Case: RELIANCE INFRASTRUCTURE LIMITED Vs. STATE OF MAHARASHTRA

by para 5.3(h)(2). This submission will not, however, carry the case of the appellant any further. Normative levels are those which are fixed by the application of the standards guided by the terms of the tariff policy while actual levels are those which have been achieved as a matter of fact, in the past. The emphasis in the tariff policy is on creating incentives for achieving higher efficiency in order to enable the ultimate consumer to have the benefit of efficient operations.30. Tariff fixation is a complex exercise involving a careful balance between numerous considerations. The “shall be guided” prescription under Section 61 requires the appropriate commission to bear those considerations in mind. Deducing past performance on the basis of historical data, balancing diverse policy objectives and evaluating the comparative weight to be ascribed to the interests of stakeholders is a scientific exercise which is carried out by the commission. The nature of judicial review that is exercisable in a given subject area depends in a significant measure on the nature of the area and the body which is entrusted with the task of framing subordinate legislation. In Transmission Corporation of Andhra Pradesh Ltd. v Sai Renewable Power Pvt. Ltd., (2011) 11 SCC 34 a two judge Bench of this Court held thus:“17. Fixation of tariff is, primarily, a function to be performed by the statutory authority in furtherance to the provisions of the relevant laws. We have already noticed that fixation of tariff is a statutory function as specified under the provisions of the Reform Act, 1998, Electricity Regulatory Commissions Act, 1998 and the Electricity Act, 2003. These functions are required to be performed by the expert bodies to whom the job is assigned under the law… The functions assigned to the Regulatory Commission are wide enough to specifically impose an obligation on the Regulatory Commission to determine the tariff. The specialized performance of functions that are assigned to Regulatory Commission can hardly be assumed by any other authority and particularly, the Courts in exercise of their judicial discretion. The Tribunal constituted under the provisions of the Electricity Act, 2003, again being a specialized body, is expected to examine such issues, but this Court in exercise of its powers under Article 136 of the Constitution would not sit as an appellate authority over the formation of opinion and determination of tariff by the specialized bodies.18. …This Court has consistently taken the view that it would not be proper for the Court to examine the fixation of tariff rates or its revision as these matters are policy matters outside the purview of judicial intervention. The only explanation for judicial intervention in tariff fixation/revision is where the person aggrieved can show that the tariff fixation was illegal, arbitrary or ultra vires the Act. It would be termed as illegal if statutorily prescribed procedure is not followed or it is so perverse and arbitrary that it hurts the judicial ‘conscience’ of the Court making it necessary for the Court to intervene. Even in these cases the scope of jurisdiction is a very limited one.”MERC is an expert body which is entrusted with the duty and function to frame regulations, including the terms and conditions for the determination of tariff. The Court, while exercising its power of judicial review, can step in where a case of manifest unreasonableness or arbitrariness is made out. Similarly, where the delegate of the legislature has failed to follow statutory procedures or to take into account factors which it is mandated by the statute to consider or has founded its determination of tariffs on extraneous considerations, the Court in the exercise of its power of judicial review will ensure that the statute is not breached. However, it is no part of the function of the Court to substitute its own determination for a determination which was made by an expert body after due consideration of material circumstances. In Association of Industrial Electricity Users v State of Andhra Pradesh, (2002) 3 SCC 711 a three judge Bench of this Court dealt with the fixation of tariffs and held thus:“11. We also agree with the High Court that the judicial review in a matter with regard to fixation of tariff has not to be as that of an Appellate Authority in exercise of its jurisdiction under Article 226 of the Constitution. All that the High Court has to be satisfied with is that the Commission has followed the proper procedure and unless it can be demonstrated that its decision is on the face of it arbitrary or illegal or contrary to the Act, the court will not interfere. Fixing a tariff and providing for cross- subsidy is essentially a matter of policy and normally a court would refrain from interfering with a policy decision unless the power exercised is arbitrary or ex facie bad in law.”31. We commenced our discussion by emphasising, in our prefatory observations, that the power to frame regulations is of a legislative nature. The CPRI report was an input before the MERC in carrying out that exercise. MERC followed the statutory procedures laid down for the determination of tariffs. It took into account factors which it is mandated by the statute to consider. The national tariff policy, suggestions of stakeholders as well as the assessment carried out by the CPRI were duly considered. Hence, the present case does not fall in the paradigm of manifest unreasonableness or arbitrariness to warrant the interference of this Court. It would be rather formulaic for the Court to accept that merely because DTPS was placed at par in the immediately previous period (2006-07) and the period immediately succeeding (2016-20), that this must necessarily be extrapolated to the intervening period governed by the MYT Regulations 2011. A body which is entrusted with the task of framing subordinate legislation has a range of options including policy options. If on an appraisal of all the guiding principles, it has chosen a particular line of logic or rationale, this Court ought not to interfere.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]18. On the maintainability of the petition under Article 226, the High Court, in our view, has overlooked the position in law established by the judgment of a Constitution Bench of this Court in PTC India Limited v Central Electricity Regulatory Commission (2010) 4 SCC 603 .   