THE TATA POWER COMPANY LIMITED TRANSMISSION versus MAHARASHTRA ELECTRICITY REGULATORY COMMISSION AND ORS.

[2022] 19 S.C.R.

ATHE TATA POWER COMPANY LIMITED TRANSMISSION

MAHARASHTRA ELECTRICITY REGULATORYCOMMISSION AND ORS.

B(Civil Appeal No. 1933 of 2022)

NOVEMBER 23, 2022

[DR. DHANANJAYA Y CHANDRACHUD, CJI,A. S. BOPANNA AND J. B. PARDIWALA, JJ.]

Electricity Act, 2003 – ss.61-63, 86, 125, 181 – MaharashtraCElectricity Regulatory Commission (MERC) issued an order grantingAdani Electricity Mumbai Infra Limited (AEMIL) the transmissionlicence to develop the Aarey-Kudus transmission project based onHigh Voltage Direct Current (HVDC) technology where tariff wasto be determined through the Regulated Tariff Mechanism (RTM)Dapproach u/s.62 – Order challenged by appellant before AppellateTribunal for Electricity (APTEL) – Appeal dismissed by APTEL –Held: Provisions of the Electricity Act 2003 do not prescribe onedominant method to determine tariff – ss.62 and 63 stipulate themodalities of tariff determination – The non-obstante clause in s.63cannot be interpreted to mean that s.63 would take precedence overEs.62 at the stage of choosing the modality to determine tariff – Thecriteria or guidelines for the determination of the modality of tariffdetermination ought to be notified by the Appropriate StateCommission either through regulations u/s. 181 of the Act orguidelines u/s. 61 of the Act – In the present case, MERC has neitherFframed regulations nor notified guidelines prescribing the criteriaor guidelines for choosing the modalities to determine tariff – Thus,MERC shall determine the tariff by exercising its general regulatorypowers u/s. 86(1)(a) of the Act – MERC while exercising its generalregulatory powers u/s.86(1)(a) shall be guided by the National TariffPolicy 2016, which shall be material consideration – Further,GMERC and APTEL have arrived at concurrent findings that the1000MW HVDC Aarey-Kudus project is an ‘existing project’ forthe purpose of the applicability of the GoM’s GR 2019 – SupremeCourt deciding statutory appeal u/s.125 of the Act cannot interferewith the concurrent findings on question of fact – Nonetheless,even on an independent assessment of the facts, the HVDC projectH

is an existing project – The Electricity Act, 2003 or the policyframework did not make it binding upon MERC to allot the HVDCproject only through the Tariff Based Competitive Bidding (TBCB)route – Therefore, the Regulatory Commission’s decision to grantthe HVDC project u/s. 62 was within reasonable exercise of itspowers.

Electricity Act, 2003 – ss.61, 181 – Framing of necessaryregulations by Regulatory Commissions to put into effect theprinciples prescribed under the Act – All State RegulatoryCommissions directed to frame Regulations u/s.181 of the Act onthe terms and conditions for determination of tariff – AppropriateCommission shall be guided by the principles prescribed in s.61,which also includes the National Electricity Policy (NEP) andNational Tariff Policy (NTP) – The Commissions while being guidedby the principles contained in sec.61 shall effectuate balancethat would create sustainable model of electricity regulation inthe States – The Regulatory Commission shall curate to the specificneeds of the State while framing these regulations – Further, theregulations framed must be in consonance with the objective of theElectricity Act 2003, which is to enhance the investment of privatestakeholders in the electricity regulatory sector so as to create asustainable and effective system of tariff determination that is costefficient so that such benefits percolate to the end consumers.

Dismissing the appeal, the Court

HELD: 1. The Appropriate Commission is not mandatedto adopt the tariff determined through the bidding processirrespective of the fulfilment of the statutory requirements. TheCommission can reject the tariff determined through the bid ifthe tariff process is not (i) transparent; and (ii) in accordancewith the guidelines issued by the Central Government. Thus, ifthe Commission does not adopt the tariff determined throughbidding, and if the decision is challenged, the bidding processcan be reviewed substantively (on the ground of transparency)and procedurally (on the ground of compliance with CentralGovernment guidelines) to determine if the Commission couldhave exercised its discretion to determine the tariff under Section62 while rejecting the tariff determined under Section 63.Therefore, Section 63 can only be invoked after the tariff has

FGH

Abeen determined through bidding. The terms and conditionsnotified by the Appropriate Commission under Section 61 willhave to be referred for the purpose of choosing the modality oftariff determination that the Commission should undertake. Inview of the above discussion, the argument of the appellant thata reading of Section 61, 62 and 63 indicates that the TBCB routeBis the dominant route of tariff determination does not hold merit.[Para 77][677-F-H; 678-A-B]

2.1 The value of TBCB Guidelines prescribed under Section

Section 63 of the Act does not prescribe bidding as thedominant route of tariff determination. The Guidelines framed bythe Central Government under Section 63 prescribe themechanism and procedure for bidding. The Guidelines framedunder Section 63 of the Act cannot be used to determine whetherthe RTM route or the TBCB route ought to be followed. [ParaD78][678-B-C]

2.2 On 13 April 2006, the MoP framed the TBCB Guidelinesunder Section 63 of the Act. Clause 2.2 of the Guidelines statesthat it shall apply for the procurement of transmission servicesthrough competitive bidding according to the mechanismEdescribed in the notification. [Para 79][678-D]

2.3 reading of the clauses indicates that the TBCBGuidelines shall apply for (i) procurement of transmissionservices, which would include HVDC links; and (ii) selecting thetransmission provider for new transmission line. The TBCBFGuidelines also advert to the appointment of Bid ProcessCoordinator who would be responsible for coordinating the bidprocess for procurement of required transmission services. TheTBCB Guidelines prescribe the procedure for conducting bidsfor procurement of, among other services, transmission services.GClause 3.3 states that for the procurement of transmissionservices required for intra-state transmission, the StateGovernment may notify the organisation or the State Public SectorUndertaking to be the Bid Process Coordinator. reading ofclauses 2.2 and 2.4 does not indicate that that the tariff for all

new transmission projects shall be determined by competitivebidding. It notifies the procedural mechanism for competitivebidding. As observed earlier, the reference in Section 63 to theGuidelines framed by the Central Government is made to thelimited extent of determining whether the procedure of biddingwas in accordance to the Guidelines framed thereunder, which isthe TBCB Guidelines. [Para 80][678-G-H; 679-A-C]

3.1 General Regulatory Power of the AppropriateCommission

In the case of intra-state transmission of electricity, theState Commission would be bound by the guidelines issued underSection 63. In addition to the guidelines under Section 63 of theAct, the State Commission shall also be bound by the regulationsframed by it under Section 181(zd) read with Section 61 while itdischarges its function of determining the tariff under Section 86of the Act. However, if the guidelines issued under Section 63 orthe regulations framed under Section 181(zd) of the Act have notbeen notified or if the guidelines do not deal with given situation,then the Commission shall exercise its general regulatory powerunder Section 86(1)(a) of the Act to regulate tariff. [Para 85][681-E-F]

3.2 The TBCB Guidelines issued by the CentralGovernment under Section 63 of the Act prescribe the mechanismof the bidding process and do not lay down the criteria orguidelines for choosing between the alternative routes underSection 62 and 63 of the Act. MERC has neither notified anyRegulations under Section 181 nor has it notified the terms andconditions under Section 61 of the Act. That being the case, theCommission could choose the modality of tariff determination bytaking recourse to the general regulatory power under Section86. [Para 87][683-G-H; 684-A]

4.1 The nature of NTP- binding or material consideration

Even in the absence of guidelines under Section 61 orRegulations under Section 181 (zd), the Commission does notpossess unbridled power or discretion while choosing themodality to determine tariff. Sub-Sections (3) and (4) of Section86 provide that the State Commission while discharging its

[2022] 19 S.C.R.

