Supreme Court Upholds DVC’s Tariff Determination: A Review of Electricity Act, 2003 (23 July 2018)

Introduction

Date of the Judgment: 23 July 2018
Citation: (2018) INSC 638
Judges: Ranjan Gogoi, J., R. Banumathi, J.
Can a regulatory body apply its own regulations over a specific act of the parliament? The Supreme Court of India recently addressed this question in a case concerning the Damodar Valley Corporation (DVC). This judgment clarifies the interplay between the Electricity Act, 2003 and the Damodar Valley Corporation Act, 1948, particularly concerning tariff determination. The bench, comprising Justices Ranjan Gogoi and R. Banumathi, delivered a unanimous verdict.

Case Background

The Damodar Valley Corporation (DVC) was established in 1948 for the development of the Damodar Valley area, spanning West Bengal and Jharkhand. DVC’s responsibilities include power generation, flood control, and irrigation. Initially, DVC determined its own tariffs under the Damodar Valley Corporation Act, 1948. However, with the enactment of the Electricity Act, 2003, the Central Electricity Regulatory Commission (CERC) initiated suo motu proceedings in 2005, directing DVC to apply for tariff determination. DVC filed an application in June 2005 for tariff determination for the period 2004-2009. CERC issued a tariff order in October 2006, which was challenged by DVC and various consumers before the Appellate Tribunal for Electricity.

Timeline

Course of Proceedings

The Central Electricity Regulatory Commission (CERC) determined the tariff for DVC, applying the Electricity Act, 2003 and its associated regulations. Aggrieved by this, DVC, consumers, and the State Electricity Regulatory Commissions of Jharkhand and West Bengal filed appeals before the Appellate Tribunal for Electricity. The Appellate Tribunal held that provisions of the Damodar Valley Corporation Act, 1948, not inconsistent with the Electricity Act, 2003, would continue to apply. It remanded some issues back to CERC for reconsideration.

Legal Framework

The core legal provisions in this case are:

• Section 14 of the Electricity Act, 2003: This section deals with the grant of licenses for electricity transmission, distribution, and trading. The fourth proviso of this section states that the Damodar Valley Corporation (DVC) is deemed to be a licensee under this Act but is not required to obtain a license. It also states that 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.
  
  “PROVIDED also that the Damodar Valley Corporation, established under sub-section (1) of Section 3 of the Damodar Valley Corporation Act, 1948, shall be deemed to be a licensee under this Act but shall not be required to obtain a licence under this Act and 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 61 of the Electricity Act, 2003: This section outlines the principles for tariff determination.
• Section 62 of the Electricity Act, 2003: This section empowers the “Appropriate Commission” to determine tariffs.
• Section 125 of the Electricity Act, 2003: This section provides for appeals to the Supreme Court on substantial questions of law.
• Section 174 of the Electricity Act, 2003: This section gives overriding effect to the provisions of the 2003 Act, notwithstanding any inconsistency with any other law for the time being in force.
• Section 20 of the Damodar Valley Corporation Act, 1948: This section empowers the DVC to determine the tariff chargeable by it from its consumers.
• Sections 32, 37, 38, 39, and 40 of the Damodar Valley Corporation Act, 1948: These sections deal with various aspects of expenditure, depreciation, allowances, and payment of interest, which are relevant to tariff fixation.

Arguments

Arguments by 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 Damodar Valley Corporation Act, 1948, which are not inconsistent with the Electricity Act, 2003, 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 2003 Act, notwithstanding any inconsistency with any other law.
• The Tariff Regulations framed under the Electricity Act, 2003, should have primacy over the provisions of the Damodar Valley Corporation Act, 1948.
• Section 40 of the Damodar Valley Corporation Act, 1948, has been wrongly relied upon for determining depreciation. The Tariff Regulations should be the basis for depreciation.
• The ‘Sinking Fund’ is not provided for in the Tariff Regulations and should not be recoverable through tariffs.
• Expenditure on non-electricity projects should not be charged to electricity consumers.
• The debt-equity ratio should be 70:30 as per the Tariff Regulations, not 50:50 for projects completed before 1992.
• The entire pension and gratuity fund should not be recovered from consumers.
• Capital investment for head office and other centers should not be allowed as per Tariff Regulations.

