M/S SUNDEW PROPERTIES LIMITED versus TELANGANA STATE ELECTRICITY REGULATORY COMMISSION & ANR.
[2024] 5 S.C.R. 739, Supreme Court of India, 2024
Outcome: Case Partly allowed (Granted)
Segment: Issues
* Author
[2024] 5 S.C.R. 739 : 2024 INSC 439
M/s Sundew Properties Limited 
v. 
Telangana State Electricity Regulatory Commission & Anr.
(Civil Appeal No. 8978 of 2019)
17 May 2024 
[Sanjiv Khanna and Dipankar Datta,* JJ.]
Issue for Consideration
Whether the designation of an entity as a Special Economic Zone-
developer ipso facto qualifies the entity to be a deemed distribution 
licensee, obviating the need for an application u/s. 14 of the 
Electricity Act; whether Regn 12 of the Andhra Pradesh Electricity 
Regulatory Commission (Distribution Licence) Regulations, 2013, 
and by implication r. 3(2) of the Distribution of Electricity Licence 
(Additional Requirements of Capital Adequacy, Creditworthiness and 
Code of Conduct) Rules, 2005 are applicable to a SEZ developer 
recognised as a deemed distribution licensee under the proviso to s. 
14(b) read with Regn 13 of the 2013 Regulations; and whether the 
condition imposed by the State Electricity Regulatory Commission 
to infuse additional capital as per r. 3(2) of the 2005 Rules read 
with Regn 12 of the 2013 Regulations, justifiable or extraneous.
Headnotes†
Electricity Act, 2003 – s. 14(b) proviso – Distribution of 
Electricity Licence (Additional Requirements of Capital 
Adequacy, Creditworthiness and Code of Conduct) Rules, 
2005  – r. 3(2) – Andhra Pradesh Electricity Regulatory 
Commission (Distribution Licence) Regulations, 2013 – Regns 
12, 13 – Application for grant of Distribution Licence in the 
area of supply
of an existing Distribution Licensee – Procedure 
to get identified as deemed distribution licensee – On facts, 
designation of an entity-appellant as a Special Economic 
Zone-SEZ developer by the Ministry – Appellant, if ipso facto 
qualifies the entity to be a deemed distribution licensee, 
obviating the need for an application u/s. 14 – Regn 12 of the 
2013 Regulations and by implication r. 3(2) of the 2005 Rules, 
if applicable to a SEZ developer recognised as a deemed 
distribution licensee under the proviso to s. 14(b) read with 
Regn 13 of the 2013 Regulations – Condition imposed by the
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State Electricity Regulatory Commission to infuse additional 
capital as per r. 3(2) of the 2005 Rules read with Regn 12 of 
the 2013 Regulations, if justifiable or extraneous:
Held: Being a SEZ developer in terms of the 2010 Notification 
does not ipso facto confer upon the appellant the status of a 
deemed licensee without any scrutiny and without being under 
any requirement to apply – It is required to make an application in 
accordance with the 2013 Regulations – This condition has been 
fulfilled as the status of the appellant as a deemed licensee was 
upheld pursuant to the application made in accordance with r. 13 
of the 2013 Regulations – As regards the applicability of Regn 12 
of the 2013 Regulations and r. 3(2) of the 2005 Rules, none of the 
nine provisos to s. 14, apply to the appellant – Sixth proviso to s. 
14 does not pertain to deemed licensees and, thus, the 2005 Rules 
not applicable to the appellant – Furthermore, it cannot be said that 
Regn 12 applies implicitly to a deemed licensee as well – Regn 
12 pertains solely to regular distribution licensees not to deemed 
licensees – ‘Reading up’ Regn 12 so as to expand its ambit to include 
within it deemed licensees, especially when the Electricity Act does 
not stipulate any such inclusion, runs counter to proviso to clause 
(b) of s. 14 of the Electricity Act, which is impermissible and cannot 
be approved – Thus, the recognition of the status of a
deemed 
distribution licensee cannot hinge on compliance with r. 3(2) of the 
2005 Rules read with Regn 12 of the 2013 Regulations – Having 
been statutorily exempted from complying with Regns 4 to 11, the 
appellant, being a deemed licensee, would also be exempt from 
the concomitant obligation of complying with Regn 12 – Condition 
imposed on appellant to infuse an additional capital, not justified 
and contrary to the statutory scheme – Judgments and orders of 
the State Electricity Regulatory Commission and the Appellate 
Tribunal for Electricity set aside to this extent – Order of the State 
Electricity Regulatory Commission granting the status of a deemed 
licensee to the appellant, subject to the condition that its promoters 
infuse additional capital modified to the extent of excluding such 
condition. [Paras 25, 37, 28, 29, 34, 35, 37]
Interpretation of statutes – Principles of statutory interpretation – 
Reading down and reading up:
Held: Reading down and reading up are two principles in the 
realm of statutory interpretation – Reading down refers to the 
practice of interpreting a statute narrowly, limiting its scope or
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application to specific situations or individuals – This approach is 
commonly employed when the language of a statute is ambiguous 
or when there is a need to avoid potential conflicts with other laws 
or constitutional provisions – If a law is unclear about whether 
it applies to certain types of businesses, a court may choose to 
read down the statute to only include those businesses explicitly 
mentioned in the text – Reading up involves interpreting a 
statute broadly, extending its scope or application beyond what 
is expressly stated in the text – Reading up is a concept that is 
invoked with great caution within the legal framework because 
it can lead to judicial activism or judicial overreach – Practice of 
reading up a provision can only be justified when it aligns with 
legislative intent, maintains the fundamental character of the law, 
and ensures that the resulting interpretation remains consistent 
with the original context to which the law applies – This holds 
especially true for subordinate legislation, which require greater 
scrutiny – Reading up a provision of subordinate legislation in 
a manner that it militates against the primary legislation not 
permissible. [Paras 30, 32]
Legislation – Enabling/primary legislation and subordinate 
legislation – Harmonization between – Requirement:
Held: Authority to enact subordinate legislation is
derived from the 
enabling/primary legislation and it is imperative that such legislation 
harmonizes with the provisions outlined in the primary legislation – 
Electricity Act has conferred power on the Central Government to 
make Rules and on the Central Electricity Authority and the Central 
Commission to make Regulations – All such rules/regulations are 
to be made consistent with the Electricity Act – Rules/Regulations 
are enacted to supplement the main provision, not to supplant 
it – They serve the crucial role of bridging potential gaps within 
the primary legislation, yet, their function is not to create webs 
and voids merely to clog and hamper their implementation – Any 
gaps addressed by Rules/Regulations must be discernible within 
the framework of primary legislation. [Para 33]
Case Law Cited
Sesa Sterlite Limited. v. Orissa Electricity Regulatory Commission 
and Others [2014] 13 SCR 426 : (2014) 8 SCC 444; State of 
Bombay v. Pandurang Vinayak Chaphalkar [1953] 1 SCR 773 : 
(1953) 1 SCC 425; B.R. Kapur v. State of Tamil Nadu [2001] Supp. 