Afunctions must ensure transparency and ‘shall be guided’ by theNTP and NEP. [Para 88][684-B-C]

4.2 Both NTP 2006 and NTP 2016 as general rule prescribecompetitive bidding for determination of tariff for all ‘newprojects’. There are two prominent differences between NTP 2006Band NTP 2016. Firstly, the projects owned or controlled by theGovernment were exempted from bidding under NTP 2006.However, according to NTP 2016, the tariff for government ownedprojects is also to be determined by bidding, unless otherwisespecified. Secondly, NTP 2016 introduced the threshold limit rule.State Commissions are required to notify the threshold limit. IfCthe cost of the project exceeds the threshold limit, then theCommission is mandated to follow the bidding process for thedetermination of tariff. NTP 2016, by providing that state ownedprojects are not exempted from the TBCB process, hasimplemented the object of the Act, which is to create fine balanceDbetween promoting competition and protecting the interests ofthe consumers. NTP 2006 was formulated with the objective ofenhancing the participation of private players in the generation,transmission and distribution of electricity. The CentralGovernment adopted policy decision to introduce the biddingprocess for the determination of the tariff for all new transmissionEprojects in 2006 but excluded its application to State projects.However, the distinction between State and private parties forthe purpose of tariff determination through bidding was removedin NTP 2016. This transition between NTP 2006 and NTP 2016depicts the intention of the Government to rationalise the tariffFpolicy and to transfer the benefits of the rationalised tariff to theconsumers. According to NTP 2016, the tariff for all newelectricitytransmission projects that cost above the threshold amountnotified by the State Commission shall be determined throughbidding. However, the MERC had not notified the threshold limit

as on the date when it passed the order granting transmissionGlicence to AEML-T. MERC notified the Maharashtra ElectricityRegulatory Commission (Multi Year Tariff) Regulations 2019under Section 181 of the Act. The MERC MYT Regulations doesnot provide the guidelines or the criteria for the choosing themodality of tariff determination. The guidelines for choosing theH

modalities are sought to be introduced by the MaharashtraElectricity Regulatory Commission (Multi Year Tariff) (FirstAmendment) Regulations 2022. MERC circulated the draft ofthe MERC MYT Amendment Regulations on 19 August 2022for comments, suggestions and objections. [Paras 90-92][684-G-H; 685-A-G]

4.3 When the application seeking licence for the HVDCKudus- Aarey transmission project was filed, and when it wasgranted by MERC, the threshold limit as required to be providedby NTP 2016 was not notified by MERC. Thus, the question iswhether in the absence of any notification of the threshold byMERC, would MERC still be mandated to determine tariff forthe transmission project through the TBCB route in view of NTP2016. Merely because the threshold limit is not notified, it wouldnot mean that MERC only had to determine tariff through theRTM route. It is open to MERC to determine the tariff througheither the Section 63 or the Section 62 route. When MERC isexercising its general regulatory power under Section 86 todetermine tariff, the NTP is material consideration. Thus, theabsence of threshold limit would not affect the power that MERCholds to determine tariff (and its modalities). Since MERC hasthe power to regulate and determine tariff for the intra-statetransmission of electricity, the guidelines and regulations issuedby MERC, if any, must be analysed to determine if MERC wasmandated to choose one of the two routes for the determinationof tariff or whether it could exercise its discretion to choose themodality. [Paras 93, 100][687-D; 691-H; 692-A-C]

Energy Watchdog v. Central Electricity RegulatoryCommission (2017) 14 SCC 80 : [2017] 3 SCR 153;PTC India Ltd. v. Central Electricity RegulatoryCommission (2010) 4 SCC 603 : [2010] 3 SCR 609;Reliance Infrastructure Limited v. State of Maharashtra(2019) 3 SCC 352 : [2019] 1 SCR 886 – referred to.

5.1 The New - Old Conundrum

The 1000MW Aarey-Kudus HVDC project by AEMIL isan ‘existing’ or an ‘old’ project with reference to theGoM GR for the following reasons: Firstly, the

AGR does not provide or explain the meaning of the phrase ‘new’projects. Hence, MERC has the discretion to formulate itsunderstanding of the phrase ‘new’ projects so long as it isreasonable and does not rely on factors extraneous to the decisionmaking process. In view of the decisions of this Court discussedabove and the provisions of the Act, MERC has the power toBregulate tariff determination. MERC has not defined the phrase‘new’ projects through the regulations. In this situation, MERChas the discretion to interpret the phrase ‘new’ projects which itdid in the course of its judgment granting AEMIL the transmissionlicense. MERC held that generally the cancellation of approvalCwould amount to the closure of the project, unless the peculiarnature of the facts leads to an alternative conclusion (as in thiscase); Secondly, on applying the facts to the interpretation of thephrase ‘new’ project, MERC observed that the HVDC Kudus-Aarey project is not new project. APTEL, on appeal, upheldthe observations of MERC that it is an ‘existing project’. TheDappeal against the judgment of APTEL before this Court underSection 125 of the Act can only be on the grounds mentioned inSection 100 of CPC. Section 100 of the Code of Civil Procedure1908 stipulates that second appeal shall lie only if the court (inthis case the Supreme Court) is satisfied that the case involves aEsubstantial question of law. It is settled law that concurrentfindings of fact recorded by the fora below (MERC and APTEL)cannot be interfered with by this Court. [Para 106-106.2][695-F-H; 696-A-C, F-G]

DSR (Steel) Pvt. Ltd. v. State of Rajasthan (2012) 6 SCCF782 : [2012] 5 SCR 583 – referred to.

5.2 On 12 November 2007, MSETCL issued acommunication to CEA setting out the steps proposed to meetthe growing demand of power for Mumbai’s load centres. Thecommunication stated that TPC had proposed the setting up ofGoverhead lines and underground cables while REL had proposedconnections to Aarey by using the HVDC (VSC based) technology.MSETCL notified five-year plan for 2009-10 to 2013-14envisaging the use of the HVDC technology. The plan specificallyprovided for the ongoing schemes of R-infra together with newschemes including the HVDC based link between Nagothane andH

Aarey. Similar details were provided in relation to TPC’s ongoingand new schemes. Both TPC and R-infra were in the fray fromthe inception. While TPC was primarily in the overheadtransmission line segment, R-infra had proposed the setting upof transmission lines on the HVDC technology. The criticality ofthe HVDC technology assumes importance after the grid failurewhich Mumbai experienced in November 2010. The committeechaired by Professor of IIT recommended the HVDCtechnology as long-term solution for ensuring reliability of powersupply for Mumbai. MERC granted transmission licence to R-infra on 11 August 2011. R-infra submitted DPR to MERC forthe appointment of consultant for the transmission line fromNagothane to Aarey on 1 February 2013. On 7 March 2013,MSETCL confirmed that the Nagothane -Aarey project was partof the STU five-year plan for FY 2013-14 to 2017-18. MERCapproved the hiring of the consultant on 5 April 2013. Theapplication for the grant of grid connectivity for the proposedHVDC project was allowed on 21 August 2013. When matterswere thus progressing, in November 2013 MSETCL had in ameeting with R-Infra proposed that R-Infra can avail ofconnectivity from the Kudus sub-station which was closer to theAarey sub-station as compared to the sub-station at Nagothane.R-infra expressed its concern over the proposed revision on thepoint of connectivity. On 10 April 2014, MERC granted an in-principle clearance for the HVDC Scheme. In January 2015,MSETCL proposed revised scheme for where the 400KVKudus-Aarey HVAC scheme was proposed by MSETCL. On 2May 2016, the in-principle clearance granted to the Nagothane-Aarey HVDC Scheme was cancelled by MERC. [Paras 106.2.1,106.2.2][697-G-H; 698-A-H; 699-A]

5.3 However, since the HVAC scheme of MSETCL did nottake off, AEML-T submitted an application for HVDC Schemebetween Aarey to Kudus on 23 November 2018 where anamendment to the letter issued by MERC granting gridconnectivity to the 2 x 500 HVDC (VSC based) scheme fromNagothane to Aarey was sought. The narration of facts indicatesthat AEML-T(or its predecessor in interest) has been involvedin the execution of the HVDC Scheme since the inception of the

Ascheme. The cancellation of the in-principle approval accordedto AEML-T by MERC cannot be held to terminate the project inview of the peculiar background of this case. It is due to theindecisiveness of MSETCL on the HVDC and HVACtechnologies that AEML-T’s clearance was cancelled. The HVDCScheme was attributed to R-Infra or, as the case may be, AEML-BT since 2009. In the electricity regulatory sector, where the StateRegulatory Commissions and STUs’ have been functioning in anad-hoc manner running in many loops, the question of whetherthe project is an old or new project must be determined througha holistic purview of the factual background. In view of the aboveCfactual narration, it is evident that the HVDC Scheme is an oldproject and the change in the location of the injection point fromNagothane to Kudus would not lead to the closure of the oldproject. [Paras 106.2.3, 106.2.4][699-B-F]

6. Relevance of GoM GR for MERC’s Decision

The fixation of tariff falls within the independent statutorydomain of the Regulatory Commission. The State Governmenthas the power to issue directions to the State Commission inmatters of ‘policy involving public interest’ under Section 108 ofthe Act. While stating that the State Government may issueEdirections in matters of policy involving public interest, Section108(2) states that if any question arises as to whether suchdirection relates to matters of policy involving public interest,the decision of the State Government on it shall be final. Theprovision further states that the State Commission shall be guidedby the directions of the State Government in discharge of itsFfunctions. Section 108 deals with “directions in matters of policyinvolving public interest as the State Government may give to itin writing.” In the provision, the term ‘it’ refers to the StateCommission. The GoM’s GR does not mention the StateCommission and has not been issued as direction to the MERCGas envisaged in Section 108. Therefore, the HVDC Project is,firstly, an existing project in terms of the GoM GR, and secondly,the GoM GR has not been issued in terms of Section 108 as adirection to the State Commission. [Paras 111, 112][701-D-E, G-H; 702-A]

