Supreme Court Upholds Surcharge on Arc Furnace Industries for Not Shifting to 66 KV Supply: Waryam Steel Castings vs. Punjab State Power Corporation (2017)

Can a regulatory body impose a surcharge on industries for not complying with voltage supply norms? The Supreme Court of India addressed this question in a case involving arc furnace industries in Punjab. This case clarifies the extent of regulatory power in enforcing electricity supply standards and the validity of surcharges imposed for non-compliance. The judgment was delivered by a two-judge bench comprising Justice Ranjan Gogoi and Justice Navin Sinha, with the majority opinion authored by Justice Ranjan Gogoi.

Case Background

The case involves several arc furnace companies in Punjab that manufacture steel ingots. These companies require a large amount of electrical power, typically more than 2500 KVA. They receive their power through 11 KV High Tension Supply Lines. In 1995, the Punjab State Electricity Board (the Board) issued a circular mandating that all industries using induction furnaces with a load above 1500 KVA shift to 66 KV voltage supply. Those who did not comply were required to pay a surcharge of 17.5%.

Initially, the Board agreed to exempt existing industries from this requirement, but later, the State Electricity Regulatory Commission imposed the surcharge. This led to a legal battle between the industries and the Board, with the industries arguing that they should not be subject to the surcharge.

Timeline

Course of Proceedings

The arc furnace industries challenged the surcharge in the High Court of Punjab and Haryana. A single judge dismissed their petitions, stating that the Regulatory Commission’s tariff decisions were statutory and superseded any prior concessions. The court also noted that the industries had not challenged the tariff orders themselves, only the bills. The industries then appealed to a division bench, which also dismissed their appeals. Simultaneously, the industries challenged the tariff order for 2009-2010 before the Appellate Tribunal for Electricity. The Appellate Tribunal upheld the surcharge but remanded the matter to the State Commission to reconsider the rate. The State Commission then reduced the surcharge rates. The Supreme Court dismissed the appeals against the High Court’s order and the Appellate Tribunal’s order.

Legal Framework

The case is governed by the Electricity Act, 2003. Section 61 of the Act requires the “Appropriate Commission” to specify the terms and conditions for determining tariffs. Section 62 of the Electricity Act, 2003, outlines the process for determining tariffs, stating that the Commission should not show undue preference to any consumer but may differentiate based on factors like load, voltage, and consumption. Section 2(4) defines “Appropriate Commission” as the Central Regulatory Commission or the State Regulatory Commission. Section 86 of the Electricity Act, 2003, defines the functions of the State Commission, which includes determining tariffs for electricity within the State. Section 111 of the Electricity Act, 2003, allows appeals against orders of the Appropriate Commission to the Appellate Tribunal for Electricity.

The Supreme Court noted that the power to determine tariff under the 2003 Act is statutory and must be exercised within the framework of the Act, specifically Sections 62 to 64, and in accordance with the principles laid down in Section 61 of the Electricity Act, 2003.

Arguments

The arc furnace industries argued that they were entitled to an exemption from the surcharge based on the 1999 circular issued by the Board. They contended that the circular was a binding commitment and that the Regulatory Commission could not unilaterally impose a surcharge. The industries also argued that the surcharge was excessive and not based on actual costs. They submitted that the cost of conversion to 66 KV was lower than the surcharge imposed.

The Punjab State Power Corporation argued that the 2003 Act empowered the Regulatory Commission to determine tariffs, and the 1999 circular was no longer binding. They contended that the surcharge was necessary to compensate for the losses incurred by the Board in supplying power at 11 KV instead of 66 KV. They also stated that the surcharge was a disincentive for industries not complying with the required voltage norms.

The innovativeness of the argument by the arc furnace industries lay in their reliance on the 1999 circular as a binding commitment, arguing that the Regulatory Commission could not override it. This argument was based on the principle of promissory estoppel. However, the court rejected this argument.

Issues Framed by the Supreme Court

1. Whether the Regulatory Commission was justified in imposing a surcharge on arc furnace industries for not shifting to 66 KV supply?
2. Whether the rate/quantum of the surcharge determined by the Regulatory Commission and upheld by the Appellate Tribunal was correct?

Treatment of the Issue by the Court

Authorities

The court considered the following authorities:

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the statutory nature of the Regulatory Commission’s power to determine tariffs under the Electricity Act, 2003. The Court emphasized that the Commission’s decisions must be based on the principles and parameters laid down in the Act. The court also considered the need to disincentivize non-compliance with voltage norms and to offset the losses incurred by the Board in providing power at lower voltages.

The Court reasoned that the Regulatory Commission, being an expert body, is best suited to determine tariffs. It emphasized that judicial intervention is limited and should only occur if the tariff fixation is illegal, arbitrary, or ultra vires the Act. The court also considered the need to disincentivize the industries from continuing to draw power at 11 KV supply line, and the surcharge was a measure to compel them to shift to 66 KV supply line. The court also noted that the surcharge was not merely compensatory but also included a penal element to discourage non-compliance.

The court stated, “The “compromise” and “concession” made and effected by issuing circular No.25/99 dated 8th June, 1999 must be understood to have come to an end with the introduction of the new electricity regime by the 2003 Act unless extension of the same has been explicitly made/recognized in any of the tariff orders, which fact is conspicuously absent.”

The court further added, “The reason for levy of surcharge being justifiable on the touchstone of the necessity to disincentivize the defaulting units cannot be faulted.”

The court also observed, “The specialized performance of functions that are assigned to the Regulatory Commission can hardly be assumed by any other authority and particularly, the courts in exercise of their judicial discretion.”

The court did not find any dissenting opinion in the judgment.

Key Takeaways

• Regulatory bodies have the statutory power to determine tariffs, including surcharges, under the Electricity Act, 2003.
• Previous concessions or agreements made by the government or the Board may not be binding under the new legal regime.
• Surcharges can be imposed to disincentivize non-compliance with voltage norms and to offset losses incurred by the electricity board.
• Courts should not interfere with tariff fixation by expert bodies unless the fixation is illegal, arbitrary, or ultra vires the Act.

Directions

The Supreme Court did not issue any specific directions in this case. The court simply upheld the orders of the High Court and the Appellate Tribunal.

Development of Law

The ratio decidendi of this case is that the Regulatory Commission has the statutory power to determine tariffs, including surcharges, under the Electricity Act, 2003, and that previous concessions or agreements are not binding under the new legal regime. This case reinforces the principle that expert bodies are best suited to determine tariffs and that judicial intervention is limited to cases of illegality, arbitrariness, or ultra vires actions. There is no change in previous positions of law, but this case clarifies the extent of regulatory power in enforcing electricity supply standards.

Conclusion

The Supreme Court dismissed the appeals, upholding the surcharge imposed on arc furnace industries for not shifting to 66 KV supply. The court emphasized the statutory power of the Regulatory Commission to determine tariffs and the need to disincentivize non-compliance. This judgment clarifies the legal framework for tariff determination and the extent of regulatory power in the electricity sector.