Case: MAHARASHTRA STATE ELECTRICITY DISTRIBUTION CO. LTD Vs. UNION OF INDIA AND OTHER

The aforesaid circulars dealt with Captive Power Plant Policy (for short, the CPP Policy). The appellant-MSEDCL has been directed to make refund to respondent nos.3 to 7. The financial liability has been imposed upon the appellant-MSEDCL. The MERC was constituted on 5.8.1999. The appellant-MSEDCL had submitted all its circulars to MERC for approval and the MERC after four years has quashed the circulars with retrospective effect. The financial condition of the appellantMSEDCL is not sound enough to sustain such kind of liability for refund. It was unable to pay a sum of Rs.504 crores as against liability to other parties2. Respondent no.3-M/s. NRC Ltd. initially had its two units on Plot No.E 23. Unit Nos.1 and 2 had a contract demand of 3500 KVA and 1800 KVA respectively. In 1995, an independent connection was sought by respondent no.3 for its Unit No.2. Representation was made that two units were separate units and on that basis, two independent connections were given. After that, respondent no.3 filed an application dated 5.4.1997 to set up a CPP of 7MW capacity. In respect of contract demand, it was proposed to retain total contract demand for 8-12 months after the CPP was fully operational and to surrender around 50% of the contract demand after that. Prayer was also made to provide stand-by power3. The Government of Maharashtra issued a notification dated 20.12.1997, whereby it empowered Maharashtra State Electricity Board (for short, the MSEB) to finalise the technical and commercial arrangements between captive power purchasers and their party purchasers. No objection certificate dated 7.1.1998 was issued by appellant-MSEDCL subject to the Condition No.4, which permitted respondent no.3 to decide the level of contract demand after the commissioning of the set and any changes for interconnection would be governed as per the Boards Condition of Supply framed from time to time and its policies as no rules were framed4. Circular No.602 dated 23.7.1998 was issued vesting power with the Board to permit the CPP holder for sale of their CPP power to any third party through the Boards grid, grant of permission to those persons to use their CPP power for self use only and to charge wheeling and transmission loss charges5. The Act of 1998 was enacted on 25.4.1998. Before that, field of electricity was regulated by Electricity Supply Act, 1948 (for short, the Act of 1948). Section 49 of the Act of 1948 empowered the respective Electricity Boards to come up with their tariffs, which could have differential. Section 79(j) of the Act empowered the Board to make regulations pertaining to supply of electricity to the licensees under Section 49. Section 44 further provided that for establishing the CPP unit, prior consent of the Board was mandatory. MSEB was regulating the field of CPP as per notifications issued by the Government and the provisions contained in the Act of 19486. On 23.9.1998, respondent no.3 sought clubbing of the contract demand and subsequent reduction to 3000 KVA for both the units. The clubbing of two units would increase the total contract demand to 5300 KVA and would necessitate the installation of an EHV Line. Thus, the same could not be done. Respondent no.3 was not entitled to reduction of contract demand in view of the application dated 5.11.1997. Hence, it was not permitted as per letter dated 23.9.19987. MSEB submitted a proposal on 4.5.1999 to the Government of Maharashtra for revision of its retail distribution tariff w.e.f. 1.6.1999, keeping in view the requirements of Section 59 of the Act of 1948. The proposal for revision of tariff was under consideration of the State Government in the year 1999. Still, no final decision was taken and the delay was owing to the imposition of Model Code of Conduct due to elections and on 5.8.1999 MERC was constituted. The Government advised the MSEB to submit proposal for tariff revision to Commission for its approval and accordingly, the proposal was submitted to the MERC8. Circular No.619 dated 25.5.1999 was issued by the Board to grant permission for installation of CPP for self use only, reduction in contract demand to CPP holders would not be permitted and levy of penal charges at the rate of 2 times/3 times the prevailing tariff to the CPP holders in their energy bills for over drawal of power on their agreed contract demand under planned/unplanned shutdown as stipulated in the Government of Maharashtra resolution dated 20.12.1997. On 29.8.1998, respondent no.3 had commissioned its CPP and withdrew its earlier application dated 18.6.1999 for reduction in contract demand and resubmitted two applications and sought reduction in contract demand of Unit No.1 from 3500 KVA to zero and increasing contract demand of Unit No.2 from 1800 to 3000 KVA. The fresh application could not be granted as the then existing policy of the appellant-MSEDCL was not to grant any reduction in contract demand to existing CPP holders as notified vide letter dated 18.6.19999. Vide circular dated 2.9.1999, the policy contained in circular dated 25.5.1999 was partially modified insofar as it related to a reduction in contract demand. It permitted CPP holders to reduce contract demand to 2.5 MVA or 50% of the contract demand of 5 MVA or above. It was specifically provided that CPP holders with a contract demand of less than 5 MVA would not be permitted reduction in contract demand. As respondent no.3 had two independent connections, each having a contract demand of less than 5 MVA, it was not entitled to reduction in contract demand. As per policy contained in the aforesaid circular, all the CPP holders were required to draw at least 25% energy of their monthly