REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 8094 OF 2002

A.P. Electricity Regulatory Commission … Appellant

Versus

M/s. R.V.K. Energy Pvt. Ltd. and another … Respondents

WITH

CIVIL APEPAL NOS. 8101, 8102, 8096,  8095 AND 8093 OF 2002

J U D G M E N T

S.B. SINHA, J.

Interpretation and/or application of the provisions of the Andhra

Pradesh Electricity Reforms Act, 1998 (for short the 1998 Act) vis-a-vis

the  orders  passed  by  the  Andhra  Pradesh  Electricity  Regulatory

Commission (for short ‘the Commission’) are involved in these appeals

which arise out of the judgments and orders passed by a Division Bench

of the Andhra Pradesh High Court.   

The  matter  relating  to  generation,  supply  and  distribution  of

electrical energy in the State of Andhra Pradesh used to be governed by

the provisions of the Electricity (Supply) Act, 1948 (For short, the 1948

Act).   

With  a  view to  bring reforms in  the  Power  Sector  and to  meet

shortages in power supply, the State of Andhra adopted a policy decision

for generation of  power  through MPPs of  30 MW capacity in  private

sector.  For the said purpose it issued two G.Os. being G.O. No.116 dated

5th August, 1995 and  G.O. No. 152 dated 29th November, 1995.   

In the said Government orders, the liberalization policy of the state

in respect of its industrial economy so as to enable the State Government

to attract investment from other parts of the country as also from outside

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the country was highlighted.  It intended to bring about competition in

the  industry.   It  is  stated  to  have  taken  a  series  of  measures  for

augmenting power including privatization. It took into consideration the

fact that the power plants costing less than Rs.100 crores and which do

not  require Central  Electricity Authority’s clearance,  and in respect  of

which project clearance at the State level would suffice as a result thereof

the period may be reduced considerably.        

The relevant extract of G.O. No.116 dated 5th August, 1985 reads :-

“The state government have therefore felt that it would  be  appropriate  to  setup  mini  power plants based on residual fuels in the industrial estates  to  relieve  the  burden  of  the  industrial load  centres  and  tail  end  areas  which  are suffering  from  stress  on  account  of transmission and distribution problem.”

It further provided:

“The Government have also felt it necessary to take up mini power plants of 30 MW capacity which could be implemented within a period of 12-18  months  at  suitable  locations  where industries  are  concentrated  and  the  power plants  can  meet  the  demand  of  industries without any interruption.”

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The G.O. further provided that the residual fuel shall be used and

that  the  pricing  arrangement  was  subject  to  fixation  of  tariff  by  the

Commission.

In this context, the supply of electricity generated by the MPP to

the identified consumers was allowed.

We, may, however,  notice  that  at  a  later  stage the capital  costs

invested for the said purpose was raised to Rs.250 crores.   

By G.O.  Ms.  No.152 dated  29th November,  1995 the terms and

conditions of setting up of MPPs were laid down, some of which read

thus :-  

“3. Energy from the mini power plants can be supplied  to  identified  consumers  using  either Andhra  Pradesh  State  Electricity  Board's existing  distribution  network  of  setting  up  a dedicated transmission after obtaining a licence under section (3) of the Indian Electricity Act, 1910. In the case of the former, Andhra Pradesh State  Electricity  Board  may on  request,  lease out the distribution net work to the developer. Detailed arrangements like lease, rent etc., will be  worked  out  on  mutually  acceptable  terms between  the  Andhra  Pradesh  State  Electricity Board  and  the  Mini  Power  plant  developers. Similar  arrangement  can  also  be  finalised  for the  dedicated  net  works  established  by  Mini

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Power  Plant  developers  so  as  to  confirm  to statutory requirement.

6.  In  the  event  of  the  mini  power  plants generating power in excess of the requirement of their consumers, the same can be purchased by the Andhra Pradesh State Electricity Board. Such  purchases  by  the  Andhra  Pradesh  State Electricity  Board  may  be  upto  15%  of individual  Mini  Power  Plant  capacity.  The Andhra  Pradesh  State  Electricity  Board  may also purchase power beyond 15% of the Mini Power Plant capacity, at Andhra Pradesh State Electricity  Board's  option  without  conferring any pre-emptive right of sale on the Mini Power Plant.  The  price  for  supplies  made  to  the Andhra Pradesh State Electricity Board will be weighted  average  price  of  purchase  of  power made  by the  Andhra  Pradesh  state  Electricity Board from Central and other State Electricity Enterprises  on  a  monthly basis.  Settlement  of accounts will be on a monthly basis. The above procedure  would  be  in  force  upto  the  end  of December  2000  AD and  would  be  subject  to review thereafter.

8.  The  Mini  Power  Plant  developer  shall necessarily sell power to the consumers above the Board's High Tension tariff rate”  

Indisputably,  pursuant  to  or  in  furtherance  of  the  said  policy

decision,  31  companies  in  the  private  sector  showed  their  interest  for

setting up MPPs.  The Government of Andhra Pradesh, upon taking into

consideration the said applications allowed the respondents herein to set

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up MPPs capacity in private sector with residual fuel in industrial load

centres in the State, whereafter, approval for the same had been granted.  

We may at this stage notice the fact of the mater involved in the

respective appeals including the proceeding before the Commission.  

CIVIL APPEAL NO. 8093 OF 2002

Permission was granted to LVS Power Ltd. to set up a 37.8 MW

residual fuel based power plant at Visakhapatnam so as to enable it  to

generate and supply power directly to specified industrial consumers by

using the existing transmission and distribution network of APT.   In the

letter for grant of permission issued to LVS Power Ltd. by the Secretary

to the State Government letter dated 24th July, 1996.  Clauses 1 and 4 of

the permission letter read :-

“1. The total completed cost of the project (MPP) including the cost of land and the total EPC cost shall not exceed Rs.100 crores”.

4. The copies of actual supply agreements with the  identified  consumers  shall  be  furnished  to  the

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A.P.  State  Electricity  Board  in  advance  of commencement  of  supply.   Along  with  the agreements, 3 months notices seeking termination of the Agreements with the A.P. State Electricity Board by the identified consumers of generating company, if they so desire, shall be submitted to the A.P. State Electricity Board.”

Alongwith the said letter it annexed the names of the consumers

with their possible demand, which read :-

“S.No.      Name of the Consumer    Demand

 1. Hindustan Shipyard Ltd., Visakhapatnam  6,000 KVA

 2. Hindustan Zinc Ltd., Visakhapatnam 22,000  KVA    

 3. Essar Steels Ltd., Visakhapatnam 40,000 KVA  

 4. Andhra Cements Ltd., Visakhapatnam  9,000

KVA

                            ___________ 77,000 KVA”

                  ___________  

All  the  aforementioned  industries  are  located  in  the  State  of

Andhra Pradesh.  

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The proposal  of  the company was accepted  in  terms of  Section

18A(a)  of  the  1948  Act..  The  MPP  was  allowed  to  be  operated  on

multifuels (LSHS/Furnace Oil/Naptha) alongwith tie-line.   

The terms and conditions of setting up of the MPP were amended

from time to time in terms of letter dated 20th October, 1997; 18th May,

1999  and  21st August,  2001.   We are  not  concerned  with  the  details

thereof.

Pursuant  to  or  in  furtherance  of  the  approval  granted  by  the

Government of Andhra Pradesh to the company for setting up of MPP it

entered  into  Wheeling  Agreement  with  APTRANSC  wheeling  power

from generating  station  to  the  consumers.   In  terms  of  the  Wheeling

Agreement,  the  company was required to  pay 8 % to  12 % of power

generated  as  wheeling  charges  to  APTRANSCO  for  utilizing  their

transmission lines.  It also entered into Power Sales Agreements with 13

industrial consumers for sale of powers.   

In  the  meantime  in  the  year  1998,  the  Parliament  enacted  The

Electricity Reforms Act, 1998.  The State of Andhra Pradesh also enacted

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the 1998 Act; in terms whereof, Andhra Pradesh Electricity Regulatory

Commission (for short  ‘the Commission’) was constituted on or about

23rd January, 2000.   

Indisputably, after coming into force of the 1998 Act the MPPs

applied for grant of exemption under the said Act as envisaged in Section

14 thereof, before the Commission.

The  said  Act  provided  for  grant  of  licence  and  the  exemption

therefrom.  The  Company applied  for  grant  of  licence  as  provided in

Section  15  of  the  Act.    By  an  order  dated  18th May,  2000  the

Commission directed the company to come back to it for the said purpose

four months prior  to the commencement of  commercial  operation.   In

view of the said direction of the Commission, the company commenced

construction of the project in June, 2000.  For the said purpose it drew

‘equity’  from  the  promoters  and  investors  and  term  loans  from  the

lenders.  The total cost of the project was said to be Rs.133 crores.  

When the said plant was nearing completion, having regard to the

said  direction  dated  18th May,  2000,  the  company  approached  the

Commission  on  5th March,  2001  as  the  project  was  expected  to  be

completed by July, 2001.  The Commission, however, by a letter dated 4th

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May, 2001 informed the company that it was of the opinion that no third

party sale  of  power should be permitted and asked it  to  send specific

proposals  to  APTRANSCO for  sale  of  entire  power  from the  project

purported to be in terms of Central Government’s Notifications within

fifteen days.   

It appears that before the Commission the Andhra Pradesh State

Electricity  Board  Engineers  Association  intervened.   The  said

intervention was entertained by the Commission.   

The  Commission  noted  that  out  of  31  MPPs  which  received

permission/sanctions  of  the State  to  generate  energy based  at  residual

fuels, only 19 survived.  The name of the respondent company was also

found therein.  The Commission also noticed the essential features of the

grant of such permission, one of which being clause 5, which reads :

“(v) Copies  of  the  supply agreements  entered  into with the identified consumers should be supplied to the  APSEB.   The  agreement  with  the  APSEB  for wheeling  shall  reflect  the  conditions  in  G.O.Ms. No.152 dated 29.11.1995 besides other conditions.”   

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At paragraph 14 of the said order, the Commission recorded that

various  Associations  of  the  officers  of  the  Andhra  Pradesh  State

Electricity Board inter alia submitted that third party right should not be

allowed  as  it  affected  the  financial  viability  of  the  main  licensee,

APTRANSCO, apart from the fact that they should not be permitted to

generate  power  with  residual  fuel  as  the  same  is  too  costly  for  the

purchase by the grid.  It was also noted that third party sale should not be

allowed as MPPs would not suffer Transmission and Distribution losses

which the Licensee suffers and the Tariffs of the Licensee for industrial

consumers include considerable cross-subsidies.     

