REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3902 OF 2006

PTC India Ltd. … Appellant(s)

     versus

Central Electricity Regulatory Commission, thr. Secy. … Respondent(s)

with Civil Appeal Nos.  4354/06, 4355/06, 2875/07, 7437/05, 7438/05, 2073/07,  

1471/07, 2166/07, Civil Appeal No.2412 /2010 (D 9870/07)     and  Civil Appeal No. 2413/2010 arising out of S.L.P. (C) No. 22080/05.

J U D G M E N T

S. H. KAPADIA, J.

Delay condoned.

2. Leave granted.

3. In this  batch of  civil  appeals,  we are  basically  concerned with the  

doctrine and jurisprudence of delegated legislation.

QUESTIONS OF LAW:

4. The crucial points that arise for determination are: –

(i) Whether  the  Appellate  Tribunal  constituted  under  the  

Electricity Act, 2003 (“2003 Act”) has jurisdiction under  

Section 111 to examine the validity of Central Electricity  

Regulatory  Commission  (Fixation  of  Trading  Margin)

Regulations, 2006 framed in exercise of power conferred  

under Section 178 of the 2003 Act?

(ii) Whether  Parliament  has  conferred  power  of  judicial  

review on the  Appellate  Tribunal  for  Electricity  under  

Section 121 of the 2003 Act?

(iii) Whether capping of trading margins could be done by the  

CERC (“Central Commission”) by making a Regulation  

in that regard under Section 178 of the 2003 Act?

FACTS:

5. In this batch of civil appeals, appellants had challenged the vires of  

the Central Electricity Regulatory Commission (Fixation of Trading Margin)  

Regulations,  2006  as  null  and  void  before  the  Appellate  Tribunal  for  

Electricity  and  had  prayed  for  quashing  of  the  said  Regulations.  The  

Tribunal, however, dismissed the appeals holding that its jurisdiction was  

restricted by the limits imposed by the parent Statute,  i.e.,  the Electricity  

Act, 2003. By the impugned judgment, the Tribunal held that the appropriate  

course of action for the appellants is to proceed by way of judicial review  

under the Constitution.

6. In view of the importance of the question, the matter was referred by a  

three-Judge Bench of this Court to the Constitution Bench. While making  

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reference to the Constitution Bench, the question formulated was - “whether  

the Tribunal has jurisdiction to decide the question as to the validity of the  

Regulations  framed  by  the  Central  Commission?”  Basically,  the  matters  

involve interpretation of Sections 111 and 121 of the 2003 Act.

7. RELEVANT PROVISIONS OF THE 2003 ACT:

PART I PRELIMINARY

Section 1. Short title, extent and commencement.-

(3) It shall come into force on such date as the Central  Government may, by notification, appoint:

Provided that different dates may be appointed for  different provisions of this Act and any reference in any  such provision to the commencement of this Act shall be  construed as a reference to the coming into force of that  provision.

Section 2 – Definitions.-  In this Act, unless the context  otherwise requires,--

(9) “Central  Commission”  means  the  Central  Electricity  Regulatory  Commission  referred  to  in  sub- section (1) of section76;

(23) “electricity” means electrical energy-

(a)  generated,  transmitted,  supplied or  traded for  any purpose; or (b) used for any purpose except the transmission of  a message;

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(26) “electricity trader” means a person who has been  granted a licence to undertake trading in electricity under  section 12;

(32) “grid” means the high voltage backbone system of  inter-connected  transmission  lines,  sub-station  and  generating plants;

(33) “Grid Code” means the Grid Code specified by the  Central Commission under clause (h) of sub-section (1)  of section 79;

(34) “Grid  Standards”  means  the  Grid  Standards  specified under clause (d) of section 73 by the Authority;  

(39) "licensee" means a person who has been granted a  licence under section 14;

(44) "National  Electricity  Plan"  means  the  National  Electricity Plan notified under sub-section (4) of section  3;

(45) "National Load Despatch Centre" means the Centre  established under sub-section (1) of section 26;

(46) "notification"  means  notification  published  in  the  Official  Gazette  and  the  expression  "notify"  shall  be  construed accordingly;

(47) "open  access"  means  the  non-discriminatory  provision for the use of transmission lines or distribution  system or associated facilities with such lines or system  by  any  licensee  or  consumer  or  a  person  engaged  in  generation in accordance with the regulations specified  by the Appropriate Commission;

(52) "prescribed" means prescribed by rules made by the  Appropriate Government under this Act;

(57) "regulations"  means  regulations  made  under  this  Act;

(59) "rules" means rules made under this Act;

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(62) "specified" means specified by regulations made by  the Appropriate Commission or the Authority, as the case  may be, under this Act;

(64) "State  Commission"  means  the  State  Electricity  Regulatory Commission constituted under sub-section (1)  of  section  82  and  includes  a  Joint  Commission  constituted under sub-section (1) of section 83;

(71) "trading"  means  purchase  of  electricity  for  resale  thereof  and  the  expression  "trade"  shall  be  construed  accordingly;

(76) "wheeling"  means  the  operation  whereby  the  distribution  system  and  associated  facilities  of  a  transmission licensee or distribution licensee, as the case  may be, are used by another person for the conveyance of  electricity on payment of charges to be determined under  section 62;

PART II NATIONAL ELECTRICITY POLICY AND PLAN

Section 3 - National Electricity Policy and Plan  

(1) The  Central  Government  shall,  from  time-to-time,  prepare the National Electricity Policy and tariff policy,  in  consultation  with  the  State  Governments  and  the  Authority for development of the power system based on  optimal utilisation of resources such as coal, natural gas,  nuclear  substances  or  materials,  hydro  and  renewable  sources of energy.

(4) The Authority  shall  prepare  a National  Electricity  Plan in accordance with the National Electricity Policy  and notify such plan once in five years:

Provided that the Authority while preparing the National  Electricity  Plan  shall  publish  the  draft  National  Electricity  Plan  and  invite  suggestions  and  objections  

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thereon  from  licensees,  generating  companies  and  the  public within such time as may be prescribed:

Provided further that the Authority shall--

(a)  notify  the  plan  after  obtaining  the  approval  of  the  Central Government;

(b) revise the plan incorporating therein the directions, if  any,  given  by  the  Central  Government  while  granting  approval under clause (a).

PART III GENERATION OF ELECTRICITY

Section 7 - Generating company and requirement for  setting  up  of  generating  station.-  Any  generating  company  may  establish,  operate  and  maintain  a  generating station without obtaining a licence under this  Act if it complies with the technical standards relating to  connectivity  with  the  grid  referred  to  in  clause  (b)  of  section 73.

Section  9  -  Captive  generation.-  (1) Notwithstanding  anything contained in this Act, a person may construct,  maintain  or  operate  a  captive  generating  plant  and  dedicated transmission lines:

Provided that the supply of electricity from the captive  generating plant through the grid shall be regulated in the  same manner as  the  generating station of  a  generating  company.

Provided further that no licence shall be required under  this Act for supply of electricity generated from a captive  generating plant to any licensee in accordance with the  provisions of this Act and the rules and regulations made  thereunder and to any consumer subject to the regulations  made under sub-section (2) of section 42.

(2) Every  person,  who  has  constructed  a  captive  generating plant and maintains and operates such plant,  

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shall  have the right to open access for the purposes of  carrying electricity from his captive generating plant to  the destination of his use:

Provided  that  such  open  access  shall  be  subject  to  availability  of  adequate  transmission  facility  and  such  availability  of transmission facility shall  be determined  by  the  Central  Transmission  Utility  or  the  State  Transmission Utility, as the case may be:

Provided  further  that  any  dispute  regarding  the  availability of transmission facility shall  be adjudicated  upon by the Appropriate Commission.

Section 11 - Directions to generating companies.- (1)  The  Appropriate  Government  may  specify  that  a  generating company shall, in extraordinary circumstances  operate  and  maintain  any  generating  station  in  accordance with the directions of that Government.

Explanation:--For  the  purposes  of  this  section,  the  expression  "extraordinary  circumstances"  means  circumstances  arising  out  of  threat  to  security  of  the  State,  public  order  or  a  natural  calamity or  such other  circumstances arising in the public interest.

(2) The Appropriate Commission may offset the adverse  financial  impact  of  the  directions  referred  to  in  sub- section (1) on any generating company in such manner as  it considers appropriate.

PART IV LICENSING

Section 12 - Authorised persons to transmit,  supply,  etc., electricity- No person shall--

(a) transmit electricity; or

(b) distribute electricity; or

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(c) undertake trading in electricity,

unless he is authorised to do so by a licence issued under  section 14, or is exempt under section 13.

Section 14 - Grant of licence.-  

The  Appropriate  Commission  may,  on  an  application  made  to  it  under  section  15,  grant  a  licence  to  any  person--

(a) to transmit electricity as a transmission licensee; or

(b) to distribute electricity as a distribution licensee; or

(c)  to  undertake  trading  in  electricity  as  an  electricity  trader,

in any area as may be specified in the licence:

Section 15 - Procedure for grant of licence.-  

(1) Every application under section 14 shall be made in  such form and in such manner as may be specified by the  Appropriate  Commission  and shall  be  accompanied  by  such fee as may be prescribed.

(6) Where  a  person  makes  an  application  under  sub- section  (1)  of  section  14  to  act  as  a  licensee,  the  Appropriate  Commission  shall,  as  far  as  practicable,  within ninety days after receipt of such application,--

(a) issue a licence subject to the provisions of this Act  and the rules and regulations made thereunder; or

(b) reject  the application for reasons to be recorded in  writing  if  such  application  does  not  conform  to  the  provisions of this Act or the rules and regulations made  thereunder or the provisions of any other law for the time  being in force:

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Provided that no application shall be rejected unless the  applicant has been given an opportunity of being heard.

Section 16 - Conditions of licence.-  

The Appropriate Commission may specify any general or  specific conditions which shall apply either to a licensee  or class of licensees and such conditions shall be deemed  to be conditions of such licence:

Provided that the Appropriate Commission shall, within  one year from the appointed date, specify any general or  specific conditions of licence applicable to the licensees  referred  to  in  the  first,  second,  third,  fourth  and  fifth  provisos to section 14 after the expiry of one year from  the commencement of this Act.

PART V TRANSMISSION OF ELECTRICITY

Section 26 - National Load Despatch Centre  

(1) The Central  Government may establish a Centre at  the  national  level,  to  be  known  as  the  National  Load  Despatch Centre for optimum scheduling and despatch of  electricity among the Regional Load Despatch Centres.

(2) The constitution and functions of the National Load  Despatch Centre shall be such as may be prescribed by  the Central Government:

Provided that  the National  Load Despatch Centre shall  not engage in the business of trading in electricity

Section 34 - Grid Standards.-  

Every  transmission  licensee  shall  comply  with  such  technical  standards,  of  operation  and  maintenance  of  transmission  lines,  in  accordance  with  the  Grid  Standards, as may be specified by the Authority.

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Section 37 - Directions by Appropriate Government.-  

The Appropriate Government may issue directions to the  Regional Load Despatch Centres or State Load Despatch  Centres,  as the case may be,  to take such measures as  may  be  necessary  for  maintaining  smooth  and  stable  transmission and supply of  electricity  to any region or  State

Section  38  -  Central  Transmission  Utility  and  functions.-  

(1) The Central Government may notify any Government  company as the Central Transmission Utility:

Provided that the Central Transmission Utility shall not  engage  in  the  business  of  generating  of  electricity  or  trading in electricity:

Provided  further  that  the  Central  Government  may  transfer, and vest any property, interest in property, rights  and liabilities connected with, and personnel involved in  transmission of electricity of such Central Transmission  Utility,  to a company or  companies  to be incorporated  under the Companies Act, 1956 (1 of 1956) to function as  a transmission licensee, through a transfer scheme to be  effected in the manner specified under Part XIII and such  company  or  companies  shall  be  deemed  to  be  transmission licensees under this Act.

(2) The  functions  of  the  Central  Transmission  Utility  shall be--

(a) to undertake transmission of electricity through inter- State transmission system;

(b)  to  discharge  all  functions  of  planning  and  co- ordination  relating  to  inter-State  transmission  system  with--

(i) State Transmission Utilities;

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(ii) Central Government;

(iii) State Governments;

(iv) generating companies;

(v) Regional Power Committees;

(vi) Authority;

(vii) licensees;

(viii)  any  other  person  notified  by  the  Central  Government in this behalf;

(c)  to ensure development  of  an efficient,  co-ordinated  and economical system of inter-State transmission lines  for smooth flow of electricity from generating stations to  the load centres;

(d)  to  provide  non-discriminatory  open  access  to  its  transmission system for use by--

(i) any licensee or generating company on payment of the  transmission charges; or

(ii)  any  consumer  as  and  when  such  open  access  is  provided by the State Commission under sub-section (2)  of  section  42,  on payment  of  the  transmission charges  and  a  surcharge  thereon  as  may  be  specified  by  the  Central Commission:

Provided  that  such  surcharge  shall  be  utilised  for  the  purpose  of  meeting  the  requirement  of  current  level  cross-subsidy:

Provided further that such surcharge and cross subsidies  shall be progressively reduced in the manner as may be  specified by the Central Commission:

Provided also that the manner of payment and utilization  of  the  surcharge  shall  be  specified  by  the  Central  Commission:

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Provided also that such surcharge shall not be leviable in  case  open  access  is  provided  to  a  person  who  has  established  a  captive  generating  plant  for  carrying  the  electricity to the destination of his own use.