consumption from the appellant-MSEDCL and in case of drawal of less quantity of electricity, they would be billed for 25% of the energy. The energy supplied would be charged at the rate of 110% of the tariff applicable was the condition of supply for interconnection and stand-by power. Respondent nos.3 to 7 had sought stand-by power. The appellantMSEDCL had invested huge amount for establishing the necessary infrastructure. It was incumbent upon the appellant-MSEDCL to keep available at all material time the requisite infrastructure for supply of electricity to respondent nos.3 to 7. The NOC was issued as per the prevailing policy subject to the condition of supply for paralleling connection or further changes in policy. Thus, circular dated 2.9.1999 was issued10. On 28.4.2000, the State Government issued a guidance to the appellant-MSEDCL to withdraw the said condition for compulsory drawal of 25% energy as it was not in line with the Government of Maharashtra policy decision as mentioned in the resolution dated 25.4.200011. It was submitted on behalf of appellant-MSEDCL that MERC passed an order on 5.5.2000, pointing out that it would look into the matter of sale of surplus power by CPPs to MSEB at a later stage under Section 22(1)(c) of the Act of 1998. The Commission directed the MSEB to follow Section 44 of the Act of 1948 in its true spirit and clear all pending applications by 30.6.2000. Refusal to the captive units, on the other hand, was contradictory12. The appellant-MSEDCL modified their policy dated 19.9.2000 in line with Government of Maharashtra CPP Policy reflected in the resolution dated 25.4.2000 and withdrew the condition of compulsory drawl of 25% of the energy of MSEB grid by CPP holders prospectively with effect from 28.4.2000. No sanction for connecting the additional load of the unit at Plot No.E-1 to the CPP was granted. Respondent no.3, however, illegally connected the said load of the unit at Plot No.E-1 to the CPP13. On 31.8.2001, the appellant-MSEDCL submitted its proposals to MERC along with a tariff petition. The circulars dated 23.7.1998, 25.5.1999, 2.9.1999 and 19.9.2000 were submitted to MERC for its approval. MERC passed order dated 10.1.2002 on the tariff petition of the appellant-MSEDCL, in which it was held:he Commission is of the opinion that the Captive Power Policy is a policy matter under the jurisdiction of the Government of Maharashtra, and the Commission has very recently been conferred with additional powers under S. 22[2] of the ERC Act, 1998, which includes the power to aid and advise the GoM in the formulation of the State Power Policy. The Commission would not like to comment on the captive power policy at this stage, but would like to state that the MSEB has appended the captive power policy along with the Tariff Proposal for the information of the consumers, and the Commissions silence on this policy should not be taken as approval of the same14. Respondent nos.3 to 6 had filed writ petitions before the High Court. The High Court relegated them to MERC. It was not pointed out that there was a provision as to arbitration in case of dispute between the appellant-MSEDCL and CPP holders. It was also submitted that on 3.3.2004, MERC has passed an order in Case No.55 of 2003, in which it observed:7. …The Commission was seized of the matter relating to the CPP Policy as a whole, but the previous Circulars continue to operate since the Commission had not kept them in abeyance, and they are also not the subject to challenge in the present proceedings15. Ultimately, vide order dated 21.5.2004, the MERC allowed the petition filed by respondent nos.3 to 7 and set aside the abovementioned circulars issued by appellant-MSEDCL from 1998 onwards on the issue of CPP. Even though MERC was not in existence at the time when certain circulars were issued, they have been quashed on the ground that no approval from MERC had been obtained. Aggrieved thereby, an appeal was preferred before the APTEL and the same was dismissed. Hence, the appeal.

Court's reasoning:
The circular issued before that could not have been quashed on the ground that MSEB had no power to issue them without the approval of the Commission. The decisions in that regard of Commission as well as of APTEL are liable to be set aside27. As dispute pertains to the period from 2.9.1999 to 28.4.2000, and it is apparent from the additional affidavit filed by the appellantMSEDCL that the respondents used supply of electricity to manufacture their products. The cost incurred on production has been passed on to the buyers/consumers buying their products. Hence, it would tantamount to unjust enrichment in case a refund is ordered. In the peculiar facts of the case, as the Commission earlier opined in order dated 10.1.2002 that CPP is a policy matter and it did not decide as to the merits of subject matter as prayer for approval was made by the appellant-MSEDCL. The Commission observed that it would consider the matter in the future, but later on, without considering on merits the reasonableness of the demand, the Commission quashed the circulars. It is apparent that the liability was passed on to the buyers/consumers by the respondent nos.3 to 7 as electricity was used to manufacture their products sold in the market, working out the price based on expenditure. It would not be appropriate in the peculiar facts of the case to direct refund to be made by the appellant-MSEDCL of the amount recovered by it as it would tantamount to unjust enrichment. Thus, in the peculiar facts and circumstances of the case, it is not considered appropriate to remit the matter to decide the dispute on merits after two decades for the period from 2.9.1999 to 28.4.2000, during which circular dated 2.9.1999 was in force.