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REPORTABLE  

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4304 OF 2007

MAHARASHTRA STATE ELECTRICITY        ….APPELLANT DISTRIBUTION CO. LTD.

VERSUS

UNION OF INDIA AND OTHER                ….RESPONDENTS

J U D G M E N T

Arun Mishra, J.

1. The appeal has been preferred by Maharashtra State Electricity

Distribution Company Limited (for short,  ‘the MSEDCL’) against the

order dated 30.5.2007, passed by Appellate Tribunal for Electricity (for

short, ‘the  APTEL’), dismissing the  appeal against the order  dated

21.5.2004 passed by Maharashtra State Electricity Regulatory

Commission (for short, ‘the MERC’), quashing Circular No.602 dated

23.7.1998, Circular No.619 dated 25.5.1999, Circular No.627 dated

2.9.1999, Circular No.651 dated 19.9.2000 and Circular No.663 dated

5.10.2001, insofar as they purport to impose “take or pay” obligation

and minimum off­take requirement as also of any additional tariff for

captive power plant holders on the ground that there was no approval

of the MERC constituted in terms of the provisions of the Electricity

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Regulatory  Act, 1998 (for short, ‘the  Act of 1998’).   The  aforesaid

circulars  dealt  with Captive  Power  Plant Policy  (for  short, ‘the  CPP

Policy’).  The appellant­MSEDCL has been directed to make refund to

respondent nos.3 to 7.  The financial liability has been imposed upon

the appellant­MSEDCL.  The MERC was constituted on 5.8.1999. The

appellant­MSEDCL had submitted all its circulars to MERC for

approval  and the MERC after  four years has quashed the circulars

with retrospective effect.  The financial condition  of the  appellant­

MSEDCL  is  not  sound enough to  sustain such kind of liability for

refund.   It  was  unable to  pay  a sum of  Rs.504  crores  as  against

liability to other parties.

2. Respondent no.3­M/s.  NRC Ltd. initially had  its  two units on

Plot No.E 23.  Unit Nos.1 and 2 had a contract demand of 3500 KVA

and 1800 KVA respectively.  In 1995, an independent connection was

sought  by respondent  no.3 for its  Unit  No.2.  Representation  was

made that two units were separate units and on that basis, two

independent connections were given.  After that, respondent no.3 filed

an application dated 5.4.1997 to set up a CPP of 7MW capacity.   In

respect of contract demand, it was proposed to retain total contract

demand for 8­12 months after the CPP was fully operational and to

surrender around 50% of the contract demand after that.  Prayer was

also made to provide stand­by power.

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3. The Government of Maharashtra issued a notification dated

20.12.1997, whereby it empowered Maharashtra State Electricity

Board (for short, ‘the MSEB’) to finalise the technical and commercial

arrangements between captive power purchasers and their party

purchasers.  No objection certificate  dated 7.1.1998 was issued by

appellant­MSEDCL subject to the  Condition  No.4,  which  permitted

respondent no.3 to decide the level of contract demand after the

commissioning of the set and any changes for interconnection would

be governed as per the Board’s Condition of Supply framed from time

to time and its policies as no rules were framed.

4. Circular No.602 dated 23.7.1998 was issued vesting power with

the Board to permit the CPP holder for sale of their CPP power to any

third  party through  the  Board's  grid, grant  of  permission  to those

persons to use their CPP power for self use only and to charge

wheeling and transmission loss charges.

5. The Act of 1998 was enacted on 25.4.1998.  Before that, field of

electricity was regulated by Electricity Supply Act, 1948 (for short, 'the

Act of 1948').  Section 49 of the Act of 1948 empowered the respective

Electricity  Boards to come up  with their tariffs,  which  could  have

differential.  Section 79(j)  of the Act empowered the Board to make

regulations pertaining to supply of electricity to the licensees under

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Section 49.  Section 44 further provided that for establishing the CPP

unit, prior consent of the Board was mandatory.   MSEB was

regulating the field of CPP as per notifications issued by the

Government and the provisions contained in the Act of 1948.

6. On 23.9.1998, respondent no.3 sought clubbing of the contract

demand and subsequent reduction to 3000 KVA for both the units.