PART VI DISTRIBUTION OF ELECTRICITY

Section 42 - Duties of distribution licensees and open  access.-  

(2) The State Commission shall introduce open access in  such phases and subject to such conditions, (including the  cross subsidies, and other operational constraints) as may  be specified within one year of the appointed date by it  and in specifying the extent of open access in successive  phases  and in determining the charges for wheeling,  it  shall  have  due  regard  to  all  relevant  factors  including  such cross subsidies, and other operational constraints:

Provided  that  such  open  access  shall  be  allowed  on  payment  of  a  surcharge  in  addition  to  the  charges  for  wheeling  as  may  be  determined  by  the  State  Commission:

Provided further that such surcharge shall be utilised to  meet the requirements of current level of cross subsidy  within the area of supply of the distribution licensee:

Provided  also  that  such  surcharge  and  cross  subsidies  shall be progressively reduced in the manner as may be  specified by the State Commission:

Provided also that such surcharge shall not be leviable in  case  open  access  is  provided  to  a  person  who  has  established  a  captive  generating  plant  for  carrying  the  electricity to the destination of his own use:

Provided also that the State Government shall, not later  than five years from the date of commencement of the  

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Electricity  (Amendment)  Act,  2003  (57  of  2003)  by  regulations,  provide such open access to all  consumers  who require a supply of electricity where the maximum  power  to  be  made  available  at  any  time  exceeds  one  megawatt.

Section  52  -  Provisions  with  respect  to  electricity  trader.-  

(1) Without  prejudice  to  the  provisions  contained  in  clause  (c)  of  section  12,  the  Appropriate  Commission  may, specify the technical requirement, capital adequacy  requirement and credit worthiness for being an electricity  trader.

(2) Every electricity trader shall discharge such duties, in  relation to supply and trading in electricity,  as may be  specified by the Appropriate Commission.

PART VII TARIFF

Section 61 - Tariff regulations.-  

The  Appropriate  Commission  shall,  subject  to  the  provisions of this Act, specify the terms and conditions  for the determination of tariff, and in doing so, shall be  guided by the following, namely:--

(a)  the  principles  and  methodologies  specified  by  the  Central  Commission  for  determination  of  the  tariff  applicable  to  generating  companies  and  transmission  licensees;

(b) the generation, transmission, distribution and supply  of electricity are conducted on commercial principles;

(c)  the  factors  which  would  encourage  competition,  efficiency,  economical  use  of  the  resources,  good  performance and optimum investments;

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(d) safeguarding of consumers' interest and at the same  time, recovery of the cost of electricity in a reasonable  manner;

(e) the principles rewarding efficiency in performance;

(f) multi-year tariff principles;

(g) that the tariff progressively reflects the cost of supply  of  electricity  and  also  reduces  cross-subsidies  in  the  manner specified by the Appropriate Commission;

(h)  the  promotion  of  co-generation  and  generation  of  electricity from renewable sources of energy;

(i) the National Electricity Policy and tariff policy:

Provided that the terms and conditions for determination  of  tariff  under  the  Electricity  (Supply)  Act,  1948,  the  Electricity Regulatory Commissions Act, 1998, and the  enactments  specified  in  the  Schedule  as  they  stood  immediately before the appointed date, shall continue to  apply  for  a  period  of  one  year  or  until  the  terms and  conditions  for  tariff  are  specified  under  this  section,  whichever is earlier.

Section 62 - Determination of tariff  

(1) The  Appropriate  Commission  shall  determine  the  tariff in accordance with the provisions of this Act for--

(a)  supply  of  electricity  by a  generating company to a  distribution licensee:

Provided that the Appropriate Commission may, in case  of shortage of supply of electricity, fix the minimum and  maximum  ceiling  of  tariff  for  sale  or  purchase  of  electricity  in  pursuance  of  an  agreement,  entered  into  between a generating company and a licensee or between  licensees, for a period not exceeding one year to ensure  reasonable prices of electricity;

(b) transmission of electricity;

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(c) wheeling of electricity;

(d) retail sale of electricity:

Provided that in case of distribution of electricity in the  same  area  by  two  or  more  distribution  licensees,  the  Appropriate  Commission  may,  for  the  promoting  competition  among  distribution  licensees,  fix  only  maximum ceiling of tariff for retail sale of electricity.

(2) The Appropriate Commission may require a licensee  or a generating company to furnish separate details,  as  may be specified in respect of generation, transmission  and distribution for determination of tariff.

(3) The  Appropriate  Commission  shall  not,  while  determining  the  tariff  under  this  Act,  show  undue  preference  to  any  consumer  of  electricity  but  may  differentiate  according  to  the  consumer's  load  factor,  power  factor,  voltage,  total  consumption  of  electricity  during  any  specified  period  or  the  time  at  which  the  supply  is  required  or  the  geographical  position  of  any  area, the nature of supply and the purpose for which the  supply is required.

(4) No  tariff  or  part  of  any  tariff  may  ordinarily  be  amended,  more  frequently  than  once  in  any  financial  year,  except  in  respect  of  any  changes  expressly  permitted under the terms of any fuel surcharge formula  as may be specified.

(5) The  Commission  may  require  a  licensee  or  a  generating company to comply with such procedure as  may be specified for calculating the expected revenues  from the tariff and charges which he or it is permitted to  recover.

(6) If any licensee or a generating company recovers a  price or charge exceeding the tariff determined under this  section,  the excess  amount shall  be recoverable  by the  person  who has  paid  such  price  or  charge  along  with  

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interest equivalent to the bank rate without prejudice to  any other liability incurred by the licensee.

Section  63  -  Determination  of  tariff  by  bidding  process.-  

Notwithstanding  anything  contained  in  section  62,  the  Appropriate  Commission  shall  adopt  the  tariff  if  such  tariff has been determined through transparent process of  bidding in accordance with the guidelines issued by the  Central Government.

Section 64 - Procedure for tariff order.-

(1) An  application  for  determination  of  tariff  under  section  62  shall  be  made by a  generating  company  or  licensee in such manner and accompanied by such fee, as  may be determined by regulations.

(2) Every applicant shall publish the application, in such  abridged form and manner,  as may be specified by the  Appropriate Commission.

(3) The  Appropriate  Commission  shall,  within  one  hundred and twenty days from receipt of an application  under  sub-section  (1)  and  after  considering  all  suggestions and objections received from the public,--

(a) issue a tariff order accepting the application with such  modifications or such conditions as may be specified in  that order;

(b)  reject  the application  for reasons to be recorded in  writing if such application is not in accordance with the  provisions of this Act and the rules and regulations made  thereunder or the provisions of any other law for the time  being in force:

Provided that  an applicant  shall  be given a  reasonable  opportunity  of  being  heard  before  rejecting  his  application.

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(4) The  Appropriate  Commission  shall,  within  seven  days of making the order, send a copy of the order to the  Appropriate  Government,  the  Authority,  and  the  concerned licensees and to the person concerned.

(5) Notwithstanding  anything  contained  in  Part  X,  the  tariff for any inter-State supply, transmission or wheeling  of electricity, as the case may be, involving the territories  of two States may,  upon application made to it  by the  parties intending to undertake such supply, transmission  or  wheeling,  be  determined  under  this  section  by  the  State  Commission having jurisdiction  in  respect  of  the  licensee  who intends  to  distribute  electricity  and make  payment therefor.

(6) A  tariff  order  shall,  unless  amended  or  revoked,  continue  to  be  in  force  for  such  period  as  may  be  specified in the tariff order.

PART IX CENTRAL ELECTRICITY AUTHORITY

Section 73 - Functions and duties of Authority.-  

The Authority shall perform such functions and duties as  the Central Government may prescribe or direct, and in  particular to--

(a) advise the Central Government on the matters relating  to  the  national  electricity  policy,  formulate  short-term  and perspective plans for development of the electricity  system  and  co-ordinate  the  activities  of  the  planning  agencies  for  the  optimal  utilisation  of  resources  to  subserve  the  interests  of  the  national  economy and  to  provide  reliable  and  affordable  electricity  for  all  consumers;

(b)  specify  the  technical  standards  for  construction  of  electrical  plants,  electric  lines  and  connectivity  to  the  grid;

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(c)  specify  the  safety  requirements  for  construction,  operation  and  maintenance  of  electrical  plants  and  electric lines;

(d)  specify  the  Grid  Standards  for  operation  and  maintenance of transmission lines;

(e)  specify the conditions for  installation of  meters  for  transmission and supply of electricity;

(f)  promote  and  assist  in  the  timely  completion  of  schemes and projects for improving and augmenting the  electricity system;

(g) promote measures for advancing the skill of persons  engaged in the electricity industry;

(h)  advise  the  Central  Government  on  any  matter  on  which its advice is sought or make recommendation to  that Government on any matter if, in the opinion of the  Authority, the recommendation would help in improving  the  generation,  transmission,  trading,  distribution  and  utilisation of electricity;

(i) collect and record the data concerning the generation,  transmission,  trading,  distribution  and  utilisation  of  electricity  and  carry  out  studies  relating  to  cost,  efficiency, competitiveness and such like matters;

(j)  make  public  from  time-to-time  the  information  secured under this Act, and provide for the publication of  reports and investigations;

(k) promote research in matters affecting the generation,  transmission, distribution and trading of electricity;

(l) carry out, or cause to be carried out, any investigation  for  the  purposes  of  generating  or  transmitting  or  distributing electricity;

(m)  advise  any  State  Government,  licensees  or  the  generating companies on such matters which shall enable  

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them to operate and maintain the electricity system under  their  ownership or  control  in an improved manner  and  where  necessary,  in  co-ordination  with  any  other  Government, licensee or the generating company owning  or having the control of another electricity system;

(n)  advise  the  Appropriate  Government  and  the  Appropriate Commission on all technical matters relating  to generation, transmission and distribution of electricity;  and

(o) discharge such other  functions as  may be provided  under this Act.

Section 74 - Power to require statistics and returns.-

It shall be the duty of every licensee, generating company  or person generating electricity for its or his own use to  furnish to the Authority such statistics, returns or other  information  relating  to  generation,  transmission,  distribution,  trading  and  use  of  electricity  as  it  may  require and at such times and in such form and manner as  may be specified by the Authority.

Section  75  -  Directions  by  Central  Government  to  Authority.-  

(1) In the discharge of its functions, the Authority shall  be  guided  by  such  directions  in  matters  of  policy  involving public interest as the Central Government may  give to it in writing.

(2) If any question arises as to whether any such direction  relates to a matter of policy involving public interest, the  decision  of  the  Central  Government  thereon  shall  be  final.

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PART X REGULATORY COMMISSIONS

Section 76 – Constitution of Central Commission.-

(1)   There shall  be a Commission to be known as the  Central  Electricity  Regulatory  Commission  to  exercise  the  powers  conferred  on,  and  discharge  the  functions  assigned to, it under this Act.  

Section 79 - Functions of Central Commission.-  

(1) The  Central  Commission  shall  discharge  the  following functions, namely:--

(a) to regulate the tariff of generating companies owned  or controlled by the Central Government;

(b) to regulate the tariff  of generating companies other  than  those  owned  or  controlled  by  the  Central  Government  specified  in  clause  (a),  if  such generating  companies  enter  into  or  otherwise  have  a  composite  scheme for generation and sale of electricity in more than  one State;

(c) to regulate the inter-State transmission of electricity;

(d)  to  determine  tariff  for  inter-State  transmission  of  electricity;

(e) to issue licenses to persons to function as transmission  licensee and electricity trader with respect to their inter- State operations;

(f)  to  adjudicate  upon  disputes  involving  generating  companies or transmission licensee in regard to matters  connected with clauses (a) to (d) above and to refer any  dispute for arbitration;

(g) to levy fees for the purpose of this Act;

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(h) to specify Grid Code having regard to Grid Standards;

(i) to specify and enforce the standards with respect to  quality, continuity and reliability of service by licensees;

(j) to fix the trading margin in the inter-State trading of  electricity, if considered, necessary;

(k) to discharge such other functions as may be assigned  under this Act.

(2) The  Central  Commission  shall  advise  the  Central  Government  on  all  or  any  of  the  following  matters,  namely:--

(i)  formulation of National  Electricity  Policy and tariff  policy;

(ii) promotion of competition, efficiency and economy in  activities of the electricity industry;

(iii) promotion of investment in electricity industry;

(iv) any other matter referred to the Central Commission  by that Government.

(3) The  Central  Commission  shall  ensure  transparency  while exercising its powers and discharging its functions.

(4) In discharge of its functions, the Central Commission  shall  be  guided  by  the  National  Electricity  Policy,  National  Electricity  Plan  and  tariff  policy  published  under section 3.

Section 86 - Functions of State Commission.-  

(1) The State Commission shall discharge the following  functions, namely:--

(a)  determine  the  tariff  for  generation,  supply,  transmission and wheeling of electricity, wholesale, bulk  or retail, as the case may be, within the State:

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Provided that where open access has been permitted to a  category  of  consumers  under  section  42,  the  State  Commission shall determine only the wheeling charges  and surcharge thereon,  if  any,  for  the  said category of  consumers;

(b) regulate electricity purchase and procurement process  of  distribution  licensees  including  the  price  at  which  electricity  shall  be  procured  from  the  generating  companies  or  licensees  or  from other  sources  through  agreements  for  purchase  of  power  for  distribution  and  supply within the State;

(c)  facilitate  intra-State  transmission  and  wheeling  of  electricity;

(d)  issue  licences  to  persons  seeking  to  act  as  transmission  licensees,  distribution  licensees  and  electricity traders with respect to their operations within  the State;

(e)  promote  cogeneration  and  generation  of  electricity  from renewable sources of energy by providing suitable  measures  for  connectivity  with  the  grid  and  sale  of  electricity to any person, and also specify, for purchase of  electricity  from such sources,  a  percentage of  the total  consumption of  electricity  in the  area  of  a  distribution  licensee;

(f)  adjudicate  upon  the  disputes  between  the  licensees  and generating companies  and to  refer  any dispute  for  arbitration;

(g) levy fee for the purposes of this Act;

(h)  specify  State  Grid  Code  consistent  with  the  Grid  Code  specified  under  clause  (h)  of  sub-section  (1)  of  section 79;

(i) specify or enforce standards with respect to quality,  continuity and reliability of service by licensees;

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(j)  fix  the  trading  margin  in  the  intra-State  trading  of  electricity, if considered, necessary;

(k) discharge such other functions as may be assigned to  it under this Act.

