Case: DAMODAR VALLEY CORPORATION Vs. CENTRAL ELEC. REGULATORY COMM. AND ORS

2. The appellant is a statutory body constituted under the Damodar Valley Corporation Act, 1948 (hereinafter referred to as the DVC Act). It was entrusted with multifarious functions. One of the functions it was entrusted was that it was duty bound to carry out generation, transmission and distribution of electrical energy both hydro electrical and thermal. It was also called upon to, operate schemes for irrigation, water supply and drainage besides flood control in the Damodar river and its tributaries. Acting under Section 20 of the DVC Act, the appellant was fixing the tariff for the electricity which it was generating and transmitting to its consumers. With the enactment of the Electricity Act in 2003, a suo motu proceeding was taken by the Commission with respect to the determination of the tariff of the appellant. Pursuant to the order dated 29.3.2005, the appellant filed Petition No. 66/2005 seeking determination of its tariff for the period from 2004 to 2009. By order dated 3.10.2006, the Commission proceeded to determine the tariff. The Commission proceeded to take note of the multifarious functions with which the appellant was entrusted. Its case that it was following a cost plus policy for fixation of its tariff as also the difficulties that would be posed by imposing the tariff under the Act of 2003 with effect from 1.4.2004 was noticed. It was ordered that the tariff fixed by the Commission would apply from6 and it was to operate from 1.4.2006. The Commission had also appointedn Commission. Besides the same it appreciated the scope of the Fourth proviso to Section 14 of the DVC Act and found that the provisions of the DVC Act which were not inconsistent with the 2003 Act would continue to hold good even after the enactment of the 2003 Act. Even if there was inconsistency between the DVC Act and the regulation made under the 2003 Act, the DVC Act would continue to operate. After settling the legal position, in this regard, the Commission proceeded to decide upon the various contentions relating to elements which were to constitute the tariff3. This order came to be challenged by the appellant before the Appellate Tribunal for Electricity. There were also appeals filed by the consumers. By order dated 23.11.2007 the Appellate Tribunal allowed the appeal filed by the appellant and ordered as follows:In view of the above the subject Appeal No.273 of 2006 against the impugned order of Central Commission passed on October 3, 2006 is allowed to the extent described in this judgment and we remand the matter to Central Commission for de novo consideration of the tariff order dated October 3, 2006 in terms of our findings and observations made hereinabove and according to the law. Appeal No.271, 272 and 275 of 2006 and No.08 of 2007 are also disposed of, accordingly4. Pursuant to the said order of the Appellate Tribunal remanding the matter back for consideration, a revised tariff order came to be passed on 6.8.2009 by the Commission. The order dated 6.8.2009 came to be impugned by the appellant before the Appellate Tribunal and said appeal came to be dismissed. It is said order by the Appellate Tribunal which is challenged in the present appeal. It may be noted at this juncture itself that the first order of the Appellate Tribunal dated 23.11.2007 came to be challenged before this Court by certain consumers of the appellant. Those appeals were taken up earlier and they came to be dismissed by this Court and the said decision is reported in the judgment of this Court in the case of Bhaskar Shrachi Alloys Limited & Ors. Vs. Damodar Valley Corporation & Ors 2018 (8) SCC 281.  This Court agreed with the Appellate Tribunal that the effect of the Fourth proviso to Section 14 of the Act of 2003 was to countenance the continued application of the certain provisions contained in the DVC Act which were not inconsistent with the 2003 Act. This Court also took the view that having regard to the fact that the appellant in addition to generation, transmission and distribution of electricity is under the Act obliged to undertake certain social security/ beneficial matters like flood control, control of soil erosion, afforestation, navigation, promotion of public health etc, the grant of the transitory period could not be interfered with. It was reiterated that the provisions of the DVC Act would also have an overriding effect over the inconsistent provisions of the tariff regulations.

