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                                     REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO.4881 OF 2010  

DAMODAR VALLEY CORPORATION    ...APPELLANT(S)  

VERSUS  

CENTRAL ELECTRICITY REGULATORY   

COMMISSION & OTHERS      ...RESPONDENT(S)  

JUDGMENT  

K.M. JOSEPH, J.  

1.  By this appeal maintained under Section 125 of the  

Electricity Act 2003 (hereinafter referred to as ‘the Act  

of 2003), the appellant seeks to challenge the order passed  

by the Appellate Tribunal dismissing the appeal filed by  

the appellant against the order of the Central Electricity  

Regulatory Commission (hereinafter referred to as ‘the  

Commission’).

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BACKGROUND FACTS  

2.  The appellant is a statutory body constituted  

under the Damodar Valley Corporation Act, 1948 (hereinafter  

referred to as ‘the DVC Act’). It was entrusted with  

multifarious functions. One of the functions it was  

entrusted was that it was duty bound to carry out  

generation, transmission and distribution of electrical  

energy both hydro electrical and thermal. It was also called  

upon to, operate schemes for irrigation, water supply and  

drainage besides flood control in the Damodar river and its  

tributaries. Acting under Section 20 of the DVC Act, the  

appellant was fixing the tariff for the electricity which  

it was generating and transmitting to its consumers. With  

the enactment of the Electricity Act in 2003, a suo motu  

proceeding was taken by the Commission with respect to the  

determination of the tariff of the appellant. Pursuant to  

the order dated 29.3.2005, the appellant filed Petition No.  

66/2005 seeking determination of its tariff for the period  

from 2004 to 2009. By order dated 3.10.2006, the Commission  

proceeded to determine the tariff. The Commission proceeded

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to take note of the multifarious functions with which the  

appellant was entrusted. Its case that it was following a  

cost plus policy for fixation of its tariff as also the  

difficulties that would be posed by imposing the tariff  

under the Act of 2003 with effect from 1.4.2004 was noticed.  

It was ordered that the tariff fixed by the Commission would  

apply from 2005-2006 and it was to operate from 1.4.2006.  

The Commission had also appointed one-man Commission.   

Besides the same it appreciated the scope of the Fourth  

proviso to Section 14 of the DVC Act and found that the  

provisions of the DVC Act which were not inconsistent with  

the 2003 Act would continue to hold good even after the  

enactment of the 2003 Act.  Even if there was inconsistency  

between the DVC Act and the regulation made under the 2003  

Act, the DVC Act would continue to operate.  After settling  

the legal position, in this regard, the Commission  

proceeded to decide upon the various contentions relating  

to elements which were to constitute the tariff.  

3.  This order came to be challenged by the appellant  

before the Appellate Tribunal for Electricity. There were

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also appeals filed by the consumers. By order dated  

23.11.2007 the Appellate Tribunal allowed the appeal filed  

by the appellant and ordered as follows:  

    “In view of the above the subject Appeal  

No.273 of 2006 against the impugned order of  

Central Commission passed on October 3, 2006  

is allowed to the extent described in this  

judgment and we remand the matter to Central  

Commission for de novo consideration of the  

tariff order dated October 3, 2006 in terms of  

our findings and observations made hereinabove  

and according to the law.  Appeal No.271, 272  

and 275 of 2006 and No.08 of 2007 are also  

disposed of, accordingly.”  

4.  Pursuant to the said order of the Appellate  

Tribunal remanding the matter back for consideration, a  

revised tariff order came to be passed on 6.8.2009 by the  

Commission. The order dated 6.8.2009 came to be impugned  

by the appellant before the Appellate Tribunal and said  

appeal came to be dismissed. It is said order by the  

Appellate Tribunal which is challenged in the present  

appeal. It may be noted at this juncture itself that the  

first order of the Appellate Tribunal dated 23.11.2007 came  

to be challenged before this Court by certain consumers of

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the appellant. Those appeals were taken up earlier and they  

came to be dismissed by this Court and the said decision  

is reported in the judgment of this Court in the case of  

Bhaskar Shrachi Alloys Limited & Ors. Vs. Damodar Valley  

Corporation & Ors 2018 (8) SCC 281. This Court agreed with  

the Appellate Tribunal that the effect of the Fourth proviso  

to Section 14 of the Act of 2003 was to countenance the  

continued application of the certain provisions contained  

in the DVC Act which were not inconsistent with the 2003  

Act. This Court also took the view that having regard to  

the fact that the appellant in addition to generation,  

transmission and distribution of electricity is under the  

Act obliged to undertake certain social security/  

beneficial matters like flood control, control of soil  

erosion, afforestation, navigation, promotion of public  

health etc, the grant of the transitory period could not  

be interfered with. It was reiterated that the provisions  

of the DVC Act would also have an overriding effect over  

the inconsistent provisions of the tariff regulations.   