(2) The  State  Commission  shall  advise  the  State  Government  on  all  or  any  of  the  following  matters,  namely:--

(i) promotion of competition, efficiency and economy in  activities of the electricity industry;

(ii) promotion of investment in electricity industry;

(iii)  reorganisation  and  restructuring  of  electricity  industry in the State;

(iv)  matters  concerning  generation,  transmission,  distribution and trading of electricity or any other matter  referred to the State Commission by that Government:

(3) The  State  Commission  shall  ensure  transparency  while exercising its powers and discharging its functions.

(4) In discharge of its functions, the State Commission  shall  be  guided  by  the  National  Electricity  Policy,  National  Electricity  Plan  and  tariff  policy  published  under section 3.

PART XI APPELLATE TRIBUNAL FOR ELECTRICITY

Section 111 – Appeal to Appellate Tribunal.-  

(1)  Any  person  aggrieved  by  an  order  made  by  an  adjudicating officer under this Act (except under section  127) or an order made by the Appropriate Commission  under  this  Act  may  prefer  an  appeal  to  the  Appellate  Tribunal for Electricity:

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Provided  that  any  person  appealing  against  the  order  of  the  adjudicating  officer  levying  any  penalty  shall, while filing the appeal, deposit the amount of such  penalty:

Provided further that where in any particular case,  the Appellate Tribunal is of the opinion that the deposit  of  such  penalty  would  cause  undue  hardship  to  such  person, it may dispense with such deposit subject to such  conditions as it may deem fit to impose so as to safeguard  the realisation of penalty.  

(2)   Every  appeal  under  sub-section  (1)  shall  be  filed  within a period of forty-five days from the date on which  a copy of the order made by the adjudicating officer or  the Appropriate Commission is received by the aggrieved  person  and  it  shall  be  in  such  form,  verified  in  such  manner  and  be  accompanied  by  such  fee  as  may  be  prescribed:

Provided that the Appellate Tribunal may entertain  an appeal after the expiry of the said period of forty-five  days if it is satisfied that there was sufficient cause for  not filing it within that period.  

(3)   On receipt of an appeal under sub-section (1), the  Appellate  Tribunal  may,  after  giving the  parties  to  the  appeal an opportunity of being heard, pass such orders  thereon as it thinks fit, confirming, modifying or setting  aside the order appealed against.  

(4)   The Appellate Tribunal shall send a copy of every  order made by it to the parties to the appeal and to the  concerned  adjudicating  officer  or  the  Appropriate  Commission, as the case may be.  

(5)  The appeal filed before the Appellate Tribunal under  sub-section (1) shall be dealt with by it as expeditiously  as possible and endeavour shall be made by it to dispose  

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of the appeal finally within one hundred and eighty days  from the date of receipt of the appeal:

Provided  that  where  any  appeal  could  not  be  disposed of within the said period of one hundred and  eighty  days,  the  Appellate  Tribunal  shall  record  its  reasons in writing for not disposing of the appeal within  the said period.  

(6)   The  Appellate  Tribunal  may,  for  the  purpose  of  examining the  legality,  propriety  or  correctness  of  any  order made by the adjudicating officer or the Appropriate  Commission  under  this  Act,  as  the  case  may  be,  in  relation  to  any  proceeding,  on  its  own  motion  or  otherwise, call for the records of such proceedings and  make such order in the case as it thinks fit.  

PART XVIII MISCELLANEOUS

Section  177  -  Powers  of  Authority  to  make  regulations.-  

(1) The Authority may, by notification, make regulations  consistent with this Act and the rules generally to carry  out the provisions of this Act.

(2) In particular and without prejudice to the generality of  the power conferred in sub-section (1), such regulations  may  provide  for  all  or  any  of  the  following  matters,  namely:--

(a) the Grid Standards under section 34;

(b)  suitable  measures  relating  to  safety  and  electric  supply under section 53;

(c) the installation and operation of meters under section  55;

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(d)  the  rules  of  procedure  for  transaction  of  business  under sub-section (9) of section 70;

(e) the technical standards for construction of electrical  plants  and  electric  lines  and  connectivity  to  the  grid  under clause (b) of section 73;

(f) the form and manner in which and the time at which  the  State  Government  and  licensees  shall  furnish  statistics, returns or other information under section 74;

(g) any other matter which is to be, or may be, specified;

(3) All regulations made by the Authority under this Act  shall be subject to the conditions of previous publication.

Section 178 - Powers of Central Commission to make  regulations.-  

(1) The Central Commission may, by notification make  regulations  consistent  with  this  Act  and  the  rules  generally to carry out the provisions of this Act.

(2) In particular and without prejudice to the generality of  the power contained in sub-section (1), such regulations  may provide for all or any of following matters, namely:-

(a)  period  to  be  specified  under  the  first  proviso  to  section 14;

(b) the form and the manner of the application under sub- section (1) of section 15;

(c) the manner and particulars of notice under sub-section  (2) of section 15;

(d) the conditions of licence under section 16;

(e) the manner and particulars of notice under clause (a)  of sub-section (2) of section 18;

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(f) publication of alterations or amendments to be made  in  the  licence  under  clause  (c)  of  sub-section  (2)  of  section 18;

(g) Grid Code under sub-section (2) of section 28;

(h)  levy  and  collection  of  fees  and  charge  from  generating  companies  or  transmission  utilities  or  licensees under sub-section (4) of section 28;

(i) rates, charges and terms and conditions in respect of  intervening  transmission  facilities  under  proviso  to  section 36;

(j)  payment  of  transmission  charges  and  a  surcharge  under sub-clause (ii) of clause (d) of sub-section (2) of  section 38;

(k)  reduction  of  surcharge  and  cross  subsidies  under  second proviso  to  sub-clause  (ii)  of  clause  (d)  of  sub- section (2) of section 38;

(l)  payment  of  transmission  charges  and  a  surcharge  under sub-clause (ii) of clause (c) of section 40;

(m) reduction of surcharge and cross subsidies under the  second proviso to sub-clause (ii) of clause (c) of section  40;

(n)  proportion  of  revenues  from  other  business  to  be  utilised  for  reducing  the  transmission  and  wheeling  charges under proviso to section 41;

(o)  duties  of  electricity  trader  under  sub-section (2)  of  section 52;

(p)  standards  of  performance  of  a  licensee  or  class  of  licensees under sub-section (1) of section 57;

(q) the period within which information to be furnished  by the licensee under sub-section (1) of section 59;

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(r)  the  manner  for  reduction  of  cross-subsidies  under  clause (g) of section 61;

(s) the terms and conditions for the determination of tariff  under section 61;

(t)  details  to  be  furnished  by  licensee  or  generating  company under sub-section (2) of section 62;

(u) the procedures for calculating the expected revenue  from tariff and charges under sub-section (5) of section  62;

(v)  the  manner  of  making  an  application  before  the  Central Commission and the fee payable therefor under  sub-section (1) of section 64;

(w) the manner of publication of application under sub- section (2) of section 64;

(x) issue of tariff order with modifications or conditions  under sub-section (3) of section 64;

(y) the manner by which development of market in power  including trading specified under section 66;

(z) the powers and duties of the Secretary of the Central  Commission under sub-section (1) of section 91;

(za) the terms and conditions of service of the Secretary,  officers  and  other  employees  of  Central  Commission  under sub-section (3) of section 91;

(zb)  the  rules  of  procedure  for  transaction  of  business  under sub-section (1) of section 92;

(zc) minimum information to be maintained by a licensee  or  the  generating  company  and  the  manner  of  such  information  to  be  maintained  under  sub-section  (8)  of  section 128;

(zd)  the  manner  of  service  and  publication  of  notice  under section 130;

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(ze) any other matter which is to be, or may be specified  by regulations.

(3) All  regulations  made  by  the  Central  Commission  under  this  Act  shall  be  subject  to  the  conditions  of  previous publication.

Section 179 - Rules and regulations to be laid before  Parliament.-  

Every  rule  made  by  the  Central  Government,  every  regulation made by the Authority, and every regulation  made by the Central Commission shall be laid, as soon as  may  be  after  it  is  made,  before  each  House  of  the  Parliament,  while it  is  in session,  for a  total  period of  thirty days which may be comprised in one session or in  two or more successive sessions, and if, before the expiry  of the session immediately following the session or the  successive  sessions  aforesaid,  both  Houses  agree  in  making  any  modification  in  the  rule  or  regulation  or  agree that the rule or regulation should not be made, the  rule or regulation shall thereafter have effect only in such  modified form or be of no effect, as the case may be; so,  however, that any such modification or annulment shall  be  without  prejudice  to  the  validity  of  anything  previously done under that rule or regulation.

Section 181 - Powers of State Commissions to make  regulations.-  

(1) The State Commissions may, by notification,  make  regulations  consistent  with  this  Act  and  the  rules  generally to carry out the provisions of this Act.

(2) In particular and without prejudice to the generality of  the power contained in sub-section (1), such regulations  may  provide  for  all  or  any  of  the  following  matters,  namely:--

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(a)  period  to  be  specified  under  the  first  proviso  to  section 14;

(b)  the form and the manner of application under sub- section (1) of section 15;

(c) the manner and particulars of application for license  to be published under sub-section (2) of section 15;

(d) the conditions of licence under section 16;

(e) the manner and particulars of notice under clause (a)  of sub-section (2) of section 18;

(f)  publication  of  the  alterations  or  amendments  to  be  made in the licence under clause (c) of sub-section (2) of  section 18;

(g)  levy  and  collection  of  fees  and  charges  from  generating companies or licensees under sub-section (3)  of section 32;

(h) rates, charges and the term and conditions in respect  of  intervening  transmission  facilities  under  proviso  to  section 36;

(i) payment of the transmission charges and a surcharge  under sub-clause (ii) of clause (d) of sub-section (2) of  section 39;

(j)  reduction  of  surcharge  and  cross  subsidies  under  second proviso  to  sub-clause  (ii)  of  clause  (d)  of  sub- section (2) of section 39;

(k)  manner  and  utilization  of  payment  and  surcharge  under the fourth proviso to sub-clause (ii) of clause (d) of  sub-section (2) of section 39;

(l) payment of the transmission charges and a surcharge  under sub-clause (ii) of clause (c) of section 40;

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(m)  reduction  of  surcharge  and  cross  subsidies  under  second proviso to sub-clause (ii) of clause (c) of section  40;

(n) the manner of payment of surcharge under the fourth  proviso to sub-clause (ii) of clause (c) of section 40;

(o)  proportion  of  revenues  from  other  business  to  be  utilised  for  reducing  the  transmission  and  wheeling  charges under proviso to section 41;

(p) reduction of surcharge and cross subsidies under the  third proviso to sub-section (2) of section 42;

(q) payment of additional charges on charges of wheeling  under sub-section (4) of section 42;

(r) guidelines under sub-section (5) of section 42;

(s)  the  time  and  manner  for  settlement  of  grievances  under sub-section (7) of section 42;

(t) the period to be specified by the State Commission for  the purposes  specified under sub-section (1)  of  section  43;

(u)  methods  and  principles  by  which  charges  for  electricity shall be fixed under sub-section (2) of section  45;

(v)  reasonable  security  payable  to  the  distribution  licensee under sub-section (1) of section 47;

(w) payment of interest on security under sub-section (4)  of section 47;

(x) electricity supply code under section 50;

(y) the proportion of revenues from other business to be  utilised for reducing wheeling charges under proviso to  section 51;

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(z)  duties  of  electricity  trader  under  sub-section (2)  of  section 52;

(za) standards of performance of a licensee or a class of  licensees under sub-section (1) of section 57;

(zb) the period within which information to be furnished  by the licensee under sub-section (1) of section 59;

(zc)  the  manner  of  reduction  of  cross-subsidies  under  clause (g) of section 61;

(zd) the terms and conditions for determination of tariff  under section 61;

(ze)  details  to  be  furnished  by  licensee  or  generating  company under sub-section (2) of section 62;

(zf) the methodologies and procedures for calculating the  expected  revenue  from  tariff  and  charges  under  sub- section (5) of section 62;

(zg) the manner of making an application before the State  Commission  and  the  fee  payable  therefor  under  sub- section (1) of section 64;

(zh) issue of tariff order with modifications or conditions  under sub-section (3) of section 64;

(zi)  the  manner  by  which  development  of  market  in  power including trading specified under section 66;

(zj) the powers and duties of the Secretary of the State  Commission under sub-section (1) of section 91;

(zk) the terms and conditions of service of the secretary,  officers  and other  employees  of  the  State  Commission  under sub-section (2) of section 91;

(zl) rules of procedure for transaction of business under  sub-section (1) of section 92;

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(zm)  minimum  information  to  be  maintained  by  a  licensee or  the generating company and the manner  of  such information to be maintained under sub-section (8)  of section 128;

(zn)  the  manner  of  service  and  publication  of  notice  under section 130;

(zo) the form of and preferring the appeal and the manner  in  which  such  form  shall  be  verified  and  the  fee  for  preferring  the  appeal  under  sub-section  (1)  of  section  127;

(zp) any other matter which is to be, or may be, specified.

(3) All regulations made by the State Commission under  this  Act  shall  be  subject  to  the  condition  of  previous  publication.

