Case: Bhaskar Shrachi Alloys Ltd. and Ors Vs. Damodar Valley Corporation and Ors

2. First, the factsThe Corporation has been established under the Act of 1948 for the development of the Damodar Valley area falling within the States of West Bengal and Jharkhand. As evident from the provisions of Section 12 of the Act of 1948, three (03) major areas of activity undertaken by the Corporation under the Act of 1948 are: (i) power generation, transmission and distribution; (ii) flood control; and (iii) irrigation and some connected activities like soil conservation, afforestation, etc3. Under Section 20 of the Act of 1948, the Corporation was empowered and authorised to determine the tariff chargeable by it from its consumers. Part IV of the Act of 1948 under the heading "Finance, Accounts and Audit" though, superficially, may appear to be dealing with the indoor management of the Corporation contain provisions which could have a relevant bearing to tariff fixation Under Section 20 of the Act of 1948. Some of the said provisions are to be found in Sections 32, 37, 38, 39 and 40 of the Act of 1948 which deals with facets of expenditure, depreciation, allowances, payment of interest, etc. all of which would have a reasonable bearing on working out the tariff that the Corporation would be entitled to charge from its consumers after taking into account the said items of expenditure or allowances/disallowances, as may be4. Acting under the provisions of Section 20 of the Act of 1948, the Corporation had notified its own tariff order on 1st September, 2000. The 2003 Act came into force with effect from 10th June, 2003. Despite coming into force of the 2003 Act the Corporation had not approached the CERC for determination of the tariff chargeable by it. Consequently, the CERC initiated suo motu proceedings by order dated 29th March, 2005 and directed the Corporation to submit an application for determination of tariff for the period from 1st April, 2004 to 31st March, 2009. In terms of the said order passed by the CERC, the Corporation made an application dated 8th June, 2005 before the CERC (i.e. Petition No. 66 of 2005) for determination of tariff for the period in question. It appears that in view of the "complexity" of the issues involved, the CERC had requested one of its members to go into the necessary fact-finding exercise and to submit a report of the detailed facts that would be relevant for determination of tariff by the CERC. On the basis of the available inputs received from the aforesaid single member Bench of the CERC, the CERC issued a tariff order dated 3rd October 2006 determining the tariff for generation and transmission for the period from 1st April, 2006 to 31st March, 2009 by allowing a two-year transition period to the Corporation i.e. from 1st April, 2004 to 31st March, 20065. At this stage, it may be appropriate to take note of the contents of the tariff order dated 3rd October, 2006 passed by the CERC so as to appreciate and understand the grievances entertained by the respective Appellants before this Court who were also the Appellants before the learned Appellate Tribunal challenging the order of the CERC dated 3rd October, 20066. The CERC by its order dated 3rd October, 2006 took the view that the matter of determination of tariff chargeable by the Corporation would be governed by the provisions of the 2003 Act and the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 (hereinafter referred to as "Tariff Regulations") framed thereunder. Accordingly, the CERC proceeded to determine the tariff after giving due weightage to the various relevant factors which are required to be considered for such determination as spelt out by the Regulations in force. A reading of the order of the CERC would go to show that in determining the tariff due consideration of the following issues was made by the CERC(i) Choice between GFA and NFA Method;(ii) Capital Cost;(iii) Extra Rupee Liability;(iv) Additional Capitalisation;(v) Debt-Equity Ratio;(vi) Return on equity;(vii) Interest on loan;(viii) Depreciation including Advance against Depreciation;(ix) O & M expenses;(x) Pension and gratuity fund;(xi) Interest on working capital;(xii) Operational Norms;(xiii) Energy charges and the fuel component for the thermal generating stations;(xiv) Fuel Price Adjustment7. Aggrieved by the aforesaid order dated 3rd October, 2006, the Corporation, insofar the exclusion of the provisions of the Act of 1948 while determining the tariff and refusal to grant claims of certain expenses thereunder; the consumers, namely, Bhaskar Shrachi Alloys Ltd., Impex Ferro Tech Ltd., Shyam Ferro Alloys Ltd., Maithan Alloys Ltd., Anjaney Ferro Alloys Ltd., Dayal Steel Ltd. and Castrol Technologies Ltd. insofar as transitory period is concerned and the State of Jharkhand and West Bengal Electricity Regulatory Commission insofar as the exclusion of the power of the State Regulatory Commission to determine the intra-State transmission of electricity is concerned had approached the learned Appellate Tribunal by way of separate appeals8. The learned Appellate Tribunal by the impugned judgment and order dated 23rd November, 2007 took the view that by virtue of fourth proviso to Section 14 of the 2003 Act, while the Corporation continued to be a deemed licensee, the provisions of the Act of 1948, which are not inconsistent with the provisions of the 2003 Act, shall continue to apply to the Corporation. In other words, insofar as the inter-play between the provisions of the Act of 1948 and the 2003 Act is concerned, according to the learned Appellate Tribunal, it is only the provisions of the earlier Act inconsistent with the later Act