Supreme Court Upholds DVC’s Special Status in Tariff Determination: Bhaskar Shrachi Alloys Ltd. vs. Damodar Valley Corporation (23 July 2018)

Introduction

Date of the Judgment: 23 July 2018
Citation: Not Available
Judges: Ranjan Gogoi, J; R. Banumathi, J
Can a regulatory commission disregard specific provisions of a parent act when determining tariffs for a statutory corporation? The Supreme Court of India addressed this critical question in a case involving the Damodar Valley Corporation (DVC), a unique entity established for multiple purposes including power generation, flood control, and irrigation. The core issue revolved around whether the Electricity Act, 2003, and its associated regulations, or the Damodar Valley Corporation Act, 1948, should govern tariff determination for the DVC. The Supreme Court, in this case, upheld the special status of DVC, allowing some provisions of the 1948 Act to continue to apply.

Case Background

The Damodar Valley Corporation (DVC) was established in 1948 under the Damodar Valley Corporation Act, 1948, for the development of the Damodar Valley area, which falls within the states of West Bengal and Jharkhand. The DVC’s activities include power generation, transmission, and distribution, as well as flood control and irrigation. Initially, under Section 20 of the Act of 1948, the DVC was empowered to determine its tariffs. However, the enactment of the Electricity Act, 2003, brought about changes in the regulatory landscape. The DVC did not approach the Central Electricity Regulatory Commission (CERC) for tariff determination even after the 2003 Act came into force. Consequently, CERC initiated suo motu proceedings in 2005, directing DVC to submit an application for tariff determination for the period from 1st April 2004 to 31st March 2009. DVC filed an application in 2005. CERC issued a tariff order on 3rd October 2006, determining the tariff for generation and transmission for the period from 1st April 2006 to 31st March 2009, allowing a two-year transition period from 1st April 2004 to 31st March 2006. This order was challenged by both DVC and its consumers, leading to the appeals before the Appellate Tribunal for Electricity and subsequently the Supreme Court.

Timeline

Course of Proceedings

The Central Electricity Regulatory Commission (CERC), by its order dated 3rd October 2006, determined the tariff chargeable by the Damodar Valley Corporation (DVC) under the Electricity Act, 2003, and the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004. Aggrieved by this order, DVC, some of its consumers (Bhaskar Shrachi Alloys Ltd. etc.), and the State Electricity Regulatory Commissions of Jharkhand and West Bengal filed separate appeals before the Appellate Tribunal for Electricity. DVC contested the exclusion of the provisions of the Damodar Valley Corporation Act, 1948, in tariff determination. The consumers contested the two-year transition period. The State Commissions contested the exclusion of their power to determine intra-state transmission tariffs. The Appellate Tribunal, in its judgment dated 23rd November 2007, held that the provisions of the 1948 Act, which are not inconsistent with the 2003 Act, would continue to apply to DVC. It remanded five issues for re-determination by CERC, while upholding CERC’s order on the other five. This led to the appeals before the Supreme Court.

Legal Framework

The core legal framework of this case involves the interplay between the Electricity Act, 2003, and the Damodar Valley Corporation Act, 1948. The Electricity Act, 2003, under Section 61, lays down the principles for tariff determination, while Section 62 authorizes the “Appropriate Commission” to determine tariffs. The Act of 1948, under Section 20, empowered the DVC to fix its tariffs. Part IV of the Act of 1948, particularly Sections 32, 37, 38, 39, and 40, deals with various aspects of expenditure, depreciation, and allowances, which have a bearing on tariff fixation. The fourth proviso to Section 14 of the Electricity Act, 2003, states that the DVC shall be deemed to be a licensee under this Act, but the provisions of the Damodar Valley Corporation Act, 1948, insofar as they are not inconsistent with the provisions of this Act, shall continue to apply to that Corporation. Section 174 of the Electricity Act, 2003, gives overriding effect to the provisions of the 2003 Act notwithstanding any inconsistency with any other law for the time being in force. The Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004, framed under the 2003 Act, also play a crucial role in tariff determination.

Arguments

Arguments on behalf of CERC:

• The second part of the fourth proviso to Section 14 of the Electricity Act, 2003, should not be interpreted to mean that the provisions of the Act of 1948, which are not inconsistent with the provisions of the 2003 Act, would continue to apply for tariff determination.
• A proviso cannot go beyond the main part of the section, which deals with ‘licensing’ and not ‘tariff determination.’
• Section 174 of the Electricity Act, 2003, gives overriding effect to the provisions of the 2003 Act, notwithstanding any inconsistency with any other law.
• In case of a conflict between the Act of 1948 and the Tariff Regulations, the provisions of the Regulations should prevail.
• The learned Appellate Tribunal has misconstrued the decisions of this Court in Bharathidasan University & Anr. vs. AICTE & Ors. [(2001) 8 SCC 676] and Samsthanan Chethu Thozhilali Union vs. State of Kerala & Ors. [(2006) 4 SCC 327]
• Section 61 of the Electricity Act, 2003, lays down the principles for tariff determination, which are detailed in the 2004 Regulations.
• Section 40 of the Act of 1948 has been wrongly relied upon for determining the extent of allowable depreciation.
• The Tariff Regulations do not provide for any ‘Sinking Fund,’ and its recovery through tariff is against the 2003 Act.
• Allowing expenditure on projects other than electricity from the common fund is contrary to the principle of cross-subsidy.
• The debt-equity ratio for projects completed before 1992 should not be fixed at 50:50 based on NTPC practice but should follow the 70:30 ratio as per the Tariff Regulations.
• The entire pension and gratuity fund should not be recovered from consumers.
• Capital investment on Head Office, Regional Offices, etc., should not be allowed as it is contrary to the Tariff Regulations.

