Court adopted the following reasoning:

4.1 First, it held that the writ petition is maintainable inspite of

the arbitration clause in Article 10.1 of the Implementation

Agreement as the issues of whether the CERC Regulations, 2019

will override the Implementation Agreement and whether the

contractual provisions need to be aligned pertain to enforcement

of statutory regulations. Hence, the arbitration clause does not

stand in the way of invoking writ jurisdiction.

14 4.2 The High Court then took note of various provisions of the

Electricity Act, the CERC Regulations, 2019, and the CERC’s order

dated 17.03.2022 and rejected the appellant’s argument that these

do not affect the obligations under the Implementation Agreement

and held that the CERC’s order has a direct bearing on the supply

of free power by respondent no. 1 to the appellant. Noting that the

appellant-State was a party before the CERC and did not contest

respondent no. 1’s prayer for relaxing the cap on free power, the

Court held that such cap is not only to determine the tariff but is

relevant for every other incidental and connected purpose.

4.3 While the CERC in its order dated 17.03.2022 held that

inconsistent provisions in the PPA and PSAs stand overridden by

the Regulations, the High Court observed that these provisions are

the same as in the Implementation Agreement and Supplementary

Implementation Agreements. In a composite scheme for generation

and sale of electricity, it held that there cannot be any mismatch

in respect of the quantum of supply of free electricity. Hence, the

corollary of the CERC’s order that the PPA and PSAs stand

overridden is that the Implementation Agreement becomes

unworkable and must be aligned with the CERC Regulations,

2019.

15 4.4 Further, since the appellant-State accepted the CERC’s

order, respondent no. 1 was within its right to seek alignment of

the Implementation Agreement with the CERC Regulations, 2019

and the CERC’s order.

4.5 The High Court also relied on this Court’s decision in PTC

India Ltd. v. Central Electricity Regulatory Commission 13 where it

was held that statutory regulations under the Electricity Act will

override existing contracts between regulated entities. On this

basis, the High Court concluded that the CERC Regulations, 2019

will have supremacy over contractual undertakings and the

provisions of the Implementation Agreement must be aligned

accordingly.

IV. Submissions:

5. We have heard Mr. Kapil Sibal and Mr. Parag Tripathi,

learned senior counsel for the appellant, and Mr. P. Chidambaram

and Dr. A.M. Singhvi, learned senior counsel for respondent nos.

1 and 2. We also heard Mr. Nikhil Nayyar, learned senior counsel

for respondent no. 11 (CERC), Ms. Preetika Dwivedi, learned

counsel for respondent nos. 7-9 (distribution companies operating

in the State of Rajasthan), and Mr. Gurminder Singh, learned

13 (2010) 4 SCC 603.

16 senior counsel for respondent no. 10 (distribution company

operating in the State of Punjab). Their submissions can be

recapitulated as follows:

5.1 Mr. Tripathi and Mr. Sibal appearing for the appellant-State

have broadly submitted that the quantum of free power to be

supplied under the Implementation Agreement is not regulated or

curtailed by the CERC Regulations, 2019 or the CERC’s order

dated 17.03.2022. While taking us through the sequence of events,

the following submissions have been made:

i. Regulation 2 provides the scope and extent of application

of the CERC Regulations, 2019, which is to determine the

tariff for generating and transmission companies.

ii. The purport of Note 3 of Regulation 55, which stipulates

the 13% cap on free power, is for calculating the bill

amount that the generating company can recover from

beneficiaries. It does not prohibit respondent no. 1 from

supplying free power beyond this cap. The effect of the cap

is that the CERC Regulations, 2019 provide a pass-

through to the extent of 13% free power while determining

the tariff. Any further supply of free power must be borne

by the generating companies from their resources.

17 iii. Further, that the Regulations govern agreements between

the generation and distribution companies but do not

extend to the Implementation Agreement, which was

executed even prior to the commencement of generation.

In the written submissions, it is further submitted that the

Implementation Agreement is a contract for natural

resources, and not a tariff agreement. It hence falls outside

the ambit of the CERC Regulations, 2019.

iv. In this vein, the learned senior counsel have also referred

us to the relevant portions of the CERC’s order dated

17.03.2022 wherein respondent no. 1 prayed for relaxation

of the 13% cap while calculating tariff in view of its

contractual obligations under the Implementation

Agreement. This was rejected by the CERC and it held that

the PPA and PSAs executed by respondent no. 1 are

overridden by the Regulations. The learned senior counsel

submit that respondent no. 1 did not appeal this order

before the Appellate Tribunal for Electricity 14 and instead

filed a writ petition in 2023 seeking amendment of the

Implementation Agreement.

14 Hereinafter “APTEL”.

18 v. Coming to the impugned order of the High Court, they

submit that the High Court has proceeded on the basis

that the appellant-State is a regulated entity under the

Electricity Act, and thereby relied on PTC (supra) where

this Court held that contracts between regulated entities

stand overridden by statutory regulations under the

Electricity Act. They submitted that this is incorrect as the

State Government is not a deemed licensee under the third

proviso of Section 14 as it is not engaging in transmission,

distribution, or trading of electricity.

vi. They also submitted that contractual terms could not have

been amended in exercise of writ jurisdiction, and the only

remedy available to respondent no. 1 was to challenge the

validity of the Regulation itself, which it had not done.