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CONTENTIONS IN THE PRESENT APPEAL  

5.  Mr. M.G. Ramachandran, learned counsel for the  

appellant has narrowed down the scope of the appeal by  

limiting his submissions to two in number. The first  

complaint which is raised is that both the Commission and  

the Appellate Tribunal have not given the benefit of Section  

38 of the DVC Act to the appellant in the computation on  

tariff. The second contention relates to the question of  

treating cumulative depreciation as on 31.3.2006 as  

repayment of loan and thereby reducing the notional loan  

component in the capital cost after applying the debt equity  

ratio. The substantial question of law apparently relating  

to the same are as follows:-  

“Whether the Appellate Tribunal has correctly  

interpreted and applied the provisions of Section  

38 of the DVC Act in regard to the claim of the  

Appellant on interest on capital despite the same  

had been considered and directed to be allowed in  

the earlier Order dated 23.11.2007 passed in  

Appeal No.273 of 2006?  

Whether the decision of the Appellate  

Tribunal in approving the Order of the  

Central Commission equating cumulative  

depreciation recovered as adjustment  

towards loan repayment during the period

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till 31.3.2006 is not contrary to the  

decision of this Hon’ble Court in the case  

of Delhi Electricity Regulatory Commission  

v. BYPL Limited, (2007) 3 SCC 33 and also  

the decision of the Appellate Tribunal  

itself in the case of judgment and orders  

dated 16.3.2009 passed in Appeals No.  

133/08, 135/08, 136/08 & 148/08 and order  

dated 13.6.2007 passed in Appeals No.139 to  

142 etc. of 2006?”  

6.  Section 38 of the DVC Act reads as follows:  

  “38. Payment of interest – The Corporation  

shall pay interest on the amount of capital  

provided by each participating Government at  

such rate as may, from time to time, be fixed,  

by the Central Government and such interest  

shall be deemed to be part of the expenditure  

of the Corporation.”  

7.  It is the case of the appellant that this Court in  

the judgment in Bhaskar Shrachi Alloys Limited & Ors. Vs.  

Damodar Valley Corporation & Ors 2018 (8) SCC 281 has  

approved of Section 38 being available to the appellant  

despite passing of Act of 2003 and the regulations.  

Appellant is entitled to interest on the capital. It is the  

case of the appellant that interest on capital under Section  

38 is to be allowed to the appellant in addition to the other

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tariff elements including the interest on loan, return on  

equity etc. permissible under the tariff regulation.  

Appellant would point out that interest on capital is not  

to be mixed up with interest on loan including interest on  

normative loan. Interest on capital, it is contended is a  

distinct element from interest on loan or return on equity.  

The contention of the respondents that interest on capital  

has also being considered by the Commission, is described  

as patently wrong as it is pointed out that this aspect was  

the subject matter of the appeal by the Central Commission  

in the appeal leading to the decision of this Court and this  

Court affirmed the availability of the element of interest  

under Section 38. In the second order passed by the  

Commission in pursuance to remand, it is contended that  

there is no reference to any interest on capital as  

contemplated under Section 38 which has not been given and  

the appellant must be held entitled to the same.  

8.  Regarding the second contention namely, reducing  

the cumulative depreciation from the notional loan, it is  

the case of the appellant that what is serviced under the

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tariff is the interest on loan and not the repayment of loan.  

The interest being computed on the outstanding during the  

financial year when the loan gets repaid in a progressive  

manner, the loan gets reduced and therefore the amount of  

interest to be allowed in the tariff towards the loan is  

lessened.  Till the enactment of the Act of 2003 and the  

transition period allowed till 1.4.2006, the entire capital  

cost has to be treated as equity alone. There cannot be a  

loan and therefore there cannot be repayment of loan or  

progressive reduction of loan reducing the outstanding loan  

to be serviced through interest on loan among other things.  

It is contended that these implications would be from  

1.4.2006.  Reference is made to Section 30 and 32 of the  

DVC Act. It is contended that the entire capital of the DVC  

was to be treated as equity.  The capital cost as on  

1.4.2006 should have been considered to be the total amount  

of gross fixed asset. This cost was to be totally divided  

to debt and equity for generating project at the rate of  

50:50 established prior to 30.3.1992 and at the rate of  

70:30 for generation project established after 30.03.1992.                  