Section 182 - Rules and regulations to be laid before  State Legislature.-  

Every  rule  made  by  the  State  Government  and  every  regulation made by the State Commission shall be laid,  as soon as may be after it is made, before each House of  the State Legislature where it consists of two Houses, or  where such Legislature consists of one House, before that  House.

Section 183 - Power to remove difficulties  

(1) If  any  difficulty  arises  in  giving  effect  to  the  provisions of this Act, the Central Government may, by  order  published,  make such provisions not  inconsistent  with  the  provisions  of  this  Act,  as  may  appear  to  be  necessary for removing the difficulty:

Provided that no order shall be made under this section  after  the  expiry  of  two  years  from  the  date  of  commencement of this Act.

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(2) Every order made under this section shall be laid, as  soon as may be after it  is made,  before each House of  Parliament.

8. We  also  quote  hereinbelow  the  impugned  Notification  dated  

23.1.2006 fixing trading margin for inter-State trading of Electricity, which  

reads as follows:

“CENTRAL ELECTRICITY REGULATORY COMMISSION NOTIFICATION

New Delhi, the 23rd January, 2006

No.  L-7/25(5)/2003-CERC.-  Whereas  the  Central  Electricity Regulatory Commission is of the opinion that it is  necessary  to  fix  trading  margin  for  inter-state  trading  of  electricity.

Now,  therefore,  in  exercise  of  powers  conferred  under  Section 178 of the Electricity Act, 2003 (36 of 2003), and all  other  powers  enabling  it  in  this  behalf,  and  after  pervious  publication,  the  Central  Electricity  Regulatory  Commission  hereby makes the following regulations, namely:-

1. Short title  and commencement.-(1)  These regulations  may be called the Central Electricity Regulatory Commission  (Fixation of Trading Margin) Regulations, 2006.

(2) These regulations shall come into force from the date of  their publication in the Official Gazette.

2. Trading Margin.- The licensee shall not charge the trading  margin  exceeding  four  (4.0)  paise/kWh  on  the  electricity  traded, including all charges, except the charges for scheduled  energy, open access and transmission losses.

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Explanation:- The  charges  for  the  open  access  include  the  transmission charge, operating charge and the application fee.

A.K. SACHAN, Secy.”

SCOPE AND ANALYSIS OF THE 2003 ACT

9. The  2003  Act  is  enacted  as  an  exhaustive  Code  on  all  matters  

concerning electricity.  It provides for “unbundling” of SEBs into separate  

utilities for generation, transmission and distribution.  It repeals the Indian  

Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity  

Regulatory Commissions Act, 1998.  The 2003 Act, in furtherance of the  

policy envisaged under the Electricity Regulatory Commissions Act, 1998  

(“1998 Act”), mandated the establishment of an independent and transparent  

regulatory mechanism, and has entrusted wide ranging responsibilities with  

the Regulatory Commissions.  While the 1998 Act provided for independent  

regulation in the area of tariff determination; the 2003 Act has distanced the  

Government  from  all  forms  of  regulation,  namely,  licensing,  tariff  

regulation,  specifying  Grid  Code,  facilitating  competition  through  open  

access, etc.

10. Section  3  of  the  2003  Act  requires  the  Central  Government,  in  

consultation  with  the  State  Governments  and  the  Authority,  to  prepare  

National Electricity Policy as well as Tariff Policy for development of the  

35

power system based on optimum utilization of resources.  The Central and  

the  State  Governments  are  also  vested  with  rule-making  powers  under  

Sections 176 and 180 respectively, while the “Authority” has been defined  

under Section 2(6) as regulation-making power under Section 177.  On the  

other hand, the Regulatory Commissions are vested with the power to frame  

policy, in the form of regulations, under various provisions of the 2003 Act.  

However, the Regulatory Commissions are empowered to frame policy, in  

the  form of  regulations,  as  guided  by  the  general  policy  framed  by  the  

Central  Government.   They  are  to  be  guided  by the  National  Electricity  

Policy, the Tariff Policy as well as the National Electricity Plan in terms of  

Sections 79(4) and 86(4) after the 2003 Act (see also Section 66).  In this  

connection, it may also be noted that the Central Government has also, in  

exercise of its powers under Section 3 of the 2003 Act, notified the Tariff  

Policy  with  effect  from 6.1.2006.   One of  the  primary  objectives  of  the  

Tariff  Policy  is  to  ensure  availability  of  electricity  to  consumers  at  

reasonable  and competitive  rates.   The  Tariff  Policy  tries  to  balance  the  

interests of consumers and the need for investments while prescribing the  

rate of return.  It also tries to promote training in electricity for making the  

markets competitive.  Under the Tariff Policy, there is a mandate given to  

the Regulatory Commissions,  namely,  to monitor the trading transactions  

36

continuously  and  ensure  that  the  electricity  traders  do  not  indulge  in  

profiteering  in  cases  of  market  failure.   The  Tariff  Policy  directs  the  

Regulatory Commissions to fix the trading margin in a manner which would  

reduce the costs of electricity to the consumers and, at the same time, they  

should endeavour to meet the requirement for investments.

11. An  “electricity  trader”  is  defined  under  Section  2(26)  to  mean  a  

person who has been given a licence to undertake trading in electricity under  

Section 12.  Section 2(32) defines a “grid” as the high voltage backbone  

system  of  inter-connected  transmission  lines,  sub-station  and  generating  

plants.  Under Section 2(33), a “Grid Code” is defined as a code specified by  

the Central Commission under Section 79(1)(h), while under Section 2(34),  

“Grid Standards” are those specified by the Central Authority under Section  

73(d).   Under  Section 2(47),  “open access”  is  defined to  mean the  non-

discriminatory provision for access to the transmission lines or distribution  

system or associated facilities given to any licensee or consumer or a person  

engaged  in  generation  of  electricity  in  accordance  with  the  regulations  

specified.  Section 2(62) defines the term “specified” to mean specified by  

regulations made by the Appropriate Commission or the Authority under the  

2003 Act.   Under  Section  2(71),  the  word  “trading”  is  defined to  mean  

purchase of electricity for resale thereof.

37

12. Under  the  2003  Act,  power  generation  has  been  de-licensed  and  

captive generation is freely permitted, subject  to approval as indicated in  

Sections 7, 8 and 9 of the Act.  However, under Section 12, a licence has  

been provided as a pre-condition for engaging in transmission or distribution  

or trading of electricity.  Therefore, licensees are granted by the Appropriate  

Commission  under  Section  14  of  the  Act  on  applications  made  under  

Section 15.  Section 16 provides power to the Appropriate Commission to  

specify  any  general  or  specific  conditions  which  shall  apply  either  to  a  

licensee  or  to  a  class  of  licensees.   Under  Section  18,  the  Appropriate  

Commission is also vested with the power to amend the licence as well as to  

revoke it in certain stipulated circumstances, if public interest so requires  

(see Section 19).  Under Section 23, the Appropriate Commission has the  

power  to  issue  directions  to  licensees  to  regulate  supply,  distribution,  

consumption or use of electricity, if the Appropriate Commission is of the  

opinion that it is necessary or expedient so to do for maintaining the efficient  

supply  and  for  securing  the  equitable  distribution  of  electricity  and  

promoting competition.

13. One of the most important features of the 2003 Act is the introduction  

of open access under Section 42 of the Act.  Under the open access regime,  

distribution  companies  and  eligible  consumers  have  the  freedom to  buy  

38

electricity directly from generating companies or trading licensees of their  

choice and correspondingly the generating companies have the freedom to  

sell.

14. Section 52 of the 2003 Act deals with trading of electricity activity.  

Under Section 52(1), the Appropriate Commission may specify the technical  

requirement, capital adequacy requirement and credit worthiness for being  

an  electricity  trader.   Under  Section  52(2),  every  trader  is  required  to  

discharge its duties, in relation to supply and trading in electricity, as may be  

specified by the Appropriate Commission.

15. The standards of performance of licensee(s) may be specified by the  

Appropriate Commission under Section 57 of the Act.

16. The 2003 Act contains separate provisions for the performance of the  

dual functions by the Commission.  Section 61 is the enabling provision for  

framing  of  regulations  by  the  Central  Commission;  the  determination  of  

terms and conditions of tariff has been left to the domain of the Regulatory  

Commissions  under  Section  61  of  the  Act  whereas  actual  tariff  

determination by the Regulatory Commissions is covered by Section 62 of  

the  Act.   This  aspect  is  very  important  for  deciding  the  present  case.  

Specifying the terms and conditions for determination of tariff is an exercise  

39

which is different and distinct from actual tariff determination in accordance  

with  the  provisions  of  the  Act  for  supply  of  electricity  by  a  generating  

company to a distribution licensee or for transmission of electricity or for  

wheeling of electricity or for retail sale of electricity.

17. The term “tariff” is not defined in the 2003 Act.  The term “tariff”  

includes within its ambit not only the fixation of rates but also the rules and  

regulations relating to it.   If one reads Section 61 with Section 62 of the  

2003 Act, it becomes clear that the Appropriate Commission shall determine  

the actual tariff in accordance with the provisions of the Act, including the  

terms  and  conditions  which  may  be  specified  by  the  Appropriate  

Commission under Section 61 of the said Act.  Under the 2003 Act, if one  

reads  Section  62  with  Section  64,  it  becomes  clear  that  although  tariff  

fixation like price fixation is legislative in character, the same under the Act  

is made appealable vide Section 111.  These provisions, namely, Sections  

61,  62  and  64  indicate  the  dual  nature  of  functions  performed  by  the  

Regulatory  Commissions,  viz,  decision-making  and  specifying  terms and  

conditions for tariff determination.   

40

18. Section 66 confers substantial powers on the Appropriate Commission  

to  develop  the  relevant  market  in  accordance  with  the  principles  of  

competition, fair participation as well as protection of consumers’ interests.  

19. Under  Sections  111(1)  and  111(6)  respectively,  the  Tribunal  has  

appellate and revisional powers.  In addition, there are powers given to the  

Tribunal under Section 121 of the 2003 Act to issue orders, instructions or  

directions,  as  it  may  deem  fit,  to  the  Appropriate  Commission  for  the  

performance of statutory functions under the 2003 Act.

20. The  2003  Act  contemplates  three  kinds  of  delegated  legislation.  

Firstly, under Section 176, the Central Government is empowered to make  

rules  to  carry  out  the  provisions  of  the  Act.   Correspondingly,  the  State  

Governments  are  also  given  powers  under  Section  180  to  make  rules.  

Secondly, under Section 177, the Central Authority is also empowered to  

make  regulations  consistent  with  the  Act  and  the  rules  to  carry  out  the  

provisions of the Act.  Thirdly, under Section 178, the Central Commission  

can make regulations consistent with the Act and the rules to carry out the  

provisions of the Act.  SERCs have a corresponding power under Section  

181.  The rules and regulations have to be placed before Parliament and the  

State Legislatures,  as the case may be,  under Section 179 and 182.  The  

Parliament has the power to modify the rules/ regulations.  This power is not  

41

conferred upon the State Legislatures.  A holistic reading of the 2003 Act  

leads  to  the  conclusion  that  regulations  can  be  made  as  long  as  two  

conditions are satisfied, namely, that they are consistent with the Act and  

that they are made for carrying out the provisions of the Act.  

SUBMISSIONS:

On behalf of M/s Tata Power Trading Co. Ltd.:

21. On the scheme of the 2003 Act it was submitted by Shri Harish N.  

Salve,  learned  senior  counsel,  that,  under  the  said  Act  the  Central  

Commission and SERCs have to frame regulations as well as pass statutory  

orders. The Act uses the expression “fixed” in Sections 8, 19, 45 & 79; it  

uses the expression “determined” in the proviso to Section 9(2), Sections 20,  

42,  47,  57,  61  and  67(2)  and  the  word  “specified”   (i.e.  by  way  of  

regulations) in Sections 13, 14, 15, 16, 17, 18(2), 28(4), 34, 36, 38, 41, 42,  

45,  51,  52,  53,  57,  61 and 67(2)  of  the  2003 Act.  Under  the  2003 Act,  

according  to  the  learned  counsel,  there  are  a  series  of  provisions  which  

expressly require the Commission to frame regulations on specific aspects.  

According to learned counsel, each of the said three expressions have to be  

interpreted by the terms and in the context of the scheme of the 2003 Act  

and not by a priori notions of administrative law. For example, Section 61  

posits the framing of regulations by the Commission, which will subject to  

42

the  provisions  of  the 2003 Act,  specify the  terms and conditions  for  the  

determination of tariff. It is possible that such regulations may be licensee-

specific or generic. At the same time, under Section 62 read with Section 64  

refers to determination of tariff in accordance with the provisions of the Act  

for supply of electricity by Gencoms, transmission of electricity, wheeling  

and  trading  of  electricity.  Applying  the  Cynamide  principle  

[1987(2)SCC720]  of  administrative  law,  such  tariff  Order  would  be  

characterized as delegated legislation yet under Section 111 of the  2003 Act  

it  is made appealable to the Appellate Tribunal. According to the learned  

counsel, “price fixation” is ordinarily “legislative” and not “adjudicatory” in  

character and yet under the 2003 Act tariff fixation is by Order and subject  

to  appeal  under  Section  111.  According  to  the  learned  counsel,  use  of  

different expressions in the Act implies different meanings. For example, in  

Section 79 the expressions used are “regulate”, “determine”, “adjudicate”,  

“specify” and “fix”. Where the function of the Commission under Sections  

79 and 86 require framing of regulations, the Act has used the expression  

“specified” as defined. Therefore, according to the learned counsel, the word  

“fix”  in  Section  79(1)(j)  must  mean  to  pass  an  appropriate  order  fixing  

trading margin which is further qualified by the Act saying “if considered  

necessary”. In this connection, learned counsel further submitted that fixing  

43

trading margin is same as price fixation and as such margin must be fixed by  

an Order  and not  by way of  regulation.  Hence,  according to the  learned  

counsel,  regulations  cannot  be  framed  under  Section  79(1)(j)  and  under  

Section 86(1)(j) of the 2003 Act.  

