Date of the Judgment: 28 February 2020
Citation: Civil Appeal No. 4304 of 2007
Judges: Arun Mishra, J., M.R. Shah, J., B.R. Gavai, J.
Can a regulatory body invalidate policy decisions made by a state electricity board before the body’s own establishment? The Supreme Court of India addressed this crucial question in a case concerning Maharashtra’s Captive Power Plant (CPP) policy. The Court ruled that the Maharashtra State Electricity Regulatory Commission (MERC) could not retroactively strike down circulars issued by the Maharashtra State Electricity Board (MSEB) before MERC’s formation. This decision has significant implications for the regulatory framework governing the power sector in India. The judgment was authored by Arun Mishra, J. on behalf of a three-judge bench.
Case Background
The dispute arose from a series of circulars issued by the Maharashtra State Electricity Board (MSEB), later succeeded by the Maharashtra State Electricity Distribution Company Limited (MSEDCL), regarding the Captive Power Plant (CPP) policy. These circulars, issued between 1998 and 2001, imposed certain obligations on CPP holders, including “take or pay” requirements and minimum off-take stipulations. Respondent No. 3, M/s. NRC Ltd., initially had two units with separate contract demands. They sought to establish a CPP and requested a reduction in their contract demand with MSEB. The MSEB issued a no-objection certificate in 1998, allowing M/s. NRC Ltd. to decide their contract demand after commissioning their CPP. However, subsequent circulars by MSEB imposed restrictions on reducing contract demand and mandated minimum energy drawal from the grid.
The Maharashtra Electricity Regulatory Commission (MERC) was established on 5 August 1999 under the Electricity Regulatory Act, 1998. After its formation, MERC quashed the circulars issued by MSEB, arguing that they lacked MERC’s prior approval. MSEDCL appealed this decision, contending that the circulars were valid as they were issued before MERC’s establishment and in line with the then-prevailing policies of the State Government.
Timeline:
| Date | Event |
|---|---|
| 1995 | Respondent no.3 sought independent connections for its two units. |
| 5 April 1997 | Respondent no.3 applied to set up a 7MW Captive Power Plant (CPP). |
| 20 December 1997 | Government of Maharashtra empowered MSEB to finalize arrangements between CPP purchasers and their party purchasers. |
| 7 January 1998 | MSEDCL issued a no-objection certificate to respondent no.3 for CPP, allowing them to decide contract demand after commissioning. |
| 25 April 1998 | The Electricity Regulatory Act, 1998, was enacted. |
| 23 July 1998 | Circular No. 602 was issued, allowing CPP holders to sell power through the Board’s grid. |
| 23 September 1998 | Respondent no.3 sought clubbing of contract demand and subsequent reduction, which was not permitted. |
| 29 August 1998 | Respondent no.3 commissioned its CPP. |
| 4 May 1999 | MSEB submitted a proposal to the Government of Maharashtra for revision of retail distribution tariff. |
| 25 May 1999 | Circular No. 619 was issued, not permitting reduction in contract demand for CPP holders. |
| 18 June 1999 | Respondent no.3 withdrew its application for reduction in contract demand and resubmitted two applications. |
| 5 August 1999 | Maharashtra Electricity Regulatory Commission (MERC) was constituted. |
| 2 September 1999 | Circular No. 627 was issued, partially modifying the policy on reduction in contract demand and mandating a minimum drawal of 25% energy from MSEDCL. |
| 28 April 2000 | State Government advised MSEDCL to withdraw the condition for compulsory drawal of 25% energy. |
| 19 September 2000 | MSEDCL modified its policy, withdrawing the condition of compulsory drawl of 25% energy prospectively from 28 April 2000. |
| 5 October 2001 | Circular No. 663 was issued. |
| 31 August 2001 | MSEDCL submitted its proposals to MERC along with a tariff petition. |
| 10 January 2002 | MERC passed an order on the tariff petition, stating that CPP policy was under the jurisdiction of the Government of Maharashtra. |
| 3 March 2004 | MERC observed that the previous circulars continue to operate as they were not kept in abeyance. |
| 21 May 2004 | MERC set aside the circulars issued by MSEDCL from 1998 onwards on the issue of CPP. |
| 30 May 2007 | Appellate Tribunal for Electricity (APTEL) dismissed the appeal against MERC’s order. |
| 28 February 2020 | Supreme Court of India delivered the judgment. |
Course of Proceedings
The respondent nos. 3 to 6 initially filed writ petitions before the High Court, which were then referred to the MERC. The MERC, on 21 May 2004, allowed the petition and set aside the circulars issued by MSEDCL from 1998 onwards, concerning the CPP policy. The MERC held that these circulars were invalid because they were issued without its approval. MSEDCL appealed to the Appellate Tribunal for Electricity (APTEL), which upheld the MERC’s decision. MSEDCL then appealed to the Supreme Court of India.