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The Tribunal had gone wrong in holding that there was deemed  

repayment of the above loan in the past years prior to  

1.4.2006 on the basis of cumulative depreciation of the  

assets in the past. The tariff regulation of 2004 for the  

period 1.4.2004 to 31.3.2009 though relevant, does not  

provide for any such adjustment of cumulative depreciation  

towards repayment of loan. In this regard, appellant relies  

on orders passed by the Appellate Tribunal in the case of  

NTPC which took the view that cumulative depreciation  

cannot be treated as deemed repayment of loan. Reference  

is also placed on the judgment of this Court in the case  

of Delhi Electricity Regulatory Commission Vs. BSES Yamuna  

Power Limited & Others 2007 (3) SCC 33 for the proposition  

that depreciation is not repayment of loan and therefore,  

by the cumulative depreciation, the quantum of loan cannot  

be reduced. Yet it is pointed out that the Commission has  

applied the concept of cumulative depreciation as resulting  

in deemed repayment for the period prior to 31.3.2006, which  

is impermissible.  

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CONTENTIONS OF THE RESPONDENTS  

9.  As far as the respondents are concerned, they would  

support the order passed by the Tribunal. In regard to the  

complaint of the appellant that interest on capital under  

Section 38 was not applied though this court also held that  

Section 38 would continue to operate, it is contended that  

as a matter of fact appellant has been given the benefit  

of interest on capital. It is the case of the respondent  

that what the appellant is seeking is the grant of a double  

benefit. On the basis of debt equity ratio of 50:50, it is  

pointed out that authorities have already calculated return  

to the appellant by way of interest on the loan component  

of 50% and also vouchsafed for the appellant return on  

equity on the equity part. What the appellant is asking is  

over and above the same further interest on the entire  

capital on the basis of Section 38 which is impermissible.  

10.  As far as the point relating to non-availability  

of cumulative depreciation for reduction of the loan, the  

contention taken is that the appellant did not take this  

contention in the first round of litigation in the appeal

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before the appellate Tribunal. 10 contentions were taken  

before the Appellate Tribunal in the first round. In regard  

to 5 contentions, the Appellate Tribunal agreed with the  

complaint of the appellant and remanded the matter back for  

de novo consideration in accordance with the observations  

which were contained in the order. In regard to 5 other  

issues, the matter was decided against the appellant. There  

is no appeal carried further by the appellant. Therefore,  

the first order of the Appellate Tribunal has become final,  

particularly, after the dismissal of the appeal which was  

carried out not by appellant but by the respondents which  

is reported in the case of Bhaskar Shrachi Alloys Limited  

& Ors. Vs. Damodar Valley Corporation & Ors. 2018 (8) SCC  

281. They also have taken the contention that the orders  

passed by the Appellate Tribunal in the case of NTPC does  

not bear out the contentions of the appellant. It is their  

further contention that even in the order dated 3.10.2006  

which is the first order passed by the Commission, the  

Commission had made use of the cumulative depreciation for  

reducing the loan and consequently reducing the interest

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on loan. The appellant had not complained against the  

methodology employed by the Commission. Matters which have  

become final cannot be allowed to be reopened in the appeal  

from the order passed pursuant to remand.  

DISCUSSION AND FINDINGS  

11.  An appeal under Section 125 of the Act of 2003 is  

permitted only if there are substantial questions of law.  

We may also bear in mind the view taken by this Court in  

the order in earlier batch of appeals between the parties  

reported in Bhaskar Shrachi Alloys Limited & Ors. Vs.  

Damodar Valley Corporation & Ors. 2018 (8) SCC 281, namely,  

“Having considered the matter in the conspectus of  

aforesaid declaration of law we must proceed to examine the  

complaint of the appellant, whether the approach of the  

appellate Tribunal is fundamentally flawed and therefore  

there is merit in the appellant’s case.”   

12.  We have already referred to Section 38 of the DVC  

Act. There can be no dispute that Section 38 of the DVC Act  

will survive despite the enactment of the Act of 2003. In  

other words, it cannot be in the region of dispute that

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appellant would be entitled to interest on capital under  

Section 38, in the computation of the tariff which the  

appellant is allowed to charge from its consumers.  The  

question, however, is whether the appellant has been  

actually given the benefit of interest on capital under  

Section 38 of the DVC Act.  