Arguments by Consumers:

• The fourth proviso to Section 14 of the Electricity Act, 2003, should be confined to licensing and not tariff determination.
• The decision to keep the tariff in abeyance for two years is ultra vires the Electricity Act, 2003.
• The pension and gratuity liability should be allocated based on the percentage of manpower deployed in the electricity business.
• The calculation and allowance of depreciation should follow the regulations, not Section 40 of the Damodar Valley Corporation Act, 1948.

Arguments by DVC:

• DVC’s unique characteristics and social welfare activities justify the continued application of the Damodar Valley Corporation Act, 1948.
• Only provisions of the Damodar Valley Corporation Act, 1948, that are in clear conflict with the Electricity Act, 2003, should give way.
• The proviso to a statutory provision may act as a main provision itself.
• The provisions of the Damodar Valley Corporation Act, 1948, should govern the rate of depreciation, sinking fund, and interest on capital.
• The debt-equity ratio of 50:50 for pre-1992 assets is consistent with other Central Government Corporations.
• The entire pension and gratuity contribution should be recovered from consumers.
• Operation and maintenance expenses should be allowed as per the Tariff Regulations.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court framed the following substantial questions of law:

1. Whether the view taken by the Appellate Tribunal regarding the fourth proviso to Section 14 of the Electricity Act, 2003, and the applicability of Sections 32, 37, 38, 39, and 40 of the Damodar Valley Corporation Act, 1948, in tariff determination is correct?
2. Whether the Tariff Regulations (2004 Regulations) alone would govern tariff determination, excluding the provisions of Sections 32, 37, 38, 39, and 40 of the Damodar Valley Corporation Act, 1948?
3. Whether the conclusions and findings of the Appellate Tribunal on any of the claims made by the stakeholders are 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 following authorities were considered by the court:

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 [CITATION] and Union of India & Ors. vs. Dileep Kumar Singh [CITATION]: These cases were cited to support the argument that a proviso cannot go beyond the main part of the section, but the court distinguished them by holding that the fourth proviso to Section 14 of the Electricity Act, 2003, is a substantive provision.
• Bharathidasan University & Anr. vs. AICTE & Ors. [CITATION] and Samsthanan Chethu Thozhilali Union vs. State of Kerala & Ors. [CITATION]: These cases were cited to emphasize that subordinate legislation cannot override the provisions of a parent statute, which the court upheld.
• PTC India Ltd. vs. Central Electricity Regulatory Commission [CITATION]: This case was discussed in the context of the efficacy of Tariff Regulations, and the court clarified that while the regulations are statutory, they are subordinate to the parent act.
• The Presidential Reference, The Delhi Laws Act, 1912 [CITATION]: This case was cited to explain the limits of delegated legislation, reinforcing the court’s view that regulations cannot override a parent statute.
• State of Rajasthan vs. Leela Jain [CITATION], S. Sundaram Pillai & Others vs. V.R. Pattabhiraman & Others [CITATION], Shah Bhojraj Kuvarji Oil Mills & Ginning Factory vs. Subhash Chandra Yograj Sinha [CITATION], and Motiram Ghelabhai vs. Jagan Nagar [CITATION]: These cases were cited to support the argument that a proviso can act as a main provision, which the court accepted for the fourth proviso to Section 14.
• Kalpana Mehta & Ors. vs. Union of India & Ors [CITATION]: This case was cited to explain the use of Parliamentary Standing Committee Reports for interpretation, which the court considered in its reasoning.

The court’s reasoning was based on the following points:

• 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 extent that it is not inconsistent with the Electricity Act, 2003.
• Tariff Regulations are subordinate legislation and cannot override the provisions of a parent statute.
• The Damodar Valley Corporation Act, 1948, is a special act that takes into account the unique functions of the DVC.
• The court upheld the Appellate Tribunal’s findings on most claims, finding no grave or apparent errors in its conclusions.

The court also considered the legislative history of the Electricity Act, 2003, and the recommendations of the Parliamentary Standing Committee on Energy.

