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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.415 OF 2007

TATA POWER COMPANY LTD. …APPELLANT(S)

VERSUS

ADANI ELECTRICITY MUMBAI LTD.  & ORS.                                            …RESPONDENT(S)

WITH

CIVIL APPEAL NO. 3229 OF 2007

J U D G M E N T

Arun Mishra, J.

1. The appellant  – Tata Power Company  (in short ‘the TPC’) is  a

distribution licensee supplying electricity to the entire city of Mumbai,

whereas BSES/Reliance Energy Limited (in short ‘REL’) is a

distribution licensee supplying electricity only in the suburbs of

Mumbai.   Prior to 1998, the TPC  was the only generator of the

electricity  supplying electricity  to BSES for further  supply to BSES

customers.  The TPC had 108 customers in the entire city of Mumbai.

The tariff payable by BSES to TPC included a component of standby

charge.  The entire standby charges paid by TPC to Maharashtra State

Electricity Board (for short ‘the MSEB’) were being recovered by TPC

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from its customers through its tariff.   Due to change in shareholding

pattern, the BSES was changed to Reliance Energy Limited on

24.2.2004.  

2. The brief facts indicate that TPC and MSEB met on 12.3.1985 to

finalise the interconnection between representatives of TPC and MSEB

with respect to demand charges.  Following decision was arrived at:

“  A) Demand Charges:  Effective 1­2­84 a monthly firmed demand of 300 MVA would be billed  by  MSEB.   This  would increase  by 50  MVA each year effective 1­4­1985 to take care of TEC’s own load growth annually.   This is irrespective of TEC’s actual net off­take recorded at the 4 interconnecting points of supply and also irrespective of MSEB’s total off­take from TEC system”

3. Prior to 1985, the TPC was supplying entire electricity generated

by it to the distributors of electricity in Mumbai.   Since the quantity

generated by TPC was not sufficient to meet the entire demand, TPC

used to buy electricity from MSEB.   BSES/REL was purchasing its

entire requirement  of electricity from TPC  in  bulk to  supply to its

customers in suburban Mumbai.

4. With  effect from 1985,  TPC wanted to increase its  generating

capacity thereby reducing its offtake of electricity from MSEB to zero

thereby causing loss of  revenue to MSEB.  In order to compensate

MSEB for loss of revenue caused as a result of stoppage of purchase of

electricity by TPC from  MSEB, the TPC and  MSEB entered into

aforesaid  arrangement  whereby  TPC was required to  pay to  MSEB

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standby facility initially for 300 MVA to be increased by 50 MVA every

year, charges to be paid at the rate fixed by MSEB.  The quantum of

standby increased from  300  MVA to 550  MVA  by the year 1990,

whereafter the MSEB and the TPC agreed not  to  increase  the said

standby beyond 550 MVA.  The standby facility was meant to enable

TPC to draw upon the energy generated by MSEB in the event there

was outage/failure of power in TPC’s generation capacity of 1777 MW

consisting of multiple units of different sizes i.e., 500 MW, 180 MW,

150 MW, 72 MW, 75 MW and 300 MW, which is supplied to

BSES/REL along with its own consumers and BEST, another

distribution licensee in Mumbai.   The standby facilities charges paid

by TPC to MSEB were  factored  into tariff  charged by TPC from its

customers including BSES/REL.  The BSES/REL was a purchaser of

electricity from TPC to the extent of TPC’s generation between 29% to

37% from 1998 to 2006, thus the standby charges to the extent of

aforesaid varying percentages for the respective years were borne by

BSES/REL which in turn were factored into tariff  and  charged  by

BSES/REL to its retail customers.

5. Initially, BSES was permitted to set up its generating plant at

Dahanu to generate 500 MW (550 MVA approximately).   There was a

condition that it would achieve interconnection with the supply of TPC

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at a point known as Borivali Interconnection Point in case there was

any outage of BSES generation.   It could draw upon the power

supplied by the TPC.   The charges for such interconnections were to

be determined.  On 30.5.1992, a notification was issued amending the

BSES license.  A new clause 7B was introduced for providing aforesaid

interconnectivity.   Provisions of clause 13A  were also amended to

authorise the State Government in the event of a dispute to decide the

same.  On 29.6.1992, a meeting was held between TPC and BSES and

it was agreed that interconnection would be provided at Borivali GIS

switching station to take care of emergencies in BSES 220 KV system.

The TPC already have arrangements  with  MSEB  wherein standby

capacity is provided by MSEB to TPC in case of emergencies in TPC

system.  Standby capacity to BSES may be provided from the standby

capacity reserved by TPC  with  MSEB and appropriate sharing of

charges by BSES could be worked out as provided in clause 12.0.  The

BSES prior to September 1995 was purchasing its entire requirement

of power from TPC and distributing it within its licensed area as TPC

distributing licensee.   After its two  Dahanu generating  units  were

commissioned in  January/March  1995,  BSES started  bringing the

power generated by Dahanu to supply to its consumers after

September 1995 in the suburbs of  Mumbai city.   As supply  was

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started  from the  Dahanu,  TPC surplus  capacity  began  to increase.

The TPC after 1995 required only 275 MVA standby facility against the

standby capacity of 550 MVA.

6. The MSEB issued notice on 28.6.1996 revising its tariff to TPC

effective from 1.10.1996.  The  MSEB raised its  maximum demand

charges per month with respect of standby facility/supply from

Rs.190/­ per KVA to Rs.450/­ per KVA.   Consequently, MSEB gave

notice to TPC, inter alia, revising its standby charges with effect from

1.10.1996 recoverable from TPC to Rs.24.75 crores per  month  i.e.,

Rs.297 crores per year.