The Constitution Bench considered whether the Appellate Tribunal for Electricity has jurisdiction to decide upon the validity of the regulations framed by the Central Electricity Regulatory Commission. CERC has been entrusted with the power to frame regulations under Section 178 of the Electricity Act 2003. The Constitution Bench held that the validity of a regulation framed under Section 178 can be tested only before the court exercising judicial review. While the Tribunal may decide upon a dispute involving the interpretation of a regulation, for which an appeal under Section 111 would be maintainable, no appeal can lie before the Tribunal on the validity of a regulation.the above principles emerge in the context of regulations framed under Section 178 by the CERC, the logic of the judgment extends to the regulations framed under Section 181 by the State Electricity Regulatory Commissions. In view of the legal position settled by the Constitution Bench, we are of the clear view that the High Court was not justified in disparaging the appellant for taking recourse to a constitutional remedy under Article 226. Indeed, a challenge to the validity of the regulations framed by the MERC could only lie before the High Court. Hence, the imposition of costs for having adopted the remedy under Article 226 was unjustified. There was no suppression of fact on the part of the appellant which had indicated the recourse it had taken in the appeal before the Tribunal, arising from its prayer for relaxation of the SHR norms before MERC. The plea before the Appellate Tribunal was for relaxation of the SHR norms. The plea before the High Court was that the SHR fixed was discriminatory and ultra vires. Undoubtedly, if the appellant were to succeed before the Tribunal, it would perhaps obviate the challenge in the High Court. The appellant, as learned Senior Counsel informed the court, did not press ahead with its plea before the Tribunal. Hence, the writ petition could not have been held not to be maintainable.19. The High Court has dealt with the merits of the challenge to the validity of the regulations. The constitutional validity of Regulation 44.2(d) of the Tariff Regulations 2011 is the subject of the challenge in these proceedings. The basic challenge which has been addressed before the Court is founded on a plea of discrimination.24. The national tariff policy has multi-faceted objectives. Significant among them is the need to ensure to consumers the availability of electricity at reasonable and competitive rates. The policy also seeks to ensure the financial viability of the sector and underlines the need to attract investments. A financially sustainable electricity sector is an important facet of the overall regulatory framework. The objectives of the policy emphasise the need to promote transparency, consistency and predictability in regulatory approaches across jurisdictions. The policy emphasises the need to minimise perceptions of regulatory risk. Finally, the policy recognises the need to promote competition, efficiency in operations and improvements in the quality of supply. In designing and formulating the regulatory framework for tariffs, the delegate of the legislature has to bring about a balance between the competing goals which the tariff policy incorporates.25. As part of the process, the delegate has to bear in mind the interests of diverse stake holders including consumers and producers. The process of framing tariffs is of equal significance, for it is through the procedural framework that norms of consistency, transparency and predictability can be enforced. Competition, efficiency and quality of supply are key components of the policy framework in designing tariffs. Clause 5.3(f) of the tariff policy speaks of the need to evolve performance norms which incorporate incentives and disincentives and provide an appropriate arrangement that fosters the sharing of gains of efficiency in operations with consumers. Operating parameters in tariffs are required to be pegged only on and not at thef normative andsave and except in those cases referred to in paragraph 5.3(h)(2). Paragraph 5.3(h)(2) deals with those cases where operations have been much below the norm for several previous years. In those cases, the initial starting point in determining the revenue requirement and the trajectories are fixed at a relaxed level and not at desired levels. Under clause 5.3(f), the operating norms must fulfil several parameters. They must be (i) efficient; (ii) relatable to past performance; (iii) capable of achievement; and must progressively reflect increased efficiencies. They may also take into consideration latest technological advances, fuel, vintage of equipment, nature of operations, level of service to be provided to consumers, among other factors. Continuous and proven inefficiency has to be controlled and penalised. The operating norms must be designed to promote efficiency and to ensure that the gains which accrue on account of efficient operations are shared with the consumers of electricity. The operating norms will, therefore, have due regard to the performance in the past as well as capacities for future achievement. These must be dovetailed with all relevant considerations, bearing on the requirements of the policy.26. The Tariff policy provides guidance to the appropriate commission when it frames regulations. The power to frame regulations is legislative in nature. It is conferred upon the appropriate commission. The commission weighs numerous factors. Its discretion in carrying out a complex exercise cannot be constrained. The delegate of the legislature is therefore under a mandate to bring about a fair and equitable balance between competing considerations. Standing at the forefront of those considerations is above all the need to ensure efficiency and to protect the interests of consumers. The submission which has been urged on behalf of the appellant would reduce tariff fixation to a rather simplistic process of bringing about equality between generating units which have the same design and manufacturing origin. Such an approach overlooks the complex factors which have to be borne in mind in the determination of tariffs. The submission which has been urged on behalf of the appellant is based on the hypothesis that the CPRI report underlined the similarity of Parli Unit 6, Paras Unit 3, Tata Trombay Unit 8 and the DTPS unit of the appellant. At the highest, the CPRI study would indicate a similarity of specifications but not a similarity of performance. Performance, as we have seen, is a critical element in designing an appropriate SHR. The SHR has an important co-relationship with efficiency.We commenced our discussion by emphasising, in our prefatory observations, that the power to frame regulations is of a legislative nature. The CPRI report was an input before the MERC in carrying out that exercise. MERC followed the statutory procedures laid down for the determination of tariffs. It took into account factors which it is mandated by the statute to consider. The national tariff policy, suggestions of stakeholders as well as the assessment carried out by the CPRI were duly considered. Hence, the present case does not fall in the paradigm of manifest unreasonableness or arbitrariness to warrant the interference of this Court. It would be rather formulaic for the Court to accept that merely because DTPS was placed at par in the immediately previous period (2006-07) and the period immediately succeeding (2016-20), that this must necessarily be extrapolated to the intervening period governed by the MYT Regulations 2011. A body which is entrusted with the task of framing subordinate legislation has a range of options including policy options. If on an appraisal of all the guiding principles, it has chosen a particular line of logic or rationale, this Court ought not to interfere.