22. On the interpretation of Sections 178(1) and 181(1) of the 2003 Act,  

learned counsel submitted that where rule making powers are enumerated  

and there is a general delegation of power to make rules to carry out the  

provisions  of  the  2003  Act,  the  enumeration  does  not  detract  from  the  

generality of the power conferred is the principle which has to be read in the  

context of the scheme of the 2003 Act. In this connection it was submitted  

that under the Act the power to frame subordinate legislation to carry out the  

provisions of the Act are contained in Sections 176 and 180 on Central and  

State  Governments;  in  Sections  178  and  181  where  power  to  frame  

regulations is conferred on Regulatory Commissions and Section 177 where  

the  power  to  frame  regulations  is  conferred  on  CEA.  Hence,  when  the  

Central Government invokes the rule making power under Section 176(1), it  

cannot make rules to determine tariff  since that can be done only by the  

appropriate Commission by virtue of Section 61 read with Section 178(2)(s).  

A  perusal  of  the  scheme of  the  2003  Act  suggests  that  each  and  every  

provision of the Act  where framing of  regulations is  contemplated has a  

44

counter-part in one of the clauses as set out in Section 178(2). In any event,  

according to the learned counsel, where the Act requires the discharge of a  

function by a specific order, then a regulation cannot be framed to achieve  

that  very  purpose  merely  because  there  is  a  power  to  frame regulations.  

Therefore,  according to the  learned counsel,  trading margin can be fixed  

only by an order under Section 79(1)(j) and 86(1)(j) and not by regulations.

23. On the powers of the Appellate Tribunal under Sections 111 and 121  

of  the  2003  Act,  learned  counsel  urged,  that,  the  said  Tribunal  was  

established as an expert second tier regulatory authority to review the actions  

of the Regulatory Commissions,  including regulations framed by first tier  

regulatory bodies even in the absence of Section 121 of the 2003 Act. In this  

connection,  learned  counsel  further  submitted  that  the  powers  envisaged  

under  Section  121  are  distinct  from the  appellate  and  revisional  powers  

under Section 111(3) and under Section 111(6). A plain reading of Section  

121 establishes that the Tribunal has the power to issue orders, instructions  

and  directions  to  guide  the  Commission  in  the  due  performance  of  its  

statutory  function;  that  the  said  power  to  issue  instructions,  orders  and  

directions would include the power to frame or modify the regulations made  

by the first tier regulatory authority, particularly in cases where the Tribunal  

is  satisfied  that  the  regulation  framed  is  either  not  consistent  with  the  

45

provisions of the Act or does not result in due performance of the duty or  

functions entrusted to the Commission under the 2003 Act. In the light of the  

provisions of Sections 111 and 121 of the 2003 Act, learned counsel urged,  

that,  even  in  an  appeal  under  Section  111 if  the  question  of  validity  of  

delegated legislation arises, the tribunal can consider the vires and ignore a  

Rule which is ultra-vires the rule-making power. The fact that there is no  

power  in  the  tribunal  to  annul  the  regulation  cannot  deny  the  power  to  

statutory tribunal to ignore ultra vires subordinate legislation. Lastly, there is  

no  need  to  read  down  Section  121  on  a  priori  notion  of  classical  

administrative  law that  vires  of  the  rules  can  only  be  challenged  in  the  

judicial review proceedings before a constitutional court.

On behalf of PTC India Ltd.

24. Shri Vikas Singh, learned senior counsel, submitted that fixation of  

trading  margins  under  normal  business  conditions  is  intrinsically  

contradictory and harmful to power market functioning.  In this connection,  

it  was submitted  that  capping of  trading margin  does not  in any manner  

whatsoever control the selling price of electricity sold to Discoms.  Such  

capping of trading margin results in relegating the electricity traders to mere  

commission agents. The role of electricity traders is to play a dynamic role  

46

of  bringing  in  new  products  in  the  market  which  is  beneficial  to  the  

consumers  as  well  as  Gencoms.   However,  the  entire  object  of  having  

electricity traders stand defeated by impugned capping of trading margins.  

According to the learned counsel,  traders in electricity bring depth to the  

electricity markets.  They make value additions and therefore interventions  

in trading by regulations should not be contrary to the letter and spirit of the  

Act [See Section 66].  According to the learned counsel, severe regulatory  

intervention  like  imposition  of  margin  in  a  voluntary  market  should  be  

resorted to only in cases of market failure.  According to the learned counsel,  

on the basis of statistical data, the trading margin is not a return guaranteed  

to a trader and that the actual margin which the trader is getting is lower than  

the prescribed cap.  According to the learned counsel,  none of the above  

facts  have  been  appreciated  by  the  Central  Commission  in  capping  the  

margin as not to exceed 4.0 paise per kWh on the electricity traded.

25. On the question of law, learned counsel submitted that the right to  

appeal  under  Section  111  in  respect  of  adjudicatory/administrative  order  

cannot  be  defeated  by  colouring  the  decision  as  a  regulation.   In  this  

connection learned counsel submitted that the rules/regulations framed by  

the executive under an Act are the law whereas regulations made by the  

statutory authority itself is not the regulation under which it functions, but  

47

the regulation making itself is its function.  In the former case, it is possible  

to  argue  that  the  Authority  which  is  the  creature  of  the  Statute  cannot  

question the vires of the statute, in the latter case, the Authority is not the  

creature of the Regulation framed by itself, hence the sanctity given to the  

former is far greater than the sanctity to the latter.

26. According  to  the  learned  counsel,  that,  the  right  to  appeal  is  a  

substantive right and the same cannot be taken away by a device, i.e., by  

framing a regulation instead of simply passing an order as to denude the  

Appellant of its right of Appeal.  In this connection, learned counsel urged  

that the Appellate Tribunal can hear the appeal against the regulation being  

the  function  of  the  Commission  and  can  examine  the  sanctity  of  the  

regulation if the same is framed beyond the power of the commission to do  

so.   In  other  words,  if  the  Commission  is  entitled  to  adjudicate  upon  a  

matter, it does not have the authority under the Act to give its decision the  

colour of a regulation so as to denude the Tribunal of its authority under  

Section  111.   According  to  the  learned  counsel,  since  the  impugned  

regulation relegates the trading licensee to a commission agent the same is  

ultra vires Section 66 of the 2003 Act.

27. According to the learned counsel, under Section 79 the Commission is  

authorized only to fix the trading margin and since the impugned regulations  

48

are purportedly made under Section 79 the said regulations are beyond the  

powers of the Central Commission and are, thus, ultra vires the 2003 Act.

 28. Lastly,  learned counsel  for PTC adopted all  the arguments  of  Shri  

Harish N. Salve, learned counsel for M/s. Tata Power Trading Company Ltd.  

 29. Shri  Narasimha,  learned  counsel  and  Others  broadly  adopted  the  

above arguments advanced on behalf of M/s. Tata Power Trading Company  

and PTC India Ltd., hence, the same need not be reproduced.

On behalf of CERC

30. After taking us through the provisions of the 2003 Act, the National  

and the Tariff Policies, learned Solicitor General of India submitted that the  

2003 Act contemplates three kinds of delegated legislation:

(i) Under  Section  176,  the  Central  Government  is  

empowered  to  make  rules  for  carrying  out  the  

provisions of the Act.  A corresponding power is  

given to the State Governments under Section 180.

(ii) Under  Section  177,  the  CEA  is  empowered  to  

make regulations consistent with the Act and the  

rules made under Section 176.

49

(iii) Under Section 178, the Central Commission may  

make regulations consistent with the Act and the  

rules generally to carry out the provisions of the  

Act.  The corresponding power under Section 181  

is conferred on SERCs.  

31. The rules and the regulations have to be placed before the Parliament  

and the State Legislatures, as the case may be, under Sections 179 and 182  

respectively.  According to the learned counsel, even if the Rules have been  

laid before the Parliament and even if there is a resolution of the Parliament  

approving them, the validity of the Rules has to be declared by the Court as  

ultra vires the Act and invalid.  According to the learned counsel, there is no  

power conferred upon the Appellate Tribunal under Section 111 to declare  

the  regulations  framed  by  the  Central  Commission  as  null  and  void.  

According  to  the  learned  counsel,  Tribunals  are  creatures  of  the  statute.  

They  have  no  inherent  power  that  exists  in  civil  courts.   Any  power  

exercisable by the Tribunal has to be located in the statute under which it is  

formed.  There is no authority for the proposition that under the Indian law,  

a  statutory  tribunal  has  the  jurisdiction  to  deal  with  the  validity  of  

subordinate legislation and pronounce it as ultra vires.  Of course, according  

to the learned counsel,  it is open to the Parliament to expressly give to a  

50

Tribunal  the  power  to  consider  the  validity  of  subordinate  legislation.  

However, such conferment has to be express and unambiguous, which is not  

there in this case.

32. According to the learned counsel, the mere fact that Section 79(1)(j)  

uses the word “fix” and the mere fact that the other provisions use the word  

“specify” does not lead to the conclusion that the Central Commission could  

not have issued the Trading Margin Regulations 2006 as contended by the  

appellants herein.  The learned counsel further urged that the general power  

to frame regulations is not limited or controlled by enumeration of topics on  

which regulations may be framed.  In this connection, it was submitted that a  

holistic reading of the Act leads to the conclusion that regulations can be  

made as long as they are consistent with the Act and that they are made for  

carrying  out  the  provisions  of  the  Act.   The  Act  recognizes  the  need to  

regulate  trading  in  electricity  [See  Sections  52(2),  53(1)(a),  57,  60,  

178(2)(d), (o), (p) and (y)].

33. Learned  counsel  further  submitted  that  for  the  reasons  mentioned  

herein there is no case made out by the Appellants to lift the veil over a fake  

regulation.  The Central Commission had to initiate proceedings against 14  

traders  for  non-compliance  with  licence  conditions.   Some  traders  were  

operating on high margins.  Trading margin being the component of the final  

51

price paid by the consumers required regulation to protect the consumers.  

Competition among traders to capture the surplus power for sale resulted in  

rising prices.  Even with a trading margin of 4 paise/unit, traders can make  

handsome profits.  For the above reasons, Commission thought it fit to make  

the impugned Regulations.   It  was further  contended that the doctrine of  

colourable exercise of power was not applicable to decide the validity of  

subordinate legislation.

34. Learned counsel  lastly  submitted that  the  power  of  judicial  review  

cannot be located in Section 121 of the Act.  The power under Section 121 is  

different  from the  power  under  Section  111.   According  to  the  learned  

counsel,  Section  121  empowers  the  tribunal  to  act  only  when  the  

Commission is guilty of inaction in carrying out its statutory functions.  The  

power to annul a legislative act cannot be read into Section 121.  Even the  

High Court cannot direct the Legislature to enact a law and, therefore, such  

power cannot be read into Section 121.  In order to entertain a challenge,  

directly or collaterally, the tribunal must have jurisdiction which must be  

conferred by the statute and since in the instant case tribunal is not vested  

with such a jurisdiction, it is not open to the Appellants to place reliance on  

some  of  the  English  Judgments.   Thus,  the  Appellate  Tribunal  is  not  

qualified  to  go behind a  regulation  as  framed by CERC and to  examine  

52

whether  it  acted  within  the  bounds  of  the  statute  while  framing  the  

regulation.   

DETERMINATIONS:

35. On  the  above  submissions,  one  of  the  questions  which  arises  for  

determination is – whether trading margin fixation (including capping) under  

the 2003 Act can only be done by an Order under Section 79(1)(j) and not by  

Regulations under Section 178? According to the appellant(s) it can only be  

done by an Order under Section 79(1)(j), particularly when under Section  

178(2) power to make regulations is co-relatable to the functions ascribed to  

each Authority under the said 2003 Act.

36. In every case one needs to examine the statutory context to determine  

whether a court  or a tribunal hearing a case has jurisdiction to rule on a  

defence  based upon arguments  of  invalidity  of  subordinate  legislation  or  

administrative act  under it.  There are situations in which Parliament may  

legislate to preclude such challenges in the interest of promoting certainty  

about the legitimacy of administrative acts on which the public may have to  

rely.

37. On the above analysis of various sections of the 2003 Act, we find  

that the decision-making and regulation-making functions are both assigned  

53

to CERC. Law comes into existence not only through legislation but also by  

regulation and litigation. Laws from all three sources are binding. According  

to  Professor  Wade,  “between legislative  and administrative  functions  we  

have  regulatory  functions”.   A  statutory  instrument,  such  as  a  rule  or  

regulation, emanates from the exercise of delegated legislative power which  

is  a  part  of  administrative  process  resembling  enactment  of  law  by  the  

legislature whereas a quasi-judicial order comes from adjudication which is  

also part of administrative process resembling a judicial decision by a court  

of  law.  [See  Shri  Sitaram Sugar  Co.  Ltd.   v.   Union  of  India  and  Ors.  

reported in (1990) 3 SCC 223].