7. TPC had issued  a  notice  on  30.7.1996 to the  Government  of

Maharashtra and MSEB under Schedule VI to the Electricity (Supply)

Act, 1948, showing its intention to enhance tariff charges with effect

from 1.10.1996 which included maximum demand charges and energy

charges to various consumers.   It also provided for payment of

maximum demand charges and energy charges by BSES for standby

facility.   With effect from 1.1.1997, TPC revised its tariff  inter alia  to

BSES, thereby factoring in the monthly demand charges of Rs.24.75

crores payable  by  TPC to  MSEB  for standby supply.   In order to

resolve the issue of quantum of standby charges to be paid by BSES to

TPC, the Government of Maharashtra appointed a Committee and an

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order dated 19.1.1998 was passed whereby the Government of

Maharashtra, based on the recommendation of the Committee,

stipulated that a sum of Rs.3.5 crores per month should be paid by

BSES/REL to TPC by way of standby facility for the period 1998­1999.

This sum of Rs.3.5 crores per month i.e., Rs.42 crores per annum was

over and above the sum Rs.24.75 crores per month i.e., Rs.297 crores

per annum which TPC used to recover in the form of its tariff from its

customer.   In fixing the aforesaid amount, the following factors were

taken into consideration by the said Committee:

“(i)   the generation of TPC and MSEB; (ii) the electricity supplied by TPC on BSES/ REL as a consumer. (iii) TPC’s standby supply from MSEB; (iv) Charges paid thereof by TPC; (v) TPC’s and BSES/REL’s financial position; (vi) That standby was being supplied for the stability of the Greater Mumbai

Grid.”

8. On 17.12.1997,  TPC contended that it  was fully capable  and

willing to supply standby to  BSES  for its  Dahanu  plant and  TPC

should, therefore, be billed only for 275 MVA standby facility for their

consumers other than BSES.  The Government of Maharashtra issued

an order on 19.1.1998,  following is the relevant portion of the said

order:

 “it  has  come  to the  notice  of the  Government that  due to dispute on commercial terms between BSES and TEC, interconnection is not established at Borivali even though technical arrangements are ready. Similarly, additional electricity generated at Dahanu is being sold to the Western Regional Grid through MSEB’s Biosar Interconnection.   As a result, the government's main objective that electricity generated at Dahanu should be used within the BSES area of

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supply has  not been  met and  BSES license conditions are violated. For this Government had appointed a Committee under the Chairmanship of the Principal Secretary, Energy.  In this committee, representatives of MSEB, TEC, and BSES were members.  This  Committee has examined the  total  situation and has submitted its report to the Government. GOM thereafter ordered as follows: “Taking into account the recommendations of the Committee, following are orders of the Government. BSES should complete interconnection at Borivli  by January

26, 1998. BSES should take 275 MVA standby power supply from TEC

for Dahanu generating station. For  taking above standby supply,  BSES should pay standby

charges to TEC. After the interconnection is commissioned, BSES should stop

selling electricity through MSEB’s Boisar sub­station to Western Regional Grid.

TEC  may charge stand­by charges for 275  MVA supply to BSES.

Whenever required during an emergency, additional electricity may be taken for areas outside  Mumbai region through MSEB's Boisar sub­station. For this purpose, MSEB should take proper arrangements.

As per Committee’s recommendations and taking into account, TEC’s electricity supply to BSES, TEC’s standby supply from MSEB, charges thereof and TEC’s and BSES’s financial conditions, BSES should make a payment of Rs.3.5 crores every month for standby supply.  On this basis, the rate per KVA should be fixed and commercial arrangement finalized.  

The above standby charges are  passed on  TEC’s  &  BSES’s existing electricity supply tariff.   The standby charges may be reviewed during tariff revision in the future.”

9.  Since the agreement was to be finalised as per the Government’s

order, the Government had no power to give directions to generators

and distributors, TPC and BSES had entered into Principles of

Agreement on 30.1.1998, the clauses 2 to 9 are extracted hereunder:

“(2) BSES shall pay to TEC for the 220 KV interconnection at Borivali Rs.3.5 crores per month as standby charges for 275 MVA as per Government orders. (3) BSES offtake of energy at 220 KV Borivli interconnection will be billed at Rs.2.09 per kWh plus F.A.C. (which is presently at Rs.0.45) as applicable from time to time at other points of

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supply.   This average energy charge is based on an estimated annual flow of 250  million units of energy through  Borivli interconnection. (5) As soon as the interconnection between TEC and BSES at 220 KV Borivli is established. (6) The interconnection between MSEB and BSES at Boisar will be opened out. (7) BSES shall use this interconnection at Borivali fully for the standby type of service. (8) Both the parties have agreed to cooperate in order to ensure that the orders of the Government dated 19­01­1998 are implemented in the spirit of it. (9)  A detailed Power Supply Agreement on a mutually agreed basis incorporating the above will be executed by 21   st   of April, 1998.”

(emphasis supplied)

Though the aforesaid principles of the agreement were entered

into between the parties, for one reason or the other, no agreement

has been executed between them.   

10.  The TPC under the Principles of Agreement dated 31.1.1998 was

bound to supply standby power as and when required by BSES/REL.

Whether the TPC was drawing from MSEB or not is immaterial.   The

agreement of BSES was with TPC, not with MSEB.   The agreement

between TPC and BSES was independent than the agreement between

TPC and MSEB.

11. Even after providing the standby facility of 275 MVA to

BSES/REL, TPC still  enjoyed the standby facility of  550 MVA from

MSEB.   The TPC entitlement to avail 550 MVA standby facility from

MSEB did not change.

