http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

CASE NO.: Appeal (civil)  2149 of 2006

PETITIONER: Tamil Nadu State Electricity Board

RESPONDENT: Central Electricity Regulatory Commission & Ors

DATE OF JUDGMENT: 20/04/2007

BENCH: H.K. Sema & V.S. Sirpurkar

JUDGMENT: J U D G M E N T

WITH CIVIL APPEAL NO.2352 OF 2006 Uttar Pradesh Power Corporation Ltd. & Anr.             \005. Appellants Versus National Thermal Power Corporation Ltd., & Ors. \005. Respondents WITH CIVIL APPEAL NO.3027 OF 2006 Rajasthan Rajya Vidhyut Prasaran Nigam Ltd.             \005. Appellant Versus National Thermal Power Corporation & Ors.               \005. Respondents

V.S. SIRPURKAR, J

1.      This judgment will dispose of the above three Civil Appeals  which have been filed by three Appellants, namely, Tamil Nadu State  Electricity Board, Uttar Pradesh Power Corporation Ltd. and  Rajasthan Rajya Vidhyut Prasaran Nigam Ltd.  The common question  of law is involved in all the three appeals which relates to the  interpretation of Regulation 2.7(d)(iv) of the Central Electricity  Regulatory Commission (Terms & Conditions of Tariff) Regulation,  2001 (hereinafter called the "CERC Regulations, 2001").  These  appeals are filed under Section 125 of The Electricity Act, 2003 (36 of  2003) and against the orders passed by the Appellate Tribunal  allowing the appeals filed by the respondents therein.  The following  factual matrix would be necessary for the proper understanding of the  controversy involved in these appeals. 2.      Before the present Act came in the anvil, the Electricity Supply  Act, 1948 was occupying the field and the Central Government norms  for fixing tariff for the period 1.11.1992 to 31.10.1997 were notified  under Section 43A of the said Act.  The Legislature then brought in  Electricity Regulatory Commissions Ordinance  which was ultimately  converted into an Act in the year 1998. Section 3 of the Act provides  for the establishment and incorporation of Central Electricity  Regulatory Commission (hereinafter called the "CERC" for short).   Section 13 provides power to regulate the tariff of generating  companies, owned and controlled by the Central Government, sub- section (b) thereof provides power to regulate the tariff of the other  companies amongst the other powers which are to  be found upto  clauses (i) of that Section.  Section 28 of the 1998 Act reads as  under: "28.    The Central Commission shall determine by  regulations the terms and conditions for fixation of tariff  under clauses (a), (b) and (c) of Section 13, and in doing  so, shall be guided by the following namely:

(a)     the generating companies and transmission entities

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

shall adopt such principles in order that they may earn an  adequate return and at the same time that they do not  exploit their dominant position in the generation, sale of  electricity or in the inter-State transmission of electricity;

(b)     the factors which would encourage efficiency,  economical use of the resources, good performance,  optimum investments and other matters which the Central  Commission considers appropriate;

(c)     national power plans formulated by the Central  Government; and

(d)     such financial principles and their applications  contained in Schedule VI to the Electricity (Supply) Act,  1948 as the Commission considers appropriate."

A bare glance of the above quoted Section suggests that the CERC  would formulate regulations for providing terms and conditions for  fixation of tariff under Clauses (a), (b) & (c) of  Section 13.  The power  for making Regulations is to be found in Section 55 of the 1998 Act.   Accordingly, the CERC has formulated Regulations which are called  Central Electricity Regulatory Commission (Conduct of Business)  Regulations, 1999.  We are concerned herein with the Regulations  called CERC Regulations, 2001 and more particularly, clause  2.7(d)(iv) thereof. 3.      Before we take up the task of interpretation, we must state the  facts which necessitate the interpretation of the above clause.  In all  these appeals we are concerned with the tariff for the period 1.4.2001  upto 31.3.2004.  Clause 1.4 of the CERC Regulations, 2001 provides  as under: "1.4    The generation tariff under these Regulations shall  be determined station-wise and transmission tariff shall  be determined line-wise, sub station-wise, as the case  may be, and aggregated to regional tariff."