7.1 Relevance of GoM GR vis-à-vis MSETCL’s decisionH

It is clear from reading of the Development Guidelinesread with the functions of the State Utility in terms of Section39(2) of the Act that while the State Transmission Utility shall bethe apex authority for planning of intra-state transmission projects,the Empowered Committee is to identify projects to be undertakenunder the TBCB route. [Para 120][704-G-H]

7.2 It is clear that the MSETCL’s decision regarding theHVDC Project not being referred under the TBCB route was inline with the Empowered Committee’s directions which have beenset up in terms of the GoM GR and which has been granted thepower to select projects to be taken up under the TBCB route.[Para 127][707-D-E]

8.1 Conclusion

The Electricity Act, 2003 provides the States sufficientflexibility to regulate the intra-state transmission systems,wherein the Appropriate State Commissions possess the powerto determine and regulate tariff. The Electricity Act 2003 seeksto distance the State Governments from the determination andRegulation of tariff, placing such power completely within the ambitof the Appropriate Commissions. The provisions of the ElectricityAct 2003 do not prescribe one dominant method to determinetariff. Section 63 operates after the bidding process has beenconducted. Where the tariff has already been determined throughbidding, the Appropriate Commission has to adopt such tariff thathas been determined. The Appropriate Commission cannotnegate such tariff determined through bidding by using its powersunder Section 62. The tariff determined through the biddingprocess may not be adopted by the Appropriate Commission onlyif the bidding process was not transparent (undertaking asubstantive review) or the procedure prescribed by the CentralGovernment guidelines under Section 63 was not followed(undertaking procedural review). Sections 62 and 63 stipulatethe modalities of tariff determination. The non-obstante Clausein Section 63 cannot be interpreted to mean that Section 63 wouldtake precedence over Section 62 at the stage of choosing themodality to determine tariff. The criteria or guidelines for thedetermination of the modality of tariff determination ought to be

Anotified by the Appropriate State Commission either throughRegulations under Section 181 of the Act or guidelines UnderSection 61 of the Act. MERC has neither framed Regulationsnor notified guidelines prescribing the criteria or guidelines forchoosing the modalities to determine tariff. Thus, MERC shalldetermine the tariff by exercising its general regulatory powersBunder Section 86(1)(a) of the Act. MERC while exercising itsgeneral regulatory powers under Section 86(1)(a) shall be guidedby the NTP 2016, which shall be material consideration.Accordingly, while NTP 2016 requires intra-state transmissionprojects above the threshold limit to be allotted through theCTBCB route, this constitutes material consideration to be takeninto account. The threshold value in the case of Maharashtra hasnot yet been notified by MERC. The threshold limit not havingbeen notified by MERC, it was open to MERC to allot the HVDCproject either under the RTM or the TBCB route. MERC andAPTEL have arrived at concurrent findings that the 1000 MWDHVDC Aarey-Kudus project is an ‘existing project’ for thepurpose of the applicability of the GoM’s GR 2019. This Courtdeciding statutory appeal under Section 125 of the Act cannotinterfere with the concurrent findings on question of fact.Nonetheless, even on an independent assessment of the facts,Ethe HVDC project is an existing project. Even if the HVDCProject were to be considered ‘new project’ in terms of theGoM’s GR, the same not having been issued in terms of Section108 as direction to the State Commission, MERC’s decisioncannot be challenged for failing to comply with the same as MERCis an independent body with statutory powers to determine andFregulate tariff. MSETCL has acted in terms of the GoM’s GR asit has referred the HVDC project to the Empowered Committeeand the decision to not refer the HVDC project under the TBCBroute was in line with the Empowered Committee’s directions.The Empowered Committee has the power to select projects toGbe taken up under the TBCB route under the GoM’s GR. [Para128][707-F-H; 708-A-H; 709-A-D]

8.2 The Electricity Act 2003 or the policy framework,particularly NTP 2016 read with the GoM GR dated 4 January2019, did not make it binding upon MERC to allot the HVDCHproject only through the TBCB route. The Regulatory

Commission’s decision to grant the HVDC project under Section62 was within reasonable exercise of its powers. [Para 129][709-E]

8.3 This case has brought the ad-hoc nature of thefunctioning of the STU to the notice of this Court. MSETCL hasbeen changing its stance on the HVDC technology withoutfollowing any due procedure. The flip-flops by MSETCL haveled to the loss of time and investment while the demand in theelectricity sector has been increasing exponentially. In mattersdealing with electricity regulation, the regulatory commissionsand the transmission utilities are usually bogged down by factorssuch as technological uncertainty, requirement of heavyinvestment and issues of right of way. The ad- hoc functioning ofthe transmission utilities is also attributable to the lacunae in theregulations guiding the exercise of their functions. The ElectricityAct 2003 was enacted with the objective of providing the Stateswith sufficient flexibility to regulate the intra-state electricitysystem and simultaneously provided the regulatory commissionswith the power to determine tariffs. Though the Government,both at the Centre and in the States, have framed statutorypolicies and guidelines regulating the electricity sector, theRegulatory Commissions have not framed the necessaryregulations to put into effect the principles prescribed under theAct. All State Regulatory Commissions are directed to frameRegulations under Section 181 of the Act on the terms andconditions for determination of tariff within three months fromthe date of this judgment. While framing these guidelines ondetermination of tariff, the Appropriate Commission shall beguided by the principles prescribed in Section 61, which alsoincludes the NEP and NTP. Where the AppropriateCommission(s) has already framed regulations, they shall beamended to include provisions on the criteria for choosing themodalities to determine the tariff, in case they have not beenalready included. The Commissions while being guided by theprinciples contained in Section 61 shall effectuate balance thatwould create sustainable model of electricity regulation in theStates. The Regulatory Commission shall curate to the specificneeds of the State while framing these regulations. Further, theregulations framed must be in consonance with the objective of

Athe Electricity Act 2003, which is to enhance the investment ofprivate stakeholders in the electricity regulatory sector so as tocreate sustainable and effective system of tariff determinationthat is cost efficient so that such benefits percolate to the endconsumers. [Paras 130, 131][709-F-H; 710-A-E]

BGovindaraju v. Mariamman (2005) 2 SCC 500 : [2005]1 SCR 1100; Hari Singh v. Kanhaiya Lal (1999) 7 SCC288 : [1999] 2 Suppl. SCR 216; RamaswamyKalingaryar v. Mathayan Padayachi (1992) 1 Supp SCC712; Kehar Singh v. Yash Pal (2015) 7 SCC 769;Bismillah Begum v. Rahmatullah Khan (1998) 2 SCCC226 : [1998] 1 SCR 284 – referred to.

From the Judgment and Order dated 18.02.2022 of the AppellateFTribunal for Electricity in Appeal No.280 of 2021.

Shyam Divan, Sr. Adv., Shri Venkatesh, Ms. Kanika Chugh, NitinSaluja, Suhael Buttan, Siddharth Joshi, Vineet Kumar, Anant Singh, Advs.for the Appellant.

Dr. A.M. Singhvi, Vikas Singh, Sr Advs., Ms. Deepa Chawan,GMahesh Agarwal, Hemant Singh, Arshit Anand, Ms. Geetika Sharma,Harshit Singh, Mridul Chakravarty, Biju Mattam, Lakshyajit SinghBagdwal, Ms. Lavanya Panwar, Ms. Reshma Nathani, E. C. Agrawala,Ms. Deepieka Kalia, Kapish Seth, Ms. Priyanka Khosla, BuddyRanganathan, Ms. Prititi Rungta, Sumit Pargal, Ms. Amita Singh Kalkal,HSudhanshu S. Choudhari, Rahul Chitnis, Sachin Patil, Aaditya A. Pande,

Geo Joseph, Ms. Shwetal Shepal, Durgesh Gupta, Advs. for theRespondents.

The Judgment of the Court was delivered by

DR. DHANANJAYA Y CHANDRACHUD, CJI

glossary of defined terms used in the judgment has been providedbelow:

ARInfra Reliance Infrastructure Limited RTM Regulated Tariff Mechanism STU State Transmission Utility TBCB Tariff Based Competitive Bidding BTBCB Guidelines Tariff Based Competitive Bidding Guidelines for Transmission Service issued by the MoP dated 13.04.2006 TPC-T/ appellant Tata Power Company Limited Transmission VSC Voltage Source Converter CThis judgment has been divided into the following sections tofacilitate analysis:

A. The Facts.........................................................................5*

B. Proceedings before the MERC and APTEL................. 27*DC. The Submissions ............................................................ 34*

D. Regulatory Framework ................................................. 37*D. 1 Electricity Act 2003 .............................................. 37*D.2 Policy framework .................................................. 42*E

D. 2.1 Central Policies ............................................. 42*D. 2.2 State Policies................................................. 47*

E. The Analysis .................................................................. 48*E. 1 Section 63: The dominant route or the alternativeFroute............................................................................... 49*

E. 1.1. The value of TBCB Guidelines prescribedunder Section 63....................................................... 54*GE. 2 General Regulatory Power of the AppropriateCommission ................................................................... 56*

E.2.1 The nature of NTP- binding or amaterial consideration............................................... 61*H*Ed Note : Pegination is as per the original judgment.

