M/s. Jindal Steel and Power Limited Vs. The Chhattisgarh State Electricity Regulatory Commission and Ors

M/s. Jindal Steel and Power Limited  Vs. The Chhattisgarh State Electricity  Regulatory Commission and Ors

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



REPORTABLE 
IN THE SUPREME COURT OF INDIA
 CIVIL APPELLATE JURISDICTION
    CIVIL     APPEAL     NOS.3607­3610 OF 2008
M/s. Jindal Steel and Power Limited … APPELLANT(S)
Vs.
The Chhattisgarh State Electricity 
Regulatory Commission and Ors.       ... RESPONDENT(S)
WITH
CIVIL APPEAL NOS.4104­4107 OF 2008
Tirumala Balaji Alloys Pvt. Ltd.                      … APPELLANT(S) 
Vs.
M/s. Jindal Steel and Power Ltd. and Ors. Etc. ... RESPONDENT(S)
  J   U    D    G     M   E   N T
    NAGARATHNA, J.
1. These Civil Appeals filed under Section 125 of the Electricity
Act,   2003   arise   out   of   common   impugned   Judgment   dated
07.05.2008   passed   by   the   Appellate   Tribunal   for   Electricity,   New
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Delhi (‘Appellate Tribunal’, for short).   By the said judgment, the
Appellate Tribunal has set aside the order of respondent No.1 dated
29.11.2005   and   cancelled   the   distribution   licence   granted   to   the
appellant in C.A. Nos.3607­3610 of 2008. Hence, these appeals.
2. Since the questions of law and facts which arise in both the
above captioned Civil Appeals are similar, these appeals are being
disposed of by this common judgment.
Re: Civil Appeal Nos. 3607­3610 of 2008:
3. The appellant­Jindal Steel and Power Ltd. (‘JSPL’, for short) in
this civil appeal established a sponge iron / steel plant at Raigarh,
Chhattisgarh in the year 1990. A captive power plant was also set up
by JSPL at a distance of 40 km from the aforesaid steel plant. 
4. Respondent No.1 is Chhattisgarh State Electricity Regulatory
Commission   (‘Commission’,   for   short),   respondent   No.2   is
Chhattisgarh State Electricity Board (‘CSEB’, for short) later became
‘Chhattisgarh   State   Power   Distribution   Company’   and   respondent
No.3 is Chhattisgarh Vidyut Mandal Abhiyanta Sangh (‘CVMAS’, for
short).
5. The   newly   created   State   of   Chhattisgarh   formulated   its
industrial policy for 2001­2006 which encouraged the establishment
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of   industrial   estates   in   private­public   partnership   as   well   as   the
installation of captive power plant.
6. A proposal for permission to set up an industrial estate in 500
acres of land, adjacent to the existing land at Raigarh, was submitted
by JSPL  vide  letter dated 28.12.2001. The land was to comprise of
villages of Kosampali, Dhanagar, Barmuda or at a site in the Tehsil of
Gharghoda   comprising   villages   Tarai   Mal   and   Ujjalpur.   JSPL,
addressed a letter dated 09.04.2002 to the Department of Mineral
Resources, Commerce and Industries, Government of Chhattisgarh
seeking   permission   for   establishing   such   an   industrial   estate   at
Raigarh. A map showing the proposed industrial area was annexed
with the letter. The Government of Chhattisgarh,  vide  letter dated
26.04.2002 informed JSPL that the Energy Department was taking
action to grant permission for sale of power and to lay transmission
lines to various units in the private industrial estate being established
by   JSPL   and   requested   JSPL   to   prepare   and   submit   a   draft   of
Memorandum of Understanding (‘MoU’, for short) for the said purpose
for   approval.   The   facilities   were   to   be   provided   as   per   the   new
industrial policy dated 01.11.2001.
7.   JSPL,   on   16.07.2002,   requested   the   Chief   Minister   of
Chhattisgarh to issue appropriate directions for grant of permission
to supply power to the units in the proposed industrial estate. The
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Government   of   Chhattisgarh,   on   14.08.2002,   sent   a   reply   to   the
aforesaid request made by JSPL and informed that it shall have to
take certain actions / steps with regard to the supply of power to the
proposed industrial units. In compliance of the aforesaid letter on
04.09.2002,   JSPL   addressed   a   letter   requesting   for   grant   of
permission under Section 28 of the Indian Electricity Act, 1910 (‘1910
Act’, for short) for sale of power to the proposed units in the industrial
state from its captive power plant and for grant of permission to set
up transmission and distribution lines/system for supply of power to
the industrial units in the proposed industrial estate. JSPL further
stated   that   they   will   obtain   necessary   permission   under   the
Electricity  Supply  Act,  1948  (‘1948  Act’,  for short)  for  setting  up
transmission and distribution lines from CSEB.
8. A MoU was signed on 23.10.2002 between Chhattisgarh State
Industrial   Development   Corporation   (‘CSIDC’,   for   short)   acting   on
behalf of Government of Chhattisgarh and JSPL for setting up the
industrial estate. The Government of Chhattisgarh, on 29.01.2003
granted permission for supply of power by JSPL to the new industrial
units being set up in the private industrial estate proposed in four
villages of Raigarh District i.e., Punjipathra, Tumdih, Jorapalli and
Dhanagarh from its captive power plant and laid down certain terms
and conditions. CSEB, on 31.05.2003 granted permission for laying
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transmission and distribution lines of 220 KV for supply of power to
the   prospective   units   at   the   Industrial   Estate   in   Raigarh,
Chhattisgarh by tapping 220 KV from the captive power plant of
JSPL.
9. On 06.10.2003, JSPL made a formal application for sanction
under Section 28 of the 1910 Act wherein it provided details of the
project   enclosing   relevant   documents.   The   Government   of
Chhattisgarh passed two orders on 28.02.2004.  Vide  its first order
exercising power under Sections 68(1) and 68(3) of the Electricity Act,
2003   (‘2003   Act’,   for   short),   the   State   Government   accorded
permission for construction of transmission and distribution lines as
recommended by the CSEB on certain terms and conditions. Vide its
second order, relating to the No­Objection of the State Government
regarding direct power supply by JSPL from their power plant to the
industrial units proposed to be set up in the private industrial estate
in   Raigarh,   Chhattisgarh,   the   State   Government   of   Chhattisgarh
opined   that   since   the   2003   Act   was   in   force   in   the   State   from
09.12.2003 and the 1910 Act stood repealed, no permission could be
granted under the latter Act. 
10. JSPL commenced supply of electricity to the industrial units
which were already setup with effect from 01.03.2004.
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11. Thereafter, on 15.09.2004, JSPL filed an application for grant of
distribution licence before the Commission under Section 14 of the
2003 Act. The same was returned by the Commission on 15.09.2004
for filing in the prescribed format. On 25.01.2005, JSPL applied for
the   licence   to   the   Commission   in   Form   1­A   with   all   necessary
enclosures   as   per   Regulation   3   (1)   of   the   Chhattisgarh   State
Electricity Regulatory Commission (License Regulations), 2004 (‘State
License   Regulations’,  for short)  along  with  Demand  Draft  of  Rs.5
Lakhs. In the said application, JSPL stated that the area to which
supply was to be made was the Jindal Industrial Park in the private
sector   in   Punjipathra   and   Tumdih   villages   of   Garghoda   Tehsil,
Raigarh District having an area of 750 acres and shall accommodate
seventy units. Pursuant to the filing of the said application, notices
were published in the newspapers and objections were invited under
Section 15 of the 2003 Act. Three objections were received, one each
from respondent Nos.2 and 3 and the third objection was from Mr.
R.K. Aggarwal. The objection of Mr. R.K. Aggarwal was subsequently
rejected by the Commission on 27.08.2005 being bereft of any locus
standi. 
12. Various   correspondences   and   pleadings   were   exchanged
between JSPL, CSEB, CVMAS and the Commission and thereafter the
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Commission framed a total of five issues and  vide  its Order dated
29.09.2005, decided to grant distribution licence under Section 14 of
the   2003   Act.   The   pertinent   findings   of   the   Commission   can   be
encapsulated as under:
i. A harmonious reading of Sections 10(2), 42(2), 2(47) & 12 of the
2003 Act, clearly brings out that a generating company may
supply electricity to a consumer under the provisions of Section
10(2) of the 2003 Act only subject to the provisions of open
access. The scheme of the Act, particularly Part IV (Licensing)
thereof, is such that it cannot authorize a generator to supply
electricity to a consumer without a licence. That the present
application is not for supply through open access and the same
is   for   distribution   of   electricity   to   a   significant   number   of
industries in an industrial area set up under specific permission
of the State Government. 
ii. Section 28 of the 1910 Act is quite clear that supply of electricity
to   the   public   mandates   the   previous   sanction   of   the   State
Government. That, by no stretch of the argument, can the letter
of the State Government dated 29.01.2003 be treated as sanction
of the State government. Therefore, the said letter does not confer
any right on JSPL under Section 28 of the 1910 Act to supply
electricity.
