M/S. PUNJAB STATE POWER CORPORATION LIMITED Vs PUNJAB STATE ELECTRICITY R.COMM..
Bench: RANJAN GOGOI,R.K. AGRAWAL
Case number: C.A. No.-004510-004510 / 2006
Diary number: 19821 / 2006
Advocates: JAGJIT SINGH CHHABRA Vs
E. C. AGRAWALA
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NON-REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4510 OF 2006
PUNJAB STATE POWER CORPORATION ... APPELLANT (S) LIMITED
VERSUS PUNJAB STATE ELECTRICITY REGULATORY COMMISSION & ORS. ... RESPONDENT (S)
J U D G M E N T
RANJAN GOGOI, J.
1. This appeal, against the judgment and order dated
26.05.2006 and 25.07.2006 passed by the Appellate Tribunal
for Electricity, New Delhi (hereinafter referred to as the
“Appellate Tribunal”) was initially filed by the Punjab State
Electricity Board (PSEB). Pursuant to a statutory scheme of
transfer, vide notification dated 16.04.2010, the PSEB had
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been unbundled and the functions of generation and
distribution came to be vested in the Punjab State Power
Corporation Limited (Corporation). By order dated
03.09.2014 the Corporation has been substituted as the
appellant in place of the PSEB.
2. Before the learned Appellate Tribunal the tariff orders of
the Punjab State Electricity Regulatory Commission
(Commission) dated 30.11.2004 and 14.06.2005 for the
financial years 2004-2005 and 2005-2006 were under
challenge. Such challenge was both by the present
appellant as well as various industrial consumers. By the
impugned judgment while the appeals filed by the present
appellant have been dismissed, those filed by the industrial
consumers have been disposed of with certain directions.
Aggrieved, the instant appeal has been filed under Section
125 of the Electricity Act, 2003 (for short “the Act”) against
the aforesaid common order of the Appellate Tribunal.
3. Section 125 of the Act contemplates filing of an appeal
to this Court against an order of the Appellate Tribunal on
any one or more of the grounds specified in Section 100 of
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Code of Civil Procedure, 1908. The scope of an appeal to
this Court under the aforesaid provision of the Act was
considered in DSR (Steel) Pvt. Ltd. Vs. State of
Rajasthan1 holding, inter alia, that :
“14. An appeal under Section 125 of the Electricity Act, 2003 is maintainable before this Court only on the grounds specified in Section 100 of the Code of Civil Procedure. Section 100 CPC in turn permits filing of an appeal only if the case involves a substantial question of law. Findings of fact recorded by the courts below, which would in the present case, imply the Regulatory Commission as the court of first instance and the Appellate Tribunal as the court hearing the first appeal, cannot be reopened before this Court in an appeal under Section 125 of the Electricity Act, 2003. Just as the High Court cannot interfere with the concurrent findings of fact recorded by the courts below in a second appeal under Section 100 of the Code of Civil Procedure, so also this Court would be loath to entertain any challenge to the concurrent findings of fact recorded by the Regulatory Commission and the Appellate Tribunal. The decisions of this Court on the point are a legion. Reference to Govindaraju v. Mariamman2, Hari Singh v. Kanhaiya Lal3, Ramaswamy Kalingaryar v. Mathayan Padayachi4, Kehar Singh
1 (2012) 6 SCC 782
2 (2005) 2 SCC 500
3 (1999) 7 SCC 288
4 1992 Supp (1) SCC 712
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v. Yash Pal5 and Bismillah Begum v. Rahmatullah Khan6 should, however, suffice.”
The challenge in the present appeal, therefore, will
have to be considered keeping in mind the principles laid
down in DSR (Steel) Pvt. Ltd. Vs. State of Rajasthan
(supra) enumerated above.
4. Before proceeding any further it would require a
mention that though several issues arise from the judgment
and order of the learned Appellate Tribunal, counsel for the
appellant has confined his arguments to only four of such
issues dealing with the specific claims made by the PSEB
thereunder in the application for determination of tariff
under Section 62 of the Act. The aforesaid four issues are:-
(i) Cost of supply and cross subsidy
(ii) Disallowance of interest cost on account of alleged diversion of funds
(iii) Disallowance of Employees Cost and
(iv) Coal transit losses.