TATA POWER CO. v. MAHARASHTRA ELECTRICITY REGULATORYCOMMISSION [DR. DHANANJAYA Y CHANDRACHUD, CJI]

1. APTEL, by its judgment dated 18 February 2022, dismissed anappeal under Section 111 of the Act instituted by the appellant against adecision of MERC dated 21 March 2021.

2. On 21 March 2021, MERC granted transmission licence toAEMIL under Sections 14 and 15 of the Act for setting up 1000 MWHVDC (VSC based) link between 400 kV MSETCL Kudus and 220kV AEML Aarey EHV Station.

3. The appellant challenged MERC’s order before APTEL, interalia, on the ground that the grant of the licence was not preceded by aTBCB process. TPC-T contended that the failure to adhere to TBCBprocess pursuant to Section 63 was contrary to public interest andstatutory mandate. APTEL dismissed the appeal. This has given rise toa statutory appeal under Section 125 of the Act.

A. The Facts

4. On 12 November 2007, MSETCL issued communication toCEA stating, inter alia, that it was difficult to lay overhead AC lines tobring power from the new 400kV sub-station, which was required tomeet Mumbai’s growing demand of power, to Mumbai’s load centresdue to constraints. Hence, it was proposed that VSC based HVDCtechnology may be utilised to connect the new sub-station with majorload centres in Mumbai through DC cables. In that context, the letterstated:

“M/s. Reliance energy (REL) and M/s. TATA Power Co. Ltd.(TPC) has carried out necessary survey and accordingly M/s.REL has proposed to connect Mumbai new location to Ghodbunderpartly by overhead line and partly by underground cables. Further,

AM/s. REL also proposed to connect Mumbai New Locationto Aarey by HVDC (VSC based technology).

M/s. TPC has planned to establish 220 kV substation at Vikhroliand have existing Salset, Dharavi and Trombay substations. Thesesubstations will be fed from 400 kV proposed substation atBGhatkopar.

Thus the major load centres in Mumbai will be fed as below.

Colaba area will be fed by 220KV Dharavi S/S (Tata)

Andheri area will be fed by 220KV Versova & Aarey S/S (REL)

Bandra area will be fed by 220KV Aarey S/S

Maharashtra State Transmission Company Ltd. (MSETCL) hasalso proposed to connect 400KV Mumbai New Location with400KV New Mumbai (Panvel) for system strengthening.

State Transmission Utility (STU) office would appoint ConsultantDwho is having sufficient knowledge in VSC based HVDCtechnology for finalizing the scheme, subject to M/s REL agreeingto bear the cost of the same.”

(emphasis supplied)

EREL envisaged transmission project by deploying HVDC (VSC)based technology, where the load/evacuation point for the power to bereceived into Mumbai city was at Aarey. Both REL and TPC-T were toparticipate in identifiable segments for bringing power to Mumbai’s loadcentres.

5. On 5 May 2009, MSETCL notified five-year plan for theperiod 2009-10 to 2013-14. The plan included the Nagothane-AareyHVDC link. Likewise, details of the on-going and new schemes of TPC-T were also provided. In terms of the plan, REL was to execute theNagothane - Aarey transmission project.

6. In November 2010, Mumbai experienced partial griddisturbance. Committee chaired by Professor Dr SA Khaparde of IITMumbai was constituted to study the situation. The Committeerecommended adopting the HVDC technology as long-term solutionfor ensuring the reliability of power supply for Mumbai for the proposedtransmission project with 2 x 350 MW HVDC voltage source converter

based transmission link for Mumbai. This was identified as criticalbulk power injection scheme.

7. On 13 May 2011, RInfra submitted an application under theprovisions of Section 14 and 15 of the Act for the grant of transmissionlicence for the entire State of Maharashtra. By an order dated 11 August2011, MERC observed that R-Infra cannot be granted transmissionlicence for the entire State of Maharashtra as paragraph 5.1 read with7.1.6 of NTP 2016 mandated TBCB for transmission services. Instead,MERC granted RInfra transmission licence to establish and operatespecific transmission lines for period of twenty-five years. Thetransmission lines in respect of which the licence was granted to R-Infra were specified in the communication dated 11 August 2011.

8. On 2 November 2012, the report of the HVDC sub-committeefor finalization of the consultant noted the reasons for adopting HVDC(VSC) based technology to meet the power demand for Mumbai. Thefollowing extract indicates that after exploring various operations it wasfound that connectivity at Nagothane was suitable. On the other hand,Aarey being major load centre was “suitable sink point forconnection”:

“The First Meeting of the Sub-Committee was held on 28.08.2012,where in following as discussed and agreed upon

Following requirements were discussed & considered:

i. Classic HVDC has limited capability of Active / Reactive Powercontrol, whereas VSC HVDC has dynamic control of Active &Reactive Power Control

ii.Classic HVDC has no Blackstart facility; whereas VSC HVDChas blackstart facility which can be major support to revive Gridfailures.

iii. Classic HVDC requires more footprints. VSC HVDC beingcompact and modular in design hence it requires only 30% footprintarea to setup converter station

iv. Short Circuit levels are increasing, hence HVDC link to Mumbaishall be ideal

To meet the above, it is concluded that, 2x500 MW HVDC VoltageSource Converter (VSC) based technology for Mumbai is essential.

AFor connectivity with the grid, various options were explored andit is concluded that electrical connectivity at Nagothane is suitable.Similarly Aarey, being the major load centre, it is concluded thatAarey is the suitable sink point for connection.”

9. On 1 February 2013, RInfra submitted DPR to MERC forBthe appointment of consultant for its proposed 2 x 500 MW HVDC(VSC) based transmission line from MSETCL’s 400 kV Nagothanestation to the 220 kV Aarey sub-station.

10. On 5 April 2013, MERC addressed letter to R-Infra, grantingit in-principle clearance for hiring consultant for the Nagothane-AareyCHVDC Scheme to study the system and assist in the selection and designof the technology and bidding process of the DPR. However, it wasnoted that the ‘in-principle’ clearance should not be construed as finalapproval for the purposes of the Annual Recurring Revenue and thescheme would be open to scrutiny during the tariff determination process,particularly in the context of actual cost incurred, scope and objectiveDachieved. MERC approved the hiring of the consultant for theimplementation of R-Infra’s transmission projects. R-Infra was directedto submit quarterly progress reports on the transmission projects basedon HVDC technology.

11. The five-year plan is submitted by MSETCL in terms of SectionE39 of the Act and Regulation 8 of the MERC (State Grid Code)Regulations 2006. On 7 March 2013, MSETCL in communication toMERC confirmed that the following scheme was being considered inthe five-year plan for 2013-14 to 2017-18 for the Mumbai Metropolitanregion:

12. On 19 March 2013, RInfra submitted an application to MSETCLseeking grid connectivity for the Nagothane-Aarey HVDC Scheme.This was allowed on 21 August 2013 by MSETCL. The letter detailed

out the scope of the work to be carried out by R-Infra and specified theconditions for compliance.

13. On 20 November 2013, meeting was held between MSETCLand R- Infra to discuss and review the HVDC connectivity to the Aareysub-station. In the meeting, MSETCL proposed availing of connectivityfrom the 400kV Kudus substation instead of the 400kV substation atNagothane. The reason for the change in the point of connectivity beingsought from Nagothane as originally envisaged to Kudus was as follows:

• Director (Operations) suggested that R-Infra can availconnectivity from 400 KV Kudus (MSETCL) Substation whichis much near to Aarey Substation (R-Infra) as compared to 400KV Nagothane (MSETCL) substation (125 km). Proposed 400KV Kudus (MSETCL) Substation will be commissioned within 2years. 400 KV Kudus S/S will have strong source of 765 KVKudus (PG) and other 400 KV network from Vapl(PG) 400Bubheswar MSETCL), 400 KV Nashik (MSETCL) 400 KVPadgha (MSETCL) 400 KV Bolsar (PG) compared to 400 KVNagothane (MSETCL) S/S. Therefore 400 KV Kudus Substationis better option for HVDC connectivity. The route cable linkagecost will be considerably lower.

• Chief Engineer (STU) submitted that when original plan wasmade for R-Infra HVDC project, the 400 KV Kudus s/s(MSETCL) was not in the STU plan but now it has been includedI STU plan. Therefore it should be examined positively for HVDCconnection with Aarey. The cost of the project will be reducedconsiderably.”

Evidently, R-Infra had reservations about revising the point forHVDC connectivity from Nagothane to Kudus. The Minutes of theMeeting of 20 November 2013 indicate those concerns:

“R-infra expressed their concern to consider the revision of scopeof connectivity which was decided by standing committee. R-infra already initiated procurement of land near Nagothane(MSETCL) and detail survey. All required clearance proposalsare initiated by R-Infra for which approvals are in pipeline andat this stage it is very difficult to consider the new proposal.”