Regarding the exercise of writ jurisdiction to align the

contractual terms with the Regulations, it is further

contended in the written submissions that the High Court

has rewritten the Implementation Agreement by relying on

the PPA and PSAs being overridden as per the CERC’s

order dated 17.03.2022. However, the High Court ignored

that these agreements are not on the same footing and

19 Article 5.1(b) of the Implementation Agreement provides

that it shall not be affected by the PPA.

vii. In the written submissions, the appellant submitted that

the quantum of free power was arrived after a series of

negotiations with JIL, which was awarded the Project

through the MoU route rather than through competitive

bidding. In order to avoid competitive bidding, JIL agreed

to supply 18% free power during a certain portion of the

Agreement period.

viii. The learned senior counsel further submitted that despite

a similar cap on free power in the Hydroelectric Policy,

1998 @ 12%, respondent no. 1 knowingly agreed to supply

18% free power in the Implementation Agreement that was

executed in 1999. Further, this obligation has been

reiterated in all the Supplementary Agreements. Moreover,

the Fourth Supplementary Implementation Agreement was

executed in 2021 for additional free power on the

enhanced capacity, which was executed after the CERC

Regulations, 2019 came into force. Hence, once

respondent no. 1 consented to supplying free power @ 18%

20 despite a similar cap existing all through, the same cannot

be avoided by filing a writ petition.

5.2 Mr. Chidambaram, learned senior counsel for respondent no.

1 submitted that the Implementation Agreement, which was

negotiated prior to the CERC Regulations, 2019 stands overridden

by the Regulations.

i. Referring to Article 9 of the Implementation Agreement, he

submitted that the rights and obligations under the

Agreement are subject to “Law”, which has been widely

defined as including regulations. The regulations in this

case are framed under the Electricity Act, which was

enacted in 2003, after the Implementation Agreement was

executed. Prior to this, there was no law restricting the

quantum of free power at the time of execution of the

Implementation Agreement.

ii. The State Government is a regulated entity under the

Electricity Act as it is a deemed licensee as per the third

proviso of Section 14. He referred us to certain portions of

the writ petition before the High Court, where respondent

no. 1 contended that the appellant-State is a deemed

licensee and the same was not denied by the appellant in

21 its reply. He also referred to Section 10(2) of the Electricity

Act to submit that generating companies can supply

electricity to licensees only. On this basis, he submitted

that respondent no. 1 is supplying electricity to the

appellant-State as a licensee, albeit free of cost.

iii. Relying on the decisions of this Court in PTC (supra) as

well as Transmission Corporation of A.P. Ltd. v. Rain

Calcining Ltd. 15, he submitted that even concluded

contracts between regulated entities are overridden by

regulations. Since the State Government is a licensee, the

Implementation Agreement stands overridden by the

Regulations. Further, he submitted that performance of a

contract must be in conformity with the law in force at the

time.16

iv. He then referred us to Regulation 30 of the CERC

Regulations, 2019 that provides for Return on Equity 17 to

hydro-electric generating companies @ 16.5%, which the

generating company earns through tariff on saleable

power. The tariff is calculated by considering the free

15 (2021) 13 SCC 674.

16 Relied on Ganga Retreat and Towers Ltd. v. State of Rajasthan, (2003) 12 SCC 91. 17 Hereinafter “RoE”.

22 power cap @ 13% as per Note 3 of Regulation 55. However,

if the actual free power supply is 18% as per the

Agreement, this will negatively impact the RoE. Further, to

ensure that RoE is maintained, respondent no. 1 will be

required to sell the remaining 82% of power at a higher

rate to PTC and the distribution companies, which will

ultimately be passed on to the consumers thereby affecting

consumer interest. In the written submissions, respondent

no. 1 also contended that the cost of generation and supply

of electricity must be recovered through tariff as per

Section 61 of the Electricity Act. However, if it is required

to supply 18% free power despite the 13% cap in the

Regulations, it will not recover revenue for 5% of the power

it generates and supplies, and this will negatively impact

its RoE.

5.3 Dr. Singhvi supplemented these submissions with the

following arguments:

i. The consequence of a change in law (i.e., the cap on free

power supply) must be borne by both parties, and cannot

be unilaterally imposed on the generating company.

23 ii. The State Government is a regulated entity as per the third

proviso to Section 14 as well as under Section 10(2) of the

Electricity Act. Hence, the CERC Regulations, 2019 govern

and override the contractual obligations under the

Implementation Agreement.

iii. Since this is a composite scheme for generation and

distribution of electricity, there can be no mismatch on the

quantum of free power stipulated in the Implementation

Agreement, which is an upstream agreement with the

State Government, and the PPA and PSAs, which are

downstream agreements with distribution companies.

5.4 We also heard Mr. Nikhil Nayyar for the CERC, who

submitted the following:

i. The CERC Regulations, 2019 are only concerned with tariff

fixation and neither deal with the Implementation

Agreement nor impose restrictions on the quantum of free

power supply to the appellant-State. The purport of the

Regulations is to cap the free power that will be considered

while fixing tariff and whose costs can be passed onto the

distribution companies and consumers. Since the actual

quantum of free power supply is determined by contract,

24 respondent no. 1 must use contractual remedies to

challenge the same.

ii. Relying on PTC (supra), he submitted that the CERC is

bound by its Regulations, including the cap on free power

supply, while determining the tariff. Any further supply is

to be met by the generating company from its own

resources, which is also stipulated in the Hydro Power

Policy, 2008 that forms the basis of the CERC Regulations,

2019.

iii. RoE for respondent no. 1 is stipulated as 16.5% under

Regulation 30(2), which is arrived at after considering

commercial principles and consumer interest, as per

Section 61(b) and (d) of the Electricity Act. Referring to

Regulations 14(4), 15, and 18 of the CERC Regulations,

2019, he submitted that the RoE is part of the Annual

Fixed Cost, which is used to derive capacity charges that

is in turn used to determine the tariff. Hence, RoE forms a

part of the tariff itself and the tariff is structured on this

basis. RoE is not the same as the net profit of respondent

no. 1. In its written submissions, the CERC further

submitted that RoE is calculated on the equity component

25 of the Project, which has been granted in full to respondent

no. 1 for the 2014-19 and 2019-24 periods.

iv. The CERC’s order dated 17.03.2022 only directs that the

PPA and PSAs must be aligned with the Regulations. It

does not deal with or decide on the Implementation

Agreement. This order was not challenged by respondent

no. 1 before the APTEL, and they instead relied on the

same to file a writ petition before the High Court to seek

the relief of aligning the Implementation Agreement. The

filing of the writ petition is a way to avoid the CERC order

dated 17.03.2022 and an attempt to achieve the same

result through a different prayer.