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iii. No­objection letter dated 28.02.2004 also does not confer any
such right on the applicant. If the said letter conveyed any right,
either the application for licence would not have been made or a
claim of existing right should have been made. The application of
JSPL clearly stated that it had no licence. Further, the second
letter   of   the   said   date,   conveying   No­objection   of   the   State
Government cannot be said to be valid since there is no provision
for such no objection from the State Government. Therefore, as
on that date, distribution of electricity by JSPL was without any
legal authority. 
iv. On the aspect of area for which the licence had been applied for,
it was observed that the present case ought to be treated as an
exception to Rule 3 of the Distribution License Rules and to Para
5.4.7 of the National Electricity Policy since effective steps for
setting up of the industrial estate herein and an understanding
with the State Government to the effect that JSPL would provide
electricity from its captive power plant were taken much before
the National Electrical Policy was notified. As per the application,
supply of electricity commenced with effect from 01.03.2004 to
some industries on the basis of the letter dated 28.02.2004 and
therefore,   the   National   Electrical   Policy   notified   subsequently
cannot be invoked to deny distribution licence in this case. 
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v. That if a distribution licence is refused at this stage, which is
approximately one and half years after supply of electricity has
commenced, whether with or without legal authority, the same
shall impact the consumers of JSPL. CSEB also conveyed its no
objection to lay transmission and distribution network as early
as   on   30.05.2003.   That   JSPL   had   gone   way   ahead   with   the
industrial estate project in full, including distribution of power on
the basis of the understanding with the State Government. A
large investment of Rs.17.79 Crores was made, and there were
twenty­four industries, most of which were power intensive. If a
distribution licence was denied, they will have to close down their
industries. Apart from that, the consumers will be forced to buy
power   from   CSEB   at   a   much   higher   rate   than   at   present.
Therefore, the grant of distribution licence in this case may be in
the interest of the competition and in the interest of consumers
who have already entered into a long­term supply contract with
JSPL.
vi. Further, in view of the overall position of the case, the balance of
convenience would lie in grant of a distribution licence to JSPL
and there was an adequate justification for the same. Moreover,
the CSEB could not clarify as to why it was in opposition to a
distribution licence in a limited area when CSEB was itself not in
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a position to supply quality power to their existing industrial
consumers. 
vii. In   respect   of   JSPL’s   eligibility   for   grant   of   such   distribution
licence, it was observed that JSPL met all the requirements of
capital adequacy, creditworthiness and code of conduct as laid
down   by the  Central   Government  in  the  Distribution  License
Rules. 
viii.In respect of levy of cross­subsidy charges on the consumer of
JSPL, the Commission held that there was no justification in
such levy since the same was not a case of open access. The
scheme   of   the   2003   Act   is   such   that   a   distribution   licensee
cannot   recover   cross­subsidy   surcharge   from   another
distribution licensee and that JSPL had undertaken to supply
electricity to all its consumers in the area for which licence was
proposed to be granted.
ix. Lastly, it was held that JSPL was liable to pay a penalty of Rs.
One Lakh for contravention of Section 12 of the 2003 Act which
mandates licence to be obtained for supply of electricity and
violation of the same was punishable under Section 142 of the
2003 Act.
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13. The following conditions, apart from the general and special
conditions applicable to such licenses under the Regulations, were
imposed on JSPL by the Commission for grant of distribution license:
“(i) The   license   will   be   for   the   area   of   the   two
villages, Tumdih and Punjipathra of Gharghoda
Tehsil of Raigarh District. However, the number
of industrial consumers in the Jindal Industrial
Park   shall   be   limited   to   70   and   their   total
demand for electricity not increasing 299 MW,
as agreed with the State Government.
(ii) The   applicant   shall   lay   necessary   distribution
lines and put­up sub­station at his own cost in
the two villages for supply of electricity to any
person   who   may   apply   for   it   and   supply
electricity at a rate not more than Rs.2.50 per
unit or at the supply rate of the Board for that
category of consumer, which is lower. This will
include   domestic,   agriculture,   industrial   and
other consumers. The option to choose between
the licensee and the Board  shall be with the
consumer.
(iii) All   other   general   and   special   conditions
applicable   to a distribution licensee as per the
provisions of the License Regulations.” 
14. Respondent Nos.2 and 3 on 07.10.2005, filed objections to the
order   dated   29.09.2005   before   the   Commission.   Thereafter,
respondent No.2 filed Appeal No.179/2005 and respondent No.3 filed
Appeal   No.188/2005   before   the   Appellate   Tribunal.   The   appellant
herein challenged the imposition of penalty of Rs. One Lakh before
the Appellate Tribunal in Appeal No.27/2006.
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15. On   hearing   the   respective   parties,   the   Commission,  vide  its
Order dated 29.11.2005, granted licence to JSPL on the following
terms and conditions:
“(i)  The   distribution   license   shall   be   valid   for   a
period   of   twenty­five   years   from   the   date   of
issue, as per the provision of Section 15(8) of the
Act, unless revoked earlier.
(ii)  The area of the license shall be the geographical
area   of   the   villages   Tumdih   and   Punjipathra,
including   the   Jindal   Industrial   Park
aforementioned, of Gharghoda tahsil of Raigarh
District  of  the  State  as  indicated  in  the  map
enclosed herewith.
(iii) The distribution licensee shall abide by all the
relevant provisions of the Electricity Act, 2003,
the National Electricity Policy, i.e. Rules 1956
and  Electricity Rules   2005,  as  amended  from
time to time.
(iv)  The   licensee   shall   abide   by   the   general
conditions of license as given in chapter III and
the other conditions applicable to a distribution
licensee as  given in  chapter V  of  the  CSERC
(Licence)   Regulations   2005,   as   amended   from
time   to   time.   He   shall   also   comply   with   the
relevant provisions of all the regulations issued
or   as   may   be   issued   by   the   Commission,   as
amended from time to time.
(v)   The   licensee   shall   abide   by   all   the   relevant
provisions of the Chhattisgarh State Electricity
Supply Code, 2005.
(vi) The licensee shall lay necessary distribution lines
and put­up sub­stations at his own cost in the
two   villages   for   supply   of   electricity   to   any
person   who   may   apply   for   it   and   supply
electricity at a provisional rate of not more than
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Rs.2.50 per unit or at the supply rate of the
Board for that category of consumer, whichever
is lower, till the tariff for supply is determined by
the   Commission.   This   will   include   domestic,
agriculture, industrial and other consumers.
  
(vii) The consumers of the area other than area of
Jindal Industrial Park (JIP) shall have the option
to   choose   between   the   licensee   and   the
Chhattisgarh State Electricity Board (CSEB) or
its successor entity/entities.
(viii)The   existing   tariff   being   charged   from   the
industrial consumers in the designated area of
JIP shall continue to be charged by the licensee
till the tariff is determined by the Commission.
(ix) For determination of tariff in the area of supply,
the distribution licensee shall file the necessary
application   under   Section   64   of   the   Act   and
clause 10 of the CSERC (Details to be ' furnished
by   licensee   or   generating   company   for
determination of tariff and manner of making
application)   Regulations,   2004   before   the
Commission on or before 31st March 2006, and
thereafter in terms of the provisions of the same
Regulations.
(x) The licensee shall abide by the safety rules and
safety   standards   issued   by   the   Central
Electricity Authority, Ministry of Power, Govt. of
India   and   other   Government
agency/department.
(xi)  The licensee shall not transfer or assign, by sale,
lease exchange or otherwise, this license or part
thereof   to   any   other   person   without   prior
approval of the Commission.
(xii)   The   licensee   shall   undertake   electrification   of
villages   Tumdih   and   Punjipathra   as   per   the
norms laid down for rural electrification within a
period of six months, i.e., before 29.05.2006. It
shall   also   provide   public   lamps   in   adequate
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number in these two villages on the request of
the   concerned   Gram   Panchayat   and   maintain
the same.
(xiii)   All   issues   relating   to   interpretation   of   this
licence and its terms and conditions, shall be a
matter for determination by the Commission and
the decision of the Commission on such issues
shall be final, subject only to the right of appeal.
(xiii) The conditions of the license may be altered or
amended by the Commission at any time, if it
deems   fit   in   the   public   interest,   in   terms   of
Section 18 of the Act.” 
