IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE ANTONY DOMINIC THURSDAY, THE 10TH SEPTEMBER 2009 / 19TH BHADRA 1931 WP(C).No. 13130 of 2007(K) -------------------------- PETITIONER(S): ----------------- THE KERALA HIGH TENSION AND EXTRA HIGH TENSION INDUSTRIAL ELECTRICITY CONSUMER'S ASSO. A SOCIETY UNDER THE TRAVANCORE COCHIN LITERARY SCIENTIFIC AND CHARITABLE SOCIETIES REGISTRATION ACT12 OF 1955 REP. BY ITS PRESIDENT GEORGE THOMS, HAVING ITS OFFICE AT PRODUCTIVITY HOUSE, KALAMASSERRY 683 103, ERNAKULAM DT. BY ADV. SRI.S.RAMESH BABU RESPONDENT(S): ------------------- 1. STATE OF KERALA REPRESENTED BY ITS SECRETARY TO GOVERNMENT, POWER (A) DEPARTMENT, GOVERNMENT OF KERALA, SECRETRIAT, THIRUVANANTHAPURAM. 2. KERALA STATE ELECTRICITY REGULATORY COMMISSION HAVING ITS OFFICE AT KERALA POWER FINANCE CORPORATION BUILDING, V.C.RAMAN PILLAI ROAD, VELLAYAMABLAM,THIRUVANANTHAPURAM, REP. BY ITS SECRETARY. 3. KERALA STATE ELECTRICITY BOARD, REPRESENTED BY ITS SECRETARY, HAVING ITS OFFICE AT VYDYUTHI BHAVANAM,PATTOM PALACE, THIRUVANANTHAPURAM. ADV. SRI.C.K.KARUNAKARAN, SC FOR KSEB FOR R2,3 SRI.T.K.KUNHABDULLA FOR R2 ADVOCATE GENERAL FOR R1 GOVERNMENT PLEADER SRI.T.B.HOOD FOR R1 THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10/09/2009, ALONG WITH WPC NO. 14849 OF 2007, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WPC NO.13130/07 APPENDIX PETITIONER'S EXHIBITS EXT.P1: TRUE COPY OF THE CERTIFICATE OF REGISTRATION IN RELATION TO THE PETITIONER UNDER THE ACT 12 OF 1955. EXT.P2: TRUE COPY OF THE MEMORANDUM OF ASSOCIATION AND RULES AND REGULATION OF THE ASSOCIATION. EXT.P3: TRUE COPY OF GO(MS) 34/06/POWER DEPT DT 16.12.2006. //TRUE COPY// P.A. TO JUDGE Rp ANTONY DOMINIC, J. ================ W.P.(C) NOs. 13130 & 14849 OF 2007 =========================== Dated this the 10th day of September, 2009 J U D G M E N T The issue raised in these writ petitions being identical, these are heard and disposed of by this common judgment. 2. The first petitioner in WP(C) NO.14849/07 is a High Tension Consumer of the 3rd respondent, the Kerala State Electricity Board and the second petitioner is Kraft Paper Manufacturers of South India, an Association of which the first petitioner is also a member. In so far as the petitioner in WP(C) No.13130/07 is concerned, it is a society registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act comprising of 166 members, who are HT and EHT consumers of electricity supplied by the respondent Board. 3. In these writ petitions, the challenge is against GO(MS) No.34/06 Power dated 16/12/2006 issued by the 1st respondent in these writ petitions to the Kerala State Electricity Regulatory Commission constituted under the provisions of the Electricity Act, 2003. The aforesaid Government order is issued by the 1st respondent in exercise of its powers under Section 108 of the WPC 13130 & 14849/07 :2 : said Act which provides that in the discharge of its functions, the State Commission shall be guided by such directions in matters of policy involving public interest as the State Government may give to it in writing. Section 108(2) of the Act further provides that if any question arises as to whether any such direction relates to a matter of policy involving public interest, the decision of the State Government thereon shall be final. 4. In so far as these writ petitions are concerned, although the petitioners are challenging the aforesaid Government order, which is produced as Ext.P1 in WP(C) No.14849/07 and Ext.P3 in WP(C) No.13130/07, the arguments were confined to the validity of Clauses (ii), (iii), (iv) and (v) of the said order. 5. Clause (ii) of the order provides that it shall not be necessary to permit private licensee in transmission and distribution fields. Clause (iii) provides that 'permitting Open Access to higher revenue earning consumers over the transmission and distribution lines of the KSEB will affect the viability of the Board and will have adverse financial implications, which is against public interest and that these aspects should be weighed and the implications which are likely to arise on the WPC 13130 & 14849/07 :3 : public sector licensee should be fully met by those applying for Open Access. Clause (iv) provides that the Central Government itself has decided to amend the provisions in the Electricity Act, 2003 providing for elimination of cross subsidies and the said amendment is under consideration of the Subject Committee of the Parliament and that therefore, it is essential to retain cross subsidy without any liability to the Government so as to ensure social justice and that taking into account the lack of bargaining power of weaker sections and the social necessity of providing concessional rate of supply to the production sector, any immediate deviation in the rate of cross subsidy will create disastrous consequences. On this basis, it is directed that taking into account the public interest involved, the existing ratio of cross subsidy in respect of different tariffs should be maintained. Clause (v) directs that levy of licensee fee from the Kerala State Electricity Board will increase its revenue expenditure reflecting on its tariff and therefore licence fee shall not be levied from the Kerala State Electricity Board. 