12. The standby facility that has been availed of by BSES/REL

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through TPC since then it actually drew on about 119 occasions till

May 2004, of which 57 occasions in excess of 275 MVA.  It has been

observed by the Appellate Tribunal for Electricity (in short ‘the APTEL’)

that TPC in 90 percent of the above occurrences has supplied standby

powers from its own generation and never drawn back the power from

MSEB.   The TPC has actually drawn standby from MSEB on a large

number of occasions and on several occasions far in excess of 275

MVA.  The standby drawn by TPC from MSEB is as under:

“439 MVA highest in 1998­1999 271 MVA highest in 1999­2000 358 MVA highest in 2000­2001 325 MVA highest in 2002­2003 415 MVA highest in 2002­2003 763 MW highest in 2004”

13. It is also pertinent to mention that even after BSES/REL started

drawing power from its Dahanu generation station, BSES/REL

continued to purchase approximately 35 percent of TPC's generation

from TPC to supply energy to BSES/REL consumers.  With effect from

1.2.1998, the BSES/REL paid a sum of Rs.3.5 crores per month to

TPC as charges for standby.  The TPC objected and sought the revision

of standby charges, which was fixed at Rs.3.5 crores per month, by

writing a letter to the Government of Maharashtra on 8.7.1998.  With

effect from 1.12.1998, the MSEB revised its tariff by issuing a notice

under the agreement between the MSEB and TPC.   The charges for

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standby facility were also increased from Rs.450 KVA per month to

Rs.550 KVA per month i.e., Rs.363 crores per annum equal to

Rs.30.250 crores per month.   These standby charges enhanced from

Rs.24.75 crore per month to Rs.30.25 crores per month with effect

from 1.12.1998  i.e., from Rs.297 crores  to Rs.363 crores annually.

The TPC instead of requiring a pro­rata share of the incremental

standby charges from BSES/REL purported to divide the amount of

Rs.30.25 crores in the ratio of 50:50 and demanded a sum of

Rs.15.125 crores per month i.e., Rs.181.5 crores per annum by way of

standby charges from BSES/REL.   The TPC was already recovering

Rs.24.75 crores per  month through its tariff as said amount  was

factored in tariff from its customers and additional recovery of Rs.3.5

crores was also being made from BSES/REL under the Principles of

Agreement.  Thus, the total recovery of Rs.28.25 crores per month by

way of standby charge was already made by TPC from its customers as

on September 1998.   By demanding a sum of Rs.15.125 crores per

month from BSES/REL, TPC was attempting to demand an additional

sum of approximately Rs.11.625 crores per month from BSES/REL

under the guise of standby charges instead of demanding a pro­rata

amount of the incremental standby charges of Rs.2 crores.

14. TPC  issued  notice  dated  30.9.1998  under  Schedule  VI to the

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Electricity (Supply) Act, 1948 to the Government of Maharashtra

proposing revision of its tariff and other matters.   It was indicated in

the  notice that it  would  pay  only  Rs.181.5  crores  per  annum and

remaining should  be the liability of  BSES/REL.   It  has  also  been

contended on behalf of TPC that other revision in tariff had not been

proposed by TPC which would otherwise have needed an increase of 6

percent on all consumers in Mumbai.  It served a notice on BSES/REL

demanding the aforesaid charges of 35 percent of the component

which was purchased by BSES/REL as a consumer.  The standby

charges used to be paid and otherwise included in the tariff.

BSES/REL has received 35 percent of the energy supplied from TPC

as a consumer and for the same, TPC was recovering an amount of

Rs.24.75 crores per month and an additional sum of Rs.3.5 crores per

month.  This Court in BSES Ltd. v. Tata Power Co. Ltd., (2004) 1 SCC

195 has observed that tariff notice as being illegal.  Since the dispute

between the TPC and BSES/REL could not be sorted out, an order

dated 22.3.2000 was passed by the Government of Maharashtra

endorsing the Committee’s Report.   Vide aforesaid order, BSES/REL

was  directed  to  pay  Rs.9  crores  as  observed in  BSES Ltd. v.  Tata

Power Co. Ltd. (supra) by this Court.

15. The Electricity Regulatory Commission Act, 1998 (in short  ‘the

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Act of 1998’) came to be promulgated which conferred jurisdiction on

Maharashtra Electricity Regulatory Commission (in short ‘the MERC’)

to determine the tariff of supply of electricity and later on to adjudicate

the dispute between the parties.   The dispute came to be referred to

MERC by the parties.  The order dated 22.3.2000 passed by the State

Government has been set aside by the High Court, which decision has

been affirmed by this  Court in  BSES Ltd. v. Tata Power  Co. Ltd.

(supra).   

16. The MERC passed an order on 7.12.2001 directing BSES/REL to

bear 25 percent of the standby charges.  This order was challenged by

both the parties before the High Court.  The High Court remitted the

matter back to MERC and directed BSES/REL to deposit 50 percent of

the standby  amount  as  an interim arrangement.  The  matter  had

further travelled to this Court in the aforesaid decision namely BSES

Ltd. v. Tata Power Co. Ltd. (supra).

17. After the matter was remitted, MERC after hearing the parties

passed an order dated 31.5.2004 and directed the BSES/REL to bear

approximately 23 percent of the total standby charges incurred by TPC

qua MSEB.   While noticing that TPC has already recovered a sum of

Rs.24.75 crores per month through its tariff and an additional sum of

Rs.3.5 crores per month as per the Principles of Agreement, it  was

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found that large part of standby charges has already been recovered

by TPC through tariffs and otherwise.   Against the demand made on

31.5.2004, both the parties filed an appeal before the APTEL.  It was

heard  by  a  Bench  consisting  of  Chairman and  Technical  Member.

They delivered separate judgments, both of them rejected the

contentions of  TPC claiming standby charges  in the ratio of  50:50.

The Chairman opined that standby charges should be shared in the

proportion of 2:1 i.e., TPC paying 2/3rd and BSES/REL paying 1/3rd,

while Technical Member held BSES/REL should bear 23 percent while

TPC should bear approximately 77 percent.

