Case: Tata Power Company Limited Vs. Reliance Energy Limited &amp; Others

4. In order to appreciate the circumstances giving rise to the above dispute, it is necessary to set out some of the facts as also the terms and conditions of the licences granted to the contesting parties for distribution of electricity within Bombay city and its suburbs.5. At the relevant time TPC was holding four licences for the aforesaid purposes, as describedThe 1907 LicenceCommonly known as the BombayLicence, which was originally granted on 5.3.1907 to Dorabji J. Tata and Ratanji J. Tata;ii) 1919 LicenceKnown as the Andhra ValleyLicence, which was issued on 3.4.1919 in favour of the Tata Hydro Electricity Supply Company Ltd.;iii) The 1921 Licence Known as Nila Mula Valley Licence, which was issued on 15.11.1921 in favour of Tata Power; andiv) The 1953 Licence Known as Trombay Thermal Power Electric Licence which was issued on 19.11.1953 in favour of the TataPower Supply Company Limited, the Andhra Valley Power Supply Company and Tata Power.Consequent upon amalgamation of the Tata HydroElectric Power Supply Company Limited and the Andhra Valley Power Supply Company Limited with Tata Power, the Government of Maharashtra on 12.7.2001 transferred the said 1907 licence, 1919 licence and the 1953 licence to Tata Power and accordingly on and from 12.7.2001 Tata Power came to hold the aforesaid four licences on the basis of which it had been contended on behalf of Tata Power that it was entitled to sell, supply and distribute electricity not only to other distributing licensees, such as Reliance Energy Limited and The Bombay Electric Supply and Transport Undertaking (hereinafter referred to as the BEST), but also to direct consumers of electricity.7. As far as M/s Reliance Energy Limited, hereinafter referred to as "R.E.L.", is concerned it acquired a licence known as the Bombay Suburban Electric Licence which had initially been issued on 29.5.1926 in favour of Killick, Nixon and Company and Callenders Cable & Construction Company Limited. The said licence was assigned to the Bombay Suburban Electric Supply Limited on 13.5.1930. The Bombay Suburban Electric Supply Limited was first renamed as BSES Limited and thereafter as Reliance Energy Limited.8. Before MERC it was contended on behalf of BSES that TPC was contravening the terms and conditions of the licences which had been granted to it by the State Government, as also the stated policy of the Government, by poaching consumers within the BSES area of supply. It was contended before the Commission that supply of electricity by TPC directly to retail consumers was contrary to the provisions of the Indian Electricity Act, 1910 (hereinafter referred to as the 1910 Act). The Electricity (Supply) Act, 1948 (hereinafter referred to as the 1948 Act), and the policy contained in the Schedule to the 1948 Act.9. It was also contended, without prejudice to the above submission, that TPC could not, in any event, effect any retail supply of electricity to consumers with a maximum demand below 1000 KVA, in terms of the licences held by them. It was submitted that such supply by TPC to direct retail consumers was also contrary to Government policy.10. It was urged that, in view of the above, the Commission, in exercise of its powers under the ERC Act, should restrain TPC from supplying electricity to retail consumers within BSES territory.11. The aforesaid issue raised on behalf of BSES Limited was considered at length by MERC in relation to the terms and conditions of the licences held by Tata Power and Reliance Energy Limited and in para 81.2 of its judgment and order, the Commission observed asThe starting point of both parties is the provisions of Clause 5 (I),(I) and (III) of TPCs licenses, which are quoted at para 8 of this order. The contesting arguments regarding the interpretation and implications of this Clause have been set out at length above. After considering the arguments put forward and the provisions of the licenses and statutes, the Commission has come to the conclusion that the license to supply energy "for all purposes including supply to other licensees for their own purposes and in bulk", read with the succeeding terms of Clause 5 and other provisions, may give TPC an unfettered right to supply energy directly to all or any consumers in the BSES area of supply but no obligation to supply power, but it militates, in particular, against the provisions of Sec. 22(2)(e) of the Commissions power of regulating and promoting the working of licensees in an efficient, economical and equitable manner and, in general, against the provisions of Sec. 22(1)(d) enjoining the Commission to promote competition, efficiency and economy in the activities of the electricity industry.In its aforesaid judgment and order MERC alsofrom the claimed entitlement under their licenses as interpreted by them, TPC have urged that this entitlement and their consequent actions are also supported by the mandate given to the Commission under the ERC Act. Indeed, Sec.22(1)(d) enjoins the Commission to promote competition, efficiency and economy in the activities of the electricity industry to achieve the objects and purposes of the Act. The Electricity Act, 