5.5 Mr. Gurminder Singh, learned senior counsel submits that

the State Government cannot be treated as a deemed licensee in

the present case. Further, he submits that the CERC’s role of tariff

determination does not extend to allocating or apportioning the

power supplied by the generating company to various entities. It

only relates to fixation of tariff for such supply, after the generating

company has decided the allocation.

5.6 Ms. Preetika Dwivedi submitted that PTC (supra) does not

apply as tariff regulation is not concerned with a contract between

26 the State Government and a generating company. When

respondent no. 1 consented to supply 18% free power, a similar

cap of 12% with respect to free power supply was provided in the

Hydroelectric Policy, 1998. Finally, that the burden of free power

cannot be passed on to the distribution companies or consumers.

5.7 Finally, Mr. Sibal responded to the submissions made on

behalf of respondent nos. 1 and 2. He disputed the status of the

appellant-State as a deemed licensee by contending that there is

no transmission, distribution, or trading of electricity in this case.

Specifically referring to Section 2(71) of the Electricity Act which

defines “trading” as purchase of electricity for resale, he submitted

that the State Government is not purchasing any power as it is

supplied free of cost. Since the State Government is not a deemed

licensee, it does not fall under the CERC’s jurisdiction and the

terms and conditions of free power supply cannot be regulated

under the Electricity Act. Second, he submitted that the tariff order

dated 17.03.2022 provides for more than 16.5% RoE to respondent

no. 1, and the only impact of free power supply beyond 13% is on

the net profit, which is not guaranteed under the CERC

Regulations, 2019. Finally, he submitted that the Implementation

Agreement falls outside the jurisdiction of the Regulatory

27 Commissions constituted under the Electricity Act, which deal

with tariff determination. Rather, this is a case of free supply of

electricity to the State Government that it can dispose of in a

manner it deems fit as per the Electricity [Removal of Difficulty]

(Third) Order, 2005.

5.8 Mr. Tripathi also submitted that while RoE is guaranteed by

the Regulations, net profit is not guaranteed. He submitted that

this issue was raised by respondent no. 1 in its tariff petition and

the prayer for relaxation of the cap on free power supply was

rejected by the CERC, which was not subsequently challenged.

5.9 Regarding the status of the State Government as a deemed

licensee, respondent no. 1 has submitted the following in its

written submissions: First, although power is supplied free of

monetary cost, there is purchase as there is non-monetary

consideration for the power under the Implementation Agreement.

Second, the State Government undertakes trading of such

electricity through respondent no. 3, the Himachal Pradesh State

Electricity Board, which is its agent/instrumentality. Considering

these factors, the State Government is a regulated entity and is

governed by the CERC Regulations, 2019. As per PTC (supra) as

well as Article 9 of the Implementation Agreement, the contractual

28 rights and obligations relating to free power are subject to the

CERC Regulations, 2019.

5.10 Further, in its written submissions, respondent no. 1 has

also contended that the policies relied on by the appellant,

including the Hydro Power Policy 2008, do not apply to it as the

Project was awarded through MoU and not competitive bidding.

V. Issue:

6. Having considered the sequence of events and the subject-

matter of the dispute, as well as the extensive oral and written

submissions of the parties, we find that the primary issues arising

for our consideration are: first, whether the CERC Regulations,

2019 bar respondent no. 1 from supplying free power to the

appellant-State beyond 13%; and second, whether respondent no.

1 could have invoked the High Court’s writ jurisdiction for aligning

the Implementation Agreement with the CERC Regulations, 2019.

In this context, we will also examine the scope and ambit of the

Electricity Act and the rights and liabilities of the entities governed

thereunder.

VI. Analysis:

7. The Electricity Act, 2003 is a complete and comprehensive

code for regulating the generation, transmission, distribution,

29 trading and use of electricity. One of the core features of the Act is

that it unbundles the functions of electricity generation,

transmission, and distribution that were erstwhile performed by

State Electricity Boards18 into separate utilities, and provides for

their regulation through independent Regulatory Commissions.19

8. The need for an independent and transparent regulatory

mechanism was felt due to the regulatory failures under the

erstwhile legal regime 20, wherein SEBs constituted by the State

Governments were entrusted with regulation.21 It was experienced

that various problems plagued the power sector, including lack of

rational retail tariffs, high level of cross-subsidies, poor planning

and operation, inadequate capacity, neglect of consumer interest,

and limited involvement of the private sector’s skills and

resources.22 It is in this context that the Electricity Regulatory

Commissions Act, 199823 was enacted to reform the governance of

the sector by establishing an independent and transparent

regulatory mechanism.24

18 Hereinafter “SEBs”.

19 PTC (supra), para 17.

20 Electricity Act, 1910 (hereinafter “the 1910 Act”); the Electricity (Supply) Act, 1948 (hereinafter “the 1948 Act”).

21 K.C. Ninan v. Kerala State Electricity Board, (2023) 14 SCC 431, para 6. 22 Statement of Objects and Reasons of the Electricity Regulatory Commissions Act, 1998. 23 Hereinafter “the 1998 Act”.

24 W.B. Electricity Regulatory Commission v. CESC Ltd., (2002) 8 SCC 715, para 52; PTC

(supra), para 17; Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission, (2014) 8 SCC 444, para 22.

30

9. Within a few years thereafter, the Electricity Act, 2003 was

enacted as a comprehensive legislation for regulating the sector

and it replaced the 1910 Act, the 1948 Act, and the 1998 Act.25

The following salient features emerge from the Preamble26 of the

Electricity Act:

9.1 The Act consolidates laws, and therefore comprehensively

deals with all aspects of the electricity sector, from production to

usage.

