Supreme Court Clarifies Appointment of Chairperson in State Electricity Regulatory Commissions: State of Gujarat vs. Utility Users’ Welfare Association (2018)

Date of the Judgment: April 12, 2018
Citation: (2018) INSC 305
Judges: J. Chelameswar, J., Sanjay Kishan Kaul, J.
Can a State Electricity Regulatory Commission be headed by a non-judicial member? The Supreme Court of India addressed this crucial question regarding the interpretation of the Electricity Act, 2003, specifically concerning the appointment of the Chairperson of State Electricity Regulatory Commissions. This judgment clarifies whether it is mandatory to appoint a judge as the Chairperson or if the provision is merely an option. The two-judge bench, consisting of Justice J. Chelameswar and Justice Sanjay Kishan Kaul, delivered the judgment, with Justice Sanjay Kishan Kaul authoring the opinion.

Case Background

The case arose from conflicting judgments of the High Court of Judicature at Madras and the High Court of Gujarat. The Madras High Court held that the appointment of a judge as the Chairperson of the Tamil Nadu State Electricity Commission was not mandatory, while the Gujarat High Court ruled that it was mandatory for the Chairperson of the Gujarat State Regulatory Commission to be a judge. This conflict led to the transfer of several cases to the Supreme Court for a definitive ruling. The core issue revolved around the interpretation of Section 84(2) of the Electricity Act, 2003, which states that the State Government “may” appoint a High Court judge as the Chairperson. The question was whether “may” should be interpreted as “shall,” thereby making it compulsory to appoint a judge.

Timeline

Course of Proceedings

The Madras High Court, in its judgment dated 7.2.2014, held that there was no mandatory requirement to appoint a judge as the Chairperson of the Tamil Nadu State Electricity Commission. Conversely, the Gujarat High Court, in its order dated 8.10.2015, opined that such an appointment was mandatory for the Gujarat State Regulatory Commission. Due to this conflict, various challenges across different states were transferred to the Supreme Court through Transfer Petitions on 3.11.2015.

Legal Framework

The core legal provisions discussed in the judgment are from the Electricity Act, 2003. Key sections include:

• Section 84: Qualifications for appointment of Chairperson and Members of State Commission.
  • (1) Specifies that the Chairperson and Members should be persons of ability, integrity, and standing with adequate knowledge in engineering, finance, commerce, economics, law, or management.
  • (2) States that the State Government “may” appoint a High Court judge as the Chairperson, after consultation with the Chief Justice of that High Court.
• Section 85: Constitution of Selection Committee to select Members of State Commission.

  Provides for a Selection Committee, headed by a High Court Judge, to recommend members of the State Commission, but this does not apply to the appointment of a judge as Chairperson.

• Section 86: Functions of State Commission.

  Outlines the functions of the State Commission, including tariff determination, regulation of electricity purchase, and adjudication of disputes.

• Section 94: Powers of Appropriate Commission.

  Grants the Commission powers similar to a civil court, including summoning witnesses, production of documents, and receiving evidence.

• Section 95: Proceedings before Commission.

  Deems all proceedings before the Commission to be judicial proceedings, and the Commission is considered a civil court for certain purposes.

• Section 96: Powers of entry and seizure.

  Authorizes the Commission to enter and seize documents related to inquiries.

• Section 112: Composition of the Appellate Tribunal.

  Specifies that the Appellate Tribunal must have at least one judicial member and one technical member.

• Section 113: Qualifications for appointment of Chairperson and Member of the Appellate Tribunal.

  Mandates that the Chairperson of the Appellate Tribunal must be a current or former Supreme Court judge or a Chief Justice of a High Court.

Arguments

The arguments presented before the Supreme Court were diverse, with the Union of India and some State Commissions advocating for a literal interpretation of the Electricity Act, 2003, while consumer groups and activists argued for a mandatory judicial presence in the Commissions.

Innovativeness of the Argument

The arguments presented by the consumer groups and activists innovatively emphasized the necessity of a judicial mind in the regulatory commissions, drawing parallels with the principles of separation of powers and the need for independent adjudication, particularly in light of the quasi-judicial powers vested in the commissions.

Issues Framed by the Supreme Court

The Supreme Court framed the following key issue:

1. Whether the expression “may” in Section 84(2) of the Electricity Act, 2003, should be read as “shall,” making it mandatory to appoint a judge as the Chairperson of the State Electricity Regulatory Commissions.
2. Whether it is mandatory to have a person of law as a member of the State Commission.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered various legal authorities to arrive at its decision. These authorities are categorized by the legal point they address:

Judgment

The Supreme Court held that while it is not mandatory to appoint a judge as the Chairperson of the State Electricity Regulatory Commissions, it is mandatory to have a member with legal expertise in the commission. The court clarified that the word “may” in Section 84(2) of the Electricity Act, 2003, is an enabling provision, not a mandatory one. However, considering the adjudicatory functions of the commission and the fact that it has “trappings of a court,” it is essential to have at least one member with legal expertise.