3 SCR 191 : (2001) 7 SCC 231 – referred to.
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List of Acts
Electricity Act, 2003; Special Economic Zones Act, 2005; Andhra 
Pradesh Electricity Regulatory Commission (Distribution Licence) 
Regulations, 2013; Andhra Pradesh Reorganisation Act, 2014; 
Distribution of Electricity Licence (Additional Requirements of Capital 
Adequacy, Creditworthiness and Code of Conduct) Rules, 2005. 
List of Keywords
Designation of entity; SEZ developer; Deemed distribution licensee; 
Condition to infuse additional capital; 2010 Notification; Deemed 
licensee status; Lack of specificity; Legislative intent; Deemed 
licence; Reading up’; Reading down; Statutory interpretation; 
Primary legislation; Subordinate legislation.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 8978 of 2019
From the Judgment and Order dated 27.09.2019 of the Appellate 
Tribunal for Electricity, New Delhi in Appeal No. 03 of 2017
Appearances for Parties
Maninder Singh, Sr. Adv., Mahesh Agarwal, Rishi Agrawala,, Ms. 
S. Lakshim Iyer, Ms. Anwesha Padhi, Abhishek Munot, Kunal Kaul, 
Samikrith Rao Puskuri, Ms. Ashita Chawla, Amarpal Singh Dua, E.C. 
Agrawala, Advs. for the Appellant.
C.S. Vaidyanathan, Sr. Adv., Somanadri Goud Katam, Sirajuddin, 
D. Abhinav Rao, Vinayak Goel, Gunnalan, Nitish Raj, Rahul Jajoo, 
Devadipta Das, Ms. Prerna Robin, Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Dipankar Datta, J.
THE CHALLENGE
1.	
This is a statutory appeal before us under
section 125 of the Indian 
Electricity Act, 20031. It registers a challenge to the judgment and 
1	
Electricity Act
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M/s Sundew Properties Limited v. Telangana State 
Electricity Regulatory Commission & Anr.
order dated 27th September, 2019 passed by the Appellate Tribunal 
for Electricity2 dismissing an appeal carried under section 111 of the 
Electricity Act by the appellant from the judgment and order dated 15th 
February, 2016 passed by the Telangana State Electricity Regulatory 
Commission3. Consequently, the impugned judgment and order of 
the TSERC was upheld. 
BRIEF FACTS 
2.	
The basic facts giving rise to this appeal are not disputed. A brief 
overview of the facts and the trajectory of proceedings, relevant for 
a decision on the present appeal, are set out hereunder: 
a)	
The appellant was notified by the Ministry of Commerce & 
Industry (Department of Commerce), Government of India4 as a 
‘Developer’, in terms of sections 3 and 4 of the Special Economic 
Zones Act, 20055, to establish a sector-specific Special Economic 
Zone6 unit for Information Technology/Information Technology 
Enabled Services sector in Madhapur, Ranga Reddy District, 
Hyderabad, in the former State of Andhra Pradesh. 
b)	
MoCI, vide a Notification bearing No.SO 528(E) dated 3rd March, 
20107 introduced a proviso to section 14(b) of the Electricity 
Act. The proviso accords upon the developer of a SEZ, the 
status of a deemed distribution licensee under the provisions 
of the Electricity Act.
c)	
Pursuant to the 2010 Notification, the appellant filed an 
application8 before the
erstwhile Andhra Pradesh Electricity 
Regulatory Commission seeking identification as a deemed 
distribution licensee, in terms of the proviso to section 14(b) of 
the Electricity Act read with regulation 13 and Schedule-2 of the 
Andhra Pradesh Electricity Regulatory Commission (Distribution 
Licence) Regulations, 20139 and section 49 of the SEZ Act. 
