Case: TATA POWER COMPANY LTD Vs. ADANI ELECTRICITY MUMBAI LTD

1. The appellant – Tata Power Company (in short the TPC) is a distribution licensee supplying electricity to the entire city of Mumbai, whereas BSES/Reliance Energy Limited (in short REL) is a distribution licensee supplying electricity only in the suburbs of Mumbai. Prior to 1998, the TPC was the only generator of the electricity supplying electricity to BSES for further supply to BSES customers. The TPC had 108 customers in the entire city of Mumbai. The tariff payable by BSES to TPC included a component of standby charge. The entire standby charges paid by TPC to Maharashtra State Electricity Board (for short the MSEB) were being recovered by TPC from its customers through its tariff. Due to change in shareholding pattern, the BSES was changed to Reliance Energy Limited on 24.2.20042. The brief facts indicate that TPC and MSEB met on 12.3.1985 to finalise the interconnection between representatives of TPC and MSEB with respect to demand charges. Following decision was arrived at:Effective 1-2-84 a monthly firmed demand of 300 MVA would be billed by MSEB. This would increase by 50 MVA each year effective 1-4-1985 to take care of TECs own load growth annually. This is irrespective of TECs actual net off-take recorded at the 4 interconnecting points of supply and also irrespective of MSEBs total off-take from TEC system3. Prior to 1985, the TPC was supplying entire electricity generated by it to the distributors of electricity in Mumbai. Since the quantity generated by TPC was not sufficient to meet the entire demand, TPC used to buy electricity from MSEB. BSES/REL was purchasing its entire requirement of electricity from TPC in bulk to supply to its customers in suburban Mumbai4. With effect from 1985, TPC wanted to increase its generating capacity thereby reducing its offtake of electricity from MSEB to zero thereby causing loss of revenue to MSEB. In order to compensate MSEB for loss of revenue caused as a result of stoppage of purchase of electricity by TPC from MSEB, the TPC and MSEB entered into aforesaid arrangement whereby TPC was required to pay to MSEB standby facility initially for 300 MVA to be increased by 50 MVA every year, charges to be paid at the rate fixed by MSEB. The quantum of standby increased from 300 MVA to 550 MVA by the year 1990, whereafter the MSEB and the TPC agreed not to increase the said standby beyond 550 MVA. The standby facility was meant to enable TPC to draw upon the energy generated by MSEB in the event there was outage/failure of power in TPCs generation capacity of 1777 MW consisting of multiple units of different sizes i.e., 500 MW, 180 MW, 150 MW, 72 MW, 75 MW and 300 MW, which is supplied to BSES/REL along with its own consumers and BEST, another distribution licensee in Mumbai. The standby facilities charges paid by TPC to MSEB were factored into tariff charged by TPC from its customers including BSES/REL. The BSES/REL was a purchaser of electricity from TPC to the extent of TPCs generation between 29% to 37% from 1998 to 2006, thus the standby charges to the extent of aforesaid varying percentages for the respective years were borne by BSES/REL which in turn were factored into tariff and charged by BSES/REL to its retail customers5. Initially, BSES was permitted to set up its generating plant at Dahanu to generate 500 MW (550 MVA approximately). There was a condition that it would achieve interconnection with the supply of TPC at a point known as Borivali Interconnection Point in case there was any outage of BSES generation. It could draw upon the power supplied by the TPC. The charges for such interconnections were to be determined. On 30.5.1992, a notification was issued amending the BSES license. A new clause 7B was introduced for providing aforesaid interconnectivity. Provisions of clause 13A were also amended to authorise the State Government in the event of a dispute to decide the same. On 29.6.1992, a meeting was held between TPC and BSES and it was agreed that interconnection would be provided at Borivali GIS switching station to take care of emergencies in BSES 220 KV system. The TPC already have arrangements with MSEB wherein standby capacity is provided by MSEB to TPC in case of emergencies in TPC system. Standby capacity to BSES may be provided from the standby capacity reserved by TPC with MSEB and appropriate sharing of charges by BSES could be worked out as provided in clause 12.0. The BSES prior to September 1995 was purchasing its entire requirement of power from TPC and distributing it within its licensed area as TPC distributing licensee. After its two Dahanu generating