The Director (Operations) of MSETCL advised R-Infra, whileagreeing to its concerns, to nonetheless examine the suggested proposaland submit its comments.

14. On 14 February 2014, R-Infra submitted DPR for thetransmission link between Nagothane and Aarey under the HVDC (VSC)Bproject. On 10 April 2014, MERC granted in-principle clearance to R-Infra for the Nagothane-Aarey HVDC Scheme. R-Infra was intimatedthat the in-principle approval was subject to it filing petition for theamendment of its transmission licence. It was also mentioned that thein-principle clearance should not be construed as final approval forAnnual Recurring Revenue purposes and that the scheme will be openCfor scrutiny during tariff determination:

“5. Please note that this in-principle clearance should not beconstrued as final approval for ARR purpose and the scheme willbe open for scrutiny during tariff determination process/ARRreview, particularly in the context of actual cost incurred, scopeDand objective achieved etc. ex-post after implementation of thescheme. RInfra-T will be required to submit the status ofimplementation of the scheme with cost incurred till date alongwith their ARR Petition or during the tariff determination processat the appropriate time.

7. Immediately after the completion/commissioning of the scheme,R-Infra-T should communicate to the Commission, the date ofcompletion of the scheme, actual cost incurred, escalation in cost,if any with reasons, the scope and objectives of the scheme andFto what extent they have been achieved, etc. so as to facilitate acomparison between the in-principle clearance and the actual.”

15. On 5 January 2015, MSETCL proposed revised scheme forstrengthening Mumbai’s transmission system to MERC. MSETCLproposed that it would establish 400kV Kudus – Aarey HVAC scheme.GThe reason for substituting the HVDC project to be executed by R-Infra with MSETCL’s HVAC transmission link from Kudus to Aareywas clarified in paragraph 9 of the letter which has been extracted below:

“9) In view of above, the HVDC project of R-Infra T is reviewedconsidering uncertainties in source generation and upcoming strongHsource of 400 KV Kudus at much shorter distance (approx. 80km)

than 400 KV Nagothane S/s. Therefore, considering the abovechanges in network configuration, it is proposed to establish 400KV substation in Mumbai for the enhancement of Transmissioncorridor capacity to Mumbai system through 400 KV D/C Quadline from 400 KV Kudus (MSETCL) substation. This will enhancethe transmission capacity by 1500-2000 MW.”

The scope of the scheme proposed by MSECTL was delineatedin paragraph 11 of the communication which is extracted below:

“11) The scope of proposed scheme for above purpose is as givenbelow:

i) 400 KV Kudus (MSETCL)-400 KV Aarey (MSETCL) D/Cquad line-80 km.

ii) 400/200 KV, 2x500 MVA ICTs.

iii) 200 KV Interconnection between 400/220 KV Aarey andproposed 200 KV Goregaon Film city with bays.

iv) 6x200 KV bays for 220 KV interconnection with TPC and RInfra (T) lines.

v) 400 KV spare bays for interconnection with 400 KV Vikhroli(TPC).

vi) 400/220 KV, 2x500 MVA ICTS for future expansion.

The scheme of establishment of 400 KV Aarey (MSETCL)Mumbai will be included in five year STU Pan 2015-16 to 2019-20 for commissioning during 2017-18. The HVDC project standscancelled for the reasons as mentioned above. Necessary DPRof the scheme will be submitted to Hon’ble Commission in duecourse of time for in-principle clearance.”

In other words, instead of R-Infra developing transmission linkbetween Nagothane and Aarey using the HVDC technology, MSECTLproposed to establish the link between Kudus and Aarey itself usingHVAC technology by including it in the five-year plan for 2015-16 to2019-20.

16. On 23 January 2015, R-Infra addressed communication toMSETCL responding to the communication dated 5 January 2015. R-Infra responded to the proposal of the substitution of the HVDC (VSCbased) scheme from Nagothane to Aarey with an overhead transmission

Aline from Kudus to Aarey to be executed by MSETCL. The letter notedthat:

(i)The approved HVDC Scheme had been recommended bythe Standing committee appointed by MERC;

(ii)The HVDC project which was envisaged with VSC basedBtechnology had significant technological advantages overthe HVAC technology proposed by MSETCL; and

(iii)In the past, Power Grid Corporation of India Limited andMSETCL had cancelled proposed HVAC transmission linesfor bringing power into Mumbai or terminated them outsideCMumbai on account of severe right-of-way constraints inand around Mumbai.

R-Infra therefore reiterated that the HVDC – VSC based schemeas approved should be continued. However, R-Infra indicated that theinjection point could be relocated to Kudus while retaining the HVDCDScheme for bulk power injection to Mumbai.

17. On 2 May 2016, MERC cancelled the in-principle approvalaccorded to R-Infra’s HVDC Scheme. The letter of cancellation isextracted below:

“This has reference to review report of approved capexESchemes submitted by RInfra-T vide letter dated 5 April2016;

1)RInfra – T has submitted the review of 7 schemes, as inspiteof having been approved by the Commission long back, thework against the schemes are yet to be initiated for variousFreasons.

2)R-Infra-T has submitted as follows;

a)3 Schemes (EHV Scheme for 220KV Golibar S/s,220 kV Dahisar Housing S/s & 220 kV Airport S/s)Gamounting to Rs.600.51 Crore will be submitted forrevised approval after allocation of land.

b)2 Schemes (HVDC Consultancy, 2x500 MWHVDC Scheme) amounting to Rs.7103.99Crore are kept on hold as the STU reply isawaited.

c)I Scheme (Land DPR) amounting to Rs.232.55 Croreis withdrawn as the approved land cost is alreadyconsidered in the respective DPR schemes.

d)Regarding the Scheme of establishment of Nagri-Niwara substation amounting to Rs.460.59 Crore,RInfra has submitted that it has executed part, i.e.,Bthe cable laying portion between RInfra Aarey andMSETCL Borivali stations, as MSETCL has proposedEHV station in the same area catering to RInfra-D& MSEDCL load and the substation portion isproposed for withdrawal.

3)Due to change in scope of work of RInfra-T (i.e. establishingcable connectivity between RInfra-T Aarey & MSETCLBorivali without installing Nagri-Niwara substation), Rinfra-T is required to take revised approval of the scheme alongwith STU recommendation for such change.

4)In view of the above, I am directed to communicate that inprinciple approvals given to DPRs submitted by R Infra-Tfor EHV Scheme for 220 kV Golibar S/s, 220kV DahisarHousing S/s, 220 kV Airport S/s, Land DPR, HVDCconsultancy, HVDC Line& substation portion of Nagri-Niwara scheme stand cancelled.”

(emphasis supplied)

18. On 22 December 2016, MSETCL submitted its five-year planfor FY 2016-17 to 2021-22 wherein the HVDC Scheme was removed.The HVDC Scheme was not included in the 5-year plan submitted forthe FY 2017-18 to 2022-23. On 29 August 2018, AEML acquired R-Infra.

19. At this stage, it is material to note that the appellant, TPC-T,had submitted DPR for commissioning 400kV receiving station atVikhroli which was approved by MERC on 2 June 2011 with capitalGcost of Rs 846.19 crores. In terms of the DPR, the work was to becompleted in March 2015. TPC-T proposed revised timelines for thecompletion of the scheme in financial year 2017-18 on the ground thatthe approval required for it including clearances from Ministry ofEnvironment, Forest and Climate Change and the Airport Authority ofIndia were at various stages and the land required was in the final stageH

Aof being taken into possession. By its order dated 12 September 2018,MERC noted that TPC-T has submitted revised DPR twice, pursuantto which it had approved the extension of the target plan date to March2017 and later, March 2019. TPC-T proposed revised completion dateof March 2022. Noting the absence of any progress in the scheme ofTPC-T, MERC closed the scheme. It observed:B

“7.12.1 As regards, 400 kV Receiving station at Vikhroli, theCommission notes that TPC-T had submitted its DPR forcommissioning of 400 kV Receiving Station at Vikhroli and theCommission has approved the same oa2 June, 2011 with capitalcost of Rs. 846.19 Cr. In the DPR, TPC-T had submitted that theCwork shall be completed in March, 2015.”

“7.12.8 Based on TPC-T’s submissions in the present Petition,the Commission further notes, TPC-T had envisaged imminentload requirement and exponential increase in the powerrequirement due to large scale development in residential andDcommercial properties (especially in Godrej area) at Vikhroli andaround area. In actual, the predicted load growth has not come upin the area.”

“7.12.9 Considering above, the Commission noted that STU hasobserved that there is an inordinate delay in completion of thisEscheme and suggested to take up this scheme under Tariff BasedCompetitive Bidding (TBCB) route. The Commission is concernedabout the approach adopted by TPC-T for execution of thescheme. This scheme is being treated as deemed closed by theCommission and the Commission directs STU to take review ofFsuch critical schemes and propose way forward. STU is directedto submit its report to the Commission on review of TPC-T’sproposed 400 kV Vikhroli Receiving Station within month.”

