SCA/147/4204 1/230 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 14742 of 2004 With SPECIAL CIVIL APPLICATION No. 23308 of 2006 With SPECIAL CIVIL APPLICATION No. 14743 of 2004 With SPECIAL CIVIL APPLICATION No. 23310 of 2006 With SPECIAL CIVIL APPLICATION No. 23312 of 2006 With SPECIAL CIVIL APPLICATION No. 26358 of 2006 With SPECIAL CIVIL APPLICATION No. 26376 of 2006 With SPECIAL CIVIL APPLICATION No. 3429 of 2007 With SPECIAL CIVIL APPLICATION No. 4316 of 2007 With SPECIAL CIVIL APPLICATION No. 4606 of 2007 With SPECIAL CIVIL APPLICATION No. 4608 of 2007 With CIVIL APPLICATION No. 11222 of 2006 In SPECIAL CIVIL APPLICATION No. 14742 of 2004 With CIVIL APPLICATION No. 11220 of 2006 In SPECIAL CIVIL APPLICATION No. 14743 of 2004 For Approval and Signature: HONOURABLE MR.JUSTICE C.K.BUCH ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? SCA/147/4204 2/230 JUDGMENT ========================================================= HINDALCO INDUSTRIES LTD - Petitioner(s) Versus GUJARAT ENERGY TRANSMISSION CORPORATION LIMITED & 4 - Respondent(s) ========================================================= Appearance : SPL.C.A. NO.14742 OF 2004: MR MIHIR JOSHI, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMACHANDRAN WITH MR PREMAL R JOSHI for Respondent-(s) : 1 – 5. SPL.C.A. NO.23308 OF 2006: MR MIHIR THAKORE, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI for Respondents 1-5 MR BD KARIA for Repondent No.6 SPL.C.A. NO. 14743 OF 2004: MR MIHIR JOSHI, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMCHANDRAN, SR.ADVOCATE WITH MR. PREMAL JOSHI FOR Respondents SPL.C.A. NO. 23310 OF 2006: MR MIHIR JOSHI, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMCHANDRAN, SR.ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1-5 MR BD KARIA for Respondent No.6 SPL.C.A. NO. 23312 OF 2006: MR SAURABH SOPARKAR, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMCHANDRAN, SR.ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1-5 MR BD KARIA for Respondent No.6 SPL.C.A. NO. 26358 OF 2006: MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI FOR Respondent SPL.C.A. NO. 26376 OF 2006: MR MIHIR THAKORE, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Petitioner MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1-5 MR BD KARIA FOR Respondent 6 SPL.C.A. NO. 3429 OF 2007: M/S. TRIVEDI & GUPTA for Petitioners MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1 MR BD KARIA FOR Respondent 2 SPL.C.A. NO. 4316 OF 2007: SCA/147/4204 3/230 JUDGMENT NANAVATI ASSOCIATES for Petitioner MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1 SPL.C.A. NO. 4606 OF 2007: NANAVATI ASSOCIATES for Petitioner MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1 SPL.C.A. NO. 4608 OF 2007: NANAVATI ASSOCIATES for Petitioners MR RAMCHANDRAN, SR. ADVOCATE WITH MR PREMAL JOSHI FOR Respondent 1 CIVIL APPLICATION NO. 11222 OF 2006: MR MIHIR JOSHI, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Applicant MR RAMACHANDRAN WITH MR PREMAL R JOSHI for Opponent-(s) : 1 – 5. CIVIL APPLICATION NO. 11220 OF 2006: MR MIHIR JOSHI, SR. ADVOCATE WITH MR BIJAL CHHATRAPATI AND MR SUJAL SHAH FOR SINGHI & CO for Applicant MR RAMCHANDRAN, SR.ADVOCATE WITH MR. PREMAL JOSHI FOR Opponents 1-5 ========================================================= CORAM : HONOURABLE MR.JUSTICE C.K.BUCH Date : 21/10/2008 COMMON CAV JUDGMENT 1. These writ petitions are preferred by Public Limited Companies, invoking jurisdiction of this Court under Articles 226 and 227 of the Constitution of India, whereby the petitioners have prayed for issuance of appropriate writ, order or directions, more particularly, writ of mandamus quashing and setting the order dated 25th June, 2004 passed by the Gujarat Electricity Regulatory Commission [Ahmedabad] [hereafter referred to as “the Commission”] in Case No. 256 SCA/147/4204 4/230 JUDGMENT of 2003. It is further prayed that this Court should declare Regulation-62 of Gujarat Electricity Regulatory Commission [Terms and Conditions of Tariff] Regulations, 2005 [hereafter to be referred to as “Regulations of 2005”], to the extent that “in addition the Commission may also determine the charges on account of service rendered by the Utility to the consumers, e.g. Grid Support Charges” as ultra vires the Act, null and void. 2. One ancillary relief has been prayed in all the petitions and it is submitted that pending the hearing and disposal of the petitions, operation, execution and implementation of the order under challenge dated 25th June, 2004 passed by the Commission may be stayed. Here, it will be relevant to note that Gujarat Electricity Board [hereafter referred to as “the GEB”] was the petitioner before the Commission and while dealing with the said petition, the impugned order is passed. Pending this group petitions, proceedings have been invoked to get quantum of Parallel