1 WP No. 1471 OF 2004 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 1471 OF 2004 1. The Tata Power Company Limited, ] a company incorporated under the Indian ] Companies Act, VII of 1913 which has its ] Registered Office at Bombay House, ] Homi Mody Street, Mumbai 400 001 ] 2. Bomi J. Shroff ] of Mumbai, Indian Inhabitant, residing at ] 22-A Akash Ganga, 89 Bhulabhai Desai Road, ] Mumbai 400 026 ] ..Petitioners VERSUS 1. Reliance Energy Limited ] (formerly BSES Ltd.), ] a company registered under the provisions of ] the Companies Act, 1956 which has its ] Registered Office at Nagin Mahal (6th Floor), ] 82, Veer Nariman Road, Mumbai 400 020 ] 2. The Maharashtra State Electricity Board, ] a statutory Board which has its office at ] Ali Yavar Jung Road, Prakash Gadh, ] Bandra (East), Mumbai 400 051 ] 3. The State of Maharashtra ] through the Ministry of Industry, Energy and ] Labour, which has its offices at Mantralaya, ] Mumbai ] 2 WP No. 1471 OF 2004 4. The Maharashtra Electricity ] Regulatory Commission, ] constituted under the Electricity Regulatory ] Commissions Act, 1998 which has its office at ] 13th Floor, Centre No. 1, World Trade Centre, ] Cuffe Parade, Colaba, Mumbai 400 005 ] 5. Mumbai Grahak Panchayat, ] having its office at Grahak Bhavan, ] Sant Dnyaneshwar Marg, Behind Cooper ] Hospital, Vile Parle (West), Mumbai 400 056 ] 6. Prayas, ] 4, Om Krishna Kunj Society, Ganagote Path, ] Opp. Kamla Nehru Park, Erandavane, ] Pune 411 006. ] 7. Thane-Belapur Industries Association, ] Plot No. P-14, MIDC, Rebale Village, ] Post Ghansoli, Navi Mumbai 400 071 ] 8. Vidarbha Industries Association, ] 1st Floor, Udyog Bhavan, Civil Lines, ] Nagpur 440 001 ] 9. The National Textile Corporation ] (Maharashtra North) Limited, ] a Government of India Undertaking, having its ] office at N.T.C. House, 15 N.M. Marg, ] Ballard Estate, Mumbai 400 001 ] 10.The National Textile Corporation ] (South Maharashtra) Limited, ] a Government of India Undertaking, having its ] office at Apollo House, 382, N.M. Joshi Marg, ] Chinchpokli, Mumbai 400 011 ] 3 WP No. 1471 OF 2004 11.Brihan Mumbai Mahanagar Palika, ] a body corporate constituted under the ] Mumbai Municipal Corporation Act, 1888 ] through its General Manager, Brihanmumbai ] Electric Supply and Transport Undertaking ] having its office at BEST Bhavan, Colaba, ] Mumbai 400 005 ] 12.The Chief Engineer (Electrical), ] Western Railways, ] 5th Floor, Churchgate Station Building, ] Churchgate, Mumbai 400 020 ] 13.The Chief Electrical Engineer, ] Central Railways, ] Head Quarters Office, New Parcel Office ] Building, C.S.T., Mumbai 400 001 ] 14.The Mill Owners' Association, ] Mumbai, ] having its office at Elphinstone Building, ] 10 Veer Nariman Road, ] Mumbai 400 001 ] 15.Bombay Small Scale ] Industries Association, ] having its office at Madhu Compound, 2nd Floor, ] Sonawala Cross Road No.2, Goregaon (E), ] Mumbai 400063 ] 16.The Central Electricity Authority, ] a body constituted by the Union of India under ] Section 3 of the Electricity (Supply) Act, 1948 ] and continued under the Electricity Act, 2003 ] and having its office at 212, Sewa Bhawan, ] R.K. Puram, New Delhi 110006 ] 4 WP No. 1471 OF 2004 17.R.K. Jain ] of New Delhi, Indian Inhabitant, ] Member and Ex-officio Additional Secretary ] to Government of India, Central Electricity ] Authority, having his office at 212, Sewa ] Bhawan, R.K. Puram, New Delhi 110006 ].. Respondents. Mr. Iqbal Chagla, Senior Advocate, and Mr. Janak Dwarkadas, Senior Advocate, with Mr. D.J. Khambatta and Ms. Ekta Jhaveri instructed by M/s. Doijode, Phatarphekar & Associates for the petitioners Mr. R.A. Dada, Senior Advocate, with Mr. J.J. Bhatt and Ms. Anjali Chandurkar instructed by M/s. Mulla & Mulla & Craigie Blunt & Caroe for respondent No. 1 Mr. Shyam Diwan instructed by M/s. Little & Co. for respondent No. 2 Mr. K.R. Belosey, Assistant Government Pleader, for Respondent No.3 Mr. M.I. Sethna, Senior Advocate, with Mr. H.V. Mehta and 5 WP No. 1471 OF 2004 Mr. D.A. Dubey for respondent Nos. 16 & 17. CORAM: DALVEER BHANDARI, C.J., & DR. D.Y. CHANDRACHUD, J. DATE: DECEMEBR 24, 2004 JUDGMENT (Per Dalveer Bhandari, C.J.):- 1. This petition is directed against the order dated 31st May, 2004 passed by the Maharashtra Electricity Regulatory Commission (for short, ' MERC'). 