that will cease to have effect and such provisions of the Act of 1948 that are consistent will continue to hold the field notwithstanding the enactment of the 2003 Act. Continuing further, the learned Appellate Tribunal held that while Section 20 of the Act of 1948 which empowers the Corporation to fix the tariff is inconsistent with Section 62 of the 2003 Act which authorised the "Appropriate Commission" to determine the tariff in accordance with the provisions of the 2003 Act, the specific provisions contained in Sections 32, 37, 38, 39 and 40 of Part IV of the Act of 1948 will continue to be relevant in the matter of determination of tariff in as much as there are no pari materia/parallel provisions in the 2003 Act. It was further held that though there are provisions in the Tariff Regulations framed by the CERC covering the same field, the said Regulations, being in the nature of subordinate legislation, cannot override the provisions of a law duly enacted (Act of 1948), particularly, in the absence of any legislative intention to the said effect in any of the provisions of the 2003 Act. Accordingly, the learned Appellate Tribunal while rejecting the following five claims and upholding the order of the CERC on the aforesaid counts thought it proper to remand the matter, for a de novo consideration of the remaining five issues by the CERC in the light of the findings recorded by it. The tabular chart, extracted below, would indicate the five issues that have been finalized by the learned Appellate Tribunal by upholding the order of the CERC dated 3rd October, 2006 and the other five issues which have been remanded for re-determination by the CERC10. It will be useful to notice, at this stage, that in terms of the impugned order dated 23rd November, 2007 passed by the learned Appellate Tribunal the matter has been de novo considered and re-determined by the CERC by its order dated 6th August, 2009. This has happened due to the absence of any interim restraint. The said order of the CERC dated 6th August, 2009 has since been affirmed by the learned Appellate Tribunal by a separate order dated 10th May, 2010 which is the subject matter of challenge in Civil Appeal No. 4881 of 2010 presently pending before this Court. The said appeal (Civil Appeal No. 4881 of 2010) has been ordered to be heard after disposal of the present appeals.

Reasoning:
27. We have considered the reasons which had weighed with the CERC as well as the learned Appellate Tribunal in granting the aforesaid transitory period. The present dispute, regardless of the way it is resolved, would have relevance to the quantum of the tariff, depending on whether the determination is made on the basis of the provisions of Part IV of the Act of 1948 or the provisions of the Tariff Regulations, as may be. So far as the grant of the transitory period is concerned, the same, we have noticed, has been so granted having due regard to the statutory functions/social responsibilities that the Corporation is mandated to undertake in terms of the Act of 1948. The tariff fixed is also lower than the tariff that has been fixed by the Jharkhand and West Bengal Electricity Regulatory Commission for the general/domestic classes of consumers. While it is correct that the classes of consumers served by the Corporation are HT-Industrial consumers like Steel, Coal, Railways, etc. beside bulk supply to main beneficiaries of State Electricity Boards of West Bengal and Jharkhand, the said fact, itself, is another peculiar feature which distinguishes the Corporation from other licenses. If in a situation where the Corporation in addition to generation, transmission and distribution of electricity is statutorily required to undertake certain social security/beneficial measures like flood control, control of soil erosion, afforestation, navigation, promotion of public health, etc. we do not see how the grant of transitory period can be faulted with. We, therefore, decline to interfere with the aforesaid part of the order of the learned Appellate Tribunal28. The learned Appellate Tribunal has also taken the view that having regard to the provisions of Section 79 of the 2003 Act it is the CERC which would be the "Appropriate Commission" for determination of tariff inasmuch as the Damodar Valley Corporation is a Corporation owned and controlled by the Central Government. The detailed inputs to arrive at the aforesaid conclusion have been duly considered by us. On such consideration, we are of the view that the above conclusion recorded by the learned Appellate Tribunal is neither unreasonable nor irrelevant so as to warrant our interference, particularly, in exercise of the limited jurisdiction Under Section 125 of the 2003 ActAs can be observed, the primary objective of the Tennessee Valley Authority Act is to prevent floods across the Tennessee River Valley and the generation of electricity is incidental to this activity of flood-control37. It may be wholly unnecessary to detract from the fundamental principles of law laid down in The Presidential Reference (supra), which would be an inevitable consequence, if the contentions advanced on behalf of the Appellants to the effect that the Tariff Regulations must override the provisions of the Act of 1948 as the said Regulations are statutory in character is to be accepted. This is also what has been subsequently emphasised by this Court in Bharathidasan University and Anr. (supra) and Samsthanan Chethu Thozhilali Union (supra). No error, therefore, can also be found in the implicit reliance placed on the ratio of the above decisions by the learned Appellate Tribunal in its order dated 23rd November, 2007On a careful