9.2 Electricity being a public good 27 and a basic amenity 28, it has

been recognised as a part of the right to shelter and right to life 29.

In this light, the Act covers the entire process of production,

transfer, and sale of electricity and also deals with the utilisation

of electricity. These are covered under generation, transmission,

distribution, trading and use of electricity.

9.3 The Act is also concerned with the development of the

electricity sector so as to ensure that there is sufficient amount of

25 Section 185 of the Electricity Act.

26 The Preamble of the Electricity Act reads:

“An Act 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, rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions and establishment of Appellate Tribunal and for matters connected therewith or incidental thereto.”

27 See K.C. Ninan (supra), para 93.

28 Dilip v. Satish, 2022 SCC OnLine SC 810, para 9. 29 Chameli Singh v. State of U.P., (1996) 2 SCC 549, para 8.

31 electricity available to all. In furtherance of this goal of enhancing

the availability of electricity, the Act envisages private sector

participation and promotion of competition.

9.4 These measures are ultimately intended to protect and

subserve consumer interests by making electricity supply

accessible at cheaper rates for those who cannot afford it, as well

as making supply accessible in all areas and regions. In this vein,

the Act provides for the need for transparent subsidy policies.

9.5 Taking the ecological impact of the electricity sector’s

activities, the Act provides for promotion of efficient and

environmentally benign policies.

9.6 Finally, the Act provides for the constitution of permanent

expert bodies, i.e., Central and State Electricity Regulatory

Commissions, to regulate the production, transfer and use of

electricity, as well as for the development of the sector through

private sector participation and competitiveness to subserve

consumer interests. Considering the specialised nature of

functions performed by these bodies, the Act also provides for an

appellate forum to challenge the Central and State Commissions’

decisions, i.e., the APTEL, which can appreciate the technicalities

and nuances of the sector.

32

10. Since the facts of this case relate to hydro-power generation,

we will now examine the relevant statutory provisions for its

regulation.

VII. Regulation of Electricity Generation Under the Electricity Act:

11. Part III of the Electricity Act deals with generation of

electricity. Section 7 of the Electricity Act permits generating

companies to establish, operate and maintain a generating station

without obtaining a license under the Electricity Act. 30 However, in

cases of hydro-electric generation, the concurrence of the Central

Electricity Authority is required as per Section 8. 31

12. Section 10 lays down the duties of generating companies.

While sub-section (1) requires a generating company to establish,

operate and maintain generating stations, sub-section (2) provides

that a generating company may supply electricity to any licensee

in accordance with the Act and rules and regulations made

thereunder, and it may supply electricity to any consumer subject

30 Section 7 of the Electricity Act reads:

“Section 7. (Generating company and requirement for setting up of generating station): Any generating company may establish, operate and maintain a generating station without obtaining a licence under this Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73.”

31 The relevant portion of Section 8 of the Electricity Act reads:

“Section 8. (Hydro-electric generation): --- (1) Notwithstanding anything contained in section 7, any generating company intending to set-up a hydrogenerating station shall prepare and submit to the Authority for its concurrence, a scheme estimated to involve a capital expenditure exceeding such sum, as may be fixed by the Central Government, from time to time, by notification…” 33 to the regulations under Section 42(2). Section 10 is extracted

hereinbelow for ready reference:

“Section 10. (Duties of generating companies): --- (1) Subject to the provisions of this Act, the duties of a generating company shall be to establish, operate and maintain generating stations, tie-lines, sub- stations and dedicated transmission lines connected therewith in accordance with the provisions of this Act or the rules or regulations made thereunder.

(2) A generating company may supply electricity to any licensee in accordance with this Act and the rules and regulations made thereunder and may, subject to the regulations made under sub- section (2) of section 42, supply electricity to any consumer. (3) Every generating company shall –

(a) submit technical details regarding its generating stations to the Appropriate Commission and the Authority;

(b) co-ordinate with the Central Transmission Utility or the State Transmission Utility, as the case may be, for transmission of the electricity generated by it.”

13. While the Electricity Act has done away with the licensing

requirement for generating companies, it continues to regulate

electricity generation as the tariff at which the generating company

supplies electricity to a distribution licensee is determined by the

Central or State Commission, as is appropriate, as per Section

62(1)(a) read with Section 79 and Section 86 of the Act. 32 We will

further deal with the tariff determination function of the CERC at

a later stage.

32 Section 62(1)(a) of the Electricity Act reads:

“Section 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;…” 34

14. At this juncture, it is also relevant to note this Court’s

decision in Tata Power Co. Ltd. v. Reliance Energy Ltd.33. It was

observed that delicensing of generation under the Electricity Act,

2003 marks a shift from the position under the 1910 Act, the 1948

Act, and the 1998 Act.34 The Court held that delicensing electricity

generation is intended to encourage the setting up of generating

stations and to promote competition among generating companies.

Hence, courts must ensure that while interpreting the Electricity

Act and the regulations made thereunder, they do not bring back

licensing requirements through the backdoor. 35

14.1 The primary issue before the Court was whether the State

Commission could have directed a generating company to allot

additional quantities of power to a particular distribution company

based on its requirements and number of consumers. Answering

the question in the negative, this Court held that generating

companies have the freedom to enter into agreements for the sale of

generated electricity, including the freedom to allocate the quantum

of electricity to be sold to each distribution company. 36 However,

such freedom is not entirely unregulated as the generating

33 (2009) 16 SCC 659.

34 ibid, paras 68-73.

35 ibid, paras 83-84.

36 ibid, paras 108-109.