16. Respondent No.2 filed Appeal No.16/2006 before the Appellate
Tribunal   challenging   the   order   dated   29.11.2005   passed   by   the
Commission. The Appellate Tribunal, vide it Order dated 11.05.2006,
upheld   the   order   granting   distribution   licence   dated   29.11.2005
passed by the Commission. Aggrieved by the order dated 11.05.2006
passed   by   the   Appellate   Tribunal,   respondent   Nos.2   and   3   filed
appeals before this Court being Civil Appeal Nos. 3996 of 2006 and
4268 of 2006. JSPL also preferred an appeal before this Court being
Civil   Appeal   No.4529   of   2006.   This   Court,  vide  its   order   dated
19.09.2007, allowed the aforesaid appeals, set­aside the order dated
11.05.2006   passed   by   the   Appellate   Tribunal   and   remanded   the
matter to the Appellate Tribunal for fresh determination.
17. On remand, the Appellate Tribunal reconsidered the matter and
all the aforesaid appeals (Appeal No.179/2005, Appeal No.188/2005,
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Appeal   No.27/2006   and   Appeal   No.16/2006)   were   allowed  vide
common   impugned   order   dated   07.05.2008   which   is   challenged
before   this   Court   by   way   of   the   present   appeals.  The  pertinent
observations and decision of the Appellate Tribunal are encapsulated
as under:
i. With respect to JSPL’s argument that the MoU had a specific
clause that allowed JSPL to directly sell power to the industrial
units set up in the proposed industrial estate, it was held that it
was not the correct way to read the MoU.  The MoU was entered
into when the estate had not even come into existence and the
terms therein only envisioned what would happen in the future.
Therefore,   it   was   too   early   to   grant   licence   for   supply   or
distribution of electricity by JSPL. It was further held that JSPL
itself did not treat this clause in the MoU as grant of license. Had
the MoU itself meant grant of license, there would have been no
occasion for the subsequent correspondence between the JSPL
and the Government of Chhattisgarh. Therefore, neither the State
Government nor JSPL was acting under an understanding that
JSPL had already been granted a license.
ii. That the letter dated 29.01.2003 which is a ‘No­Objection’ from
the   Government   of   Chhattisgarh   had   a   clear   stipulation   that
JSPL was required to take permission under Section 28 of the
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1910 Act for direct power supply from its captive power plant to
the   industrial   estate   and   the   said   letter   cannot   be   read   as
Government’s promise to give license. 
iii. On examining the two letters dated 28.02.2004, it was found by
the Appellate Tribunal that the first order accorded permission
for construction of power, transmission and distribution lines
under Sections 68(1) and (3) of the 2003 Act and the second
order dealt with prayer for approval under Section 28 of the 1910
Act.  Vide  the second order, it was made sufficiently clear that
JSPL   will   have   to   get   the   permission/licence   from   the
Commission since Section 28 of the 1910 Act stood repealed and
no permission thereof could be given.
iv. That   there   cannot   be   an   estoppel   against   the   statute.   The
relevant authority at that time  was  the Commission and  the
licence was to be obtained under Section 14 of the 2003 Act from
the   Commission,   after   fulfilling   the   requisite   terms   and
conditions. JSPL could not have taken advantage of the doctrine
of promissory estoppel since, even if the aforesaid letters were
construed to be a promise, the same would only be binding on
the   Government   of   the   State   of   Chhattisgarh   and   not   the
Commission which is not subordinate to the Government or its
successor or assignee. 
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v. The Appellate Authority, on considering the issue as to whether
JSPL was entitled to the license/minimum area of supply under
Section 14 of the 2003 Act observed that on the date when the
application for licence filed by JSPL under the 2003 Act was
under consideration, the Commission was required to apply the
regulation in force at that point of time which included the rule of
minimum area of supply. It was observed that the Commission
was incorrect in ignoring the said rule and granting the licence in
violation thereof. No exception to the aforesaid rule could have
been made out by the Commission.
vi. While interpreting Section 10(2) of the 2003 Act that allowed a
generating company to supply electricity to any licensee or to any
consumer, it was held that the JSPL is a captive power plant and
is governed by Section 9 of the 2003 Act and not by Section 10 of
the said Act. 
vii. That   JSPL   had   applied   for   a   distribution   licence   because   it
intended to purchase power from another generating company
called Jindal Power. JSPL, being a captive power plant and not a
generating company at the relevant time could not have made
any supply to any third person without a license.
viii. On considering CSEB’s argument that the supply from a captive
power   plant   or  even   under   Section   10(2)   of   the   2003   Act   is
17
permissible only when the same is made by use of the grid or the
transmission   lines   of   distribution   licensee   or   transmission
licensee by use of open access and that unless open access is
availed, the supply cannot be made, it was held that open access
is an enabling provision that helps expansion of the electricity
sector and not to limit its development. If it was the intention of
the 2003 Act that no sale was possible except by availing open
access,   it   would   have   said   so.   It   was   further   observed   that
Section 10(2) of the 2003 Act prescribes that the supply to a
consumer will be subject to Regulations made under sub­section
(2) of Section 42 of the 2003 Act. While interpreting the use of the
words ‘subject to the rules made under sub­section (2) of Section
42’, it was held that the provision under Section 42(2) of the
2003 Act would only be attracted when the access through the
existing   distribution   was   sought;   when   such   access   was   not
sought, the aforesaid provision shall not apply.
ix. With respect to the Commission’s order imposing penalty of Rs.
One Lakh on JSPL, the same was set­aside. This was because,
although JSPL did not have a licence when it started supplying
electricity   to   Jindal   Industrial   Park,   a   penalty   was   not
automatically attracted. As per Section 142 of the 2003 Act, a
person sought to be punished has to be given an opportunity to
18
be heard. Admittedly, the said opportunity was not given to JSPL.
It   was   found   that   the   Commission   was   merely   hearing   the
application   for   grant   of   distribution   license.   The   issue   as   to
whether JSPL had rendered itself liable to punishment at all was
never an issue before the Commission. 
Re: Civil Appeal Nos. 4104­4107 of 2008:
18. The facts and circumstances in both these appeals are similar
and therefore have not been reproduced to avoid repetition except to
the extent it is necessary to do so. 
19. The   appellant   in   these   civil   appeals   is   the   consumer   of
electricity in Jindal Industrial Park in Raigarh, Chhattisgarh who is
aggrieved by the cancellation of distribution licence granted in favour
of   JSPL   and   due   to   unavailability   of   an   alternative   distribution
licensee. It is the grievance of the appellant herein that it was not a
party before the Appellate Tribunal.
20. JSPL,   on   08.05.2008,   by   way   of   its   notice,   informed   the
appellant in this appeal that since its distribution licence had been
cancelled, it had to stop supplying power to all the industries in the
Jindal Industrial Park whereafter on 09.05.2008, at 1:00 p.m., the
electricity supply to all the units of the appellant was disconnected.
The appellant contends that all the units were brought to a standstill
19
and the appellant has been facing losses running to crores of rupees.
The appellant avers that it is a third party and an end consumer of
JSPL who is deprived of electricity in the absence of any alternative
distributor in place. Hence these appeals.
21. We have heard Sri Sanjay Sen, learned senior counsel for the
appellant in C.A. Nos. 3607­3610 of 2008 and Sri C.S. Vaidyanathan,
learned senior counsel for the appellant in C.A. Nos. 4104­4107 of
2008   duly   assisted   by   their   instructing   counsel;   Ms.   Swapna
Seshadri, learned counsel for the respondent No.1, Sri Raj Kumar
Mehta, learned counsel for the respondent No.2 and perused the
material on record.
22. The submissions of the learned senior counsel for the appellantJSPL in Civil Appeal Nos.3607­3610 of 2008 are epitomised as under:
22.1  That the Commission in its order dated 29.11.2005, after taking
note of the Distribution of Electricity (Additional Requirement of
Capital and Adequate Creditworthiness and Code of Conduct)
Rules, 2005 (‘2005 Rules’, for short) had proceeded to grant
licence keeping in view the historical background, investment
made by the appellant­JSPL and the benefits that accrued in
favour of industrial consumers who had set up their industrial
plants and had no other source of power supply at the relevant
time.   By   its   Order   dated   29.09.2005,   the   Commission   had
20
specifically noticed the inability of CSEB to provide electricity
for want of physical infrastructure and unavailability of surplus
power. In fact, the State of Chhattisgarh was suffering from
power shortages and was buying power from the captive power
plant of this appellant­JSPL. On the basis of the permission
granted by the State Government/CSEB, in terms of MoU dated
23.10.2002, the construction of transmission and distribution
network was undertaken and completed and supply of power on
the basis of the long­term agreement had commenced on or
about 01.03.2004 which was much prior to the coming in to
existence of the Commission and the 2005 Rules. Further, the
State  Government with   the  concurrence  of  CSEB had  acted
substantially in terms of powers vested under the repealed law
i.e., Section 28 of the 1910 Act and the State’s Industrial and
Energy Policies. The original application for grant of licence filed
on 15.09.2004 and revised application for grant of licence filed
on 25.01.2005 were both before notification of the 2005 Rules.