In order to consider the question, it is necessary for  

us to consider the orders which have been passed by the  

Commission and also the Appellate Tribunal.  The order  

dated 3.10.2006 passed by the Commission which was the first  

order passed by it referred to the recommendations of the  

one Member Bench regarding the capital cost in a total sum  

of Rs.3146.01 crores and decided to accept the same insofar  

as generating assets were concerned.  The Commission also  

accepted the 70:30 debt equity ratio which was recommended  

by the one Member Commission.  It referred to the return  

on equity in terms of 2004 Regulations and adopted a rate  

of return on equity at 14% which is allowed on 30% of the  

capital cost in terms of the debt equity ratio.   

Thereafter, the Commission dealt with interest on loan.  

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The matter was dealt with under the 2004 Regulations.       

After extracting the relevant regulation, the Commission  

proceeded to take the view that the normative loan  

outstanding for individual station as on 31.03.2004 was to    

be computed by applying normative debt-equity ratio of  

70:30 to the capital cost with weighted average rate of  

interest of the loan on appellant’s Corporation as a whole.   

The Commission thereafter, in fact, refers to the  

cumulative depreciation as on 30.03.2004 or notional loan  

amount whichever is lower being taken as loan repayment and  

has been allowed to be serviced till it is fully repaid.   

The weighted average rate of interest thereafter arrived  

as shown in the table at paragraph 57 of its order and the  

loan for various projects were given.    

13.  This order was appealed against by the appellant.   

The appeal culminated in the order dated 23.11.2007.  Let  

us examine what the appellate Tribunal said about the  

complaint of the appellant based on Section 38 of the DVC  

Act.  The main order was written by the Technical Member

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with whom the Chairman agreed with the separate concurring  

judgment.      

14.  The debt equity ratio which was fixed by the  

Commission at 70:30 was altered to 50:50 in respect of the  

old projects commissioned prior to 1992 on a normative basis  

and in respect of recent projects such as MEJIA, they were  

to be aligned with 70:30 capital structure specified in the  

Regulations. We may also refer to the following findings:  

“A-9. The Appellant has contended that DVC  

having been created with the functions of  

deemed state to support the state’s social  

functions of West Bengal and Jharkhand, it  

serves public interest at large and,  

therefore, by statute equity has been  

primary source of capital.  It has further  

added that business risks, financials  

risks, etc. are largely, therefore,  

carried by the owner Governments who,  

therefore, by fundamental principles of  

risk and return are entitled to return on  

their entire share of capital investment.  

A-10.  It is true that the owners take upon  

themselves business related risks and are  

entitled for return on their share of  

capital investment.  But the return is to  

be governed by the scheme of determination  

of tariff for supply of electricity as  

mandated by the law in place.  The scheme  

provides for an assured ROE, as permissible  

under the Tariff Regulations, at the rate  

of 14%, on the equity deployed for the

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purpose of supplying electricity.  The  

scheme does not permit return on  

investments made on projects other than  

supply of electricity, to be recovered  

through tariff for supply of electricity.  

A-13. Some of the Respondents have  

submitted that “combined reading of  

Sections 30, 31 and 38 of the DVC Act  

clearly indicates that the entire capital  

invested on the projects as per the DVC Act  

is the loan capital and interest is a part  

of the expenditure.  There is no provision  

of any equity capital under the DVC Act.”  

A-14. The DVC Act provides for infusion of  

capital by the participating Governments  

and for payment of interest thereon.  The  

DVC Act does not categorize such capital as  

borrowings and there is no reference about  

repayment of such capital to the  

participating Governments.  It is  

difficult to assume a commercial  

organization running solely on borrowed  

funds.  Lenders invariably prescribe for a  

margin money to be invested by the borrower  

also.  In our opinion the capital infused  

by the participating Governments is in the  

nature of equity capital and for the  

purpose of determination of tariff, same  

would be eligible for return on equity, as  

may be permitted by the Tariff Regulations  

2004.  

A-15. It is to be noted that DVC provides  

interest on capital contributed by the  

participating Governments.  The accrued  

interest has been allowed to be retained by  

DVC and is ploughed back into capital with  

the tacit consent of the participating  

Governments.  This has to be provided to

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DVC as per the provisions of Section 38 of  

the DVC Act.  

A-16. It is observed that the DVC Act  

envisages the projects to be built only on  

capital contributed by the participating  

Governments and any deficit in the capital  

amount is to be made good by taking loan on  

behalf of the participating Government.   