35 company is subject to tariff determination by the appropriate

Regulatory Commission, and its agreements with distribution

companies are subject to the approval of State Commissions under

Section 86(1)(b), who will examine whether the allocation of power

and terms and conditions of the agreement are reasonable. 37

VIII. Legal Effect of Note 3 of Regulation 55:

15. Interpretation of the CERC Regulations, 2019: It is a settled

position of law that a regulation made by the CERC in exercise of

its powers under Section 178 of the Act will override existing

contracts between regulated entities. Contractual terms, insofar as

where the regulation operates, must be aligned or modified such

that they are in line with the regulation.38 For example, a

regulation for determining tariff will override inconsistent and

37 ibid, paras 77, 108, 110-113. This position has been reiterated in Transmission Corporation

of Andhra Pradesh Ltd. v. Sai Renewable Power (P) Ltd., (2011) 11 SCC 34, para 64. 38 PTC (supra), paras 58 and 66. This has been consistently followed by the Court. See Gujarat

Urja Vikas Nigam Ltd. v. Renew Wind Energy (Rajkot) (P) Ltd., 2023 SCC OnLine SC 411, para 48; Haryana Power Purchase Centre v. Sasan Power Ltd., (2024) 1 SCC 247, paras 110-111. The relevant portions from PTC (supra) are extracted hereinbelow for ready reference:

“58. … Further, it is important to bear in mind that making of a regulation under Section 178 became necessary because a regulation made under Section 178 has the effect of interfering and overriding the existing contractual relationship between the regulated entities. A regulation under Section 178 is in the nature of a subordinate legislation. Such subordinate legislation can even override the existing contracts including power purchase agreements which have got to be aligned with the regulations under Section 178 and which could not have been done across the board by an order of the Central Commission under Section 79(1)(j).

66. While deciding the nature of an order (decision) vis-à-vis a regulation under the Act, one needs to apply the test of general application. On the making of the impugned 2006 Regulations, even the existing power purchase agreements (PPA) had to be modified and aligned with the said Regulations. In other words, the impugned Regulations make an inroad into even the existing contracts…” (emphasis supplied) 36 contrary provisions in an agreement to that extent. The crux of the

dispute between the parties in the present case is whether Note 3

of Regulation 55 prohibits the generating company from supplying

free power beyond 13% to the State, and consequently, whether it

overrides the contractual obligation of respondent no. 1 under the

Implementation Agreement.

16. The contractual obligation of respondent no. 1 to supply free

power can be understood as a form of “royalty” payable to the State

as compensation, in lieu of being allowed to utilise river water,

which is a public and commons resource, for undertaking its

commercial activity of power generation from which it derives

benefits through sale of power.39 Perusal of Article 4 of the

Implementation Agreement also shows that the appellant-State

fulfilled various other obligations like acquiring land, granting

permissions, and executing leases in favour of respondent no. 1 to

enable it to set up its hydropower generating station. In return,

respondent no. 1 undertook various obligations provided in Article

5 of the Implementation Agreement, including supplying free

power at a certain percentage. Therefore, it is clear that the free

39 See Indsil Hydro Power & Manganese Ltd. v. State of Kerala, (2021) 10 SCC 165, paras 43-

43.1; 56-57.

37 power supply is a part of the consideration by respondent no. 1

under the Implementation Agreement.

17. Now the question is whether such a consideration is

impermissible or prohibited by virtue of the CERC Regulations,

2019. To answer the same, it is necessary to appreciate the context

in which Note 3 of Regulation 55, which stipulates that FEHS shall

be taken as 13% or actual, whichever is less, has been made.

Regulation 55 deals with billing and payment of charges to

generating companies. While sub-clause (1) deals with raising bills

for capacity and energy charges and payment, sub-clause (2) is

relevant for our purpose. It provides that payment of capacity and

energy charges for a hydro-generating station shall be shared by

its beneficiaries40 in proportion to their shares in saleable capacity,

which is to be determined after deducting the capacity

corresponding to FEHS as per Note 3. Hence, Note 3 of Regulation

55 is relevant for the calculation of saleable power, which is in turn

40 “Beneficiary” has been defined in Regulation 3(8) of the CERC Regulations, 2019 as follows:

“3. Definitions. - In these regulations, unless the context otherwise requires:

*** (8) 'Beneficiary' in relation to a generating station covered under clauses (a) or (b) of sub-section 1 of section 79 of the Act, means a distribution licensee who is purchasing electricity generated at such generating station by entering into a Power Purchase Agreement either directly or through a trading licensee on payment of capacity charges and energy charges;

Provided that where the distribution licensee is procuring power through a trading licensee, the arrangement shall be secured by the trading licensee through back to back power purchase agreement and power sale agreement. Provided further that beneficiary shall also include any person who has been allocated capacity in any inter-State generating station by Government of India” 38 relevant for the generating company to raise bills and for payments

by beneficiaries.

18. Regulation 44, which deals with the computation and

payment of capacity and energy charges for hydro-generating

stations also defines FEHS similarly. Sub-clause (1) provides that

the fixed cost of a hydro-generating station shall be recovered on a

monthly basis under capacity and energy charges, which are

payable by beneficiaries in proportion to their respective allocation

in saleable capacity, i.e., capacity excluding FEHS. Further, the

formula for calculating energy charges is provided in sub-clauses

(4) and (5), which also relies on FEHS as defined in Note 3 of

Regulation 55.

19. Therefore, the purpose and intendment of Note 3 of

Regulation 55 is for the State Commission to determine tariff by

assuming that FEHS is 13%, whenever it is higher in actuality,

while calculating the energy and capacity charges. Neither the

language of Note 3 nor the context in which it appears in the CERC

Regulations, 2019 supports respondent no. 1’s contention that the

legal effect of this cap is to override its contractual obligations with

the appellant-State. On the other hand, use of the term “shall be

taken as 13% or actual, whichever is less” shows that the

39 Regulations cover a situation where the obligation to supply free

power is higher than 13%, and in such an eventuality, allow only

a certain portion of free supply to be considered for tariff

determination and payments by beneficiaries for the saleable

capacity.

20. Once the Regulation does not prohibit the supply of free

power beyond 13%, respondent no. 1 cannot rely on it to wriggle

out of its contractual obligations. Such an interpretation is

necessary to recognise and enforce the generating company’s

freedom of contract, which includes its choice of business dealings.