2. The brief facts, which are necessary to dispose of the petition, are recapitulated as under:- The Tata Power Company Limited (for short, ' TPC') has entered into an agreement with Maharashtra State Electricity Board (MSEB) on 12th March, 1985, as a result of which, it has been 6 WP No. 1471 OF 2004 providing standby facility to TPC. Since 1990, TPC is getting standby facility of 550 MVA (Mega Volt Ampere) from MSEB. 3. Reliance Energy limited (REL) also required standby facility of 275 MVA, and on the direction MSEB, it was agreed that TPC would provide standby facility of 275 MVA to REL out of 550 MVA received by TPC from MSEB. It was further agreed that REL would pay Rs.3.5 crores per month to TPC for providing 275 MVA standby facility to REL. It was agreed that TPC would pay MSEB Rs. 24.75 crores per month for the entire standby facility, i.e., 550 MVA. The said amount was calculated on the basis of the tariff existed at that time and agreement to that effect was entered into between TPC and REL on 31st January, 1998; and inter-connection between the two systems was established on 14th February, 1998. 4. On 31st August, 1998, MSEB served notice on TPC, intimating its intention to enhance the charges for the standby facility from Rs.24.75 crores per month to Rs.30.25 crores per month with 7 WP No. 1471 OF 2004 effect from 1st December, 1998. TPC, in turn, gave notice dated 30th September, 1998 to REL of its intention to enhance the charges for the standby facility of 275 MVA provided by it from Rs.3.5 crores per month to Rs. 15.125 crores per month with effect from 1st December, 1998. It may be pertinent to mention that it was for the first time that TPC demanded 50% of the charges for the standby facility of 275 MVA to REL of the total charges by REL for 550 MVA, meaning thereby that before this, TPC never asked REL to pay 50% of the amount paid by it to MSEB. 5. The short controversy, which arises for determination by this Court, is regarding the quantum of standby charges payable by REL to TPC for 275 MVA standby facility provided by TPC to REL from its quota of 550 MVA received from MSEB. 6. The dispute between REL and TPC arose after said notice of 30th September, 1998 was issued to REL by TPC. The Deputy 8 WP No. 1471 OF 2004 Chief Minister of the State advised the parties to settle the matter and directed REL to pay Rs. 9 crores to TPC and TPC to pay Rs.22 crores to MSEB. 7. The Government of Maharashtra constituted a committee under the provisions of the Electricity Regulatory Commissions Act, 1998 (“the Act”, for short) to resolve such disputes. 8. It may be pertinent to mention that the Government passed an order on 22nd March, 2000, by which both REL and TPC were ordered to share the standby charges 50% each. 9. REL filed Case No. 7 of 2000 to the said Commission. The Commission, after hearing the parties, suggested a formula for computing the standby charges. In short, the decision of the Commission was that the standby charges ought to be calculated by the ratio of its maximum demand to the total maximum demand multiplied by the total standby charges. On the said formula, the Commission has mathematically worked out the charges and passed final order on 7th December, 2001, 9 WP No. 1471 OF 2004 directing REL to pay Rs.77.06 crores and TPC to pay balance of Rs.363 crores. 10.Aggrieved by this order of the Commission, both TPC and REL preferred appeals, being MERC Appeal Nos. 1 and 2 of 2002, respectively, before the High Court. The High Court, while setting aside the order of the Commission, directed the Commission for de novo consideration of the matter, because the Chairman of the Commission did not participate in the proceedings, and according to Regulation 21 of the Central Electricity Regulatory Commission (Conduct of Business) Regulations, 1999, the Chairman and the other two members have to jointly participate in the proceedings. Whilst passing the order, the High Court also passed interim order of payment of charges. 11.TPC preferred Civil Appeal Nos. 8362 and 8363 of 2003 arising out of Special Leave Petition (Civil) Nos. 11461 and 11462 of 2003 before the Supreme Court. The Supreme Court, 10 WP No. 1471 OF 2004 while considering the submissions, noted that according to TPC, the standby charge is not an issue of tariff, but is a dispute relating to sharing or apportionment of the charges being paid by TPC to MSEB for providing the standby facility. 12.The stand of REL has been that the dispute between the parties was relating to determination of tariff, which fell within the exclusive jurisdiction of the Commission under Section 22 of the Act. The Commission alone had a right and jurisdiction to decide the dispute, and after the Commission came into existence, the State Government could not have passed the order dated 22nd March, 2000. Consequently, the said order was set aside. 