The debt taken will obviously attract  

interest.  The average interest rate of  

repayment payable during the tariff year is  

to be applied on 50:50 normative debt  

capital for tariff purposes.  This would  

mean that out of aggregate equity including  

reserves, equity considering a normative  

Debt Equity Ratio of 50:50 would be  

eligible for ROE, at the rates prescribed  

in the Tariff Regulations and excess of  

equity if any over the equity earning ROE  

@14% shall be considered as interest  

bearing debt.  For example, if the actual  

Debt Equity Ratio comes to 40:60, ROE would  

be available on 50% portion of the equity  

and interest would be available on 10%  

portion of equity and interest would be  

available on 10% portion of equity and 40%  

loan, as reduced by repayments.”  

It is also relevant to notice paragraph E-13 and the same  

is extracted below:   

“E-13.  As regards the liability arising  

under section 38 of the DVC Act on account  

of interest on capital provided by each of  

the participating Governments, we have to  

keep in mind that the total capital to be  

serviced has to be equal to the value of

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operating assets when they are first put to  

commercial use.  Subsequently, the loan  

component gets reduced on account of  

repayments while equity amount remain  

static.  As per the scheme of the  

determination of tariff as per Tariff  

Regulations 2004, the recovery is in two  

forms; either by way of ROE or by way of  

interest on loans.  We direct the Central  

Commission to ensure that capital deployed  

in financing operating assets is getting  

fully serviced either through Return on  

Equity or interest on loan (including on  

the equity portion not covered as part of  

equity eligible for Return of Equity).”  

THE ORDER DATED 6.8.2009 PASSED BY THE COMMISSION PURSUANT  

TO THE AFORESAID ORDER OF THE APPELLATE TRIBUNAL  

15.  In paragraph 38 of the order dated 6.8.2009, the  

Commission worked out the return on capital, interest on  

loan and depreciation on common assets and apportioned to  

each of the productive generating stations/ transmission  

system in terms of the capital cost which is already  

allocated as on 31.03.2004.  This is purportedly done in  

terms of what was stated by the Appellate Tribunal in  

paragraphs 1.3 and 1.4 of its order dated 23.11.2007.   

Paragraph 37 reads as under:  

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“1.3. With the above process it is true that  

the cost of operating and maintaining the  

above facilities would be recovered but the  

recovery of capital cost in the form of  

depreciation and return on corresponding  

equity, interest on loans, if any, would be  

missed out without any justification.  

1.4. We feel that once the Commission has  

agreed to treat these assets as part of the  

generating and transmission activities of  

the Appellate by permitting recovery of their  

O&M cost, these assets, after due prudence  

check, should also be included in the capital  

cost and consequential effect be given  

through determination of tariff.”    

16.  The total capital cost as on 1.4.2004 is shown as  

Rs.314601 lakhs.  The additional capitalisation allowed  

for 2004-05 and 2005-06 at paragraph 35 was also reckoned  

and the total average capital was shown as Rs.322797 lakhs  

for the year 2004-05 and Rs.326786 lakhs for 2005-06.   

Thereafter, the Commission also referred to the debt equity  

ratio fixed by the Appellate Tribunal in paragraph A-8 which  

we have extracted hereinabove.  Thereafter, the commission  

proceeded to work out return on equity under the heading  

‘Interest on Loan’.  This is what the Commission has stated  

in paragraph 48.

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“48. The petitioner has submitted that it  

has not availed any loans to meet the  

expenditure towards additional  

capitalization.  Based on the additional  

capitalization allowed and the revised  

debt-equity ratio and depreciation  

considered in line with the directions of the  

Appellate Tribunal, the interest on loan has  

been worked out with the weighted average  

rate of interest considered as per the  

Commission’s order dated 3.10.2006.   

Depreciation calculated for the year has been  

treated as repayment of loan during that  

year.”  

17.  Now let us see how in the order which was impugned  

before us, the Appellate Tribunal has dealt with the issue  

relating to interest on capital under Section 38 of the DVC  

Act.  We may note paragraph 70 where the Appellate Tribunal  

holds as follows:  

70.  We have carefully considered the  

above grounds urged by the Appellant.  On  

going through records, as indicated above,  

the operation of the limited remand order  

would relate to this issue also.  The  

operations of the DVC which have to be  

implemented have been clearly spelt out in  

the following paragraphs of Remand Order:  

“E-13.  As regards the liability arising  

under section 38 of the DVC Act on account  

of interest on capital provided by each of  

the participating Governments we have to  

keep in mind that the total capital to be  

serviced has to be equal to the value of  

operating assets when they are first put to

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commercial use.  Subsequently the loan  

component gets reduced on account of  

repayments while equity amount remain  

static.  As per the scheme of the  

determination of tariff as per Tariff  

Regulations 2004, the recovery is in two  

forms, either by way of Return on Equity or  

by way of interest on loans.  We direct the  

Central Commission to ensure that capital  

deployed in financing operating assets is  

getting fully serviced either through  

Return on Equity or interest on loan  

(including on the equity portion not  

covered as part of equity eligible for  

Return of Equity).”  