The Vikhroli transmission scheme which envisaged the setting upof 400kV receiving station by the appellant was hence deemed to beGclosed by MERC on the ground of TPC-Ts inordinate delay in completion.The project was instead suggested to be allotted through the TBCBroute.

20. On 23 November 2018, AEML submitted proposal toMSETCL indicating that in view of the severe constraints on theconstruction of overhead lines in and around Mumbai, the 400kV AareyH

– Kudus overhead transmission scheme of MSETCL “never took off”.Hence AEML proposed the development of 2 x 500 MW HVDC(VSC) based link between Kudus and Aarey and the inclusion of theproject in the transmission licence of AEML. AEML submitted revised‘connection application’ for carrying bulk power from the state grid toMumbai; an amendment to the earlier application over which gridconnectivity for the Nagothane-Aarey HVDC project was granted byMSETCL on 21 August 2013; and for the grant of connectivity andimplementation of the 2 x 500 MW HVDC (VSC) link.21. TPC-T sought review of the order dated 12 September2018 by MERC cancelling its licence for the Vikhroli transmissionscheme. On 29 January 2019, the review petition was dismissed byMERC reiterating its earlier reasoning that TPC-T had substantiallydelayed the project and noting that there was no defect or error apparenton the face of the record.

22. On 28 May 2019, MSETCL submitted its five-year plan for2018-19 to 2023-24 to MERC under which the HVDC Scheme wasincluded as an additional scheme within the scope of AEML-T. The planincluded the Aarey-Kudus HVDC Scheme by AEML-T and was madeavailable on the website of MSETCL.

23. AEML-T sought the suggestion of CEA on VSC basedunderground cable system for bulk power injection into the existingnetwork of Mumbai. CEA in its communication dated 13 June 2019stated that it had held meetings on 8 May 2019 and 31 May 2019 withMSETCL, AEML-T and TPC-T besides the central transmission utility.The communication noted that in those meetings there was consensusfor planning transmission scheme of feeding power to the Mumbairegion in the time frame of 2025-26 and 2030 based on studies. AEML-T and TPC-T were requested to provide substation wise load data withany additional transmission element which was planned in the abovetime frames. In response, both AEML-T and TPC-T furnished sub-station wise load for 2024-25 and details of the transmission schemesplanned during 2024-25. Load flow studies were also carried out for2024-25 conditions considering all schemes planned by AEML-T andTPC-T till 2024-25 and schemes of the STU until 2021-22. The primaryfindings which were recorded by the CEA were in the following terms:

“1.0 Transmission elements which are not N-1 compliant

i) Borivali – Array 220 kV D/c line ( caters to MMR load)

ii) Kalwa – Mulund 220 kV S/c line (2 ckts) ( caters to load ofMulund and Bhandup which are outside MMR)

2.0 High loadings on transmission elements ( 400/220 kV ICTsand 220 kV lines) with N-1 contingency criteria

i) 400/220 kV ICTs at Kalwa S/s

ii) 400/220 kV ICTs at boisar (PG) S/s

3.0 Loading above 300 MW on 220 kV substations

i) 220 kV Array S/s

ii) 220 kV Dharavi S/s

iii) 220 kV Carnac S/s

iv) 220 kV Varsosa S/s (AEML)

4.0 With provision of 1000 MW feed from Kudus to Array it isobserved that

i) All transmission elements are N-I compliant (except for Kalwa-Mulund 220 kV S/C lines – 2nos. This can be overcome by LILOof either Kalwa-Trombay 220kV S/C line or Kalwa-Borivali 220kV S/C line at Mulund or by shifting of LILO at Bhandup fromMulund – Borivali 220 kV line to Kalwa-Borivali 220 kV line

ii) The loadings on transmission elements are reduced.”

24. CEA, in view of above findings found that the Kudus-Aarey1000MW HVDC link will provide ‘in feed’ to Mumbai and increaseFreliability. Moreover, since the link was based on VSC technology itwould help in voltage regulation. Keeping the power requirements inconsideration, CEA proposed that the possibility for another 1000 MWmay be explored along with the Kudus to Aarey HVDC link. Based onthe study report of CEA, MSETCL by letter dated 27 June 2019confirmed that the Kudus-Aarey 1000MW HVDC link may be requiredGfor pushing additional power into Mumbai as the link creates separateand additional transmission corridor.

25. On 28 June 2019, MERC issued letter to MSETCL directingit to take necessary steps for the expeditious execution of Kudus-Aarey1000 MW HVDC link by AEML-T according to the five-year

transmission plan of the STU dated 28 May 2019. MERC’s letter tooknote of the fact that based on the study report of CEA whichrecommended the Kudus-Aarey 1000MW HVDC based transmissionproject for increasing reliability and voltage regulation, MSETCL wouldtake necessary steps for expeditious execution of the project in terms ofthe five-year transmission plan:

“5. Considering the STU Plan of incorporating 2 x 500 MW Kudus-Aarey HVDC link, CEA’s load flow study recommending 1000MW Kudus-Aarey HVDC link for Mumbai region, and STU’sconfirmation vide its letter dated 27.06.2019, the Commissiondirects MSETCL/STU to take all necessary steps for expeditiousexecution of Kudus-Aarey 1000 MW HVDC link by AEML-T asper 5 Year Transmission Plan of STU dated 28.05.2019communicated to Commission. The Commission further directsMSETCL/STU to take similar steps for expeditious execution ofthe other Mumbai Transmission schemes proposed in its STUplan with the likely modifications as referred in the letter of STUdated 27 June 2019 under reference at sl.no. 7 above.”

26. On 23 September 2019, TPC-T instituted an appeal beforeAPTEL against MERC’s order dated 12 September 2018 providing fora deemed closure of its Vikhroli scheme. In its order dated 23 September2019, APTEL noted that there was an inordinate delay of eight years onthe part of TPC-T as consequence of which the project was directedto be placed under the TBCB route. APTEL held that TPC-T had nottaken adequate steps since 2011 to ensure the completion of the project,which was envisaged in the interest of the consumers of Mumbai:

“77. The contention of the Appellant that if the implementation ofscheme under TBCB is allowed, it would further delay the schemein question is not acceptable to us, since in the TBCB process thescheme has to be executed on timely basis, which also optimisesthe cost of the project thereby reducing the financial burden onthe consumers. The Appellant, right from 2011 till date, has nottaken any active steps to achieve the completion of the project,which helps the consumers of Mumbai. Now, at this stage, theAppellant claims that it has put in lot of efforts and is ready tocomplete the project. The Appellant was also permitted toparticipate in the TBCB process. Therefore, the observation ofthe Commission pertaining to delay in implementing the scheme

648SUPREME COURT REPORTS

Ain question by 8 years cannot be found fault with. In the aboveparagraphs several observations on facts are made how theAppellant moved at snail’s pace to start and implement the project.The TBCB process is in conformity with the tariff policy notifiedby the Ministry of Power, Government of India. As far as the socalled efforts and the expenditure made, if any, by the Appellant,Bthe Respondent-Commission has made observations that’ the saidamount spent/claimed by the Appellant has to be refunded to theAppellant since it is part of conditions of the bid in question.”

27. On 2 December 2019, AEML-T filed petition seeking toamend its licence so as to include the HVDC project since the licenceCissued to AEML-T was line specific, which means that it authorizedAEML-T to create, operate and maintain assets that were specificallyidentified in the license. TPC-T filed its objections in response to publicnotice issued by AEML-T, on the ground that the HVDC Scheme shouldbe executed under the TBCB route in terms of GoM’s GR dated 4DJanuary 2019. On 15 January 2020, MERC sought the recommendationsof the STU on the amendment application made by AEML-T. On 22January 2020, the STU indicated that the HVDC project was proposedin the agenda in forthcoming EC meeting for being considered underthe TBCB route.

E28. On 30 March 2020, MERC issued its multi-year tariff order incase No 297 of 2019 filed by AEML-T stating that:

(i)The HVDC project was referred to the EC whose decisionwas awaited;

(ii)The decision on implementing the HVDC project was to beFtaken in the amendment application or in any otherproceedings. The relevant observations are extracted below:

“2.1.21 Further, AEML-T has already filed its Petitionin Case No. 195 of 2019 seeking of its TransmissionLicence which also includes the proposed HVDCGscheme. The Petition for Transmission Licenceamendment is under consideration with the Commission.

2.1.22 As regards the project to be undertaken underTBCB, the STU vide its letter dated 22 January, 2020has submitted that the 1000 MW HVDC Kudus-AareyHschemes has been referred to the Empowered

Committee formed by the Govt. of Maharashtra andthe decision of Empowered Committee is awaited.

2.1.23 In view of the above, the Commission will decideregarding the HVDC scheme during proposedTransmission Licence Amendment of AEML-T in CaseNo. 195 of 2019 or any other proceedings as deemedappropriate.”

