1  

REPORTABLE  

SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION  

CIVIL APPEAL NO.4569 OF 2003  

TRANSMISSION CORPORATION OF  

ANDHRA PRADESH LIMITED          ..APPELLANT  

VERSUS  

M/S RAIN CALCINING LIMITED & OTHERS      ..RESPONDENTS  

WITH  

CIVIL APPEAL NO.5085 OF 2003  

CIVIL APPEAL NO.5084 OF 2003  

CIVIL APPEAL NO.5052 OF 2003  

CIVIL APPEAL NO.5083 OF 2003  

CIVIL APPEAL NO.5079 OF 2003  

CIVIL APPEAL NO.5057 OF 2003  

CIVIL APPEAL NO.5053 OF 2003  

CIVIL APPEAL NO.5066 OF 2003  

CIVIL APPEAL NO.5064 OF 2003  

CIVIL APPEAL NO.5068 OF 2003  

CIVIL APPEAL NO.5054 OF 2003  

CIVIL APPEAL NO.5071 OF 2003  

CIVIL APPEAL NO.5056 OF 2003  

CIVIL APPEAL NO.5077 OF 2003  

CIVIL APPEAL NO.5063 OF 2003  

CIVIL APPEAL NO.5055 OF 2003  

CIVIL APPEAL NO.5080 OF 2003  

CIVIL APPEAL NO.5062 OF 2003  

CIVIL APPEAL NO.5073 OF 2003  

CIVIL APPEAL NO.5069 OF 2003  

CIVIL APPEAL NO.5081 OF 2003  

CIVIL APPEAL NO.5076 OF 2003  

CIVIL APPEAL NO.5059 OF 2003  

CIVIL APPEAL NO.5065 OF 2003  

CIVIL APPEAL NO.5067 OF 2003  

CIVIL APPEAL NO.5075 OF 2003  

CIVIL APPEAL NO.5058 OF 2003  

CIVIL APPEAL NO.5082 OF 2003  

CIVIL APPEAL NO.5061 OF 2003

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CIVIL APPEAL NO.5072 OF 2003  

CIVIL APPEAL NO.5070 OF 2003  

CIVIL APPEAL NO.5074 OF 2003  

CIVIL APPEAL NO.5060 OF 2003  

CIVIL APPEAL NO.5078 OF 2003  

CIVIL APPEAL NO.7093 OF 2003  

CIVIL APPEAL NO.7103 OF 2003  

CIVIL APPEAL NO.7085 OF 2003  

CIVIL APPEAL NO.7086 OF 2003  

CIVIL APPEAL NO.7080 OF 2003  

CIVIL APPEAL NO.7090 OF 2003  

CIVIL APPEAL NO.7079 OF 2003  

CIVIL APPEAL NO.7084 OF 2003  

CIVIL APPEAL NO.7088 OF 2003  

CIVIL APPEAL NO.7104 OF 2003  

CIVIL APPEAL NO.7091 OF 2003  

CIVIL APPEAL NO.7089 OF 2003  

CIVIL APPEAL NO.7041 OF 2003  

CIVIL APPEAL NO.7083 OF 2003  

CIVIL APPEAL NO.7092 OF 2003  

CIVIL APPEAL NO.7087 OF 2003  

CIVIL APPEAL NO.7042 OF 2003  

CIVIL APPEAL NO.7102 OF 2003 &  

CIVIL APPEAL NOS.7043-7078 OF 2003  

AND  

CIVIL APPEAL NO.8969 OF 2003  

WITH  

CIVIL APPEAL NO. 8970 OF 2003  

CIVIL APPEAL NO. 8971 OF 2003  

CIVIL APPEAL NO. 8974 OF 2003  

CIVIL APPEAL NO. 8978 OF 2003  

CIVIL APPEAL NO. 8972 OF 2003  

CIVIL APPEAL NO. 8976 OF 2003  

CIVIL APPEAL NO. 8975 OF 2003  

CIVIL APPEAL NO. 8977 OF 2003  

CIVIL APPEAL NOS. 10125-10132 OF 2003  

CIVIL APPEAL NO. 1945 OF 2004  

CIVIL APPEAL NOS. 1946-1947 OF 2004  

AND  

CIVIL APPEAL NOS.7029-7062 OF 2008  

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J U D G M E N T  

ARUN MISHRA, J.  

1. There are three batches of appeals; most of the questions are  

common, which arise for consideration.  In the first batch of appeals, the  

question arises for consideration concerning the levy of wheeling charges  

by the appellant – Transmission Corporation of Andhra Pradesh Limited  

(APTRANSCO).  In the second batch of appeals, the question arises for  

consideration regarding the competence of the APTRANSCO to levy the  

grid support charges.  Admittedly, the outcome of the third batch of  

appeals depends on the outcome of the first batch of appeals. In the third  

batch of appeals, the question arises for consideration as to continuance  

of incentives in respect of wheeling charges granted as per Government  

Order issued during the year 1997-1998, had to be continued, and  

whether Commission had the power to review them.    

2. After independence, the electricity generation, distribution and  

transmission, and other related activities were undertaken by the Andhra  

Pradesh State Electricity Board (APSEB).  After the amendment in 1991  

in Electricity (Supply) Act, 1948 (Act of 1948), when liberalization was  

made in the electricity sector, then APSEB entered into agreements with  

Private Generators.    

 3. The Andhra Pradesh State Legislature enacted Andhra Pradesh  

Electricity Reforms Act, 1998 (the Reforms Act, 1998).  The Governor

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reserved the same for the assent of the President under Article 254 of the  

Constitution.  The Andhra Pradesh Electricity Regulatory Commission  

(APERC) was constituted under the Reforms Act, 1998 on 31.3.1999,  

which started functioning with effect from 3.4.1999.  

 4. Under the provisions of the said Act, the transmission and  

distribution and generation were separated, and APTRANSCO came to be  

established.  The Act received the Presidential assent on 21.10.1998 and  

was published in the Official Gazette on 29.10.1998.  On 1.2.1999, the  

Reforms Act, 1998, was brought into force, and APTRANSCO succeeded  

APSEB in regards to transmission, distribution, and supply of electricity.  

 5. The APERC granted License No.1/2000 to APTRANSCO on  

31.1.2000, to deal with transmission and bulk supply of electricity.   

License No.2/2000 was given to APDISCOMS for carrying out  

distribution function in terms of Section 15 of the Reforms Act, 1998.   

The licenses granted were subject to the terms and conditions, which  

required the Licensees to file ARR Proposals to be submitted every year  

before 31st December, based on the expected revenue calculation and  

tariffs.  Subsequently, four DISCOMS were created on 31.3.2000, which  

were enjoined with the function of the distribution of electricity.  The  

transmission of electricity is carried out over long distances at extra-high  

voltage levels from generating stations to urban load centres, while the  

distribution of electricity is carried out at below 33 KV, 11 KV level.

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6. The infrastructure, i.e., transmission lines, State grid, equipment,  

systems of APSEB, came to be held by APTRANSCO.  The higher voltage  

systems were vested in the APTRANSCO and the lower voltage of  

APDISCOMs.  

 7. The APTRANSCO filed Aggregate Revenue Requirement (ARR) for  

the year 2001-2002, before the Commission set up under the Reforms  

Act, 1998.  On 30.12.2000, each of the Distribution Companies  

(DISCOMs), along with APTRANSCO, filed their respective joint ARR  

applications.  On 17.1.2001, the APTRANSCO filed Tariff Proposal for the  

year 2001-02, for its transmission and bulk supply business and jointly  

with each DISCOM proposal for distribution and rental supply business.   

The Tariff Proposal also contained a proposal for levy of wheeling charges  

on persons using the electricity system of licensee in the State.  The  

APTRANSCO proposed a wheeling charge of Rs.1 per Kwh for energy it  

transmitted through its network.  On 24.3.2001, the Commission  

decided to consider the issue relating to determination of wheeling  

charges and directed APTRANSCO to file necessary applications and  

information in this regard.  On 24.3.2002, the Commission determined  

that the wheeling charges for the year 2002-2003 effective from 1.4.2002  

would be Paise 50 per Kwh for energy it transmitted through its network.   

Besides, wheeling charges of 28.4 percent of energy input by the project  

developer into the licensee’s grid being the system loss was also to be

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factored.  The order of the Commission was questioned before the High  

Court and the High Court by the impugned judgment and order dated  

18.4.2003, allowed the appeal, setting aside the order dated 24.3.2002 of  

the Commission.  Hence, the APTRANSCO and APERC are in appeals.  

 8. In the case set up by APTRANSCO, it is stated that the reason for  

carrying out bulk transmission of power at extra high voltages, is for  

reduction of the Technical Losses (T&D Losses or Aggregate Technical  

Losses) in the transmission system, which are inevitable, which means  

that at lower voltage (in distribution), the AT Losses are more for the  

same quantum of power transmitted.  The Technical Losses depend on  

the distance/length of the transmission lines, i.e., directly proportional to  

the distance of transmission.  Apart from that, there are commercial  

losses in low tension or distribution network side due to pilferage/theft of  

power inter alia by direct tapping, meter tampering, which also  

contribute to financial losses to DISCOMs.  Thus, total losses are  

designated as AT&C Losses.  

9. It is also the case set up by the APTRANSCO that HT (High Tension  

or High Voltage) consumers are industrial consumers connected to the  

grid at various high voltage level and avail the power drawn from the  

utility as well as from other sources by way of wheeling, now called as  

Open Access.  

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10. Before Reforms Act, 1998, the wheeling charges were governed by  

the respective Government Orders, for example, the G.O. MS No.93 dated  

18.11.1997 as amended by G.O. MS No.112 dated 22.12.1998, dealt with  

wheeling charges for non-conventional energy sources, such as Biomass,  

Bagasse, Mini-Hydel, Wind, Solar. The G.O. MS No.116 dated 5.8.1995  

as amended by G.O. MS No.152 dated 29.11.1995, dealt with wheeling  

charges applicable for Mini-Power Plants set up by private sector and  

under Memorandum of Understandings signed with AP Gas Power  

Corporation (APGPCL) for wheeling of power to its captive consumers it  

specified the wheeling charges to them for the applied voltage level, i.e.,  

132 KV, 33 KV, 11 KV, etc., and also the distance of transmission.  

11. The incentive/concessional wheeling charges allowed in  

Government Orders mentioned above were to be reviewed by the State  

Government in the year 2000, but by the time the APERC was  

constituted, which was vested with the function of tariff determination in  

terms of Section 26 of the Reforms Act, 1998.  