The Regulatory Commissions, APTEL, and the Courts must enforce

these contractual obligations and ensure that their interpretation

of regulations does not allow the party to circumvent and breach

its contractual undertakings when the same is not intended by the

regulation itself.

21. Further, the above interpretation of the regulation balances

the social justice obligation of the Regulatory Commission to

ensure that the tariff is not increased by allowing pass-through to

the extent of only a certain portion of free supply while balancing

the commercial viability and financial position of the generating

company. Public interest is also subserved since the State can

40 utilise the free power for its own purposes. This interpretation

balances the twin values of freedom of business choices and the

social justice obligations of the State, which the Regulatory

Commission channelises towards protecting consumer interests

and maintaining the health of the sector.

22. CERC’s Order dated 17.03.2022: The relief sought by

respondent no. 1 in its tariff petition for 2019-2024 before the

CERC is relevant as it shows that the initial position taken by it

was not an attempt to wriggle out of the contract by seeking its

modification. In contrast to claiming that the Implementation

Agreement stands overridden and must be aligned with the 13%

cap, as is the case before the High Court and in this appeal,

respondent no. 1 sought relaxation of the cap itself. In other words,

respondent no. 1 sought a pass-through for the full extent of 18%

free power, rather than 13% as per the Regulations, in recognition

of its contractual obligations under the Implementation

Agreement.

23. In the tariff order dated 17.03.2022, the CERC rejected this

prayer on the following basis. It took note of the free power supply

obligation under Article 5.1 as being 12% of net generation for the

first 12 years from the COD, and 18% of net generation for the next

41 28 years. It also noted that the PPA executed with respondent no.

4 defines free power in the same manner. Relying on this Court’s

decision in PTC (supra), it held that the provisions of the agreement

must be aligned with the Regulations. Hence, the provisions of the

PPA and PSAs executed by respondent no. 1 in respect of free power

are inconsistent and stand overridden by Note 3 of Regulation 55

such that FEHS is to be considered as 13% only. The relevant

portions of the CERC’s order are extracted below for ready

reference:

“145. The main contention of the Petitioner is that since the quantum of free power to be supplied to the home State was based on the agreement between the parties, which were executed prior to coming into force of the Tariff Regulations notified by the Commission, the same may be considered by the Commission in exercise of the power to relax/power to remove difficulties. The Respondent HPPC has submitted that in terms of the judgment of the Hon'ble Supreme Court in PTC v CERC & ors. Tariff Regulations override existing contracts. Note 3 under Regulation 55 of the 2019 Tariff Regulations provides as under:

Note 3: FEHS = Free energy for home State, in percent and shall be taken as 13% or actual whichever is less.

146. The Constitution Bench of the Hon'ble Supreme Court in PTC India Ltd Vs CERC & ors (2010 4 SCC 603) has laid down the principle of law, whereby any provision of an agreement, if it falls within the domain of the Regulations of subordinate legislation, has to be aligned with the Regulations. The relevant portion of the judgment is quoted below…

147. Thus, the provisions of the PPA/PSAs executed by the Petitioner in respect of free power to the home State is inconsistent and shall accordingly stand overridden by Note 3 under Regulation 55 of the 2019 Tariff Regulations. We, therefore, find no reason to exercise the power to relax and grant relief, as prayed for by the Petitioner.

Accordingly, the free energy to home state is to be considered as 13% in this case.”

42

24. There are two aspects of the CERC’s reasoning and decision

that we must note: first, the CERC was made aware of the

contractual obligation of respondent no. 1 under the

Implementation Agreement, but it did not hold the same as being

overridden by Note 3 of Regulation 55. This is in line with the

interpretation of the cap that we have elaborated hereinabove, i.e.,

it does not prohibit or restrain respondent no. 1 from entering into

or performing a contract for supplying a higher quantum of free

power. Second, the CERC only held that the PPA and PSAs stand

overridden to the extent that they are inconsistent with the

Regulation. The effect of this is that only 13% of free power would

be considered as a pass-through for tariff fixation and recovery of

charges from the beneficiary distribution companies as per the

Regulations. Since respondent no. 1 did not appeal this order

before the APTEL under Section 111 of the Electricity Act, these

findings are now final and binding on it.

25. We will now examine whether the High Court could have, in

exercise of its writ jurisdiction, granted the relief of aligning the

Implementation Agreement by relying on the CERC’s order dated

17.03.2022.

43 IX. Maintainability of the Writ Petition:

26. CERC as an Expert and Specialised Regulator, and Extent of

Judicial Interference: In order to appreciate the issue on

maintainability of the writ petition, it is necessary to take note that

postmodern legislation institutionalises governance through

regulation. Under the Electricity Act, we see such a statutory

incorporation of the regulators through the CERC and the State

Commissions that are expert and specialised bodies to perform

wide-ranging regulatory functions.41

27. The jurisprudence on regulation is that independent

regulators, armed with statutory powers and duties, were

established to reduce the government’s control and interference

with the market while safeguarding consumer interests,

preventing abuse of monopoly, and enabling private participation

in the sector. Therefore, the regulator has socio-economic

obligations of ensuring accessibility of goods and services, as well

as the duties towards the development of the industry by

promoting efficiency and competition. 42 The nature of functions

and the jurisdiction of these regulatory bodies are wide and

41 See PTC (supra), para 17; Sai Renewable (supra), paras 36 and 38; Reliance Infrastructure

Ltd. v. State of Maharashtra, (2019) 3 SCC 352, para 38. 42 H.W.R. Wade and C.F. Forsyth, Administrative Law (11th edn, Oxford University Press

2014), 116-117.