Operation Charge [hereafter SCA/147/4204 5/230 JUDGMENT referred to as “POC”] so that Commission can determine POC as charge under the head of “Grid Support Charge”. The Commission, of course, has adjourned the hearing and process of determination of the points submitted by the State Transmission Licensee [hereafter referred to as “Utility” or “Licensee”], more particularly on account of pendency of the present petitions and the nature of reliefs prayed for by the petitioner Companies. The first petition being Special Civil Application No. 14742 or 2004 came to be filed by Hindalco Industries Limited against the GEB, a company incorporated under the Companies Act, 1956. Other petitioners also have the same status, i.e. a company incorporated under the Companies Act, 1956. It is contended by the petitioners that the order under challenge passed by the Commission is contrary to law and the same is also not valid being an order passed devoid of authority/jurisdiction. The order is challenged on various grounds, but on plain reading of the petitions preferred, it is possible to note that SCA/147/4204 6/230 JUDGMENT the petitioners have raised mainly certain questions of law and have challenged the proprietary of the order also on merit. However, counsel for the petitioners have not addressed the Court on merit the factual matrix, more particularly in the background of one significant situation, i.e. pendency of the subsequent proceedings initiated by the Licensee/Utility before the Commission. But while responding to the submissions made by the contesting respondents [Transmission Utility] and the counsel appearing for the Commission, the petitioners have tried to explain the factual contingency and have submitted that on facts also, the petitioners can ably dislodge entitlement of the GEB to recover any such charge or charges like POC from the petitioners. In nutshell, the questions emerging from the grounds of challenge are as under:- i Whether the Commission was justified in holding the petition of GEB for determination of POC to be legally maintainable despite holding that GEB had not established whether any Grid Support SCA/147/4204 7/230 JUDGMENT had at all been made available for Parallel Operation or that any costs had been incurred by GEB for the purpose. ii Whether the Commission had jurisdiction under the law to issue a declaration that POC were leviable by GEB for determination of such charges in the absence of data evidencing service rendered or costs incurred by GEB for Parallel Operation. iii Whether the Commission was justified in granting liberty to GEB to file a fresh petition on POC in the facts and circumstances of the case. iv Whether non-filing of appeal against the observations made in the order under challenge would not affect adversely the merits of the say of the present petitioners and whether accepting the application substantively preferred by GEB has resulted into denial of justice? v Whether Regulation-62 framed in the year 2005 is either ultra vires or inconsistent to the relevant statutory provisions? 3. All the petitioners are having their captive power plants [hereafter to be referred to as “CPP”]. Therefore, on facts, all the petitioners have placed similar case on similar facts. SCA/147/4204 8/230 JUDGMENT Therefore, the facts leading to the present petitions can be stated in brief in one set. 4. In 1991, Government of India determined and notified a Policy to allow private sector companies to participate in full generation of electricity in the background of various facts and circumstances including deficit in electricity power supply and deterioration of health of State Electricity Board. In 1995, the government laid down a Policy in furtherance of the Policy notified in the year 1991 and decided to permit private sector participants in generating electricity power through Captive Power Generation/Co-Generation. Government of Gujarat, adopting the Policy of the Government of India, announced its own Power Policy in the year 1995 so that private sector companies can participate in generation, transmission and distribution of power. The State Government decided to facilitate setting up of CPPs by industrial units with a hope to support such industries by providing them power supply in case of need and also to make surplus power SCA/147/4204 9/230 JUDGMENT available to the State Grid. A Resolution came to be passed on 22nd December, 1997 laying down terms. Thereafter, the said Resolution was followed by the Resolution dated 9th November, 1998. Earlier Resolution was mainly in reference to wheeling of power and maintenance of contract payment with State Electricity Board and fees and charges including POC. In the Resolution, the State Government has decided to charge Rs. 5/- per KVA per month from the industrial units generating power through