However,   the   Appellate   Tribunal   has   taken   a   narrow   and
pedantic view solely on the basis of Explanation to Rule 3 of the
2005 Rules. 
22.2  It was contended that an ‘explanation’ to a provision is merely
meant to explain or clarify certain ambiguities and cannot be
21
treated as a substantive provision. In this regard, the learned
senior counsel appearing on behalf of the appellant­JSPL has
placed reliance on S. Sundaram Pillai v. V.R. Pattabiraman
(1985)   1   SCC   591  and  Global   Energy   Ltd.   v.   Central
Electricity Regulatory Commission (2009)  15 SCC 570. He
further states that the Explanation to Rule 3 is not a part of the
statute’s provisions or primary legislation but is in the context
of subordinate legislation. From a conjoint reading of Section
2(3),   Section   14   and   sixth   proviso   thereof,   Section   86   and
Section 176(2)(b) of the 2003 Act, it is clear that the Central
Government has not been vested with the jurisdiction to define
the area of supply. It is clear that the statute required the
Central Government to specify conditions only on three subjects
namely   capital   adequacy,   credit   worthiness   and   code   of
conduct. If the Central Government indeed had delegated the
power to define the area of supply of a distribution licensee, it
would have made a substantive rule and not inserted it through
an   Explanation.   According   to   learned   senior   counsel,
Explanation to Rule 3, at the highest, can act as a guideline for
discharge   of   regulatory   functions   which   should   be   generally
followed. 
22
22.3  The position that the Explanation to Rule 3 is in the nature of a
guideline is strengthened by the fact that Clause 5.4.7 of the
National Electricity Policy has a similar provision relating to
minimum   area   of   supply   that   acts   only   as   a   guidance   in
discharge of statutory functions. Sections 61(i) and 86(4) of the
2003 Act clearly states that both the National Electricity Policy
and the Tariff Policy will act as a guidance. 
22.4  The learned senior counsel for the appellant­JSPL reiterated
that the Central Government’s power to introduce a substantive
rule   defining   the   area   of   licence   cannot   be   traced   to   any
provision under the statute. On the contrary, the area of supply
has   to   be   prescribed   in   the   licence   issued   by   the   State
Government under Sections 2(3), 14, 15 and 86(1)(d) of the
2003 Act to each and every supplier. Therefore, Explanation to
Rule 3 is without authority of law. In this behalf, the learned
senior counsel for the appellant placed reliance on  Bhaskar
Shrachi Alloys Ltd. v. Damodar Valley Corporation (2018)
8 SCC 281, Kerala Samsthana Chethu Thozhilali Union v.
State   of   Kerala   &   Ors.   (2006)   4   SCC   327  and
Bharathidasan  University  &  Anr.  v.  All  India  Council  for
Technical Education & Ors. (2001) 8 SCC 676.
23
22.5  It   was   further   contended   that   in   the   instant   case,   the
distribution licence was granted on 29.09.2005 and the same
was   confirmed   by   the   Appellate   Authority  vide  order   dated
11.05.2006 in Appeal No.27 of 2006. Therefore, there was no
occasion to challenge the vires of 2005 Rules. Even if the Rules
have   not   been   specifically   challenged,   the   same   cannot   be
applied if found to violate any provision. 
22.6  It was submitted that if the Explanation to Rule 3 is applied to
the   present   case   as   a   substantive   rule,   it   would   result   in
impairment of vested/accrued rights of the appellant­JSPL and
the consumers of Jindal Industrial Park. At the time of making
a formal application on 15.09.2004, the 2005 Rules were not in
existence. The appellant­JSPL had acted  bonafide,  in terms of
concurrence/permission   of   the   State   Government   under   the
repealed 1910 Act and also under the present 2003 Act, the
same cannot be now made to suffer on account of delay in grant
of   licence   and   introduction   of   the   2005   Rules.   The   learned
senior counsel for the appellant stated that the same cannot be
done in terms of various judgments passed by this Court viz. P.
Mahendran v. State of Karnataka (1990) 1 SCC 411,  A.A.
Calton v. Director of Education (1983) 3 SCC 33 and Gopal
24
Krushna  Rath  v.  M.A.A.  Baig  (dead)  by  LRs  (1999)  1  SCC
544.   Placing   reliance   on  Federation   of   Indian   Mineral
Industries & Ors. v. Union of India & Anr. (2017) 16 SCC
186,   the   learned   senior   counsel   urged   that   a   subordinate
legislation cannot be made to have a retrospective effect unless
the   parent   statute,   expressly   or   by   necessary   implication
authorizes it to do so.
22.7  The next limb of argument was that the exercise of power by the
State   Government   in   allowing   the   appellant­JSPL   in   these
appeals to proceed with supply of electricity manifests in the
form of the terms of the MoU dated 23.10.2002 as well as letters
dated 29.01.2003 and 28.02.2004. These permissions were no
less than a sanction contemplated under Section 28 of the 1910
Act and thus saved in terms of Section 6 of the General Clauses
Act, 1897 and Section 185 of the 2003 Act. In this regard, the
learned   senior   counsel   for   the   appellant­JSPL   banked   upon
Hindustan Unilever Ltd. v. State of Madhya Pradesh (2020)
10 SCC 751  and Gujarat Electricity Board v. Shantilal R.
Desai (1969) 1 SCR 580. 
22.8  It was further submitted that on the basis of amendment that
came  into  effect on 27.01.2004, the  legislature  replaced  the
25
word ‘including’ with ‘relating to’ in sixth proviso to Section 14
of   the   2003   Act.   The   word   ‘including’   makes   the   provision
expansive as has been held by this Court in the cases of DAV
College Trust and Management Society & Ors. v. Director
of  Public  Instructions  &  Ors.  2019  (9)  SCC  185  and  C.I.T
Andhra   Pradesh   v.   M/s.   Taj   Mahal   Hotel,   Secunderabad
1971 (3) SCC 550. Further, the Parliament curtailed the power
of the Central Government and by an amendment removed the
word ‘including’ and instead used the term ‘relating to’. For
something to be treated as ‘relating to’ a provision, it has to
established   that   ‘the   dominant   purpose   and   theme   of   the
provision is one and one only’ as was observed in the case of
Madhav Rao Jivaji Rao Scindia v. Union of India (1971) 1
SCC 85.  Therefore, a restrictive meaning must be given to the
sixth proviso. 
22.9  Placing   reliance   on  Ramana   Dayaram   Shetty   v.
International Airport Authority of India (1979) 3 SCC 489,
it was further urged that the appellant­JSPL has been supplying
electricity to its consumers since 01.03.2004 and has taken
regulatory/contractual/legal steps thereof and the decision to
26
deny distribution licence is detrimental to the interest of the
appellant­JSPL as well as the consumers. 
23. The submissions of the learned senior counsel Sri Vaidyanathan
for   the   appellant   in   Civil   Appeal   Nos.4104­4107   of   2008   are
encapsulated as under:
23.1  The appellant herein is a consumer of electricity supplied by
JSPL in Jindal Industrial Park. The judgment of the Appellate
Tribunal   in   so   far   as   the   same   sets   aside   the   grant   of
distribution licence by the Commission without appointing any
alternative distribution licence is ultra vires the 2003 Act read
with the 2005 Rules. 
23.2  The Appellate Tribunal failed to appreciate the scheme of the
2003 Act that does not permit the Commission or the Tribunal
to cancel a distribution licence without hearing the consumers.
The entire purpose and object of the 2003 Act was to liberalise
the   generation,   transmission,   distribution   and   supply   of
electricity   to   prevent   monopolies   from   demanding   heavy
electrical   charges   from   consumers   and   open   access   was
permitted so that any trader or distributor could, as of right,
distribute and supply electricity to industries or consumers who
demanded   electricity   through   the   particular   trader   or
27
distributor. The sixth proviso to Section 14 of the 2003 Act
makes the aforesaid position even clearer by providing for more
than one licensee distributing and supplying power in the same
area.
23.3  The area of supply is defined under Section 2(3) of the 2003 Act
and   nowhere,   the   Act   has   defined   the   area   of   supply   as
restricted to mean an entire district or an entire area of the
municipality under Article 243Q of the Constitution of India. 
23.4 The   Appellate   Tribunal   failed   to   note   that   CSEB   was   not
operating in the Jindal Industrial Park and therefore cancelling
the distribution licence on this ground was incorrect. CSEB
itself   expressed   its   inability   to   supply   power   in   the   Jindal
Industrial   Park   during   the   hearing   before   the   Appellate
Tribunal.