18.  Thereafter, the Appellate Tribunal undoubtedly  

notes that in its remand order dated 23.11.2007, it has  

directed the Central Commission to ensure that the capital  

employed in financing the operating assets is getting fully  

serviced either through return on equity or on interest on  

loan.  The Appellate Tribunal goes on to hold that in  

compliance of the said order the Commission allowed debt  

equity ratio on the total capital employed.  It further  

provided return of 14% on the normative equity capital in  

terms of Regulation 21(1)(iii), i.e., return on equity.   

The Commission also provided interest on loan of the  

normative type in accordance with Regulation 21(1)(i).

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19.  It is in the light of these orders that we must  

consider the contention of the appellant that despite  

appellant being entitled to the benefit of interest on  

capital it was not given the benefit despite the final  

pronouncement of this Court in 2018(8) SCC 281 upholding  

the view of the Appellate Tribunal itself that Section 38  

of the DVC Act will continue to apply for the benefit of  

the appellant-corporation. On the other hand, the  

contention of the contesting respondents is that the  

benefit under Section 38 of the DVC Act as claimed by the  

appellant would result in appellant getting a benefit which  

would be a duplication of claims insofar as on the total  

capital, applying the normative debt equity ratio,  

appellant has been given the benefit of return on capital  

on the normative equity portion and it has also been allowed  

interest on the loan portion.  The case of the appellant  

on the other hand, is that even after interest has been given  

on the loan portion and the return on equity has also been  

ensured on the normative equity portion by the impugned  

order, over and above the same, the appellant is entitled

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to the benefit of interest on capital on the whole amount  

as that is so provided under Section 38 of the DVC Act.   

20.  In the order of the Appellate Tribunal dated  

23.11.2007 the matter came to be dealt with under the  

heading ‘debt equity ratio’.  The Tribunal went on to  

accept the case of the appellant in respect of all old  

projects of DVC and normative debt equity of 50:50 was  

assigned, commissioned prior to 1992.  In respect of recent  

projects such as Mejina, it was assigned debt equity ratio  

of 70:30 on capital structure as specified in the  

Regulations.  This finding has become final.  It was  

contended on behalf of the appellant that equity has been  

the primary source of capital.  Thereafter, in paragraph  

A-10, it was found by the Appellate Tribunal that owners  

take upon themselves business related risk and are entitled  

to interest on capital investment, but the return is to be  

governed by the scheme of determination of tariff for the  

supply of electricity as mandated by the law in place.  The  

Appellate Tribunal further proceeds to hold that the scheme

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provides for assured Return on Equity (ROE) which is at the  

rate of 14% on the equity employed for the purpose of  

supplying electricity.  The scheme does not permit return  

on investment made on projects other than for supply of  

electricity to be recovered from supply of electricity.   

The Tribunal went on to hold that the DVC Act does not  

recognise capital as borrowings and there is no reference  

about repayment of such capital to the participating  

Governments.  The Appellate Tribunal proceeds to hold that  

the capital infused by participating Governments is in the  

nature of equity capital and for the determination of  

tariff, the same would be eligible for return on equity but  

the Appellate Tribunal does not end there.  It clearly  

provides that the return on equity is as may be permitted  

by the tariff Regulation of 2004.  It is thereafter that  

the Appellate Tribunal in para 15 proceeded to hold that  

the DVC Act provides for interest on capital which is  

contributed by the participating Governments.  The accrued  

interest due to the Governments apparently has been allowed  

to be retained by the appellant.  The same however came to

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be ploughed back into the capital with the tacit consent  

of the participating Governments.  Thereafter, it is  

stated that this has to be provided to the DVC as per the  

provisions of Section 38 of the DVC Act.  It is thereafter  

paragraph A-16 which we have already extracted, the  

Tribunal proceeded to observe that under the DVC Act if  

there is any deficit in the capital contributed by the  

participating Governments, it is to be made good by taking  

loan on behalf of the participating Governments.  The said  

debt would attract interest.  The average interest rate of  

the repayment payable is to be applied on a 50:50 normative  

debt capital.  This means that out of the aggregate equity  

including reserves, equity considering the normative debt  

ratio of 50:50 would be eligible for return on equity as  

specified in the Regulations and the excess of equity, if  

any, over the equity earning ratio of 14% is to be considered  

as interest bearing debt.  In the example which has been  

given it is shown that if the debt equity ratio is 40:60,  

return on equity at 14% will be available on 50% equity

27  

whereas interest would be available at 10% portion of equity  

and 40% loan which were reduced by repayments.  