units were commissioned in January/March 1995, BSES started bringing the power generated by Dahanu to supply to its consumers after September 1995 in the suburbs of Mumbai city. As supply was started from the Dahanu, TPC surplus capacity began to increase. The TPC after 1995 required only 275 MVA standby facility against the standby capacity of 550 MVA6. The MSEB issued notice on 28.6.1996 revising its tariff to TPC effective from 1.10.1996. The MSEB raised its maximum demand charges per month with respect of standby facility/supply from Rs.190/- per KVA to Rs.450/- per KVA. Consequently, MSEB gave notice to TPC, inter alia, revising its standby charges with effect from 1.10.1996 recoverable from TPC to Rs.24.75 crores per month i.e., Rs.297 crores per year7. TPC had issued a notice on 30.7.1996 to the Government of Maharashtra and MSEB under Schedule VI to the Electricity (Supply) Act, 1948, showing its intention to enhance tariff charges with effect from 1.10.1996 which included maximum demand charges and energy charges to various consumers. It also provided for payment of maximum demand charges and energy charges by BSES for standby facility. With effect from 1.1.1997, TPC revised its tariff inter alia to BSES, thereby factoring in the monthly demand charges of Rs.24.75 crores payable by TPC to MSEB for standby supply. In order to resolve the issue of quantum of standby charges to be paid by BSES to TPC, the Government of Maharashtra appointed a Committee and an order dated 19.1.1998 was passed whereby the Government of Maharashtra, based on the recommendation of the Committee, stipulated that a sum of Rs.3.5 crores per month should be paid by BSES/REL to TPC by way of standby facility for the period 1998-1999. This sum of Rs.3.5 crores per month i.e., Rs.42 crores per annum was over and above the sum Rs.24.75 crores per month i.e., Rs.297 crores per annum which TPC used to recover in the form of its tariff from its customer. In fixing the aforesaid amount, the following factors were taken into consideration by the said(i) the generation of TPC and MSEB;(ii) the electricity supplied by TPC on BSES/ REL as a consumer(iii) TPCs standby supply from MSEB;(iv) Charges paid thereof by TPC;(v) TPCs and BSES/RELs financial position;(vi) That standby was being supplied for the stability of the Greater Mumbai Grid8. On 17.12.1997, TPC contended that it was fully capable and willing to supply standby to BSES for its Dahanu plant and TPC should, therefore, be billed only for 275 MVA standby facility for their consumers other than BSES. The Government of Maharashtra issued an order on 19.1.1998, following is the relevant portion of the said order:it has come to the notice of the Government that due to dispute on commercial terms between BSES and TEC, interconnection is not established at Borivali even though technical arrangements are ready. Similarly, additional electricity generated at Dahanu is being sold to the Western Regional Grid through MSEBs Biosar Interconnection. As a result, the governments main objective that electricity generated at Dahanu should be used within the BSES area of supply has not been met and BSES license conditions are violated. For this Government had appointed a Committee under the Chairmanship of the Principal Secretary, Energy. In this committee, representatives of MSEB, TEC, and BSES were members. This Committee has examined the total situation and has submitted its report to the Government. GOM thereafter ordered as follows:Taking into account the recommendations of the Committee, following are orders of the GovernmentBSES should complete interconnection at Borivli by January 26, 1998BSES should take 275 MVA standby power supply from TEC for Dahanu generating stationFor taking above standby supply, BSES should pay standby charges to TECAfter the interconnection is commissioned, BSES should stop selling electricity through MSEBs Boisar sub-station to Western Regional GridTEC may charge stand-by charges for 275 MVA supply to BSESWhenever required during an emergency, additional electricity may be taken for areas outside Mumbai region through MSEBs Boisar sub-station. For this purpose, MSEB should take proper arrangementsAs per Committees recommendations and taking into account, TECs electricity supply to BSES, TECs standby supply from MSEB, charges thereof and TECs and BSESs financial conditions, BSES should make a payment of Rs.3.5 crores every month for standby supply. On this basis, the rate per KVA should be fixed and commercial arrangement finalizedThe above standby charges are passed on TECs & BSESs existing electricity supply tariff. The standby charges may be