23.5 Further,   Explanation   to   Rule   3   does   not   indicate   that   the
second   licensee   must   have   a   minimum   area   of   supply   as
construed   by   the   Appellate   Tribunal.   The   term   ‘same   area’
appearing in the Explanation states what should be the area for
which the two licensees may be said to be operating ‘within the
same area’. The term same area has not been explained in the
2003 Act or in the 2005 Rules and the Explanation, gives the
28
meaning   that   the   overlapping   must   be   at   least   of   an   area
comprised within a Municipal Corporation or a revenue district,
etc. 
23.6 The Central Government in making rules under Section 14 of
the 2003 Act has added an Explanation to Rule 3(2) of the 2005
Rules by which it has restricted the concept of same area in
terms of the sixth proviso to Section 14 of the 2003 Act to ‘the
area comprising a municipal council or a municipal corporation
as defined in Article 243Q of the Constitution of India or a
revenue district, which shall be the minimum area of supply.
The said construction is fully inconsistent and violative of the
express provision of sixth proviso to Section 14 of the said 2003
Act and goes counter to the entire spirit, purpose and object of
the 2003 Act.
23.7 The grant of distribution licence is an administrative function of
the Commission and the Appellate Tribunal had no jurisdiction
to interfere as was rightly held in the earlier judgment of the
Appellate Tribunal dated 11.05.2006. That under the 2003 Act,
the Appellate Tribunal is neither empowered to grant licence nor
to cancel the same. 
23.8 By virtue of Section 19 of the 2003 Act, only the Commission is
empowered to revoke a license, that too, after complying with
29
the procedural safeguards therein and no such power has been
conferred upon the Appellate Tribunal. Further, no appeal can
lie from an executive order passed by the Commission. 
23.9 There are more than thirty industries that have been set up in
Jindal Industrial Park by investing more than Rs.600 crores.
More   than   4000  direct   employees   are   provided   employment.
Therefore, cancelling the said distribution licence is opposed to
public policy. 
23.10 Learned senior counsel, Sri C.S. Vaidyanathan appearing for the
appellant in C.A. Nos. 4104­4107 of 2008 contended that the
said appellant was one of the consumers of electricity being
supplied by JSPL and on account of the cancellation of the
licence, the appellant had been adversely affected and therefore
the impugned judgment of Appellate Tribunal may be set aside
and the Order of the respondent No.1 may be given effect to.
24. The submissions of the learned counsel for respondent No.1 in
Civil Appeal Nos.3607­3610 of 2008 are summarised as under:
24.1  The term ‘within the same area’ appearing in the Explanation to
Rule 3 of the 2005 Rules has to be read as being an area
comprising of a Municipal Council or a Municipal Corporation
as defined in Article 243(Q) of the Constitution of India or a
revenue district. The said Explanation provides for a minimum
30
area   of   supply   for   grant   of   a   parallel/   second   distribution
license. For a minimum area to be provided as a qualifying
condition for grant of distribution license, an interpretation that
the area should merely fall within a revenue district or the
municipal   council,   would   negate   the   very   provision   of   a
minimum area as a qualifying criterion. Thus, the concept of a
minimum   area   would   be   inherently   inconsistent   or
contradictory to the interpretation that the area needs to fall
within and not equivalent to the area comprised of a municipal
corporation or a revenue district. 
24.2  A distribution licensee has a universal supply obligation under
Section 43 of the 2003 Act, i.e., to supply electricity to any
person requiring the same within the area of its operation. It
was submitted that Para 5.4.7 of the National Electricity Policy
makes   clear   the   intention   of   Government   of   India   on   the
minimum area to be provided for grant of a second/parallel
distribution license. The purpose of prescription of minimum
area   as   comprising  of   a  municipal   corporation/council   or   a
revenue district is that there would be a mix of all categories of
consumers within the said area. Thus, the second distribution
licensee would also be under an obligation to supply electricity
to all consumers within such area, and not only to high paying
31
consumers. Hence, cherry picking of the consumers has to be
avoided and therefore the Government of India thought it fit to
prescribe   a   minimum   area   for   which   a   second   distribution
licence can be granted.
24.3  Thus, the minimum area condition specified in Explanation to
Rule 3 needs to be fulfilled for grant of the second distribution
license. The said distribution licence is neither co­terminus with
the existence of the revenue district nor would the distribution
licence   be   amended,   revoked   or   in   any   manner   affected   by
delimitation   or   consolidation   of   revenue   districts.   Any
subsequent change to the area on account of consolidation of
revenue district etc. would not affect the area for which the
distribution   licence   has   been   granted   which   is   the   area   of
minimum supply. 
24.4  That   the   cancellation   of   licence   granted   by   the   State
Commission was not proper in the instant case as the State
Commission, after considering the entire factual situation and
while   making   an   exception,   has   already   directed   that   JSPL
would be required to supply electricity to two villages, namely,
Tumdih and Punjipathra.
32
24.5  It was therefore contended that the Appellate Tribunal was not
right in setting aside the order of the Commission. 
25. The submissions of the learned counsel for respondent No.2 in
Civil Appeal Nos.3607­3610 of 2008 are encapsulated as follows: 
25.1  That the National Electricity Policy framed by the Government of
India,   Ministry   of   Power,   under   Section   3   of   the   2003   Act
stipulates that the area of supply under a distribution licence
has necessarily to be a minimum area comprising a revenue
district,   a   municipal   council   for   a   smaller   urban   area   or   a
municipal   corporation   for   a   larger   urban   area.   By   virtue   of
Section   86(4)   of   the   2003   Act,   the   State   Commission   is
statutorily bound to be guided by the said National Electricity
Policy. Placing reliance on the judgment of this Court in Energy
Watchdog   v.   Central   Electricity   Regulatory   Commission
and   Others   (2017)   14   SCC   80,   the   learned   counsel   for
respondent No.2 submitted that in the context of Tariff Policy, a
tariff policy issued under Section 3 of the 2003 Act has the force
of law. Similarly, the aforesaid provision in National Electricity
Policy was statutorily embodied in the 2005 Rules. 
33
25.2  Further,   a  combined   reading  of   the   above   provisions   of   the
Electricity Act, 2003, the National Electricity Policy and 2005
Rules, the legal position that emerges is that the ‘minimum area
of supply’ for grant of a distribution licence has to comprise the
entire area of a municipal council or a municipal corporation or
a revenue district. No distribution licence can be granted for a
lesser area even though such lesser area forms a part of the
municipal   council   or   a   municipal   corporation   or   a   revenue
district. 
25.3  The interpretation that it can be ‘any area’ which falls within a
municipal   council   or   a   municipal   corporation   or   a   revenue
district would defeat the very object sought to be achieved by
the legislature by providing for universal supply obligation of
the distribution licence to supply electricity in its area of supply
read  with  Explanation  3 of 2005 Rules.  Such  interpretation
would render the Explanation nugatory and redundant and it is
a settled principle of interpretation that redundancy cannot be
attributed to the legislature. Reliance in this regard was placed
on   the   judgment   in   the   case   of  Thampanoor   Ravi   v.
Charupara Ravi (1999) 8 SCC 74.
34
25.4  The condition of minimum area of supply as mandated by sixth
proviso to Section 14 of the 2003 Act read with Explanation to
Rule 3(2) of the 2005 Rules is integral to ‘fair competition’ and
‘level playing field’. The same is necessary to fulfill the statutory
obligations of universal supply stipulated under Section 43 of
the   2003   Act.   Further,   in   the   regime   of   multiple   licenses
introduced under the 2003 Act, insistence upon minimum area
of  supply prevents  any form  of  cherry  picking  of  high  endconsumers only in a self­chosen area of supply as in the present
case.
25.5  While   relying   on   the   judgment   of   this   Court   in  Peerless
General Finance & Investment Co. Ltd. v. Reserve Bank of
India   (1992)   2   SCC   343  and  Chief   Forest   Conservator
(Wildlife)  &  Ors.   v.  Nisar  Khan  (2003)  4  SCC  595, it was
urged that the Explanation to Rule 3 of the 2005 Rules was
enacted so as to effectuate the working of the 2003 Act and is
therefore   a   part   of   the   said   Act.   Thus,   the   requirement   of
minimum area of supply for grant of distribution licence is an
integral part of the scheme of grant of distribution licence under
the 2003 Act read with 2005 Rules.
35
25.6  Therefore, in light of the aforesaid submission, JSPL was not
entitled to a licence under Section 14 of the 2003 Act as it does
not satisfy the condition of ‘minimum area of supply’. 