Provided that a utility may file a petition for fixation of tariff  in respect of the completed units/systems.

Clause 1.11 provides:  "For removal of doubts, it is clarified that the norms  prescribed herein are the ceiling norms only and this shall  not preclude the Generating Company and other  beneficiaries from agreeing to improved norms."

Chapter 2 relates to other power generating stations.  Para 2.1 is a  definition clause and the definition of "Operation and Maintenance  Expenses" provides as under: "Operation and Maintenance Expenses" or "O&M  Expenses" \026 In relation to a period means the  expenditure incurred in operation and maintenance of the  generating station including manpower, spares,  consumables, insurance and overheads."

Regulation 2.2 in the same Chapter provides as under:

"2.2    The tariff for sale of electricity from Thermal  Generating Stations (including Gas and Naphtha based  stations) shall comprise of two parts, namely, the  recovery of annual capacity (fixed) charges and Energy  (variable) charges.  The annual capacity (fixed) charges  shall consist of interest on loan capital, depreciation,  return on equity, advance against depreciation, operation

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

and maintenance expenses, and interest on working  capital.  The Energy (Variable) charges shall cover fuel  cost." (Emphasis Supplied)

Then comes Regulation 2.7 which under sub-clause (d) provides for  Operation and Maintenance expenses including insurance.  We are  not concerned with sub-clauses (i), (ii) & (iii) thereof.  However, the  relevant clause which has fallen for our consideration is clause (iv)  which reads as under: "2.7    Payment of Capacity (Fixed) Charges:

The Capacity Charges shall be computed on the following  basis and its recovery shall be related to Availability.

(a)     \005.. (b)     \005.. (c)     \005.. (d)     Operation and Maintenance expenses including  insurance:

(i)     \005.. (ii)    \005. (iii)   \005.

(iv)    The escalation factor of 6 percent per annum shall  be used to revise the base figure of O&M expenses.  A  deviation of the escalation factor computed from the  actual inflation data that lies within 20 percent of the  above notified escalation factor of 6 percent (which works  out to be 1.2 percentage points on either side of 6  percent) shall be absorbed by the utilities/beneficiaries.   In other words if the escalation factor computed from the  observed data lies in the range of 4.8 to 7.2 percent, this  variation should be absorbed by the utilities.  Any  deviations beyond this limit shall be adjusted on the basis  of the actual escalation factor arrived at by applying a  weighted price index of CPI for industrial  workers(CPI_IW) and an index of select components of  WPI (WPIOM) as per formula given in note below clause  (v) herein below, for which the utility shall approach the  Commission with a petition."

4.      National Thermal Power Corporation (hereinafter called the  NTPC) generates the electricity at its various plants and sells it to the  State utilities like appellants at the tariff fixed by CERC.  We have  already pointed out that it is the CERC which has the exclusive task  of fixing the tariff.  After CERC Regulations, 2001 were notified which  provide the method for working out the allowable Operation and  Maintenance expenses and escalation factors thereupon, the  Commission with a view to look into the question of revision of O&M  expenses from 2001-2002 to 2003-2004 initiated suo motu  proceedings being Petition No.196 of 2004.  As per procedure the  Commission circulated its Draft Order dated 4.1.2005 dealing with  adjustment of O&M expenses based on actual escalation factor for  the deviation beyond the limit prescribed by Regulation 2.7(d)(iv). The  inflation rates for the relevant years were specified by the  Commission in this order which were based on computation arrived at  by the staff of CERC.  The Draft Order was circulated to the Central  Utilities as also the State Utilities like UPCL.  The   UPCL did not  question the inflation rates.  The stand of the NTPC throughout was  that revision of O&M expenses be undertaken on the notional 6%  escalation factor based on actual escalation between 4.8 and 7.2  since 20% was considered to normal deviation.  Its further stand was