The clubbing of two units would increase the total contract demand to

5300  KVA and  would  necessitate the installation  of an  EHV Line.

Thus, the same could not be done.  Respondent no.3 was not entitled

to reduction of contract demand in view of the application dated

5.11.1997.  Hence, it was not permitted as per letter dated 23.9.1998.

7. MSEB submitted a proposal on 4.5.1999 to the Government of

Maharashtra for revision of its retail distribution tariff w.e.f. 1.6.1999,

keeping in view the requirements of Section 59 of the Act of 1948.  The

proposal for revision of tariff  was under  consideration of the State

Government in the year 1999. Still, no final decision was taken and

the delay was owing to the imposition of Model Code of Conduct due to

elections and on 5.8.1999 MERC was constituted.   The Government

advised the MSEB to submit   proposal for tariff revision to

Commission for its approval and accordingly, the proposal was

submitted to the MERC.

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8. Circular  No.619 dated 25.5.1999 was  issued by  the Board  to

grant permission for installation of CPP for self use only, reduction in

contract demand to CPP holders would not be permitted and levy of

penal charges at the rate of 2 times/3 times the prevailing tariff to the

CPP holders  in their  energy bills for over  drawal of  power on their

agreed contract demand under planned/unplanned shutdown as

stipulated in the Government of Maharashtra resolution dated

20.12.1997.   On 29.8.1998, respondent no.3 had commissioned its

CPP and withdrew its earlier application dated 18.6.1999 for reduction

in contract demand and resubmitted two applications and sought

reduction in contract demand of Unit No.1 from 3500 KVA to zero and

increasing contract demand of Unit No.2 from 1800 to 3000 KVA.  The

fresh application could not be granted as the then existing policy of

the  appellant­MSEDCL was  not to  grant  any reduction  in  contract

demand to existing CPP holders as notified vide letter dated

18.6.1999.

9. Vide  circular  dated  2.9.1999, the  policy  contained  in  circular

dated 25.5.1999 was partially modified insofar as it related to a

reduction  in contract demand.  It  permitted CPP holders to reduce

contract demand to 2.5 MVA or 50% of the contract demand of 5 MVA

or above.  It was specifically provided that CPP holders with a contract

demand of less than  5  MVA would  not  be  permitted reduction in

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contract demand.   As respondent no.3 had two independent

connections, each having a contract demand of less than 5 MVA, it

was not entitled to reduction in contract demand.   As per policy

contained in the aforesaid circular, all the CPP holders were required

to draw at least 25% energy of their monthly consumption from the

appellant­MSEDCL and in case of drawal of less quantity of electricity,

they would be billed for 25% of the energy.  The energy supplied would

be charged at the rate of 110% of the tariff applicable was the

condition of supply for interconnection and stand­by power.

Respondent nos.3 to 7 had sought stand­by power.   The appellant­

MSEDCL had  invested huge amount for  establishing  the necessary

infrastructure.  It was incumbent upon the appellant­MSEDCL to keep

available at all material time the requisite infrastructure for supply of

electricity to respondent nos.3 to 7.   The NOC was issued as per the

prevailing policy subject to the condition of supply for paralleling

connection or further changes in policy.   Thus, circular dated

2.9.1999 was issued.  

10. On 28.4.2000, the State Government issued a guidance to the

appellant­MSEDCL to withdraw the said condition for compulsory

drawal of 25% energy as it was not in line with the Government of

Maharashtra policy decision as mentioned in the resolution dated

25.4.2000.

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11. It  was  submitted  on  behalf of appellant­MSEDCL  that  MERC

passed an order on 5.5.2000, pointing out that it would look into the

matter of  sale of  surplus power by CPPs to MSEB at  a  later stage

under Section 22(1)(c) of the Act of 1998.   The Commission directed

the MSEB to follow Section 44 of the Act of 1948 in its true spirit and

clear all  pending applications by 30.6.2000.   Refusal to the captive

units, on the other hand, was contradictory.  

12. The appellant­MSEDCL modified their policy dated 19.9.2000 in

line with Government of Maharashtra CPP Policy reflected in the

resolution dated 25.4.2000 and withdrew the condition of compulsory

drawl of 25% of the energy of MSEB grid by CPP holders prospectively

with effect from 28.4.2000.  No sanction for connecting the additional

load of the unit at Plot No.E­1 to the CPP was granted.   Respondent

no.3,  however, illegally  connected  the said load of the unit  at  Plot

No.E­1 to the CPP.