25.7  The   Commission,   while   granting   license,  vide  order   dated
29.09.2005   was   well­aware  that  the  appellant  JSPL   did   not
satisfy   the   requirement   of   the   ‘minimum   area   of   supply’   as
specified in the Explanation to Rule 3 and was not in a position
to fulfill its statutory duty/universal obligation under Section 43
of the 2003 Act. Therefore, the Commission imposed a special
condition on the appellant by granting distribution licence to
JSPL for two villages namely Tumdih and Punjipathra of Tehsil
Gharghoda, District Raigarh and remaining area of these two
villages.   Even   the   said   special   condition   imposed   does   not
amount to compliance of the condition regarding ‘minimum area
of supply’ for grant of a second licence as mandated in the
Explanation to Rule 3(2).
25.8  The appellant was duty bound by the special condition in the
order granting distribution licence to provide supply of power to
consumers of the aforesaid two villages. However, the appellantJSPL has been making huge profits by supplying electricity only
to twenty­five industries in the Jindal Industrial Park and has
36
completely failed to fulfill its obligation to supply power to two
villages namely Tumdih and Punjigraha of Tehsil Gharghoda,
District Raigarh.
25.9  Due to this gross and flagrant violation by the appellant­JSPL of
the   special   condition   imposed   by   the   Commission,   the
Distribution   Company   i.e.,   the   Chhattisgarh   State   Power
Distribution Company Limited has been deprived of revenue to
the extent of Crores of rupees per month. Thus, keeping in view
the above, the licence granted needs to be quashed on this
ground too.
25.10 The appellant’s contention that the 2005 Rules were not in
existence at the time of filing of the application for distribution
licence by the appellant­JSPL and that the grant of such licence
cannot be faulted with on the ground of violation of Rule, is
highly misconceived, since, it is a settled position of law that the
Authority is required to apply the Rules and legal provisions in
force on the date when the application is considered. Further,
the argument of the appellant­JSPL that the Explanation is only
in the nature of a guideline is also devoid of any merit. In this
regard, the counsel for respondent No.2 placed reliance on the
following judgment passed by this Court in Howrah Municipal
37
Corporation   and   Ors.   v.   Ganges   Rope   Co.   Ltd.   and   Ors.
(2004) 1 SCC 663, Union of India and Ors. v. Indian Charge
Chrome and Anr. (1999) 7 SCC 314, M/s. Hiralal Rattanlal
etc. etc. v. State of U.P. and Anr. etc. etc. (1973) 1 SCC 216
and  Dattatraya  Govind  Mahajan  v.  State  of  Maharashtra
(1977) 2 SCC 548. 
25.11 Explanation to Rule 3 of the 2005 Rules cannot be said to have
no   authority   of   law.   The   2005   Rules   have   been   enacted   in
exercise of power under Section 176(1) and Section 176(2)(b) of
the 2003 Act. Further since the appellant­JSPL has not even
challenged the  vires  of the 2005 Rules, the appellant­JSPL is
estopped from raising the contention that Explanation to Rule 3
of the 2005 Rules has no authority of law.
25.12 The contention that the appellant­JSPL acted bonafide in terms
of the concurrence/permission of the State Government as the
same are saved under Section 6 of the General Clauses Act,
1897 as also Section 185 of the 2003 Act is also misconceived
and untenable. The counsel for respondent No.2 urged that the
Appellate Tribunal in the impugned judgment rightly pointed
out that all the permissions given by the State Government and
other   authorities   were   specifically   made   subject   to   and
38
conditional upon the licence being granted by the Commission
under the 2003 Act. It is, therefore, incorrect for the appellant
to   rely   on   the   permissions/concurrences   given   by   the   State
Government   since   the   appellant   does   not   satisfy   the
requirement of minimum area of supply as mandated under
Explanation to Rule 3 of 2005 Rules.
 25.13 The submission of the appellant­JSPL that the sixth proviso to
Section 14 has been amended to narrow down the scope of
Rule­making power is also misconceived. The substitution of the
word   ‘relating   to’   in   place   of   the   word   ‘including’   does   not
amount to restricting the scope of the rule­making power. The
term ‘relating to’ is of wide amplitude and cannot be restrictive
in any manner.
25.14   Further,   the   submission   of   appellant   that   the   grant   of
distribution licence was in public interest is devoid of any merit
since the appellant has only been furthering its own interest.
25.15   To   sum   up,   the   counsel   for   respondent   No.2   strenuously
contended that the ‘minimum area of supply’ as provided in the
Explanation   to   Rule   3   of   2005   Rules   is   a   mandatory
requirement   for   grant   of   second   or   subsequent   distribution
licence in the area of supply of an existing distribution license.
39
It was thus contended by respondent No.2 that the Tribunal
was correct in setting aside the order granting licence to the
appellant.
26. Having  heard   learned   senior   counsel   and   counsel   for   the
respective parties, it is noted that the appellants in both the appeals
are challenging the order dated 07.05.2008 whereby the Appellate
Tribunal allowed the appeals filed by the respondents herein and setaside the order passed by the Commission dated 29.05.2005, thereby,
canceling the distribution licence granted in favour of the appellant
for supply of power by the appellant from its captive power plant to
the industrial units in Jindal Industrial Park.
27. Before  delving further upon the various issues in the present
matter, we shall analyse relevant provisions of the 2003 Act. The
2003 Act, came into force on 10.06.2003 insofar as Sections 1 to 120
and Sections 122 to 185 are concerned. The Preamble of the 2003 Act
states that it has been enacted to consolidate the laws relating to
generation, transmission, distribution, trading and use of electricity
and   generally   for   taking   measures   conducive   to   development   of
electricity industry, promoting competition therein, protecting interest
of consumers and supply of electricity to all areas, rationalization of
electricity tariff, ensuring transparent policies regarding subsidies,
promotion   of   efficient   and   environmentally   benign   policies,
40
constitution of Central Electricity Authority, Regulatory Commissions
and establishment of Appellate Tribunal and for matters connected
therewith or incidental thereto.
28. Section  2 of the 2003 Act is the definition clause and the
relevant definitions for the purposes of the present cases read as
under:
“Section   2.   (Definitions):  ­­­   In   this
Act,   unless   the   context   otherwise
requires, ­­ 
                    x x x x x x x x x 
(3)   "area   of   supply”   means   the   area
within which a distribution licensee is
authorised   by   his   licence   to   supply
electricity; 
4) "Appropriate Commission” means the
Central Regulatory Commission referred
to in sub­Section (1) of Section 76 or the
State   Regulatory   Commission   referred
to   in   Section   82   or   the   Joint
Commission referred to in Section 83,
as the case may be;
xxxxxx 
(38) “licence” means a licence granted
under Section 14;
 (39) “licensee” means a person who has
been   granted   a   licence   under   Section
14;
   xxxxxxxx
(41) “local authority” means any Nagar
Panchayat,   Municipal   Council,
Municipal   Corporation,   Panchayat
constituted at the village, intermediate
41
and   district   levels,   Body   of   Port
Commissioners   or   other   authority
legally entitled to, or entrusted by the
Union or any State Government with,
the control or management of any area
or local fund;
                   xxxxxxxx
(64)   "State   Commission"   means   the
State Electricity Regulatory Commission
constituted   under   sub­Section   (1)   of
Section   82   and   includes   a   Joint
Commission   constituted   under   subSection (1) of Section 83;”
29. Part II of the 2003 Act deals with National Electricity Policy and
Plan.  In   compliance   with   section   3   of   the   2003   Act,   the   Central
Government has notified the National Electricity Policy dated 12th
February,   2005,   the   relevant   portions   of   which   are   extracted   as
under:
“1.0 INTRODUCTION
X.X.X.
1.5   Electricity   industry   is   capital­intensive
having   long   gestation   period.   Resources   of
power   generation   are   unevenly   dispersed
across the country. Electricity is a commodity
that   can   not   be   stored   in   the   grid   where
demand and supply have to be continuously
balanced. The widely distributed and rapidly
increasing   demand   requirements   of   the
country   need   to   be   met   in   an   optimum
manner.
42
1.6 Electricity Act, 2003 provides an enabling
framework for accelerated and more efficient
development   of   the   power   sector.   The   Act
seeks   to   encourage   competition   with
appropriate   regulatory   intervention.
Competition   is   expected   to   yield   efficiency
gains   and   in   turn   result   in   availability   of
quality supply of electricity to consumers at
competitive rates.
1.7 Section 3 (1) of the Electricity Act 2003
requires the Central Government to formulate,
inter   alia,   the   National   Electricity   Policy   in
consultation with Central Electricity Authority
(CEA) and State Governments. The provision is
quoted below:
"The Central Government shall, from
time   to   time,   prepare   the   National
Electricity Policy and tariff policy, in
consultation   with   the   State
Governments and the Authority for
development   of   the   power   system
based   on   optimal   utilization   of
resources such as coal, natural gas,
nuclear   substances   or   materials,
hydro   and   renewable   sources   of
energy".