 12. In the second batch of appeals, the question involves as to grid  

support charges, which are levied on the HT consumers, who have rated  

Contracted Maximum Demand (CMD) and Captive Power Plant (CPP)  

capacity to meet their demands.  When private Generators came into  

existence, these consumers derated CMD from the APTRANSCO network  

and obtained the remaining demand from private Generators (these

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Generators are respondents in wheeling charges batches).  After such  

deration, the service of grid support became a component for which  

APTRANSCO was required to be compensated as CPPs running in  

parallel obtains benefits to keep the system and grid up and running, it  

is important to invest and maintain the system periodically and the grid  

support cannot be given free to a nexus of third party private Generators  

and HT consumer.  The significant benefit which a CPP gets is in case of  

outage of CPP generator power is drawn from the grid, and in case of  

tripping, the entire load is transferred on to the grid.  Such disturbance  

is catered by way of grid support and equipment installed by the  

APTRANSCO/DISCOM and involves investment through public  

exchequer.  

13. The grid support charges are not governed by any Government  

Order or Incentive Scheme of the Government prior to Reforms Act,  

1998, or after that.  The grid code is the basis for the levy of the grid  

support charges, which came to be approved by APERC on 26.5.2001.   

By way of levy of grid support charges, there is no restriction whatsoever  

on the installation of additional CPPs.  The additional CPPs put an  

additional load on the grid, and corresponding charges are paid towards  

grid support.  There is no embargo for setting up additional new CPPs.   

In case of expansion of industry, additional duty for additional units  

have to be paid as additional CPPs tantamount to additional burden on

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grid and which further obtains additional service from the grid, thus grid  

support charge is levied after taking into account all sorts of supply  

agreements from DISCOMs/Third Party Generators.  The grid acts as a  

cushion/big buffer when the generation from CPP is idled due to sudden  

outage in the load, thereby mitigating the forced tripping of the CPP, and  

this support is known as grid support and CPPs running in parallel are  

known as running with Parallel Grid Support.  

 14. The Commission vide order dated 8.2.2002, held that grid support  

charges would be payable at the rate of 50 percent of prevailing demand  

charges on the differential of CPP capacity and CMD.  The agreement  

entered into by the State Electricity Board provided in clauses 9 and 10  

that the Board could have fixed the grid support charges unilaterally as  

agreed by these HT consumers. However, when the Reforms Act, 1998  

came into existence, APTRANSCO in the interest of consumers applied to  

the Commission, and after hearing the objections, the Commission has  

passed the order on 8.2.2002.  The High Court has set aside the order  

passed by the Commission.  Hence, the appeals have been preferred by  

the APTRANSCO and APERC.   

 15. The third batch of appeals is concerned with the tariff orders  

passed in the years 2004-05, 2005-06, and 2006-09, which have been  

challenged by Non-Conventional Energy Developers and Gas Based  

Developers.  The APTRANSCO held the bulk supply license until 2005,

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and after that, APDISCOMs became the bulk suppliers.  The APERC  

passed the orders mentioned above in exercise of powers conferred under  

Section 62 of the Electricity Act, 2003, and the appeals were preferred  

before the APTEL under Section 111 of the Electricity Act, 2003.  The  

issue is limited whether incentive as per the Government Orders of  

18.11.1997 and 22.12.1998 to be continued in perpetuity, or the  

Commission could have reviewed them.    

 16. The APERC was constituted under the Reforms Act, 1998, and  

came to be treated as State Regulatory Commission under the proviso to  

Section 82 of the Electricity Act, 2003.  The functions of the State  

Commission are provided in Section 86 of the Electricity Act, 2003.  One  

of them is to facilitate the intra-State transmission and wheeling of  

electricity read with Section 62 of the Act, which inter alia provides that  

the Appropriate Commission shall determine the tariff in accordance with  

the provisions of the Act for transmission of the electricity under Section  

62(1)(b) and wheeling of electricity under Section 62(1)(c).  

 17. In the first batch of appeals, it has been pointed by the  

APTRANSCO that there are six categories of Generators.  

(a) In the first category, eight Generators have pre-existing agreements  

entered into before the Reforms Act, 1998 as APERC was not in  

existence, and, in these agreements, there was no clause providing tariff  

fixation by APERC.

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(b) Categories 2 to 5 are of those Generators who have agreements  

either post Reforms Act, 1998, or their agreements have been amended  

and restated in terms of Reforms Act, 1998.  Thus, they are indisputably  

governed by the Reforms Act, 1998, and tariff fixation is in accordance  

therewith.   

(c) The last category is the ones who do not have any agreement of  

wheeling charges with APSEB because they are scheduled consumers of  

Generators/Developers, each of them having an HT supply agreement  

with APSEB.  The Generators/Developers are either Gas Based, Coke  

Based, Mini Hydel Power Plants, Non-Conventional Plants.  

 18. The Government Order MS No.116 dated 5.8.1995, dealt with  

fixation of wheeling charges.  The permission was granted by the said  

Government Order to set up a mini-power plant.  Clause 4 provided that  

the pricing arrangement is subject to fixation of tariff by the Regulatory  

Commission ultimately.  Clause 5 provided that any duties or taxes that  

may be imposed by the Government or by the State Electricity Board,  

shall automatically apply to the Scheme.  As per clause 8, the Scheme  

shall operate within the framework of the Electricity (Supply) Act, 1948,  

and the Rules made thereunder.  The said Government Order dated  

5.8.1995 was amended vide Government Order MS No.152 dated  

29.11.1995.  Para 4 of the Government Order dated 29.11.1995 provided  

that wheeling charges may be collected from the developers in kind and

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as a percentage of the energy delivered at the interconnection point.  The  

proposed rates of wheeling charges were also specified.  

19. The Government Order MS No.93 dated 18.11.1997, dealt with  

wheeling charges for non-conventional energy sources.  The Government  

allowed uniform incentives to all projects based on the renewal source of  

energy viz. Wind, Biomass, Co-generation, Municipal Waste, and Mini  

Hydel.    

 20.  On 22.12.1998, the Government amended Order MS No.93 dated  

18.11.1997.  It was decided that the incentives scheme shall be watched  

for 3 years, and after that State Electricity Board shall come up with  

suitable proposals concerning the continuance of the incentives.  

21. The Commission, while determining the wheeling charges,  

considered the assessment of the network charges and transmission loss  

and various other factors included in the agreement in the post Reforms  

Act, 1998 and pre-Reforms Act, 1998 scenario.  The High Court has held  

that the State Commission constituted under the Reforms Act, 1998, has  

no power to levy charges for wheeling the energy generated by the  

Generating Companies to their consumers.  It has also been held that  

under the Reforms Act, 1998, the powers of the Commission under the  

Reforms Act, 1998 are more like judicial function exercisable by a Civil  

Court, but not legislative.  The High Court has also held that wheeling

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charges are irrational, illogical, and suffers from serious infirmities.  It  

has also been held that after the expiry of the term of the agreement, the  

Government alone is competent to fix wheeling charges since it is in the  

realm of the policy direction.  The agreements entered into by the State  

Electricity Board are statutory agreements, and they are binding.  The  

Commission has no power to revise the wheeling charges under the guise  

of fixing tariff under Section 26 of the Reforms Act, 1998.  The wheeling  

charges is a matter of policy and not for the Commission to fix.  The  

wheeling charges do not fall under Section 26 of the Reforms Act, 1998.   

It is not proper to revise the wheeling charges like a tariff for the sale of  

energy.  The State Government, as well as the State Electricity Board, are  

bound by the principles of promissory estoppel.  The joint application  

filed by APTRANSCO and DISCOMs was not maintainable.  Any  

alteration or modification can be made after due opportunity of hearing  

to the affected persons.  Since Government Companies were giving  

subsidy to farmers of the State, it was not proper to impose wheeling  

charges.  

IN RE: COMPETENCE OF APERC TO DETERMINE WHEELING  

CHARGES  

22. The first question for consideration is the competency of the APERC  

to levy wheeling charges under the Reforms Act, 1998.  

 23. The Reforms Act, 1998 has been enacted with a view to provide for  

the constitution of an Electricity Regulatory Commission, restructuring

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of the electricity industry, rationalization of generation, transmission,  

distribution and supply of the electricity avenues for participation of  

private sector, taking measures conducive to the development and  

management of the electricity industry in an efficient, economic and  

competitive manner and for matters connected therewith and incidental  

thereto.  Section 2(a) defines “area of transmission” thus:  

“2.(a)  “area of transmission” means the area within which the  holder of a transmission licence is for the time being authorised by  

licence to transmit energy in accordance with the conditions  prescribed;”  

 “Transmission licence” has been defined under Section 2(o).   

“Licence," as defined in Section 2(d), means a licence granted under  

Section 15.  The definition of “transmit” has been given under Section  

2(p).  Sections 2(d) and 2(p) are extracted hereunder:  

“2.(d)  “licence” means a licence granted under section 15 of this  Act;”    2.(p)  “transmit” in relation to electricity, means the transportation  or transmission of electricity by means of a system operated or  controlled by a licensee which consists, wholly or mainly, of extra  high voltage and extra high tension lines and electrical plant and is  used for transforming and for conveying and/or transferring  electricity from a generating station to a sub-station, from one  generating station to another or from one sub-station to another or  otherwise from one place to another;”  

 The APERC is constituted under Section 3.  Section 5 deals with  

the conditions of appointment as a member of the Commission.  As per  

Section 5(3)(a), persons who are considered for appointment as members  

must have experience of generation, transmission, distribution or supply  

of electricity, manufacture, sale or supply of any fuel for the generation of

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electricity and other matters specified therein.  The proceedings, powers,  

and functions of the Commission are dealt with in Part-III of the Act.   

Section 10 deals with the powers of the Commission for the inquiry.  The  

Commission has the power vested in Civil Court under CPC while trying  

a suit in respect of matters as specified in Section 10(1) and other  

provisions of Section 10.  Section 11 deals with the functions of the  

Commission.  The provisions of Section 11(1) are inclusive, and certain  

functions have been specified in clauses (a) to (l) of sub-Section 1 of  

Section 11, which are as under:  

“11. (1) Subject to the provisions of this Act, the Commission shall  be responsible to discharge amongst others, the following functions,  namely:-    (a) to aid and advise, in matters concerning electricity generation,  transmission, distribution and supply in the State;     (b) to regulate the working of the licensees and to promote their  working in an efficient, economical and equitable manner including  laying down standards of performance for the licensees in regard to  services to consumers;    (c) to issue licences in accordance with the provisions of this Act  and determine the conditions to be included in the licences;    (d) to promote efficiency, economy, and safety in the use of the  electricity in the State including and in particular in regard to  quality, continuity, and reliability of service and enable to meet all  such reasonable demands for electricity;    (e) to regulate the purchase, distribution, supply and utilisation of  

electricity, the quality of service, the tariff and charges payable  keeping in view both the interest of the consumer as well as the  consideration that the supply and distribution cannot be  maintained unless the charges for the electricity supplied are  adequately levied and duly collected;    (f) to promote competitiveness and progressively involve the  participation of private sector, while ensuring fair deal to the  customers;    (g) to collect data and forecast on the demand and use of electricity

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and to require the licensees to collect such data and forecast;    (h) to require licensees to formulate perspective plans and schemes  in co-ordination with others for the promotion of generation,  transmission, distribution, and supply of electricity;    (i) to regulate the assets, properties, and interest in properties  concerning or related to the electricity industry in the State;    (j) to lay down a uniform system of accounts among the licensees;    (k) to regulate the working of licensees and promote their working in  an efficient economical and equitable manner; and     (l) to undertake all incidental or ancillary things.”  