2003, which has replaced the ERC Act after hearings in this case were concluded, also specifically refers to the promotion of competition in its Preamble.It was further held that strictly speaking there was nothing in either the 1910 Act or the 1948 Act which bars the grant of licences to more than one party for similar purposes in the same area, which, in effect, is also the aim and object of the Electricity Act, 2003, which replaced all the earlier enactments.14. Despite having held in favour of Tata Power that the terms and conditions of its licences may give it an unfettered right to supply electricity to all or any consumers in the BSES area of supply without any obligation in that regard, MERC ultimately disposed of the petition filed by BSES with the following directionsTPC and BSES should file the terms of reference for engaging a consultancy firm to study the issues relating to Sections 42 and 14 of the Electricity Act, 2003.(ii) Select a consultancy firm/s (if need be, international level firms may be considered for selection, severally or jointly with Indian firms) for the purpose;(iii) The cost of the study should be equally shared by both parties;(iv) The study report should be widely disseminated among stakeholders in the city;(v) Adoption of the report would be decided after a public hearing; and Implementation of the report would be undertaken as per the Commissions Regulations.While disposing of the petition MERC also restrained TPC from offering new connections to new consumers with energy requirement below 1000 KVA on the basis of an agreement purported to have been arrived at between TPC and BSES that they would maintain thetill the disposal of the petition and would not encourage any existing consumer to switch over from one to the other.16. Two appeals were preferred from the judgment and order of MERC before the Electricity Appellate Tribunal. Appeal No.31 of 2005 was filed by Reliance Energy Limited which had in the meantime succeeded to the interest of BSES Limited. Appeal No.43 of 2005 was filed by the Tata Power Company Limited.17. In the first appeal, M/s Reliance Energy Limited questioned the findings of MERC that under the licences issued to Tata Power Company it could also undertake retail supply of energy directly to retail consumers and prayed for a declaration that Tata Power was not entitled to effect direct supply of energy to consumers, except to other licensees and consumers contemplated in clause (xv) of the licences granted to Tata Power, read with clause (VI) of the Schedule to the 1910 Act.18. In Appeal No.43 of 2005 Tata Power questioned the findings in the order and directions of MERC contained in paragraphs 81.10, 81.11, 81.12 and 81.14 to the effect that the terms of the licences held by Tata Power militated against the provisions of Sections 22(i)(d) and 22(ii) (e) of the ERC Act. TPC also questioned the restraint order passed by MERC restraining TPC from offering new connections to consumers with a maximum demand of less than 1000 KVA and also to stay the directions of MERC directing the parties to engage a consultancy firm to study the issues relating to Section 14 and 14(2) of the Electricity Act, 2003 and from taking further action in terms of the directions contained in paragraphs 81.12. and 81.14 of the order passed by MERC.19. Both the appeals were disposed of by the Appellate Tribunal for Electricity, New Delhi, by a common judgment dated 22.5.2006, inter alia, holding that Tata Power had not been granted licence to undertake retail distribution of electricity in the area within which REL had been distributing power in retail to customers directly. The order and findings recorded by MERC in that regard were set aside. It was also held that Tata Power could undertake only bulk supplies to licensees such as REL under the licenses held by it.20. In addition to the above, it was also held by the Appellate Tribunal that Tata Power was not undertaking retail distribution of power but was only undertaking distribution of power in bulk to licensees prior to the differences that arose between REL and Tata Power.21. Although, it was held by the Appellate Tribunal that more than one distribution licence could be granted in terms of Section 62(1) of the Electricity Act, 2003, it held that since the licences granted to Tata Power did not entitle it to effect retail distribution directly to consumers it was not necessary to restrain Tata Power from effecting such distribution.22. Accordingly, the appeal preferred by Reliance Energy Limited was allowed and the appeal preferred by Tata Power Company Limited was dismissed.23. The three appeals before us have been filed by Tata Power Company Limited and M/s MIDC Marol Industries Association, against the said judgment of the Appellate Tribunal. While Civil Appeal No.2989 of 2006 has been filed by Tata Power Company Limited, Civil Appeals No.3466 of 2006 and 3467 of 2006 have been filed by MIDC Marol Industries Association. Though the said appellant in Civil Appeal Nos. 3466 and 3467 of 2006 was not a party before the MERC, it had been allowed to intervene during the hearing of the petition filed by M/s BSES Limited which was subsequently taken over by Reliance Energy Limited.