Section 3 (3) of the Act enables the Central
Government to review or revise the National
Electricity Policy from time to time.
1.8   The   National   Electricity   Policy   aims   at
laying guidelines for accelerated development
of   the   power   sector,   providing   supply   of
electricity to all areas and protecting interests
43
of consumers and other stakeholders keeping
in   view   availability   of   energy   resources,
technology available to exploit these resources,
economics   of   generation   using   different
resources, and energy security issues.
X.X.X.
5.4 DISTRIBUTION
X.X.X.
5.4.7 One of the key provisions of the Act on
competition in distribution is the concept of
multiple licensees in the same area of supply
through   their   independent   distribution
systems.   State   Governments   have   full
flexibility   in   carving   out   distribution   zones
while restructuring the Government utilities.
For   grant   of   second   and   subsequent
distribution   licence   within   the   area   of   an
incumbent   distribution   licensee,   a   revenue
district,   a   Municipal   Council   for   a   smaller
urban area or a Municipal Corporation for a
larger   urban   area   as   defined   in   the   Article
243(Q)   of   Constitution   of   India   (74th
Amendment)   may   be   considered   as   the
minimum   area.   The   Government   of   India
would   notify   within   three   months,   the
requirements for compliance by applicant for
second and subsequent distribution licence as
envisaged in Section 14 of the Act. With a view
to provide benefits of competition to all section
of   consumers,   the   second   and   subsequent
licensee for distribution in the same area shall
have obligation to supply to all consumers in
accordance with provisions of section 43 of the
Electricity Act, 2003. The SERCs are required
44
to   regulate   the   tariff   including   connection
charges   to   be   recovered   by   a   distribution
licensee under the provisions of the Act. This
will ensure that second distribution licensee
does   not   resort   to   cherry   picking   by
demanding unreasonable connection charges
from consumers.”
30. Part III deals with generation of electricity. Part IV of the 2003
Act is of relevance to these cases as it concerns licensing. Section 12
states that no person shall (a) transmit electricity; or (b) distribute
electricity;   or   (c)   undertake   trading   in   electricity,   unless   he   is
authorised to do so by a licence issued under Section 14, or is exempt
under Section 13. The power to exempt is prescribed in Section 13.
The grant of licence is as per Section 14 and the procedure for grant
of licence is dealt with in Section 15 while the conditions of licence
are in terms of Section 16. Section 18 of the said Act speaks of
Amendment   of   licence   while   Section   19   concerns   revocation   of
licence.
31. Section  14 of the 2003 Act which deals with grant of licence
reads as under:
14.   Grant   of   licence­  The   Appropriate
Commission may, on an application made to
it under Section 15, grant a licence to any
person – 
(a) to transmit electricity as a transmission
licensee; or 
45
(b) to distribute electricity as a distribution
licensee; or 
(c) to undertake trading in electricity as an
electricity trader, 
in   any   area   as   may   be   specified   in   the
licence: 
Provided   that   any   person   engaged   in   the
business   of   transmission   or   supply   of
electricity   under   the   provisions   of   the
repealed   laws   or   any   Act   specified   in   the
Schedule on  or before the appointed date
shall be deemed to be a licensee under this
Act for such period as may be stipulated in
the licence, clearance or approval granted to
him under the repealed laws or such Act
specified in the Schedule, and the provisions
of the repealed laws or such Act specified in
the Schedule in respect of such licence shall
apply for a period of one year from the date
of commencement of this Act or such earlier
period as may be specified, at the request of
the licensee, by the Appropriate Commission
and   thereafter   the   provisions   of   this   Act
shall apply to such business:
  Provided   further   that   the   Central
Transmission   Utility   or   the   State
Transmission Utility shall be deemed to be a
transmission licensee under this Act:
Provided also that in case an Appropriate
Government   transmits   electricity   or
distributes electricity or undertakes trading
in   electricity,   whether   before   or   after   the
commencement   of   this   Act,   such
Government   shall   be   deemed   to   be   a
licensee   under   this   Act,   but   shall   not   be
required to obtain a licence under this Act:
Provided   also   that   the   Damodar   Valley
Corporation, established under sub­Section
(1)   of   Section   3   of   the   Damodar   Valley
46
Corporation Act, 1948, (14 of 1948), shall be
deemed to be a licensee under this Act but
shall   not   be   required   to   obtain   a   licence
under   this   Act   and   the   provisions   of   the
Damodar Valley Corporation Act, 1948, in so
far   as   they   are   not   inconsistent   with   the
provisions   of   this   Act,   shall   continue   to
apply to that Corporation:
Provided also that the Government company
or the company referred to in sub­Section (2)
of Section 131 of this Act and the company
or companies created in pursuance of the
Acts   specified   in   the   Schedule,   shall   be
deemed to be a licensee under this Act: 
Provided   also   that   the   Appropriate
Commission may grant a licence to two or
more persons for distribution of electricity
through   their   own   distribution   system
within   the   same   area,   subject   to   the
conditions   that   the   applicant   for   grant   of
licence within the same area shall, without
prejudice   to   the   other   conditions   or
requirements  under  this  Act,  comply with
the additional requirements relating to the
capital adequacy, credit­worthiness, or code
of   conduct   as   may   be   prescribed   by   the
Central Government, and no such applicant,
who complies with all the requirements for
grant of licence, shall be refused grant of
licence   on   the   ground   that   there   already
exists a licensee in the same area for the
same purpose: 
Provided   also   that   in   a   case   where   a
distribution licensee proposes to undertake
distribution of electricity for a specified area
within his area of supply through another
person, that person shall not be required to
obtain   any   separate   licence   from   the
concerned   State   Commission   and   such
distribution licensee shall be responsible for
47
distribution   of   electricity   in   his   area   of
supply: 
Provided also that where a person intends to
generate and distribute electricity in a rural
area to be notified by the State Government,
such person shall not require any licence for
such   generation   and   distribution   of
electricity,   but   he   shall   comply   with   the
measures   which   may   be   specified   by   the
Authority under Section 53: 
Provided   also   that   a   distribution   licensee
shall   not   require   a   licence   to   undertake
trading in electricity.
32. On a reading of Section 14 of the 2003 Act, it is clear that the
appropriate Commission may, on an application made to it under
Section 15 grant a licence to any person (a) to transmit electricity as a
transmission licensee; or (b) to distribute electricity as a distribution
licensee; or (c) to undertake trading in electricity as an electricity
trader, in any area as may be specified in the licence.
33. The first three provisos to Section 14 of the 2003 Act are in the
nature of saving clauses. The fourth  and  fifth provisions are not
relevant   to   these   cases.   The   sixth   proviso   which   is   under
consideration states that the appropriate Commission may grant a
licence to two or more persons for distribution of electricity through
their own distribution system within the same area, subject to the
conditions that the applicant for grant of licence within the same
area, shall, without prejudice to the other conditions or requirement
48
under the Act comply with the additional requirements relating to the
capital adequacy, creditworthiness, or code of conduct as may be
prescribed by the Central Government, and no such applicant, who
complies   with   all   the   requirements   for   grant   of   licence,   shall   be
refused grant of licence on the ground that there already exists a
licensee in the same area for the same purpose.
34.  The Central Government had enunciated the 2005 Rules w.e.f.
23.03.2005 as per Section 176 of the 2003 Act. Rule 3 is relevant for
the purpose of these cases is extracted as under:
3. Requirements of capital adequacy and
creditworthiness.— (1) The   Appropriate
Commission   shall,   upon   receipt   of   an
application   for   grant   of   licence   for
distribution of electricity under sub­Section
(1)   of   Section   15   of   the   Electricity   Act,
2003,   decide   the   requirement   of   capital
investment   for   distribution   network   after
hearing the applicant and keeping in view
the   size   of   the   area   of   supply   and   the
service obligation within that area in terms
of Section 43.
(2) The applicant for grant of licence shall
be   required   to   satisfy   the   Appropriate
Commission that on a norm of 30% equity
on cost of investment as determined under
sub­rule (1), he including the promoters, in
case the applicant is a company, would be
in a position to make available resources
for such equity of the project on the basis
of the networth and generation of internal
resources   of   his   business   including   of
promoters   in   the   preceding   three   years
49
after   excluding   his   other   committed
investments. 
Explanation—For the grant of a licence for
distribution of electricity within the same
area in terms of sixth proviso to Section 14
of   the   Act,   the   area   falling   within   a
Municipal   Council   or   a   Municipal
Corporation as defined in the article 243(Q)
of the Constitution of India or a revenue
district   shall   be   the   minimum   area   of
supply.