(emphasis supplied)    

24. Section 12 of the Reform Act, 1998 deals with the general powers of  

the State Government regarding power to issue policy directions on  

matters concerning electricity of the State, including overall planning and  

coordination.  Section 12 is extracted hereunder:  

“12. (1) The State Government shall have the power to issue policy  directions on matters concerning electricity in the State including  the overall planning and co-ordination. All policy directions shall be  issued by the State Government consistent with the objects sought  to be achieved by this Act and accordingly shall not adversely affect  or interfere with the functions and powers of the Commission  including but not limited to determination of the structure of tariffs  for supply of electricity to various classes of consumers:    (2) If any dispute arises between the Commission and the State  Government as to whether or not a question is a matter of policy or  whether a policy direction issued by the State Government  adversely affects or interferes with the exercise of the functions of  the Commission, the same shall be referred by the State  Government to a retired judge of the Supreme Court in consultation  with the Chief Justice of the Supreme Court whose decision thereon  shall be final and binding.    (3) The State Government shall be entitled to issue policy directions  concerning the subsidies to be allowed for supply of electricity to  any class or classes of persons or in respect of any area in addition  to the subsidies permitted by the Commission while regulating and  approving the tariff structure provided that the State Government  shall contribute the amount to compensate such concerned body or  unit affected by the grant of the subsidies by the State Government  to the extent of the subsidies granted. The Commission shall

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determine the amounts and the terms and conditions and time  frame on which such amounts are to be paid by the State  Government.    (4) The State Government shall consult the Commission in relation  to any proposed legislation or rules concerning any policy direction  and shall duly take into account the recommendation by the  Commission on all such matters.”    

25. The Constitution and functions of APTRANSCO are provided in  

Section 13.  It is the primary function of APTRANSCO to determine the  

electricity requirements.  APTRANSCO shall own the extra high voltage  

transmission system.  The licence is required for transmission and  

supply as per Section 14.  Grant of licences by Commission is dealt with  

in Section 15.  Licensee can transmit electricity in a specified area of  

transmission and supply the electricity in a specified area of supply,  

including bulk supply to licensees or any person.  Section 15(1) of the  

Reforms Act, 1998 is extracted hereunder:  

“15. (1) The Commission may on an application made in such form  and on payment of such fee, as may be prescribed, grant a licence  authorising any person to,-    (a) transmit electricity in a specified area of transmission; or    (b) supply electricity in a specified area of supply including bulk  supply to licensees or any person.”  

 26. Reorganization of State Electricity Board is dealt with in Part-VII of  

the Reforms Act, 1998.  Section 26 deals with the licensee’s revenues  

and tariffs.  Section 26(1) provides that each licence under the Act has to  

observe methodologies and procedures specified by the Commission from  

time to time in calculating the expected revenue from charges which it is  

permitted to recover according to the terms of its licence and in designing

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tariffs to collect those revenues.  As per Section 26(2)(a), the Commission  

shall be bound by the parameters provided in the Sixth Schedule to the  

Electricity (Supply) Act, 1948 read with Sections 57 and 57-A of the said  

Act and consider various factors as enumerated in sub-Section 26(2)(b)  

and as provided in Section 26(2)(c) the interest of the consumers.  In case  

it departs from the specified parameters in the Sixth Schedule to the  

Electricity (Supply) Act, 1948, while determining the licensees’ revenue  

and tariffs, it shall record the reasons thereof in writing.  Section 26 is  

extracted hereunder:  

“26. (1) The holder of each licence granted under this Act shall  observe the methodologies and procedures specified by the  Commission from time to time in calculating the expected revenue  from charges which it is permitted to recover pursuant to the terms  of its licence and in designing tariffs to collect those revenues.    (2) The Commission shall subject to the provisions of sub-section (3)  be entitled to prescribe the terms and conditions for the  determination of the licensee’s revenue and tariffs by regulations  duly published in the Official Gazette and in such other manner as  the Commission considers appropriate:   

 Provided that in doing so the Commission shall be bound by the  

following parameters:--    (a) the financial principles and their applications provided in the  

Sixth Schedule to the Electricity (Supply) Act, 1948 read with  sections 57 and 57-A of the said Act;  

 (b) the factors which would encourage efficiency, economic use of  

the resources, good performance, optimum investments  

performance of licence conditions and other matters which the  Commission considers appropriate keeping in view the salient  objects and purposes of the provisions of this Act; and  

  (c) the interest of the consumers.    (3) Where the Commission, departs from factors specified in the  

Sixth Schedule of the Electricity (Supply) Act, 1948 while  determining the licensees' revenues and tariffs, it shall record the  reasons therefor in writing:  

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(4) Any methodology or procedure specified by the Commission  under sub-section (1), (2), and (3) above shall be to ensure that the  objectives and purposes of the Act are duly achieved.  

 (5) Every licensee shall provide to the Commission in a format as  

specified by the Commission at least 3 months before the ensuing  financial year full details of its calculation for that financial year of  the expected aggregate revenue from charges which it believes it is  permitted to recover pursuant to the terms of its licence and  thereafter it shall furnish such further information as the  Commission may reasonably require to assess the licensee's  calculation. Within 90 days of the date on which the licensee has  furnished all the information that the Commission requires, the  Commission shall notify the licensee either—  

 (a) that it accepts the licensee's tariff proposals and revenue  

calculations; or    (b) that it does not consider the licensee's tariff proposals and  

revenue calculations to be in accordance with the methodology or  procedure in its licence and such notice to the licensee shall,--  

 (i) specify fully the reasons why the Commission considers that  

the licensee's calculation does not comply with the methodology or  procedures specified in its licence or is in any way incorrect, and  

 (ii) propose a modification or an alternative calculation of the  

expected revenue from charges, which the licensee shall accept.    (6) Each holder of a supply licence shall publish in the daily  

newspaper having circulation in the area of supply and make  available to the public on request the tariff or tariffs for the supply  of electricity within its licensed area and such tariff or tariffs shall  take effect only after seven days from the date of such publication.  

 (7) Any tariff implemented under this section, -    (a) shall not show undue preference to any consumer of  

electricity, but may differentiate according to the consumer's load  factor or power factor, the consumer's total consumption of energy  during any specified period, or the time at which supply is required;  or paying capacity of category of consumers and need for cross- subsidisation;  

(b) shall be just and reasonable and be such as to promote  economic efficiency in the supply and consumption of electricity;  and  

(c) shall satisfy all other relevant provisions of this Act and the  conditions of the relevant licence.  

 (8) The Commission also shall endeavour to fix tariff in such a  

manner that, as far as possible, similarly placed consumers in  different areas pay similar tariff.

20  

 (9) No tariff or part of any tariff required by sub-section (6) may  

be amended more frequently than once in any financial year  ordinarily except in respect of any changes expressly permitted  under the terms of any fuel surcharge formula prescribed by  regulations. At least three months before the proposed date for  implementation of any tariff or an amendment to a tariff the  licensee shall provide details of the proposed tariff or amendment to  a tariff to the Commission, together with such further information  as the Commission may require to determine whether the tariff or  amended tariff would satisfy the provisions of sub-section (7). If the  Commission considers that the proposed tariff or amended tariff of  a licensee does not satisfy any of the provisions of sub-section (7), it  shall, within 60 days of receipt of all the information which it  required, and after consultation with the Commission Advisory  Committee and the licensee, notify the licensee that the proposed  

tariff or amended tariff is unacceptable to the Commission, and it  shall provide to the licensee an alternative tariff or amended tariff  which shall be implemented by the licensee. The licensee shall not  amend any tariff unless the amendment has been approved by the  Commission.  

 (10) Notwithstanding anything contained in sections 57-A and  

57-B of the Electricity (Supply) Act, 1948, no Rating Committee  shall be constituted after the date of this enactment and the  Commission shall secure that licensees comply with the provisions  of their licences regarding their charges for the sale of electricity  (both wholesale and retail) and for the connection to and use of  their assets or systems in accordance with the provisions of this  Act.  

 Explanation:-    In this section,-    (a) "the expected revenue from charges" means the total revenue  

which a licensee is expected to recover from charges for the level of  forecast supply used in the determination under sub-section (5)  above in any financial year in respect of goods or services supplied  to customers pursuant to a licensed activity; and  

 (b) “tariff” means a schedule of standard prices or charges for  

specified services which are applicable to all such specified services  

provided to the type or types of customers specified in the tariff  notification.”  

 Explanation attached to Section 26 makes it clear that tariff means  

a schedule of standard prices or charges for specified services that are

21  

applicable to all such specified services provided to the type or types of  

customers specified in the tariff notification.  

27. It is submitted on behalf of the appellants – APTRANSCO,  

Commission that transmission is regulated under the Reforms Act, 1998.   

The decision of the High Court is contrary to the provisions contained in  

Sections 11 and 13 and other provisions of Reforms Act, 1998.  The  

Commission has the power to determine the tariff.  Under the Reforms  

Act, 1998, certain powers are a combination of adjudicatory and  

inquisitorial, and some are legislative.   

 28.  The tariff fixation is generally a legislative function as held in  

Ashok Soap Factory v. Municipal Corporation of Delhi, (1993) 2 SCC 37   

thus:  

“29. Apart from that the fixation of tariff is a legislative function  and the only challenge to the fixation of such levy can be on the  ground of unreasonableness or arbitrariness and not on  demonstrative grounds in the sense that the reasons for the levy of  charge must be disclosed in the order imposing the levy or disclosed  to the court, so long as it is based on objective criteria.”  

With respect to tariff fixation as legislative function reference has  

also been made to decisions of this Court, in Pawan Alloys & Casting Pvt.  

Ltd., Meerut v. U.P. State Electricity Board, (1997) 7 SCC 251, Oil and  

Natural Gas Commission v. Association of Natural Gas Consuming  

Industries of Gujarat, (1990) Supp. SCC 397, Rohtas Industries Ltd. v.  

Chairman, Bihar State Electricity Board, (1984) Supp. SCC 161.  

22  

29. The Commission exercises the powers of a regulator.  This Court  

has considered the concept of regulatory power in various decisions,  

namely, K. Ramanathan v. State of Tamil Nadu, AIR 1985 SC 660 =  

(1985) 2 SCC 116; V.S. Rice and Oil Mills v. State of Andhra Pradesh, AIR  

1964 SC 1781; Deepak Theatre, Dhuri v. State of Punjab, AIR 1992 SC  

1519; and D.K. Trivedi & Sons v. State of Gujarat, AIR 1986 SC 1323.   