The Supreme Court also analyzed how various authorities were viewed in its reasoning.

Tamil Nadu Generation and Distribution Corporation Limited v. PPN Power Generating Company Private Limited: The Court clarified that the observations in this case regarding the desirability of a judicial member were advisory and not a binding direction.

Madras Bar Association v. Union of India & Anr. (MJ-II): The Court emphasized that this case established the principle that tribunals discharging judicial functions should have members with legal expertise.

Union of India v. Madras Bar Association (MJ-I): The Court emphasized that when judicial functions are transferred to tribunals, they must have judicial members.

Gujarat Urja Vikas Nigam Ltd. v. Essar Power Ltd. (GJ-I): The Court reiterated that the expression “and” in Section 86(1)(f) should be read as “or.”

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to balance the regulatory functions of the State Electricity Regulatory Commissions with their adjudicatory roles. The Court recognized that while the commissions perform technical and regulatory tasks, they also have significant judicial powers, which necessitate the presence of a member with legal expertise. The Court was also keen on upholding the principles of separation of powers and judicial review, which are considered part of the basic structure of the Constitution.

The ratio of fact to law indicates that while the factual aspects of the case were considered, the legal interpretations and principles played a more significant role in the Court’s decision.

Logical Reasoning

The Court considered alternative interpretations but rejected them, emphasizing that the plain reading of the statute and the nature of the functions performed by the Commission necessitated its final decision. The court also considered the argument that the presence of a Judge in the Appellate Tribunal would obviate the need for a judicial member in the State Commission, but rejected this argument as well.

The majority opinion was authored by Justice Sanjay Kishan Kaul, with Justice J. Chelameswar concurring. There were no dissenting opinions.

The Supreme Court quoted the following from the judgment:

“It is well-nigh impossible to lay down a general rule for determining whether a provision is imperative or directory.”

“The real adjudicatory function is only provided in sub-clause (f) whereupon the Commission has the option of adjudicating the disputes between the licencees and generating companies, or to refer such disputes to arbitration.”

“We are, thus, of the unequivocal view that for all adjudicatory functions, the Bench must necessarily have at least one member, who is or has been holding a judicial office or is a person possessing professional qualifications with substantial experience in the practice of law and who has the requisite qualifications to have been appointed as a Judge of the High Court or a District Judge.”

Key Takeaways

• The appointment of a judge as the Chairperson of State Electricity Regulatory Commissions is not mandatory. The State Government has the option to appoint a judge, but it is not compulsory.
• It is mandatory for State Electricity Regulatory Commissions to have at least one member with legal expertise, who is or hasbeen holding a judicial office or is a person possessing professional qualifications with substantial experience in the practice of law and who has the requisite qualifications to have been appointed as a Judge of the High Court or a District Judge.
• The Supreme Court emphasized that the word “may” in Section 84(2) of the Electricity Act, 2003, should be interpreted as an enabling provision, not a mandatory one.
• The Court recognized the quasi-judicial functions of the State Electricity Regulatory Commissions and the need for members with legal expertise to ensure fair and impartial adjudication.
• This judgment clarified the interpretation of the Electricity Act, 2003, and provided guidance on the composition of the State Electricity Regulatory Commissions.

Implications

This judgment has significant implications for the functioning of State Electricity Regulatory Commissions in India. The ruling ensures that while the Chairperson need not necessarily be a judge, the presence of a member with legal expertise is mandatory. This decision strikes a balance between the need for technical expertise in the energy sector and the necessity for judicial oversight in regulatory matters.

• For State Governments: State Governments now have the flexibility to appoint a non-judicial person as the Chairperson of the State Electricity Regulatory Commissions, but must ensure that at least one member has the requisite legal expertise.
• For Regulatory Commissions: The Commissions must ensure that their composition includes at least one member with legal expertise to effectively handle adjudicatory functions.
• For Electricity Consumers: The judgment ensures that the regulatory process remains fair and impartial, with the presence of a member with legal expertise.
• For the Judiciary: The Supreme Court has clarified the interpretation of the Electricity Act, 2003, setting a precedent for future cases related to the composition and functioning of regulatory bodies.

Conclusion

The Supreme Court’s judgment in State of Gujarat vs. Utility Users’ Welfare Association (2018) provided a much-needed clarification on the interpretation of Section 84(2) of the Electricity Act, 2003. The Court held that while the appointment of a judge as the Chairperson of State Electricity Regulatory Commissions is not mandatory, it is essential to have a member with legal expertise in the commission. This decision balances the regulatory and adjudicatory functions of the commissions, ensuring that they operate effectively and impartially. The judgment is a significant step towards enhancing the credibility and accountability of the State Electricity Regulatory Commissions in India.