Supreme Court directs fresh review of tariff regulations: M/S Star Wire vs. Haryana Electricity Regulatory Commission (2 July 2019)

Introduction

Date of the Judgment: 2 July 2019

Citation: (2019) INSC 687

Judges: A.M. Khanwilkar, J., Ajay Rastogi, J.

Can a regulatory body create different tariff structures for similar projects within the same control period based solely on their commissioning date? The Supreme Court of India addressed this critical question in a case concerning renewable energy tariffs in Haryana. The court examined whether the Haryana Electricity Regulatory Commission (HERC) acted legally in amending its regulations to differentiate between projects based on their commissioning date within the same control period. The bench, comprising Justices A.M. Khanwilkar and Ajay Rastogi, delivered the judgment.

Case Background

M/S Star Wire (India) Vidyut Pvt. Ltd. established a 9.90 MW independent Biomass Power Plant, which became operational on 3 May 2013. The Haryana Electricity Regulatory Commission (HERC) had notified the principal regulations on 3 February 2011, which provided the norms for determining tariffs for renewable energy projects. These regulations established a first control period of three years, ending on 31 March 2013.

According to the regulations, if the revised regulations for the next control period were not notified, the existing tariff norms would continue to apply, subject to adjustments as per the revised regulations. The HERC initiated suo motu proceedings to revise the tariff and issued a draft amendment on 29 December 2014. After considering responses from stakeholders, the HERC passed an order on 4 August 2015, which led to the notification of the amended regulations on 12 August 2015.

The amended regulations introduced a classification that denied tariff adjustments to projects that became operational in the financial year 2013-14, like the appellant’s plant, which commenced operations on 3 May 2013. This amendment was given prospective effect, creating a distinction between projects commissioned in 2013-14 and those commissioned later in the same control period (2014-15, 2015-16, and 2016-17). The appellants challenged this amendment, arguing that it was arbitrary and discriminatory.

Timeline:

Course of Proceedings

The appellants filed a writ petition in the High Court of Punjab and Haryana challenging the amended regulations and the order of the Haryana Electricity Regulatory Commission (HERC) dated 4 August 2015. The appellants argued that the regulations were discriminatory and arbitrary, seeking the application of the revised regulations from the start of the second control period, i.e., 1 April 2013. The High Court noted that the appellants raised two main contentions: the differential treatment of projects commissioned in 2013-14 and those commissioned later within the same control period, and the isolation of the 2013-14 financial year for different treatment.

The High Court dismissed the writ petition, stating that the amended regulations clearly provided for prospective application of the revised norms from the date of notification. The court also held that the existing norms would apply until the notification of revised regulations, subject to adjustments, if any, specifically provided in the amended regulations. The High Court did not find any discriminatory application of the regulations.

Legal Framework

The case revolves around the interpretation and application of the Haryana Electricity Regulatory Commission (Terms and Conditions for determination of Tariff from Renewable Energy Sources, Renewable Purchase Obligation and Renewable Energy Certificate) Regulations, 2010 (the principal Regulations) and its fourth amendment published on 12 August 2015 (the impugned Amended Regulations).

Regulation 4 of the principal Regulations specified a three-year control period ending on 31 March 2013. It also stipulated that if the regulations for the next control period were not notified, the existing tariff norms would continue to apply until the notification of the revised regulations, subject to adjustments as per the revised regulations.

The impugned Amended Regulations modified this by introducing a distinction based on the commissioning date of projects within the second control period (1 April 2013 to 31 March 2017). Specifically, Regulation 1(3) of the Amended Regulations stated that for projects commissioned from the financial year 2013-14 onwards, the revised norms would apply prospectively from the date of notification of the Amended Regulations (12 August 2015), unless otherwise provided. This meant that projects commissioned in 2013-14 would not receive the benefit of the revised tariffs for the period before 12 August 2015, unlike projects commissioned later in the same control period.

Arguments

Appellants’ Submissions:

• The principal regulations made no distinction based on the commissioning date of a project during the control period.
• The amended regulations unfairly deny the applicability of revised regulations to projects commissioned in FY 2013-14, such as the appellant’s plant, which was commissioned on 3 May 2013.
• The amended regulations are for the second control period commencing from 1 April 2013 and ending on 31 March 2017, yet Regulation 1(3) makes an exception for projects commissioned during FY 2013-14, applying the revised norms prospectively from 12 August 2015.
• Projects commissioned during 2014-15 and onwards during the same control period receive the benefit of the revised regulations from the date of commissioning, creating an illogical difference.
• The appellants have been denied the benefit of the revised regulations for the period between 3 May 2013 to 12 August 2015.
• The amended regulations violate the third proviso of Regulation 4 of the principal Regulations, which stated that tariff norms would continue until revised regulations, subject to adjustments as per the revised regulations.
• The amended regulations discriminate between projects commissioned during the same control period without any logical basis.
• There cannot be two tariffs operating during the same control period.

Respondents’ Submissions:

• The amended regulations are a result of the order passed by the Commission on 4 August 2015, which analyzed all aspects of the matter.
• The Commission had tangible reasons for making the applicability of the revised regulations prospective for projects commissioned during FY 2013-14.
• Section 61 read with Section 181 of the Electricity Act, 2003, allows for classification based on the date of commissioning of the project during the relevant period, which may result in different tariffs during the same control period.
• The High Court’s judgment is correct, and the appeal should be dismissed.