Court's reasoning:
While MERC answered the said question in favour of Tata Power upon holding that there was nothing in the licences granted to Tata Power to prevent it from doing so and that it could effect supply of electricity to any consumer, it also held that the terms and conditions in the said licences gave it an advantage over BSES in regard to fixation and charge of tariff which necessitated the establishment of a level playing field in order to encourage competition. Apparently, while dealing with the grievances projected by BSES, MERC lost sight of the reliefs prayed for BSES which was based on the contention that according to the terms and conditions of the licences granted to it Tata Power was not entitled to supply energy in retail to domestic customers, at least not to consumers whose demand was less than a maximum demand of 1000 KVA. Having once held on the principal issue that Tata Power was entitled to supply electrical energy to all consumers under the licences granted to it, MERC should have restrained itself from unilaterally making out a third case regarding the establishment of a level playing field when such a case had neither been made out nor any relief in that regard had been prayed for by BSES.72. MERC also appears to have lost sight of the fact that the first three licences had been granted to Tata Power long before a separate licence was granted in favour of BSES. There is sufficient material on record to establish that Tata Power had been supplying energy to domestic consumers on retail basis within areas which subsequently came to be included in BSES (and subsequently RELs) area of supply and no objection was raised in that regard till TPC submitted its proposed tariff for domestic retail consumers for approval in September, 1998. MERC appears to have confused the two issues while dealing with BSES petition under section 22(2)(e) and (n) of the Electricity Regulatory Commissions Act, 1998. In fact, it appears that based on the third case made out by it, MERC restrained Tata Power from supplying electrical energy to consumers whose demand was less than 1000 KVA (maximum demand) despite holding that under the licences granted to it Tata Power was entitled to do so.73. In dealing with the appeals filed both by REL and Tata Power, the Appellate Tribunal for Electricity misinterpreted the provisions of the licences granted to TPC for supply and distribution of electrical energy. The arguments advanced on behalf of REL before the learned Tribunal, which were also advanced before us by Mr. Venugopal, found favour with the Tribunal which arrived at the conclusion that the terms and conditions of the licences granted to TPC did not entitle it to supply electrical energy directly to consumers whose demand was below 1000 KVA (maximum). In reaching such conclusion the Tribunal not only ignored the situation prior to 1926 when BSES was granted its licence, but also the subsequent amendments to the licences held by TPC whereby clause 5 of the 1919 and 1921 licences were altered to permit Tata Power to supply electrical energy for lighting and general purposes, other than power and including the supply of energy in bulk to other licensees for distribution by them. The Appellate Tribunal also overlooked the order passed by the Industries Energy and Labour Department of the Government of Maharashtra on 7.12.1978, whereby from 1.7.1980 Tata Power was required to transfer to the Maharashtra State Electricity Board its distribution rights under the 1907 licence and assets pertaining thereto as set out in part 2 of the Annexure to the said licence. The Tribunal also overlooked the fact that by virtue of the aforesaid arrangements, clause 6 of the 1907 licence relating to "purpose of supply" was also amended to bring it in parity with the amendments to the First Annexure to the 1919 and 1921 licences. Although, Mr. Venugopal tried to convince us that the changes effected in clause 6 of the 1907 licence and clause 5 of the remaining three licences held by TPC was only to compensate TPC for giving up its rights to supply in favour of the Maharashtra State Electricity Board and to help it to utilise its surplus generation of power, we are unable to accept Mr. Venugopals contentions, since from the materials on record it stands amply proved that Tata Power had all along been supplying electrical energy directly even to retail customers whose maximum demand was less than 1000 KVA and no objection thereof was raised by either BSES or REL till the year 1998 when Tata Power submitted its proposal for domestic tariff for approval to the Board. It was only thereafter that REL raised its objection in the form of its petition to MERC under Section 22(2)(e) and (n) of the ERC Act 1998. The list of consumers