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

that in case the deviation goes below 4.8 or beyond 7.2, as the case  may be, it would be required to be adjusted on the basis of the actual  escalation factor meaning thereby it would be only the deviation of  the two points, namely, below 4.8% and beyond 7.2% which would be  taken into consideration whereas the stand of the Utilities was that  the said escalation factor should be related to the standard 6%.  For  example, according to the NPTC, if the escalation went to 4% which  was below 4.8% then only .8% should be taken as an escalation  factor so also if the escalation went beyond 7.2, i.e., 8%, then it would  be only .8% which would be taken as an escalation factor.  On the  other hand as per the Utilities the said escalation factor should not be  limited to the deviation but it should be 2% in the first and the second  case because it was actually the deviation of 2% from the standard  6%. 5.      By its order dated 28.2.2005, the CERC held that where the  escalation factor is not in the prescribed norm, O&M expenses should  be calculated by working out "the actual escalation factor" and not  "the marginal adjusted escalated factor" as explained above.   Consequently, the CERC directed that the O&M charges between  April 1, 2001 to March 31, 2004 should  be worked out by applying  the actual escalation rates for the years 2001-2002 and 2003-2004  which was calculated by the staff of CERC.   6.      A Review Petition was filed before the CERC by the NTPC.   However, that review petition was rejected by the CERC by its order  dated 7.6.2005.  NTPC, therefore, filed an appeal before the  Appellate Authority vide Appeal No.103 of 2005 (We have taken the  facts only in the case of UPCL, i.e., CA No.2352/2006 for the sake of  convenience as there is no difference in the facts of the other two  appeals and the question is absolutely common). 7.      The Appellate Authority vide its order dated 3.1.2006 allowed  the appeals filed by the NTPC and set aside the orders passed by the  CERC dated 28.2.2005 and 7.6.2005.  It is against this order of the  Appellate Authority that the present appeals have been filed. 8.      We would reproduce para 13 of the order of the Appellate  Tribunal which contains the findings arrived at by the Appellate  Authority: 13.     The aforesaid calculations reveal that the CERC did  not attach any importance to the deviation beyond the  range of 4.8 to 7.2%.  It did not work out the deviations at  all.  Deviations beyond the terminal limits of 4.8% to 7.2%  were required to be adjusted on the basis of the actual  escalation factor.  In Regulation 2.7(d)(iv), the words ’any  deviation beyond this limit shall be adjusted on the basis  of actual escalation factor’ are very significant and must  be given effect to.  The word ’adjust’ used in the  Regulation means to accommodate.  CERC has not  accommodated the deviation at all.  In fact the CERC  ought to have deducted the actual deviation from the limit  of 4.8%.  In order to give effect to the real meaning of the  Regulation 2.7(d)(iv), the CERC should have made the  calculations in the following manner in respect of say for  the year 2000-2001:

6x-0.35x =x(6-0.35) = 5.65x {where x= signifies normalized O&M expenses for the year 2000- 2001; 4.45 is actual escalation factor; 4.8 is the terminal limit; 0.35 has been arrived at by deducting 4.45 from 4.8; and  

all figures represent percentages}."