2	
APTEL
3	
TSERC
4	
MoCI
5	
SEZ Act
6	
SEZ
7	
2010 Notification 
8	
O.P. No. 10 of 2015
9	
2013 Regulations
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Upon the Andhra Pradesh Reorganisation Act, 2014 coming 
into force, the application was transferred to the TSERC.
d)	
By its aforesaid judgment and order dated 15th February, 2016, 
the TSERC identified and accorded the status of a deemed 
licensee to the appellant. However, this grant of status was 
made conditional upon the appellant satisfying the requirements 
stipulated in rule 3 of the Distribution of Electricity Licence 
(Additional Requirements of Capital Adequacy, Creditworthiness 
and Code of Conduct) Rules, 200510, compliance whereof was 
mandatory per regulation 12 [which stipulates that an applicant 
for grant of distribution licence shall, in addition to regulations 
4 to 11, comply with the 2005 Rules] read with regulation 49 
of the 2013 Regulations [which stipulates that all the general 
conditions applicable to a distribution licensee are also equally 
applicable to a deemed licensee]. The appellant was, therefore, 
directed to infuse an additional capital of Rs. 26.90 crore as 
equity share capital, contributed by its promoters, into its power 
distribution business via account payee cheques by 31st March, 
2016. The relevant part of the judgment and order of the TSERC 
is extracted hereunder:
“16. […] On a close reading of the provisions of 
section 14, we are of the view that the ‘provisos’ to 
section 14 are not applicable to a deemed licensee. 
The status of a deemed licence to a person under 
Section
14(b) of the Electricity Act, 2003 emanates 
from the Notification given under Section 49(1) of the 
SEZ Act to a developer of SEZ provided the deemed 
Licensee satisfies the other provisions of the Act.
[…]
18. We are of the view that the provisions contained 
in sub-section (2), (3), (4), (5) & (6) of Section 15 
of the Act are not applicable to a deemed licensee. 
Moreover, [A.P. Distribution Licence Regulations] 
contains the Rules relating to procedure for granting 
of a distribution licensee from Rules 4 to 11 […] 
10	
2005 Rules
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The Rule 13 of the Regulation stipulates that Rules 
contained in 4 to 11 are not applicable to a deemed 
licensee and these Rules contain the procedure for 
granting of a distribution licence to a person. […] 
19. The Rule 13 of the [A.P. Distribution Licence 
Regulations] stipulates that a deemed licensee shall 
make an application in the form specified in Schedule 
- 2 to the Commission to get identified as a deemed 
licensee and rules 4 to 11 in the Regulations are not 
applicable to a deemed licensee, Thus, the Rule 
13 […] has excluded the application of Rules laid 
down from Rules 4 to 11 […] As observed earlier, the 
Rules 4 to 11 basically deal with the procedure to be 
followed by a person for obtaining a licence from the 
Commission. By implication, Rule 12 is applicable to 
a deemed licensee also […] 
20. We are not able to appreciate the argument 
of the petitioner that Rule 12 is not applicable to a 
deemed licensee. In our view, Rule 49 stipulates that 
all the general conditions applicable to a distribution 
licensee are also equally applicable to a deemed 
licensee. Thus, in our view, the Rule 12 is applicable 
to the petitioner. 
21. The next issue that arises is whether the petitioner 
has complied with the provisions of Rule 12? […] As 
a stand-alone entity the petitioner does riot fulfil the. 
conditions laid down in Rule 3 of the Capital
Adequacy 
Rules. However, the Rule 3(2) also stipulates that 
the net worth of the promoters of the petitioner can 
be considered for the purpose of computation of the 
Debt Equity ratio of 30:70 […]. 
26(A). The [Commission], in exercise of the powers 
conferred under Section 14 (b) of the Electricity 
Act, hereby identifies and recognises M/s. Sundew 
Properties Ltd. […] as a deemed licensee. 
26(D). […] the promoters have to contribute 30% of 
the total anticipated investment of Rs. 89.53 Crores
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which works out to Rs.26.9 Crores on or before 
31.03.2016.”
e)	
Aggrieved, the appellant carried an appeal11 from the aforesaid 
order of the TSERC to the APTEL. According to the appellant, 
the directions of the TSERC were in excess of jurisdiction. 
APTEL dismissed the appeal, as noticed above. It held that the 
TSERC was justified in ordering infusion of additional equity 
by the appellant to the tune of Rs.26.90 crore (being 30% of 
the total anticipated investment of Rs.89.53 crore) as a pre-
condition for being identified as a deemed distribution licence. 
The operative part of the judgment and order passed by the 
APTEL reads as follows:
“8.14 […] while the Appellant is not required to apply 
for grant of license but being a deemed distribution 
licensee has to fulfil other technical and financial 
requirements as per prevailing rules and regulations of 
the State Commission which is mandated to regulate 
the Electricity business in the state whether it is a 
DISCOM or any other deemed distribution licensee 
as in the present case. Accordingly, we are of the 
opinion that the State Commission has passed the 
impugned order with careful consideration and proper 
interpretation of the statute and also considering the 
judgments passed by Hon’ble Supreme Court in Sesa 
Sterilite [sic] case (supra) […]”
f)	
It is this judgment and final order that the appellant has subjected 
to challenge in this statutory appeal by
invoking the appellate 
jurisdiction of this Court under section 125 of the Electricity Act.
SUBMISSIONS
3.	