13.Section 22 of the Act reads as under:- “Functions of the State Commission-- (1)Subject to the provisions of Chapter III, the State Commission shall discharge the 11 WP No. 1471 OF 2004 following functions, namely:- (a) to determine the tariff for electricity, wholesale, bulk, grid or retail, as the case may be, in the manner provided in section 29; (b) to determine the tariff payable for the use of the transmission facilities in the manner provided in section 29; (c) to regulate power purchase and procurement process of the transmission utilities and distribution utilities including the price at which the power shall be procured from the generating companies, generating stations or from other sources for transmission, sale, distribution and supply in the State; (d) to promote competition, efficiency 12 WP No. 1471 OF 2004 and economy in the activities of the electricity industry to achieve the objects and purpose of this Act. (2)Subject to the provisions of Chapter III and without prejudice to the provisions of sub-section (1), the State Government may, by notification in the Official Gazette, confer any of the following functions upon the State Commission, namely:- (a) to regulate the investment approval for generation, transmission, distribution and supply of electricity to the entities operating within the State; (b) to aid and advise the State Government in matters concerning electricity generation, transmission, distribution and supply in the State; 13 WP No. 1471 OF 2004 (c) to regulate the operation of the power system within the State; (d) to issue licences for transmission, bulk supply, distribution or supply of electricity and determine the conditions to be included in the licences; (e) to regulate the working of the licensees and other persons authorised or permitted to engage in the electricity industry in the State and to promote the working in an efficient, economical and equitable manner; (f) to require licensees to formulate perspective plans and schemes in co-ordination with others for the promotion of generation, transmission, distribution, supply and utilisation of electricity, quality of service and to 14 WP No. 1471 OF 2004 devise proper power purchase and procurement process; (g) to set standards for the electricity industry in the State including standards relating to quality, continuity and reliability of service; (h) to promote competitiveness and make avenues for participation of private sector in the electricity industry in the State, and also to ensure a fair deal to the customers; (i) to lay down and enforce safety standards; (j) to aid and advise the State Government in the formulation of the State power policy; (k) to collect and record information concerning the generation, 15 WP No. 1471 OF 2004 transmission, distribution and utilisation of electricity; (l) to collect and publish data and forecasts on the demand for, and use of, electricity in the State and to require the licensees to collect and publish such data; (m) to regulate the assets, properties and interest in properties concerning or related to the electricity industry in the State including the conditions governing entry into, and exit from, the electricity industry in such manner as to safeguard the public interest; (n) to adjudicate upon the disputes and differences between the licensees and utilities and to refer the matter for 16 WP No. 1471 OF 2004 arbitration; (o) to co-ordinate with environmental regulatory agencies and to evolve policies and procedures for appropriate environmental regulation of the electricity sector and utilities in the State; and (p) to aid and advise the State Government on any other matter referred to the State Commission by such Government; (3)The State Commission shall exercise its functions in conformity with the national power plan.” 14.The only other relevant section, which deals with determination of tariff of electricity is Section 29. The section reads as under:- 17 WP No. 1471 OF 2004 “Determination of tariff by State Commission-- (1)Notwithstanding anything contained in any other law, the tariff for intra-State transmission of electricity and the tariff for supply of electricity, grid, wholesale, bulk or retail, as the case may be, in a State (hereinafter referred to as the tariff), shall be subject to the provisions of this Act and the tariff shall be determined by the State Commission of that State in accordance with the provisions of this Act. Provided that in States or Union territories where Joint Electricity Regulatory Commission has been constituted, such Joint Electricity Regulatory Commission shall determine different tariff for each other participating States or Union territories. 