Supreme Court Upholds DVC’s Tariff Determination, Clarifying the Interplay Between the Electricity Act and the DVC Act (23 July 2018)

Case Background

The Damodar Valley Corporation (DVC) was established under the Damodar Valley Corporation Act, 1948, for the development of the Damodar Valley area, spanning West Bengal and Jharkhand. Its primary functions include power generation, transmission, and distribution, along with flood control and irrigation. The DVC was initially empowered to determine its tariffs under Section 20 of the 1948 Act. However, with the enactment of the Electricity Act, 2003, the regulatory landscape changed.

The Central Electricity Regulatory Commission (CERC), acting suo motu, directed the DVC to apply for tariff determination under the 2003 Act. The CERC issued a tariff order on 3rd October 2006, which was challenged by both the DVC and its consumers. The DVC contested the exclusion of the provisions of the 1948 Act, while consumers challenged the transitional period allowed and other aspects of the tariff order.

Timeline

Course of Proceedings

The Central Electricity Regulatory Commission (CERC) initiated suo motu proceedings, directing the DVC to submit a tariff application. The CERC, after a fact-finding exercise, issued a tariff order on 3rd October 2006, which was challenged by the DVC, consumers, and State Electricity Regulatory Commissions. The Appellate Tribunal for Electricity, in its judgment dated 23rd November 2007, held that while Section 20 of the DVC Act, 1948, was inconsistent with Section 62 of the Electricity Act, 2003, specific provisions in Part IV of the 1948 Act would continue to be relevant for tariff determination. The Tribunal remanded some issues back to CERC for reconsideration. The CERC re-determined the matter, and the Appellate Tribunal affirmed the re-determined order. These orders were then challenged before the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Electricity Act, 2003, and the Damodar Valley Corporation Act, 1948. Key provisions include:

• Section 14 of the Electricity Act, 2003: This section deals with the grant of licenses for electricity transmission, distribution, and trading. The fourth proviso to this section states: “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 lays down the principles for tariff determination.
• Section 62 of the Electricity Act, 2003: This section authorizes the “Appropriate Commission” to determine tariffs.
• Section 174 of the Electricity Act, 2003: This section gives overriding effect to the provisions of the 2003 Act, notwithstanding any inconsistency with other laws.
• Section 20 of the Damodar Valley Corporation Act, 1948: This section empowered the DVC to determine its tariffs.
• Sections 32, 37, 38, 39 and 40 of the Damodar Valley Corporation Act, 1948: These sections deal with expenditure, depreciation, allowances, and payment of interest, which have a bearing on tariff fixation.

The core legal question is whether the fourth proviso to Section 14 of the Electricity Act, 2003, allows the provisions of the Damodar Valley Corporation Act, 1948, to continue to apply for tariff determination, and if so, to what extent.

Arguments

The arguments presented before the Supreme Court can be summarized as follows:

Arguments by CERC (Central Electricity Regulatory Commission):

• The CERC argued that the fourth proviso to Section 14 of the Electricity Act, 2003, should be limited to licensing and not extend to tariff determination. They contended that a proviso cannot go beyond the main part of the section it qualifies.
• The CERC relied on Section 174 of the 2003 Act, which gives overriding effect to the provisions of the 2003 Act, arguing that the 2003 Act should prevail over the 1948 Act.
• They argued that the Tariff Regulations framed under the 2003 Act should govern tariff determination, not the provisions of the 1948 Act. The CERC contended that the regulations embody the principles for tariff determination and cannot be overridden by an earlier statute.
• The CERC contended that Section 40 of the 1948 Act regarding depreciation was wrongly relied upon, as the 2003 Act intended to distance the Central Government from tariff determination. They argued that Regulation 21(1)(ii) of the Tariff Regulations should have been the basis for determining depreciation.
• The CERC also challenged the inclusion of a ‘Sinking Fund’ in the tariff, as the Tariff Regulations do not provide for such a fund.
• They argued that allowing the recovery of expenses unrelated to electricity generation from the electricity tariff is contrary to the principle of eliminating cross-subsidy.
• The CERC challenged the debt-equity ratio fixed at 50:50 for projects completed before 1992, arguing that the Tariff Regulations provide for a 70:30 ratio.
• They contended that the entire pension and gratuity fund should not be recovered from consumers, as the DVC should also contribute.
• The CERC argued against the allowance of capital investment for head office, regional offices, and other technical centers, stating it was contrary to the Tariff Regulations.