Mr. Singh, learned senior counsel appearing for the appellant, 
challenged the validity of the orders of the TSERC and the APTEL 
by advancing the following submissions:
a)	
The TSERC and the APTEL erred in failing to recognize that 
under section 14(b) of the Electricity Act, a developer of an SEZ 
is ipso facto and unconditionally deemed to be a distribution 
11	
Appeal No.3 of 2017
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licensee, thus eliminating the need for a separate licence 
application. Recognition of the status of a deemed distribution 
licensee is a ministerial act, effected automatically upon 
fulfilment of conditions laid down in the SEZ Act, independent 
of rule 3(2) of the 2005 Rules read with regulation 12 of the 
2013 Regulations. 
b)	
The status of deemed distribution licensee stands bestowed 
upon the appellant by virtue of the 2010 Notification, requiring no 
further action. This position has been recognized and approved 
by both the TSERC and the APTEL.
c)	
Under the 2013 Regulations, there are two types of licensees: 
first, those who apply for a distribution licence under regulations 
2(d) and 12, and secondly, those already deemed licensees, 
seeking recognition of their status as such, under regulations 
2(h) and 13. The appellant belongs to the latter category.
d)	
Regulation 12 of the 2013 Regulations applies to general 
applicants seeking a distribution licence, mandating compliance 
with both the 2005 Rules and the procedures prescribed in 
regulations 4 to 11. It cannot apply to a deemed licensee under 
regulation 13. The TSERC’s finding, as approved by the APTEL, 
that the 2005 Rules are in-built into the 2013 Regulations and 
therefore have to be satisfied by the appellant because of implied 
application of regulation 12 to deemed licensees, is
contrary 
to the provisions of the Electricity Act and the very scheme of 
the 2013 Regulations.
e)	
APTEL erred by agreeing with the TSERC’s reasoning that the 
requirement to infuse Rs. 26.90 crore in equity was imposed 
on the appellant under section 16 of the Electricity Act, despite 
recognising the appellant as a deemed distribution licensee. 
Conditions under section 16, whether general or specific, must 
be ‘specified’ by the Appropriate Commission through regulations 
according to section 2(62) of the Electricity Act. 
4.	
Resting on the aforesaid submissions, learned senior counsel urged 
this Court to allow the appeal and set-aside the orders of the TSERC 
and the APTEL to the extent requiring the appellant to comply with 
the conditions stipulated in rule 3 of the 2005 Rules and infuse 
additional capital to gain the status of a deemed licensee.
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5.	
Per contra, Mr. Vaidyanathan, learned senior counsel appearing for 
the second respondent (Southern Power Distribution Company of 
Telangana Limited), joined by Mr. Goud, learned counsel appearing 
for respondent no. 1 (TSERC), supported the impugned judgment 
and order and advanced the following submissions:
a)	
No doubt, the appellant, a SEZ developer, may be granted the 
status of a deemed licensee; however, the 2005 Rules and the 
2013 Regulations will be applicable to the appellant as per the 
law laid down by this Court in Sesa Sterlite Limited. v. Orissa 
Electricity Regulatory Commission and others12. 
b)	
The appellant cannot be deemed to be a distribution licensee 
on its own without making an application under regulation 13. 
c)	
There is a necessity to harmoniously interpret the SEZ Act and 
the Electricity Act to uphold the provisions of both enactments. 
The appellant cannot argue that the 2005 Rules and the 2013 
Regulations do not apply to it, being a SEZ developer. 
d)	
TSERC is empowered to impose general and specific conditions 
at its discretion. The purpose of requiring the appellant to infuse 
an additional capital under the 2005 Rules was to assess the 
credit-worthiness of the appellant as it had accumulated losses 
at the end of the financial year 2013-2014 and more than 50% 
of its net-worth has been wiped-out, a fact which is reflected 
from the Statutory Auditor’s report. 
6.	
No case for
interference having been set up by the appellant, learned 
counsel for respondents prayed for dismissal of the appeal.
STATUTORY FRAMEWORK
7.	
Before proceeding further, it is imperative to refer to certain statutory 
provisions. 
8.	
Section 14 of the Electricity Act deals with the grant of a licence:
“14. Grant of Licence – The Appropriate Commission 
may, on an application made to it under section 15, grant 
a licence to any person – 
12	
[2014] 13 SCR 426 : (2014) 8 SCC 444
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(a) to transmit electricity as a transmission licensee; or 
(b) to distribute electricity as a distribution licensee; or 
(c) to undertake trading in electricity as an electricity trader, 
in any area as may be specified in the licence: 
Provided that any person engaged in the business of 
transmission or supply of electricity under the provisions 
of the repealed laws or any Act specified in the Schedule 
on or before the appointed date shall be deemed to be 
a licensee under this Act for such period as may be 
stipulated in the licence, clearance or approval granted 
to him under the repealed laws or such Act specified in 
the Schedule, and the provisions of the repealed laws 
or such Act specified in the Schedule in respect of such 
licence shall apply for a period of one year from the date 
of commencement of this Act or such earlier period as 
may be specified, at the request of the licensee, by the 
Appropriate Commission and thereafter the provisions of 
this Act shall apply to such business: 
Provided further that the Central Transmission Utility or 
the State Transmission Utility shall be deemed to be a 
transmission licensee under this Act: 
Provided also that in case an Appropriate Government 
transmits electricity or distributes electricity or undertakes 
trading in electricity, whether before or after the 
commencement of this Act, such Government
shall be 
deemed to be a licensee under this Act, but shall not be 
required to obtain a licence under this Act: 
Provided also that the Damodar Valley Corporation, 
established under sub-section (1) of section 3 of the 
Damodar Valley Corporation Act, 1948, shall be deemed 
to be a licensee under this Act but shall not be required 
to obtain a licence under this Act and the provisions of the 
Damodar Valley Corporation Act, 1948, in so far as they 
are not inconsistent with the provisions of this Act, shall 
continue to apply to that Corporation:
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Provided also that the Government company or the 
company referred to in sub-section (2) of section 131 of this 
Act and the company or companies created in pursuance 
of the Acts specified in the Schedule, shall be deemed to 
be a licensee under this Act: 
Provided also that the Appropriate Commission may grant a 
licence to two or more persons for distribution of electricity 
through their own distribution system within the same 
area, subject to the conditions that the applicant for grant 
of licence within the same area shall, without prejudice 
to the other conditions or requirements under this Act, 
comply with the additional requirements [relating to the 
capital adequacy, credit-worthiness, or code of conduct] 
as may be prescribed by the Central Government, and no 
such applicant, who complies with all the requirements for 
grant of licence, shall be refused grant of licence on the 
ground that there already exists a licensee in the same 
area for the same purpose: 
Provided also that in a case where a distribution licensee 
proposes to undertake distribution of electricity for a 
specified area within his area of supply through another 
person, that person shall not be required to obtain any 
separate licence from the concerned State Commission 
and such distribution licensee shall be responsible for 
distribution of electricity in his area of supply: 
Provided also that where a person intends to generate 
and
distribute electricity in a rural area to be notified by 
the State Government, such person shall not require any 
licence for such generation and distribution of electricity, 
but he shall comply with the measures which may be 
specified by the Authority under section 53: 
Provided also that a distribution licensee shall not require 
a licence to undertake trading in electricity.”