5 AIR 1990 SC 2212
6 (1998) 2 SCC 226
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5. Having regard to the issues calling for an answer, at the
outset, a reference to the statement of objects and reasons
for enactment of the Act would be appropriate. The objects
and reasons are self-explanatory as would be evident on a
plain reading of para 1.2, 1.3 and paragraph 3 which are
reproduced hereinbelow:
“1.2 The Electricity (Supply) Act, 1948 mandated the creation of a State Electricity Board. The State Electricity Board has the responsibility of arranging the supply of electricity in the State. It was felt that electrification which was limited to cities needed to be extended rapidly and the State should step in to shoulder this responsibility through the State Electricity Boards. Accordingly the State Electricity Boards through the successive Five Year Plans undertook rapid growth expansion by utilizing Plan funds.
1.3 Over a period of time, however, the performance of SEBs has deteriorated substantially on account of various factors. For instance, though power to fix tariffs vests with the State Electricity Boards, they have generally been unable to take decisions on tariffs in a professional and independent manner and tariff determination
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in practice has been done by the State Governments. Cross-subsidies have reached unsustainable levels. To address this issue and to provide for distancing of government from determination of tariffs, the Electricity Regulatory Commissions Act, was enacted in 1998. It created the Central Electricity Regulatory Commission and has an enabling provision through which the State Governments can create a State Electricity Regulatory Commission. 16 States have so far notified/created State Electricity Regulatory Commissions either under the Central Act or under their own Reform Acts.
3. With the policy of encouraging private sector participation in generation, transmission and distribution and the objective of distancing the regulatory responsibilities from the Government to the Regulatory Commissions, the need for harmonizing and rationalizing the provisions in the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998 in a new self-contained comprehensive legislation arose. Accordingly it became necessary to enact a new legislation for regulating the electricity supply industry in the country which would replace the existing laws, preserve its core features other than those relating
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to the mandatory existence of the State Electricity Board and the responsibilities of the State Government and the State Electricity Board with respect to regulating licensees. There is also need to provide for newer concepts like power trading and open access. There is also need to obviate the requirement of each State Government to pass its own Reforms Act. The Bill has progressive features and endeavours to strike the right balance given the current realities of the power sector in India. It gives the State enough flexibility to develop their power sector in the manner they consider appropriate. The Electricity Bill, 2001 has been finalised after extensive discussions and consultations with the States and all other stake holders and experts.”
6. Chapter VII of the Act deals with tariff. While Section 61
provides for the principles on basis of which tariff is to be
determined, Section 62 contemplates that such
determination will be at the point of generation, transmission
and wheeling as well as retail supply to the consumers. The
basic principles on which tariff is to be determined as laid
down in Section 61 of the Act are that generation,
transmission and distribution and supply of electricity should
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be conducted on commercial principles; factors which would
encourage competition, efficiency, economical use of
resources, good performance and optimum investments are
to be kept in mind. The interests of the consumers are to be
safeguarded, and at the same time, balanced with recovery
of cost of electricity in a reasonable manner. Of particular
significance to the present case would be the principle
enshrined in Section 61(g) of the Act (as originally enacted)
which provides that the tariff shall progressively reflect the
cost of supply of electricity and also reduce and eliminate
cross-subsidies within the period to be specified. By Act
No.26 of 2007, Section 61(g) has been amended and the
word ‘eliminate’ has been omitted. The significance of the
said amendment will be noticed separately.
7. Section 62 of the Act provides for determination of tariff
at different stages i.e. generation and supply; transmission;
wheeling as well as retail sale of electricity. Section 62(3) of
the Act, which would also have some significance to the
present appeal, visualise that while the Regulatory
Commission shall not show any undue preference to any
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consumer in fixing the tariff, the Commission may at its
discretion differentiate according to the consumer’s load
factor, power factor, voltage, total consumption of
electricity, geographical area, nature of supply etc. For a
fuller appreciation, the entire of the provisions of Sections 61
and 62 may be quoted hereinbelow:
“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;
(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;
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(g) that the tariff progressively reflects the cost of supply of electricity and also reduce 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 Electricity (Supply) Act, 1948 (54 of 1948), the Electricity Regulatory Commissions Act, 1998 (14 of 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.
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 distributing 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;
(c) wheeling of electricity:
(d) retail sale of electricity:
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Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for 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 interest
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equivalent to the bank rate without prejudice to any other liability incurred by the licensee.”
8. We may now proceed to consider the four issues as
enumerated hereinabove which have been raised before us.