This Court has also held in the decisions mentioned above that  

regulatory powers are extensive, and they include whatever needs to be  

done for achieving the objects and purposes of the Act.  

 30. It is further submitted on behalf of APTRANSCO that cost is  

involved in the maintenance, operation, upgradation, and transmission  

of electricity through the transmission and distribution system and  

network, for which infrastructure has to be created.  Losses take place  

during transmission, which has to be accounted for, and transition loss  

is the loss of the system and has to be borne by the respondents.   

 31. Whereas, respondents submitted that in the case of drawl of the  

contract before 1998, APERC could not have gone into as it did not have  

jurisdiction in those cases.  Even otherwise, where the agreements have  

been amended or entered after the Reforms Act, 1998, the Commission  

has no power to fix the wheeling charges as that is not explicitly provided  

under the provisions of the Reforms Act, 1998.    

23  

32. It was submitted on behalf of the licensees that proviso to Section  

82(1) of the Electricity Act, 2003 provides for State Commission thus:  

“82. Constitution of State Commission.- (1) Every State  Government shall, within six months from the appointed date, by  notification, constitute for the purposes of this Act, a Commission  for the State to be known as the (name of the State) Electricity  Regulatory Commission:    

Provided that the State Electricity Regulatory Commission,  established by a State Government under section 17 of the  Electricity Regulatory Commissions Act, 1998 (14 of 1998) and the  enactments specified in the Schedule, and functioning as such  immediately before the appointed date shall be the State  

Commission for the purposes of this Act and the Chairperson,  Members, Secretary, and officers and other employees thereof shall  continue to hold office, on the same terms and conditions on which  they were appointed under those Acts:  

 Provided further that the Chairperson and other Members of the  

State Commission appointed, before the commencement of this Act,  under the Electricity Regulatory Commissions Act, 1998 (14 of  1998) or under the enactments specified in the Schedule, may, on  the recommendations of the Selection Committee constituted under  sub-section (1) of section 85, be allowed to opt for the terms and  conditions under this Act by the concerned State Government.”  

On the strength of the provisions mentioned above, it was  

submitted that actions of the State Commission, as notified under the  

Electricity Regulatory Commission Act, 1998 (for short, “the Central  

Act”), would be saved to the extent they are not inconsistent with the  

provisions of the Electricity Act, 2003.  Since APERC is the not State  

Commission under the Central Act, it cannot be held to possess the  

jurisdiction to levy wheeling charges.  It is the State Commission which  

has the relevant authority under the Electricity Act, 2003.  Section  

22(1)(b) of the Central Act, specifically provide that State Commission is  

required to determine the tariff payable for the use of the transmission

24  

facilities in the manner provided in Section 29. Section 29(2) requires  

that the State Commission shall determine by regulation the terms and  

conditions for the fixation of the tariff.  Thus, the emphasis has been laid  

on the aspect that APERC’s order is not at par with a regulation which is  

necessary as per the Central Act.  The APERC did not possess  

jurisdiction to levy wheeling charges and in any event, not by way of  

passing an order in the absence of regulation.  The APERC has erred in  

saddling the generators with the costs of distribution since the  

generators supplying electricity to scheduled consumers do not utilize  

the distribution networks.  Therefore, without prejudice to the  

submission that the wheeling charges under the agreement could not be  

disturbed, the determination of wheeling charges qua electricity wheeled  

by generators of electricity for transmission to their scheduled  

consumers should only be based on the transmission charges.   

Transmission loss is also amounted to 8 percent out of 28.4 percent  

system losses, the rest being the distribution losses.  In Section 11(e) of  

the Reforms Act, 1998 the words “generation” and “transmission” are  

conspicuously missing.  Whereas Section 22(1)(b) of the Electricity  

Regulatory Commissions Act, 1998, speaks explicitly of the  

determination of tariff payable for the use of transmission facilities by the  

State Commission to be constituted under the Central Act.  There is no  

such provision in the Reforms Act, 1998.  

25  

 33. According to licensees under the Central Act, the State Commission  

is vested with the power to determine the tariff payable for the use of  

transmission facilities.  Reliance has been placed on PTC India Limited v.  

Central Electricity Regulatory Commission, (2010) 4 SCC 603, wherein  

this Court has laid down in the context of determination of tariff under  

the Electricity Act, 2003, that only Regulations made under the said Act  

could override the existing contractual relationship, which cannot be  

done only on the basis of an order of the Commission.  It is contended  

that till date no regulations as required under Section 54(k) of the  

Reforms Act, 1998 have been framed, though Schedule V provided  

parameters of fixation of the wheeling charges under Section 43 of the  

Act of 1948, this Section had been rendered inapplicable as per Section  

56(iii)(vi) of the Reforms Act, 1998.  The guiding principles of a general or  

special order are absent in the Reforms Act, 1998.  Under Section  

15(4)(a) read with Section 15(5) of the Reforms Act, 1998, the tariff would  

have to be determined by mutual agreement, not by way of tariff order.   

The concluded agreements cannot be covered by the expression “enter  

into” used in Section 24(4) of the Reforms Act, 1998.     

 34. In our opinion, the Commission constituted under the Reforms Act,  

1998, has the power to determine the wheeling charges.  We are not at  

all impressed by the submission raised by learned Senior Counsel  

appearing on behalf of respondents-Companies.   The State Commission

26  

constituted under the Reforms Act, 1998 has the power to deal with the  

transmission.  The expression “area of transmission” is defined under  

Section 2(a).  Grant of transmission licenses by the Commission is dealt  

with in Section 15.  The “licensee” or “licence holder” is a person holding  

a licence under Section 14 to transmit or supply energy, including  

APTRANSCO, as defined under Section 2(e).  “Transmission licence”  

means a licence granted under Section 15(1)(a), and “transmit” has also  

been defined in Section 2(p).  The Commission has extensive and  

pervasive power to deal with the transmission.   

 35. Section 11 of the Reforms Act, 1998 deals with the functions of the  

Commission.  Under Section 11(1)(a), the Commission shall aid and  

advise in matters concerning electricity generation, transmission,  

distribution and supply in the State.  Section 11(1)(b) empowers the  

Commission to regulate the working of the licensees and to promote their  

working in an efficient, economical, and equitable manner.  Thus, it has  

to act as a Regulator in the matter of working on the licensees.  The  

Commission under Section 11(1)(c) has the power to issue licences in  

accordance with the provisions of the Act.  Section 11(1)(d) also  

empowers the Commission to promote efficiency, economy, and safety in  

the use of the electricity.  Under Section 11(1)(e), the Commission has  

the power to regulate the purchase, distribution, supply, and utilization  

of electricity, the quality of service, the tariff, and charges payable.  The

27  

wheeling charges are part of tariff, and the provisions of Section 11 are  

inclusive and primarily dealing with the generation, transmission, and  

distribution.  These three processes suggest that Section 11 does include  

in its ken the power to fix the wheeling charges relating to the  

generation, transmission, distribution, supply, and utilization of  

electricity.  The distribution is not possible without transmission.   

Section 13 deals with APTRANSCO and the works connected with it.   

Licensing of transmission and supply are dealt with in Section 14 for  

transmitting electricity and supply of electricity.  It provides that license  

is necessary unless exemption is granted under the Electricity Act, 1948.    

 36. Section 26 of the Reforms Act, 1998, provides that each licensee  

holding license, granted under the Act, shall observe the methodologies  

and procedures specified by the Commission from time to time in  

calculating the expected revenue.  The Commission shall subject to the  

provisions of Section 26(3), be entitled to prescribe the terms and  

conditions for the determination of the licensee’s revenue and the tariffs  

and for that it may also frame the regulation and the Commission shall  

be bound by the parameters of financial principles and their applications  

provided in the Sixth Schedule to the Electricity Act, 1948 read with  

Sections 57 and 57-A.  Thus, the licensee is required to submit a  

calculation of annual expected aggregate revenue, and the Commission  

has the power to fix the tariff for the licensees that would include the

28  

licence for transmission also.  The Commission, while fixing the wheeling  

charges, has to act upon the settled principles as specified in the order  

and in consonance with the provisions contained in Sections 11, 15, and  

26.   

 37. The ‘tariff’ means the amount that the licensee is permitted to  

recover from its tariff in any financial year, as determined by the  

Commission in accordance with the provisions of section 26. In the terms  

of licence, ‘tariff’ has been dealt with in Clause 22.3 as under: -  

“a) The amount that the Licensee is permitted to recover from its  tariffs in any financial year is the amount that the Commission  determines in accordance with the provisions of section 26 of the  Act.    b) The Licensee shall establish a tariff as approved by the  Commission, for the Licensee’s Transmission and Bulk Supply  Business and shall calculate its charges in accordance with this  Licence, the Regulations, the orders of the Commission and other  requirements prescribed by the Commission from time to time.    c) Save as otherwise directed by the Commission, the Licensee may  publish a combined tariff for its Transmission and Bulk Supply  Business reflecting the tariff charges and the other terms and  conditions contained in the approved tariffs referred to in Paragraph  22.3(b).”       

38. As to the question of fixing of wheeling charges, the High Court has  

erred in holding that the Commission has no power to fix the wheeling  

charges.  It is the regulator for transmission, and considering the various  

provisions mentioned above, it is apparent that the Commission had the  

power to fix the wheeling charges.  

29  

39. The Andhra Pradesh Electricity Regulatory Commission (Business  

Rules of the Commission), Regulations, 1999 (for short, “the 1999  

Regulations”), have been framed in exercise of powers conferred by  

Section 9, Sub-Section 2 and Section 54, Sub-Section (2)(a) of the  

Reforms Act, 1998 and they have been amended by Regulations of 2000.   

The Regulations reflect a broad spectrum of powers and various  

functions relating to fixation of the tariff.  Regulation 45-A deals with  

expected revenue from charges and tariff proposals.  Regulation 45-B  

deals with the fuel surcharge adjustment formula.  The submission  

raised on behalf of respondents that the Commission could not fix  

wheeling charges when there was no regulation in vogue.  Be that as it  

may.  The section itself provides the guidelines apart from the fact that  

regulation also exists.  

 40. Concerning the concluded contract, it has been submitted on  

behalf of APTRANSCO that Clause 15 of the Contract dealt with  

subsequent Governmental actions. Wheeling of energy has been dealt  

with under Clause 2 of the Modified Power Wheeling and Purchase  

Agreement entered into between Andhra Pradesh State Electricity Board  

and licensee before 1998.  As per Clause 2.4, compensation for the  

provisions of Firm Wheeling Service, the Board shall be entitled to deduct  

from the wheeled energy, the applicable wheeling charges, and the  

charges shall be 15 percent to 20 percent of the wheeled energy.  