reading of the aforesaid later part of the fourth proviso to Section 14 of the Act of 2003, it is seen that it is clearly a substantive provision to lay down something more than what a proviso generally deals with. If the intention of the proviso was to exclude DVC only from the main part of Section 14 of the Act of 2003 dealing with the requirement of obtaining licence for transmission/distribution/trade in electricity, the purpose is fully achieved by the first part recognising DVC as a deemed licensee and not requiring to apply for and obtain licence. The Legislature could have simply stopped there. There was no necessity to incorporate the second part. The second part of the fourth proviso is to bring in the continued application of some of the provisions of the Act of 1948 which are not inconsistent with the provisions of the Act of 2003. To elaborate it further, let us take the case of the third proviso to Section 14 of the Act of 2003 which provides "that in case an appropriate Government transmits electricity or distributes electricity or undertakes trading in electricity whether before or after the commencement of the Act, such Government shall be deemed to be a licensee under the Act but shall not be required to obtain licence under the Act". In so far as DVC is concerned, if the fourth proviso is to be confined only to licensing as in the case of third proviso, the fourth proviso also would have stopped with the first part of the proviso. There would have been no necessity to incorporate the second part of the proviso. The legislature does not incorporate any words which are irrelevant or redundant and every expression used in a statutory provision has some purpose42. A careful comparative reading of the third and the fourth provisos to Section 14 of the Act of 2003 clearly indicates the intention of the legislature that the second part of the fourth proviso is to bring in the continued application of some of the provisions of the Act of 1948 which are not inconsistent with the provisions of the Act of 2003. There are no licensing provisions in the Act of 1948 to be saved. The obvious reference in the second part of proviso is to provide for the continued application of the provisions of the Act of 1948 insofar as they are not inconsistent with the provisions of the Act of 2003A perusal of Sections 18 and 19 of the Act of 1948 show that they deal with the supply and generation of electrical energy and distribution of electricity within the Damodar Valley area. The provisions of the Act of 2003 which authorise the Regulatory Commissions to grant licence to persons (other than DVC) fully govern the field and there is no question of continued application of the Act of 1948 in that respect. Sections 18 and 19 of the Act of 1948 do not deal with licence to DVC. These provisions only deal with activities of other entities to distribute electricity within the Damodar Valley area. Further, the provisions of Electricity Act, 2003 authorizes the Regulatory Commissions to grant licence to persons other than DVC. Therefore, there can be no question of continued application of the Act of 1948 over those provisions47. On the other hand, it would appear from the record of the proceedings of the Parliamentary Standing Committee that the Industry represented by Chhotanagpur Chamber of Commerce & Industry and The Bengal Chamber of Commerce & Industry as well as the States of Jharkhand and West Bengal had contested the claims made by the Corporation for exemption and had pleaded before the Parliamentary Standing Committee that the Act of 1948 itself be repealed/amended insofar as all non-power related activities are concerned which constitute only about 10% of the total activities of the Corporation48. After considering the respective stands taken, the Parliamentary Standing Committee had recommended that the Corporation should be exempted from the operation of the provisions of the proposed 2003 Act in view of the special status and responsibilities of the Corporation as envisaged under the Parliamentary enactment constituting it (i.e. the Act of 1948). However, it appears that Parliament was not inclined to provide a blanket/total exemption in favour of the Corporation and the 2003 Act did not include the Corporation as one of the entities in Section 173 of the 2003 Act which provides exemption in so far as the provisions of the Consumer Protection Act, 1986, the Atomic Energy Act, 1962 and the Railways Act, 1989 clearly excluding the provisions of the Act of 1948 therefrom. Instead, the fourth proviso to Section 14 of the 2003 Act was specifically incorporated, details of which have already been noted. Having regard to the legislative history behind the enactment of the provision of Section 173 and the provisions of Section 14 including the fourth proviso thereto, it may be more in consonance with the Parliamentary intention to hold that the fourth proviso to Section 14 need not be understood to be confined only to the question of licensing which is dealt with by the main part of the Section 14. Rather, we are inclined to hold that Parliament had intended to provide partial exemption to the Corporation by mandating that such provisions of the Act of 1948 which are not inconsistent with the 2003 Act will continue to hold the field. Viewed thus, the fourth proviso to Section 14 of the Electricity Act 2003 has to be understood to be a legislative exercise in the nature of a substantial provision of law. Part IV of the Act of 1948 not being inconsistent with the provisions of the 2003 Act can, therefore, be taken into account for determination of tariff. Such provisions of the Act of 1948 will also