Arguments by Consumers:

• The consumers supported the CERC’s arguments, emphasizing that the fourth proviso to Section 14 should be limited to licensing.
• They pointed out that the Parliamentary Standing Committee on Energy had recommended a complete exemption for DVC, but Parliament did not grant a blanket exemption.
• They argued that the decision to keep the tariff in abeyance for two years was ultra vires the 2003 Act.
• The consumers also contended that almost 99% of the pension and gratuity liability had been loaded onto the electricity business without considering the percentage of manpower deployed in that sector.
• They argued that the depreciation calculation should be based on the Tariff Regulations, not Section 40 of the 1948 Act.

Arguments by DVC (Damodar Valley Corporation):

• The DVC emphasized its unique statutory characteristics and social welfare responsibilities under the 1948 Act, arguing that these justified the continued application of the 1948 Act’s provisions.
• They argued that only provisions of the 1948 Act that were in direct conflict with the 2003 Act should give way, not those that were merely addressed by the Tariff Regulations.
• The DVC contended that a proviso could act as a substantive provision, going beyond the main section.
• They argued that the provisions of Part IV of the 1948 Act should govern matters like depreciation, sinking fund, and interest on capital, as there were no corresponding provisions in the 2003 Act.
• The DVC justified the debt-equity ratio, stating it was consistent with practices for other Central Government Corporations.
• The DVC argued that the pension and gratuity contribution was based on details provided to the CERC.

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 learned Appellate Tribunal with regard to the fourth proviso to Section 14 of the 2003 Act and the applicability of the provisions of Sections 32, 37, 38, 39, and 40 contained in Part IV of the Act of 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 how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court analyzed the arguments and authorities presented and delivered its 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: These cases were cited to emphasize that a proviso cannot go beyond the main part of the section. However, the Court distinguished these cases by holding that the fourth proviso to Section 14 of the 2003 Act is a substantive provision.
• Bharathidasan University & Anr. vs. AICTE & Ors. [2001] 8 SCC 676 and Samsthanan Chethu Thozhilali Union vs. State of Kerala & Ors. [2006] 4 SCC 327: These cases were cited to highlight that subordinate legislation cannot override a parent statute. The Court upheld this principle, stating that the Tariff Regulations cannot override the 1948 Act.
• PTC India Ltd. vs. Central Electricity Regulatory Commission [2010] 4 SCC 603: This case was discussed to clarify that Tariff Regulations, though statutory, are subordinate legislation. The Court used this to support its view that the 1948 Act prevails over the Tariff Regulations.
• The Presidential Reference, The Delhi Laws Act, 1912 AIR 1951 SC 332: This case was cited to emphasize the limits of delegated legislation and the control of the legislature over it. The Court used this to reinforce the idea that the 1948 Act has primacy over the Tariff Regulations.
• 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, and Motiram Ghelabhai vs. Jagan Nagar [1985] 2 SCC 279: These cases were cited to show that a proviso can sometimes act as a substantive provision. The Court relied on these to hold that the fourth proviso to Section 14 of the 2003 Act is a substantive provision, not just a qualifier.
• Kalpana Mehta & Ors. vs. Union of India & Ors 2018 (7) SCALE 106: This case was cited to clarify that the Court can use parliamentary committee reports to understand the historical background of statutory provisions. The Court used the proceedings of the Parliamentary Standing Committee on Energy to understand the intention behind the 2003 Act.

The Court concluded 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, insofar as it is not inconsistent with the 2003 Act. The Court held that the Tariff Regulations, being subordinate legislation, cannot override the provisions of the 1948 Act. The Court also upheld the Appellate Tribunal’s findings on specific tariff heads, finding no grave errors to warrant interference.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by the following factors:

• Legislative Intent: The Court emphasized the intent of Parliament in enacting the fourth proviso to Section 14 of the Electricity Act, 2003. It interpreted the proviso not merely as a licensing exemption but as a substantive provision allowing the continued application of the 1948 Act to the DVC.
• Statutory Status of DVC: The Court recognized the unique statutory status of the Damodar Valley Corporation (DVC) and its mandate to perform various social welfare activities in addition to power generation. This recognition led the Court to uphold the transitional period granted to DVC.
• Subordinate Nature of Tariff Regulations: The Court reiterated that Tariff Regulations, being subordinate legislation, cannot override the provisions of a parent statute like the Damodar Valley Corporation Act, 1948.
• Specific Provisions of the 1948 Act: The Court noted the specific provisions in Part IV of the 1948 Act relating to expenditure, depreciation, and allowances, emphasizing their relevance in tariff determination.
• No Inconsistency with 2003 Act: The Court found that the provisions of the 1948 Act, particularly those in Part IV, were not inconsistent with the Electricity Act, 2003, and therefore, could continue to apply to the DVC.
• Parliamentary Proceedings: The Court took into account the proceedings of the Parliamentary Standing Committee on Energy, which highlighted the special nature of the DVC’s responsibilities and the need for partial exemption from the 2003 Act.

The Court’s reasoning demonstrates a balanced approach, recognizing the need to harmonize the provisions of the Electricity Act, 2003, with the specific statutory mandates of the Damodar Valley Corporation under the 1948 Act.

Fact:Law Ratio

The Court’s decision was more influenced by legal considerations (70%) than factual aspects (30%). The court focused on interpreting the relevant statutes and precedents, rather than the specific factual details of the DVC’s operations.

Logical Reasoning

The following flowcharts illustrate the court’s logical reasoning for each key issue:

Issue 1:

Issue 1: Applicability of 1948 Act Provisions under Section 14 Proviso 4

Issue 2: Overriding Effect of Tariff Regulations

Issue 3: Validity of Appellate Tribunal’s Conclusions on Specific Claims

Implications of the Judgment

The Supreme Court’s judgment has significant implications for the electricity sector and the regulatory framework in India:

• Clarity on Statutory Entities: The judgment clarifies the legal position of statutory entities like the DVC, which have specific mandates under their parent acts. It establishes that such entities are not entirely governed by subsequent general legislation like the Electricity Act, 2003, if there is a specific saving clause.
• Interplay of Laws: The judgment highlights the importance of harmonizing different statutes. It emphasizes that while the Electricity Act, 2003, is a comprehensive legislation, it cannot override specific provisions of earlier statutes if there are no direct inconsistencies.
• Subordinate Legislation: The judgment reinforces the principle that subordinate legislation, such as tariff regulations, cannot override the provisions of a parent statute. This has implications for the regulatory framework where regulations are often used to implement general statutes.
• Tariff Determination: The judgment provides clarity on how tariffs should be determined for entities like the DVC, which have unique statutory responsibilities. It suggests that specific provisions of the parent act should be considered in tariff determination.
• Regulatory Certainty: The judgment provides greater regulatory certainty for entities with specific statutory mandates. It clarifies that their parent acts will continue to apply unless there is an explicit inconsistency with subsequent legislation.
• Impact on Consumers: The judgment has implications for consumers of electricity from the DVC, as the tariff will be determined considering the provisions of the 1948 Act. This may impact the final tariff that consumers have to pay.
• Precedent for Other Entities: The judgment sets a precedent for other statutory bodies that may be governed by specific acts, indicating that their parent acts will continue to be relevant unless there is a clear inconsistency with subsequent legislation.

The ruling underscores the importance of statutory interpretation and the need to harmonize different pieces of legislation. It also highlights the significance of understanding the legislative intent behind specific provisions and the unique mandates of statutory bodies.

Conclusion

The Supreme Court’s judgment in the Damodar Valley Corporation tariff case is a landmark decision that clarifies the interplay between the Electricity Act, 2003, and the Damodar Valley Corporation Act, 1948. The Court held that the fourth proviso to Section 14 of the 2003 Act is a substantive provision that allows the continued application of the 1948 Act to the DVC, insofar as it is not inconsistent with the 2003 Act. The Court also reiterated that subordinate legislation, such as tariff regulations, cannot override the provisions of a parent statute.

The judgment emphasizes the importance of statutory interpretation, legislative intent, and the need to harmonize different statutes. It provides clarity on the regulatory framework for entities with specific statutory mandates and sets a precedent for future cases involving conflicts between general legislation and specific statutes.

Overall, the judgment underscores the principle that statutory bodies with unique responsibilities are not entirely governed by general legislation if their parent acts have specific provisions that are not inconsistent with subsequent laws. This decision is crucial for ensuring regulatory certainty and maintaining the integrity of the legal framework governing the electricity sector in India.