reviewed during tariff revision in the future9. Since the agreement was to be finalised as per the Governments order, the Government had no power to give directions to generators and distributors, TPC and BSES had entered into Principles of Agreement on 30.1.1998, the clauses 2 to 9 are extracted hereunder:(2) BSES shall pay to TEC for the 220 KV interconnection at Borivali Rs.3.5 crores per month as standby charges for 275 MVA as per Government orders(3) BSES offtake of energy at 220 KV Borivli interconnection will be billed at Rs.2.09 per kWh plus F.A.C. (which is presently at Rs.0.45) as applicable from time to time at other points of supply. This average energy charge is based on an estimated annual flow of 250 million units of energy through Borivli interconnection(5) As soon as the interconnection between TEC and BSES at 220 KV Borivli is established(6) The interconnection between MSEB and BSES at Boisar will be opened out(7) BSES shall use this interconnection at Borivali fully for the standby type of service(8) Both the parties have agreed to cooperate in order to ensure that the orders of the Government dated 19-01-1998 are implemented in the spirit of it(9) A detailed Power Supply Agreement on a mutually agreed basis incorporating the above will be executed by 21 st of April, 1998Though the aforesaid principles of the agreement were entered into between the parties, for one reason or the other, no agreement has been executed between them10. The TPC under the Principles of Agreement dated 31.1.1998 was bound to supply standby power as and when required by BSES/REL. Whether the TPC was drawing from MSEB or not is immaterial. The agreement of BSES was with TPC, not with MSEB. The agreement between TPC and BSES was independent than the agreement between TPC and MSEB11. Even after providing the standby facility of 275 MVA to BSES/REL, TPC still enjoyed the standby facility of 550 MVA from MSEB. The TPC entitlement to avail 550 MVA standby facility from MSEB did not change12. The standby facility that has been availed of by BSES/REL through TPC since then it actually drew on about 119 occasions till May 2004, of which 57 occasions in excess of 275 MVA. It has been observed by the Appellate Tribunal for Electricity (in short the APTEL) that TPC in 90 percent of the above occurrences has supplied standby powers from its own generation and never drawn back the power from MSEB. The TPC has actually drawn standby from MSEB on a large number of occasions and on several occasions far in excess of 275 MVA. The standby drawn by TPC from MSEB is as under:439 MVA highest in 1998-1999271 MVA highest in 1999-2000358 MVA highest in 2000-2001325 MVA highest in 2002-2003415 MVA highest in 2002-2003763 MW highest in 200413. It is also pertinent to mention that even after BSES/REL started drawing power from its Dahanu generation station, BSES/REL continued to purchase approximately 35 percent of TPCs generation from TPC to supply energy to BSES/REL consumers. With effect from 1.2.1998, the BSES/REL paid a sum of Rs.3.5 crores per month to TPC as charges for standby. The TPC objected and sought the revision of standby charges, which was fixed at Rs.3.5 crores per month, by writing a letter to the Government of Maharashtra on 8.7.1998. With effect from 1.12.1998, the MSEB revised its tariff by issuing a notice under the agreement between the MSEB and TPC. The charges for standby facility were also increased from Rs.450 KVA per month to Rs.550 KVA per month i.e., Rs.363 crores per annum equal to Rs.30.250 crores per month. These standby charges enhanced from Rs.24.75 crore per month to Rs.30.25 crores per month with effect from 1.12.1998 i.e., from Rs.297 crores to Rs.363 crores annually. The TPC instead of requiring a pro-rata share of the incremental standby charges from BSES/REL purported to divide the amount of Rs.30.25 crores in the ratio of 50:50 and demanded a sum of Rs.15.125 crores per month i.e., Rs.181.5 crores per annum by way of standby charges from BSES/REL. The TPC was already recovering Rs.24.75 crores per month through its tariff as said amount was factored in tariff from its customers and additional recovery of Rs.3.5 crores was also being made from BSES/REL under the Principles of Agreement. Thus, the total recovery of Rs.28.25 crores per month by way of standby charge was already made by TPC from its customers as on September 1998. By demanding a sum of Rs.15.125 crores per month from BSES/REL, TPC was attempting to demand an additional sum of approximately Rs.11.625 crores per month from BSES/REL under the guise of standby charges instead of demanding a pro-rata amount of the incremental standby