[TABLE] of Submissions:

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a numbered list. However, the core issue the court addressed was:

• Whether the High Court was justified in dismissing the writ petition challenging the amended regulations that differentiated between renewable energy projects based on their commissioning date within the same control period.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

Cases Relied Upon by the Court:

• PTC India Ltd. Vs. Central Electricity Regulatory Commission, Through Secretary [(2010) 4 SCC 603] – The Supreme Court referred to this case to emphasize that the challenge to the validity of the regulations can only be decided in judicial review proceedings before the courts and not by way of appeal or review.

Legal Provisions Considered by the Court:

• Regulation 4 of the Haryana Electricity Regulatory Commission (Terms and Conditions for determination of Tariff from Renewable Energy Sources, Renewable Purchase Obligation and Renewable Energy Certificate) Regulations, 2010: This regulation specified the control period and the continuation of tariff norms until revised regulations, subject to adjustments.
• Regulation 1(3) of the Amended Regulations: This regulation provided that for existing projects commissioned from Financial Year 2013-14 onwards, the revised norms would be applicable prospectively from the date of notification of the Amended Regulations.
• Section 61 of the Electricity Act, 2003: This section deals with the functions of the Central Electricity Regulatory Commission.
• Section 181 of the Electricity Act, 2003: This section deals with the power of the State Electricity Regulatory Commissions to make regulations.

[TABLE] of Authorities and How They Were Considered:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on PTC India Ltd. Vs. Central Electricity Regulatory Commission, Through Secretary [(2010) 4 SCC 603] to reiterate that challenges to the validity of regulations must be addressed through judicial review and not through appeals or reviews.
• The Court analyzed Regulation 4 of the principal Regulations to understand the original intent regarding tariff adjustments, highlighting how the amended regulations deviated from it.
• The Court examined Regulation 1(3) of the amended regulations to understand the prospective application of the revised norms and its impact on projects commissioned in FY 2013-14.
• The Court referred to Section 61 and Section 181 of the Electricity Act, 2003 to understand the regulatory powers of the Commission.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the procedural lapses and inadequate reasoning of the High Court. The Court emphasized that the High Court failed to address the core issues raised by the appellants, particularly regarding discrimination and violation of the principal regulations. The Court was also concerned that the High Court did not properly analyze the validity of the amended regulations or the reasons provided by the Commission for the differential treatment of projects commissioned in FY 2013-14.

The Court’s reasoning reflects a strong emphasis on the importance of thorough judicial review, especially in cases involving regulatory decisions that impact the rights of stakeholders. The Court’s decision to remand the case back to the High Court underscores its commitment to ensuring that all relevant aspects of the matter are considered and adjudicated appropriately.

[TABLE] of Sentiment Analysis of Reasons:

Fact:Law Ratio:

The Supreme Court’s decision was more influenced by the legal aspects of the case, primarily focusing on the High Court’s failure to properly apply the law and analyze the legal arguments presented by the appellants. While the factual context was important, the Court’s reasoning was primarily driven by the legal principles of judicial review and the need for a thorough examination of regulatory decisions.

Logical Reasoning:

Key Takeaways

• Regulatory bodies must ensure that amendments to regulations are not arbitrary or discriminatory.
• Differential treatment of similarly situated entities within the same control period must have a logical basis and not be based on arbitrary classifications.
• Judicial review of regulatory decisions must be thorough and address all relevant aspects of the matter.
• High Courts must provide detailed reasoning when adjudicating cases involving regulatory decisions.
• The Supreme Court emphasized the importance of judicial review in cases involving regulatory decisions, particularly when they impact the rights of stakeholders.

Directions

The Supreme Court set aside the judgment and order of the High Court and restored the writ petition to the file of the High Court for fresh consideration on its own merits in accordance with the law. The High Court was directed to consider all relevant aspects of the matter agitated by the appellants and deal with the same appropriately.

Specific Amendments Analysis

This section is not applicable as the judgment does not discuss any specific amendments.

Development of Law

The ratio decidendi of this case is that regulatory bodies cannot create arbitrary classifications within the same control period. The Supreme Court’s decision reinforces the principle that regulatory amendments must be reasonable, non-discriminatory, and must not violate existing regulations. The judgment also emphasizes the importance of thorough judicial review of regulatory decisions, particularly those that impact the rights of stakeholders. This case serves as a reminder that regulatory bodies must act fairly and transparently, and that courts will scrutinize decisions that appear to be arbitrary or discriminatory.

Conclusion

The Supreme Court allowed the appeal filed by M/S Star Wire (India) Vidyut Pvt. Ltd., setting aside the judgment of the High Court of Punjab and Haryana. The Court found that the High Court had failed to adequately address the issues raised by the appellants regarding the discriminatory nature of the amended tariff regulations. The matter was remanded back to the High Court for fresh consideration, emphasizing the need for a thorough judicial review of regulatory decisions. The Supreme Court’s decision underscores the importance of fairness and non-discrimination in regulatory actions and ensures that all stakeholders are treated equitably.