The  Government  of  Andhra  Pradesh,  was,  however,  not

represented.  A contention, however, was raised by a letter representing

that the permission may be given to MPPs for third party sales to HT

Industrial consumers and in the event APTRNASCO loses on account of

the  said  arrangement,  the  Commission  can  fix  appropriate  wheeling

charges  taking  into  account  the  cross  subsidization  forgone  by

APTRANSCO on account of third party sales.  

The  Commission  stated  that  it  was  not  inclined  to  permit  third

party sale for the following reasons :-

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“(19). For  reasons  already  stated  elaborately  in  our order in O.P. No.2/1999 (GBR Projects Ltd.) and O.P. No.348/2000 (Astha Power Corporation Pvt. Ltd.) the Commission is not inclined to permit third party sales. Currently the tariffs include substantial cross subsidy to the tune of about Rs.2,000 crores by industrial and commercial  consumers.   If  these  consumers  are supplied power by MPPs, instead of the Licensee, the cross subsidy element now existing will come down, calling  for  increased  tariffs  for  agriculture  and domestic  consumers  giving  rise  to  a  rate  shock  to them or alternatively, the GoAP may have to bear the increased burden in terms of subsidy.  Further, to the extent the government subsidy is limited the burden of cross subsidy will increase on those industrial and commercial  consumers  who  stay  with  the  Licensee. This would in turn lead to these consumers going out of  the  system as they would not  be competitive for their  products  in  the  market  with  such  high  tariffs. Finally, the Licensee would be left with agricultural and domestic consumers who are highly subsidized. This would effect totally the viability of the Licensee and will result in failure of Licensee to discharge its functions  in  the  matter  of  supply  of  power.   It  is, therefore,  evident  that  permitting  mushroom growth of MPPs and third party sales would not at all be in the interest of the organized growth of the electricity industry  which  is  essential  for  the  progress  of  any civil  society.   Permitting  third  party  sales  would create  discrimination  between  industrial  consumers drawing  power  from  IPPs  and  the  industrial consumers  drawing  power  from  APTRANSCO DISCOMS who will be paying for power at different rates.   Further,  the cost  for supply of power for the Licensee  includes  cross  subsidization  and transmission  and  distribution  losses  in  the  system spread  over  the  entire  State  and  approved  by  the Commission whereas, the cost to the MPP developer does not include cross subsidization and transmission and distribution loss cost.  Thus, allowing third party

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sales by MPPs at the same rate at which the Licensee supplies  to  HT  consumers,  would  result  in  either unjust  enrichment  of  developers  which  is  neither contemplated nor permissible in a regulatory industry, or in supply of power at lower prices than prescribed resulting in differential prices for the same categories of consumers, leading to discriminatory treatment.

(20) In O.P. No.2/1999 and O.P. No.348/2000, the Commission has directed the developers to approach APTRANSCO and negotiate the sale of power on the basis of their project cost.  It would be appropriate if directions  are  also  issued  to  the  eight  developers mentioned in para 18 above to make an offer of price on  the  basis  of  the  various  Government  of  India Notifications  (including  the  Notifications  dated 30.03.1992).  These Notifications set out the method and  manner  of  calculation  of  tariff  for  generating companies mutually agree on the price for the pwer to be  supplied  and  other  conditions, a  PPA  may  be drawn  up  and  submitted  to  the  Commission  for  its approval  under Section 21 of APER Act.   If on the other hand they are not able to agree on the price and other  terms  and  conditions,  they  may  apply  to  the Commission for appropriate orders.”

It  noticed  that  pursuant  to  its  interim  order,  the  company  had

entered into a Wheeling Agreement with APTRNASCO on 25th February,

1999.  While directing renegotiations regarding price and other terms and

conditions at which they would be willing to supply power to APT it was

directed:-

“(22). The Commission  hereby directs  that  the eight MPPs  mentioned  above  send  a  specific  proposal  in writing  based  on  the  existing  Central  Government

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Notifications  on  the  basis  of  their  project  costs  to APTRANSCO within a fortnight of the receipt of this order, with a copy to the Commission.  APTRANSCO shall respond by communicating views on the offer to the  MPPs  and  the  Commission  within  another fortnight.   If  the  parties  need  more  time  for negotiations in the matter, they are free to approach the Commission in the matter.  If APTRANSCO and the MPPs agree on the price and the other terms and conditions, a (fresh) PPWA may be drawn up and sent for the consent of the Commission.

(23). If there is no agreement between APTRANSO and the MPPs on supply terms within a month’s time, the  Commission  will  hear  the  eight  MPPs  and APTRANSCO on 4.6.2001 for further orders.”

Pursuant to and in furtherance of the said order of the Commission

the Company submitted a proposal on or about 18th May, 2001 for sale of

its entire power from the project as per the norms laid down or set up by

the  Central  Electricity  Authority  alongwith  necessary  supporting

documents  assuming  the  cost  of  the  project  at  about  Rs.  125  crores.

Negotiations  took  place  inter  alia  on  17th August,  2001  when  the

company agreed to the proposal of the APTRANSCO to sell power as

per the said norms assuming the project cost at Rs.125 crores.  The said

proposal  of  the  company  was  accepted  in  its  entirety  by  the

APTRANSCO.   According  to  it  the  tariff  could  be  re-fixed  after  the

capital  cost  is  approved  by  the  Government  of  Andhra  Pradesh

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whereafter the consent of the Commission to purchase power from the

company was sought for.   

The Commission accorded its consent to the said proposal by its

letter  dated  18th August,  2001.   Keeping  in  view the  aforementioned

consent  of  the  Commission  on  24th  August,  2001  the  company

terminated  the  power  sales  agreements  entered  into  by  it  with  the

industrial consumers to avoid any liability  

The project was completed on 18th October, 2001.  APTRANSCO

asked  for  extension  of  time from the  Commission  to  purchase  power

from the company by its letter dated 30th November, 2001  till the end of

February, 2001 on the purported ground that firm proposal (PPA) could

not  be  sent  since  the  project  cost  was  yet  to  be  approved  by  the

Government  of  Andhra  Pradesh.   A  reminder  was  also  sent  by

APTRANSC  on  9th November,  2001  to  the  Commission.   The

Commission  again  by  its  letter  dated  26th November,  2001  granted

permission sought for by APTRANSCO stating :-

“With  reference  to  letter  (1)  and  (2)  cited  above, Commission accepts the proposal of APTRANSCO to purchase power from M/s. LVS Power Limited at the rates  specified in  letter  (3)  cited  above and extends the period of purchase of power from 31.10.2001 to 30.11.2001  purely  as  an  interim  measure.   This  is

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without prejudice to the rights of the Commission to pass any further order in this matter.

APTRANSCO is directed to send the Firm Proposal with  the  approved  Project  cost  from  competent Authority latest by 30.11.2001, for the Commission to pass appropriate orders.”

On  or  about  26th November,  2001  by a  letter  addressed  to  the

Government  of  Andhra  Pradesh,  the  APTRANSCO  sought  for  its

approval of the project cost stating that it was willing to purchase power

from the company if the project cost was restricted to Rs.125 crores.  As

the said consent was not forthcoming another extension was sought for

by the APTRANSCO from the Commission for purchase of power till the

end  of  January,  2002  by  its  letter  dated  3rd December,  2001.   The

Commission  by  its  letter  dated  27th December,  2001  directed  the

APTRANSCO to  submit  firm proposal  alongwith  the  approval  of  the

capital cost of the project from the competent authority by 31st January,

2001.  The matter was posted for hearing on 7th February, 2002.   

The Government of Andhra Pradesh in the meantime sought for

the  opinion  of  the  Central  Electricity  Authority  as  regards  the

reasonableness of the project  cost.   It  may be noticed that the Central

Electricity Authority by a letter dated 26th February, 2002 stated that the

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capital cost of the company is lowest among the similar type of plants in

the country by observing :-

“Reference  is  invited  to  GOAP  letter  dated 29.12.2001 seeking the advice of CEA under Section 3 of Electricity (Supply) Act, 1948.  The matter has been  examined  based  on  the  subsequent details/clarifications  received  vide  APTRANSCO letters dated 28.1.2002 & 4.2.2002 and GOAP letter dated  15.2.2002.   The  following  observations  are made :

(i) Clarifications furnished vide GOAP letter dated 15.2.2002 do not indicate as to whether GOAP Order dated 29.11.1995 giving  revised  policy  guidelines  regarding  generation  of power through Mini Power Plants in Private Sector had been reviewed as contemplated in Para 6 of the said order w.r.t. capital costs. Etc.

(ii) It is seen that the clarification on the increase in capial cost ceiling from Rs.100 crores as earlier contemplated to Rs.250 crores was given to M/s. LVS only w.r.t. their request.  It is not clear whether all the MPP developers were informed of this  increase  in  capital  cost  ceiling  and  whether  any reference is  made to capacity of the plant  to be generated within the capital cost of Rs.250 crores.  

(iii) The capacity of  the LVS plant  has been reduced from 55 MW as originally approved in July, 1996 to 46.08 MW vide GOAP letter  dated  9.7.1997  and  again  to  37.8  MW vide GOAP  letter  dated  11.4.2001  whereas  the  capital  cost ceiling  was  increased  from  Rs.100  crores  as  originally approved in July, 1996 to Rs.250 crores in January, 1999. The compulsions for reduction in plant capacity are not clear from the documents received from GOAP/APTRANSCO.

(iv) The APTRANSCO’s consultant had in their report indicated that revised capital  copst of Rs.125.23 crores for 2 x 18.9 MW was without  complete audit  of  the cost  incurred and

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physical  verification.   As  now  the  project  has  been completed, it will be necessary to look into the final audited cost corrected to the admissible provisions.

In view of the above mentioned observations, it is not possible for CEA to advise on the reasonableness of the  capital  cost  specific  to  LVS  project.   It  may, however, be mentioned that CEA, while granting TEC for similar type of projects for IPPs have cleared the estimated  completion  capital  cost  in  the  range  of Rs..3.62 crores to Rs.3.8 crores per MW as the ceiling cost  depending  on  the  scope  of  work,  site  specific features,  financial  package,  debt-equity  ratio, exchange rate, taxes and duties, foreign exchange etc.