9. Cost of Supply and Cross Subsidy
The statement of objects and reasons for the
enactment of the Act, extracted above, would indicate a
legislative realisation that the power sector in the country
was in dire straits. This was largely on account of
implementation of policy decisions to provide free or highly
subsidised power to certain classes of consumers. In a
regime wherein tariff was a matter of governmental dictation
and directives providing free or subsidised power to one
section at the cost of another or others and a host of such
related decisions divorced from commercial and prudent
practices had plunged the power sector into uncertainty and
darkness. To remedy the situation, the Act of 2003 was
enacted which, inter-alia, vested the power of fixation of
tariff in the Regulatory Commissions with the Legislature
itself clearly enunciating the principles for such
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determination as are to be found in Section 61 details of
which has already been noted. Section 61(g), as originally
enacted, contemplated a progressive journey to reduce and
ultimately eliminate cross-subsidies by identifying the cost of
supply to the consumer. The vision of each consumer fully
paying for the power drawn by such consumer was to be
reached over a period of time. In fact in the tariff policy
notified under Section 3 of the Act it was visualised that by
the end of the year 2010-2011 tariff should be within ± 20
per cent of the average cost of supply (average cost). The
aforesaid National Tariff Policy was published in the year
2006. Clause 2 thereof which deals with the above aspect of
the matter is in the following terms:-
“2. For achieving the objective that the tariff progressively reflects the cost of supply of electricity, the SERC would notify roadmap within six months with a target that latest by the end of year 2010-2011 tariffs are within ± 20% of the average cost of supply. The road map would also have intermediate milestones, based on the approach of a gradual reduction in cross subsidy.
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For example if the average cost of service is Rs. 3 per unit, at the end of year 2010-2011 the tariff for the cross subsidised categories excluding those referred to in para 1 above should not be lower than Rs. 2.40 per unit and that for any of the cross-subsidising categories should not go beyond Rs.3.60 per unit.”
10. Section 61(g), as earlier noted, was amended by Act
No.26 of 2007. The amended Section omitted the word
“eliminate” the effect whereof was that cross-subsidies were
destined to remain for the present and the emphasis was on
attainment of minimum levels of such subsidy. The
determination of “cost of supply” and reduction/elimination
of cross-subsidies is closely interlinked. The difference in the
intent and purport of Section 61(g) before and after its
amendment would not be very relevant. The reduction of
cross subsidy was contemplated by the unamended section
as the first step leading to elimination. The change of
legislative intent to put on hold, if not to abandon, the
elimination of cross subsidies occurred during the period of
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transition itself. This is so because of the close proximity of
time between the original enactment and its amendment.
Besides, the road map visualised by the National Tariff Policy
itself contemplated the continuance of cross subsidy even in
the year 2010-2011 whereas the amendment to Section
61(g) came about in the year 2007.
11. The Commission while considering the fixation of tariffs
for the years 2004-2005 and 2005-2006 based its
determination on the average cost of supply which plainly is
to be worked out by taking into account the total volume of
electricity produced and the total cost incurred in such
production. The industrial consumers in the appeal before
the Tribunal contended that the cost of supply should be the
voltage cost of supply, namely, the cost at which the
consumer receives electricity at a particular voltage as a
higher voltage would mean a lower price on account of
lesser amount of distribution losses. As the industrial
consumer receives supply of electricity at a high voltage, the
average cost of supply, according to the industrial
consumers, were to their detriment and was thus not
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contemplated under the Act. The Appellate Tribunal on an
interpretation of Section 61(g) and 62(3) particularly in the
absence of any prefix to the expression “cost of supply” in
Section 61(g) took the view that it is more reasonable to
advance towards a regime of voltage cost of supply which
would provide a more actual/realistic basis for dealing with
the issue of cross subsidies. However, as the progress to a
regime of voltage cost of supply by reduction/elimination of
cross-subsidies is to be gradual, the learned Appellate
Tribunal held that no fault can be found with the
determination of the average cost of supply made by the
Commission for the financial years in question. However,
keeping in view what the Tribunal understood to be the
ultimate object of the Act it had directed that the relevant
data with regard to voltage cost should be laid before the
Commission and for the future the Commission would
gradually proceed to determine the voltage cost of supply.
12. We have considered the perspective adopted by the
learned Appellate Tribunal in seeking an answer to the issue
of cost of supply/cross subsidies that had arisen for decision
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by it. The provisions of the Act and the National Tariff Policy
requires determination of tariff to reflect efficient cost of
supply based upon factors which would encourage
competition, promote efficiency, economical use of
resources, good performance and optimum investments.