Legal Framework
The case involves the interpretation of the Electricity Supply Act, 1948 (the Act of 1948) and the Electricity Regulatory Commissions Act, 1998 (the Act of 1998). Section 49 of the Act of 1948 empowered the respective Electricity Boards to set their tariffs. Section 79(j) of the Act empowered the Board to make regulations pertaining to the supply of electricity to the licensees under Section 49. Section 44 of the Act of 1948 mandated prior consent from the Board for establishing a CPP unit.
The Electricity Regulatory Commissions Act, 1998, established the MERC. The key issue was whether the MERC could invalidate actions taken by the MSEB before the MERC’s constitution. The Act of 1998, under Section 22(2), conferred additional powers to the MERC, including advising the Government of Maharashtra on the formulation of the State Power Policy.
Arguments
Arguments by MSEDCL:
- MSEDCL argued that the circulars were a result of the State Government’s policies on CPP, which were in effect from 20 December 1995.
- The circular dated 25 May 1999, which provided for contract demand and “take or pay” obligations, was a direct result of these policies.
- MSEDCL contended that the circulars did not impose an additional financial burden on CPP holders.
- It was submitted that the MERC was established on 5 August 1999, and its approval was not required for the circulars issued before that date.
- MSEDCL argued that it had incurred costs for additional generation and strengthening the transmission network, and the circulars were essential to recover these costs.
- MSEDCL submitted that the circulars were merely clarifications of existing policies and were not a revision of tariff.
- MSEDCL relied on the judgment in Binani Zinc Limited v. Kerala State Electricity Board and Ors., (2009) 11 SCC 244, to argue that the State Electricity Board had the jurisdiction to revise the tariff until the Regulatory Commission was constituted.
- MSEDCL also argued that the Commission should have considered the merits of the circulars instead of quashing them based on lack of prior approval.
Arguments by the Respondents:
- The respondents argued that after the enforcement of the Act of 1998, the MSEB had no power to issue circulars without the approval of the MERC.
- They contended that the MERC had the sole and exclusive power to frame the tariff.
- The respondents claimed that the circulars were not in line with the State Government’s policy and were therefore unenforceable.
- They argued that the levy of tariff for minimum consumption at 25% of the energy consumed in the preceding 12 months at 110% of the tariff was unreasonable.
- The respondents argued that neither Section 44 nor any other provisions of the Act of 1948 enabled MSEB to impose conditions such as maintaining a contract demand at a particular level.
| Main Submission | Sub-Submissions by MSEDCL | Sub-Submissions by Respondents |
|---|---|---|
| Validity of Circulars |
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| Competence of MERC |
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| Financial Implications |
|
|
Issues Framed by the Supreme Court
The Supreme Court framed the following key issue:
- Whether the Commission could have quashed circulars issued by the appellant-MSEDCL before its formation?
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Whether the Commission could have quashed circulars issued by the appellant-MSEDCL before its formation? | The Court held that the Commission could not have quashed the circulars issued before its formation. | The Court relied on the judgment in Binani Zinc Limited v. Kerala State Electricity Board and Ors., (2009) 11 SCC 244, which held that the State Electricity Board had the jurisdiction to revise the tariff until the Regulatory Commission was constituted. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How the Authority was Used |
|---|---|---|
| Binani Zinc Limited v. Kerala State Electricity Board and Ors., (2009) 11 SCC 244 | Supreme Court of India | The Court relied on this case to hold that the State Electricity Board had the power to frame tariffs until the Regulatory Commission was formed. |
| Electricity Supply Act, 1948 | Statute | The Court referred to the provisions of the Act, specifically Section 44, 49 and 79(j), to determine the powers of the State Electricity Board. |
| Electricity Regulatory Commissions Act, 1998 | Statute | The Court referred to the provisions of the Act, specifically Section 22(2), to determine the powers of the Regulatory Commission. |
Judgment
| Submission by Parties | Treatment by the Court |
|---|---|
| MSEDCL’s submission that circulars were valid as they were issued before MERC’s establishment. | The Court agreed with this submission and held that the circulars issued before the establishment of the Commission could not be quashed on the ground that MSEB had no power to issue them without the approval of the Commission. |
| MSEDCL’s submission that it had the power to alter the tariff when the Commission was not established. | The Court agreed with this submission, citing Binani Zinc Limited v. Kerala State Electricity Board and Ors., (2009) 11 SCC 244. |
| Respondents’ submission that MSEB had no power to issue circulars after the enforcement of the Act of 1998. | The Court rejected this submission, holding that the MSEB had the power to issue circulars until the establishment of the Regulatory Commission. |
| Respondents’ submission that the levy of tariff for minimum consumption was unreasonable. | The Court did not delve into the reasonableness of the tariff and instead focused on the fact that the respondents had passed on the cost of electricity to the consumers. |
How each authority was viewed by the Court?