30  

Following is the Clause 2.4:  

“2.4  As compensation for the provisions of Firm Wheeling Service,  the Board shall be entitled to deduct from the wheeled Energy the  applicable wheeling charge, which charges shall be fifteen percent  (15%) of the wheeled energy for scheduled consumers receiving  power at a voltage of 132 KV and above, seventeen and one half  percent (17.55) of the Wheeled Energy for scheduled Consumers  receiving power at a voltage of less than 132 KV and greater than 1  KV and twenty percent (20%) of the Wheeled Energy for scheduled  consumers receiving power at a voltage of 11 KV.  The wheeling  charges payable under this paragraph 2.4 shall be the sole and  exclusive consideration payable to the Board for the provisions of  Firm Wheeling Service.”  

Modified Power Wheeling and Purchase Agreement had been  

entered into by the Board and the licensee in the exercise of statutory  

power, and the Commission has the power to fix the tariff and charges.  

41. A Constitution Bench of this Court in PTC India Ltd. v. Central  

Electricity Regulatory Commission (supra), has held that tariff fixation  

under the Electricity Act, 2003, is a legislative function in its character.   

Section 178 of the said Act deals with the making of Regulation by the  

Central Commission under the authority of subordinate legislation.  The  

same is broader than section 79 (1), which enumerated the regulatory  

function of the Central Commission in specified areas.  A regulation  

under section 178, as a part of the regulatory framework, intervenes and  

even overrides the existing contracts between the regulated entities since  

it casts a statutory obligation on the regulated entities to align their  

existing and future contracts with the said regulation.  

31  

This court further observed that in the absence of regulation, the  

Commission has the power of fixation of the tariff.  It is not dependent  

upon the framing of the regulation.  This Court has laid down thus:  

“25. The 2003 Act contains separate provisions for the  performance of dual functions by the Commission.  Section 61 is the enabling provision for framing of  regulations by the Central Commission; the  determination of terms and conditions of the tariff has  been left to the domain of the Regulatory Commissions  under Section 61 of the Act whereas actual tariff  determination by the Regulatory Commissions is covered  by Section 62 of the Act. This aspect is very important for  deciding the present case. Specifying the terms and  conditions for determination of tariff is an exercise which  is different and distinct from actual tariff determination  in accordance with the provisions of the Act for the  supply of electricity by a generating company to a  distribution licensee or transmission of electricity or  wheeling of electricity or retail sale of electricity.  

26. The term “tariff” is not defined in the 2003 Act. The  term “tariff” includes within its ambit not only the  fixation of rates but also the rules and regulations  relating to it. If one reads Section 61 with Section 62 of  the 2003 Act, it becomes clear that the Appropriate  Commission shall determine the actual tariff following  the provisions of the Act, including the terms and  conditions which may be specified by the appropriate  Commission under Section 61 of the said Act. Under the  2003 Act, if one reads Section 62 with Section 64, it  becomes clear that although tariff fixation like price  fixation is legislative in character, the same under the Act  is made appealable vide Section 111. These provisions,  namely, Sections 61, 62, and 64, indicate the dual nature  of functions performed by the Regulatory Commissions  viz. decision-making and specifying terms and conditions  for tariff determination.  

  *** *** ***  

55. To regulate is an exercise which is different from  making of the regulations. However, making of a  regulation under Section 178 is not a precondition to the  Central Commission taking any steps/measures under  Section 79(1). As stated, if there is a regulation, then the  measure under Section 79(1) has to be in conformity with  such regulation under Section 178. This principle flows  from various judgments of this Court, which we have  discussed hereinafter. For example, under Section

32  

79(1)(g), the Central Commission is required to levy fees  for the purpose of the 2003 Act. An order imposing  regulatory fees could be passed even in the absence of a  regulation under Section 178. If the levy is unreasonable,  it could be the subject-matter of challenge before the  appellate authority under Section 111 as the levy is  imposed by an order/decision-making process. Making of  a regulation under Section 178 is not a precondition to  passing of an order levying a regulatory fee under Section  79(1)(g). However, if there is a regulation under Section  178 in that regard then the order levying fees under  Section 79(1)(g) has to be in consonance with such  regulation.  

  *** *** ***  

57. One must keep in mind the dichotomy between the  power to make a regulation under Section 178 on the one  

hand and the various enumerated areas in Section 79(1)  in which the Central Commission is mandated to take  such measures as it deems fit to fulfil the objects of the  2003 Act. Applying this test to the present controversy, it  becomes clear that one such area enumerated in Section  79(1) refers to fixation of trading margin. Making of a  regulation in that regard is not a precondition to the  Central Commission exercising its powers to fix a trading  margin under Section 79(1)(j), however, if the Central  Commission in an appropriate case, as is the case herein,  makes a regulation fixing a cap on the trading margin  under Section 178 then whatever measures the Central  Commission takes under Section 79(1)(j) have to be in  conformity with Section 178.  

58. One must understand the reason why a regulation  has been made in the matter of capping the trading  margin under Section 178 of the Act. Instead of fixing a  trading margin (including capping) on a case-to-case  basis, the Central Commission thought it fit to make a  regulation which has a general application to the entire  trading activity which has been recognised, for the first  time, under the 2003 Act. Further, it is important to bear  in mind that making of a regulation under Section 178  became necessary because a regulation made under  Section 178 has the effect of interfering and overriding  

the existing contractual relationship between the  regulated entities. A regulation under Section 178 is in  the nature of a subordinate legislation. Such subordinate  legislation can even override the existing contracts  including power purchase agreements which have got to  be aligned with the regulations under Section 178 and  which could not have been done across the board by an  order of the Central Commission under Section 79(1)(j).  

  *** *** ***

33  

66. While deciding the nature of an order (decision) vis-à- vis a regulation under the Act, one needs to apply the test  of general application. On the making of the impugned  2006 Regulations, even the existing power purchase  agreements (PPA) had to be modified and aligned with the  said Regulations. In other words, the impugned  Regulations make an inroad into even the existing  contracts. This itself indicates the width of the power  conferred on CERC under Section 178 of the 2003 Act.  All contracts coming into existence after making of the  impugned 2006 Regulations have also to factor in the  capping of the trading margin. This itself indicates that  the impugned Regulations are in the nature of  subordinate legislation. Such regulatory intervention into  the existing contracts across the board could have been  done only by making regulations under Section 178 and  

not bypassing an order under Section 79(1)(j) of the 2003  Act. Therefore, in our view, if we keep the above  discussion in mind, it becomes clear that the word  “order” in Section 111 of the 2003 Act cannot include the  impugned 2006 Regulations made under Section 178 of  the 2003 Act.  

71. This judgment in Jagdamba Paper Industries (P) Ltd.  v. Haryana SEB, (1983) 4 SCC 508, is important from  another angle also. It indicates that regulations under  Section 79 of the 1948 Act were to be in the nature of  subordinate legislation, therefore, all contracts had to be  in terms of such regulations. In the present case also, if  one examines the terms and conditions of the licences,  power to fix trading margin is expressly contemplated by  such terms. The said judgment further held that the  Board is a statutory authority and has to act within the  framework of the 1948 Act. If the act of the Board is not  in consonance or in breach of some statutory provisions  of law, rule, or regulation, it is always open to challenge  in a petition under Article 226 of the Constitution.  

79. Applying the above judgments to the present case, it  is clear that fixation of the trading margin in the inter- State trading of electricity can be done by making of  regulations under Section 178 of the 2003 Act. Power to  

fix the trading margin under Section 178 is, therefore, a  legislative power and the notification issued under that  section amounts to a piece of subordinate legislation,  which has a general application in the sense that even  existing contracts are required to be modified in terms of  the impugned Regulations. These Regulations make an  inroad into contractual relationships between the parties.  Such is the scope and effect of the impugned  Regulations, which could not have taken place by an  order fixing the trading margin under Section 79(1)(j).  Consequently, the impugned Regulations cannot fall

34  

within the ambit of the word “order” in Section 111 of the  2003 Act.  

  *** *** ***  

92. (i) In the hierarchy of regulatory powers and  functions under the 2003 Act, Section 178, which deals  with making of regulations by the Central Commission,  under the authority of subordinate legislation, is wider  than Section 79(1) of the 2003 Act, which enumerates the  regulatory functions of the Central Commission, in  specified areas, to be discharged by orders (decisions).  

(ii) A regulation under Section 178, as a part of regulatory  framework, intervenes and even overrides the existing  contracts between the regulated entities inasmuch as it  casts a statutory obligation on the regulated entities to  align their existing and future contracts with the said  

regulation.”  

(emphasis supplied)  

42. The regulations which came up for consideration in the case of PTC  

India Ltd. (supra) are extracted hereunder:  

“CENTRAL ELECTRICITY REGULATORY COMMISSION  

NOTIFICATION  

New Delhi, 23-1-2006  

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

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

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

(2) These Regulations shall come into force from the  

date of their publication in the Official Gazette.  

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

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

A.K. Sachan, Secy.”

35  

43. Under Regulation 42 of the 1999 Regulations, the Commission has  

the power to frame model conditions for the supply of power to be  

adopted by the licensee. Regulation 42 of the 1999 Regulations is  

extracted hereunder:-  

“42. Model conditions of supply of power  1). (i) The Commission may check, from time to time, the model  conditions of supply to be adopted by the licensee, with such  variations as the Commission may direct, and the licensee shall  furnish to the Commission the finalised conditions of supply for  

approval.    (ii) The licensee shall always keep in his office an adequate number  of printed copies of the sanctioned conditions of supply and shall,  on demand, sell such copies to any applicant at a price not  exceeding normal photocopying charges.    2). (i) The Commission may pass such orders as it thinks fit in  accordance with section 28 to 31 of the Act for the contravention or  the likely contravention of the licence terms or conditions by the  licensee.    (ii) Subject to the provisions of Section 28 to 31 of the Act and the  procedure prescribed therein, the Commission may follow as far as  possible the general procedure prescribed in Chapter II of these  Regulations in dealing with a proceeding arising out of a  contravention or likely contravention by a licensee.”  

44. The Commission also has the power to amend licenses granted  

under Regulation 45 of the 1999 Regulations.  Regulation 45 is extracted  

hereunder:  

“45. Amendment of the licence granted  (1)  Application by the licensee or the local authority concerned for  alteration or amendment to the terms and conditions of the licence  granted in terms of Section 19 of the Act shall be made in such form  as may be directed for the purpose by the Commission.  The  application shall be supported by affidavit as provided in Chapter II  of the Regulations.    (2)  Unless otherwise specified in writing by the Commission, each  application for amendment or alteration in the licence shall be  accompanied by a receipt of such fee as the Commission may  require, paid in the manner directed by the Commission.

36  

 (3)  Unless otherwise specified in writing by the Commission, the  procedure prescribed in these Regulations for grant of licence, in so  far it can be applied, shall be followed while dealing with an  application for amendment or alteration of the licence.”  