GOAP may please  take  further  action  based  on  the above.”  

In the meanwhile, the APTRANSCO informed the Commission by

its letters dated 6th February, 2002 that the plant may have to be backed

down on account of  high tariff cost as such the company may be advised

to sell the power outside the State by paying wheeling charges as per the

order of the Commission.  The matter was heard on 7th February, 2002.

APTRANSCO took a complete turn around stating that it was unable to

purchase power on the ground that the plant may have to be backed down

in the merit order dispatch due to high variable cost.  A protest was made

thereto by the company in terms of its order dated 22nd February, 2002.

The discussion was held between the Managing Director of the Company

and the Chief Engineer of APTRANSCO on 22nd March, 2002 when the

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company agreed to the demands of APTRANSCO for reduction in the

cost of power to prevent further losses to the investors and the lenders.

APTRANSCO increased the wheeling charges four fold.  

It may, however, be noticed that the Commission by its order dated

23rd April,  2002 observed :-

“At the hearing the applicant argued that it had always complied with the orders of the APERC and  on-off-on  attitude  of  ANTRANSCO  was very  confusing  not  only  to  LVS  but  also  to other  energy developers  and the  credibility of APTRANSCO  and  GoAP  was  at  stake.   It requested the APTRANSCO should be directed to  enter  into  PPA  on  the  basis  of  the  latest negotiations.   On  the  other  hand,  Shri Manmohan Rao, CE, APTRANSCO, stated the APTRANSCO is  unable  to  buy power  as  the purchase  cost  might  not  pass  muster  in  the merit order and APTRANCO might not be able to buy any power from LVS and end up only paying fixed charges, even if a PPA is entered into.”  

 The Commission for all intent and purport took a policy decision

that  the  electricity  generated  by the company would  be transferred  to

APTRANSCO.   Whereas  most  of  the  respondents  could  not  start

production, LVS Power did.  We will state the facts of the same at some

details at an appropriate place but suffice it to point that pursuant to the

19

interim decision  taken  by the  Commission,  LVS Power  cancelled  the

agreements it  had entered into with the consumers.  Negotiations were

held for fixing the rate of the tariff.  It did not succeed.  The Commission

by its order dated 23rd April, 2002 stated that:

“The Commission  can  only grant  or  withhold consent  for  a  PPA  submitted  to  the Commission. If APTRANSCO does not wish to enter into PPA with LVS there is  no way the Commission  can  compel  APTRANSCO to do the  same.   In  the  circumstances,  there  is  no need to  pass  any order  u/s.  21(4)  of  the A.P. Electricity Reform Act, 1998 either granting or withholding consent.”  

The writ petition filed by the company before the High Court was

allowed directing :-

“65.  In  the  light  of  the  above infirmities,  the order of the Commission is liable to be set aside and  we  are  of  the  opinion  that  there  are sufficient grounds to allow the appeal.  

66.  In  the  result,  the  appeal  is  allowed  with costs  by  setting  aside  the  order  of  the  A.P. Electricity Regulatory Commission in OP No. 70-A(LVS)/2001 dated 23-4-2002 holding that APTRANSCO cannot go back from its promise and refuse to purchase the power on the pretext of  surplus  power  position  in  the  State.  We direct  the  Commission  to  consider  the  matter afresh  as  per  the  norms of  Central  Electricity Authority and the directions given in the appeal

20

and  to  direct  the  APTRANSCO to  enter  into Power  Purchase  Agreement  and  purchase  the power from the appellant.  

67.  Now  the  further  question  that  falls  for consideration  by  this  Court  would  be,  what should happen to the generation plant which is ready  for  commercial  operation  till  the Commission decides the issue as per law, in the light of the directions given by us?  

68.  It  is  not  in  dispute  that  apart  from  the investment  made  by the  private  entrepreneur, about 104 crores of rupees of public money was invested by various financial institutions, under the leadership of Industrial Development Bank of India (IDBI) and everyday the appellant has to suffer a loss of about rupees 8 lakhs towards interest  component  itself.  If  we  allow  the situation to continue, the losses of the unit will be mounting up and it may reach a point of no return and the public monies invested will  go waste.  The burden will  again fall  on the  man with loin  cloth in  the  shape of indirect  taxes. Hence,  we  cannot  allow  the  situation  to continue  further,  more  so,  in  the  light  of  the permission given by the Commission on 18-8- 2001  to  the  APTRANSCO  to  purchase  the power from the appellant.  We therefore direct the APTRANSCO to purchase the power at the rate  at  which  it  purchased  during  the  trial operations,  subject  to  the  final  orders  to  be passed by the Commission, or to takeover the plant  from  the  appellant  and  to  perform  the duties  of  a  generating  company,  as  provided under  Section  18-A(2)  of  the  Electricity (Supply) Act,  1948,  until  it  enters  into Power Purchase  Agreement  with  the  appellant  after fixation of the terms by the Commission. The above arrangement made to save the plant will

21

be subject to final  orders  to be passed by the Commission in the matter.  

69. Before we part with the case, we place on record our displeasure over  the  unhelpful  and un-cooperative  attitude  of  APTRANSCO  in accepting a reasonable suggestion made by this Court i.e., the power generated by the appellant may  be  purchased  at  the  rate  at  which  it  is purchasing  from other  units,  pending disposal of  the  appeal,  since  we  are  pre-occupied  in hearing a batch of electricity appeals preferred against the orders of the A.P. State Electricity Regulatory  Commission  regarding  Wheeling Charges and Grid Support Charges wherein the senior  Advocates  from  other  States  are advancing  arguments  and  granted  sufficient time to think over the matter and report to the Court.  The  learned  senior  Counsel  appearing for  APTRANSCO  expressed  his  inability  to convince his client in accepting the suggestion made  by  the  Court.  Therefore,  in  order  to dispose of this matter, we were made to take up this  appeal  by  stopping  arguments  in  those cases and complete the hearing by sitting in the Court beyond Court hours.”  

Re: Civil Appeal No. 8094 of 2002

On 29.2.96, permission was granted to RVK Energy Pvt. Ltd. to

set up a 32.7 MW residual fuel based power plant at Medak district so as

to enable it to generate and supply power directly to specified industrial

consumers by using the existing transmission and distribution network of

APT.  On 5.12.98, the State Government on a request made by RVK Ltd.,

22

allowed the change of  location for  the project  to  Krishna  district.  On

1.2.99,  the  1998  Act  was  brought  into  force  whereby  the  licensing

provision  under  Section  14  became applicable  in  the State  of  Andhra

Pradesh.  In  terms  of  Section  14(4),  the  State  Government  issued

provisional licenses to all persons who were engaged in the business of

supply of electricity. On 23.2.99, the State government permitted RVK to

partly change the fuel for the project from Residual Fuel to Natural Gas.

On  2.4.99,  the  Andhra  Pradesh  Electricity  Regulatory  Commission

(APERC) was  constituted  under  the  Reform Act.  On 6.5.99,  a  Power

Purchase  Agreement  was  signed  between  RVK  Pvt.  Ltd.  and  Indian

Cements Ltd. The Agreement inter-alia provided that as RVK was in the

process of signing the Power Wheeling Agreement with APTRANSCO,

India  Cements  thus  had  notice  of  the  execution  of  the    Wheeling

Agreement between the parties as a pre-requisite of the implementation

of  the  Agreement  between  it  and  RVK  Pvt.  Ltd.  On  10.9.99,

APTRANSCO  requested  APERC  to  approve  the  drafts  of  the  Power

Purchase  and  Wheeling  Agreement  with  RVK  Pvt.  Ltd.  On  20.9.99,

RVK made an application being O.P. No. 2 of 1999 to APERC seeking

exemption  from the  requirement  of  license  to  supply electricity  to  its

consumers  under  Section  16  of  the  Reform  Act.  In  response  to  the

application of APTRANSCO dated 10.9.99, APERC by its letter dated

23

22.9.99,  listed  the  requirements  to  be  complied  with  which  inter-alia

included RVK Pvt. Ltd. to obtain a licence or exemption from APERC

and to agree to APERC deciding third party sales including the extent

and  manner  of  the  supply  and  affixing  the  tariff,  transmission  and

wheeling charges.   APTRANSCO was called upon to amend the draft

agreement with RVK.

Vide its letter dated 24.9.1999, RVK requested APERC to process

the exemption application dated 20.9.1999 expeditiously.  

On 14.10.1999, the Power Purchase and the Wheeling Agreement

was signed between RVK and APTRANSCO. In terms of the Agreement,

it  was agreed by RVK to set up a power generating plant  to generate

electricity upto 20.31 MW with natural gas as fuel in Krishna district and

to  sell  power  through  APTRANSCO to  identified  consumers  via  the

APTRANSCO grid. It was also agreed by RVK to pay the transmission

(wheeling) and banking charges as per the provisions of Section 26 of

the 1998 Act. RVK agreed to take a licence as required under Section 15

or an exemption under Section 16 of the Reform Act for third party sale

including  supply to  (other  than   a  licensee)  regardless  of  the  general

approval granted under G.O.M. No. 152 dated 29.11.95. The agreement

24

also provided for RVK to take the consent of APERC for wheeling of

power and submit a list to APERC for its consent of the consumers to

whom RVK proposed to  sell  the power.  The agreement stipulated  the

submission of all disputes regarding third party sale and supply to sister

concerns including the extent and manner of such supply and the tariff

charged to the APERC.

On 9.12.1999, RVK entered into a Power Purchase agreement with

Super Spinnings/Precott mills for sale of electricity. The agreement noted

that Super Spinnings/Precott Mills had notice of the terms of the Power

Wheeling  Agreement  that  had  been  entered  into  between  RVK  and

APTRANSCO.

By its letter dated 10.12.99, RVK sought orders from APERC to

sell electricity to third parties so as to avoid paying minimum guarantee

charges of Rs. 2.40 lacs per day to the Gas Authority of India for non-

utilization  of  the  gas  so  allocated  to  generate  electricity  in  the power

project. In the light of the urgency shown by RVK, APERC by its interim

order dated 3.1.2000 approved the W heeling Agreement and third party

sales  which  specifically  stated  that  the  order  would  not  prejudice  the

power of APERC to pass such an order as it may consider necessary at

25

any  stage  of  the  proceedings.  The  proceedings  were  however  kept

pending.

On 10.2.2000, RVK entered into a Power Purchase agreement with

Super  Nagarjuna  Agro-Tech  for  sale  of  electricity.  The  agreement

referred to the Power Purchase agreement entered into between RVK and

APTANSCO.  