Arguments on behalf of the Consumers:

• The interpretation of the fourth proviso to Section 14 of the Electricity Act, 2003, should be limited to licensing and not tariff determination.
• The Parliamentary Standing Committee on Energy had recommended exempting DVC from the 2003 Act.
• The decision to keep the tariff in abeyance for two years is ultra vires the provisions of the 2003 Act.
• Almost 99% of the pension and gratuity liability has been loaded onto the electricity business without reference to the percentage of manpower deployed in that business.
• The calculation and allowance of depreciation should follow the Regulations, not Section 40 of the Act of 1948.

Arguments on behalf of DVC:

• The DVC has a peculiar status and performs various social welfare activities besides electricity generation and transmission.
• The provisions of the Act of 1948, which are not inconsistent with the 2003 Act, should continue to apply.
• The Tariff Regulations, being subordinate legislation, cannot override the provisions of the Act of 1948.
• The proviso to a statutory provision can act as a main provision itself, going beyond the parameters of the matter of which the proviso may have been enacted as a part.
• There are no provisions in the 2003 Act regarding depreciation rate, sinking fund, or interest on capital; therefore, the provisions of Part IV of the Act of 1948 should govern these matters.
• The debt-equity ratio of 50:50 for capital assets created before 1992 is consistent with the principles adopted for other Central Government Corporations.
• The issue of pension and gratuity contribution was raised only at the stage of arguments by the consumers and was not raised before the forums below.
• The operation and maintenance expenditure has been rightly allowed as per the Tariff Regulations.

Issues Framed by the Supreme Court

The Supreme Court framed the following substantial questions of law:

1. Whether the view taken by the learned Appellate Tribunal with regard to the fourth proviso to Section 14 of the Electricity Act, 2003, and the applicability of the provisions of Sections 32, 37, 38, 39, and 40 contained in Part IV of the Damodar Valley Corporation Act, 1948, in the matter of tariff determination under the 2003 Act is correct?
2. Whether it is the provisions of the Tariff Regulations (2004 Regulations) which alone would hold the field in the matter of determination of tariff to the exclusion of the provisions of Sections 32, 37, 38, 39, and 40 contained in Part IV of the Act of 1948?
3. Whether the conclusions and findings of the learned Appellate Tribunal on any one or more of the claims made by any of the stakeholders in the matter of determination of tariff is vitiated by grave and apparent errors?

Treatment of the Issue by the Court

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

Authorities

The Supreme Court considered the following authorities:

The court also considered the following legal provisions:

• Section 14 of the Electricity Act, 2003 (Grant of License)
• Section 61 of the Electricity Act, 2003 (Tariff Regulations)
• Section 62 of the Electricity Act, 2003 (Tariff Determination)
• Section 174 of the Electricity Act, 2003 (Overriding Effect)
• Section 20 of the Damodar Valley Corporation Act, 1948 (Tariff Determination)
• Sections 32, 37, 38, 39 and 40 of the Damodar Valley Corporation Act, 1948 (Finance, Accounts and Audit)
• Sections 41 and 51 of the Electricity Act, 2003 (Other Businesses)
• Section 58 of the Damodar Valley Corporation Act, 1948 (Effect of other laws)

Judgment

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

How each authority was viewed by the Court?