6. In so far as Clause (ii) that it is not necessary to permit licensees in transmission and distribution fields is concerned, the contention raised by the counsel for the petitioners is that the WPC 13130 & 14849/07 :4 : said prohibition imposed in Ext.P1 is against the provisions of the Electricity Act, 2003. On the other hand, the learned Government Pleader attempted to sustain the said provision in the order by referring to the necessity of maintaining the Kerala State Electricity Board as a viable public sector unit. Referring to Paragraphs 29 to 33 of the counter affidavit, learned Government Pleader contended that encouraging private licensees in transmission and distribution will result in luring away the lucrative consumers out of the network of the Board, which will affect the revenue of the Board. It is stated that if such a situation arises, as a necessary consequence, the Board will be left with majority of rural consumers, domestic consumers, small scale industries, agricultural consumers and other weaker sections of the society, who are being supplied energy at subsidised rates. He also contended that only Governmental agencies and other public sector undertakings like the Board would take up the task of electrification and supply of electricity to rural and remote villages. According to him, it was well within the power of the 1st respondent to have issued the direction prohibiting private participation considering the public interest involved in the matter. WPC 13130 & 14849/07 :5 : 7. Although the learned Government Pleader and the standing counsel for the Board referred to Ext.R2 produced along with the statement filed by the Regulatory Commission and contended that no application, muchless any application from any of the petitioners or their members for licence is pending and that therefore petitioners have no cause of action to be aggrieved, I am not impressed by this argument. Even if any such application was submitted, the same would have been rejected in the light of the aforesaid provision of the Government order and hence any such application would have been only an exercise in futility. 8. Irrespective of the contentions now urged by the learned Government Pleader and the priorities of the 1st respondent, now that the validity of Clause (ii) of Ext.P1 Government Order referred to above is under challenge before this Court, the sustainability of the said provision has to be examined in the light of the statutory provisions contained in the Electricity Act, 2003. The statement of objects and reasons of the Act itself provides that one of the objects and reasons which led to the legislation was the policy to encourage private sector participation in generation, transmission and distribution. Further, one of the main features of the bill itself is stated to be the WPC 13130 & 14849/07 :6 : provision for private transmission lines. This is reflected in the preamble to the Act, which provides that the Act is legislated 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. 9. At this stage, a quick survey of the relevant provisions of the Act is necessary. Section 14 of the Act provides that the Appropriate Commission may, on an application made under Section 15, grant a licence to any person to transmit electricity as a transmission licensee or to distribute electricity as a distribution licensee or to undertake trading in electricity as an electricity trader, in any area, which may be specified in the licence, subject to the other provisions contained in the section. Section 15 deals with the procedure for grant of licence and Section 16 deals with the conditions of licence, Section 18 deals with amendment of licence and Section 19 deals with the revocation of licence. Section 86 provides the functions of the State Commission and Section 86(1)(d) provides that issue of licences to persons seeking to act as transmission licensees, distribution licensees and Electricity traders with respect to their operations within the State WPC 13130 & 14849/07 :7 : is one of the functions that the State Commission shall discharge under the Act. Similarly, Section 86(2) provides that the State Commission shall advise the State Government on promotion of competition, efficiency and economy in activities and promotion of investment in electricity industry. 10. The aforesaid statutory provisions therefore make it amply clear that private participation in transmission and distribution is a permissible activity. So long as the Act remains as such with the aforesaid statutory provisions, under the cover of its power to issue directions in matters of policy involving public interest, State Government cannot issue any direction to the State Commission contrary to the statutory provisions and any such direction is clearly ultra vires the Act. 11. In his endeavour to sustain Clause 2 of Ext.P1 Government order and to support the plea that it was well within the power of the government to have issued the impugned direction in public interest, learned Government Pleader relied on the judgment of the Division Bench of the Andhra Pradesh High Court reported in the case of A.P.State Electricity Board Vidyut Soudha v. Gowthami Solvent Oils {AIR(1991) AP 141} rendered in the context of Section 78A of the Electricity (Supply) WPC 13130 & 14849/07 :8 : Act, 1948 and referred to para 22 thereof, which reads as under: Section 78-A empowers the Government to issue directions to the Board on questions of policy. It further declares that the Board shall be guided by such directions in discharge of its functions. If, however, any dispute arises between the Board and the State Government as to whether a particular direction pertains to a question of policy of not, such dispute has to be referred to and decided by the Authority (created under Sec.3), whose decisions shall be final. It is obvious that this power conferred upon the Government is neither absolute, nor unguided. Any direction given shall be consistent with the provisions of the Act and the Rules, if any, made thereunder, and must be within the frame-work of the Act.