captive power plants. The State Government, by the subsequent Notification of 1998 liberalized the Policy and the private sector operators were tempted and permitted to set up Captive Power Plants of industry and also to supply surplus power so produced to its group companies on payment of certain charges and levy as applicable. The petitioners mainly rely upon certain clauses of the Notification dated 9th November,1998, whereby the contract demand as well as fees and charges are explained. Here, it would be relevant to reproduce the portion of SCA/147/4204 10/230 JUDGMENT Notification of 1998 relied upon by the petitioners from relevant Clauses 8 and 9. “8. Contract Demand The industries on commissioning of CPP will be allowed to reduce their existing contract demand up to a level of 25% of their original contract demand [e.g. if the contract demand is 1000 KVA it can be reduced to any level up to 250 KVA depending upon the need of the consumer] when they intend to have parallel operation with the Grid. However, no contact demand would be necessary/would be insisted upon if the industry with the captive power plant intends to operate on stand alone basis. In case of new connections, the contract demand for parallel operation may be fixed as per the requirement of the consumer. Drawl of power from the State Grid by the industrial unit would be subjected to applicable tariff of GEB/Licensee.” 9. Fees and charges a] While granting the consent for installation of Captive Power Plant, the fees shall be charged as decided by GEB/Licensee. B] Parallel Operation charges shall be charged at the rate fixed by GEB/Licensee with the approval of the Govt.” 5. The State Electricity Board issued Commercial Circular No. 687 of 21st December, 1998 to recover POC and made POC leviable at the rate of SCA/147/4204 11/230 JUDGMENT 7.5% of the demand charges in accordance with the applicable tariffs. On 26th January, 2000, GEB decided to revise POC specified in Clause 19 of the Commercial Circular dated 21st December, 1998, from 1st April, 1999, that is, by giving retrospective effect to the Circular issued in January, 2000. This Circular, again provides certain terms and conditions. Copy of this Circular is available in Annexure:H [collectively]. Both these Commercial Circulars have been referred and considered by the Commission while passing the impugned order. The Gujarat State Electricity Board, thereafter issued a Commercial Circular in reference to Clause 19 of Commercial Circular No. 687 for POC and decided different rates and those rates were given effect from 1st April, 1999. 6. The Commission issued a notice suo motu and registered Case No. 24/2000 and called Commercial Circular No. 706 issued on 28th January, 2000 determining the rates under Clause-19 of the Commercial Circular No. 687 for review and so also the conditions imposed by SCA/147/4204 12/230 JUDGMENT the said Circular. The Commission, vide its order dated 31st August, 2000 quashed and set aside the said Commercial Circular, i.e. Circular of 28th January, 2000, however, granted liberty to the Gujarat Electricity Board to approach the Commission with proper application under Section 29 of the Electricity Regulatory Commission Act, 1998 [hereafter referred to as “the ERC Act”]. Grievance of the petitioner is that though in the said case, the Commission was only required to decide the validity of the Commercial Circular impugned therein, the Commission made certain observations on the leviability and efficacy of POC and one day, the Gujarat Electricity Board approached the Commission for approval of levy of POC to the tune of 50% of the contract demand charges from the industries specified. Copy of the order passed by the Commission in Case No. 24/2000 is part of Annexure:H. 7. Undisputedly, all the petitioners are operating their respective CPPs on receipt of permission to operate such plants. Dates as to grant of SCA/147/4204 13/230 JUDGMENT such permissions are different, but it is also not a matter of dispute that all the petitioners are running their CPPs in parallel with Grid subject to the terms and conditions mentioned in the letter of permission. One of the conditions of granting permission is that the unit shall pay parallel operation charges as may be applicable from time to time. All the petitioners have entered into agreement. The petitioner of Special Civil Application No. 14742 of 2004 entered into an agreement with the Gujarat Electricity Board on 30th August, 2003 for HT power supply agreement of 375000 KVA to its unit at Dahej. Agreement was forwarded to the GEB by letter dated 6th September, 2003. The petitioners rely upon the contents of the agreement entered into by them. It is the say of the petitioners that contents of the agreement entered into may be read as part of the petition while hearing the petitioners. The respondent GEB thereafter filed a formal application with the Commission on 8.9.2003 for approval so that the GEB can recover special levy of 50% of the SCA/147/4204 14/230 JUDGMENT demand charge on the capacity of CPP in terms of MVA. Approval was sought mainly to compensate qua the net worth costs on GEB infrastructure in the Grid System styled as POC, and the Commission, ultimately, on receipt of the application registered it as Case No. 256 of 2003, copy of the petition submitted to the Commission is on record. Say of the petitioners is that the demand, thus, would come to Rs. 16,83,00,000/- for the petitioner of Special Civil Application No. 14742 of 2004. 