35. The controversy in these cases surrounds the interpretation to
be given to the Explanation to Rule 3. As already noted, the 2005
Rules, under consideration have been prescribed having regard to the
sixth proviso to Section 14 of the Act. The said proviso would apply
only   when   the   appropriate   Commission   considers   it   necessary   to
grant a licence to two or more persons for distribution of electricity
through their own distribution system within the same area, in which
case, there are certain additional requirements which the applicant
must fulfil relating to capital adequacy, creditworthiness or code of
conduct. It is only with regard to the aforesaid three aspects that the
2005 Rules have been prescribed. 
36. In response to the arguments of learned senior counsel for the
appellants,   the  contention  of   respondent   No.2   herein   is   that   the
appellant­JSPL   does   not   fulfil   the   condition   mentioned   in   the
Explanation to Rule 3 inasmuch as the said appellant does not fulfil
50
the condition of minimum area of supply as the area that the said
appellant is supplying, is not for an entire Municipal Council or a
Municipal Corporation or a Revenue District. The area of supply as
per the licence of the appellant­JSPL is for the area comprised in the
industrial park set up by the appellant and for two other villages only.
Hence, the licence issued to the said appellant is vitiated as the area
of   supply   prescribed   in   the   licence   does   not   conform   to   the
Explanation to Rule 3 of the 2005 Rules.
37. In  order  to  answer  the   aforesaid   contention,   it   would   be
necessary to consider the sixth proviso to Rule 14 in light of the
definition of ‘area of supply’ and the Explanation to Rule 3 of the
2005 Rules. On a conjoint reading of the same, it is noted that the
sixth   proviso   to   Section   14   applies   to   a   situation   where   the
appropriate Commission may grant a licence to two or more persons
for distribution of electricity through their own distribution system
within the same area  subject to the applicant­JSPL complying with
the additional  requirements. Therefore, it is clear that  within the
same area, there could be  two or more persons  for distribution of
electricity. As to what is the area within which there could be grant of
licence to two or more persons is concerned under the sixth proviso to
Section 14, the Explanation to Rule 3 prescribes  the area falling
within  a Municipal Council or a Municipal Corporation as defined
51
under Article 243 (Q) of the Constitution of India or Revenue District.
The area of supply authorised by the Appropriate Commission shall
be the minimum area of supply.
38. The ‘area of supply’ is defined under sub­section 3 of Section 2
to mean that area within which the distribution licensee is authorised
by his licence to supply electricity. This ‘area of supply’ must fall
‘within’ a Municipal Council or a Municipal Corporation as defined
under   Article   243   (Q)   of   the   Constitution   of   India   or   a   Revenue
District. That means that the ‘area of supply’ must fall ‘within’ the
local authority of a Municipal Council or a Municipal Corporation as
defined   in   sub­section   41   of   Section   2   of   the   Act   or   a   Revenue
District, as the case may be, and within which area of supply, licence
is granted for distribution of electricity. Therefore, the expression area
in the sixth proviso of Section 14 is explained as the ‘area falling
within’ a Municipal Council or a Municipal Corporation as defined
under   Article   243   (Q)   of   the   Constitution   of   India   or   a   Revenue
District which shall be the ‘area of supply’. As already noted, within
such area, there could be two or more persons who are granted a
licence to distribute electricity which is in terms of the provision
granting license. The ‘area within which they are authorised to supply
electricity’ is the ‘area of supply’ and such ‘area of supply’ in respect
52
of which authorisation is granted under the licence is the “minimum
area of supply”. 
39. Therefore, when two or more persons are granted licence within
an area forming a Municipal Council or a Municipal Corporation or a
Revenue District, the authorisation to supply electricity granted to a
distribution licensee within the aforesaid area is the  actual area of
supply  and   the   actual   area   of   supply   in   respect   of   which   the
authorisation is granted under the licence is called the minimum area
of supply.
40. Thus, on a  conjoint  reading of the aforesaid provisions, it is
clear that the ‘minimum area of supply” would fall ‘within the area’
which   is   comprising   of   a   Municipal   Council   or   a   Municipal
Corporation or a Revenue District but it does  not  imply that the
licence to supply electricity for an area or an ‘area of supply which is
the ‘minimum area of supply’ must extend to the ‘entire area falling
within’ a Municipal Council or a Municipal Corporation or a Revenue
District.
41. But if the interpretation as suggested by the respondent No.2 is
to   be   accepted,   then   the   expression   ‘area   falling   within’   in   the
Explanation   would   become   otiose   or   redundant.   The   object   of
providing   a   Municipal   Council   or   a   Municipal   Corporation   or   a
Revenue District as an area is to provide a standard area, within
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which area, two or more persons could distribute electricity. It does
not mean that the licensee must distribute electricity in the entire
standard   area.   The   words   used   are   ‘the   area   falling   within’   a
Municipal Council or a Municipal Corporation or a Revenue District.
The same does not mean that the area comprising of or an area
equivalent to a Municipal Council or a Municipal Corporation or a
Revenue District. It is only in an ‘area falling within’ a Municipal
Council or a Municipal Corporation or a Revenue District that two or
more persons could be granted licence for distribution of electricity
which   interpretation   is   supported   by   the   use   of   the   expressions
‘within the same area’ used twice in the sixth proviso to Section 14 of
the 2003 Act. Also, the use of the expression ‘within the same area’ in
the sixth proviso as well as in the Explanation to Rule 3 have to carry
the same meaning.
42. Moreover, the expression ‘within the same area’ in the sixth
proviso   to   Section   14   of   the   2003   Act   and   the   Explanation   is
analogous   to   the   expression   ‘the   area   falling   within’   a   Municipal
Council  or a  Municipal  Corporation   or  a Revenue  District  in  the
Explanation. Thus, the expression ‘within the same area’ cannot refer
to   the   entire   Municipal   Council   or   a   Municipal   Corporation   or  a
Revenue District but ‘the area falling within’ a Municipal Council or a
Municipal Corporation or a Revenue District in respect of which a
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distribution licensee is authorised by its licence to supply electricity.
Therefore,   by   the   aforesaid   interpretation   it   is   held   that   the
authorised ‘area of supply’ shall be ‘the minimum area of supply’.
43. Hence,  the contention of respondent No.2 that the ‘minimum
area of supply’ must comprise of the ‘entire’ Municipal Council or a
Municipal   Corporation   or   a   Revenue   District   is   not   correct.   The
argument   in   the   instant   case   is   that   the   appellant­JSPL,   not
complying with the prescription in Explanation to Rule 3 of the 2005
Rules as per the terms of the licence cannot be permitted to supply
electricity   and   therefore,   the   licence   was   rightly   cancelled   by  the
Appellate Tribunal also cannot be accepted.
44. On the other hand, on a reading of the licence granted to the
appellant, it is clear that the respondent No.1 was conscious of the
fact that it was granting licence to the appellant­JSPL having regard
to the fact that the said appellant had established an industrial park
for which it had the responsibility for distribution of electricity and in
addition, two more villages were added to the area comprised in the
industrial park for the purpose of distribution of electricity. The area
in respect of which the licence was granted and thereby authorisation
provided to supply electricity is the minimum area of supply. The
‘area of supply’ is ‘an area falling  within’ a Municipal Council or a
Municipal Corporation or a Revenue District and in the instant case,
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it is a Revenue District. Since, the ‘area of supply’ authorised in the
licence   granted   to   the   appellant­JSPL   in   the   instant   case   is   the
‘minimum area of supply’, the said appellant is bound to supply
electricity in the said area of supply. The licensee cannot resile from
the condition of supplying electricity as per the authorisation of the
area of supply indicated in the license. This would also mean that the
licensee   cannot   supply   electricity   in   an   area   beyond   the   area   of
supply authorised under the license. This is because in respect of an
area falling within a Municipal Council or a Municipal Corporation
or a Revenue District, there could be two or more persons who could
be granted licence and authorisation to distribute electricity in terms
of the respective area of supply specified.
45. In view of the aforesaid interpretation, we find no substance in
the contentions advanced on behalf of the respondent No.2. On the
other hand, on a reading of the order passed by the respondent No.1­
Commission in C.A. Nos. 3607­3610 of 2008, we find that there has
been an application of mind to the licence that was granted to the
appellant for distribution of the electricity.
46. In view of the aforesaid discussion, we find that the Appellate
Tribunal was not right in cancelling/setting aside the licence granted
to the appellant­JSPL and hence, the impugned judgment is liable to
be set aside.
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47. In   the   result,   the   appeals   are   allowed   and   the   impugned
common judgment of the Appellate Tribunal is hereby set aside.
48. Consequently, pending applications stand disposed by reserving
liberty to the applicants seeking impleadment to seek remedies in
accordance with law, if so advised.
49. Parties to bear their respective costs.
..………….……………J. 
(AJAY RASTOGI)  
..………….……………J. 
(B.V. NAGARATHNA)
NEW DELHI;
29th September, 2022.
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