9.	
To determine who qualifies as a deemed licensee under the Electricity 
Act, we may refer to the 2013 Regulations. 
10.	 Regulation 2(i)(h) of the 2013 Regulations defines “deemed licensee” 
as follows:
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“(h) ‘Deemed Licensee’ means a person authorised under 
sub-section (b) of Section 14 and also under the first, 
second, third, and fifth provisos to section 14 of the Act 
to operate and maintain a distribution system for supply 
of electricity to the consumers in his area of supply.”
11.	 Regulation 13 of the 2013 Regulations stipulates the procedure to 
get identified as a deemed distribution licensee. It reads:
“13. The deemed licensees shall make application in the 
form specified in Schedule- 2 to the Commission to get 
identified as the deemed Licensee. Provided that nothing 
in Regulations 4 to 11 shall apply to deemed licensees.”
12.	 Insofar as a developer under the SEZ Act is concerned, a reference 
may be made to the scheme of the SEZ Act to ascertain its status 
as deemed distribution licensee. 
13.	 The policy for SEZs was introduced with an objective to create a 
competitive export environment and to attract foreign investment. It 
levels the playing field for domestic businesses globally and introduces 
favourable policies in investment, taxation, trade, customs, and labour 
regulations. In line with this, for the purpose of ensuring consistent 
and high-quality power supply to these SEZ units, the MoCI, vide 
the 2010 Notification [under clause (b) of sub-section (1) of section 
49 of the SEZ Act] has specified that the ‘developer’ of the SEZ
shall be deemed to be a ‘distribution licensee’ under the provisions 
of the Electricity Act. The proviso inserted in clause (b) of section 
14 of the Electricity Act, vide the 2010 Notification, reads as follows:
“Provided that the Developer of a Special Economic Zone 
notified under sub-section (1) of Section 4 of the Special 
Economic Zones Act, 2005, shall be deemed to be a 
licensee for the purpose of this clause, with effect from 
the date of notification of such Special Economic Zone.”
14.	 With the inclusion of the aforementioned proviso to section 14(b) of 
the Electricity Act, it is evident that a SEZ developer is deemed to 
be a distribution licensee. 
15.	 The main contention of the parties that whether the TSERC imposed 
condition to infuse additional capital per rule 3(2) of the 2005 Rules 
read with regulation 12 of the 2013 Regulations is justifiable or
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extraneous is deliberated at length in a later part of this judgment. 
Regulation 12 provides that a person applying for a grant of a 
distribution licence shall, in addition to regulations 4 to 11, comply 
with the 2005 Rules. Regulation 12 is extracted below:
“12. Application for grant of Distribution Licence in the 
area of supply of an existing Distribution Licensee – A 
person applying for grant of a licence for distribution of 
electricity through his own distribution system within the 
same area of supply of an existing Distribution Licensee 
shall, in addition to the provisions of Regulation 4 to 11, 
comply with “Distribution of Electricity Licence (additional 
requirements of Capital Adequacy, Creditworthiness and 
Code of Conduct) Rules, 2005” issued by the Central 
Government.”
16.	 Rule 3 is extracted hereunder:
“3. Requirements of capital adequacy and 
creditworthiness. – 
(1) The Appropriate Commission shall, upon receipt of an 
application for grant of licence for distribution of electricity 
under sub-section (1) of section 15 of the Electricity Act, 
2003, decide the requirement of capital investment for 
distribution network after hearing the applicant and keeping 
in view the size of the area of supply and the service 
obligation within that area in terms of section 43. 
(2) The applicant for grant of licence shall be required to 
satisfy the Appropriate Commission that on a norm of 30% 
equity on cost of
investment as determined under sub-
rule (1), he including the promoters, in case the applicant 
is a company, would be in a position to make available 
resources for such equity of the project on the basis of net 
worth and generation of internal resources of his business 
including of promoters in the preceding three years after 
excluding his other committed investments.”