44

extensive as they perform a mix of legislative, executive and

administrative, and judicial functions. 43 Concomitantly, they are

sufficiently empowered under the statute, and legislative,

executive and adjudicatory powers are telescoped into one

institution. Regulators have the power to lay down rules and

regulations; issue licenses; fix prices and scope and areas of

operation; investigate and prosecute offences, and impose

penalties; adjudicate disputes and interpret the law; implement

and enforce the statute, the rules and regulations made

thereunder, and their decisions; and exercise incidental and

ancillary powers to deal with all aspects relating to the sector.44

28. Specifically, in the context of the CERC under the Electricity

Act, Section 79 sets out its functions, including tariff

determination. The relevant portion is extracted hereinbelow:

“Section 79. (Functions of Central Commission): --- (1) The Central Commission shall discharge the following functions, namely:-

***

(b) to regulate the tariff of generating companies other than those owned or controlled by the Central Government specified in clause (a), if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State…”

29. “Tariff” has not been defined under the Electricity Act, but it

has been interpreted by this Court on several occasions. This

43 ibid, 124.

44 ibid; Cellular Operators Assn. of India v. Union of India, (2003) 3 SCC 186, para 33; U.P.

Power Corpn. Ltd. v. NTPC Ltd., (2009) 6 SCC 235, paras 4, 22, 48. 45 Court in PTC (supra) held that “tariff” does not only mean fixation

of rates but also the rules and regulations relating to it 45. Further,

in Transmission Corporation of Andhra Pradesh Ltd. v. Sai

Renewable (supra), this Court relied on the meaning of the term in

general law or common parlance, and held its meaning to be as

follows:

“62. Therefore, in the absence of any specific definition in any of these Acts we will have to depend upon the meaning attached to these expressions under the general law or in common parlance. The expression “tariff” has been explained in Law Lexicon With Legal Maxims, Latin Terms And Words & Phrases (2nd Edn., 1997) as “determination, ascertainment, a table of rates of export and import duties, in which sense the word has been adopted in English and other European languages and as defined by the law dictionaries the word ‘tariff’ is a cartel of commerce; a book of rates; a table or catalogue, drawn usually in alphabetical order, containing the names of several kind of merchandise, with the duties or customs to be paid for the same as settled by the authority or agreed between the several princes and States that hold commerce together.” It has also been explained as a schedule, system, or scheme of duties imposed by the Government of a country upon goods imported or exported; published volume of rate schedules and general terms and conditions under which a product or service will be supplied; a document approved by the responsible regulatory agency listing the terms and conditions including a schedule of prices, under which utility services will be provided.” 46

30. Determination of tariff must be in accordance with Section

61 of the Electricity Act, which requires the CERC to specify the

terms and conditions for the determination of tariff and stipulates

45 PTC (supra), para 26.

46 A similar definition has been adopted by this Court in BSES Ltd. v. Tata Power Co. Ltd.,

(2004) 1 SCC 195, para 16.

46 the principles that shall guide the CERC. These include

commercial principles, competition, efficiency, economical use of

resources, consumer interest, and cost-reflective tariffs. The

relevant portion of Section 61 has been extracted hereinbelow:

“Section 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:-

***

(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; ***

(g) that the tariff progressively reflects the cost of supply of electricity and also, reduces cross-subsidies in the manner specified by the Appropriate Commission;…”

31. The CERC must weigh and balance these competing

principles during tariff determination, such that interests of

various stakeholders and the social justice obligation of the State

to ensure access to electricity are fulfilled. The Act empowers the

CERC to make regulations under Section 178, including on terms

and conditions for the determination of tariff. The relevant portions

of Section 178 of the Electricity Act read:

“Section 178. (Powers of Central Commission to make regulations): --- (1) The Central Commission may, by notification make regulations consistent with this Act and the rules generally to carry out the provisions of this Act.

(2) In particular and without prejudice to the generality of the power contained in sub-section (1), such regulations may provide for all or any of following matters, namely:-

***

47

(s) the terms and conditions for the determination of tariff under section 61;…”

32. This Court has time and again emphasised that since tariff

determination, including the power to make regulations for this

purpose, has been entrusted to a specialised and expert regulator

constituted under the statute itself, it would not be proper for

constitutional courts to interfere and assume these functions, or

to examine tariff fixation on its merits and substitute its own

determination for the one made by the expert body after duly

considering all material circumstances. 47 We are of the opinion

that this is necessary not only to ensure that these specialised

functions are performed by expert regulators but to also facilitate

a systematic and consistent development of sectoral laws.

33. In this light, when a constitutional court is interpreting

statutes, rules, or regulations that fall within the regulator’s

domain, it must bear in mind the need to enable the regulator to

exercise comprehensive jurisdiction. Courts must not impair the

functioning of the regulator by taking away certain aspects of the

sector outside the regulator’s scope, thereby fragmenting

regulation and creating plurality of jurisdictions. It is in the

47 Sai Renewable (supra), paras 38, 40, 41; Reliance Infrastructure Ltd (supra), para 38; Transmission Corpn. of A.P. Ltd. v. Rain Calcining Ltd., (2021) 13 SCC 674, para 66; Maharashtra State Electricity Distribution Co. Ltd. v. Adani Power Maharashtra Ltd., (2023) 7 SCC 401, paras 118-121.

48 interest of good governance through regulation to ensure that

there is no proliferation of remedies and there are no parallel,

multiple remedial forums. Further, this also ensures that the

sectoral law is developed in a coordinated and systematic fashion

by the regulator that is equipped to deal with not only legal issues

but also has specialised knowledge in other areas.

34. The above principles are also reflected in a recent decision of

this Court in Jaipur Vidyut Vitran Nigam Ltd. v. MB Power (M.P.)