charges of Rs.2 crores14. TPC issued notice dated 30.9.1998 under Schedule VI to the Electricity (Supply) Act, 1948 to the Government of Maharashtra proposing revision of its tariff and other matters. It was indicated in the notice that it would pay only Rs.181.5 crores per annum and remaining should be the liability of BSES/REL. It has also been contended on behalf of TPC that other revision in tariff had not been proposed by TPC which would otherwise have needed an increase of 6 percent on all consumers in Mumbai. It served a notice on BSES/REL demanding the aforesaid charges of 35 percent of the component which was purchased by BSES/REL as a consumer. The standby charges used to be paid and otherwise included in the tariff. BSES/REL has received 35 percent of the energy supplied from TPC as a consumer and for the same, TPC was recovering an amount of Rs.24.75 crores per month and an additional sum of Rs.3.5 crores per month. This Court in BSES Ltd. v. Tata Power Co. Ltd., (2004) 1 SCC 195  has observed that tariff notice as being illegal. Since the dispute between the TPC and BSES/REL could not be sorted out, an order dated 22.3.2000 was passed by the Government of Maharashtra endorsing the Committees Report. Vide aforesaid order, BSES/REL was directed to pay Rs.9 crores as observed in BSES Ltd. v. Tata Power Co. Ltd. (supra) by this Court15. The Electricity Regulatory Commission Act, 1998 (in short the Act of 1998) came to be promulgated which conferred jurisdiction on Maharashtra Electricity Regulatory Commission (in short the MERC) to determine the tariff of supply of electricity and later on to adjudicate the dispute between the parties. The dispute came to be referred to MERC by the parties. The order dated 22.3.2000 passed by the State Government has been set aside by the High Court, which decision has been affirmed by this Court in BSES Ltd. v. Tata Power Co. Ltd. (supra)16. The MERC passed an order on 7.12.2001 directing BSES/REL to bear 25 percent of the standby charges. This order was challenged by both the parties before the High Court. The High Court remitted the matter back to MERC and directed BSES/REL to deposit 50 percent of the standby amount as an interim arrangement. The matter had further travelled to this Court in the aforesaid decision namely BSES Ltd. v. Tata Power Co. Ltd. (supra)17. After the matter was remitted, MERC after hearing the parties passed an order dated 31.5.2004 and directed the BSES/REL to bear approximately 23 percent of the total standby charges incurred by TPC qua MSEB. While noticing that TPC has already recovered a sum of Rs.24.75 crores per month through its tariff and an additional sum of Rs.3.5 crores per month as per the Principles of Agreement, it was found that large part of standby charges has already been recovered by TPC through tariffs and otherwise. Against the demand made on 31.5.2004, both the parties filed an appeal before the APTEL. It was heard by a Bench consisting of Chairman and Technical Member. They delivered separate judgments, both of them rejected the contentions of TPC claiming standby charges in the ratio of 50:50. The Chairman opined that standby charges should be shared in the proportion of 2:1 i.e., TPC paying 2/3 rd and BSES/REL paying 1/3 rd , while Technical Member held BSES/REL should bear 23 percent while TPC should bear approximately 77 percent18. In view of the divergence of opinion, the matter was referred to the third Member being Judicial Member, who agreed with the conclusion of the Technical Member that BSES/REL should bear 23 percent of the standby charges. In view of the majority judgment, the APTEL passed an order dated 20.12.2006, acknowledging the majority view of the Judicial Member and the Technical Member and directed that 23 percent of the standby charges for the period in question should be borne by BSES/REL and balance should be borne by TPC and further directed refund of the excess amount that was deposited by BSES/REL pursuant to the interim orders passed. The MERC in the appeal has acknowledged that TPC has withdrawn a sum of Rs.24.75 crores from its customers through electricity tariff and an additional sum of Rs.3.5 crores per month by way of standby charges from BSES/REL did not give credit for the said sum in the computation of standby charges to the extent of 23 percent held to be payable by BSES/REL. The appeal of BSES/REL in respect of the aforesaid was rejected by the APTEL vide judgment and order dated 20.4.2007. TPC filed Civil Appeal No.415 of 2007 before this Court. BSES/REL has also filed Civil Appeal No.3229 of 2007 aggrieved by the judgment and order dated 20.4.2007 of APTEL.