ISSUES
17.	 Having noticed the relevant statutory framework, we are now tasked 
with deciding two short issues:
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a)	
Whether the designation of an entity as a SEZ developer by the 
MoCI ipso facto qualifies the entity to be a deemed distribution 
licensee, obviating the need for an application under section 
14 of the Electricity Act?
b)	
Whether regulation 12 of the 2013 Regulations, and by 
implication rule 3(2) of the 2005 Rules, are applicable to a 
SEZ developer recognised as a deemed distribution licensee 
under the proviso to section 14(b) of the Electricity Act read 
with regulation 13 of the 2013 Regulations? 
ANALYSIS
18.	 We have considered the submissions advanced by learned counsel 
for the parties and have also perused the materials on record.
Issue (a)
19.	 It would not be inapt to be reminded of what was stated by a Bench of 
two Hon’ble Judges of this Court in State of Bombay v. Pandurang 
Vinayak Chaphalkar13 nearly seventy years ago:
“11. […] When a statute enacts that something shall be 
deemed to have been done, which in fact and truth was 
not done, the court is entitled and bound to ascertain for 
what purposes and between what persons the statutory 
fiction is to be resorted to and full effect must be given to 
the statutory fiction and it should be carried to its logical 
conclusion.”
20.	 In view of the existing facts, we are inclined to the view that the 
very purpose of the deeming fiction in the proviso to section 14(b) 
of the Electricity Act is
to confer upon an entity like the appellant a 
status which is otherwise available in accordance with the Electricity 
Act. In other words, as an effect of the 2010 Notification inserting 
the proviso to section 14(b), the appellant is entitled to the privilege 
of being acknowledged as a (deemed) distribution licensee under 
the Electricity Act for supply of power within its SEZ area. Once the 
appellant is a (deemed) distribution licensee, certain benefits and/
or privileges do enure in its favour. 
13	
[1953] 1 SCR 773 : (1953) 1 SCC 425
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21.	 The respondents have heavily relied on Sesa Sterlite Limited (supra) 
to assert that there has to be a harmonious construction of both the 
SEZ Act and the Electricity Act to give effect to the provisions of both 
the enactments, so long as they are not inconsistent with each other. 
22.	 A Bench of two Hon’ble Judges of this Court in Sesa Sterlite Limited 
(supra) held:
“43. The reading of Section 49 of the SEZ Act would reveal 
that the Central Government has got the authority to direct 
that any of the provisions of a Central Act and the rules 
and regulations made thereunder would not apply or to 
declare that some of the provisions of the Central Acts 
shall apply with exceptions, modifications and adaptation 
to the special economic zone. So, under the scheme of 
the Special Economic Zones Act, the Central Government 
has to first notify as to what extent the provision of the 
other Acts are to be made applicable or applicable with 
modification or not applicable for the special economic zone 
area. It is in furtherance thereto, the Government of India, 
Ministry of Commerce and Industry through its Notification 
dated 21-3-2012, with regard to power generation in special 
economic zone, has declared that all the provisions of 
the Electricity Act, 2003 and the Electricity Rules, 2005 
shall be applicable to the generation, transmission and 
distribution of power, whether stand-alone or captive power. 
This
notification would clarify that there is no inconsistency 
between the Special Economic Zones Act, 2005 and the 
Electricity Act, 2003.
[…]
46. To recapitulate briefly, in the present case no doubt 
by virtue of the status of a developer in the SEZ area, the 
appellant is also treated as deemed distribution licensee. 
However with this, it only gets exemption from specifically 
applying for licence under Section 14 of the Act.”
23.	 The question in Sesa Sterlite Limited (supra), was whether the 
appellant - a deemed distribution licensee, being a developer of 
Special Economic Zone (SEZ) and having a unit in the SEZ, is liable 
to pay Cross-Subsidy Surcharge (CSS). It was held that the appellant
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would be liable to pay CSS for several reasons, including on the 
facts that it was using dedicated transmission lines belonging to the 
distribution licensee for the area in question. This Court interpreted 
the expression ‘open access’ and the rationale behind CSS and 
additional surcharge to observe that the former was payable by a 
distribution licensee and the latter was to meet the fixed cost of the 
distribution licensee of the area. The provision of open access, it is 
observed, balances the right of the consumers to purchase from a 
source of their choice. The rationale and the ratio of the decision, 
therefore, is that a deemed distribution licensee is treated at par 
and not different from a distribution licensee. Accordingly, if CSS is 
payable by a distribution licensee, the deemed distribution licensee 
is equally liable to pay the same. This decision, in other words, 
equates deemed distribution licensee with the distribution licensee 
for the purpose of supply of electricity to the consumers. Sesa 
Sterlite Limited (supra) is not a decision for the proposition that 
deemed distribution licensee, to qualify as a deemed distribution 
licensee, must meet the criteria, including the capital requirements 
as applicable by regulations to a distribution licensee.
24.	 Further, the provisos to section 14 of the Electricity Act distinguish 
between entities
that are ipso facto deemed distribution licensees and 
those that are merely declared as deemed licensees without clarity 
on the necessity of making an application to obtain a licence. For 
instance, the third and fourth provisos to section 14 not only confer 
the status of deemed licensees to the State Government and the 
Damodar Valley Corporation, respectively, but also explicitly exempt 
them from the requirement to obtain a licence. Entities not covered 
by these specific provisos would, therefore, be required to obtain a 
licence. The requirement of obtaining a license has to be read into 
the other provisos to section 14 since, for instance, the second and 
fifth provisos to section 14 grant deemed licensee status to Central/
State Transmission Utility and a government company, respectively, 
but neither specifies the requirement to obtain a license nor exempts 
them from obtaining license. 