38. Applying the above test, price fixation exercise is really legislative in  

character, unless by the terms of a particular statute it is made quasi-judicial  

as in the case of Tariff  fixation under Section 62 made appealable under  

Section 111 of the 2003 Act, though Section 61 is an enabling provision for  

the framing of regulations by CERC.  If one takes “Tariff” as a subject-

matter, one finds that under Part VII of the 2003 Act actual determination/  

fixation of tariff is done by the Appropriate Commission under Section 62  

whereas  Section  61  is  the  enabling  provision  for  framing  of  regulations  

containing generic propositions in accordance with which the Appropriate  

Commission  has  to  fix  the  tariff.   This  basic  scheme equally  applies  to  

54

subject-matter “trading margin” in a different statutory context as will  be  

demonstrated by discussion hereinbelow.  In the case of M/s Narinder Chand  

Hem  Raj  and  Ors.  v.  Lt.  Governor,  Administrator,  Union  Territory,  

Himachal Pradesh and Ors. reported in (1971) 2 SCC 747, this Court has  

held that power to tax is a legislative power which can be exercised by the  

legislature  directly  or  subject  to  certain  conditions.   The  legislature  can  

delegate that power to some other Authority.  But the exercise of that power,  

whether  by  the  legislature  or  by  the  delegate  will  be  an  exercise  of  

legislative power. The fact that the power can be delegated will not make it  

an administrative power or adjudicatory power.  In the said judgment, it has  

been further held that no court can direct a subordinate legislative body or  

the legislature to enact a law or to modify the existing law and if Courts  

cannot so direct, much less the Tribunal, unless power to annul or modify is  

expressly given to it.  In the case of Indian Express Newspapers (Bombay)  

Pvt. Ltd. and Ors.   v.  Union of India and Ors. reported in (1985) 1 SCC  

641, this Court held that subordinate legislation is outside the purview of  

administrative action,  i.e.,  on the grounds of violation of rules of natural  

justice or that it has not taken into account relevant circumstances or that it  

is not reasonable.  However, a distinction must be made between delegation  

of legislative function and investment of discretion to exercise a particular  

55

discretionary power by a statute.  In the latter case, the impugned exercise of  

discretion may be considered on all grounds on which administrative action  

may  be  questioned  such  as  non-application  of  mind,  taking  irrelevant  

matters  into  consideration  etc.   The  subordinate  legislation  is,  however,  

beyond  the  reach  of  administrative  law.  Thus,  delegated  legislation  –  

otherwise known as secondary, subordinate or administrative legislation – is  

enacted by the administrative branch of the government, usually under the  

powers conferred upon it by the primary legislation. Delegated legislation  

takes a number of forms and a number of terms – rules, regulations, by-laws  

etc;  however,  instead  of  the  said  labels  what  is  of  significance  is  the  

provisions in  the primary legislation which,  in  the first  place,  confer  the  

power to enact administrative legislation. Such provisions are also called as  

“enabling  provisions”.  They  demarcate  the  extent  of  the  administrator’s  

legislative power, the decision-making power and the policy making power.  

However, any legislation enacted outside the terms of the enabling provision  

will be vulnerable to judicial review and ultra vires.  

39. Applying the abovementioned tests to the scheme of 2003 Act, we  

find that under the Act,  the Central  Commission is  a decision-making as  

well as regulation-making authority, simultaneously. Section 79 delineates  

the  functions  of  the  Central  Commission  broadly  into  two  categories  –  

56

mandatory  functions  and  advisory  functions.  Tariff  regulation,  licensing  

(including  inter-State  trading  licensing),  adjudication  upon  disputes  

involving generating companies or transmission licensees fall under the head  

“mandatory  functions”  whereas  advising  Central  Government  on  

formulation of National Electricity Policy and tariff policy would fall under  

the head “advisory functions”. In this sense, the Central Commission is the  

decision-making authority. Such decision-making under Section 79(1)  is not  

dependant  upon making of  regulations  under  Section 178 by the  Central  

Commission.  Therefore,  functions  of  Central  Commission  enumerated  in  

Section 79 are separate and distinct from function of Central Commission  

under  Section  178.  The  former  is  administrative/adjudicatory  function  

whereas the latter is legislative.

40. As stated above, the 2003 Act has been enacted in furtherance of the  

policy envisaged under the Electricity Regulatory Commissions Act, 1998 as  

it  mandates  establishment  of  an  independent  and  transparent  Regulatory  

Commission  entrusted  with  wide  ranging  responsibilities  and  objectives  

inter alia including protection of the consumers of electricity. Accordingly,  

the Central Commission is set up under Section 76(1) to exercise the powers  

conferred on, and in discharge of the functions assigned to, it under the Act.  

On reading Sections 76(1) and 79(1) one finds that Central Commission is  

57

empowered to take measures/steps in discharge of the functions enumerated  

in  Section  79(1)  like  to  regulate  the  tariff  of  generating  companies,  to  

regulate  the  inter-State  transmission  of  electricity,  to  determine  tariff  for  

inter-State transmission of electricity, to issue licenses, to adjudicate upon  

disputes, to levy fees,  to specify the Grid Code, to fix the trading margin in  

inter-State  trading  of  electricity,  if  considered  necessary,  etc..  These  

measures, which the Central Commission is empowered to take, have got to  

be  in  conformity  with  the  regulations  under  Section  178,  wherever  such  

regulations are applicable. Measures under Section 79(1), therefore, have got  

to be in conformity with the regulations under Section 178. To regulate is  

an exercise  which is  different  from making of  the  regulations.  However,  

making  of  a  regulation  under  Section  178  is  not  a  pre-condition  to  the  

Central  Commission  taking  any  steps/measures  under  Section  79(1).  As  

stated, if there is a regulation, then the measure under Section 79(1) has to  

be  in  conformity  with  such  regulation  under  Section  178.  This  principle  

flows  from  various  judgments  of  this  Court  which  we  have  discussed  

hereinafter. For example, under Section 79(1)(g) the Central Commission is  

required to levy fees for the purpose of the 2003 Act. An Order imposing  

regulatory fees could be passed even in the absence of a regulation under  

Section 178. If the levy is unreasonable, it could be the subject matter of  

58

challenge before the Appellate Authority under Section 111 as the levy is  

imposed by an Order/decision making process. Making of a regulation under  

Section  178  is  not  a  pre-condition  to  passing  of  an  Order  levying  a  

regulatory  fee  under  Section  79(1)(g).  However,  if  there  is  a  regulation  

under Section 178 in that regard then the Order levying fees under Section  

79(1)(g)  has  to  be  in  consonance  with  such  regulation.  Similarly,  while  

exercising the power to frame the terms and conditions for determination of  

tariff under Section 178, the Commission has to be guided by the factors  

specified in Section 61.  It  is  open to the Central  Commission to specify  

terms and conditions for determination of tariff even in the absence of the  

regulations  under  Section  178.  However,  if  a  regulation  is  made  under  

Section  178,  then,  in  that  event,  framing  of  terms  and  conditions  for  

determination of tariff under Section 61 has to be in consonance with the  

regulation  under  Section  178.  One  must  keep  in  mind  the  dichotomy  

between the power to make a regulation under Section 178 on one hand and  

the  various  enumerated  areas  in  Section  79(1)  in  which  the  Central  

Commission is mandated to take such measures as it deems fit to fulfil the  

objects  of  the 2003 Act.  Applying this  test  to the  present  controversy,  it  

becomes  clear  that  one  such  area  enumerated  in  Section  79(1)  refers  to  

fixation of trading margin. Making of a regulation in that regard is not a pre-

59

condition to the Central Commission exercising its powers to fix a trading  

margin under Section 79(1)(j),  however, if the Central  Commission in an  

appropriate case, as is the case herein, makes a regulation fixing a cap on the  

trading  margin  under  Section  178  then  whatever  measures  a  Central  

Commission  takes  under  Section  79(1)(j)  has  to  be  in  conformity  with  

Section 178.  One must  understand the reason why a regulation has been  

made in the matter of capping the trading margin under Section 178 of the  

Act. Instead of fixing a trading margin (including capping) on a case to case  

basis, the Central Commission thought it fit to make a regulation which has  

a  general  application  to  the  entire  trading  activity  which  has  been  

recognized, for the first time, under the 2003 Act. Further, it is important to  

bear  in  mind  that  making  of  a  regulation  under  Section  178  became  

necessary because a regulation made under Section 178 has the effect  of  

interfering and overriding the existing contractual relationship between the  

regulated  entities.  A  regulation  under  Section  178  is  in  the  nature  of  a  

subordinate Legislation. Such subordinate Legislation can even override the  

existing contracts including Power Purchase Agreements which have got to  

be aligned with the regulations under Section 178 and which could not have  

been done across the board by an Order of the Central Commission under  

Section 79(1)(j).

60

41. To  elucidate,  we  may  refer  to  the Central  Electricity  Regulatory  

Commission (Terms and Conditions of Tariff) Regulations, 2004.  The said  

Regulations have been made under Section 178 of the 2003 Act.  Regulation  

15 deals with various components of tariff.   It  includes Advance Against  

Depreciation (“AAD” for short).  Regulations 21(1)(ii) and 38(ii) deal with  

computation of depreciation including AAD.  Recently, this concept of AAD  

came  for  consideration  before  this  Court  in  the  case  of  National  

Hydroelectric  Power  Corporation  Ltd.   v.  CIT reported  in  2010  (1)  

SCALE 5.  AAD was suggested by the Central Commission as part of the  

tariff in order to overcome the cash flow problems faced by Central Power  

Sector Utilities for meeting loan repayment obligations.  The important point  

to be noted is that although under Section 61 of the 2003 Act the Central  

Commission is empowered to specify AAD as a condition for determination  

of the tariff, the Central Commission in its wisdom thought it fit to bring in  

the concept of AAD by enacting a regulation under Section 178 giving the  

benefit of AAD across the board to all Central Power Sector Utilities.  In  

other words, instead of giving the benefit of AAD on a case to case basis  

under  Section  61,  the  Central  Commission  decided  to  make  a  specific  

regulation  giving  benefit  of  AAD across  the  board  to  all  Central  Power  

Sector Utilities. There is one more reason why a regulation under Section  

61

178 with regard to AAD had to be made by CERC. Under the 2003 Act,  the  

Central Commission is empowered under Section 61 to include depreciation  

as an item in the computation of tariff. However, if the rate of depreciation  

envisaged by the Central Commission under the 2003 Act is different from  

the rate(s) of depreciation prescribed under Schedule XIV of the Companies  

Act, 1956 then such differential rate can be prescribed under the 2003 Act  

only by way of regulation under Section 178 of the 2003 Act which is in the  

nature of subordinate legislation. It is important to note that the Companies  

Act, 1956 constitutes a law applicable to companies. It prescribes the format  

of Balance Sheet in Schedule VI. It prescribes the requirements as to Profit  

and Loss account vide Part II of Schedule VI. It also prescribes the rates of  

depreciation  vide  Schedule  XIV.  If  a  different  rate  is  required  to  be  

prescribed  under  the  2003  Act,  then  it  could  be  done  only  by  way  of  

subordinate legislation, which is contemplated by Regulations framed under  

Section 178 of the 2003 Act. Similarly, profits earned by a trading company  

are  not  only  required to  be  presented  in  the  manner  indicated  under  the  

Companies Act but it is also required to be computed under the Income-tax  

Act,  1961. If  such profits/income of a trading company is  required to be  

capped under the 2003 Act, it can only be done by a subordinate legislation  

made under Section 178 of the 2003 Act. Accrual of income/profit under the  

62

Companies Act, 1956 or the Income-tax Act, 1961 can only be curbed by a  

regulation made under the authority of subordinate legislation or  primary  

legislation. This is exactly what is sought to be achieved by the impugned  

Regulation.

42. One  more  citation  may  be  noticed.  Reserve  Bank  of  India  is  a  

Regulator under the RBI Act, 1934  (“1934 Act”). Under the 1934 Act, RBI  

is  empowered  not  only  to  regulate  banks  but  also  financial  institutions,  

NBFCs etc.. Chapter III B of the 1934 Act deals with  provisions relating to  

financial institutions and NBFCs receiving deposits from the public. Under  

Section 45JA of the 1934 Act, RBI is given the power to determine policy  

and issue directions to NBFCs and financial institutions in public interest or  

in  order  to  regulate  the  financial  system  of  the  country.  Section  45JA,  

however, is confined to Chapter III B. However, under Section 58, which  

falls in Chapter IV, dealing with general provisions, the Board of Directors  

of RBI are given the power to make regulations consistent with the 1934 Act  

to provide for all matters for which provision is necessary. The principle of  

“generality  versus  enumeration”  is  also  applicable  to  Section  58  of  RBI  

Regulations because under Section 58(2) there is a list of topics enumerated  

on which regulations could be made. In other words, Section 58 (1), (2) of  

the 1934 Act is similar to Section 178 (1), (2) of the 2003 Act. Recently,  

63

before the Division Bench of this Court, the question arose, inter alia, as to  

the accounting treatment to be given by NBFCs accepting deposits from the  

public in the context of provision to be made for Non Performing Assets  

(“NPAs”). An Order was passed by RBI under Section 45JA of the 1934 Act  

stating that although provision for doubtful debts is required to be reduced  

from  the  assets’  side  of  the  balance  sheet  under  the  provisions  of  the  

Companies  Act,  1956,  for  proper  disclosure  under  the  1934 Act,  such a  

provision should be shown in the balance sheet specifically on the liabilities’  

side. It is interesting to note that the Order was passed under Section 45JA  

which,  as  stated above,  is  part  of  Chapter  III  B of  the  1934 Act,  which  

chapter expressly deals with provisions relating to NBFCs. There was no  

regulation enacted under Section 58 on the topic, namely, NPAs. The point  

to be noted is, that there could be an Order/decision of a regulator under the  

Act even in the absence of regulations. RBI like CERC is a regulator under  

the 1934 Act.  Under Section 45JA it is empowered to issue directions in  

contradistinction to its powers to enact regulations under Section 58 of the  

1934 Act. Giving directions under Section 45JA need not be preceded by  

regulations made under Section 58, however, if in a given case, RBI/Board  

would have enacted a regulation on making of provision for NPAs under  

Section 58 then the Order of RBI under Section 45JA of the 1934 Act was  

64

required to be in conformity with the said regulations. (See the judgment of  

this  Court  in  the  case  of  M/s  Southern  Technologies  Ltd.   v.   Joint  

Commissioner of Income Tax, Coimbatore  reported in 2010 (1) SCALE  

329.)  