18. In view of the divergence of opinion, the matter was referred to

the third Member being Judicial Member, who agreed with the

conclusion of the Technical Member that BSES/REL should bear 23

percent of the standby charges.  In view of the majority judgment, the

APTEL passed an order dated 20.12.2006, acknowledging the majority

view of the Judicial Member and the Technical Member and directed

that  23  percent  of the  standby  charges for the  period in  question

should be borne by BSES/REL and balance should be borne by TPC

and further directed refund of the excess amount that was deposited

by BSES/REL pursuant to the interim orders passed.   The MERC in

the appeal has acknowledged that TPC has  withdrawn a sum of

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Rs.24.75 crores from its customers through electricity tariff  and an

additional sum of Rs.3.5 crores per month by way of standby charges

from BSES/REL did not give credit for the said sum in the

computation of standby charges to the extent of 23 percent held to be

payable by BSES/REL.   The appeal of  BSES/REL in respect of the

aforesaid was rejected by the APTEL vide judgment and order dated

20.4.2007.   TPC filed Civil Appeal No.415 of 2007 before this Court.

BSES/REL has also filed Civil Appeal No.3229 of 2007 aggrieved by

the judgment and order dated 20.4.2007 of APTEL.

19. Shri Gopal Jain learned senior counsel appearing on behalf  of

TPC has contended that TPC has not recovered standby charges from

its customers for the facility in excess of 275 MVA out of 550 MVA

standby facility for the period April 1999 to March 2004 provided by

MSEB.   Thereafter as provided by tariff order dated 11.6.2004, TPC

has recovered from its customers to the extent of 78 percent of the

standby charges.   This Court has granted interim stay on 7.2.2007

and required the appellant to furnish bank guarantee in the sum of

Rs.227 crores and in addition, deposit a sum of Rs.227 crores with the

Registrar General of this Court, which may be withdrawn by

respondent  no.1  subject to their furnishing  an undertaking to this

Court that in the event of this appeal being decided against them, the

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amount as  may be found refundable by them shall be refunded

without demur with interest as may be determined by this Court.  The

TPC has complied with these conditions and it is not correct to say

that all concerned have complied  with the impugned order dated

20.12.2006.  The amount of Rs.3.5 crores per month was only for the

year 1997­1998, though the actual liability came to be Rs.8.25 crores

per month, Rs.3.5 crores were fixed so as to avoid disturbance in the

tariff in the current year.  The MSEB is not providing standby facility

of 1777  MW (TPC’s total installed capacity) nor is REL provided

standby facility of 550 MVA by TPC.   Therefore, the standby charges

cannot be apportioned in the ratio of the total installed capacity of TPC

and REL.   The obligation to pay to MSEB for the standby facility is

independent.   If the generator for some reason is not able to recover

from its customers, it will not be absolved of its obligation to pay the

standby charges to MSEB.   The liability of the BSES/REL to pay for

standby charges in 50:50 ratio is absolute and cannot be linked with

the means of recovery.   It would result  in disturbing and distorting

level  playing  field  conditions which are a  facet  of  Article  14 of the

Constitution and also distort competition.  It is also urged by learned

senior counsel that it would run contrary to the objects of the Act of

1998, in particular, the mandate of Section 29(3) which is extracted

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hereunder:

“29. Determination of Tariff by State Commission. (3) The State Commission, while determining the tariff under this Act, shall not show undue preference to any consumer of electricity, but may differentiate according to the consumer’s load factor, power factor, total consumption of energy 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.”

20. It  was  further urged that  the prayer was made by BSES/REL

before the MERC to fix the standby charges payable by BSES/REL

(complainant) to the TPC (respondents).   Its liability would be more

than Rs.3.5  crores  per  month.    TPC  is  paying  Rs.363 crores  as

standby charges to MSEB.  On principles of parity and proportionality,

the BSES/REL should pay for 275 MVA as the quantum of 275 MVA

standby is out of the same block of 550 MVA standby facility given by

MSEB.   The TPC and BSES/REL should share in the ratio of 50:50.

The APTEL has not followed the decision of this Court in BSES Ltd. v.

Tata Power Co. Ltd. (supra).  This Court in the aforesaid decision has

observed as under:

“16.  The word “tariff” has not been defined in the Act. “Tariff” is a cartel of commerce  and  normally it is a book  of rates. It  will  mean a schedule of standard prices or charges provided to the category or categories of customers specified in the tariff. Sub­section (1) of Section 22 clearly lays down that the State Commission shall determine the tariff for electricity (wholesale, bulk, grid or retail) and also for use of transmission facilities. It has also the power to regulate  power  purchase of the  distribution  utilities including the  price at which the power shall be procured from the generating companies for transmission, sale,  distribution, and supply  in the State. "Utility" has been defined in Section 2(l) of the Act and it means any person or entity engaged in the generation, transmission, sale, distribution or supply, as the case may be, of energy. Section 29 lays down that the tariff for the intra­State transmission of electricity and tariff for supply of electricity — wholesale, bulk or retail — in a State shall be subject to the provisions of the Act and the tariff  shall be determined by the State Commission. Sub­section (2) of Section 29 shows that

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the terms and conditions for fixation of the tariff shall be determined  by Regulations and while doing so, the Commission shall be guided by the factors enumerated in clauses  (a) to  (g) thereof.  The Regulations referred to earlier show that generating companies and utilities have to first approach the Commission for approval of their tariff whether for generation, transmission, distribution or supply and also for terms and conditions of supply. They can charge from their customers only such tariff which has been approved by the Commission. Charging of a tariff which has not been approved by the Commission is an offence which is punishable under Section 45 of the Act. The provisions of the  Act and  Regulations show that the  Commission  has the exclusive power to determine the tariff. The tariff approved by the Commission is final and binding and it is not permissible for the licensee, utility or anyone else to charge a different tariff.