Court's reasoning:
27. The main principles on the basis of which Agreement was to be reached between TPC and BSES/REL were settled. As per clause 2 of the Principles of Agreement, BSES/REL had to pay to TPC for 220 KV interconnection at Borivali at Rs.3.5 crores per month. The parties had agreed to cooperate in order to ensure that Government order dated 19.1.1998 is implemented in the spirit of it. A detailed power supply agreement was to be entered into by 21.4.1998. The agreement could not be executed as consensus with respect to several aspects could not be reached. The order dated 22.3.2000 has been set aside by the High Court, which order was not interfered with by this Court and the case was remitted for the decision to MERC, which is an expert body. The power was conferred upon the MERC vide notification dated 27.10.2000 under the provision of Section 22(2)(n) of Electricity Regulatory Commission Act, 1998, to adjudicate upon the disputes and differences between licensees and utilities. On 4.12.2000, BSES/REL had filed an application to MERC in respect of sharing of standby charges between BSES/REL and TPC. The prayers were made to regulate action and standby charges levied by them and to fix and determine the standby charges payable by them28. Ultimately, the APTEL by the impugned orders has decided the matter. The Chairman has held that liability to be in proportion of 2:1 tariff, whereas Judicial Member has concurred with the Technical Member when Technical Member differed with the opinion of Chairman, but the fact remains that MERC, as well as the APTEL, concurrently have not accepted the case of the TPC that standby charges should be borne in ratio of 50:50. The decisions of MERC, as well as the Technical and Judicial Members, are found to be correct while terming ratio as 23:77 with respect to BSES/REL and TPC respectively29. In view of the aforesaid facts and circumstances of the case and, in particular, several factors were required to be taken into consideration, on that basis aforesaid figure has been worked out. It has also been considered that electricity used to be purchased by BSES/REL from TPC to the aforesaid extent and the standby charges used to be realised which were factored in the tariff, which liability was ultimately passed on to the retail consumers. Even when the Principles of Agreement have been reached as to standby charges though it was subject to revision basis was fixed which could not have been departed from, it was on consideration of several aspects. The ratio had been appropriately worked out in the most equitable manner by applying the level playing field. Considering the standby charges of Rs.24.75 crores recovered by MSEB from TPC with effect fro 1.10.1996 and as per the Government order and Principles of Agreement Rs.3.5 crores was additionally being available and a difference of standby which was made to increase the liability Rs.24.75 crore per month to Rs.30.25 crores per month. Thus, the decision of the Technical and Judicial Members is found to be appropriate and reasonable while working out the percentage of the standby charges to be paid by BSES/REL to TPC for the period in question31. The MERC directed sharing of standby charges payable to MSEB between TPC and BSES/REL on the basis of their respective peak load requirements and directed TPC to pay to BSES/REL a sum of Rs.315.30 crores within 15 days. It was also observed that the quantum of standby capacity is related to the larger unit size of the generation in either system. We have no hesitation to accept the majority opinion that standby facility provided by TPC was out of its own generating capacity and 90 percent of the times energy has been drawn by BSES/REL from TPC. Thus, there is no justification for TPC to claim 50:50 percent sharing of the standby charges in the facts of this case on consideration of various factors the decision has been reached32. It appears that there was no stay on the order passed by the APTEL by this Court. The plea of non-implementation of the order taken by TPC is not understandable. It was only the bank guarantee which was submitted by TPC, in addition, to deposit of a sum of Rs.227 crores with the Registrar General of this Court. The implementation of the order of the APTEL would mean that the determination made by it has been acted upon and corresponding liability factored into tariff has been passed on the customers and actual consumers and realised from them since there was no such interim stay on implementation of the order. We find force in the submission raised on behalf of BSES/REL that order of APTEL has already been worked out even otherwise it is found to be just and equitable. No case for interference with the same is made out33. There is no question of applicability of Article 14 of the Constitution. As a matter of fact, what was agreed in the Principles of Agreement more amount than that has been ordered to be paid on the basis of principles of business equilibrium and other factors as noted above34. It may be relevant to mention here that I.A. No.59365 of 2019 and I.A. No. 59356 of 2019 have been filed for substitution of name of Reliance Energy Limited with the agreement of learned counsel for the parties, the name of Adani Electricity Mumbai Limited is substituted as respondent and as appellant in C.A. No. 415/2007 and C.A. No.3229/2007 respectively.