• Dwaraka Prasad vs. Dwarka Das Saraf [(1976) 1 SCC 128]* and Union of India & Ors. vs. Dileep Kumar Singh [(2015) 4 SCC 421]*: The Court distinguished these cases, stating that the fourth proviso to Section 14 is a substantive provision and not merely a proviso limited by the main section.
• Bharathidasan University & Anr. vs. AICTE & Ors. [(2001) 8 SCC 676]* and Samsthanan Chethu Thozhilali Union vs. State of Kerala & Ors. [(2006) 4 SCC 327]*: The Court held that these cases supported the view that subordinate legislation cannot override a parent act.
• PTC India Ltd. vs. Central Electricity Regulatory Commission [(2010) 4 SCC 603]*: The Court clarified that while the Tariff Regulations are statutory, they are still subordinate legislation.
• The Presidential Reference, The Delhi Laws Act, 1912 [A.I.R. 1951 S.C. 332]*: The Court relied on this case to explain the limits of delegated legislation.
• State of Rajasthan vs. Leela Jain [(1965) 1 SCR 276]*, S. Sundaram Pillai & Others vs. V.R. Pattabhiraman & Others [(1985) 1 SCC 591]*, Shah Bhojraj Kuvarji Oil Mills & Ginning Factory vs. Subhash Chandra Yograj Sinha [(1962) 2 SCR 159]*, Motiram Ghelabhai vs. Jagan Nagar [(1985) 2 SCC 279]*: The Court used these cases to support its view that a proviso can act as a main provision.
• Kalpana Mehta & Ors. vs. Union of India & Ors [2018 (7) SCALE 1064]*: The Court used this case to explain the use of Parliamentary Standing Committee reports for interpretation.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the unique statutory status of the Damodar Valley Corporation (DVC) and the legislative intent behind the fourth proviso to Section 14 of the Electricity Act, 2003. The Court emphasized that the DVC was not merely a power generation company but an entity with multiple responsibilities, including flood control and irrigation, as mandated by the Damodar Valley Corporation Act, 1948. The Court also noted that the Parliament, while enacting the Electricity Act, 2003, was aware of the special status of the DVC and did not intend to completely override the provisions of the 1948 Act. The Court also considered the fact that the Tariff Regulations are subordinate legislation and cannot override the provisions of a parent act. The court also considered the fact that the other activities of DVC are not optional but are mandatory and do not generate revenue. The court also noted that the DVC had provided materials to show the extent of the workforce deployed in the power sector.

Logical Reasoning:

Final Order

The Supreme Court upheld the judgment of the Appellate Tribunal for Electricity, which had partly allowed the appeals of DVC. The Court held that the fourth proviso to Section 14 of the Electricity Act, 2003, is a substantive provision and not merely a proviso limited by the main section. It further held that the provisions of the Damodar Valley Corporation Act, 1948, which are not inconsistent with the Electricity Act, 2003, would continue to apply to the DVC. The Court also held that the Tariff Regulations are subordinate legislation and cannot override the provisions of the parent act. The Court also upheld the Appellate Tribunal’s decision on depreciation and sinking fund based on the Act of 1948. The debt-equity ratio was partially accepted. The Court also held that the consumers should bear the entire pension and gratuity fund. The Court also upheld the Appellate Tribunal’s view that the other activities of DVC are mandatory and do not generate revenue and should be funded. The Court also upheld the Appellate Tribunal’s view that the DVC’s social responsibilities justify the transition period. The Court also upheld the Appellate Tribunal’s view that CERC is the appropriate authority for tariff determination.

Implications

The Supreme Court’s judgment has significant implications for the Damodar Valley Corporation (DVC) and the regulatory framework governing electricity tariffs in India. The judgment has clarified that the DVC, despite being deemed a licensee under the Electricity Act, 2003, retains its special status under the Damodar Valley Corporation Act, 1948. This means that certain provisions of the 1948 Act, particularly those relating to tariff determination, continue to apply to the DVC, provided they are not inconsistent with the 2003 Act. The judgment has also affirmed that subordinate legislation, such as the Tariff Regulations, cannot override the provisions of a parent act. This has implications for the regulatory framework, as it means that regulators must consider the provisions of parent acts when framing regulations. The judgment has also clarified the extent to which the social responsibilities of the DVC can be taken into account when determining tariffs. The judgment has also clarified the extent to which the pension and gratuity fund can be recovered from the consumers. The judgment has also clarified that CERC is the appropriate authority for tariff determination for DVC. The judgment has also clarified that the DVC’s other activities are mandatory and do not generate revenue and should be funded.

Conclusion

The Supreme Court’s judgment in Bhaskar Shrachi Alloys Ltd. vs. Damodar Valley Corporation is a landmark decision that upholds the special status of the Damodar Valley Corporation (DVC) in tariff determination. The Court clarified that the fourth proviso to Section 14 of the Electricity Act, 2003, is a substantive provision that allows the continued application of the Damodar Valley Corporation Act, 1948, to the DVC, provided that the provisions of the 1948 Act are not inconsistent with the 2003 Act. The Court also affirmed that subordinate legislation, such as the Tariff Regulations, cannot override the provisions of a parent act. The judgment has significant implications for the DVC and the regulatory framework governing electricity tariffs in India. The judgment emphasizes the importance of considering the legislative intent behind specific provisions and the special characteristics of statutory corporations when interpreting the law. The judgment also highlights the limits of delegated legislation and the need for regulators to consider the provisions of parent acts when framing regulations. The judgment has also clarified the extent to which the social responsibilities of the DVC can be taken into account when determining tariffs. The judgment has also clarified the extent to which the pension and gratuity fund can be recovered from the consumers. The judgment has also clarified that CERC is the appropriate authority for tariff determination for DVC. The judgment has also clarified that the DVC’s other activities are mandatory and do not generate revenue and should be funded.