Ltd.48. Here, the High Court exercised writ jurisdiction and directed

distribution companies to procure power from bidders, who are

generating companies, at the prices quoted in their bids till the

requisite quantum of power was procured. Allowing the appeal of

the distribution companies, this Court held that the High Court

was not justified in entertaining the writ petition as the Electricity

Act is an exhaustive code and all issues dealing with electricity

must be considered by the expert bodies, i.e., the Regulatory

Commissions constituted under the Act. The relevant portion is

extracted hereinbelow:

“128. We find that the High Court was not justified in entertaining the petition. The Constitution Bench of this Court in PTC has held that the Electricity Act is an exhaustive code on all matters concerning electricity. Under the Electricity Act, all issues dealing with electricity have to be considered by the authorities constituted under the said

48 (2024) 8 SCC 513.

49

Act. As held by the Constitution Bench of this Court, the State Electricity Commission and the learned APTEL have ample powers to adjudicate in the matters with regard to electricity. Not only that, these Tribunals are tribunals consisting of experts having vast experience in the field of electricity. As such, we find that the High Court erred in directly entertaining the writ petition when Respondent 1 i.e. the writ petitioner before the High Court had an adequate alternate remedy of approaching the State Electricity Commission.

129. This Court in Reliance Infrastructure Ltd. v. State of Maharashtra has held that while exercising its power of judicial review, the Court can step in where a case of manifest unreasonableness or arbitrariness is made out.

130. In the present case, there is not even an allegation with regard to that effect. In such circumstances, recourse to a petition under Article 226 of the Constitution of India in the availability of efficacious alternate remedy under a statute, which is a complete code in itself, in our view, was not justified.” (emphasis supplied)

35. Grant of Relief by the High Court: Applying these legal

principles, we will now analyse whether the High Court could have

granted relief of aligning the Implementation Agreement with the

CERC Regulations, 2019 by exercising writ jurisdiction. The High

Court proceeded on the basis that: (i) the appellant-State is a

deemed licensee; (ii) the CERC Regulations, 2019 are relevant not

only for determination of tariff but also for other purposes and are

binding on the appellant-State; and (iii) the 13% cap on free power

supply under Note 3, Regulation 55 has the effect of overriding the

free power supply clause in the Implementation Agreement since a

similar clause in the PPA and PSAs stands overridden as per the

CERC’s order dated 17.03.2022.

50

36. On the first aspect of whether the appellant-State is a deemed

licensee, it is clear from the impugned order that the High Court

has only cited the statutory provisions on licensing but has neither

delved into this issue nor arrived at any express conclusion

regarding the same. This is perhaps because the parties did not

raise or argue the issue before it. However, before us, respondent

no. 1 strongly contends that the appellant-State is a deemed

licensee, and the appellant has disputed the same.

37. We are of the opinion that this issue need not be determined

on merits, but is relevant to show respondent no. 1’s conduct in

taking contrary positions by filing the writ petition. On the one

hand, it is claiming that the appellant being a deemed licensee is

a regulated entity under the Electricity Act. The sequitur of this

would be that the appellant, and its contractual rights and

liabilities, are subject to the CERC’s regulatory jurisdiction.

However, respondent no. 1 never sought relief against the

appellant-State before the CERC, as we have indicated above, and

instead filed a writ petition. Considering the contradictory

positions of respondent no. 1, it cannot be allowed to approbate

and reprobate, or blow hot and cold at the same time to secure

relief under the law.

51

38. The second aspect pertains to the interpretation of CERC

Regulations, 2019 by the High Court. We have already dealt with

the interpretation of the Regulations hereinabove, and will

presently deal with the same in the context of maintainability of

the writ petition. Under the Electricity Act, the statutory regulator

has been entrusted with discharging the function of tariff

determination, including making regulations for the purpose and

interpreting the same. Constitutional courts must enable the

regulator to comprehensively regulate all aspects of the sector

such that remedies are not fragmented and certain issues are not

left outside the regulator’s domain. The regulator has the

expertise, specialisation, and institutional memory to conduct

such an interpretative exercise to further the objective of the

regulatory regime and systematically lay down legal principles. In

this light, the High Court should not have entered into the domain

of interpreting these Regulations which deal with tariff

determination, as the same falls within the exclusive domain of the

CERC. The Electricity Act itself provides the appellate mechanisms

by establishing a specialised and permanent tribunal, namely the

APTEL, and an appeal before this Court, against the CERC’s

orders. In view of the existence of a statutory regulatory forum, the

52 High Court should not have entertained the writ petition by

interpreting the CERC Regulations, 2019.

39. Equally, we are of the opinion that the High Court incorrectly

relied on the CERC’s order dated 17.03.2022 to grant relief to

respondent no. 1. As explained above, the CERC’s order only deals

with the PPA and PSAs despite taking note of Article 5.1 of the

Implementation Agreement. Upon reading the order, it is clear that

its effect is not that of restraining respondent no. 1 from supplying

free power beyond 13%. Hence, it does not in any way adversely

affect or prejudice the contractual rights of the appellant-State.

Hence, the High Court could not have proceeded on the basis of

this order to grant the relief of modifying the Implementation

Agreement.

X. Conclusion:

40. In view of the above reasons, we hold that CERC Regulations,

2019 do not prohibit respondent no. 1 from supplying free power

beyond 13% to the appellant-State, and the Implementation

Agreement does not stand overridden by the operation of these

Regulations. Further, a writ petition before the High Court for

aligning the Implementation Agreement with the CERC

Regulations, 2019 and the CERC’s order dated 17.03.2022 is not

53 maintainable. Once respondent no. 1’s prayer for relief was

rejected by the CERC and it specifically held only the PPA and PSAs

to stand overridden, which finding was not further appealed, it

would not be open for respondent no. 1 to seek modification of the

Implementation Agreement by way of a writ petition before the

High Court.

41. For the reasons stated above, we allow Civil Appeal No.

12883/2024 and set aside the order and judgment of the High

Court in CWP 7667/2023 dated 28.05.2024.

42. Pending applications, if any, stand disposed of.

43. No order as to costs.

………………………………....J. [PAMIDIGHANTAM SRI NARASIMHA]

………………………………....J. [JOYMALYA BAGCHI]

NEW DELHI;

JULY 16, 2025

54