*** *** ***

“18. Electricity is not a commodity which may be stored or kept in reserve. It has to be continuously generated and it is so continuously generated electricity which is  made available to consumers. Any generator of electricity has to have some alternate arrangement to fall back upon in the event of its generating machinery coming to a halt. The standby arrangement for 550 MVA made by TPC was for the purpose that in the event its generation fell short for any reason, it will be able to immediately  draw the aforesaid quantity of  power from MSEB. Similarly, the arrangement entered into by BSES with TPC ensured the former of immediate availability of 275 MVA power in the event of any breakdown or stoppage of generation in its Dahanu generation facility. Heavy investment is required for generation of power. For this kind of a guarantee and availability of power, TPC had to pay charges for the same to MSEB. This payment was in addition to the charges or price which TPC had to pay to MSEB for the actual draw of electrical energy.  The same is the case with BSES qua TPC. The charges paid for this kind of an arrangement  whereby  a fixed quantity  of electrical energy  was guaranteed to TPC and BSES at their desire, is bound to constitute a component of the price which they (BSES and TPC) would be charging from their consumers towards the cost of the electrical energy actually consumed by them. The determination or quantification of the amount which is payable for this kind of standby arrangement made in favour of TPC and BSES would, in reality, mean determination of the price or charges for wholesale or bulk supply of electricity. It will, therefore, clearly fall within the expression "determine the tariff for electricity, wholesale, bulk,  grid or retail"  as used  in clause  (a)  of  sub­section  (1)  of Section 22 and also in the expression “regulate power purchase … including the price at which the power shall be procured from the generating companies …” as used in clause (c) of sub­section (1) of  Section 22.  Therefore, the determination or quantification of the amount  which  BSES  has to pay to TPC falls within the jurisdiction of the State Commission under Section 22 of the Act. This legal position is also reflected by Section 29 of the Act which

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confers an overriding power and clearly lays down that notwithstanding anything contained in any other law the tariff for supply of electricity — wholesale, bulk or retail — shall be subject to the provisions of the Act and shall be determined by the State Commission. This clearly ousts the jurisdiction of any other authority to determine the tariff. It may be noted here that the Act came  into  force on 25­4­1998 and the Maharashtra  Electricity Regulatory Commission was formed on 5­8­1999. Therefore, it is not possible to accept the contention of Shri Nariman that the State Government had the authority or jurisdiction on 22­3­2000 to determine or quantify the charges which BSES had to pay to TPC under the terms of the licence granted to the former as this was subsequent to the formation of the Maharashtra Electricity Regulatory Commission.”

19. Shri Nariman has submitted that TPC gave a notice on 30­9­1998 of their intention to enhance the charges of standby facility provided to BSES from Rs 3.5 crores to Rs 15.125 crores per  month and  this  notice  having  been given under the  Sixth Schedule (para  I, third  proviso)  of the  Electricity (Supply)  Act, 1948, the enhanced charges became effective and operative after the expiry of 60 days of notice i.e. with effect from 1­2­1998. The submission is that by operation of law the charges for standby facility stood revised and enhanced with effect from 1­12­1998. In our opinion, the contention raised has no substance. The legal position has undergone a complete change with the enforcement of the Electricity Regulatory Commissions Act, 1998. In view of Section 29 of the Act,  the tariff for intra­State transmission of electricity and tariff for supply of electricity in wholesale, bulk or retail has to be determined by the Electricity Regulatory Commission of the State and a licensee cannot by its unilateral action enhance the charges. The provisions of the Act have an overriding effect by virtue of Section 52 of the Act and, therefore, any provisions of the Electricity (Supply)  Act,  1948,  which are inconsistent with the Act would cease to apply and consequently, the provisions of the Sixth Schedule of the said Act can have no application now. The Sixth Schedule has been made by virtue of Sections 57 and 57­A of the Electricity  (Supply) Act, 1948 and Section 57­A contemplates constitution of a Rating Committee by the State Government to examine the licensee’s charges for the supply of electricity. Section 29(6) of the Act specifically lays down that  notwithstanding  anything  contained  in  Sections 57­A and 57­B of the Electricity (Supply) Act, 1948, no Rating Committee shall be constituted after the date of the commencement of the Act. The effect of Section 29 and the Regulations framed thereunder is that it is no longer open to a licensee or utility to unilaterally  increase the tariff.  The tariff can be enhanced only after approval of the Commission and charging of an enhanced tariff which has not been approved by the Commission will

19

amount to commission of an offence.  Therefore, the  notice to enhance the charges given by TPC, which was subsequent to the enforcement of the Act, can have no legal effect. 20. Shri Nariman has also submitted that even assuming that the standby charges  are  a  matter relating  to tariff  as  the  same  is passed on to the consumers, but the sharing of standby charges between TPC and BSES is not a matter relating to determination of tariff and, therefore, the Commission can have no jurisdiction to enter into such an exercise under Section 22 of the Act. The submission proceeds on an assumption that the dispute relates to the sharing of standby charges. In fact, the whole case of BSES is that they are under no obligation to share the charges which are being paid by TPC to MSEB for providing them with standby facility. It may be noted that the standby facility of 300 MVA was provided to TPC in the year 1985 which gradually rose to 550 MVA  in the  year  1990.  The licence  of  BSES was  amended in 1992,  whereunder for the  first time, it  was provided that they should interlink  with the system of  TPC and ultimately, their systems were interlinked on 14­2­1998 in pursuance of the order passed by the  Government  of  Maharashtra  on 19­1­1998.  The question of  payment of  standby charges by BSES to TPC has, therefore,  arisen  for  the  first  time in 1998 which is almost 13 years after TPC started paying standby charges to  MSEB. In substance, the dispute is what should be paid by BSES to TPC for the standby facility provided by it. The strict and narrow interpretation sought to be placed by the learned counsel so as to oust the jurisdiction of the Commission cannot be accepted as it will defeat the very object of enacting the Electricity Regulatory Commissions Act.