21.  On the basis of the remand, the Commission has  

worked out the debt equity ratio as directed by the  

Appellate Tribunal.  It has further provided return on  

equity at the rate of 14% on the equity portion, namely 50%.   

In respect of the debt portion, interest has been calculated  

no doubt after deducting depreciation, the legality of  

which is the subject matter of the other contention which  

we will deal with separately.  It is quite clear to us that  

appellant has already been given return on equity in terms  

of the tariff Regulation in respect of capital on the basis  

of debt equity ratio which has been fixed by the Appellate  

Tribunal on a ratio which has become final between the  

parties.  

22.  Though a perusal of para A-9 of order dated  

23.11.2007 may appear to show that equity has been found  

to be the main source of capital, a perusal of paragraph

28  

A-10, A-16 and more importantly E-13 would show that capital  

under Section 38 of the DVC Act has been understood as the  

value of the operating assets when they were first put to  

commercial use. Capital is also understood not as equity  

alone but it has been understood both as loan and equity.   

The ratio between loan and equity is also fixed in respect  

of the old projects at 50:50 and under the new projects it  

is at 70:30. It is further clear from paragraph E-13 of the  

order of the Appellate Tribunal dated 23.11.2007 that the  

appellate Tribunal contemplated that the equity component  

would remain static and it would earn the rate of return  

as provided in the tariff Regulation.  As far as the loan  

component is concerned, it would get reduced on account of  

repayments. Therefore, the recovery as contemplated under  

the Regulations was found to be in two forms, namely, either  

as return on equity in respect of the equity portion and  

as interest on the loan component.  

23.  There remains only one area of doubt.  In  

paragraph A-15, the Appellate Tribunal noted that the

29  

interest due from DVC on the capital employed by the  

participating Governments have been allowed to be retained  

by the appellant and it has been ploughed back into the  

capital.  To this portion also, the Appellate Tribunal  

directed to apply under Section 38 of the DVC Act.  However,  

firstly, it is after so providing that the Appellate  

Tribunal has later in paragraph E-13 given its direction  

under Section 38 of the DVC Act. Secondly, even in the  

written submission made this aspect has not been taken up  

as such and at any rate, the particulars are not given.   

Also in paragraph 73 of the impugned order which refers to  

the complaint of the appellant relating to cumulative  

depreciation being employed to reduce the loan component  

being illegal and reference is made to the retained interest  

being ploughed back as capital to the creation of capital  

assets resulting in the appellant enjoying perpetual  

moratorium as it has never repaid the loan and the question  

of adjustment of the depreciation for the loan did not  

arise.  There is no complaint raised about interest under

30  

Section 38 of the Act not being given in respect of interest  

which is ploughed back as capital.  

24.  The next question relates to the legality of taking  

into consideration the cumulative depreciation for  

reducing the loan component.  The complaint of the  

appellant is that both the Commission and the Tribunal have  

calculated interest on the basis that cumulative  

depreciation will result in a reduction of loan which is  

unsustainable.  The answer to the same which is raised by  

the respondents is that it is not open to the appellant to  

raise this contention as this contention was not raised  

before the appellate Tribunal in the first round of  

litigation which culminated in the order dated 23.11.2007  

being passed by the Appellate Tribunal.  The appellant no  

doubt seeks support from the order of the Appellate Tribunal  

passed in the case of NTPC.  It is no doubt true that in  

the order of the Appellate Tribunal in the case of NTPC,  

the Tribunal discountenanced adjusting cumulative  

depreciation reducing the loan.  As far as the judgment of

31  

this Court in 2007 (3) SCC 33, there the question which  

really arose was related to the rate of depreciation.  This  

Court took the view for power companies keeping in view the  

need to replace the assets, a higher rate of depreciation  

was necessary as it would reduce the number of years  

required for replacing the assets. The observation made  

therein incidentally may not have the effect which the  

appellant seeks to persuade us to accept.  But the question  

would be whether the appellant would be entitled to raise  

the complaint in this appeal.  In the original order passed  

on 3.10.2006 by the Central Commission, the Commission held  

as follows:-   

57. Majority of the loans raised by the  

petitioner Corporation are not project  

specific.  The normative loan outstanding  

for individual station, as on 31.3.2004,  

has been computed by applying the normative  

debt-equity structure of 70:30 (as  

mentioned above) to the capital cost with  

weighted average rate of interest of the  

loan for the petitioner Corporation as a  

whole.  The cumulative depreciation as on  

31.3.2004 or notional loan amount,  

whichever is lower, has been deemed as loan  

repayment and balance amount, if any, has  

been allowed to be serviced till it is fully  

repaid.  Annual depreciation amount has  

been treated as normative loan repayment.  