45. The Regulations of 1999 have been amended in the year 2000 by  

the first amendment Regulations, 2000. As per Regulation 45-A of the  

Regulations, 2000, inserted by amendments to Chapter IV-A of the  

Conduct of Business Regulations, it is open to the Commission to fix a  

tariff. The same is extracted hereunder:  

45-A. Expected revenue from charges and tariff proposals:     (1) Subject to the provisions of the Act, each year, at the time  required by the licence or otherwise as may be directed by the  Commission, each licensee (Transmission and Bulk Supply or  Distribution and Retail Supply, as the case may be) shall file with  the Commission, in the format as may be specified by the  Commission, statements containing calculation for the ensuing  financial year the expected aggregate revenue from charges under  its currently approved tariff and the expected cost of providing  services.     (2) If a Licensee carries on more than one business, namely,  Transmission and Bulk Supply or Distribution and Retail Supply,  the statement referred to in clause (1) above shall be given  separately for each of the separate businesses of the licensee and in  such manner in respect of each such business as the Commission  may direct.    (3) The statements referred to in clause (1) above shall contain the  following details:     

(i) the licensee's demand forecast by customer or consumer category  for the ensuing financial year and the basis of the forecast;     (ii) a calculation of expected aggregate revenue that would result  from the above demand during the same period under the currently  approved tariff by customer or consumer category;     (iii) a calculation of the licensee's estimated costs of providing the  service required by the level of demand indicated in sub-clause (i)  above for each customer or consumer category during the same  period calculated in accordance with the financial principles and

37  

their applications in the Sixth Schedule to the Electricity (Supply)  Act, 1948 or such other principles the Commission may prescribe  from time to time;     (iv) The licensee's proposal to deal with the divergence between the  expected aggregate revenue and the expected cost of services  including proposal, if any, for revised tariff to be charged in the  ensuing year, the proposed scheme for reduction in losses, changes  in the tariff structure for any specific category of consumer;    (v) In case the Licensee carries on any business or services other  than those licensed under the Act, the Licensee shall give separate  revenue and expense statements together with such details as the  Commission may require in respect of such business or services;  and     

(vi) Such other information as the Commission may direct from time  to time.    (4) The licensee shall furnish to the Commission such additional  information, particulars, and documents as the Commission may  require from time to time after such filing of revenue calculations  and tariff proposals.     (5) The Commission may, from time to time, issue guidelines for  filing statement of revenue calculations and tariff proposals, and  unless waived by the Commission, the licensee shall follow such  guidelines issued by the Commission.     (6) Unless otherwise directed by the Commission, the Commission  shall hold a proceeding on the revenue calculations and tariff  proposals given by the licensee and may hear such persons as the  Commission may consider appropriate for making a decision on  such revenue calculations and tariff proposals.     (7) The procedure of hearing on the revenue calculations and tariff  proposals of the licensee shall be in the manner as the Commission  may decide from time to time.     (8) Upon hearing the licensee and such other parties as the  Commission considers appropriate and upon making such other  inquiry, the Commission shall make an order and notify the licensee  of its decision on the revenue calculations and tariff proposals, as  provided in subsection (5) of section 26 of the Act.    (9) While making an order under clause (8) above or at any time  thereafter, the Commission may direct the publication of the tariff  that the licensee shall charge the different consumers or customers  and categories thereof in the ensuing financial year.    (10) The licensee shall publish the tariff or tariffs approved by the  Commission in the newspapers having circulation in the area of  supply as the Commission may direct from time to time. The

38  

publication shall, besides such other things as the Commission may  require, include a general description of the tariff amendment and  its effect on the classes of the consumers.       (11) The tariffs so published under clause (10) above shall become  the notified tariffs applicable in the area of supply and shall take  effect only after such number of days as the Commission may  direct, which shall not be less than seven days, from the date of first  publication of the tariffs.     (12) The licensee shall raise bills for the energy supplied or  transmitted or services rendered to the consumers in accordance  with the notified tariff.    (13) No tariff determined and notified as above may be amended  

more frequently than once in any financial year except that tariff  rates shall be adjusted in accordance with any fuel surcharge  adjustment formula incorporated in the tariff with the approval of  the Commission. Provided that the consequential orders which the  Commission may issue to give effect to subsidy the State  Government may provide under Sections 12 (3) and/or 27 (1) of the  Act shall not be construed as amendment of tariff notified. The  Licensee shall, however, give appropriate adjustments in the bills to  be raised on the consumers for the subsidy amount in the manner  the Commission may direct.”  

(emphasis supplied)      

46. Under regulations, various agreements have also been amended,  

and there is plenary power under the regulations to prescribe the tariff  

and charges concerning Transmission and Bulk Supply or Distribution  

and Retail Supply as provided in Regulation 45-A(2).  

47. Fuel Surcharge Adjustment Formula has been given in Regulation  

45-B and Subsidies under Regulation 45-C.  Under Regulation 45-A(8),   

it is clear that upon hearing the licensee and such other parties as the  

Commission considers appropriate and upon making such other inquiry,  

the Commission shall make an order and notify the licensee of its  

decision on the revenue calculations and tariff proposals, as provided in

39  

section 26(5) of the Reforms Act, 1998.  Thus, on the strength of the  

decision in PTC India Ltd. (supra), it is clear that the contracts which  

were entered into stand superseded under the Reforms Act, 1998, by the  

regulations framed in the year 1999 as amended in the year 2000.  Thus,  

the submission raised on behalf of the licensees that the concluded  

contracts are binding and estoppel was created and concerning the  

power of regulatory Commission to determine the wheeling charges is  

untenable. The commission can exercise the power of fixation of such  

charges, which power is legislative.  The statutory contracts have been  

superseded by the regulations which have been made.  No estoppel is  

created.  It was not the subject matter of policy reserved for the  

Government under section 12 of the Reforms Act, 1998.  As per section  

26 (5), the exercise of fixation of charges can be done.  There is no  

question of the applicability of promissory estoppel. There is no violation  

of principles of natural justice as the objections were invited, and the  

licensees were heard.  

 48. In V.S. Rice and Oil Mills v. State of Andhra Pradesh, AIR 1964 SC  

1781, this Court has dealt with the question of the validity of an  

agreement entered into for the supply of electricity under specified rates  

for ten years and exercise of regulatory powers to increase the rate under  

the statute enacted after the agreement was upheld.  The relevant  

portion is extracted hereunder:

40  

“21. That takes us to the next question as to whether the impugned  notified orders are invalid because they contravene the provisions of  Articles l9(l)(f) and (g) of the Constitution. The impugned orders  have been notified by virtue of the power conferred on the  respondent by Section 3(l) and may, therefore, be treated as law for  the purpose of Article 19. We may also assume in favour of the  appellants that the right to receive the supply of electricity at the  rates specified in the agreements is a right which falls within Article  19(i)(f) or (g). Even so, can it be said that the impugned notified  orders are not reasonable and in the interests of the general public?  That is the question which calls for an answer in dealing with the  present contention. It is true that by issuing the impugned notified  orders, the respondent has successfully altered the rates agreed  between the parties for their respective contracts and that, prima  facie, does appear to be unreasonable. But, on the other hand, the  evidence shows that the tariff which was fixed several years ago had  

become completely out of date and the reports made by the  Accountant-General from time to time clearly indicate that the  respondent was supplying electricity to the appellants at the agreed  rates even though it was incurring loss from year to year. Therefore,  it cannot be said that the impugned notified orders were not  justified on the merits. The prices of all commodities and labour  charges having very much increased; meanwhile, a case had  certainly been made out for increasing the tariff for the supply of  electrical energy. But it would not be possible to hold that the  restriction imposed on the appellants’ right by the increase made in  the rates is reasonable and in the interests of the general public  solely because the impugned orders have saved the recurring loss  incurred by the respondent under the contracts. If such a broad  and general argument were accepted, it may lead to unreasonable  and even anomalous consequences in some cases. This question,  however, has to be considered from the point of view of the  community at large; and thus considered, the point which appears  to support the validity of the impugned orders is that these orders  were passed solely for the purpose of assuring the supply of  electrical energy and that would clearly be for the good of the  community at large. Unless prices were increased, there was risk  that the supply of electrical energy may itself have come to an end.  If the respondent thought that the agreements made with the  appellants were resulting in a heavy loss to the public treasury from  year to year, it may have had to consider whether the supply should  not be cut down or completely stopped. It may well be that the  respondent recognised its obligation to the public at large and  thought that supplying electrical energy to the consumers who were  using it for profit-making purposes, at a loss to the public  exchequer would not be reasonable and legitimate, and it  apprehended that the legislature may well question the propriety or  wisdom of such a course; and so, instead of terminating the  contracts, it decided to assure the supply of electrical energy at a  fair price, and that is why the impugned notified orders were issued.  We ought to make it clear that there has been no suggestion before  us that the prices fixed by the impugned notified orders are, in any  sense, unreasonable or excessive, and it is significant that even the

41  

revised tariff has to come into operation prospectively and not  retrospectively. Therefore, having regard to all the circumstances, in  this case, we are disposed to hold that the change made in the tariff  by the notified orders must be held to be reasonable and in the  interests of the general public.”    

49. Licensees have relied upon Indian Aluminium Company v. Kerala  

State Electricity Board, (1975) 2 SCC 414, dealing with the power of the  

State Electricity Board under section 49 (1) to fix the tariff which did not  

enable the Board to nullify an agreement entered into by it as permitted  

under section 49 (3) thereof.  In our opinion, the power of fixation of tariff  

under section 49 (1) of the Electricity Supply Act of 1948 and agreement  

entered into under section 49 (3) are different connotations. The  

provisions of the Reforms Act, 1998, empower the Commission to fix  

tariffs and charges for transmission, distribution, and the like.  The  

entire power is given to the Commission, and the Constitution Bench of  

this Court has held in PTC India Ltd. (supra) that once regulations have  

been framed, they make an inroad into the concluded contract also.   

Thus, the decision is of no help. Section 49 (3) of the Electricity Supply  

Act, 1948 authorises the Board to fix different tariffs to supply electricity.   

The question in the present case is different.    

 50. Reliance has been placed on the decision of this court in Karnataka  

Power Transmission Corporation Ltd. v. Amalgamated Electricity Co. Ltd.,  

(2001) 1 SCC 586, in which section 394 (2) of the Companies Act, 1956  

relating to rights and entitlement, obligations and commitments of the

42  

transferee company by virtue of scheme of arrangements sanctioned by  

the Companies Court.  It was held that the transferee company becomes  

legally bound and obliged to discharge all commitments.  The decision is  

distinguishable and is based upon different provisions dealing with a  

different situation.    