to whom retail supply was being effected by TPC in the island city of Bombay and its suburbs, discloses that at least 51 such consumers were within RELs area of supply. In fact, Mr. Venugopal by way of an alternative submission also indicated that Tata Power under the terms and conditions of the licences held by it, could supply energy to any consumer whose demand was above 1000 KVA within the area of supply covered by the said licences.74. We are also unable to accept Mr. Venugopals interpretation of clause 6 of the 1907 licences and clause 5 of the other licences to the effect that(II) thereof would be rendered tautologous, if the same was read independently of(I). His submission that if(II) is to be read in a manner which allowed Tata Power to supply energy for general purposes to all consumers, no restrictions would have been placed on the supply of power to factories and the Railways, appears to us to be without substance.Clause 5 of the 1919, 1921 and 1953 Licences held by Tata Power indicates the purpose of supply and is divided into twofor power and(ii) for lighting and general purposes, other than power. Simply stated,(I) deals with supply to licensees for their own purposes and in bulk. The restriction indicated by Mr. Venugopal is in respect of such bulk supply where the consumer required less than 5,00,000 units per annum which was also stipulated to be the bona fide average computed annual consumption of a Factory or Railway. On the other hand,(II) provides for supply of electricity for lighting and general purposes, other than power, including the supply of energy in bulk to other licensees for distribution by them.(II) is followed by an Explanation to bothuse (II) of Clause 5. It has been clarified that the energy supply to any consumer for power, that is under(I), could be used by such consumer for lighting his premises to a maximum amount of 20% of the total energy supplied to such consumer, and it has also been stipulated that Tata Power would not supply energy for lighting purposes referred to in(II) except by agreement with Bombay Electric Supply and Tramways Company Limited.75. Regarding Mr. Venugopals other submission relating to Section 42 of the 2003 Act, we are unable to appreciate how the same is relevant for interpreting the provisions of the licences held by TPC. It is no doubt true that Section 42 empowers the State Commission to introduce a system of open access within one year of the appointed date fixed by it and in specifying the extent of open access in successive phases and in determining the charges for wheeling having due regard to the relevant factors, but the introduction of the very concept of wheeling is against Mr. Venugopals submission that not having a distribution line in place, disentitles T.P.C. to supply electricity in retail directly to consumers even if their maximum demand was below 1000 KVA. The concept of wheeling has been introduced in the 2003 Act to enable distribution licensees who are yet to instal their distribution line to supply electricity directly to retail consumers, subject to payment of surcharge in addition to the charges for wheeling as the State Commission may determine. We, therefore, see no substance in the said submissions advanced by Mr. Venugopal.76. Mr. Venugopals last submission relating to market domination has to be considered by the appropriate Commission separately in terms of Section 60 of the 2003 Act and cannot be pressed into service for interpreting the terms and conditions of the licences held by TPC. On the other hand, in our view, the provisions of both the 1903 and 1910 Electricity Acts encourage competition in the electricity trade and the same is also incorporated in the licences issued in favour of the distribution licensees, which also include licencees generating power for supply. The element of competition has been included in the Preamble to the 2003 Act and permeates the same in its various provisions. As submitted by Mr. Chagla, the Act is meant to beand one of the objectives it sets out to achieve is to give the consumer an option to choose the distribution licensee from whom it wishes to receive supply of electrical energy. The intervention of MIDC, Marol Industries Association and the appeals filed by it, has obviously been made in that context.77. Having regard to the above and the terms and conditions of the licences held by Tata Power, we have no hesitation in holding that the Appellate Tribunal for Electricity erred in coming to a finding that under its licences Tata Power was entitled to supply energy only in bulk and not for general purposes and in retail to all consumers, irrespective of their demand, except for those consumers indicated in(I) of clause 5 of the several licenses held by Tata Power.