*** *** ***

26. An interim arrangement is normally made on a prima facie consideration of the  matter and on broad principles without examining the matter in depth. The matter has been remitted to the Commission by the High Court by the judgment and order dated 3­6­2003 and a period of nearly three­and­a­half months has already elapsed.  Regulation  101 of the  Central  Electricity Regulatory Commission provides that the Commission may normally dispose of the petitions finally  within six  months of admission.  The  State  Commissions are  also  expected to follow this time­limit for disposal of petitions.  Since the order made by the High Court is only by way of  interim arrangement and the Commission is expected to decide the disputes  finally within a short period, we do not consider it proper to interfere with the order made by the High Court in this regard. After the decision of the  Commission, the equities  can  be  adjusted  and the excess amount paid by any party can be refunded to it along  with appropriate interest or can be adjusted in future bills.”

(emphasis supplied)

20

21. Learned senior counsel has also  urged that actual supply of

electricity and charges paid for actual supply are completely different

from the guarantee and charges payable for providing such a

guarantee/arrangement.   It is further urged that generating capacity

comes at a cost.  The Technical  Member therefore  wrongly  assigns

Zero cost for this generating capacity.  This is an error apparent in the

impugned order where the spinning reserve has been treated as zero

cost.

22. Learned senior counsel has relied on the decision in Binani Zinc

Ltd. v. Kerala State Electricity Board,  (2009) 11 SCC 244, to contend

that notice dated 30.9.1998 was legal and valid.  The relevant portion

of the aforesaid decision is extracted hereunder:

 “28.  Thus, it would be one thing to say that upon coming into force of the 1998 Act the  provisions contained  in the  1948 Act  which are found  to  be inconsistent with the former shall give way thereto but it is another thing to say that although no Commission  is constituted,  the Board would have no jurisdiction at all to frame a tariff.

*** *** *** 33. It is of some significance to note that the Commission in terms of clauses (a) and (b) of sub­section (2) of Section 29 of the 1998 Act are required to follow the principles provided for under Sections 46, 56 and 57­A of the 1948 Act as also the Sixth Schedule appended thereto. The 1998 Act, therefore, recognises the principles contained in the 1948 Act also.

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

21

No case for interference  in  Civil  Appeal  No.  3229 of  20017  is

made out which is barred by limitation.

23. Shri  J.J.  Bhatt learned senior  counsel  appearing  on behalf  of

BSES/REL has contended that TPC and MSEB entered into an

arrangement  on  12.3.1985.  There  was  an independent  agreement

between TPC and BSES/REL entered into on 31.1.1998 and it has no

connection with the agreement between the TPC and MSEB.

Notwithstanding the fact that MSEB supplied TPC with standby power

or not, TPC was bound to supply BSES/REL from its own generation

standby power.   On approximately 90 percent of the occasions,

BSES/REL has utilised standby power of TPC.   It has exceeded on

some occasions more than 275 MVA and has gone up to above 400

MVA, whereas TPC has drawn standby from MSEB.   The Government

passed an order on 19.1.1998, considering several factors and

determined Rs.3.5 crores per month as standby charges.   The

payment of standby charges by BSES/REL to TPC was independent of

the charges to be paid by TPC to MESB.  The determination has been

made on the basis of various factors.  Basis of 50:50 sharing has been

rightly rejected by the MERC as well as by the APTEL.  The decision of

spinning reserve by the Technical and Judicial Members at zero levels

is justified in the facts of the case.  The submission made on the basis

22

of  Binani Zinc Ltd. v. Kerala State Electricity  Board (supra)  is not

tenable.  The total generating capacity of TPC was 1777 MW, whereas

that of BSES/REL is 500 MW.  It is incorrect that TPC has recovered

only 50 percent of standby charges payable to MSEB.   The standby

charges of Rs.24.75 crores per month i.e., Rs.297 crores per annum

were factored into TPC tariff in addition to the amount of Rs.3.5 crores

per month was paid by BSES/REL.  It wanted to realise 75 percent of

the charges from BSES/REL by claiming a 50:50 ratio sharing.   The

TPC has spinning reserve surplus of 317 MVA with regard to its total

capacity of 1777 MW.  It was not MSEB but TPC which has provided

standby support to BSES/REL on 90 percent occasions.  It is further

contended that the appeal filed by BSES/REL should be allowed and

the excess amount has been worked out by the APTEL.  The same may

be suitably reduced.

24. The period in dispute is 1.4.1999 to 30.9.2004.   It is apparent

that  TPC has an agreement  with MSEB for  standby supply  of  550

MVA.  Initially, in 1985, TPC has  increased  its generating capacity

whereby reducing the off­take of electricity  from MSEB to zero.  In

order to compensate MSEB for loss of revenue caused as a result of

the stoppage  of  purchase  of electricity, the  MSEB entered into  an

arrangement  with TPC whereby TPC was required  to pay  to MSEB

23

initially for 300 MVA standby to be increased by 50 MVA every year.

The standby was freeze in the year 1990 when the parties agreed not

to increase the standby beyond 550 MVA.