After  hearing  RVK  on  28.3.2000,  APERC  by  its  order  dated

31.3.2000. rejected the request of RVK for grant of licence/exemption

from licence. It was held that G.O. Nos. 116 and 152 did not give any

vested right to the mini power plants to get a licence or an exemption

after the Reform Act had come into force. APERC directed RVK to sell

electricity to  APTRANSCO only and not  to  third parties  at  a fair  and

reasonable price to be mutually agreed to by the parties or in the event of

the failure to do so, to be decided by the APERC.  

Aggrieved  by  the  said  order,  RVK  preferred  an  appeal  under

Section  39  of  the  1998  Act  before  the  Andhra  Pradesh  High  Court

wherein the prohibition of the third party sales was challenged. By an

order and judgment dated 8.6.2001, the High Court dismissed the said

26

appeal.  Upholding  the  order  of  APERC,  the  High  Court  was  of  the

opinion that the license or sanction under the Reform Act was necessary,

notwithstanding any previous licence or sanction that was granted under

the  1910  Act.  It  furthermore  held  that  any  approval  envisaged  under

Section 43 A of the 1948 Act granted to a generating company for sale of

electricity did not authorize the supply of electricity to the consumers.     

Re: Civil Appeal No.   8101 of 2002     

On 9.12.1995,  the  State  Government  under  Section  18A of  the

1948 Act granted permission to M/s Astha Power Corporation Pvt. Ltd.

to  set  up  a  28.7  MW residual  fuel  based  power  plant  at  Balanagar,

Hyderabad so as to enable it  to generate and supply power directly to

specified  industrial  consumers  by using  the  existing  transmission  and

distribution  network  of  APT.  Further,  permission  was  granted  by  the

state government under Section 28 of the 1910 Act to Astha Power Pvt.

Ltd.  for  supplying  energy to  the  identified  consumers  and  also  under

Section 43A of the 1948 Act for entering into a contract for the sale of

electricity to the consumers.   

27

On 12.11.1996, the State Government on a request made by Astha

Power  Pvt.  Ltd.,  allowed  the  change  of  location  for  the  project  to

Pashamylaram, Medak district.  

By a notification  dated 19.8.1999 issued by APERC, the public

was informed that a licence was required to be taken from APERC for

the transmission or supply of electricity in the state.

On  10.9.1999,  APTRANSCO  requested  the  Commission  to

approve the Power Purchase and Wheeling Agreement with Astha Pvt.

Ltd.

On 23.10.1999, the Power Purchase and the Wheeling Agreement

was  signed  between  Astha  and  APTRANSCO.  In  terms  of  the

Agreement, it was agreed by Astha to set up a power generating plant to

generate  electricity  of  about  28  MW  with  H.F.O.  as  fuel  in  Medak

district and to sell power through APTRANSCO to identified consumers

via  the  APTRANSCO  grid.  It  was  also  agreed  by  RVK  to  pay  the

transmission  (wheeling)  and banking  charges  as  per  the  provisions  of

Section 26 of the Reform Act. Astha agreed to take a licence as required

under Section 15 or an exemption under Section 16 of the Reform Act

for  the  third  party  sale  including  supply  to  (other  than   a  licensee)

28

regardless of the general approval granted under G.O.M. No. 152 dated

29.11.1995. The agreement also provided for Astha to take the consent of

APERC  for  wheeling  of  power  and  submit  a  list  to  APERC  for  its

consent of the consumers to whom Astha  proposed to sell the power.

The agreement stipulated the submission of all disputes regarding third

party sale and supply to sister concerns including the extent and manner

of such supply and the tariff charged to the APERC.

 On  23.12.1999,  Astha  made  an  application  to  APERC  seeking

exemption from the requirements of taking license to supply electricity to

its consumers under Sections 15 & 16 of the Reform Act.  

After  hearing  Astha  on  18.4.2000,  APERC  by  its  order  dated

1.7.2000. rejected its request for grant of licence/exemption from licence.

It was held that G.O. Nos. 116 and 152 did not give any vested right to

the mini power plants to get a licence or an exemption after the Reform

Act had come into force.  

APERC directed  Astha  to  sell  electricity  to  APTRANSCO only

and not  to  third  parties  at  a  fair  and reasonable  price  to  be  mutually

agreed to by the parties  or  in the event  of  the failure to do so,  to  be

decided by the APERC.  

29

Aggrieved by the said order, on 24.7.00, Astha preferred an appeal

under Section  39 of  the  Reform Act before  the Andhra Pradesh High

Court wherein the prohibition of the third party sales was challenged.  

In the meanwhile, on 23.4.01, APERC after observing that Astha

had not approached APTRANSCO as per its  directions to arrive at an

agreement for sale of electricity, directed Astha  again to negotiate with

APTRANSCO so as to arrive at an agreement.

By an order and judgment dated 8.6.01, the High Court dismissed

the said appeal. Upholding the order of Commission.  The High Court

was of the opinion that the license or sanction under the Reform Act was

necessary  notwithstanding  any  previous  licence  or  sanction  that  was

granted  under  the  1910  Act.  It  furthermore  held  that  any  approval

envisaged under Section 43 A of the 1948 Act granted to a generating

company for sale of electricity did not authorize the supply of electricity

to the consumers.     

Entry 38 of the Concurrent List in the Indian Constitution provides

for “Electricity”.

30

The Parliament  enacted  the Indian Electricity Act (for  short  the

1910 Act).  Section 3 of 1910 Act provides for issue of licence to the

undertakings generating, supplying and distributing electrical energy.   

Section 28 of the 1910 Act provides for grant of sanction  required

by non-licensees in certain cases.

The State is an appropriate Authority both for grant of licence in

terms of Section 3 and sanction in terms of Section 28 of 1910 Act.  

In the year 1948, the Parliament enacted the Electricity (Supply)

Act,  1948  (for  short  the  1948  Act)  in  terms  whereof  each  State  was

statutorily  obliged  to  constitute  Electricity  Boards  in  their  respective

States.  Electricity Boards are ‘deemed licenses’ in terms of the said Act.

In terms thereof licence cannot be granted to any private party.  

Sections  2(4)(A),  2(5),  2(6)  of  the  1948  Act  provide  for  the

definitions  of  “Generating  Company”,  “Generating  Station”  and

“licensee”, respectively.  

Section 18A specifies the duties of a generating company.

31

Section 26A of the 1948 Act provides for exemption grant  of a

licence so far as a generating company is concerned.

Section 43A of the 1948 Act provides for terms, conditions and

sale of electricity by generating company.

The State of Andhra Pradesh enacted the 1998 Act to provide for

the constitution of an Electricity Regulatory Commission, restructuring

of the Electricity Industry, rationalisation of the generation, transmission,

distribution and supply of electricity avenues for participation of private

sector  in  the  Electricity  Industry  and  generally  for  taking  measures

conducive  to  the  development  and  management  of  the  Electricity

industry  in  an  efficient,  economic  and  competitive  manner  and  for

matters connected therewith or incidental thereto.   

“APTRANSCO” has been defined in Section 2(b) of the 1998 Act

to  mean  Transmission  Corporation  of  Andhra  Pradesh  Limited

incorporated as a  transmission company under the Companies Act, 1956

(Central Act 1 of 1956) and as referred to in Section 13 thereof.

32

“Commission”  has  been defined in  Section  2(c)  of  1998 Act  to

mean the Andhra Pradesh Electricity Regulation Commission constituted

under sub-section (1) of Section 3.

“Licensee” or “licence holder” has been defined in Section 2(e) of

1998  Act  to  mean  a  person  licensed  under  Section  14  of  the  Act  to

transmit or supply energy including APTRANSCO.  

Section 3 of 1998 Act provides for establishment and constitution

of the Commission.   

Functions of the Commission have been dealt with in Section 11 of

the 1998 Act, clauses (e) and (f) whereof read as under :-

“11. Functions of the Commission, :-

(e) to  regulate  the  purchase,  distribution,  supply and  utilization  of  electricity,  the  quality  of service, the tariff and charges payable keeping in  view both  the  interest  of  the  consumer  as well  as  the  consideration  that  the  supply and distribution  cannot  be  maintained  unless  the charges  for  the  electricity  supplied  are adequately levied and duly collected.

33

(f) to  promote  competitiveness  and  progressively involve  the  participation  of  private  sector, while ensuring fair deal to the customers.”

Section  12  provides  for  the  general  powers  of  the  State

Government to issue policy directions on matters concerning electricity

in the State including the overall planning and co-ordination. All policy

directions are required to be issued by the State Government consistent

with the objects sought to be achieved by the said Act and accordingly

shall not adversely affect or interfere with the functions and powers of

the  Commission  including  but  not  limited  to  determination  of  the

structure  of  tariffs  for  supply  of  electricity  to  various  classes  of

consumers.    

Section 13 of the 1998 Act provides for constitution and functions

of  APTRANSCO.   Section  14  provides  for  licensing,  sub-section  (1)

whereof reads as under :-

“14.   Licensing:-  (1)  No  person,  other  than  those authorized  to  do  so  by  licence  or  by  virtue  of exemption  under  this  Act  or  authorized  to  or exempted  by  any  other  authority  under  the Electricity (Supply) Act,  1948, shall  engage in the Sate in the business of, -

34

(a) transmitting electricity ; or

(b) supplying electricity.”

Section  15  of  1998  Act  provides  for  grant  of  licences  by  the

Commission in respect of transmission of electricity in a specified area of

transmission and supply electricity in a specified area of supply including

bulk supply to licensees or any person.   

Section  16  of  1998  Act  provides  for  exemption  from  the

requirements of having a  licence.    

Section 17 of 1998 Act provided for general duties and powers of

the  licensees.   Section  21  imposes  restrictions  on  licensees  and

generating companies.

The Parliament enacted Indian Electricity Act, 2003 (in short 2003

Act).   

Sub-section (2) of Section 10 of the said Act enables a generating

company to supply electricity to third parties.  It reads :-   

35

“Section 10 - Duties of generating companies  

(2)  A  generating  company  may  supply electricity  to  any licensee  in  accordance  with this  Act  and  the  rules  and  regulations  made thereunder and may, subject to the regulations made  under  sub-section  (2)  of  section  42, supply electricity to any consumer.

Section 14 of 2003 Act provides for grant of licence.