Though the practice adopted by many State Commissions
and utilities is to consider the average cost of supply it can
hardly be doubted that actual costs of supply for each
category of consumer would be a more accurate basis for
determination of the extent of cross-subsidies that are
prevailing so as to reduce the same keeping in mind the
provisions of the Act and also the requirement of fairness to
each category of consumers. In fact, we will not be wrong in
saying that in many a State the departure from average cost
of supply to voltage cost has not only commenced but has
reached a fairly advanced stage. Moreover, the
determination of voltage cost of supply will not run counter
to the legislative intent to continue cross subsidies. Such
subsidies, consistent with executive policy, can always be
reflected in the tariff except that determination of cost of
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supply on voltage basis would provide a more accurate
barometer for identification of the extent of cross subsidies,
continuance of which but reduction of the quantum thereof is
the avowed legislative policy, at least for the present.
Viewed from the aforesaid perspective, we do not find any
basic infirmity with the directions issued by the Appellate
Tribunal requiring the Commission to gradually move away
from the principle of average cost of supply to a
determination of voltage cost of supply.
13. Disallowance of Interest cost on account of alleged
diversion of funds
The Commission disallowed a total of Rs.100 crores on
account of interest paid on borrowed funds on the ground
that the loans obtained to meet capital expenditure were
diverted by the Board (PSEB) to meet revenue expenditure.
The bulk of the interest (except Rs.100 crores) was, however,
allowed by the Commission on the ground that the same is a
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consequence of the events in force prior to the coming into
existence of the Commission and that if the Board is asked to
bear the burden of the entire interest it will have a crippling
effect on its resources. In considering the issue the
Commission further came to the finding that the total assets
of the Board would be of the value of Rs.9.431.06 crores out
of which the assets created with the funds available from
consumers’ contribution, grants and subsidy towards capital
assets etc. works out to Rs. 1784.48 crores leaving the
balance assets at Rs.7646.58 crores. As against this, the
PSEB has availed loans and equity amounting to
Rs.11828.48 crores upto the period ending March 31, 2004.
The Commission accordingly recorded the finding that the
Board had availed loan to the extent of Rs.4181.90 crores in
excess of its capital assets. Obviously, the entire of the said
excess amount was diverted towards meeting revenue
expenditure which is against all canons of acceptance.
Therefore, the amount on this loan paid by the PSEB cannot
be shifted to the consumer. Despite the said findings, for the
reasons already noticed, the Commission had disallowed
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interest of an amount of Rs.100 crores only allowing the
balance to be charged on the consumers through the tariff.
The Appellate Tribunal taking note of the facts mentioned
above did not interfere with the limited disallowance made
by the Commission and instead remanded the issue for a
fuller consideration of the Commission, in the determination
for the subsequent years, in the following terms :
“Since the issue of diversion of funds is interlinked
with other issues namely RSD cost allocation,
subsidy, high rate of interest on Government loans
etc., the controversy relating to the extent of
interest which can be allowed as a pass through
cannot be resolved unless the other issues are
also decided by the Commission as directed by us.
The resolution of these issues are bound to take
time and cannot be decided without relevant data.
Therefore, relief can only be given to the
consumers for the future years.
In view of the foregoing, we direct that for the
year 2006-2007 the issue relating to the extent of
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interest which can be allowed as a pass through
shall be determined and resolved by the
Commission alongwith the determination of the
issue relating to RSD cost allocation, subsidy and
high rate of interests on Govt. loans. This shall be
accomplished during the truing up exercise for the
year 2006-2007.”
The conclusion of the learned Tribunal being on a
consideration of the facts and circumstances noted above,
we can only approve the views expressed.
14. Disallowance of Employees Cost
The Board had projected employees cost at Rs.1605.40
crores in the ARR for 2004-2005 and at Rs.1700 crores for
2005-2006. The Commission in its tariff order for financial
year 2002-2003 had allowed employees cost of
Rs.1274.66 crores with the rider that for the next year the
employees’ cost will be capped. However, the employees
cost for financial year 2003-2004 and 2004-2005 had
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remained capped. The Commission allowed a cumulative
increase of 15.6% for the year 2005-2006 by taking into
account the increase in wholesale price index taking the
financial year 2002-03 as the base year. The approved level
of employees’ cost of the Board of Rs.1274.66 crores for the
year 2002-2003, consequently, stood allowed to the extent
of Rs.1473.63 crores.