29. In paragraph 5.3.12 of its order, MERC noted that the HVDCScheme was critical for strengthening the Mumbai transmission corridorand observed:

“5.3.12 In continuation to the above, the Commission, as discussedin Paras 2.1.19 to 2.1.23 of this Order considers the timelyimplementation of the schemes pertaining to the strengthening ofthe Mumbai transmission corridor viz. Interconnection Point atVikhroli and HVDC scheme, as very critical. The HVDC schemeis already part of the STU Five Year Plan (FY 2018-19 to FY2023-24) and as per the plan, the scheme is envisaged to beexecuted by AEML-T in the year 2023-24. In this regard, AEML-T has already approached the Commission with Petition to amendits existing Transmission License in Case No. 195 of 2019 to includethe proposed HVDC scheme along with other proposedamendments which is under consideration with the Commission.Also, in order to assess its reasonability of the cost, AEML-T hasrecently submitted its DPR for in-principle approval of theCommission. Considering the critical nature of these schemes andtime required for obtaining the necessary regulatory approvals,the Commission directs the STU and AEML-T to initiate all thenecessary steps for implementing the critical schemes within thetimeframe envisaged in the STU Five Year Plan. However, theimplementation of the scheme would be subject to necessaryRegulatory approvals.”

30. On 30 May 2020, the EC of GoM conducted its fourth meetingat which it opined that the HVDC Scheme which was part of theearlier five-year plan for 2018-19 to 2023-24 was not part of the planfor 2019-20 to 2024-25. The members of the EC opined that the HVDCScheme, not being part of the five-year plan, need not be consideredfor TBCB at that point and deferred the decision. The STU was directedto send its plan for 2019-20 to 2024-25 to MERC.

A31. On 3 September 2020, MSETCL submitted its five-year planfor financial years 2019-20 to 2024-25 before MERC. The plan includedthe HVDC project in FY 2024-25, subject to comments from CEA. Theplan envisaged 1000 MW HDVC terminal stations at Kudus to Aareyfor 2024-25. The note appended to the foot of the tabulated statement isin the following terms:B

Note:

** 1000 MW HVDC Terminal Stations at Kudus & Aarey and HVDC Link

Two HVDC schemes were part of STU plan 2018-19 to 2023-24 with note that

consolidated detail study will be carried out considering all Mumbai related

schemes separately. Subsequent STU study indicated that with inclusion of 400kV

Velgaon, 400 kV Kalwa Switching, 400 kV Kalwa-Padghe M/Cline ect., these

HVDC schemes will not be required. However, in view of earlier CEA study in

this regard and as HVAS schemes were not referred to CEA, the STU study including these HVDC schemes has been referred to CEA for their comments. Hence 1000 MW Kudus-Aarey HVDC link is included in the year 2024-25 of this STU five year plan (2019-20 to 2024-25) is subject to averse comments if any by CEA in the matter may lead to deletion of the scheme from STU five year plan.

D32. On 21 September 2020, AEML-T filed an application in Case195 of 2019 before MERC proposing to amend its licence and soughtpermission to delete the HVDC Scheme in its entirety from the schemeproposed in the petition on the ground that the scheme is proposed to beexecuted by its subsidiary company, AEMIL. On the same day, AEMILand AEML-T filed joint petition bearing Case No 190 of 2020 beforeEMERC for line specific transmission licence for the proposed HVDCproject in the name of AEMIL. AEMIL and AEML-T stated that inview of the transmission constraints and time period involved in thecommissioning of bulk power schemes, the need for an HVDC Schemewas discussed during the first meeting of the Standing Committee chairedFby the Secretary, Energy, GoM on 29 January 2018 for strengtheningthe electricity supply system to Mumbai city. Moreover, the HVACscheme which was proposed by MSETCL had not progressed beyondthe stage of route survey despite the passage of three years. Theabove amendment, this Court is informed, was in order to drop thetransmission project which was based on HVDC technology from AEMLG-T’s scope of work. Instead, fresh transmission licence was sought inthe name of AEML-T’s subsidiary, AEMIL. It was stated that theamendment was necessitated because:

(i)With four to five year execution period, the scheme wascapital intensive, requiring finance from multiple financialHinstitutions;

(ii)In view of the substantial financial investment which wasrequired, financial institutions required identified target fundswhich could be strictly monitored and controlled; and

(iii)There was need to ensure timely inclusion and financialclosure.

33. On 12 October 2020, MSETCL filed its reply stating that itdoes not recommend the grant of transmission licence for the HVDCproject to AEMIL on the grounds that: (a) In the transmission licencegranted to AEML-T on 11 August 2011 to R-Infra, there is no mentionof transfer of part of the licence to another company; (b) AEMIL is aseparate legal entity and would have to make fresh application to MERCfor transmission licence under Sections 14 and 15 of the Act; and (c)If AEMIL satisfies the requirements under Section 14 and 15 of the Act,the licence shall be granted at the discretion of MERC.

34. On 23 October 2020, communication was addressed by CEAto MSETCL recording that:

“iii. It may be noted that considering the need for availability ofpower supply in the Mumbai area and ROW problem inconstructing overhead transmission lines to Mumbai, CEA on therequest of AEML has already suggested scheme for bulk powerinjection to Mumbai i.e. 1000 MW VSC based HVDC fromKudus to Array along with future for another 1000 MW. Thissuggestion was made based on the studies carried out for 2024-25 conditions. Requisite land provision in AEML S/S at Kudusand Array is available for construction of the VSC HVDC S/S.This system would provide the required reliability of additionalindependent feed to Mumbai area when the generation sources inTATA system is likely to do down.”

The need for implementing the HVDC Scheme as proposed washighlighted in the following extracts of the letter:

“iv. Recent blackout incidence (12.10.2020) of Mumbai also theneed for immediate implementation of the 1000 MW VSC basedHVDC from Kudus to Aaray system so that the increasing loadof MMR can be met reliably. The multiple feeding points i.e. KudusAaray VSC link and under implementation Phadge-New Mumbai-Khargar 400 kV link would provide additional feeding point andenhance the reliability of Mumbai system.

Av. Considering the fact that the present power demand of Mumbaito be around 3700-3800 MW and the maximum embeddedgeneration available in TATA area is about 1349 MW againstgeneration capacity of 1627 MW. In Adani area generation about350 MW against 500 MW is available. So presently under bestgeneration availability condition, more than 50% power demandBof MMR is required to be imported from 400 kV Pune, Phadge,Boiser link. Since the link from Pune and Phadge are old and withmoose conductor so in case of outage of any link serioustransmission constraint for import of power into Mumbai area isobserved. This further get aggravated when the generation inCTATA system is low. It is also known fact that the machines inTATA and Adani area are going to be phased out gradually. Underthat circumstances the whole of power demand of MMR has tobe met through import only.”

In this backdrop, the letter stated that an additional infeed to theMumbai area from sources such as the 1000MV VSC based HVDCDfrom Kudus to Aarey as suggested by CEA was required to beimplemented on priority basis.

35. On 24 December 2020, the EC conducted its fifth meeting. InAgenda item 3 pertaining to the threshold limit (according to NTP 2016)for development of intra state transmission projects through the TBCBEroute, the EC decided that:

(i)All projects in the STU plan costing Rs 500 crore or morewould be referred to the EC for execution under the TBCBroute;

(ii)If the STU proposed project costing over 500 crore wouldFnot be taken under the TBCB route “for reasons peculiarto the project” and would be executed under any othermechanism, the justification would be placed before the ECfor its consideration”;

(iii)The threshold limit of Rs 500 crore would be reviewedGannually; and

(iv)Once the EC decides to recommend the project underTBCB route or otherwise, the STU is to petition MERC forfinal approval “of fresh transmission licence or for extendingexisting transmission licence by following due process oflaw”.H

Apart from the above decisions, the applicability of the limit of Rs500 crore to “new / old projects” was discussed and it was decided that:

“i. All the projects that are already part of license of licensee asdecided by MERC and MERC has already allotted the work forexecution to the licensee, will not be forwarded for furtherconsideration to the committee.

ii. Projects that are under active consideration of MERC whereSTU has already recommended execution under particularmechanism and where MERC has initiated substantially the processof inclusion of the project in scope of any existing or newtransmission license on the basis of this recommendation, maynot be put to committee for fresh consideration. Any furtherrecommendation, if asked of STU by MERC or any other legalforum, STU may agitate the committee for the same as per thethreshold limit decided above.”

36. Agenda Item No 4 of the same meeting dealt with the 1000MWHVDC Kudus- Aarey project. On this aspect, it was decided that STUmust place its recommendation on the tariff determination of the 1000MWHVDC Kudus- Aarey project based on the decision in Agenda 3. Therelevant extract from the Minutes of the Meeting is extracted below:

“Agenda Item 4: Appraisal of inclusion of 1000 MW HVDCKudus-Aarey project in the STU five Year plan

(2019-20 – 2024-25) referred to Empowered Committee in lastmeeting.

The Agenda “1000 MW HVDC project of Kudus – Aarey to betaken under TBCB” was discussed in 4th Empowered Committeemeeting on 30th May 2020.”