The Schemes of 1910 Act, 1948 Act and 1998 Act being different,

any licence or sanction granted in terms of Section 3 and 28 of the 1910

Act or permission under Section 43A of the 1948 Act would not mean

that  no  licence  was  required  in  terms of  1998 Act.    The  Regulatory

Commission in absence of any direction issued by the State in terms of

Section 12 of the Act, that too being an expert body was entitled to take

its  own  decision.   The  power  of  the  Commission  to  regulate  supply

would  include  a  power  to  issue  necessary  direction  (s)  to  supply

electrical energy only to the licenses under the 1948 Act.  The 1998 Act

stipulates  that  the  manner  in  which  the  power  to  regulate  would  be

exercised has been left with only an expert body.

There are principally two categories of cases before us, viz.:

36

i) Where  the  State  of  Andhra  Pradesh  had  granted  express

permission to establish Mini Power Plants (for short MPP)

prior to 1995 where residual fuel which were to be used as

raw-material had been specified.  

ii) The  Government  of  Andhra  Pradesh  also  permitted  the

producer of electricity to supply it to heavy industrial units

including public sector undertakings.  

The issues involved in relation to these industries are two fold.   

Where the industries had been asked to sell electrical energy to the

APTRANSCO, writ petitions filed thereagainst had been allowed by one

Division Bench of  the  High Court.   It,  however,  appears  that  another

batch of cases where interim order had been passed by the Commission

to supply power to the APTRANSCO at one stage and pursuant to the

said directions, supply of energy had been taken for sometime but while

negotiations were going on for fixation of price between the parties at

first instance, which having failed, when the matter came up again before

the  Commission,  the  APTRANSCO  refused  to  enter  into  such  an

agreement resulting in an order passed by the Commission, that it cannot

enforce the APTRANSCO to enter into such an agreement.   

37

These  orders  were  subject  matter  of  writ  petitions  before  the

Andhra Pradesh High Court.  Another Division Bench of the said High

Court, keeping in view the stand taken from the very beginning by the

State of Andhra Pradesh; the power of the Commission as also the orders

passed by it from time to time as also the negotiations held between the

parties,  directed  APTRANSCO  to  enter  into  an  agreement  with  the

MPPs.   

Mr. Shanti Bhushan, learned senior counsel appearing on behalf of

the appellant- APTRANSCO, would submit :-

1) Whereas the Commission has the requisite power to regulate

supply  of  electrical  energy in  terms of  Section  11  of  the

1998 Act, it had no jurisdiction to compel the APTRANSCO

to enter into a Power Purchase Agreement.  

2) Power  of  the  Commission in  terms of  sub-section  (4)  of

Section  21  being  limited,  the  High  Court  committed  a

serious error in issuing the impugned directions.

38

3) The High Court while exercising its appellate jurisdiction in

terms of Section 39 of 1998 Act could not have issued any

direction which was beyond the power of the Commission.

4) In any event the High Court being not an expert body should

not  have  ordinarily  interfered  with  an  order  of  the

Commission which is an expert body, as has been held by

this  Court  in  West  Bengal  Electricity  Regulatory

Commission vs.  C.E.S.C. Ltd. etc. etc : (2002) 8 SCC 715.

Mr. Ramachandran,  learned counsel,  appearing on behalf  of  the

Commission would submit :

1) That sanction granted in terms of Section 28 of 1910 Act or

permission  granted  under  Section  43  A  of  the  1948  Act

would not  lead to  the conclusion that  the MPPs were not

required  to  take  fresh  licence  or  apply  for  grant  of

exemption.   

2) Applications  for  grant  of  exemptions  were  filed  by  the

MPPs, as even they as also the financial institutions thought

that the same was necessary.  

39

3) The  Commission  in  its  order  did  not  interfere  with  the

agreements which had been entered into by and between the

MPPs and the third party prior to coming into force of the

1998 Act.   

4) The  decision  to  direct  the  MPPs  to  supply  power  to

APTRANSCO was taken with a view to adjust the equities

between the parties, as otherwise, whereas on the one hand

MPPs  would  be  supplying  power  to  industrial  companies

and  commercial  concerns  which  would  attract  a  higher

tariff,  the  APTRANSCO  would  have  been  left  with  only

agricultural  consumers and domestic  consumers for  whom

the tariff was on a lower side resulting in sufferance of loss

by it

5) The  Commission  had  the  jurisdiction  to  issue  such

directions,  apart  from its  power  to  grant  licence  or  grant

exemption in terms of Section 14 of the 1998 Act but also in

exercise  of  its  power  to  regulate  supply  and  all  that  is

contained in Section 11 thereof.   

6) Apart from LVS Power, as no other company, had set up the

power plant, although the Commission in its order dated 4th

May,  2001,  in  purported  exercise  of  its  suo  motu  power,

40

expressed its  disinclication to permit  third party sales  and

fixation of rate, it asked the parties to negotiate thereabout

and only in  the  event  such  negotiations  failed,  they were

given the liberty to approach the Commission in the matter.  

7) When, however, it was found that the cost of supply would

be  beyond  the  capacity  of  APTRANSCO  to  bear,  the

Commission   refused  to  issue  to  it  to  make  compulsory

purchase of electricity from LVS.   

8) The  Commission  had  no  intention  to  restrict  sale  of

electricity  to  third  party  by  MPPs,  particularly  when

APTRANSCO itself was unable to take supply.  

Mr. Harish N. Salve, learned senior counsel appearing on behalf of

the respondent LVS Power, on the other hand, urged :-

1) Section 21(4) of the 1998 Act has no application to the facts

of the present case.

2) Sections  11(1)(e)  and  (f)  of  1998  Act  clearly  postulate  a

wide  power  in  the  Commission,  which  in  effect  and

substance, clearly go to show that while exercising its power

to regulate supply of electrical energy by generating station

41

to  a  consumer,  it,  while  directing  the  MPPs  to  supply

electrical energy to APTRANSCO had the requisite power

to direct the APTRANSCO to purchase the same.

3) In  any  event  the  APTRANSCO  itself  having  invited  the

order and furthermore having suffered two directions of the

Commission  as  contained  in  its  orders  dated  18th August,

2001 and 26th November, 2001 whereby and whereunder the

Commission directed the APT to purchase electrical energy

from the company subject to fixation of rate by negotiations,

and in the event of failure, to come back to the Commission

cannot now turn round and question its jurisdiction to do so

and, thus the High Court was within its jurisdiction to issue

the directions.  

4) APTRANSCO had  been changing  its  stand  from stage  to

stage, in so far as at one point of time it complained of the

capital costs being too high; when the company came down

to fix  costs,  it  did  not  accept  the  same and asked for  the

factor of variable costs for the purpose of fixation of tariff

and when the company, as an act of desperation, keeping in

view its  commitments  to  various  financial  institution,  had

42

even agreed therefor, took a complete turn about to contend

that they do not require the power.

5) The  Government  of  Andhra  Pradesh  having  referred  the

matter  to  Central  Electricity Authority for  its  opinion and

having obtained  the  same,  the Commission  was  bound  to

compel APTRANSCO to agree thereto.

6) In  any  event,  as  by  reason  of  the  stand  taken  by

APTRANSCO,  the  company  had  to  cancel  all  the

agreements  of  supply  entered  into  by  and  between  the

parties  for  supply  of  electrical  energy,  it  could  not  have

resciled  from  its  representation  and  refused  to  purchase

electrical energy from it.  

7) Once  it  is  contended  by  the  APTRANSCO  that  the

Commission had the power to direct the MMPs to sell their

produce  only to  it,  as  a  matter  of  policy,  could  not  have

contended that the Commission can have only half a power

and it had no power to ask it to purchase the same.

8) The  Commission  which  itself  has  made  a  mess  of

everything, was bound as an expert body to take the interim

direction of the Commission to its logical conclusion.  

43

9) The State having the power to lay down the policy decision

in terms of Section 12 of the 1998 Act, the Commission is

bound to give effect thereto having regard to its functions as

envisaged in Section 11(1)(f) of the Act.  It was, thus, bound

to  promote  competitiveness  involving  participation  of

private sector progressively and not regressively.

11) APTRANSCO having been constituted under the Act and its

functions being subject to supervision by the Commission,

was bound to obey the directions of the Commission.  

Mr.  Narsimhan and  Mr.  Dushyant  Dave,  learned  senior  counsel

appearing on behalf of G.V.K. and Astha Power submitted that having

regard to the fact that the MPPs had been granted licences by the State in

terms of Section 28 of 1910 Act and Section 43A (1)(c) of 1948 Act the

provisions  of  the 1998 Act as  regards  grant  of  licences  would  not  be

applicable in their cases.   

The  learned  counsel  submitted  that  the  Commission  had  no

jurisdiction to ignore the policy decision of the State, particularly when

the consumers to whom the MPPs would supply power upon generation

thereof had been fixed.  Such a policy decision, in view of Section 12 of

44

the Act was binding on the Commission.  Respondents were ill advised

to  approach  the  Commission  for  grant  of  exemption  which  was  not

necessary as has been found by the High Court.  The Commission in any

event  had  no  jurisdiction  to  direct  sale  of  electricity  only  to

APTRANSCO.   The  power  to  regulate  sale  and  supply  of  electrical

energy as contained in Section 11 of the 1998 Act must be held to be

subject to other provisions of the Act and in particular Sections 15(1)(h)

and 15(1(k) and Section 17 thereof.   

The  permission  granted  in  terms  of  Section  43A  of  1948  Act

having  been  repealed  by  1998  Act,  the  Central  Government  had

recognized  the  same  by  introducing  the  Electricity  (Removal  of

Difficulties)  Second  Order,  2005  in  the  light  of  Section  10(2)  of  the

Electricity Act, 2003  The sanction and permission granted by the State,

which  was  the  only  competent  authority  therefor,  having  conferred  a

benefit upon the MPPs by granting licences, as a result whereof the legal

rights vested in them, the same could not have been taken away.   

While issuing a direction that MPPs must sell the electricity only

to  APTRANSCO the  Commission  had  not  only  failed  to  address  the

question raised before., it passed an order only on the basis of misplaced

conception.    

45

The State took a policy decision.  It was with a view to develop

growth of generation and supply of electrical energy.  Monopoly of the

State Electricity Board was sought to be given a go bye.  The intention of

the State to lay down the policy decision in regard to privatization of

generation and supply of electrical energy is manifest from the GOMs.

issued by it.   