51. The arguments raised by respondents that the policy decision of  

the State Government has force of direction in terms of section 78 (A) of  

the Electricity Supply Act, 1948, in order to promote and develop such  

generation, in pursuance to the guidelines issued by the Central  

Government in view of international treaties and conventions to which  

India is a party.  It was further urged that the Central Government has  

taken a decision to invite private participation to augment energy  

generation, and there is a thrust on the development of renewable  

energy.  The State Government had the power under section 12 of the  

Reforms Act, 1998 also, and the policy decision binds the Commission.   

 52. The submission is stated to be rejected as policies are always  

subject to legislative interventions, and once the State Government has  

made statutory provision, it has to prevail, and we find that no such  

policy was contemplated to continue for all the times to come.  The policy  

has culminated into the Reforms Act, 1998 itself, and the same indicates  

the obligations of the Government for reforms displayed in the statutory  

form for establishment of Commission and separation of distribution and

43  

transmission.  Reforms have been made only because of the policies, and  

once they found statutory expression, they are bound to be followed.    

53. A submission was also raised concerning vested rights and  

concluded contracts that have already taken care of by the decision of  

PTC India Limited (supra) and discussion mentioned above.   

 54. There is no question of attracting the equitable principles of  

promissory estoppel for which reliance has been placed on Gujarat State  

Financial Corporation v. Lotus Hotels Pvt. Ltd., (1983) 3 SCC 379, Motilal  

Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh & Ors., (1979) 2  

SCC 409, Pawan Alloys & Casting Pvt. Ltd., Meerut v. U.P. State Electricity  

Board & Ors., 1997 (7) SCC 251, Andhra Pradesh Electricity Regulatory  

Commission v. R.V.K. Energy Private Limited & Anr., (2008) 17 SCC 769,  

where the law laid down, cannot be said to be applicable in this case.  

There was no unequivocal promise in this case, and statutory provision  

can make inroad and supersede the contracts.  

 55. Submissions were raised concerning the repugnancy of the  

Reforms Act, 1998.  We find that once the Reforms Act, 1998 has been  

enacted, it has to prevail, and vires of provisions have not been  

questioned.  The submissions raised concerning the repugnancy, on  

merits, have no legs to stand given the provisions contained in the  

Reforms Act, 1998. The question of repugnancy rightly had also not been

44  

raised before High Court and cannot be raised in this Court as an  

afterthought.  

 56. Reliance has also been placed on Binani Zinc Limited v. Kerala State  

Electricity Board & Ors., (2009) 11 SCC 244, on the following  

observations:  

“31. The State Electricity Boards are entitled to frame tariff in  terms of the provisions contained in the 1948 Act. The tariff so  framed is legislative in character. The Board, as a statutory  authority, is bound to exercise its jurisdiction within the four  corners of the statute. It must act in all fields, including the field of  framing tariff by adopting the provisions laid down in the 1948 Act  or the Rules and the Regulations framed thereunder.”  

 In Binani Zinc Limited (supra), the Court has dealt with the power of  

the Electricity Board and observed that tariff has to be fixed within the  

four corners of the statute.  There is no dispute with the proposition  

mentioned above, but it does not help the respondents on the merits of  

the case concerning powers and jurisdiction of the Commission under  

Reforms Act, 1998.   

 57. Concerning the interpretation of the agreement, reliance has been  

placed on Adani Power (Mundra) Ltd. vs. Gujarat Electricity Regulatory  

Commission & Ors., AIR 2019 SC 3397, in which this Court has observed  

that clauses in the agreement ought to be given a plain, literal, and  

grammatical meaning of the expression.  There is no dispute with the  

proposition mentioned above, however, the provisions of the Reforms Act,

45  

1998 are clear, candid, and empowers the Commission to determine the  

charges.  

58. The High Court has also held that joint applications were not  

maintainable. The APTRANSCO held Licence No.1/2000 for transmission  

and bulk supply and as per clause 20 read with clause 22, it is  

incumbent upon the APTRANSCO to refer the table of tariffs or even  

system charges/losses incurred under the system.  Thus, a joint  

application is nothing, but an obligation under the licence, and no  

prejudice has been caused by submitting the joint application. Thus, the  

decision of the High Court, to the contrary, is found to be meritless. The  

issue of maintainability of joint application has also been dealt with by  

the Commission elaborately.   

 59. The reason given for holding the joint application to be  

maintainable is that there is an integrated transmission distribution  

system in the State.  The system is entirely owned and controlled by the  

APSEB initially, and after reforms, it has come into control of  

APTRANSCO till 31.3.2001.  The present application is the first of its  

kind for the determination of applicable wheeling charges to the  

transmission distribution system.  The objection is technical, and in case  

joint petitions are maintained, it has no adverse effect so long in  

substance as the Commission has decided to proceed to determine the  

issue relating to transfer DISCOMS and representative units and has

46  

determined tariffs which are fair to the consumers availing the wheeling  

services. The approach of the Commission, thus, could not be faulted by  

the High Court.  Therefore, the decision of the High Court in this regard  

is also faulty and unsustainable.  

 60. Coming to merits of fixation of charges, while passing the order, the  

Commission has fixed the wheeling charges thus:  

9.12  The wheeling charge leviable from 01.04.2002 for  

the F.Y. 2002-2003 is accordingly worked out as below.     Calculation of Wheeling Charges for 2002-03:  

a) In cash :   

Particular of Expenditure   Amt. Rs.Crs.  

Wages and salaries    490.65  Administration and General Expenses 105.20  Repairs and Maintenance   185.66  Rent Rates and Taxes    5.13  Approved Loan interest    5609.31  Security deposit interest   31.37  Legal Charges     0.97  Audit and other fees    2.23  Depreciation     508.59  Other Expenses     39.30  Contribution to staff pension and gratuity. 64.95  Contribution to Contingency Reserve  21.45  Sub Total of Expenditure   2015.81  Reasonable Return    82.37  Total Gross Revenue Required   2098.18  Less Non-Tariff Income    529.86  NET REVENUE REQUIREMENT  1568.32  

Million Units (Gross)    41954   Network Charges including reasonable  37 ps/ kwh return    (1568.32 Crs         41954 MU    Wheeling Charges (External)  3 ps/kwh (Based on   

Information)   Balancing and ancillary Charges  10 ps/ kwh    

47  

Total Wheeling Charges in  ps/ unit.     50 ps/ kwh   

(Total of above three  charges)   

b) In-kind:    In addition, wheeling charges in kind of 28.4 % of energy  input by the project developer into the Licensee’s grid  being the system loss are leviable.”  

 61. The High Court could not have interfered with the findings on  

merits taken by the experts without entering into the various aspects  

considered by the Commission.  Thus, the finding on merits as to the  

determination of charges being illegal and improper in any manner,  

cannot be said to be sustainable. The High Court has not gone into  

various reasons, and the details considered by the Commission and once  

the expert body has determined specific tariffs, it is not for the courts to  

interfere ordinarily in such matters.  We find the determination to be  

proper and do not suffer from any infirmity or illegality.  The Commission  

has made an elaborate discussion for arriving at the figure mentioned  

above.  The recovery network charges, tariff structure, and the question  

of wheeling charges in cash or kind have also been considered.  Various  

relevant factors have been taken into consideration.  The nature of the  

arrangement between APTRANCO and DISCOMS and inter se DISCOMS  

has been considered while deciding issue No.4.  

62. The use of the system cannot be isolated from losses in the system  

as they form an integral part of the system.  All persons using the system  

should bear the system losses, whether technical or non-technical.

48  

Incidentally, the terms of a licence issued by APTRANSCO and DISCOMS  

specifically refer to deliver such electricity, adjust losses of electricity to a  

designated point.  Technical losses in the system to be taken into  

account as these are also an integral part of the system.  It is an  

integrated system where the electricity is supplied on displacement basis  

rather than direct conveyance of the particular electricity which is  

generated, the technical losses up to the voltage level at which the  

electricity is delivered along cannot be measured.  The technical losses of  

the total system need to be taken into account as it is impossible to  

determine from which source electricity is being supplied to which  

particular customer. The electricity from all sources gets combined in the  

system and loses its identity.  As investment in the system has also been  

made, it was evident that requisite charges have to be paid.    

IN RE: GRID SUPPORT CHARGES  

63. With respect to Grid Support Charges, it has been conceded by the  

learned counsel for the parties that the decision in the aforesaid batch of  

matters as to wheeling charges has to govern grid support charges as we  

have upheld the order of the Commission with respect to wheeling  

charges, the order of the High Court has to be set aside.   

 64. Any Government Order or Incentive Scheme does not govern the  

Grid Support Charges. Grid Code is the basis for levy of the Grid Support  

Charges, which came to be approved by the Commission on 26.5.2001.  

49  

The same is also reflected in the impugned order.  Thus, in case of  

installation of another CPP, that would be an additional load on the grid,  

and there is no embargo for setting up additional grid CPP in the form of  

expansion as grid acts as cushioning.  The Grid Support Charges can be  

levied, and the order dated 8.2.2002 of the Commission is, thus on the  

parity of the reasonings, has to be upheld considering the provisions of  

Section 21 (3) of the Reforms Act, 1998.  Under section 11 read with  

section 26 of the Reforms Act, 1998, all fixed charges under the  

distribution and Grid Support Charges are leviable only at the instance  

of a distribution company, and because of the discussion above, the  

Commission has the powers to determine it. In the agreements also there  

is a power where the Board could have fixed the Grid Support Charge  

unilaterally, but because of Reforms Act, 1998 came to be enacted, the  

application was filed in the Commission.  After that, the Commission has  

passed the order in accordance with the law.  We find no fault in the  

same.  Thus, the order of the Commission concerning the Grid Support  

Charges has to be upheld.  The judgment and order of the High Court are  

liable to be set aside concerning wheeling charges as well as Grid  

Support Charges.  

IN RE:  INCENTIVES TO NON-CONVENTIONAL ENERGY  

65. The question involved in the third batch of appeals is whether  

incentives to be continued to the non-conventional energy.  The tariff  

orders were passed in the years 2004-05, 2005-06, and 2006-09 by the

50  

APERC in exercise of the power conferred under Section 62 of the  

Electricity Act, 2003.  The appeals were preferred before the APTEL  

under Section 111 of the Electricity Act, 2003.  The main question for  

consideration was whether Government Orders issued on 18.11.1997  

and 22.12.1998, by the Andhra Pradesh Government, extending specific  

incentives to the producers of electricity from non-conventional energy  

resources, are binding and Doctrine of Promissory Estoppel against the  

Government and Commission was bound to give effect to them.  

66. The Government Order dated 18.11.1997, encourages renewable  

energy/non-conventional energy sources.  The Government decided to  

provide specific incentives, thus:  

"The Government, after careful examination of the  recommendations and with a view to encourage generation of  electricity from renewable sources of energy hereby allow the  following uniform incentives to all the projects based on renewable  sources of energy viz. Wind, Biomass, Co-generation, Municipal  Waste, and Mini Hydel:    

Sl.No. DESCRIPTION   

1. Power Purchase Price    

Rs.2.25/-  

2. Escalation 5% per annum with 1997- 98 as base year and to be  revised on 1st April of  every year up to the year  2000 A.D.  