25. The standby facility was made available to TPC in the event there

was a failure of power in TPC’s generation of 1777 MW.   BSES/REL

used to purchase electricity from TPC between 29 percent to 37

percent from 1998 to 2006.   The standby charges for aforesaid

purchase were factored into the tariff charged from its retail

customers.  The standby charges to the extent of supply were borne by

BSES/REL for optimum supply from TPC when interconnectivity was

provided at Borivali point as per the Government order.   The dispute

arose between TPC and BSES/REL as to whether BSES/REL

entitlement  to draw 275 MVA from TPC  in  the case of  outage and

failure of electricity supply, the charges which were required to be paid

were over and above the charges that would be paid for energy

actually drawn.   At the relevant time, TPC was paying an amount of

Rs.24.75 crores per month i.e., Rs.297 crores per annum to MSEB by

way  of standby  charges  which  was  built into the tariff.   The said

amount was recovered by TPC from its customers who in turn

recovered it from their retail consumers.

24

26. The Government of Maharashtra formed a Committee to resolve

the issue of quantum of standby charges required to be paid by

BSES/REL to TPC.  The Government of Maharashtra passed an order

dated 19.1.1998 whereby stipulating a sum of Rs.3.5 crores per

month should be paid by BSES/REL to TPC by way of standby

charges.   The decision was taken by the Committee  inter alia

considering the generation by TPC and MSEB.   The order was based

upon six factors ­ generation of TPC and MSEB; electricity supplied by

TPC to BSES/REL as a consumer; TPC’s standby supply from MSEB;

charges paid for said sub­standby supply by TPC to  MSEB; the

financial position of TPC and BSES/REL; and stability of better

Mumbai grid.

27. The main principles on the basis of which Agreement was to be

reached between TPC and BSES/REL were settled.  As per clause 2 of

the Principles of Agreement, BSES/REL had to pay to TPC for 220 KV

interconnection at Borivali at Rs.3.5 crores per month.   The parties

had agreed to cooperate in order  to ensure  that  Government order

dated 19.1.1998 is implemented in the spirit of it.   A detailed power

supply agreement was to be entered into by 21.4.1998.     The

agreement could not be executed as consensus with respect to several

25

aspects could not be reached.  The order dated 22.3.2000 has been set

aside by the High Court, which order was not interfered with by this

Court and the case was remitted for the decision to MERC, which is

an expert body.   The power  was conferred upon the  MERC vide

notification dated 27.10.2000 under the provision of Section 22(2)(n)

of  Electricity Regulatory Commission Act,  1998, to adjudicate upon

the disputes and differences between licensees and utilities.   On

4.12.2000, BSES/REL had filed an application to MERC in respect of

sharing of standby charges between BSES/REL and TPC.  The prayers

were made to regulate action and standby charges levied by them and

to fix and determine the standby charges payable by them.

28. Ultimately, the APTEL by the impugned orders has decided the

matter.  The Chairman has held that liability to be in proportion of 2:1

tariff,  whereas Judicial  Member  has concurred  with the Technical

Member when Technical Member differed with the opinion of

Chairman, but the fact remains that MERC, as well as the APTEL,

concurrently  have  not accepted the case of the  TPC that standby

charges should be borne in ratio of 50:50.  The decisions of MERC, as

well as the Technical and Judicial Members, are found to be correct

while terming ratio as 23:77  with respect to  BSES/REL and  TPC

respectively.

26

29. In view of the aforesaid facts and circumstances of the case and,

in particular, several factors were required to be taken into

consideration, on that basis aforesaid figure has been worked out.  It

has  also  been  considered that  electricity  used to  be  purchased  by

BSES/REL from TPC to the aforesaid extent and the standby charges

used to be realised which were factored in the tariff, which liability

was ultimately passed on to the retail  consumers.   Even when the

Principles of  Agreement  have  been reached  as to standby charges

though it was subject to revision basis was fixed which could not have

been departed from, it was on consideration of several aspects.   The

ratio had been appropriately worked out in the most equitable manner

by applying the level playing field.  Considering the standby charges of

Rs.24.75 crores recovered by MSEB from TPC with effect from

1.10.1996 and as per the Government order and Principles of

Agreement Rs.3.5 crores was additionally being available and a

difference of standby which was made to increase the liability

Rs.24.75 crore per month to Rs.30.25 crores per month.   Thus, the

decision of the Technical and Judicial Members is found to be

appropriate and reasonable while working out the percentage of the

27

standby charges to be paid by BSES/REL to TPC for the period in

question.

30. This Court in BSES Ltd. v. Tata Power Co. Ltd. (supra) held that

the tariff notice dated 30.9.1998 to be illegal and had no legal effect.

It was held that the charges paid for this kind of arrangement,

whereby a fixed quantity of electrical energy was guaranteed to TPC

and BSES/REL at their desire, is bound to constitute a component of

the price which they (BSES and TPC) would be charging from their

consumers towards the cost of the electrical energy actually consumed

by them.   This Court also held that  the State Government had no

authority or  jurisdiction on 22.3.2000 to determine or quantify the

charges which BSES had to pay to TPC under the terms of the license

granted to the former.   It was further observed that Commission to

decide the  dispute  early.  A  clarificatory  order  was passed by this

Court on  9.1.2004  considering the  decision in  Binani  Zinc  Limited

(supra).  The petition was filed by TPC for review.  On the basis of the

decision in Binani Zinc Limited (supra),  the same was dismissed.  The

MERC has passed the order on 31.5.2004, the following observations

were made by MERC:  

 "94.   In this context, the Commission is also of the view that, since the standby facility ensures the reliability of the Mumbai system and thus benefits all the consumers in the Mumbai area, they have to contribute towards the cost of standby through the mechanism designed by the Commission.   TPC has been

28

recovering  the cost  of  standby  that  was applicable in January 1998 i.e., Rs.24.75 crore per month, from its consumers through its tariff, viz. fixed charges and energy charges.   This aspect has been dealt with in detail subsequently in this Order.   Now, depending on the ratio of sharing of the standby cost determined by the Commission, the consumers of TPC and BSES will have to pay the cost applicable to their respective licensees, in the manner decided by the Commission.