32  

The weighted average rate of interest as  

claimed by the petitioner Corporation and  

as adopted for the tariff calculations is  

as follows:  

Calculation of weighted average rate of interest  

Total Loan 2004-05 2005-06 2006-07 2007-08 2008-09  

Gross Loan opening 77095 77095 77095 77095 77095  

Cumulative re-payment  

of loan up to previous  

year  

6143 14948 22281 29614 39858  

Net Loan opening 70952 62147 54814 47481 37237  

Increase/Decrease due  

to FERV  

0 0 0 0 0  

Increase/Decrease due  

to ACE  

0 0 0 0 0  

Total 70952 62147 54814 47481 37237  

Re-payment of loan  

during the year  

8819 7333 7333 10244 5165  

Net Loan closing 62133 54801 47468 37224 32059  

Average Net loan 66543 58467 51134 42346 34641  

Rate of Interest on loan  

including Guarantee fee  

11.19% 10.67% 10.50% 10.23% 9.56%  

Interest on Loan 7445 6239 5367 4332 3311  

25.  Being dissatisfied by the same, the appellant  

approached the Appellate Tribunal.  Apparently, 10 issues  

were agitated by the Appellate Tribunal at the instance of  

the appellant.  Since the matter has attained finality by  

the decision of this Court in 2018 (8) SCC 281, it is but  

apposite that we have set out paragraph 11 of the said

33  

judgment.  Paragraph 11 of the said judgment is extracted  

below:  

11. Accordingly, the learned Appellate  

Tribunal while rejecting the following five  

claims and upholding the order of CERC on the  

aforesaid counts thought it proper to remand  

the matter, for a de novo consideration of the  

remaining five issues by CERC in the light of  

the findings recorded by it.  The tabular  

chart, extracted below, would indicate the  

five issues that have been finalised by the  

learned Appellate Tribunal by upholding the  

order of CERC dated 3-10-2006 and the other  

five issues which have been remanded for  

redetermination by CERC:  

Issues finalised by the  

learned Appellate Tribunal  

by upholding the order of  

CERC dated 3-10-2006  

Issues remanded for  

redetermination by CERC  

(i) Higher return on equity; (i) Additional capitalisation  

for the period 2004-2005  

and 2005-2006;  

(ii) Depreciation rate; (ii) Pension and gratuity  

contribution;  

(iii) Resetting of operating  

norms at variance from the  

operating norms prescribed  

in the 2004 Regulations;  

(iii) Revenue to be allowed to  

the DVC under the DVC Act;  

(iv) Return on capital  

investment on Head Office,  

Regional Offices,  

administrative and other  

technical centres, etc.;  

and   

(iv) Operation and maintenance  

expenses;  

(v) Generation projects  

presently not operating.  

(v) Debt-equity ratio  

34  

26.  A perusal of the same would appear to suggest the  

substantive question of law sought to be raised as part of  

the second contention, does not remain open for  

adjudication.   

27.  When the matter went back pursuant to the remand  

order in the first round of litigation which has become  

final in view of the dismissal of appeal by this Court, the  

Central Commission has only reiterated the procedure in the  

matter of calculating interest on loan by reducing the loan  

amount by the cumulative depreciation.  This is a procedure  

to which exception was not taken in the first round when  

the appellant could have taken exception to the same.  This  

is also for the period prior to 31.3.2006.  Having regard  

to what is stated in paragraph 57 in the earlier round of  

litigation, therefore, on a point which has become final  

in the earlier round, we are not persuaded to hold that it  

will be open for the appellant to raise the same issue in  

the second round in respect of a matter which has attained  

finality.  On this ground, we think that the appellant is

35  

not entitled for consideration of the said point at our  

hands.  Accordingly, we refuse to answer the question of  

law which is raised.  The upshot of the above discussion  

is that the appellant has not made out a case for  

interference.  The appeal fails and is dismissed.  The  

parties will bear their respective costs.   

                                                ….……….……………………………CJI.                                             (Ranjan Gogoi)    

          ……………………………J.                                        (Sanjay Kishan Kaul)     

…………………………J.                                               (K.M. Joseph)    

New Delhi;  December 3, 2018