13. On 31.8.2001, the appellant­MSEDCL submitted its proposals to

MERC along with  a tariff  petition.  The circulars  dated  23.7.1998,

25.5.1999, 2.9.1999 and 19.9.2000 were submitted to MERC for its

approval. MERC passed order dated 10.1.2002 on the tariff petition of

the appellant­MSEDCL, in which it was held:

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 “The Commission is of the opinion that the  ‘Captive Power Policy’ is a policy matter under the jurisdiction of the Government  of  Maharashtra,  and  the  Commission  has  very recently been conferred with additional powers under S. 22[2] of the ERC Act, 1998, which includes the power to aid and advise the GoM in the formulation of the State Power Policy. The Commission would not like  to  comment on the captive power policy  at this  stage,  but  would  like to  state  that  the MSEB has appended the captive power policy along with the Tariff Proposal for the information of the consumers, and the Commission’s silence on this policy should not be taken as approval of the same.”

14. Respondent nos.3 to 6 had filed writ petitions before the High

Court.   The High Court relegated them to MERC.  It was not pointed

out   that there was a provision as  to arbitration in case of dispute

between the appellant­MSEDCL and CPP holders.   It was also

submitted that on 3.3.2004, MERC has passed an order in Case No.55

of 2003, in which it observed:

“7. …The Commission was seized of the matter relating to the CPP Policy as a whole, but the previous Circulars continue to operate since the Commission had not kept them in abeyance, and they are also not the subject to challenge in the present proceedings.”

15. Ultimately, vide order dated 21.5.2004, the MERC allowed the

petition filed by respondent nos.3 to 7 and set aside the

abovementioned circulars issued by appellant­MSEDCL from 1998

onwards on the issue of CPP.   Even though MERC was not in

existence at the time when certain circulars were issued, they have

been quashed on the ground that no approval from MERC had been

obtained.   Aggrieved thereby, an appeal was preferred before the

APTEL and the same was dismissed. Hence, the appeal.

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16. It was submitted by the learned counsel appearing on behalf of

appellant­MSEDCL that policy for CPP was evolved by the Government

resolution dated 20.12.1995 onwards.  Thus, circular dated 25.5.1999

provided for contract demand and “take or pay” obligations were result

of the policies  of the State  Government.  Circular  dated 25.5.1999

provided for charging of energy drawn from the appellant­MSEDCL by

CPP at the rate of 110% of the applicable tariff.  It was altered to 125%

vide circular dated 2.9.1999 of the energy from the appellant­MSEDCL

of the monthly consumption based on preceding 12 months before the

commissioning of CPP.

17. The MERC was established on 5.8.1999 though the Act came

into force w.e.f.  25.4.1998.   MERC observed that  it  was within the

power of State to continue with or alter tariff related

decisions/arrangements to decide about the continuance of tariff on

the ground that CPP policy was in the domain of the State

Government as observed in tariff order dated 5.5.2000 (Case No.1 of

1999), tariff order  dated  10.1.2002 (Case  No.1  of  2001)  and  order

dated 3.3.2004 (Case Nos.55 and 56 of 2003). It was submitted that

MERC was  constituted  on 5.8.1999, its  approval  was  not required

with regard to two circulars were issued before the said date.  Reliance

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has been placed on Binani Zinc Limited v. Kerala State Electricity Board

and Ors., (2009) 11 SCC 244.   

18. It  was  also  submitted  on behalf  of  appellant­MSEDCL  that it

incurred costs for additional generation, strengthening of transmission

network  and distribution system and for  establishing  of  EHV sub­

station transformation.   The  appellant­MSEDCL  has taken various

decisions.   The circulars had not imposed an additional financial

burden on CPP holders.  The appellant­MSEDCL agreed to allow CPP

holders, who consented for expansion load, for using against the

existing load and also reduction in contract demand, as such, it is

clear that financial health was affected.

19. It  was  further  submitted on behalf  of  appellant­MSEDCL that

circulars as per the policy of   the State Government could not have

been invalidated.  The  Commission  could  have  passed  appropriate

order on merits concerning matters after its constitution.  It could not

have quashed the circulars issued before its establishment.   The

appellant­MSEDCL had the power to alter the tariff when the

Commission was not established and the Government has authorised

it also.  Under Section 44 of the Act of 1948, the CPP industry would

be bound by the policy of the Board and directions of the Government

of Maharashtra.  The APTEL has failed to consider that circular dated

2.9.1999 does not amount to a revision of tariff,  it pertained to the

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policy regarding the  CPP.  The  APTEL did  not consider that  huge

amount has been spent on infrastructure which was to be kept

available for the standby facility. The Government of India letter dated

22.8.1994 contemplated both the units of respondent no.3 as separate

units.  The policy decision dated 20.12.1997 of the Government of

Maharashtra has also not been considered.  The APTEL failed to take

note of the letter dated 13.10.1999 issued by the appellant­MSEDCL

to respondent no.3 in respect of unauthorised act of connecting

supply from Plot No.E­23 to Plot No.E­1 without any sanction from the

appellant­MSEDCL.  The APTEL also failed to consider that circulars,

which have been quashed, were only explanations/clarifications to the

earlier notifications coercing the policy of CPPs.