(See Laker Airways, 1977(2) All ER 182(CA) and Bromley London Borough Council, 1982(1) All ER 129(HL): (1973) 227 EG 659). Indeed, the provisions of the Act themselves furnish a guidance to the Government in the matter of issuance of directions. Any direction issued by the State Government contrary to any particular provisions of the Act, or the Rules,would be outside the purview of Section 78-A. At the same time, however, it must be conceded that the Government is entitled to take into consideration the public interest and the interest of the economy of the State and the nation while giving such directions. Directions actuated by such considerations cannot be said to be either contrary to the provisions of the Act or outside the frame-work of the Act. As emphasized hereinbefore, the Board is not like any other private individual, or corporation; it is a statutory public corporation with a commitment to social good and to public welfare. Now,food is a basic necessity. 12. Relying on the aforesaid paragraph, it is contended that even if the policy directive issued by the Government is not strictly within the framework of the Act, still taking into consideration the public interest and the interest of the economy WPC 13130 & 14849/07 :9 : of the State and the nation, directions issued by such authority should not be characterized as contrary to the provisions of the Act. However, in my view, the dictum laid down in the aforesaid judgment does not by any stretch of imagination lead to an inference as sought to be drawn by the learned Government Pleader. The judgment clearly says that the power of the Government to issue policy directions shall be consistent with the provisions of the Act and within that parameter, taking into consideration the public interest and the interest of the economy of the State and the nation, policy directions can be issued. It does not in any manner recognise that under the guise of policy directions or public interest, the Government can issue directions contrary to the statutory provisions. 13. In this context, I should also make reference to the judgment of the Apex Court in Chittoor Zilla Vyavasayadarula Sangham v. A.P.Seb {(2001)1 SCC 396} where dealing with the power of the State Government under Section 78A of the Electricity Supply Act, 1948, the Apex Court held that the directions of the State Government on the question of policy is binding on the Board only to the extent the same subserve the Board in performing its statutory obligation within the permissible WPC 13130 & 14849/07 :10 : limits provided in the statute. If the aforesaid law is applied to the facts of this case, it can be safely concluded that the Board could not have issued directions contrary to the statutory provisions under the guise of public interest. Therefore, Clause (ii) of Ext.P1 Government Order referred to above cannot be sustained. 14. The second provision of Ext.P1 objected by the learned counsel for the petitioner is Clause (iii). A reading of Clause (iii) of Ext.P1 shows that, according to the Government, permitting Open Access to higher revenue earning consumers over the transmission and distribution lines of the Board will affect the Board adversely and has adverse financial implications, which is against public interest. It is stated that the implications that are likely to arise on the public sector licensee should be fully met by those applying for Open Access. However, a reading of Clause (iii) does not persuade me to agree with the counsel for the petitioners that by this provision what the Government imposed is a ban on permitting Open Access. In my view, the effect of Clause (iii) is only that while considering any application for Open Access, the Regulatory Commission is required to give due regard to the factors indicated by the Government in Clause (iii) WPC 13130 & 14849/07 :11 : of Ext.P1. Therefore, giving due regard to the factors indicated by the Government in Clause (iii) of Ext.P1, the Regulatory Commission is entitled to come to its own conclusions, which, ofcourse should be consistent with the provisions of the Act. Thus, Clause (iii) of Ext.P1 as such does not spell out any arbitrariness or illegality warranting interference in this proceedings. 15. The next one is Clause (iv). Clause (iv) provides that in public interest, cross subsidy should be retained as such. However, a reading of Clause (iv) shows that the said direction was issued by the Government in view of the amendment which was then pending consideration of the Subject Committee of the Parliament. Subsequently Electricity Act, 2003 has been amended by Act 26 of 2007 w.e.f. 15/6/07 providing for reduction of cross subsidy as against the provisions of the Act, which originally provided for elimination of cross subsidy in its totality. Therefore Clause (iv) of Ext.P1 has to be understood in the light of the Act as amended by Act 26 of 2007. It is so clarified. 16. The next challenge is against Clause(v) which directs that the licence fee should be dispensed with in the case of Electricity Board. The validity of this provision need be examined only if the petitioners are shown to be aggrieved by this provision. WPC 13130 & 14849/07 :12 : It is only a case of concession to the Board and if at all the Regulatory Commission's interests are adversely affected by such provision, it is upto the Regulatory Commission to take up the issue with the Government and to that dispute, the petitioners herein are strangers, who have no cause to be aggrieved by this provision. Therefore, invalidating Clause (ii) and clarifying Clauses (iii) and (iv) and rejecting the contentions against Clause (v) of GO (MS) No.34/06 Power dated 16.12.2006 as above, these writ petitions are disposed of. ANTONY DOMINIC, JUDGE Rp