Court's reasoning:
19. It is in the light of these orders that we must consider the contention of the appellant that despite appellant being entitled to the benefit of interest on capital it was not given the benefit despite the final pronouncement of this Court in 2018(8) SCC 281 upholding the view of the Appellate Tribunal itself that Section 38 of the DVC Act will continue to apply for the benefit of the. On the other hand, the contention of the contesting respondents is that the benefit under Section 38 of the DVC Act as claimed by the appellant would result in appellant getting a benefit which would be a duplication of claims insofar as on the total capital, applying the normative debt equity ratio, appellant has been given the benefit of return on capital on the normative equity portion and it has also been allowed interest on the loan portion. The case of the appellant on the other hand, is that even after interest has been given on the loan portion and the return on equity has also been ensured on the normative equity portion by the impugned order, over and above the same, the appellant is entitled to the benefit of interest on capital on the whole amount as that is so provided under Section 38 of the DVC Act20. In the order of the Appellate Tribunal dated 23.11.2007 the matter came to be dealt with under the heading debt equity ratio. The Tribunal went on to accept the case of the appellant in respect of all old projects of DVC and normative debt equity of 50:50 was assigned, commissioned prior to 1992. In respect of recent projects such as Mejina, it was assigned debt equity ratio of 70:30 on capital structure as specified in the Regulations. This finding has become final. It was contended on behalf of the appellant that equity has been the primary source of capital. Thereafter, in paragraph, it was found by the Appellate Tribunal that owners take upon themselves business related risk and are entitled to interest on capital investment, but the return is to be governed by the scheme of determination of tariff for the supply of electricity as mandated by the law in place. The Appellate Tribunal further proceeds to hold that the scheme provides for assured Return on Equity (ROE) which is at the rate of 14% on the equity employed for the purpose of supplying electricity. The scheme does not permit return on investment made on projects other than for supply of electricity to be recovered from supply of electricity. The Tribunal went on to hold that the DVC Act does not recognise capital as borrowings and there is no reference about repayment of such capital to the participating Governments. The Appellate Tribunal proceeds to hold that the capital infused by participating Governments is in the nature of equity capital and for the determination of tariff, the same would be eligible for return on equity but the Appellate Tribunal does not end there. It clearly provides that the return on equity is as may be permitted by the tariff Regulation of 2004. It is thereafter that the Appellate Tribunal in para 15 proceeded to hold that the DVC Act provides for interest on capital which is contributed by the participating Governments. The accrued interest due to the Governments apparently has been allowed to be retained by the appellant. The same however came to be ploughed back into the capital with the tacit consent of the participating Governments. Thereafter, it is stated that this has to be provided to the DVC as per the provisions of Section 38 of the DVC Act. It is thereafter paragraph6 which we have already extracted, the Tribunal proceeded to observe that under the DVC Act if there is any deficit in the capital contributed by the participating Governments, it is to be made good by taking loan on behalf of the participating Governments. The said debt would attract interest. The average interest rate of the repayment payable is to be applied on a 50:50 normative debt capital. This means that out of the aggregate equity including reserves, equity considering the normative debt ratio of 50:50 would be eligible for return on equity as specified in the Regulations and the excess of equity, if any, over the equity earning ratio of 14% is to be considered as interest bearing debt. In the example which has been given it is shown that if the debt equity ratio is 40:60, return on equity at 14% will be available on 50% equity whereas interest would be available at 10% portion of equity and 40% loan which were reduced by repayments21. On the basis of the remand, the Commission has worked out the debt equity ratio as directed by the Appellate Tribunal. It has further provided return on equity at the rate of 14% on the equity portion, namely 50%. In respect of the debt portion, interest has been calculated no doubt after deducting depreciation, the legality of which is the subject matter of the other contention which we will deal with separately. It is quite clear to us that appellant has already been given return on equity in terms of the tariff Regulation in respect of capital on the basis of debt equity ratio which has been fixed by the Appellate Tribunal on a ratio which has become final between the parties22. Though a perusal of para9 of order dated 23.11.2007 may appear to show that equity has been found to be the main source of capital, a perusal of paragraph3 would show that capital under Section 38 of the DVC Act has been understood as the value of the operating assets when they were first put to commercial use. Capital is also understood not as equity alone but it has been understood both as loan and equity. The ratio between loan and equity is also fixed in respect of the old projects at 50:50 and under the new projects it is at 70:30. It is further clear from paragraph3 of the order of the Appellate Tribunal dated 23.11.2007 that the appellate Tribunal contemplated that the equity component would remain static and it would earn the rate of return as provided in the tariff Regulation. As far as the loan component is concerned, it would get reduced on account of repayments. Therefore, the recovery as contemplated under the Regulations was found to be in two forms, namely, either as return on equity in respect of the equity portion and as interest on the loan component23. There remains only one area of doubt. In paragraph, the Appellate Tribunal noted that the interest due from DVC on the capital employed by the participating Governments have been allowed to be retained by the appellant and it has been ploughed back into the capital. To this portion also, the Appellate Tribunal directed to apply under Section 38 of the DVC Act. However, firstly, it is after so providing that the Appellate Tribunal has later in paragraph3 given its direction under Section 38 of the DVC Act. Secondly, even in the written submission made this aspect has not been taken up as such and at any rate, the particulars are not given. Also in paragraph 73 of the impugned order which refers to the complaint of the appellant relating to cumulative depreciation being employed to reduce the loan component being illegal and reference is made to the retained interest being ploughed back as capital to the creation of capital assets resulting in the appellant enjoying perpetual moratorium as it has never repaid the loan and the question of adjustment of the depreciation for the loan did not arise. There is no complaint raised about interest under Section 38 of the Act not being given in respect of interest which is ploughed back as capital26. A perusal of the same would appear to suggest the substantive question of law sought to be raised as part of the second contention, does not remain open for adjudication27. When the matter went back pursuant to the remand order in the first round of litigation which has become final in view of the dismissal of appeal by this Court, the Central Commission has only reiterated the procedure in the matter of calculating interest on loan by reducing the loan amount by the cumulative depreciation. This is a procedure to which exception was not taken in the first round when the appellant could have taken exception to the same. This is also for the period prior to 31.3.2006. Having regard to what is stated in paragraph 57 in the earlier round of litigation, therefore, on a point which has become final in the earlier round, we are not persuaded to hold that it will be open for the appellant to raise the same issue in the second round in respect of a matter which has attained finality.