43. The above two citations have been given by us only to demonstrate  

that  under  the  2003  Act,  applying  the  test  of  “general  application”,  a  

Regulation  stands  on  a  higher  pedestal  vis-à-vis  an  Order  (decision)  of  

CERC  in  the  sense  that  an  Order  has  to  be  in  conformity  with  the  

regulations.  However,  that  would  not  mean  that  a  regulation  is  a  pre-

condition to the order (decision). Therefore, we are not in agreement with  

the contention of the appellant(s) that under the 2003 Act, power to make  

regulations under Section 178 has to be correlated to the functions ascribed  

to each authority under the 2003 Act and that CERC can enact regulations  

only on topics enumerated in Section 178(2). In our view, apart from Section  

178(1) which deals with “generality” even under Section 178(2)(ze) CERC  

could enact a regulation on any topic which may not fall in the enumerated  

list provided such power falls within the scope of 2003 Act. Trading is an  

activity recognized under the said 2003 Act. While deciding the nature of an  

Order (decision) vis-à-vis a Regulation under the Act, one needs to apply the  

test  of  general  application.  On the  making  of  the  impugned Regulations  

65

2006,  even  the  existing  Power  Purchase  Agreements  (“PPA”)  had  to  be  

modified  and  aligned  with  the  said  Regulations.  In  other  words,  the  

impugned Regulation makes an inroad into even the existing contracts. This  

itself indicates the width of the power conferred on CERC under Section 178  

of the 2003 Act.  All  contracts coming into existence after  making of the  

impugned Regulations 2006 have also to factor in the capping of the trading  

margin. This itself indicates that the impugned Regulations are in the nature  

of  subordinate  legislation.  Such  regulatory  intervention  into  the  existing  

contracts  across-the-board  could  have  been  done  only  by  making  

Regulations under Section 178 and not by passing an Order under Section  

79(1)(j)  of  the  2003  Act.  Therefore,  in  our  view,  if  we  keep  the  above  

discussion in mind, it becomes clear that the word “order” in Section 111 of  

the 2003 Act cannot include the impugned Regulations 2006 made under  

Section 178 of the 2003 Act.

44. We may usefully refer to some decisions relevant in the context.

45. In the case of  City Board, Mussoorie  v.  State Electricity Board  

and Ors., reported in AIR (58) 1971 Allahabad 219, the matter arose under  

Electricity (Supply) Act, 1948 (“1948 Act”). Under that Act, Grid Tariff had  

to be fixed from time to time under Section 46(1) “in accordance with any  

regulations made in that  behalf”.  Under Section 79 of  the 1948 Act,  the  

66

Board was also given the power to make regulations not inconsistent with  

the  Act  and the  Rules  made  thereunder  to  provide  for  all  or  any  of  the  

matters enumerated therein. It was argued on behalf of the appellant that the  

regulations must exist before a Grid Tariff can be fixed. This argument was  

rejected by the High Court which held that there was nothing in the 1948  

Act to suggest  that  existence of  a  regulation was a pre-condition to the  

determination of a grid tariff. It was held that under Section 46 of 1948 Act,  

the Board was given a wide discretion to frame the grid tariff  depending  

upon various factors mentioned in the Act.  According to the High Court,  

Section 46 of the Act was a standalone provision, therefore, the grid tariff  

could be fixed even in the absence of the  regulations provided such fixation  

is not inconsistent with the 1948 Act. However, it was further observed that  

if the Board had made regulations under Section 79 then order framing the  

grid tariff under Section 46(1) had to conform to such regulations. This view  

stood affirmed by this Court in the case of  U.P. State Electricity Board,  

Lucknow  v.  City Board, Mussoorie, reported in (1985) 2 SCC 16.

46. A similar question arose for determination by this Court in the case of  

M/s Jagdamba Paper Industries (Pvt.) Ltd. and Ors. v. Haryana State  

Electricity Board and Ors., reported in AIR 1983 SC 1296. In that case,  

enhancement in the security for meters and for payment of energy bills came  

67

to be challenged. It was argued on behalf of the appellants that the Board  

had not framed any Regulations under Section 79 of the 1948 Act for such  

enhancement.  According  to  the  appellants,  the  supply  of  electricity  was  

controlled under an agreement between the Board and the appellants  and  

therefore unilateral  escalation of security charges by passing of an Order  

under Section 49 would be contrary to any acceptable notion of contract. It  

was contended that  under Section 49(1)  of  the  1948 Act,  the Board was  

conferred with statutory powers to determine the conditions on the basis of  

which supply had to be made. Therefore, without determining the conditions  

under Section 49(1), it was not open to the Board to unilaterally enhance the  

security charges contrary to the existing contract between the Board and the  

consumers. This argument was rejected by this Court which held that what  

apply to the tariff fixation would equally apply to the security. Section 49(1)  

of the 1948 Act clearly indicated that the Board may supply electricity to  

any person upon such terms and conditions as the Board thinks fit. It was  

held  that  since  the  contract  between  the  consumer  and  the  Board  

contemplated enhancement of security charges as a condition of supply of  

electricity, it was not open to the appellants to say that such enhancement  

cannot take place without regulations being framed under Section 79. This  

judgment is important from another angle also. It indicates that regulations  

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under  Section  79  of  1948  Act  were  to  be  in  the  nature  of  subordinate  

legislation, therefore, all contracts had to be in terms of such regulations. In  

the  present  case  also,  if  one  examines  the  terms  and  conditions  of  the  

licences,  power  to  fix  trading  margin  is  expressly  contemplated  by  such  

terms. The said judgment further held that the Board is a statutory authority  

and has to act within the framework of the 1948 Act. If the act of the Board  

is not in consonance or in breach of some statutory provisions of law, rule or  

regulation, it is always open to challenge in a petition under Section 226 of  

the Constitution.

47. In the case of  Kerala State  Electricity Board  v.   S.N. Govinda  

Prabhu and Bros. and Ors., reported in (1986) 4 SCC 198, the dispute was  

confined to the question concerning increase in the electricity tariff by the  

Board under the 1948 Act. The principal ground of challenge was that the  

Board  had  acted  outside  its  statutory  authority  by  formulating  a  price  

structure intended to yield sufficient revenue to offset not only the actual  

expenditure  as  contemplated  by  Section  59  of  the  1948  Act  but  also  

expenditure not covered by that section. At this stage, we may point out that,  

in all  these cases, the Supreme Court has considered tariff  fixation, price  

fixation, security charges fixation at par. In that case, one of the submissions  

which found favour with the High Court, which accepted the submissions of  

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the consumer, while striking down the impugned notification, was that in the  

absence of specification by the State Government, it  was not open to the  

Board to adjust the tariffs. What was found by the Supreme Court was that  

although the expenditure did not fall strictly within Section 59 of the 1948  

Act, the actual expenditure stood incurred to avoid the loss. Therefore, the  

Supreme Court gave a schematic interpretation to the 1948 Act and it held  

that  the  State  Electricity  Board  was  obliged  to  carry  on  its  business  

economically and efficiently and consequently such charges were admissible  

even though they did not fall strictly within the ambit of Section 59. On the  

question as to absence of specification by the State Government, this Court  

further held that the omission of the rule-making authority to frame rules  

cannot takeaway the right to factor in such expenses in the revised tariff  

structure. This judgment is one more case which indicates that making of  

regulations is not a pre-condition to the tariff fixation or price fixation or  

security charges fixation.

48. In the case of Hindustan Zinc Ltd. etc.  v.  Andhra Pradesh State  

Electricity Board and Ors. reported in (1991) 3 SCC 299, the main attack  

was  to  the  upward  revision  of  the  tariffs  for  HT consumers  in  the  writ  

petition  before  the  High  Court,  inter  alia,  on  the  ground  that  the  Board  

cannot generate a surplus in excess of the surplus specified under Section 59  

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of the 1948 Act. Section 59 of that Act gave power to the Board to lay down  

general principles for Board’s finance. It was also contended that the tariff  

revision  was  made  without  prior  consultation  with  the  State  Electricity  

Consultative Council as required by Section 16(5) of the 1948 Act. It was  

held  by  this  Court  that  even  in  the  absence  of  general  principles  being  

specified under Section 59 of that Act, it was open to the Board to generate a  

surplus in order to carry on the business in a more efficient and economic  

manner. Following the judgment in the case of S.N. Govinda Prabhu (supra),  

it  was held that  even in the  absence of  prior  consultation with  the State  

Electricity Consultative Council as required by Section 16(5), it was open to  

the Board which was vested with the power of tariff fixation to make an  

upward revision of tariff. In other words, specification by making rules or  

regulations  was  not  a  pre-condition  for  upward  revision  of  tariff.  It  was  

observed that, if in a given case, it is found that such upward revision was  

arbitrary, then under the judicial review jurisdiction it was open to the courts  

to strike down such upward revision as arbitrary under Article 14. It was  

further  observed that  the “laying down procedure”  before the Legislature  

was meant to effectively control the exercise of the delegated power of the  

Board, however, such laying down procedure will not make the impugned  

regulation  immune  from judicial  review.  (Also  see  the  judgment  of  this  

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Court in Indian Express Newspapers (Bombay) Pvt. Ltd. and Ors.   v.  Union  

of India and Ors. reported in (1985) 1 SCC 641, paragraphs 75 to 79).  

49. On the question of “generality versus enumeration” principle, it was  

further held in the case of Hindustan Zinc Ltd. (supra) that under Section  

49(1) of the 1948 Act a general power was given to the Board to supply  

electricity to any person not being a licensee upon such terms and conditions  

as the Board thinks fit and the Board may for the purposes of such supply  

frame uniform tariffs under Section 49(2). The Board was required to fix  

uniform tariffs after taking into account certain enumerated factors. It was  

held that the power of fixation of tariffs in the Board ordinarily had to be  

done in the light of specified factors, however, such enumerated factors in  

Section  49(2)  did  not  prevent  the  Board  from fixing  uniform tariffs  on  

factors other than those enumerated in Section 49(2) as long as they were  

relevant and in consonance with the Act. To the same effect is the judgment  

of this Court in Shri Sitaram Sugar Co. Ltd. (supra). In that judgment also  

this Court held that the enumerated factors/topics in a provision do not mean  

that the authority cannot take any other matter into consideration which may  

be relevant. The words in the enumerated provision are not a fetter; they are  

not words of limitation, but they are words for general guidance.

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50. One more aspect needs to be mentioned. The judgment of this Court  

in  Shri  Sitaram  Sugar  Co.  Ltd.  (supra)  has  laid  down  various  tests  to  

distinguish  legislative  from  administrative  functions.  It  further  held  that  

price fixation is a legislative function unless the statute provides otherwise.  

It also laid down the scope of judicial review in such cases.

51. Applying  the  above  judgments  to  the  present  case,  it  is  clear  that  

fixation of the trading margin in the inter-State trading of electricity can be  

done by making of regulations under Section 178 of 2003 Act. Power to fix  

the trading margin under Section 178 is, therefore, a legislative power and  

the Notification issued under that section amounts to a piece of subordinate  

legislation, which has a general application in the sense that even existing  

contracts are required to be modified in terms of the impugned Regulations.  

These Regulations make an inroad into contractual relationships between the  

parties.  Such is the scope and effect  of the impugned Regulations which  

could not  have taken place by an Order  fixing the trading margin  under  

Section 79(1)(j). Consequently, the impugned Regulations cannot fall within  

the ambit of the word “Order” in Section 111 of the 2003 Act.

52. Before concluding on this topic, we still need to examine the scope of  

Section 121 of the 2003 Act. In this case, appellant(s) have relied on Section  

121 to locate the power of judicial review in the Tribunal. For that purpose,  

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we must notice the salient features of Section 121. Under Section 121, there  

must be a failure by a Commission to perform its statutory function in which  

event  the  Tribunal  is  given  authority  to  issue  orders,  instructions  or  

directions  to  the  Commission  to  perform  its  statutory  functions.  Under  

Section 121 the Commission has to be heard before such orders, instructions  

or directions can be issued.

53. The main issue which we have to decide is the nature of the power  

under Section 121. In the case of M/s Raman and Raman Ltd.   v.  State  

of Madras and Ors. reported in AIR 1959 SC 694, Section 43A of Motor  

Vehicles Act, 1939, (“1939 Act”),  as amended by Madras Act 20 of 1948,  

came for consideration before the Supreme Court.  Section 43A conferred  

power on the State Government to issue “orders” and “directions”, as it may  

consider necessary in respect of any matter relating to road transport to the  

State Transport Authority or a Regional Transport Authority. The meaning  

of the words “orders” and “directions” came for interpretation before the  

Supreme Court in the said case. It was held, on examination of the Scheme  

of the Act, that Section 43A was placed by the legislature before the sections  

conferring quasi-judicial powers on Tribunals which clearly indicated that  

the authority conferred under Section 43A was confined to administrative  

functions of the Government and the Tribunals rather than to their judicial  

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functions. It was further held that the legislature had used two words in the  

section: (i) orders; and (ii) directions. This Court further noticed that under  

the  1939  Act  there  was  a  separate  Chapter  which  dealt  with  making  of  

“rules” which indicated that the words “orders” and “directions” in Section  

43A  were  meant  to  clothe  the  Government  with  the  authority  to  issue  

directions of administrative character. It was held that the source of power  

did not affect the character of acts done in exercise of that power. Whether it  

is a law or an administrative direction depends upon the character or nature  

of the orders or directions authorized to be issued in exercise of the power  

conferred. It was, therefore, held that the words “orders” and “directions”  

were not laws. They were binding only on the Authorities under the Act.  