There  is  absolutely  no  doubt  whatsoever  that  the  Commission,

which is a statutory authority, is bound by the direction of the State but it

would not be so bound if it is contrary to or inconsistent with any of the

provisions  contained  in  1998  Act.   Respondents  herein  sought  for  an

exemption from the provisions thereof.  They filed applications in terms

of Section 16 of 1998 Act.  Whether such an application was filed on a

mistaken  belief  or  not  is  one  question  but  the  action  taken  by  the

Commission must be construed upon taking a holistic view of the matter.

Respondents  herein  acted  pursuant  to  the  promise  made  by the

State.  They altered their position.  They have invested a huge amount.

They  secured  foreign  collaboration,  raised  huge  loans  from financial

institutions.   They not only entered into Power Purchase Agreements but

also entered into Power Wheeling Agreements with APTRANSCO.  The

46

said arrangements were entered into in view of the fact that the private

generating  companies  did  not  have  the  requisite  infrastructure  for

transmission  of  electrical  energy from their  generating  stations  to  the

consumers.   

It  was  in  the  aforementioned  background,  we  must  take  into

account that the applications for exemptions were filed pursuant to the

order passed by the Commission as indicated hereinbefore.  It was the

Commission which opined that such an application for exemption was

not required to be filed.  However, while dealing with the application,

Commission issued a direction that the power generated by MPPs  must

be  sold  to  APTRANSCO  only  and  the  sale  to  the  3rd party  was

prohibited. Direction was issued in this behalf in great details.  The said

direction  was the  subject  matter  of  appeal  before  the Andhra Pradesh

High Court.   

Indisputably  the  letter  dated  29th February,  1996  issued  by  the

State  to  the private  entrepreneurs  is  also in  consonance  with  the  said

objective.  

47

The  power  of  the  Commission  in  terms  of  1998  Act  must  be

considered  having regard  to  the  provisions  of  Section 11  thereof.  We

may at the outset notice two different functions specified under the Act.

Section 11 of 1998 states about the functions of the Commission whereas

Section 12 thereof states about the powers of the State Government.   

No doubt the functions of the Commission is wide.  It, in terms of

clause  (e)  of  sub-section  (1)  of  Section 11 of  the  1998,  is  entitled  to

regulate  the  purchase,  distribution  and  supply  as  also  utilization  of

electricity but when the Act speaks of  regulation, the same would not

ordinarily mean that it can totally prohibit supply to third parties.  It may

do so in exceptional situations.  Such an order is not to be passed.   

The Commission, keeping in view the purported object of the Act,

ordinarily was bound to give effect to the policy decision of the State.

The Act was enacted to encourage competition.  It speaks of privatization

of generation of power.  The Commissioner’s power to regulate supply of

power must be considered keeping in view the purport and object of the

Act.   

48

In Advanced Law Lexicon, 3rd edition, page 4026  “Regulation”

has been defined as under :-

“A  regulation  is  a  rule  or  order prescribed by a superior for the management of some  business  or  for  the  government  of  a company or society or the public generally.”

In State of Tripura and others  vs.  Sudhir Ranjan Nath : (1997) 3

SCC 665, this Court held :-

“This in turn raises the question, what is the meaning and ambit of the expression "regulate" in Section 41 (1)  of  the  Act?  (Section  41(1)  empowers  the  State government "to regulate the transit of all timber and other forest-produce".) The expression is not defined either in the Act or in the rules made by the State of Tripura.  We  must,  therefore,  go  by  its  normal meaning having regard to the context in which, and the purpose to achieve which, the expression is used. As held by this Court in Jiyajee Cotton Mills Ltd. and Anr.  v.  Madhya Pradesh  Electricity Board  and Anr. [1989] Suppl.  2 S.C.C. 52 the expression "regulate" 'has  different  shades  of  meaning  and  must  take  its colour  from the  context  in  which  it  is  used  having regard  to  the  purpose  and  object  of  the  relevant provisions, and as has been repeatedly observed, the court  while  interpreting  the  expression  must necessarily keep in view the object to be achieved and the  mischief  sought  to  be  remedied"  (at  page  79). Having  regard  to  the  context  and  other  relevant circumstances, it has been held in some cases that the expression "regulation" does not include "prohibition"

49

whereas  in  certain  other  contexts,  it  has  been understood as taking within its fold "prohibition" as well.:

It has been held by this Court in  Jiyajeerao Cotton Mills Ltd. and

another  vs.  Madhya Pradesh Electricity Board and another : 1989 Supp

(2) SCC 52 that the power to regulate does not include power to prohibit.

The Court held :-

“ The  expression  "regulate"  occurs  in  other statutes  also,  as  for  example,  the  Essential Commodities  Act,  1955,  and  it  has  been  found difficult to give the word a precise definition. It has different shades of meaning and must take its colour from the context in which it is used having regard to the purpose and object of the relevant provisions, and as  has  been  repeatedly  observed,  the  Court  while interpreting the  expression must  necessarily keep in view  the  object  to  be  achieved  and  the  mischief sought to be remedied.”

In  Talcher  Municipality    vs.   Talcher  Regulated  Market

Committee and another : (2004) 6 SCC 178, this Court held :-  

50

“14.  The  power  to  regulate  buying  and  selling  of agricultural produce must be interpreted in the context in  which  the  same  has  been  used.  Each  person whoever  is  engaged  in  buying  and  selling  of  the agricultural produce in the market shall be subject to the regulation for which the same has been enacted. The  expression  "regulation"  is  a  term  which  is capable of interpreted broadly. It may in a given case amount to prohibition.”

If  the  State  had  accorded  sanction  for  sale  of  electrical  energy

generated by the MPPs, the Commission save and except for cogent and

compelling reasons could not have directed the sale of entire production

of  electricity  energy  to  APTRANSCO.   If  that  was  the  stand  of  the

Commission  and the APTRANSCO, the question  of entering into any

Wheeling  Agreement  did  not  arise.   It  is  one  thing  to  say  that  the

privileges conferred by G.O.Ms. issued by the State Government were

prior to the coming into force of the 1998 Act and appointment of the

Commission, but then the Commission was bound to  give due weight to

the policy decision taken by the State even prior to its establishment and

coming into force of the 1998 Act, particularly when the Act was enacted

in furtherance thereof.  

Indisputably respondents were entitled to produce electrical energy

under  Section  28  of  1910  Act.   They  were  authorized  to  generate

51

electrical energy.  The question which arises is as to whether they were

required  to  file  appropriate  applications  for  grant  of  licence  or  for

exemption which should have been dealt with accordingly.  At that point

of  time,  the  Commission  was  not  exercising  its  other  functions.   A

condition, which is per se  unreasonable should not have been imposed.

It is one thing to say that the statutory authority exercised its powers one

way or the other but it is other thing to say that in the garb of exercising

power  of  grant  of  licence  and/or  exemption  thereunder,  it  issued  a

direction which has nothing to do directly therewith.  

Commercial  relationship  between a generating  company and the

consumer has all along been accepted.  Public interest would not mean

the  interest  of  APTRANSCO  alone.   Equity  in  favour  of  one  of  the

generating companies could not have been the sole ground for coming

out  with  such  a  policy  decision  and  that  too  while  considering

application  for  grant  of  exemption  from the  purview of  the  licensing

provision..   

We  will  assume  that  the  Legislature  of  the  State  with  some

purpose  in mind provided for taking of licence under the 1998 Act but

the very fact that they had the requisite licence in terms of the provisions

52

of 1910 Act, itself was one of the relevant considerations for the purpose

of grant of exemption.  It could have been rejected in which event the

MPPs would have applied for grant of licence.   Indisputably the State

Government has the power to grant provisional licence.  In terms of sub-

section (4) of Section 14 of 1998 Act, the provisional licences are also

issued by the State Government.  Indisputably again the said provisional

licences have been granted to avoid a situation  as a result whereof the

MPPs would be forced to stop their function during interregnum period.

Even if the licences were required to be issued, each case should have

been considered on its own merit.    

When an application for grant of exemption is filed, the same is

required to be dealt with independently.  What was necessary for the said

purpose was interest of the consumers as well as the consideration that

supply  and  distribution  cannot  be  maintained  unless  the  charges  for

electricity supply are adequately levied and duly collected.   

The  Commission,  therefore,  was  bound  to  strike  a  balance.   It

should have given due consideration as to how and in what manner the

MPPs  were  established.   They  were  not  per  se  inconsistent  with  the

object sought to be achieved by the 1998 Act.   

53

Reliance in this  behalf has been placed on  Andhra Pradesh Gas

Power  Corporation  Ltd.  vs.  Andhra  Pradesh  State  Regulatory

Commission : (2004) 10 SCC 511 and  Grid Corporation of Orissa Ltd.

vs.  Indian Charge Chrome Ltd. : (1998) 5 SCC 438 para 15, which reads

:-

“15. Another  question  which  was  seriously contested  on  behalf  of  GRIDCO  before  the Regulatory Commission  as well  as  before  the High  Court  was  that  ICCL  is  not  a  licensee within  the  meaning  of  Section  2(h)  of  the Indian  Electricity  Act,  1910  and  also  under Sections 2(e) and (f) of the Reform Act, 1995. The High Court recorded a finding that ICCL is a  licensee  under  the  Indian  Electricity  Act, 1910  and  it  continued  to  be  a  licensee  even after  the  Reform  Act,  1995  came  into  force. The High Court placed reliance on Section 14 (1) of  the Reform Act  and held that  ICCL is authorised  by  the  State  Authority  in  the business of supplying the electricity. It was thus concluded that ICCL in view of Section 14 of the  Reform Act,  1995  shall  continue  to  be  a licensee. In view of this finding the High Court held that the dispute is arbitrable under Section 37(1) read with Section 33 of the Reform Act, 1995.  It  is  not  seriously  disputed  that  ICCL after  a  long-drawn  correspondence  with  the Orissa  Government  had  received no objection to put up the Captive Power Plant at Choudwar to  generate  power.  Accordingly  in  1989  the Captive  Power  Plant  started generating power which  was  supplied  to  the  OSEB.  This arrangement  continued  till  1994  when  MOU

54

and agreement were entered into between ICCL and OSEB. The GRIDCO being a successor of OSEB,  naturally  the  MOU  of  1994  and agreement  of  1995  will  be  binding  upon  the GRIDCO in the absence of any material to the contrary.  It  is  not  the  contention  of  the GRIDCO that ICCL did not supply any power at all during the period for which the bills were raised on ICCL. Despite this factual position it appears that no formal licence was issued under Section 2(h) of the Indian Electricity Act, 1910 or  under  the  Reform Act,  1995.  It  cannot  be ignored that the investment of ICCL in putting up  a  Captive  Power  Plant  at  Choudwar  is running into few hundred crores. Sections 2(e) and (f) of the Reform Act read as under:

“(e) ‘licence’ means a licence granted under Chapter VI; (f)  ‘licence’  or  ‘licence-holder’  means  a person  licensed  under  Chapter  VI  to transmit  or  supply  energy  including GRIDCO.”