have an overriding effect over the inconsistent provisions of the Tariff Regulations. Our view, as above, will also effectuate the provisions of the Act of 1948 in so far as the activities of the Corporation, other than generation and transmission of electricity, is concerned. We, therefore, affirm the above view taken by the Appellate Tribunal for the reasons afore-stated50. Insofar as the questions under the last two issues at (g) and (h) above is concerned, the same have already been dealt with in the present order. Of the remaining heads of tariff fixation, it appears that so far as the depreciation rate and sinking fund is concerned it is the provisions of Section 40 of the Act of 1948 which have been held to be determinative. We have gone through the reasoning adopted by the learned Appellate Tribunal in this regard. Having clarified the manner in which the fourth proviso to Section 14 of the 2003 Act has to be understood, we do not find the reasoning adopted by the learned Appellate Tribunal on the issues relating to depreciation and sinking fund to be fundamentally flawed in any manner so as to give rise to a substantial question of law requiring our intervention/interference Under Section 125 of the 2003 Act51. Insofar as the debt-equity ratio is concerned, we find that except for the projects which have been completed prior to 1992 in which case the ratio has been worked out at par with other public-sector organisation at 50:50, the ratio of 70:30 has been adopted following the prescription under Regulation 20 of the Tariff Regulations in the absence of any specific rate under the Act of 194852. So far as the pension and gratuity fund is concerned, the only issue arising is whether the fund worked out on Actuary basis at Rs. 1534.49 crores should be apportioned between the Corporation and the consumers as held by the CERC in the ratio of 40:60 or the entire fund should be allowed to be recovered by way of tariff from the consumers as held by the learned Appellate Tribunal53. A careful consideration of the reasoning adopted by the learned Appellate Tribunal would not disclose any such error so as to warrant interference of this Court. No error or fallacy, ex facie, is disclosed in the reasoning adopted so as to justify interference Under Section 125 of the 2003 Act54. Insofar as the consumers (Appellants in Civil Appeal Nos. 971-973 of 2008) are concerned, an additional issue has been struck, as noticed earlier. This is with regard to the number of employees engaged in the power sector by the Corporation for whom alone proportionate recovery by way of tariff so far as the pension and gratuity is concerned, would be justifiable. Apart from the fact that the issue was not raised in any of the forums below and had been so raised before this Court for the first time and that too in the course of the arguments advanced, the materials on record do not justify a conclusion to be reached by us which will support the core basis of the contention made, namely, that the Corporation had not laid before the CERC any materials to show the extent of the work-force deployed in the power sector of the Corporation. In fact, in the counter arguments advanced on behalf of the Corporation this contention has been refuted and it is asserted that such materials were, indeed, laid before the CERC, a fact which we find to be correct55. Insofar as the issue of allowance of cost relating to other activities of the Corporation to be recovered through tariff on electricity is concerned, we have taken note of the objection(s) raised in this regard which in sum and substance is that Sections 32 and 33 of the Act of 1948 are in direct conflict with Sections 41 and 51 of the 2003 Act and, therefore, recovery of cost incurred in "other works" undertaken by the Corporation through power tariff is wholly untenable. Apart from reiterating the basis on which we have thought it proper to affirm the findings of the learned Appellate Tribunal on the purport and scope of the fourth proviso to Section 14 of the 2003 Act and the continued operation of the provisions of the Act of 1948 which are not inconsistent with the provisions of the 2003 Act, we have also taken note of the specific provisions contained in Sections 41 and 51 of the 2003 Act which, inter alia, require maintenance of separate accounts of the other business undertaken by transmission/distribution licensees so as to ensure that the returns from the transmission/distribution business of electricity do not subsidize any other such business. Not only Sections 41 and 51 of the 2003 Act contemplate prior approval of the Appropriate Commission before a licensee can engage in any other business other than that of a licensee under the 2003 Act, what is contemplated by the aforesaid provisions of the 2003 Act is some return or earning of revenue from such business. In the instant case, the "other activities" of the Corporation are not optional as contemplated Under Sections 41/51 of the 2003 Act but are mandatorily cast by the statute i.e. Act of 1948 which, being in the nature of socially beneficial measures, per se, do not entail earning of any revenue so as to require maintenance of separate accounts. The allowance of recovery of cost incurred in connection with "other activities" of the Corporation from the common fund generated by tariff chargeable from the consumers/customers of electricity as contemplated by the provisions of the Act of 1948, therefore, do not collide or is, in any manner, inconsistent with the provisions of the 2003 Act. We will, therefore, have no occasion to interfere with the findings recorded by the learned Appellate Tribunal on the above score.