15. In the appeal before the Appellate Tribunal, the Board
contended that the capping of the increase of employees
cost for the year 2004-2005 was not justified and that the
increase allowed by the Commission for the financial year
2005-2006 is not adequate. The employees of the Board are
governed by the Punjab State Electricity Service Regulations
1972 whereunder the employees are given parity with the
pay scales of the State Government employees. As the
Board had adopted the recommendation of the 5th Pay
Commission a higher pay scale was required to be given to
its employees. The Board also placed before the Tribunal the
details of the efforts made by it to contain the employees
cost including reduction in the number of its employees.
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16. The Appellate Tribunal took the view that what was
obligatory on the Board was to provide parity of pay scales
of its employees with those of the State Government at the
time when the transfer of the Electricity Board took place.
Grant of higher pay scale without linking the same to
performance would, according to the Tribunal, defeat the
provisions of Electricity Act 2003. The Tribunal further held
that the measures pointed out by the Board to cut the
employees cost were cosmetic. In this regard the Tribunal
observed that though the Board had claimed to have
reduced its employees from 91224 in the year 2000-2001 to
82494 in the year 2003-2004 appointment on contract
basis as well as in the exigencies of service continued to be
made on no known basis. The Tribunal found that even the
voluntary retirement scheme which could have been a viable
option was not adopted on the ground that the State
Government was not in a position to provide the expenses.
In this regard the Tribunal in its order has specifically found
that :
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(i) The number of consumers of electricity in the State of Punjab is the least as compared to the other six States referred to in the charts;
(ii) PSEB 0.24 MU per employee, which puts the Board in the second lowest position in the matter of sale of energy per employee;
(iii) Each employee of the PSEB caters to 59 consumers in the State of Punjab. This ranking is the lowest amongst the seven SEBs;
(iv) PSEB has the highest percentage of establishment cost to total cost as it constitutes 56 paise/Kwh cost of energy sold, which is also the highest compared to other six States and
(v) The Boards per employee cable line circuit is the lowest being 2.95 Km/ckt cost against 7.84 Km/ckt in respect of Gujarat State.
17. It is in the light of the aforesaid facts that the Appellate
Tribunal came to the conclusion that the employees cost
computed and claimed by the PSEB at 1700 crores for the
financial year 2005-2006 cannot be allowed. However, the
Tribunal taking into account the fact that for the previous two
years 2003-2004 and 2004-2005 no increase in employees
cost have been allowed thought it proper to allow the
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cumulative increase permitted by the Commission i.e.
15.61% over and above the employees cost of Rs.1274.66
crores in the year 2002-2003 which, on proper calculation,
works out to Rs.1473.63 crores.
18. The eventual conclusion of the learned Appellate
Tribunal having been arrived at in the manner indicated
above and being on due consideration of the facts relevant
to the issue we are of the view that no interference in
exercise of the limited jurisdiction of this Court under Section
125 of the Act would be justified.
19. Coal transit losses
For the year 2004-05 the Tribunal had allowed transit
loss of 2% as against 3% allowed in the previous year i.e.
2003-04. The Tribunal also directed the PSEB to bring down
the level of transit loss to 1% in the next 3 years with yearly
reduction target of 0.33%. For the year 2005-2006,
however, the learned Tribunal had approved the allowance of
transit loss of 0.8% allowed by the Commission. Though
there appears to be a slight inconsistency in the above view
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of the Tribunal, as the same has been prompted by the
necessity to bring down losses by the utilities by adopting
appropriate and prudent measures we do not think that any
interference will be justified particularly when what has been
allowed is as per the CERC norms (0.8%). The Tribunal had
also taken the view that excessive loss reflected inefficiency
and must therefore be eliminated. If the Appellate Tribunal,
on consideration of the above fact had for the year 2004-
2005 allowed transit loss to the extent of 2% as against the
prescribed norm of 0.8% and for the year 2005-2006 had
kept such allowance at 0.8%, we do not see how interference
with the above directions would be justified in the present
appeal under Section 125 of the Act.
20. For all the reasons stated above we find no ground
whatsoever to interfere with the impugned judgment and
order dated 26.05.2006 and 25.07.2006 passed by the
Appellate Tribunal or any part thereof. The appeal is,
therefore, dismissed without any order as to cost.
.…………………………...J. [RANJAN GOGOI]
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……………………….…… J.
[R.K. AGRAWAL]
New Delhi; February 10, 2015.
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