25.	 As far as the 2010 Notification is concerned, the proviso to section 
14(b) introduced by the said Notification, confers deemed licensee 
status on SEZ developers. However, such conferment does not 
explicitly exclude the requirement of obtaining a licence. This lack 
of specificity, especially when compared with the clear provisions for
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other entities, suggests that the legislative intent was not to ipso facto 
grant SEZ developers the status of deemed distribution licensees, 
thereby obliging them to obtain a licence by making an application in 
terms of regulation 13. TSERC is, therefore, empowered to scrutinise 
such applications in accordance with law, however, only limited to 
the provisions which are applicable to deemed licensees. Verification 
and acceptance recognise their status as deemed licensees.
Issue (b):
26.	 Issue (b) revolves around rule 3(2) of the 2005 Rules, which per 
the TSERC and the APTEL, the appellant is bound to adhere by 
infusing additional capital in order to qualify as a deemed licensee. 
While the appellant contends that the 2010 Notification, by necessary 
consequence, grants upon the appellant the status of a deemed 
licensee, the respondents submit that the identification of the appellant 
as a deemed distribution licensee is conditional upon the appellant 
satisfying the other requirements of the Electricity Act, specifically 
the sixth proviso to section 14 of the Electricity Act which provides 
for compliance with additional requirements like capital adequacy 
which as per the respondents includes rule 3 of the 2005 Rules read 
with regulation 12 of the 2013 Regulations. 
27.	 It is contended by the respondents that the application of 2005 Rules 
to the appellant, a SEZ developer, stems from the sixth proviso to
section 14 read with regulation 12 of the 2013 Regulations. 
28.	 Let us now deal with the provisos to section 14. Upon a bare reading 
of the provision, it becomes crystal clear that not only does the sixth 
proviso, but none of the nine provisos to section 14, apply to the 
appellant, a SEZ developer. Even the TSERC and the APTEL are 
ad idem with this view. The status of a SEZ developer as a deemed 
licensee emanates from the 2010 Notification, which introduced the 
proviso to section 14(b), conferring deemed licensee status to SEZ 
developers. Reading anything beyond this would defeat the very 
purpose of the proviso and the concept of the deemed licence. The 
sixth proviso does not pertain to deemed licensees and, therefore, 
the 2005 Rules are not applicable to the appellant. 
29.	 Upon closer examination of regulation 12, it becomes apparent 
that its application does not extend to applicants who are otherwise 
deemed licensees. The interpretation of regulation 12 as requiring
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additional capital infusion for an applicant for acceptance of a deemed 
licensee status appears to be at odds with the language and intent 
of the 2013 Regulations itself. TSERC has, in essence, interpreted 
regulation 12 by reading it up to mean that it also applies to a person 
who is a deemed licensee, and in doing so, the TSERC has aimed 
to achieve indirectly what it could not directly.
30.	 Reading down and reading up are two principles often discussed 
in legal contexts, particularly in the realm of statutory interpretation. 
Reading down, which has been firmly ingrained in our jurisprudence, 
refers to the practice of interpreting a statute narrowly, limiting 
its scope or application to specific situations or individuals. This 
approach is commonly employed when the language of a statute 
is ambiguous or when there is a need to avoid potential conflicts 
with other laws or constitutional provisions. For example, if a law 
is unclear about whether it applies to certain types of businesses, 
a court may choose to read down the statute to only include those 
businesses explicitly mentioned in the text. On the other hand, 
reading up involves interpreting a statute broadly, extending its 
scope or application beyond what is expressly stated in the text. 
Reading up is a concept that is invoked with great caution within our 
legal framework because it can
lead to judicial activism or judicial 
overreach, where courts expand the reach of laws beyond what the 
legislature intended.
31.	 A Constitution Bench of this Court in B.R. Kapur v. State of Tamil 
Nadu14, while stating that reading up of a statute is not permissible, 
held thus: 
“39. Section 8(4) opens with the words ‘notwithstanding 
anything in sub-section (1), sub-section (2) or sub-section 
(3)’, and it applies only to sitting members of Legislatures. 
There is no challenge to it on the basis that it violates 
Article 14. If there were, it might be tenable to contend 
that legislators stand in a class apart from non-legislators, 
but we need to express no final opinion. In any case, if it 
were found to be violative of Article 14, it would be struck 
down in its entirety. There would be, and is no question 
of so reading it that its provisions apply to all, legislators 
14	
[2001] Supp. 3 SCR 191 : (2001) 7 SCC 231
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and non-legislators, and that, therefore, in all cases the 
disqualification must await affirmation of the conviction 
and sentence by a final court. That would be ‘reading up’ 
the provision, not ‘reading down’, and that is not known 
to the law.”
32.	 The literal rule of interpreting a statute empowers courts to iron out 
the creases within legislation but without altering the very fabric 
of which it is made. The practice of reading up a provision can 
only be justified when it aligns with legislative intent, maintains the 
fundamental character of the law, and ensures that the resulting 
interpretation remains consistent with the original context to which 
the law applies. This holds especially true for subordinate legislation, 
which require greater scrutiny in this regard. Reading up a provision 
of subordinate legislation in a manner that it militates against the 
primary legislation is not permissible. 