Such orders and directions were not required to be published. They were not  

kept  for  scrutiny  by legislature.  It  was  further  held  that  such orders  and  

directions  did  not  override  the  discretionary  powers  conferred  on  an  

authority  under  Section  60  of  the  1939  Act.  It  was  observed  that  non  

compliance of such orders, instructions and directions may result in taking  

disciplinary  action  but  they  cannot  affect  a  finding  given  by  the  quasi-

judicial authority nor can they impinge upon the rules enacted by the rule-

making authority. It was held that such orders and directions would cover  

only an administrative  field of  the  officers  concerned and therefore  such  

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orders and directions do not regulate the rights of the parties. Such orders  

and  directions  cannot  add  to  the  considerations/topics  prescribed  under  

Section 47 of the 1939 Act on the basis of which an adjudicating authority is  

empowered to issue or refuse permits, as the case may be.

54. Applying the tests  laid down in the above judgment to the present  

case,  we  are  of  the  view  that,  the  words  “orders”,  “instructions”  or  

“directions” in Section 121 do not confer power of judicial review in the  

Tribunal. It is not possible to lay down any exhaustive list of cases in which  

there  is  failure  in  performance  of  statutory  functions  by  Appropriate  

Commission.  However,  by way of illustrations,  we may state  that,  under  

Section 79(1)(h) CERC is required to specify Grid Code having regard to  

Grid Standards. Section 79 comes in Part X. Section 79 deals with functions  

of CERC. The word “grid” is defined in Section 2(32) to mean high voltage  

backbone  system  of  interconnected  transmission  lines,  sub-station  and  

generating plants. Basically, a grid is a network. Section 2(33) defines “grid  

code” to mean a code specified by CERC under Section 79(1)(h). Section  

2(34) defines  “grid standards” to mean standards specified under Section  

73(d)  by  the  Authority.  Grid  Code  is  a  set  of  rules  which  governs  the  

maintenance of the network. This maintenance is vital. In summer months  

grids  tend  to  trip.  In  the  absence  of  the  making  of  the  Grid  Code  in  

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accordance  with  the  Grid  Standards,  it  is  open  to  the  Tribunal  to  direct  

CERC to perform its statutory functions of specifying the Grid Code having  

regard to the Grid Standards prescribed by the Authority under Section 73.  

One  can  multiply  these  illustrations  which  exercise  we  do  not  wish  to  

undertake. Suffice it to state that, in the light of our analysis of the 2003 Act,  

hereinabove, the words orders, instructions or directions in Section 121 of  

the 2003 Act cannot confer power of judicial review under Section 121 to  

the Tribunal, which, therefore, cannot go into the validity of the impugned  

Regulations 2006, as rightly held in the impugned judgment.

55. One of the contentions raised by Shri Shanti Bhushan, learned senior  

counsel appearing on behalf of Calcutta Electricity Supply Company Ltd.  

needs to be considered.  It was contended on behalf of CESC Ltd. that under  

Section 111 of the 2003 Act, an appeal lies only against an Order by the  

Appropriate  Commission  and  not  against  Regulations  framed  by  CERC  

under Section 178 of the 2003 Act.  It was contended that Regulations under  

Section 178 are framed in exercise of delegated power in which there was an  

element of legislative function.  That, the Regulations framed by CERC are  

required to be laid before the Parliament under Section 179 of the 2003 Act.  

The  said  Regulations  could  be  modified  by  the  two  Houses  of  the  

Parliament.  In the circumstances, it was, therefore, contended that neither  

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Section 111 nor Section 121 would be deemed to have conferred any power  

on the Appellate Tribunal for Electricity to supervise or sit in judgment over  

the Regulations.  To this extent, learned counsel supported the contentions  

of the learned Solicitor General, appearing on behalf of CERC (respondent  

no.1).   Further,  an  interesting  argument  was  advanced  by  the  learned  

counsel, namely, that, Section 121 of the 2003 Act has not yet been brought  

into force.  In this connection, reference was made to Section 1(3) of the  

2003 Act as well as to the notification dated 10.6.2003 issued under Section  

1(3) of the 2003 Act by which the Central Government had fixed 10.6.2003  

as the date on which Sections 1 to 120 and Sections 122 to 185 were brought  

into force, however, Section 121 was not brought into force till Notification  

dated  27.1.2004,  which  brought  into  force  Electricity  (Amendment)  Act  

2003 (No.57 of 2003) came to be issued.  According to the learned counsel,  

Section 4 of the Electricity (Amendment) Act, 2003 (No.57 of 2003) which  

was brought into force on 27.1.2004 merely provided for substitution of the  

original Section 121 with new Section 121, without issuance of a further  

notification  under  Section  1(3)  of  the  original  Electricity  Act,  2003.  

According to the learned counsel, there is a difference between substituting a  

dormant Section in an Act and in bringing a substituted section into force  

which has not been done in this case and, therefore, Section 121, although  

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being part of the statute, is not brought into force, till today.  To answer the  

above contention, we need to quote Section 1(3) and also Section 121 of the  

original Electricity Act, 2003 which was not brought into force though, as  

stated above, Sections 1 to 120 and Sections 122 to 185 were brought into  

force vide notification dated 10.6.2003:

“Section 1. Short title, extent and commencement. –  

(3)   It  shall  come  into  force  on  such  date  as  the  Central  Government may, by notification, appoint:  

Provided  that  different  dates  may  be  appointed  for  different provisions of this Act and any reference in any such  provision to the commencement of this Act shall be construed  as a reference to the coming into force of that provision.”

“Section 121.  Power of Chairperson of Appellate Tribunal.-  The  Chairperson  of  the  Appellate  Tribunal  shall  exercise  general  power  of  superintendence  and  control  over  the  appropriate Commission.”

56. We  also  quote  hereinbelow  Sections  1  and  4  of  the  Electricity  

(Amendment) Act, 2003 (No.57 of 2003) which was brought into force on  

27.1.2004:

“Section 1.  (2)  It  shall  come into  force  on such date  as  the  Central  Government  may,  by  notification  in  the  Official  Gazette, appoint.

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Section 4.  For Section 121 of the principal Act, the following  Section shall be substituted, namely:-  

“121. Power of Appellate Tribunal

The  Appellate  Tribunal  may,  after  hearing  the  Appropriate Commission or other interested party,  if  any,  from  time  to  time,  issue  such  orders,  instructions or directions as it may deem fit, to any  Appropriate  Commission  for  the  performance  of  its statutory functions under this Act.”

57. As stated above, the Electricity  (Amendment)  Act,  2003 (No.57 of  

2003)  was  brought  into  force  by  Notification  dated  27.1.2004  which  is  

reproduced hereinbelow:

“MINISTRY OF POWER Notification

New Delhi, the 27th January, 2004

S.O.119(E).  In exercise of the powers conferred by sub- section (2) of Section 1 of the Electricity  (Amendment) Act,  2003 (57 of 2003), the Central Government hereby appoints the  27  th   January, 2004, as the date on which the provisions of the    said Act shall come into force.

[F.No.23/23/2004-R&R] AJAY SHANKAR, Jt. Secy.”

58. In our view, there is no merit in the above contention advanced on  

behalf of CESC Ltd.  At the outset, we may state that material brought on  

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record indicates that Section 121 of the original Electricity Act, 2003, quoted  

hereinabove, was never brought into force because some MPs expressed the  

concern that the power, under that section, conferred upon the Chairperson  

of the Appellate Tribunal, could lead to excessive centralization of power  

and interference with the day-to-day activities  of the  Commission  by the  

Chairperson  of  the  Tribunal.   Therefore,  Section  121  was  amended  by  

Electricity (Amendment) Act, 2003 (No.57 of 2003) which is also quoted  

hereinabove and which amendment Act came into force from 27.1.2004.  In  

our view, by necessary implication of the coming into force of the Electricity  

(Amendment) Act, 2003 (No.57 of 2003) all provisions amended by it also  

came into force,  hence,  there  is  no requirement for  a  further  notification  

under Section 1(3), particularly when Section 121 in its amended form has  

come into force w.e.f. 27.1.2004.  In this connection, it may be seen that  

Section 121 of the original Act stood substituted by Amendment Act No.57  

of 2003.  Substitution of a provision results in repeal of the earlier provision  

and its replacement by the new provision.  Substitution is a combination of  

repeal and fresh enactment.  [See: Principles of Statutory Interpretation by  

G.P. Singh, 11th Edn., p. 638].  Section 121 of the original Electricity Act,  

2003 was never brought into force.  It was substituted by new Section 121  

by  Amendment  Act  No.57  of  2003  which  was  brought  into  force  by  a  

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notification dated 27.1.2004.  Substitution, as stated above, results in repeal  

of the old provision and replacement by a new provision.  Applying these  

tests  to  the  facts  of  the  present  case,  we  find  that  the  Electricity  

(Amendment)  Act,  2003  (No.57  of  2003)  was  brought  into  force  by  

notification dated 27.1.2004.  That,  notification was issued under Section  

1(2)  of  the  Electricity  (Amendment)  Act,  2003 (No.57 of  2003).   If  one  

reads Section 1(2) of Electricity (Amendment) Act, 2003 (No.57 of 2003)  

with Notification dated 27.1.2004 issued under Section 1(2) of the amended  

Act,  2003,  it  becomes  clear  that  on  coming into  force  of  the  Electricity  

(Amendment) Act, 2003 (No.57 of 2003) all provisions amended by it also  

came into force.  Hence, there was no requirement for a further notification  

under Section 1(3),  consequently,  Section 121 in its  amended form came  

into force with effect from 27.1.2004.

59. Summary of Our Findings:

(i) In the hierarchy of regulatory powers and functions under the  

2003 Act, Section 178, which deals with making of regulations  

by the Central Commission, under the authority of subordinate  

legislation, is wider than Section 79(1) of the 2003 Act, which  

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enumerates the regulatory functions of the Central Commission,  

in specified areas, to be discharged by Orders (decisions).

(ii) A  regulation  under  Section  178,  as  a  part  of  regulatory  

framework, intervenes and even overrides the existing contracts  

between the regulated entities inasmuch as it casts a statutory  

obligation on the regulated entities to align their existing and  

future contracts with the said regulations.

(iii) A regulation under Section 178 is made under the authority of  

delegated legislation and consequently its validity can be tested  

only in judicial review proceedings before the courts and not by  

way  of  appeal  before  the  Appellate  Tribunal  for  Electricity  

under Section 111 of the said Act.

(iv) Section 121 of the 2003 Act does not confer power of judicial  

review  on  the  Appellate  Tribunal.   The  words  “orders”,  

“instructions”  or  “directions”  in  Section  121  do  not  confer  

power  of  judicial  review  in  the  Appellate  Tribunal  for  

Electricity.  In this judgment, we do not wish to analyse the  

English  authorities  as  we  find  from those  authorities  that  in  

certain  cases  in  England  the  power  of  judicial  review  is  

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expressly conferred on the Tribunals constituted under the Act.  

In the present  2003 Act,  the power of judicial  review of the  

validity  of  the  Regulations  made  under  Section  178  is  not  

conferred on the Appellate Tribunal for Electricity.

(v) If  a  dispute  arises  in  adjudication  on  interpretation  of  a  

regulation made under Section 178, an appeal would certainly  

lie before the Appellate Tribunal under Section 111, however,  

no appeal to the Appellate Tribunal shall lie on the validity of a  

regulation made under Section 178.

(vi) Applying the principle  of  “generality  versus enumeration”,  it  

would be open to the Central Commission to make a regulation  

on any residuary item under Section 178(1) read with Section  

178(2)(ze).  Accordingly,  we  hold  that  the  CERC  was  

empowered to  cap  the  trading margin  under  the  authority  of  

delegated  legislation  under  Section  178  vide  the  impugned  

notification dated 23.1.2006.

(vii) Section 121, as amended by Electricity (Amendment) Act 57 of  

2003,  came  into  force  with  effect  from  27.1.2004.  

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Consequently, there is no merit in the contention advanced that  

the said section is not yet been brought into force.

Conclusion:

60. For  the  aforesaid  reasons,  we  answer  the  question  raised  in  the  

reference as follows:

The  Appellate  Tribunal  for  Electricity  has  no  jurisdiction  to  

decide the validity  of  the  Regulations  framed by the Central  

Electricity  Regulatory  Commission  under  Section  178 of  the  

Electricity  Act,  2003.   The  validity  of  the  Regulations  may,  

however,  be  challenged  by  seeking  judicial  review  under  

Article 226 of the Constitution of India.

Our summary of findings and answer to the reference are with reference to  

the provisions of the Electricity Act, 2003.  They shall not be construed as a  

general  principle  of  law  to  be  applied  to  Appellate  Tribunals  vis-à-vis  

Regulatory Commissions under other enactments.  In particular, we make it  

clear that the decision may not be taken as expression of any view in regard  

to  the  powers  of  Securities  Appellate  Tribunal  vis-à-vis  Securities  and  

Exchange Board of India under the Securities and Exchange Board of India  

Act,  1992  or  with  reference  to  the  Telecom  Disputes  Settlements  and  

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Appellate Tribunal vis-à-vis Telecom Regulatory Authority of India under  

the Telecom Regulatory Authority of India Act, 1997.

61. In view of our findings, we dismiss these appeals as having no merit  

with no order as to costs.

………………………CJI                                                                                    (K. G. Balakrishnan)

……………………….J.                                                                                    (S.H. Kapadia)

……………………….J.                                                                                    (R.V. Raveendran)

……………………….J.                                                                                    (B. Sudershan Reddy)

……………………….J.                                                                                    (P. Sathasivam) New Delhi; March 15, 2010   

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