- The Supreme Court followed the ratio in Binani Zinc Limited v. Kerala State Electricity Board and Ors., (2009) 11 SCC 244*, which stated that the State Electricity Board had the jurisdiction to revise a tariff until the Commission was constituted.
- The Court considered the provisions of the Electricity Supply Act, 1948* to determine the powers of the State Electricity Board.
- The Court also considered the provisions of the Electricity Regulatory Commissions Act, 1998* to determine the powers of the Regulatory Commission.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle that a regulatory body cannot retroactively invalidate actions taken by a competent authority before the body’s own establishment. The Court also considered the fact that the respondents had passed on the cost of electricity to their consumers, making a refund unjust enrichment.
| Reason | Percentage |
|---|---|
| Principle of non-retroactivity of regulatory authority | 40% |
| Unjust enrichment of respondents | 35% |
| Reliance on Binani Zinc Limited judgment | 25% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The Court reasoned that the circulars issued by MSEB before the establishment of MERC were valid and could not be quashed on the ground that they lacked prior approval from MERC. The Court also considered the fact that the respondents had passed on the cost of electricity to the consumers, and therefore, a refund would amount to unjust enrichment. The Court stated, “It is apparent that the liability was passed on to the buyers/consumers by the respondent nos.3 to 7 as electricity was used to manufacture their products sold in the market, working out the price based on expenditure. It would not be appropriate in the peculiar facts of the case to direct refund to be made by the appellant-MSEDCL of the amount recovered by it as it would tantamount to unjust enrichment.” The Court further noted, “The Commission was constituted under the Act of 1998 on 5.8.1999. The circular issued before that could not have been quashed on the ground that MSEB had no power to issue them without the approval of the Commission.” The court also observed, “The State Electricity Boards are entitled to frame tariff in terms of the provisions contained in the 1948 Act. The tariff so framed is legislative in character.”
The Court rejected the argument that the circulars were invalid because they were not in line with the State Government’s policy. The Court held that the MSEB had the power to alter the tariff when the Commission was not established, and the Government had authorized it to do so. The Court also rejected the argument that the circulars were a revision of tariff, stating that they pertained to the policy regarding the CPP.
Key Takeaways
- Regulatory bodies cannot retroactively invalidate policy decisions made by competent authorities before the bodies’ establishment.
- State Electricity Boards have the authority to frame tariffs until the Regulatory Commission is constituted.
- The principle of unjust enrichment prevents refunds when the cost has already been passed on to the consumer.
Directions
The Supreme Court directed the parties to bear their own costs.
Development of Law
The ratio decidendi of this case is that a regulatory body cannot invalidate policy decisions made by a competent authority before the body’s own establishment. This decision clarifies the scope of authority of regulatory bodies and the validity of actions taken by predecessor authorities. There is no change in the previous position of the law, as the court relied on the judgment in Binani Zinc Limited v. Kerala State Electricity Board and Ors., (2009) 11 SCC 244.
Conclusion
The Supreme Court’s decision in Maharashtra State Electricity Distribution Co. Ltd. vs. Union of India provides clarity on the powers of regulatory bodies and the validity of actions taken by State Electricity Boards before the establishment of such bodies. The Court held that the Maharashtra State Electricity Regulatory Commission (MERC) could not retroactively strike down circulars issued by the Maharashtra State Electricity Board (MSEB) before MERC’s formation. Additionally, the Court emphasized that refunds should not be granted if the cost has already been passed on to the end consumer, to prevent unjust enrichment. This judgment reinforces the principle that regulatory bodies cannot operate retroactively and must respect the decisions made by competent authorities before their establishment.