20. It was submitted that the APTEL did not consider order dated

10.1.2002 passed by MERC, in which it observed that CPP is a policy

matter under the jurisdiction of the Government of Maharashtra and

the Commission has been recently conferred with the additional power

under Section 22(2) of the Act of 1998, which includes the power to

aid and advise the Government of Maharashtra in the formulation of

the State Power Policy.   The Commission kept silent on CPP at that

stage.   It was further submitted that Commission mentioned in the

order that it was conferred with the powers under Section 22(2) of the

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Act of 1998 recently, thus, the Commission should not have struck

down the CPP and the circulars regarding that.  

21. The copies of the circular were forwarded as in the case of all

other circulars issued by  appellant­MSEDCL to its field officers.  The

appellant­MSEDCL had the power to alter the tariff, the circular dated

25.5.1999 was authorised one, which was partially modified on

13.8.1999.   One of the modifications was that CPP holders were

required to draw at least 25% of their monthly consumption from the

appellant­MSEDCL.   There was no additional financial burden

imposed on CPP holders.   The policy contained in the circular was a

matter of economic policy.   It was also submitted on behalf of

appellant­MSEDCL that  all the circulars relating to CPP generation

were submitted to Tribunal for approval.  The Tribunal did not decide

the validity thereof vide order dated 10.1.2002.   The Tribunal could

not have declared the said circular to be bad in law only on the ground

that prior approval of the Tribunal was not taken without deciding the

issues on merits.  Even if the Commission had the power, it ought to

have gone into the merits of the case and reasonableness of the claim

made by the appellant­MSEDCL as reflected in circulars.   The

Government’s advice dated 28.4.2000 was non­binding advice upon

the appellant­MSEDCL under Section 78A of the Act of 1948.

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22. It was submitted on behalf of respondents that after enforcement

of the Act, there was no power with MSEB to issue circulars under the

Act of 1998.  The Commission had sole and exclusive power to frame

the tariff.   Thus, no case for interference is made out in the appeal.

The Government also directed MSEB to cancel its circular as it was

not in consonance with the policy of the State.  Circulars could not be

said to be enforceable.  The change in policy as per circular dated

2.9.1999 was not informed; thus, the exercise of power was arbitrary

and void.   The levy of tariff for minimum consumption at 25% of the

energy consumed in the preceding 12 months before the

commissioning of the CPP at the rate of 110% of the tariff is wholly

and utterly unreasonable.   Therefore,  it was unsustainable.   It was

also submitted that neither Section 44 nor any other provisions of the

Act of 1948 enabled   MSEB to impose any condition in the grant of

consent, such  as  maintenance  of contract  demand  at a  particular

level.   The Board cannot unilaterally revise the charges in breach of

such stipulations  fixing the special tariff.  A notification cannot be

inconsistent with the terms of the agreement.   If subsequent

notification is quashed, it will not revive earlier notification.

23. An affidavit in compliance with the order dated 11.7.2019 has

been  filed  on behalf  of  appellant­MSEDCL stating   that  supply of

electricity, made available, was used by respondents to manufacture

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their products.  The cost incurred on production has been passed on

to the  buyers/consumers  buying their products.  Hence, it  would

tantamount to unjust enrichment in case a refund is ordered.  

24. The first question for consideration is whether the Commission

could have quashed circulars  issued by the appellant­MSEDCL before

its formation.  The Commission was constituted under the Act of 1998

on 5.8.1999.  The circular issued before  that  could not have been

quashed on the ground that MSEB had no power to issue them

without the approval of the Commission.  The decisions in that regard

of Commission as well as of APTEL are liable to be set aside.  In Binani

Zinc Limited (supra), this Court held that before Commission came into

existence, the power was to be exercised by the State Electricity

Board.  This Court held thus:

  “31. The State Electricity Boards are entitled to frame tariff in terms of the provisions contained in the 1948 Act. The tariff so framed is  legislative  in character. The Board, as a statutory authority, is bound to exercise its jurisdiction within the four corners of the statute. It must act in all fields, including the field of framing tariff by adopting the provisions laid down in the 1948 Act or the Rules and the Regulations framed thereunder.  