Chapter VI deals with licensing of transmission and supply.

Section 14(1) reads as under:

No person, other than those authorised to do so  by  licence  or  by  virtue  of  exemption under this Act or authorised or exempted by any  other  authority  under  the  Electricity (Supply) Act, 1948 shall engage in the State in the business of

(a) transmitting; or (b) supplying electricity.

From  the  facts  noted  hereinabove  and  in view of Section 14(1) of the Reform Act it is

55

quite clear that ICCL was/is authorised and engaged  in  supplying  the  electricity  to OSEB and thereafter to GRIDCO and if this be so the dispute between the GRIDCO and ICCL could be arbitrable under Section 37 (1) read with Section 33 of the Reform Act, 1995.”

Reference made to the decision of Grid Corporation of Orissa Ltd.

(supra)  is  not  apposite.   The  same  was  rendered  in  a  different  fact

situation.   The question as regards the effect of Section 14 has not been

considered therein.   

We are,  therefore,  of  the  opinion  that  it  was  necessary  for  the

MPPs to apply for licence under Section 14 of the Act.   

We  are,  however,  of  the  opinion  that  while  considering  the

application  for  grant  of  exemption,  the Commission  did not  have  any

jurisdiction to issue a direction that all MPPs must supply electricity to

APTRANSCO  only.   The  power  and  extent  of  jurisdiction  of  the

Commission  to  regulate  supply  is  a  wide  one  but  the  same,  in  our

opinion,  does  not  extend  to  prohibition  or  positive  direction  that  the

supply of total energy produced must be made to APTRNASCO while

exercising the said jurisdiction.  In fact there was no occasion for issuing

56

such a direction.  It is one thing to say that the Commission is entitled to

fix tariff but therefor then it cannot take into consideration the case of

APTRANSCO alone.   

What should be the basis for issuing any tariff could have been the

question which was to be posed by the Commission to itself.  For the said

purpose,  the  Commission  was  required  to  take  into  consideration  all

aspects  of the  matter including the  fact  that  Wheeling Agreement  had

already been entered into and only by reason thereof, the APTRANSCO

may  generate  a  lot  of  revenue.   The  decision  of  the  Commission,

therefore, being illegal has rightly been set aside by the High Court.  

This  takes  us  to  the  case  of  LVS Powers  Ltd..   So far  as  LVS

Powers Ltd. is concerned it had acted on the basis of the directions of the

Commission.  It for all intent and purport proceeded on the basis thereof.

It  not  only  held  negotiations  with  APTRNASCO  for  the  purpose  of

arriving at a mutually settled tariff, it having regard to huge loan taken by

it  and  presumably  on  the  pressure  of  IDBI  accepted  almost  all  the

suggestions made by APTRANSCO.   

57

From the letter dated 24th July, 1996 to M/s. LVS Power Ltd. it is

evident  that  its  consumers  were   Hindustan  Shipyard  Ltd.;  Hindustan

Zinc  Ltd.;  Essar  Steels  Ltd.  and  Andhra  Cements  Ltd.  all  situated  at

Visakhapatnam i.e. within the State of Andra Pradesh.  The Commission

appears to have even succumbed to the pressure of the employees of the

State Electricity Board.   It  allowed the employees to be impleaded as

parties.  It heard them.  Why the employees of APTRANSCO had to be

heard is beyond our comprehension.

From  the  order  dated  4th May,  2001  it  appears  that  APSEB

Engineers’  Association  and  Assistant  Engineers’  Association,  APSEB

were heard.  The main contention appears to have been advanced was as

to whether MPPs should be allowed to generate power with residual fuel.

The Commission noticed that out of 31 MPPs permission granted to 12

were cancelled.  Out of 19, LVS Power Ltd. survived.    

It  noticed  that  some  of  the  MPPs  changed  their  capacities.   It

furthermore took notice of the fact that LVS had already drawn moneys

from the financiers and the extension granted by GOAP in their case was

to expire on 30th April, 2001.   

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Interestingly  the  State  of  Andhra  Pradesh  did  not  put  in  their

appearance before the Commission.  The Commission merely received a

communication from the Principal  Secretary to the Government which

was noticed as under:-

“Nobody appeared on behalf of the GoAP.  But a  letter  has  been  filed  in  which  the  principal Secretary  to  Government  has  urged  that permission  may  be  given  to  MPPs  for  third party  sales  to  HT  Industrial  consumers.   If APTRANSCO  loses  on  account  of  this arrangement,  the  Commission  can  fix appropriate  wheeling  charges  taking  into account  the  cross  subsidization  foregone  by APTRANSCO on account of third party sales.”

The same per se was illegal.  

It  took  into  consideration  the  question  of  subsidy.   The

Commission reiterated that it was not inclined to permit third party sale.

It unfortunately laid serious emphasis on the contentions raised by civil

societies at the relevant time.  It furthermore noticed that its earlier order,

and directions were issued to eight developers to make an offer of price

on  the  basis  of  the  various  Government  of  India  notifications,  by

abdicating its own jurisdiction.  On the one hand, it was conscious of its

functions but, on the other hand, it failed to determine the issues between

the parties.  

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However, the order dated 30th March, 1992 was not challenged by

APTRANSCO.   The  Commission  furthermore  noticed  that  wheeling

agreement had been entered into by and between the parties on or about

25th February, 1999.  After taking into consideration some submissions of

the parties, directions were issued as has been noticed hereinbefore.  

What for, it asked the parties to negotiate is evident from that in

the event of their failure to agree on the price and the other terms and

conditions, the Commission itself would do it.  The aforementioned order

dated 4th May, 2001 has also not been challenged by APTRANSCO.   

It is in the aforementioned backdrop that we will notice the letter

dated 17th August, 2001 written by Chief Engineer, Vidyut Soudha to the

Commission where after duly noticing that since finalization of PPA has

to  be  done  after  the  abovecited  GoAP approvals  are  received,  it  was

proposed to purchase power produced at the above cited rate from the

COI as the plant, subject to consent of the Commission. From the said

letter  it  appears  that  APTRANSCO  had  reviewed  the  capital  cost

furnished by the developer.  They were agreeable to the levelised tariff

mentioned therein with payment on year to year basis as per CEA norms

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and  variable  charge.   As  per  CEA,  APTRANSCO  was  permitted  to

purchase  the  power  from  LVS  Powers  Ltd.  at  the  rate  specified  in

paragraph 5 of the letter which is to the following effect:-  

“5. APTRANSCO’s consultants have reviewed the capital  cost  furnished  by  the  developer  and  opined that the capital cost can be brought down to the order of Rs.125.00 Crs.  The revised tariffs with this capital cost and CEA norms for unit generated will work out to as follows:

Unit generated

FC  VC Total  

With FE variation - 115.4 157.5 272.9

Without FE variation - 112.6 157.5 270.2

The  above  tariff  projections  have  been  informed  to the  developer  on  17.8.2001.   In  reply,  the  project company has informed that they are agreeable to the levelised  tariff  of  115.4  FC  157.5  VC  per  unit generated  and  with  foreign  exchange  variation  on ROE, presently accepting the capital cost of Rs. 125 Crs.  Subject  to  condition  that  the tariff  is  to  be re- fixed after the capital cost is approved by the GoAP.”

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Supply commenced in September, 2001.  On the aforementioned

basis  only  the  private  agreements  were  terminated.   Important

developments took place in the next three months.  

By a letter dated 26th November, 2001, APTRANSCO asked the

Principal Secretary to the Government of Andhra Pradesh inter alia the

following :-

“ In view of the above, it is requested that the capital cost of the project may be limited to that of Rs.125.33 Crs.  It is also to inform that in  case  APTRANSCO  is  unable  to  purchase power  from  this  MPP,  the  MPP  may  be permitted  to  sell  the  power  outside  the  State subject  to  consent  of  APERC  allowing APTRANSCO to collect wheeling charges.  It is requested that the approval of the capital cost may  be  communicated  early  to  fix  the  final fixed cost of the tariff and seek the approval of APERC to continue purchase of power if it is found  on  part  with  the  earlier  ad  hoc  tariff fixed.   Early  action  is  solicited  since  the permission  given  by  APERC for  purchase  of power  from  the  developer  has  expired  on 31.10.2001.”  

It was suggested that the capital cost is too high and, therefore, the

tariff should be fixed on the basis of fixed costs.  It was opined that there

was no need to consider  variable costs.   What would be the effect  of

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power purchase beyond 30th November, 2001 was stated in the letter of

APTRANSCO dated 3rd December, 2001 to the Commission, which was

in the following terms :-

“This has reference to the correspondence cited regarding  purchase  of  power  from M/s.  LVS Power Ltd.

2) In the reference 4 dated 26.11.2001 cited above.  APERC permitted the APTRANSCO to purchase power from M/s. LVS Power Ltd. at the rate as per APERC Order in the reference (2) cited and extended the period of purchase of power from 31.10.2001 to 30.11.2001 purely as an interim measure and directed APTRANSCO to  send  the  firm  tariff  proposal  with  the approved project cost from competent authority latest by 30.11.2001 for the commission to pass appropriate order.

3) In  this  connection,  the  following  are submitted –

i) The GOAP have been requested vide this office  letter  dated  26.11.2001  ref  (5) cited to limit the capital cost of the LVS Power  Ltd.  to  Rs.125.33  Crs.  and  for approval  of  the  capital  cost  to  fix  the final fixed cost of the tariff and seek the approval of APERC to continue purchase of power.

ii) After  the  project  cost  is  approved  by GOAP the tariff is to be worked out and a  firm  proposal  is  to  be  submitted  to APERC for approval.

iii) It  may take  some time  for  approval  of capital cost and finalization of tariff and

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approval  of  power  purchase  from APERC.

iv) APTRANSCO  cannot  take  power  from the project in the absence of provisional approval from APERC.