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

9.      Shri Sunil Gupta, Senior Advocate for UPCL and Shri  Aruneshwar Gupta addressed us on behalf of the appellants whereas  Shri G.E. Vahanvati, Solicitor General addressed us on behalf of  respondents.  The contentions raised by Shri Sunil Gupta and Shri  Aruneshwar Gupta were as under. 10.     The Appellate Authority has clearly erred in giving a literal  interpretation to the said provision, namely, Clause 2.7(d)(iv).   Learned counsel urged that the Appellate Authority was bound to  discern the true intendment of the provision and should have given it  a meaningful interpretation, in that, the escalation factor should have  been calculated keeping 6% as the base and it should not have been  limited to the difference alone.  Learned counsel Shri Sunil Gupta  further argued that the rule was manifestly neutral rule founded on  purely neutral considerations and while interpreting the same, the  Appellate Court has divested itself with the logic thereof.  Learned  counsel buttressed his arguments by suggesting that the rule was  meant for the convenience of all concerned which included both  administrative as well as financial convenience.  According to both  the counsel the intention behind the rule was that the CERC should  not be exposed to the tedious exercise of review and re-adjustment of  tariff already fixed so long as the deviation was within 20% which was  perceived to be the reasonable tolerance limit and that being the only  objective behind the peculiar language of the rule.  By adopting the  literal interpretation, the Utilities could not have been deprived of the  full benefits if the O&M factor went below 20% of the escalation factor  of 6%.  Learned counsel very fairly submitted that in case the O&M  factor went beyond the 20% by way of an upswing then the  generating unit like NTPC was always justified to charge on the basis  of the full difference between the actual upswing point and the 6%.   According to the learned counsel this was the only intendment of the  rule.   11.     Learned counsel further urged that the range of 20% upswing  or downswing, i.e., between 7.2 and 4.8 was not to be viewed as a  cushion so as to keep it to be a constant factor and in fact there was  no question of the generating station being allowed to suffer in the  event of the upswing beyond 7.2%. 12.     According to learned counsel the range of 20% up or down  from the presumed notional escalation factor of 6% only represented  the margin of error in its tariff fixation exercise which the Regulator,  i.e., CERC could overlook because of the considerations like  administrative and financial convenience of all concerned.  For this  proposition the learned counsel sought to rely on the margin of 3% in  Rule 57(1) of the Indian Electricity Rules, 1956.  Lastly, the learned  counsel urged that the literal interpretation would be illogical,  unprincipled and impractical.   13.     Learned counsel Shri Suresh Tripathi appearing on behalf of  Tamil Nadu Electricity Board also filed written submissions more or  less on the same lines.  According to those submissions, it is urged,  that the Appellate Authority completely missed the meaning of  "adjust" which could only mean "accommodate".  The said adjustment  was concerned with the tariff setting or in simple terms readjustment  of the tariff.  The submissions further suggest that the underlying  philosophy behind the Regulations in question was that the tariff  setting should not be disturbed every now and then on trivial  adjustments and, therefore, the Regulator had taken a pragmatic  view in making provision for 20% adjustment.  Therefore, if the  deviation went beyond 20%, there was no scope to limit it only to the  extent of beyond the margin.  The argument goes further and  suggests that the statute envisaged the interest of the consumers to  be safeguarded and, therefore, when the O&M factor dipped beyond  20% limit, the full advantage should have been given to the  beneficiaries, i.e., consumers because the dipping of the O&M factor  would certainly bring down the price required to be paid by the  consumers for the electricity. 14.     Shri Aruneshwar Gupta, learned counsel also argued the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

matter more or less on the same lines explaining the actual effect of  the judgment by the Appellate Authority on the price of the electricity  payable by the consumers. 15.     As against this, the learned Solicitor General urged that as per  the established legal principles no unnatural interpretation could be  given to the concerned legal provisions particularly when its plain  meaning was crystal clear.  Learned counsel analysed the whole  provision taking each line of the same and urged that there was no  necessity of any interpretation to be given when provision was crystal  clear.  It was urged that where the plain meaning of the provision did  not, in any manner, do harm to the objective nor could bring out any  absurdity, the golden rule of literal interpretation was the only course  to be adopted by the courts of law.  Learned counsel went on to  analyse the first order of the CERC as also the review order and on  that backdrop compared the same with the Appellate Authority’s  order. 16.     In the wake of these rival submissions, the only question that  falls for our consideration is whether we should adopt the literal  construction which has been given by the Appellate Authority or  should interpret the provision keeping in mind the various other  factors like the intended logic behind the rule, the benefit which is  likely to be given to the ultimate consumers, etc. 17.     It will be our first task to see whether the provision as it stands  is clear in its language.  It is obvious from the plain reading of the  clause that the escalation factor of 6% was to be used for revising the  base figure of O&M charges.  Plainly speaking it would mean that the  O&M charges would be revised on the basis of escalation factor of  6%.  The 6% would be the standard.  It is further provided that each  year the escalation factor would be computed on the basis of actual  inflation data and if the said deviation factor works out to be within  20% of the standard escalation factor of 6%, such deviation shall be  ignored meaning thereby if the deviation factor goes beyond 6% upto  7.2%, still the deviation would be treated to be 6% only.  So also if the  deviation goes below upto 4.8%, still deviation to this extent, as per  the clause, would not make any change.  However, if the deviation  goes beyond 7.2% on upper side or below 4.8% on the lower side,  the same would be adjusted, in the sense that then the calculation  would have to be made of O&M factor on the basis of the deviation.   The objective of the provision appears to be that there does not have  to be an exercise of computation for a little or insignificant change  ranging between 1.2% and such deviations would be ignored.  The  language used is that "such changes shall be absorbed by the  utilities/ beneficiaries".  This appears to be with the idea that the  calculations do not have to be made on the basis of labile deviations  upto the limit of 1.2%.  The meaning becomes extremely clear from  the clause which starts from "in other words" and ends with "absorbed  by the utilities".  It means any deviations beyond this limit alone shall  be adjusted.  It is extremely clear from the further sentence that what  is to be adjusted is "the deviations beyond the limit of 7.2% on the  upper side and 4.8% on the lower side, i.e., if the deviation goes  below 4.8%, say, upto 4% then the O&M factor would be considered  in respect of .8% deviation because that is the deviation  contemplated by the clause.  If the meaning contemplated by the  appellants is to be given, it would do harm to the unambiguous  language of the clause.  Plain and simple meaning of the provision, in  our opinion, admits of, no doubt, in the sense that it would be only the  deviation "beyond the limit" of 1.2% which would be available for  adjustment.  In that sense there would a cushion between the two  points, namely, 7.2% on the upper side and 4.8% on the lower side.   That is precisely provided by the words "any deviation beyond this  limit".  The words "beyond this limit" would, in our opinion, signify the  extent of deviation that is to be taken into consideration and that is  required to be "adjusted."   18.     The Rule of literal interpretation has been explained by this  Court time and again.  In Ombalika Das & Anr. Vs. Hulisa Shaw