8. It is contended further by the petitioners that the Commission adopted proposal/petition submitted by the GEB mechanically, more particularly in the background of adoption of such proposal by A.P. State Electricity Regulatory Commission. In the State of Andhra Pradesh, A.P. Electricity Board had made such proposal and the same was adopted by the A.P. State Electricity Regulatory Commission. The decision of the A.P. State Electricity Regulatory Commission was assailed in the High Court of Andhra Pradesh invoking jurisdiction of SCA/147/4204 15/230 JUDGMENT the High Court under Articles 226 and 227 of the Constitution. The High Court ultimately reversed the decision of the A.P. State Electricity Regulatory Commission. According to the petitioners, though decision of A.P.High Court dated 8th February, 2002 was available with the Commission, the Commission passed the impugned order in the form of declaration simplicitor. Special Leave Petition filed before the Apex Court by the licensee of the State of Andhra Pradesh against the said judgment of Andhra Pradesh High Court is pending before the Apex Court. The Court is informed that the Apex Court has not granted any formal stay against the order of the Andhra Pradesh High Court. 9. On receipt of the petition and registration of Case No. 256 of 2003, a public notice was issued in the newspapers and the petitioners ultimately submitted their objections to the said notice and objections, if are encapsuled, the same are as under:- [i] That the application of respondent Electricity Board is not maintainable at law. SCA/147/4204 16/230 JUDGMENT [ii] Levy of POC by the respondent was unauthorized under the law. [iii]Levy of such charge would amount to profiteering and the same was otherwise unreasonable for the reasons set out in the objections submitted. [iv] Substantial question of law and jurisdiction of maintainability of the application may be heard and decided. [v] There is no justification even in asking for special levy of 50% of the demand charge of the capacity of the CPP. 10.After hearing the concerned parties, the Commission passed order on 25th June, 2004, that is, order impugned herein holding inter alia that; [i] Application submitted is maintainable in law and [ii] POC can be levied under the provisions of Gujarat Electricity Industry [Reorganization and Regulation] Act, 2003 and Indian Electricity Act, 2003. The Commission ultimately did not accept the proposal but permitted special levy of 50% for want of sufficiency of data. The applicant was directed to conduct the study for the purpose and to provide that Data and approach the Commission SCA/147/4204 17/230 JUDGMENT against that fresh order. Here, it would be relevant to reproduce the exact portion of the impugned order which is at page 355. The same reads as under:- “The Commission holds that this petition [256/2003] filed by the GEB is legally maintainable. The Commission further holds that POC can be levied under the Central Act and the Gujarat Act. The Commission is of the view that, the support extended by the grid, to the CPPs synchronized with it, has to be identified and quantified. GEB also has to furnish the estimate of cost being incurred by it for providing these services to the CPPs. GEB is accordingly directed to conduct the necessary study covering these aspects. GEB is further directed to file the findings of the study with the Commission. GEB is at liberty to file a fresh petition on charges incorporating the findings of the study.” 11.It is the say of the petitioners that there is no authority or jurisdiction vested in the Commission to issue such declaration at all. Functions of the said Commission are set out in Section 86 of the Central Act i.e. Electricity Act, 2003 and Section 17 of Gujarat Electricity Industry [Reorganization and Regulation] Act, 2003 [hereafter referred to as the “State Act”] SCA/147/4204 18/230 JUDGMENT contemplate determination of tariff on electricity in accordance with the provisions thereof and parallel operation charge does not fall in the category of any of the tariff. Here, it would be relevant to reproduce both the above Sections of Central Act and the State Act. These sections have been read over to the Court time and again by the counsel for the parties and it is asserted that these two parallel provisions are relevant for the purpose of the present group of petitions. “86. Functions of State Commission.