33.	 The authority to craft subordinate legislation is derived from the 
enabling/primary legislation and it is imperative that such legislation 
harmonizes with the provisions outlined in the enabling/primary 
legislation. The Electricity Act has conferred power on the Central 
Government to make Rules [see section 175], and on the Central 
Electricity Authority and the Central Commission to make Regulations 
[see sections 176 and 177, respectively]. All such rules/regulations 
are to be made consistent with the
Electricity Act. Section 181 of 
the Electricity Act confers power on the State Commissions to make 
Regulations but such regulations too must be consistent with the 
provisions of the primary enactment and the rules framed thereunder 
generally. Rules and Regulations are enacted to supplement the 
main provision, not to supplant it. They serve the crucial role of 
bridging potential gaps within the primary legislation, yet, their 
function is not to create webs and voids merely to clog and hamper 
their implementation. Any gaps addressed by Rules and Regulations 
must be discernible within the framework of the primary legislation.
34.	 In the present case, the TSERC, in paragraph 19, asserted that 
regulation 12 applies implicitly to a deemed licensee as well. We 
do not agree with this reasoning, mainly for two reasons. First, 
the primary legislation, the Electricity Act, through the proviso 
inserted in section 14(b), confers deemed licensee status upon SEZ 
developers without imposing any specific conditions. Secondly, the
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2013 Regulations make a clear distinction between an applicant 
seeking a licence [as defined under regulation 2(d)] and a deemed 
distribution licensee seeking recognition as such [as defined under 
regulation 2(h)]. Regulation 2(d) defines an “applicant” as “a person 
who has submitted an application to the Commission for the grant of 
a distribution licence”. In contrast, regulation 2(h) defines a “deemed 
licensee” as “a person authorized under sub-section (b) of Section 
14, and also under the first, second, third, and fifth provisos to 
section 14 of the Act, to operate and maintain a distribution system 
for supplying electricity to consumers in their area of supply”. The 
2013 Regulations clearly delineate distinct categories of licensees. 
Regulation 12 pertains solely to regular distribution licensees as 
defined under regulation 2(h), not to deemed licensees. ‘Reading up’ 
regulation 12 so as to expand its ambit to include within it deemed 
licensees, especially when the Electricity Act does not stipulate any 
such inclusion, runs counter to the subsequently inserted proviso 
to clause (b) of section 14 of the Electricity Act—an exercise which 
is impermissible and which we cannot approve. Therefore, the 
recognition of the status of a deemed distribution licensee cannot 
hinge on compliance with rule 3(2) of the 2005 Rules read with 
regulation 12 of
the 2013 Regulations. 
35.	 The language of regulation 12 merits careful scrutiny. It states that 
an applicant shall, “in addition to the provisions of Regulation 4 to 
11”, comply with the provisions of the 2005 Rules. It is evident that 
it is a normal applicant [as defined under regulation 2(d)], which is 
tasked with complying with regulations 4 to 11, that has to comply 
with the 2005 Rules. However, the appellant herein, as discussed 
previously, is not a regular applicant but a deemed distribution 
licensee [as defined under regulation 2(h)], and is governed by 
regulation 13, the proviso to which specifically states that nothing in 
regulations 4 to 11 would apply to deemed licensees. Having thus 
been statutorily exempted from complying with regulations 4 to 11, 
we are of the opinion that the appellant, being a deemed licensee, 
would also be exempt from the concomitant obligation of complying 
with regulation 12, in view of the language of the provision, which 
imposes the burden of complying with regulation 12 only on those 
applicants who come within the purview of regulations 4 to 11. The 
appellant falling outside the scope of the latter, would thus necessarily 
fall outside the scope of the former too.
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36.	 TSERC’s reliance on regulation 49 of the 2013 Regulations to 
enforce the applicability of regulation 12 also appears to be flawed. 
Regulation 49, situated within Chapter-4 [General Conditions of 
Distribution Licence] of the 2013 Regulations, specifies that “these 
general conditions shall apply to distribution licensees and to all 
deemed distribution licensees”. A straightforward reading reveals 
that the term ‘general conditions’ in regulation 49 pertains exclusively 
to the general conditions outlined in Chapter-4. By no stretch of 
imagination could the scope of this provision be widened so as to 
include within its ambit regulation 12, which forms part of Chapter-3 
[Procedure for Grant of Distribution Licence] of the 2013 Regulations.
CONCLUSION
37.	 To sum up, being a SEZ developer in terms of the 2010 Notification 
does not ipso facto confer upon the appellant the status of a deemed 
licensee without any scrutiny and without being under any requirement 
to apply; it is required to make an application in accordance with the 
2013 Regulations. We have been apprised that this condition has 
been fulfilled as the status of the appellant as a deemed licensee has 
already been upheld pursuant to the application made in accordance 
with rule 13 of the 2013 Regulations. The first issue is answered 
accordingly. As far as the second issue is concerned, the condition 
stipulated in rule 3(2) of the 2005 Rules, as
imposed by the TSERC 
with a direction to infuse an additional capital of Rs. 26.90 crore 
is not justified and contrary to the statutory scheme as discussed 
aforesaid. The judgments and orders of the TSERC and the APTEL 
are set aside to this extent. The order of the TSERC, which grants 
the status of a deemed licensee to the appellant, however, subject to 
the condition that its promoters infuse additional capital is accordingly 
modified to the extent of excluding such condition. 
38.	 The appeal is partly allowed in the aforesaid terms. No costs.
Result of the case: Appeal partly allowed.
†Headnotes prepared by: Nidhi Jain