*** *** *** 225.   The Commission is, however, of the view that the issue of whether the ratio should be applicable on the entire standby component  or  only  on  the incremental  portion above  Rs.24.75 crore,  and  the recovery  of the same  from the consumers, is  a matter of tariff, which is within the Commission’s jurisdiction as held by several   Courts, including the High Court judgment on the appeal filed by TPC and BSES on the Commission’s Order in the matter of sharing of standby charges.

*** *** *** 237.  While determining the Annual Revenue Requirement (ARR) of TPC in the separate case before it, the Commission is considering all the payments to be made to or by the respective Parties  and  the interest  and delayed  payment  charges,  and  is restating  the Clear  Profit  of  BSES and TPC to reflect the true picture,  in line with the Commission’s decision on the issue of sharing of standby charges.  This is being done from FY 1998­99, as the  dispute arose  during that year.   The  Commission  has drawn from the available reserves and surpluses, wherever required, to ensure that TPC and BSES get their due Reasonable Return on  a  year­on­year  basis, in line  with the  provisions  of Schedule VI.   Having ensured that the Clear Profit matches the Reasonable Return on a year­on­year basis, there is no requirement for any additional recovery of any amount from the Parties.  The Utilities have to draw from their reserves, as would be elaborated by the Commission, to  make the payments as directed by it.

*** *** *** 239. Para 26 of the Supreme Court ruling states, inter alia, that “After the decision of the Commission, the equities can be adjusted and the excess amount paid by any party can be refunded to it along with appropriate interest or can be adjusted in future bills. 240.  The  Commission is of the view that interest should  be recovered from all  parties  to  the dispute  for the amounts paid short vis­à­vis the actual payments due from each party, in accordance with the Commission’s computations.   The Commission believes that this  approach  is  equitable to  all the Parties concerned, and is appropriate in the light of the issues and circumstances of this matter which has been under dispute for such a long time.  Hence, the Commission has computed the interest  payable  by  BSES  to  TPC  for  delayed  payments in  FY

29

1998­99 and FY 1999­00,  and  the  interest  payable  by  TPC to BSES on the excess amounts deposited by BSES with TPC for onward payment to MSEB.  The Commission has considered the fact that the interest rate on delayed payments to MSEB is 18% for overdue over 6 months.   However, in this instance, the payment liabilities as between TPC and BSES have been crystallized only now through this  Order of the Commission. Moreover, the deposits made by BSES earlier were consequent to Court Orders and were not regular payments.  Hence, taking into account the prevailing market interest rates (SBI PLR) in each of these years, the net (simple) interest payable by BSES works out to  Rs.8.37 crore, as shown in the table below,  which can  be adjusted against the refund due to BSES from TPC."

31. The MERC directed sharing of standby charges payable to MSEB

between TPC and BSES/REL on the basis of their respective peak load

requirements and directed TPC to pay to BSES/REL a sum of

Rs.315.30 crores  within 15 days.   It was also observed that the

quantum of standby capacity is related  to the larger unit size of the

generation in either  system.  We  have  no  hesitation  to  accept the

majority opinion that standby facility provided by TPC was out of its

own generating capacity and 90 percent of the times energy has been

drawn by BSES/REL from TPC.  Thus, there is no justification for TPC

to claim 50:50 percent sharing of the standby charges in the facts of

this case on consideration of  various factors the decision has been

reached.

32. It appears that there was no stay on the order passed by the

APTEL by this Court.   The plea of non­implementation of the order

taken by TPC is not understandable.  It was only the bank guarantee

30

which  was  submitted  by  TPC, in  addition, to  deposit of  a sum of

Rs.227 crores with the Registrar General of this Court.   The

implementation of the order of the APTEL would  mean that the

determination  made  by it  has  been acted  upon and  corresponding

liability factored  into tariff  has  been passed on the customers  and

actual consumers and realised from them since there was no such

interim stay on  implementation of the order.  We find  force  in the

submission raised on behalf of BSES/REL that order of APTEL has

already been worked out even otherwise  it is found to be  just and

equitable.  No case for interference with the same is made out.

33. There is no question of applicability of Article 14 of the

Constitution.  As a matter of fact, what was agreed in the Principles of

Agreement more amount than that has been ordered to be paid on the

basis of principles of business equilibrium and other factors as noted

above.   

34. It may be relevant to mention here that I.A. No.59365 of 2019

and I.A. No. 59356 of 2019 have been filed for substitution of name of

Reliance Energy Limited with the agreement of learned counsel for the

parties, the name of Adani Electricity Mumbai Limited is substituted

as respondent and as appellant in C.A. No. 415/2007 and C.A.

No.3229/2007 respectively.

31

35. Resultantly, we find there is no case made out for interference in

either of the appeals filed by TPC and BSES/REL.  The order passed

by Technical and Judicial Members of APTEL is hereby upheld.   The

amount  which  is  payable to  Reliance  Energy  Limited,  deposited  or

secured by way of bank guarantee by TPC as per order dated

07.02.2007 along with interest lying with the Registrar of this Court as

per agreement of the Counsel for Reliance Energy Limited and Adani

Electricity Mumbai Limited be paid to Adani Electricity Mumbai

Limited.  The  appeals  being  devoid  of  merits  are  hereby  dismissed.

Consequently, IA Nos.59365/2019 & 59374/2019 in CA No.415/2007

and IA Nos.59356/2019  & 59380/2019 in CA  No.3229/2007 are

disposed of. Any other IA, if any, also stands disposed of. No costs.

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

.……......................J.     (S. Abdul Nazeer)    

New Delhi; May 02, 2019