18 WP No. 1471 OF 2004 (2)The State Commission shall determine by regulations the terms and conditions for the fixation to tariff, and in doing so, shall be guided by the following, namely;-- (a) the principles and their applications provided in sections 46, 57 and 57A of the Electricity (Supply) Act, 1948 (54 of 1948) and the Sixth Schedule thereto; (b) in the case of the Board or its successor entities, the principles under section 59 of the Electricity (Supply) Act, 1948 (54 of 1948); (c) that the tariff progressively reflect the cost of supply of electricity at an adequate and improving level of efficiency; (d) the factors which would encourage 19 WP No. 1471 OF 2004 efficiency, economical use of the resources, good performance, optimum investments, and other matters which the State Commission considers appropriate for the purpose of this Act; (e) the interests of the consumers are safeguarded and at the same time, the consumers pay for the use of electricity in a reasonable manner based on the average cost of supply of energy; (f) the electricity generation, transmission, distribution and supply are conducted on commercial principles; (g) national power plans formulated by the Central Government; (3)The State Commission, while determining the tariff under this Act, shall not show undue preference to any consumer of electricity, but 20 WP No. 1471 OF 2004 may differentiate according to the consumer's load factor, power factor, total consumption of energy during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required. (4)The holder of each licence and other persons including the Board or its successor body authorised to transmit, sell, distribute or supply electricity wholesale, bulk or retail, in the State shall observe the methodologies and procedures specified by the State Commission from time to time in calculating the expected revenue from charges which he is permitted to recover and in determining tariffs to collect those revenues. (5)If the State Government requires the grant of any subsidy to any consumer or class of 21 WP No. 1471 OF 2004 consumers in the tariff determined by the State Commission under this section, the State Government shall pay the amount to compensate the person affected by the grant of subsidy in the manner the State Commission may direct, as a condition for the licensee or any other person concerned to implement the subsidy provided for by the State Government. (6)Notwithstanding anything contained in Sections 57A and 57B of the Electricity (Supply) Act, 1948 (54 of 1948) no rating committee shall be constituted after the date of commencement of this Act and the Commission shall secure that the licensees comply with the provisions of their licence regarding the charges for the sale of electricity both wholesale and retail and for connections and use of their assets or systems in 22 WP No. 1471 OF 2004 accordance with the provisions of this Act.” 15.The Supreme Court in paragraph 21 of its order had stated that TPC and MSEB always treated the charges for standby facility as a matter relating to tariff. TPC gave notice to the State and MSEB on 30th July, 1996 for revision of tariff. In the correspondence exchanged amongst TPC, MSEB and REL, the charges for standby facility are described as a matter relating to tariff. 16.Mr. Iqbal Chagla, learned Senior Advocate, appearing for TPC, submitted that the order dated 31st May, 2004 was in excess of jurisdiction, without the authority of law and clearly transgressed the conditions of remand to MERC. According to Mr.Chagla, the remand to MERC was not unconditional. It was circumscribed by observations made by this Court and by the Apex Court. 17.Mr. Chagla submitted that the impugned order was contrary to 23 WP No. 1471 OF 2004 and in violation of the terms and conditions of the remand order. 18.Mr. Chagla further submitted that the impugned order was vitiated by Wednesbury principle of unreasonableness, mala fide in law and perverse. According to him, MERC ignored relevant considerations, whilst relying on irrelevant considerations. He also submitted that MERC abdicated its duty and decided the entire case based on a report by an expert committee of CEA. According to Mr.Chagla, the concept and definition of standby and standby charges was not an issue before MERC in the remand proceedings. Similarly, the fact that Reliance was entitled to standby facility up to 275 MVA from TPC, and TPC was entitled to standby facility of 550 MVA from MSEB was not an issue before MERC: The issue before MERC was what Reliance should pay, by way of standby charges, to TPC. According to Mr.Chagla, observations and findings of this Court were not prima facie. All these observations were, in fact, binding upon the MERC in the remand proceedings. 24 WP No. 1471 OF 2004 19.The Commission had referred the matter to the Central Electricity Authority, which is a statutory, technical authority. It has stated that the standby support is necessary when system demand exceeds the capacity available in the system, as the standby support is more relevant at peaking load requirements. 