-[1] The State Commission shall discharge the following functions, namely:- [a] determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk or retail, as the case may be, within the State: Provided that where open access has been permitted to a category of consumers under section 42, the State Commission shall determine only the wheeling charges and surcharge thereon, if any, for the said category of consumers. [b] regulate electricity purchase and procurement process of distribution licensees including the price at which electricity shall be procured from generating companies or licensees or from other sources through agreements for purchase of power for distribution and supply within the State; [c] facilitate intra-State transmission and SCA/147/4204 19/230 JUDGMENT wheeling of electricity; [d] issue licenses to persons seeking to act as transmission licensees, distribution licensees and electricity traders with respect to the operations within the State; [e] promote cogeneration and generation of electricity from renewable sources of energy by providing suitable measures for connectivity with the grid and sale of electricity to any person, and also specify, for purchase of electricity from such sources, a percentage of the total consumption of electricity in the area of a distribution licensee; [f] adjudicate upon the disputes between the licensees and generating companies and to refer any dispute for arbitration; [g] levy fee for the purposes of this Act; [h] specify State Grid Code consistent with the Grid Code specified under clause [h] of sub-section [1] of section 79; [i] specify or enforce standards with respect to quality, continuity and reliability of service by licensees; [j] fix the trading margin in the intra-State trading of electricity, if considered, necessary; [k] discharge such other functions as may be assigned to it under this Act. [2] The State Commission shall advise the State Government on all or any of the following matters, namely:- [i] promotion of competition, efficiency and economy in activities of the electricity industry; [ii] promotion of investment in electricity industry; [iii]reorganisation and restructuring of electricity industry in the State; [iv] matters concerning generation, transmission, distribution and trading of electricity or any other matter referred to the State Commission by that Government; SCA/147/4204 20/230 JUDGMENT [3] The State Commission shall ensure transparency while exercising its powers and discharging its functions. [4] In discharge of its functions, the State Commission shall be guided by the National Electricity Policy, National Electricity Plan and Tariff Policy published under section 3.” “17. Subject to the provisions of this Act, the Commission shall perform the following functions, namely:- [a] to regulate purchase, transmission, distribution, supply and utilisation of electricity, the quality of service and the tariff and charges payable for the transmission, distribution or supply of electricity having regard to the interest of both the consumers and other persons availing the services and the utilities; [b] to regulate the procedure- [i] for purchase and procurement of electricity from any source for transmission, sale, distribution and supply thereof in the State; and [ii] for the determination of the price for such purchase or procurement; [c] to promote efficiency, economy and safety in the use of the electricity in the State; [d] to determine the tariff for electricity; wholesale, bulk, grid or retail in accordance with the provisions of this Act; [e] to determine the tariff payable for the use of the intra-State transmission facilities in accordance with the provisions of this Act; [f] to issue licenses in accordance with the provisions of this Act and determine the conditions to be included in the licenses; [g] to levy fees, charges and fines in accordance with the provisions of this Act and retain the same for its expenses; [h] to regulate the working of the licensees and to enable that the working of licensees is efficient, economical and equitable; SCA/147/4204 21/230 JUDGMENT [i] to require licensees to formulate prospective plans and schemes in co- ordination with the other persons for the promotion of generation, transmission, distribution, supply and use of electricity; [j] to require the licensees to collect data and forecast the demand for use of electricity; [k] to set and enforce standards for the electricity industry in the State including standards relating to safety, equality, continuity and reliability of service; [l] to promote