32.  It is one thing to say that while framing tariff the Board can only take into consideration the provisions laid down in the Schedule appended to the Act and/or the directions contained in the policy decisions issued by the State as also other statutory principles governing the same but then a tariff framed by it cannot be held to be ultra vires only because it did not take into consideration certain principles laid down in clauses (c) to (g) of sub­section (2) of Section 29 of the 1998 Act.

***

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41. We have, however, no hesitation in finding that the State Electricity Board had the requisite jurisdiction to revise a tariff till such time  as the  Commission  was  constituted  and the purposes of the 1998 Act could be achieved through it. Till the time the Regulatory Commission was not constituted by the State of Kerala, the power to determine tariff  remained with the Board under the Electricity (Supply) Act, 1948 as it was not repealed by the Electricity Regulatory Commissions Act, 1998. Parliament could not  have  intended to bring about a situation where no authority would be empowered to determine the tariff between the date of coming into force of the ERC Act, 1998 and the constitution of the Commission. It is only after the Regulatory Commission is constituted that it will be the sole authority to determine the tariff.”

The decision of  BSES Ltd. v. Tata Power Co. Ltd.,  (2004) 1 SCC

195, has been explained in Binani Zinc Limited (supra).  

25. Concerning circular dated 2.9.1999, which remained in force till

28.4.2000, the Commission as well  as  the APTEL were required  to

consider impact of Commission earlier order passed on 10.1.2002 and

also its  observations  made in the  said order that  CPP is  a  policy

matter and that Commission was recently conferred with the power

under Section 22(2) of the Act of 1998, it ought to have gone into the

merits of the claim.   It was also pointed out on behalf of appellant­

MSEDCL that it had submitted circulars for approval to Commission,

which has not gone into the merits of the subject matter and later

quashed   circulars on the ground of competence. The MSEDCL filed

circulars along with tariff proposal for approval as that was an essence

of the tariff.  

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26. It  has  also  been pointed  out that in  subsequent  orders  also,

circulars  as to  CPP  were relied  upon by the  Commission.   It  was

incumbent upon the Commission to consider the effect of its orders

and the prayer made by the appellant­MSEDCL to consider merits of

various circulars while fixing the tariff.

 27. As dispute pertains to the period from 2.9.1999 to 28.4.2000,

and it is apparent from the additional affidavit filed by the appellant­

MSEDCL that the respondents used supply of electricity to

manufacture their  products.  The  cost incurred  on production has

been passed on to the buyers/consumers buying their products.

Hence, it would tantamount to unjust enrichment in case a refund is

ordered.   In the peculiar facts of the case, as the Commission earlier

opined in order dated 10.1.2002 that CPP is a policy matter and it did

not decide as to the merits of subject matter as prayer for approval

was made by the appellant­MSEDCL.  The Commission observed that

it would consider the matter in the future, but later on, without

considering on merits the reasonableness of the demand, the

Commission quashed the circulars.   It  is apparent that the liability

was passed on to the buyers/consumers by the respondent nos.3 to 7

as electricity  was  used to  manufacture their products sold in the

market, working out the price based on expenditure. It would not be

appropriate  in the peculiar  facts of the case to direct refund to be

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made by the appellant­MSEDCL of the amount recovered by it as it

would tantamount to unjust enrichment.  Thus, in the peculiar facts

and circumstances  of the  case, it is  not  considered  appropriate to

remit the matter to decide the dispute on merits after two decades for

the period from 2.9.1999 to 28.4.2000, during which circular dated

2.9.1999 was in force.  

28. Consequently, we set aside the orders passed by the Commission

as well as the APTEL and hold that circulars and the policy decisions

issued before the establishment of the Commission were illegally set

aside and in the peculiar facts and circumstances of the case we set

aside the order concerning refund of amount recovered by MSEB.

29. The appeal is allowed to the aforesaid extent.   The parties are

directed to bear their own cost incurred.

         ……………………………….J.   (Arun Mishra)

                 ……………………………….J.     (M.R. Shah)

                 ……………………………….J.        (B.R. Gavai)

New Delhi;                       February 28, 2020.