3. Wheeling Chargers 2%  4. Third-Party sales Allowed at a tariff not  

lower than H.T. Tariff of  A.P.S.E. Board.  

5. Banking Allowed upto 12 months   (a) Captive Consumption Allowed throughout the  

year on 2% banking  charges    

(b)  Third party sale Allowed on 2% banking  charges from August to

51  

March  

  This order issues with the concurrence of Finance & Planning  (Fin.) Department vide their U.O. No.46291/351/EBS-EFES&T/97,  dated 18.11.1997.”      

67. The Government issued another GO MS No.112 dated 22.12.1998,  

making precise clarification that the benefits shall be available only to  

the power projects where fuel used is from non-conventional energy  

sources, which are of the nature of renewable sources of energy.  The  

Scheme shall be watched for three years. After that, the State Electricity  

Board shall come up with suitable proposals for the continuance of  

incentives in the present form or modified form.  

68. The Commission had passed the tariff orders dated 22.3.2005 and  

23.3.2006 for the years 2004-05, 2005-06, and 2006-09.  The APTEL  

vide impugned judgment and order has allowed the appeals and has held  

that effect of the policy decisions dated 18.11.1997 and 22.12.1998,  

which had a statutory flavor, had not been taken away by the provisions  

contained in the Electricity Act, 2003.  The policy has created vested  

rights in favour of entrepreneurs, and these vested rights could not have  

been taken away.  The rights created by GOMS No.93 dated 18.11.1997,  

would continue to operate until and unless they are withdrawn in  

accordance with law.  The Doctrine of Promissory Estoppel is attracted,  

though the Commission has the power to regulate wheeling charges.  It  

needed to address the question.  The Commission has lost sight of the

52  

spirit behind G.O. MS Nos.93 and 112, dated 18.11.1997 and  

22.12.1998, respectively.  Aggrieved by the decision of APTEL, the  

APTRANSCO has preferred the appeals.  

 69. To consider the applicability of Promissory Estoppel, it has to be  

seen whether the aforementioned Government Orders contained an  

unequivocal commitment to extend benefits.  On the contrary, the benefit  

was confined only to three years.  The Commission under the provisions  

of the Reforms Act, 1998 extended it from time to time and the last such  

extension came to an end on 28.7.2001.  The Commission decided not to  

extend the benefit by the impugned order determining the tariff.  

 70. This Court in Transmission Corporation of Andhra Pradesh Limited  

& another v. Sai Renewable Power Private Limited & others, (2011) 11  

SCC 34, has considered the abovementioned G.O. MS dated 18.11.1997  

and 22.12.1998, in which APERC undertook the review of tariff  

applicable to the producers of electricity from non-conventional energy  

resources.  In the year 2003, the Commission undertook a further review  

of the tariff.  Contrary to the expectations of the producers of electricity  

from non-conventional energy resources, the Commission vide order  

dated 20.3.2004, has reduced the amount of tariffs.  The producers from  

non-conventional energy resources challenged this order before the  

APTEL, which vide order dated 2.6.2006, declared the order dated  

20.3.2004 of the Commission as valid.  One of the grounds raised before

53  

the Tribunal was that purchase price of ₹2.25 per unit was fixed based  

on the Central Government letter dated 7.9.1993 and Andhra Pradesh  

abovementioned G.O. MS. Therefore, the Commission could not back out  

from the promise made in these Government communications.  The plea  

found favour with the Tribunal.  The Tribunal’s order dated 2.6.2006 was  

challenged in the appeals, which were decided by this Court.  One of the  

issues before this Court was whether the Commission was estopped from  

passing an order, which would be contrary to the provisions of the  

Government communications dated 7.9.1993, 18.11.1997, and  

22.12.1998.  The appeals were allowed by this Court, and this Court held  

that the Tribunal fell in error of law in concluding that Regulatory  

Commission had no powers either in law or otherwise of reviewing the  

tariff and so-called incentives.  There was no unequivocal commitment to  

the respondent/ purchasers/ generators/ developers to bind the State  

for all times to come.  There was no definite, unambiguous  

representation, hence plea of estoppel was not attracted.  This Court has  

observed:  

“68. In addition to the statutory provisions and the judgments  aforereferred, we must notice that all the PPAs entered into by the  generating companies with the appropriate body, as well as the  orders issued by the State in GOMs Nos. 93 and 112, in turn, had  provided for review of tariff and the conditions. The Tribunal  appears to have fallen in error of law in coming to the conclusion  that the Regulatory Commission had no powers either in law or  otherwise of reviewing the tariff and so-called incentives. Every  document on record refers to the power of the  authority/Commission to take a review on all aspects including that  of the tariff.  

54  

74. Again, vide GOMs No. 112 dated 22-12-1998, referring to the  extension of all these uniform incentives, certain amendments were  carried out to GOMs No. 93 dated 18-11-1997. Clause 2 of this  order referred that the operation of the incentive scheme shall be  watched for a period of three years and at the end of three years the  Electricity Board shall come up with suitable proposals for review  for further continuance of the incentives in that form, or to be  modified suitably. Keeping these guidelines in mind, the State of  Andhra Pradesh vide GOMs No. 93 dated 18-11-1997, while  referring to the guidelines issued by the Government of India for  promotional and fiscal incentives, noticed the various  representations which were received from the non-conventional  energy developers for extension of benefits as afore referred in  relation to all non-conventional energy resources uniformly.  

80. On the basis of this factual matrix, the respondents claimed  

that the State Government and the Regulatory Commission both  were bound to continue the incentives as were provided to them in  furtherance of the letters and orders of the Central as well as the  State Governments discussed above. They have a legitimate right to  expect that these incentives were to be continued indefinitely in the  same manner, and the authorities concerned are estopped from  altering the rates and/or imposing the condition of no sale to third  parties. We are unable to find any merit in this contention. In our  view, the Tribunal has erred in law in treating these inter se letters  and guidelines between the Government of India, State Government  and the Commission/the State Electricity Board as unequivocal  commitments to the respondent/purchasers/generators/developers  so as to bind the State for all times to come. For the principle of  estoppel to be attracted, there has to be a definite and  unambiguous representation to a party which then should act  thereupon and then alone, the consequences in law can follow.  

81. In the present case, the policy guidelines issued by the Central  Government were the proposals sent to the State Government,  which the State Government accepted to consider, amend or alter  as per their needs and conditions and then make efforts to achieve  the objects of encouraging non-conventional energy generators and  purchasers to enter into this field. These are the matters, which will  squarely fall within the competence of the Regulatory  Commission/the State Electricity Board at the relevant points of  time. Besides that, there was no definite and clear promise made by  the authorities to the developers that would invoke the principle of  promissory estoppel. Undoubtedly, to encourage participation in the  field of generation of energy through non-conventional methods,  some incentives were provided, but these incentives under the  guidelines, as well as under the PPAs signed between the parties  from time to time, were subject to review. In any case, the matter  was completely put at rest by the order of 20-6-2001 and the PPAs  voluntarily signed by the parties at that time, which had also  provided such stipulations. If such stipulations were not acceptable  to the parties, they ought to have raised objections at that time or at  least within a reasonable time thereafter. The agreements have not

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only been signed by the parties, but they have been fully acted upon  for a substantial period. We have already referred to various  statutory provisions where the Regulatory Commission is entitled to  determine the tariff. In this situation, we are unable to agree with  the view taken by the Tribunal that the Regulatory Commission had  no jurisdiction and that fixation of tariff does not include purchase  price for buy-back of the generated power.  

82. The principle of promissory estoppel, even if it was applicable as  such, the Government can still show that equity lies in favour of the  Government and can discharge the heavy burden placed on it. In  such circumstances, the principle of promissory estoppel would not  be enforced against the Government as it is primarily a principle of  equity. Once the ingredients of promissory estoppel are satisfied,  then it could be enforced against the authorities, including the  State, with very few extraordinary exceptions to such enforcement.  In the United States, the doctrine of promissory estoppel displayed  remarkable vigour and vitality, but it is still developing and  expanding. In India, the law is more or less settled that where the  Government makes a promise knowing or intending that it would be  acted upon by the promisee and in fact the promisee has acted in  reliance of it, the Government may be held to be bound by such  promise.”  

(emphasis supplied)  

71. Concerning aforesaid Government Orders dated 18.11.1997 and  

22.12.1998, this Court already held that plea of promissory estoppel is  

not attracted, and there was no unequivocal promise. We are of the  

opinion that there was no material change in the facts and  

circumstances of the case to attract the plea of promissory estoppel  

based on Government orders mentioned earlier.   The Tribunal has  

passed an order, by which it had temporarily extended the period to  

24.7.2001.  In the impugned order dated 24.3.2002, the objection raised  

of the non-conventional energy developers regarding wheeling charges  

was dealt with and it was stated that non-conventional energy have to  

pay the wheeling charges without discrimination and it was also stated  

that if Government wants to pay any subsidy, it may pass fresh order to

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compensate the licensee.  The Government has, after that, never given  

any subsidy, for subsidy care is taken by the statutory provision  

contained in the Electricity Act, 2003.  Section 65 of the Electricity Act,  

2003, provides that if State Government requires grant of any subsidy to  

any consumer in the tariff determined by the State Commission under  

Section 62, the State Government shall, notwithstanding, any direction  

which may be given under Section 108, pay, in advance and in such  

manner as may be specified, the amount to compensate the person  

affected by the grant of subsidy in the manner the State Commission  

may direct.  Subsidy/incentive is governed by Section 65, and the  

Government has not issued any such direction to continue the incentives  

in the form of subsidy.  It was open to the Government to do so because  

of the order passed by the Commission, but it has not extended such  

benefit.  No command can be given to State to grant subsidy.  

72. Thus, we find that the order of APTEL based on the Doctrine of  

Promissory Estoppel for continuing the benefit of Government Orders  

dated 18.11.1997 and 22.12.1998, cannot be said to be in accordance  

with the law.  The order of APTEL is liable to be set-aside, and that  

passed by the APERC has to be restored.    

 73. Resultantly, we have to allow the appeals.  The judgment and order  

passed by the High Court relating to wheeling charges and grid support  

charges and that passed by the APTEL regarding continuance of

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incentive as per G.O. MS dated 18.11.1997 and 22.12.1998, are set  

aside.  The appeals are allowed, and the orders passed by APERC are  

restored.  No costs.  

…………………………..J.  

        (Arun Mishra)  

…………………………..J.  

    (M.R. Shah)  

New Delhi;            …………………………..J.  

November 29, 2019.           (B.R. Gavai)