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

[(2002) 4 SCC 539], this Court unequivocally declared as under: "Resort can be had to the legislative intent for the purpose  of interpreting a provision of law, when the language  employed by the legislature is doubtful or susceptible of  meanings more than one.  However, when the language  is plain and explicit and does not admit of any doubtful  interpretation, the Supreme Court cannot, by reference to  an assumed legislative intent, expand the meaning of an  expression employed by the legislature and therein  include such category of persons as the legislature has  not chosen to do."

19.     Similar note was struck by this Court in Keshavji Ravji & Co.  vs. CIT [(1990)2 SCC 231] where Three Judge Bench went on to  observe:

"As long as there is no ambiguity in the statutory  language, resort to any interpretative process to unfold  the legislative intent become impermissible.  The  supposed intention of the legislature cannot then be  appealed to whittle down the statutory language which is  otherwise unambiguous.  If the intendment is not in the  words used it is nowhere else.  The need for  interpretation arises when the words used in the statute  are, on their own terms, ambivalent and so not manifest  the intention of the legislature."

20.     Without burdening the authorities we may only refer to the  verdict by the Privy Council in Pakala Narayanasami vs. Emperor  [AIR 1939 PC 47] where Lord Atkin had declared that "when the  meaning of the words is plain, it is not the duty of courts to busy  themselves with supposed intentions".  The law has been consistent  eversince then in more than half a dozen decisions. 21.     Thus in our opinion, since the language of Regulation 2.7(d)(iv)  is absolutely clear so as to take into consideration only the deviations  beyond the limit, i.e., above 7.2% or below 4.8% for the purposes of  adjustment, there will be no question of adjusting the full deviation  between 6% to the percentage beyond 7.2% or below 4.8%.  It is  more than clear from the language that any deviation between 4.8 to  7.2 has to be absorbed by utilities/beneficiaries.  In that view we  would have to reject the argument on behalf of the learned counsel  for the appellants that we would have to search for any logic and hold  that the full difference between the actual upswing and downswing  point and 6% would be available for adjustment.  It is not the task of  this Court to find out or search for the wisdom of legislature.  We are  concerned with the interpretation only. For the same reasons we  cannot accept the argument that the word "adjust" should be read to  mean "accommodate".  There is no reason for doing so. We do not  agree to hold that the literal interpretation would be illogical,  unprincipled and impracticable as, in our opinion, the learned counsel  have not been able to suggest so.  We, therefore, fully agree with the  order passed by the Appellate Authority  and confirm the same.  22.    In view of the above, the appeals are dismissed without any  order as to costs.