The Court quoted from the Damodar Valley Corporation Act, 1948:

“58.Effect of other laws : The provisions of this Act or any rule made thereunder shall have effect notwithstanding anything contained in any enactment other than this Act or any instrument having effect by virtue of any enactment other than this Act.”

The Court also noted the preamble of the Tennessee Valley Authority Act, 1933, to highlight the objective of flood control.

“to improve the navigability and to provide for the flood control of the Tennessee River; to provide for reforestation and the proper use of marginal lands in the Tennessee Valley; to provide for the agricultural and industrial development of said valley; to provide for the national defence by the creation of a corporation for the operation of Government properties at and near Muscle Shoals in the State of Alabama, and for other purposes.”

What weighed in the mind of the Court?

The Supreme Court’s decision was heavily influenced by the need to balance the regulatory framework of the Electricity Act, 2003, with the special status and responsibilities of the Damodar Valley Corporation (DVC) as defined by the Damodar Valley Corporation Act, 1948. The court recognized that the DVC is not just an electricity generating company but also a body entrusted with flood control, irrigation, and other social welfare functions. This unique position of DVC weighed heavily in the court’s mind. The court also emphasized that the Tariff Regulations, being subordinate legislation, cannot override the provisions of a parent statute.

The court also considered the legislative intent behind the fourth proviso to Section 14 of the Electricity Act, 2003, and the historical context of the DVC’s establishment. The court noted that Parliament did not intend to provide a blanket exemption to DVC from the Electricity Act, 2003, but rather intended to provide a partial exemption by mandating the continued application of the provisions of the Damodar Valley Corporation Act, 1948, that are not inconsistent with the Electricity Act, 2003.

The court also took a balanced view on the various claims made by the stakeholders, including the consumers and the CERC, and upheld the Appellate Tribunal’s findings on most claims.

Fact:Law Ratio

Logical Reasoning

Issue 1: Applicability of the Damodar Valley Corporation Act, 1948

Issue 2: Primacy of Tariff Regulations

Issue 3: Specific Claims Made by Stakeholders

Conclusion

The Supreme Court’s judgment in the case of Bhaskar Shrachi Alloys Ltd. Etc. Etc. vs. Damodar Valley Corporation & Ors. Etc. is a significant ruling that clarifies the interplay between the Electricity Act, 2003, and the Damodar Valley Corporation Act, 1948. The court held that the provisions of the Damodar Valley Corporation Act, 1948, insofar as they are not inconsistent with the Electricity Act, 2003, shall continue to apply to the Damodar Valley Corporation (DVC). This means that DVC is not entirely governed by the Electricity Act, 2003, and the Tariff Regulations framed under it, but also by the provisions of the Damodar Valley Corporation Act, 1948.

The judgment has several implications:

• For DVC: The judgment reaffirms DVC’s unique status and allows it to continue operating under the provisions of the Damodar Valley Corporation Act, 1948, to the extent that they are not inconsistent with the Electricity Act, 2003. This provides DVC with a degree of autonomy in its operations and tariff determination.
• For Consumers: The judgment ensures that the tariff determination process will consider the unique social welfare obligations of DVC, which may result in tariffs that are different from those of other electricity generating companies. However, it also means that the provisions of the Damodar Valley Corporation Act, 1948, which may not be as consumer-friendly as the Tariff Regulations, will continue to apply.
• For Regulators: The judgment clarifies the limits of the regulatory powers of the Central Electricity Regulatory Commission (CERC) and other regulatory bodies. The regulators must respect the provisions of parent statutes and cannot override them through subordinate legislation.
• For the Electricity Sector: The judgment sets a precedent for the interpretation of the Electricity Act, 2003, and its interplay with other special acts. It emphasizes the importance of considering the legislative intent and historical context when interpreting statutes.

The Supreme Court’s decision is a landmark judgment that underscores the importance of balancing regulatory efficiency with the unique functions and responsibilities of statutory bodies. It also highlights that subordinate legislation cannot override the provisions of a parent statute.

The Court concluded that the Appellate Tribunal’s findings were correct, and it did not find any grave or apparent errors in its conclusions. The Supreme Court upheld the judgment of the Appellate Tribunal.