4) In view of the above, it is requested that the  time  limit  of  power  purchase  from  M/s. LVS  Limited  may  kindly  be  extended  for  a further  period  of  two  months  i.e.  from 30.11.2001  to  31.1.2002  early  to  enable APTRANSCO  to  avail  supply  beyond 30.11.2001.”

A stand appears to have been taken by the Commission in its letter

dated  27th December,  2001  addressed  to  the  Chief  Engineer,

APTRANSCO by the Commission stating :-

“This is to inform you that further proceedings in the above matter will be held at 11 AM on 7th February 2002 at the Commissions office with the  APTRANSCO,  GOAP  and  LVS representatives must attend.  In the meanwhile APTRANSCO shall finalise all the documents and  issue  outstanding  including  with  the Government of Andhra Pradesh as stated in the letter  dated  03.12.2001  addressed  to  the Commission  and  file  with  the  Commission relevant  documents,  details  etc.  by 31.01.2002.”

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In  the  meantime  the  State  referred  the  matter  to  the  Central

Electricity  Authority  seeking  advise  under  Section  3  of  the  1948  Act

about the reasonableness of the capital cost of the project proposed by

APTRANSCO in view of the experience and expertise of the Authority

in Power Projects.   

APTRANSCO thereafter  filed its  written submissions before the

Commission expressing its inability to purchase power from the MPPs.

The Government of Andhra Pradesh was asked to consider the question

as  to  whether  they  can  sell  power  outside  the  State  duly  permitting

APTRANSCO to collect wheeling charge as per the Commission’s order.

Several other new contentions were raised with which we are not

concerned but we are noticing the same only for the purpose of showing

as to how and in what manner APTRANSCO has been changing its stand

from stage to stage.   

However,  it  is  of  some  significance  to  notice  that  Central

Electricity  Authority  in  terms  of  its  letter  dated  26th February,  2002

opined that the capital costs works out to be on lower side from the other

projects by stating :-  

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“It  may,  however,  be  mentioned  that  CEA, while granting TEC for similar type of projects for IPPs have cleared the estimated completion capital  cost  in  the  range  of  Rs.3.62  crores  to Rs.3.8  crores  per  MW  as  the  ceiling  cost depending on the scope of work,  site specific features,  financial  package,  debt-equity  ratio, exchange  rate,  taxes  and  duties,  foreign exchange etc.

GOAP may please take further action based on the above.”  

The Government of Andhra Pradesh in view of that letter asked

APTRANSCO  to  proceed  with  the  exercise  for  arriving  at  PPA  and

submit the same to the Commission for approval.  APTRANSCO by its

letter  dated  11th April,  2002  addressed  to  the  Commission,  inter  alia

stated  :-

“After detailed examination of the above offer by APTRANSCO, I am directed to convey that in  the  context  of  surplus  power  situation  and APTRANSCO’s  proposal  to  surrender  NTPC Eastern Region Power and not to draw Power from  Central  Generating  units  due  to  Merit Order  Dispatch,  dispatch  from  the  power station  poses  a  serious  problem.   Further, APTRANSCO’s inability to dispatch the station will  lead  to  payment  of  fixed  charges irrespective of generation by this power station. In  view of  the  above,  it  is  requested  to  take

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necessary action and pass appropriate orders in this regard.”

It  is  in  the  aforementioned  background  that  the  order  of  the

Commission dated 23rd April, 2002 stating that it had no jurisdiction to

direct APTRANSCO to purchase power from LVS must be considered.  

It is strange that while Commission was so conscious of is own

power as envisaged under clause (e) of sub-section (1) of Section 11 of

the Act in prohibiting third party sale so far as MPPs are concerned, it

even could not take its own order to its logical conclusion.  It  is with

some  displeasure  that  we  must  notice  as  to  how  Commission  mis-

directed itself at every stage.  Despite the State supported the application

for grant of exemption, the third party sale was prohibited.  Parties were

asked to negotiate and come back for fixation of tariff but then without

realizing the consequence which has to be suffered by the parties, it says

it  could  not  do  anything  in  the  matter.   If  APTRANSCO  was  not

agreeable  to  the orders  passed by the  Commission,  which might  have

been  passed  during  the  pendency  of  the  proceedings,  it  could  have

questioned the same.  It did not do that.  It accepted the orders.  It for all

intent and purport forced the respondent to alter its position to its great

detriment.  The Commission itself is responsible for the  said situation.

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If it has the power to regulate, as it has been contending, it should have

proceeded progressively and not regressively.  It could have taken into

consideration  the  provisions  of  Section  11  (1)(f)  whereby  one  of  its

function  is  to  promote  competitiveness  and  progressively  involve  the

participation of private sector, while ensuring fair deal to the customers.  

The  Commission,  as  we  have  noticed,  hereinbefore  had  been

waiting for some directions of the Government of Andhra Pradesh.   It is

from that angle it  must be held that the decision of the State to allow

MPPs. to generate electricity was a matter of policy.  The Commission

for all intent and purport has frustrated the policy and object of the Act.

APTRANSCO in terms of Chapter V of the Act also acts as a statutory

authority.  The Commission must function within the fourcorners of the

1998 Act.  It is again subject to the power of the State Government under

Section 12.  It has referred the matter again and again to the State and

when  the  State  asked  it  to  proceed  in  the  manner,  it  backed  out  and

APTRANSCO was constituted with the principal object of engaging the

business of promoting and supply of electrical energy.  It is required to

obtain licence for the said purpose.  Sub-sections (4) and (5) of Section

13 of the 1998 read as under :-

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“13.(4)  APTRANSCO  shall  undertake  the functions  specified  in  this  section  and  such other functions as may be assigned to it by the licence to be granted to it  by the Commission under this Act.   

(5) Upon  the  grant  of  licence  to  the APTRNASCO under clause (a) of sub-section (1) of Section 15 of this Act, the APTRNASCO shall discharge such powers and perform such duties  and  functions  of  the  Andhra  Pradesh State  Electricity  Board  including  those  under the  Indian  Electricity  Act,  1910  and  the Electricity  (Supply)  Act,  1948  or  the  rules framed  thereunder  as  the  Commission  may specify  in  the  licence  and  it  shall  be  the statutory  obligation  of  the  APTRNASCO  to undertake  and  duly  discharge  the  powers, duties and functions so assigned.”  

We  have  held  hereinbefore  that  licence  under  section  14  is

necessary but the same is only for transmission and supply and not for

generation of electrical energy.  Such a licence is required so as to enable

the Commissioner to effectively control  and regulate  transmission and

supply.  It is also relevant to note that Section 21 provides for restriction

on  licensees  and  generating  companies.   Sub-section  (4)  empowers  a

holder of supply or transmission licence to enter into arrangements for

the purchase of electricity.  Sub-section (5) provides that any agreement

relating  to  any transaction  of  the  nature  described  in  any of  the  sub-

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sections unless made with or subject to such consent as aforesaid, shall

be void.  It, therefore, restricts the power and activities of APTRANSCO.

It is in the aforementioned situation that the doctrine of promissory

estoppel should be held to be applicable.   

In  Southern  Petrochemical  Industries  Co.  Ltd.   vs.   Electricity

Inspector and ETIO and others : (2007) 5 SCC 447, on the question of

doctrine of promissory estoppel, it was held :-

“121. The  doctrine  of  promissory  estoppel would  undoubtedly  be  applicable  where  an entrepreneur alters his position pursuant to or in furtherance of the promise made by a State to grant  inter  alia  exemption  from  payment  of taxes  or  charges  on  the  basis  of  the  current tariff. Such a policy decision on the part of the State shall not only be expressed by reason of notifications  issued  under  the  statutory provisions  but  also  under  the  executive instructions.  The  appellants  had  undoubtedly been  enjoying  the  benefit  of  (sic exemption from)  payment  of  tax  in  respect  of sale/consumption  of  electrical  energy  in relation to the cogenerating power plants.”

The Court further opined :

“128. In MRF Ltd. it was held that the doctrine of  promissory  estoppel  will  also  apply  to statutory notifications.”

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As regards setting up of MPPs the principle of estoppel shall also

apply.  It is now a well settled principle of law that nobody should suffer

for the wrong done to by a quasi-judicial body.  In view of the principle

analogous to ‘actus curiae neminem grvabit’, we are of the opinion that

because  of  the  unreasonable  stand taken by APTRANSCO before  the

Commission,   LVS Powers  should  not  suffer.   In  the  aforementioned

situation the High Court has issued the directions.   

APTRANSCO did not intend to increase its efficiency.  It did not

equip itself so as to be able to compete with others.  It might have been

in a disadvantageous position.  On the one hand the Commission asked

for total prohibition for third party sale on the premise that it  had to

supply electricity to agriculturist, but then when a situation came that it

must purchase the power pursuant  to the impugned directions  of the

Commission from MPPs it made a contradictory stand that MPPs can

sell the power outside the State.

Before us IDBI intervened.  Indisputably it had granted financial

assistance to the first respondent-LVS Power. IPDB granted loan only

on the basis that the unit shall be functional.     

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This Court on 11th October, 2002 and 2nd December, 2002 passed

interim orders

Mr. Shanti Bhushan states that the first respondent has been paid a

huge  amount  pursuant  to  the  said  orders  and  this  Court  may issue  a

direction for refund thereof.  We do not agree.  The interim order by this

Court was passed to maintain a balance and in the interest of the parties.

We are, therefore, of the opinion that in this case interest of justice

would be subserved if in modification of the order passed by the High

Court,  the  impugned  judgments  are  set  aside  and  the  Commission

constituted under the 2003 Act is directed to consider the matter afresh in

the light of the new statute.   

We hope  and  trust  that  the  Commission  shall  pass  appropriate

orders upon taking into consideration all the material factors.  It would

be at liberty to vary, modify, rescind the order of the old Commission and

issue directions as may be considered just and reasonable.  It may, in the

changed situation, also allow the parties to effect third party sale.  It will

be at liberty to evolve a scheme for revival of the companies, keeping in

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view the  public  interest  involved  and  in  particular  the  interest  of  the

financial  institutions.  The time granted for completion of the projects

should be extended by one year.  Till such time as the Commission may

not pass an appropriate interim order, the interim order passed by this

court shall continue.

The appeals are disposed of in the abovesaid terms.  In the facts

and circumstances of the case, there shall be no order as to costs.  

………………………….J. [S.B. Sinha]

..…………………………J.            [ D.K. Jain ]

New Delhi; May 16, 2008

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