20.CEA' s statement that Rs.24.75 crores of standby charges are built into the tariff and that hence, only the incremental standby charges should be shared, presupposes that there has been no change in TPC's expenses and that TPC has earned its due reasonable return. 21.Section 29 of the Electricity Regulatory Commission Act gives exclusive jurisdiction to the Commission to determine tariffs in the State of Maharashtra. The Commission is mandated under Section 22(1)(a) of the Act to determine the tariff for electricity, wholesale, bulk, grid or retail, as the case may be, in the manner provided in Section 29. 25 WP No. 1471 OF 2004 22.Mr.Chagla submitted that MERC, by accepting the CEA Report, sought to re-define the concept and nature of standby and standby charges, in direct negation of the binding observations of this Court and the Supreme Court. 23.Mr. Chagla contended that the standby facility is required as an insurance against any type of system failure, including failure of transmission / distribution system, is completely erroneous. Standby, it is well settled, is a facility of back up provided to a generator of electricity and not a distributor or transmitter of electricity. The standby facility may be utilized by a utility engaged in both generation and distribution. This will, however, always be by reason of tripping or stoppage of its generator. He further submitted that remand was confined to determination of charges payable for standby already defined by MERC in its previous order dated 7th December, 2001 and re-affirmed by the Supreme Court in the impugned judgment. 26 WP No. 1471 OF 2004 24.Mr. Chagla attacked the finding that the amount of standby is based on the largest single contingency of the system as contrary to law. He also attacked the finding of MERC that the requirement of the standby capacity has to be computed on the basis of peak demand, and not on the basis of the largest sized unit of each utility under the present conditions as contrary to law, contrary to admitted facts and transgressed the terms of the remand. He submitted that the issue before MERC was what should be paid by REL to TPC for the standby facility provided by it. Notwithstanding this, MERC purported to make a reference to the CEA in the teeth of the order of the Supreme Court and far beyond the parameters of the remand. Mr. Chagla pointed out that MERC framed terms of reference for the CEA, beyond the scope of the dispute between the parties, which were contrary to the judgment and order of the Supreme Court as well as this Court. He submitted that it was not open for the MERC to invite the advice of the CEA under Section 73 27 WP No. 1471 OF 2004 (n) of the Electricity Act, 2003 on the requirement of standby facility to be availed by TPC and REL as on 31st January, 1998. According to him, this was really not an issue and unnecessarily MERC extended the terms of reference. Similarly, the definition and/or technical significance of standby facility in view of the needs of Metropolis of Mumbai was also not an issue to be determined by CEA. 25.Mr. Chagla also submitted that MERC, without applying its mind, has accepted the CEA Report in toto. As a matter of fact, MERC has abdicated its responsibility and decided the entire issue on the basis of the report received from CEA. According to him, MERC has not evolved or applied any principle on the basis of which the standby charges payable by REL to TPC could be determined. He referred to the Agreement dated 29th June, 1992 according to which standby capacity to REL may be provided from the standby capacity reserved by TPC with MSEB and appropriate charges for 28 WP No. 1471 OF 2004 sharing be worked out. He submitted that the standby facility enjoyed by REL from TPC was similar to the standby facility enjoyed by TPC from MSEB. If REL enjoyed the same standby facility of half the quantum enjoyed by TPC, it would defy logic to hold that REL should pay anything less than half of what TPC paid to MSEB. 26.Mr. Chagla further contended that MERC ignored and failed to apply any of the principles laid down under Section 29 of the Act. Since standby charges have been held to be tariff by the Supreme Court, it was essential that in the absence of any of the factors that affected tariff fixation, MERC was bound to apply the same principles in determining that REL pay TPC at the same rate and on the same basis that TPC pays MSEB for the identical standby facility. 27.Mr. Chagla argued that MERC failed to appreciate the fact that by reason of the commencement of operation