At that time the HVDC project was not part of STU five-yearplan.

Hence the agenda item was deferred. Now the EmpoweredCommittee has been apprised about inclusion of 1000 MW HVDCproject of Kudus – Aarey in the STU Five-year plan. Post appraisalof inclusion, the Committee informed STU that they shouldproceed as per the decision given by the Empowered Committeevide Agenda No.3.”

A37. On 29 December 2020, the appellant filed objections beforeMERC objecting to the transmission application filed by AEMIL andAEML-T. In their response dated 31 December 2020, AEMIL andAEML-T stated that the approval of the DPR was cancelled by MERConly due to the proposal of MSETCL that the technology be alteredfrom HVDC to HVAC. However, the overhead HVAC scheme whichBwas proposed by MSETCL was not implemented. Hence, the HVDCScheme as bulk power injection scheme for Mumbai was deliberatedwhich resulted in reconsideration of the transmission project based onHVDC technology which had already been approved earlier.

38. In its additional submission dated 20 January 2021 filed beforeCMERC, MSETCL adverted to the CEA report and stated that it wouldproceed in accordance with the decision of the EC. On 27 January 2021,MSETCL filed submissions indicating that:

(i)A 1000MW HVDC link between Kudus and Aarey forwhich licence had been sought was part of the five-yearDtransmission plan prepared by the STU;

(ii)The HVDC Scheme was under consideration for severalyears and was recommended by several committees;

(iii)The bulk power transmission scheme was essential forEmeeting the requirement of Mumbai’s transmission system;

(iv)While other alternatives had been explored including HVACtechnology, the HVDC Scheme was found to be morereliable by the CEA in its letter dated 23 October 2020 whichemphasised the need to implement it on priority basis;

F(v)The HVDC project is an old project; and

(vi)The threshold limit which was decided by the EC on 24December 2020 is yet to be approved by MERC.

In this backdrop, MSETCL stated that following the TBCB routewould take between one to two years as was the experience in otherGMERC projects.

However, it was indicated that MERC may suggest suitablestrategy for cost competitiveness which would benefit the consumers inMaharashtra.

B. Proceedings before MERC and APTEL

39. On 21 March 2021, MERC issued an order granting AEMILthe transmission licence to develop the Aarey-Kudus transmission projectbased on HVDC technology where tariff was to be determined throughthe RTM approach under Section 62 of the Act. The Commissionobserved that:

(i)The Kudus-Aarey project is essential for strengtheningMumbai’s transmission system, and should be undertakenfor execution on an immediate basis as planned by STU;

(ii)The Supreme Court in Energy Watchdog v. CentralCElectricity Regulatory Commission[1] held that NTP 2016is ‘statutory policy’ and has the ‘effect of law’. NTP2016 mandates that the State Commissions’ must notify athreshold limit to determine the projects that will have to betaken through the TBCB route. MERC has not notified thethreshold yet;D

(iii)GoM’s GR is an executive decision under Section 63 andnot subordinate legislation under Section 180 of the Act.The relevant date for determining if project is ‘new’ oran ‘existing’ project under the GR is 4 January 2019, that isthe date of notification of the GR forming the EC. As on 4January 2019, the HVDC project was an ‘existing’ projectfor the following reasons:

(a)The cancellation of the DPR by the Commission inMay 2016 was specific to the ‘technology’. The needfor the bulk power injection for Mumbai was nevercancelled or withdrawn. The scope of the oldapproved HVDC Scheme was changed by STU andnot by AEML-T ; and

(b)Once the approval of scheme is cancelled, it ceasesto exist for consideration. However, the Kudus-GAarey HVDC Scheme was proposed in November2018, before the GoM’s GR was notified. Planningand preparatory work such as technical studies, costestimation, identification of land, and preparation ofDPR had also been initiated.

656SUPREME COURT REPORTS

A(iv)Multiple transmission licenses in the State of Maharashtrahave been granted under capital expenditure schemes underSection 62 of the Act after the NTP 2016 was notified. Ifthe argument that projects cannot be undertaken under theSection 62 route after the GR is notified is accepted, it wouldmean that none of the other projects could have beenBnotified through the RTM route as well.

(v)Even if the GR is held to be applicable which would givethe EC statutory force for identification of projects underthe TBCB route, the HVDC Kudus-Aarey project is stillnot mandated to be allotted through the TBCB route since:

(a)Merely because STU has listed the HVDC Schemein the agenda for the EC Meeting, it does not meanthat the scheme has been chosen for TBCB. STUhas only sought the opinion of the EC. Further, theEC has not recommended that the HVDC Schemeis to be undertaken under the TBCB route;

(b)The EC in its meeting held on 24 December 2020recommended that all the projects in the STU planthat cost more than 500 Crore must be referred toEC for consideration for execution under the TBCBroute. However, it was decided that it would only beapplicable to new projects. It was recommended thatprojects that are under active considerationof MERCwhere the STU has already recommended executionunder certain mechanism and where MERC hassubstantially initiated the process of inclusion of theproject in the scope of any existing or newtransmission licensee on the basis of itsrecommendation shall not be put to the EC for freshconsideration. The HVDC project is under activeconsideration of MERC as the project has beenincluded in STU’s five-year plan and the project hasbeen allotted to AEML-T. Since the HVDC projectfalls under the exception, the EC has notrecommended that the HVDC Scheme must beallotted through the TBCB route since it is an existingproject and not ‘new’ project.

(vi)The GoM’s GR is not applicable to the Aarey-Kudus HVDCAproject, and even if applicable, it does not qualify as ‘new’project in view of the exceptions laid down by the EC. Thus,MERC has the discretion to choose from either the Section62 or the Section 63 route. MERC must choose the mostappropriate route for undertaking the project, consideringBthe need for the scheme, the urgency associated with thescheme, the historical background, and the peculiarities ofthe scheme. The HVDC Scheme according to the STUPlan 2019-20 to 2024-25 should be undertaken under Section62 because:

(a)The cost- benefits of the project if awarded underthe TBCB route cannot be assessed since there isno precedent of completed HVDC Scheme beingawarded through the TBCB route;

(b)HVDC Scheme is high-cost project with high endDtechnology with limited international suppliers. It hasrelatively limited scope for cost reduction whencompared to HVAC schemes;

(c)AEMIL has already taken steps to procure land atAarey and Kudus for the HVDC Scheme. It willfacilitate the timely completion of the project;E

(d)STU has expressed reservations regardingundertaking the HVDC Scheme through thecompetitive bidding route since the competitivebidding process would take an additional two yearsfor completion. Two transmission projects that weredecided to be undertaken under the TBCB route havestill not seen any progress even after the completionof almost 3 years; and

(e)Projects undertaken under Section 62 of the Act canbe more closely monitored on aspects such as timelyGexecution and cost escalation.

40. The summary of the conclusions drawn in the order of theMERC are extracted below:

“38.61 In summary:

a) There is no right or wrong approach for undertaking this HVDCBulk Power Injection Scheme for Mumbai, in terms of whetherthe Scheme is decided to be undertaken under Section 62 (RTM)or Section 63 (TBCB) route, as both RTM and TBCB route canbe justified for its implementation;

b) This is case where the most appropriate route for undertakingthe Project has to be selected, considering the need for this Scheme,the urgency associated with the Scheme, the historical background,and the peculiarities of this Scheme;

c) This Project is being considered by the Commission because itis part of the STU Plan FY 2019-20 to FY 2024-25, wherein thisScheme is allocated to AEML;

d) The cost benefits in case the Project is awarded under theTBCB route cannot be assessed, as there is no precedent of anycompleted HVDC Scheme with UG cabling being awardedthrough the TBCB route;

e) HVDC Scheme is high-cost project with high-end technologywith limited international suppliers, and hence, has relatively limitedscope for cost reduction as compared to HVAC schemes;

f) Steps already taken by the Petitioners for procuring land atAarey and Kudus for HVDC terminal station will facilitate timelycompletion of the Project;

g) The Commission has asked IIT Bombay to evaluate the Scope,design aspects, reasonability of cost, alternatives, etc., of theScheme to ensure technically appropriate and cost-effectivesolution for mitigating Mumbai’s transmission constraints;

h) The contracting for the Project would be through internationalcompetitive bidding as pre-condition of the Licence, and hence,the least cost is likely to be achieved. Further, the cost incurred onthe Scheme could be verified through experts after completion ofthe Scheme before allowing recovery through ARR;

i) The Commission allows recovery of capital cost for Section 62Projects only after prudence check based on detailed scrutiny, sothat only justified and reasonable cost is recovered through tariff;

j) The STU has expressed reservations regarding undertaking theHVDC Scheme through the competitive bidding route, and has

stated that additional time of 1-2 years may be required forcompletion of the competitive bidding process;

k) The two Transmission Schemes in Maharashtra that have beendecided to be undertaken under TBCB route, other than KhargharVikhroli Transmission Project, have not seen any progress at all,even after passage of almost 3 years in one case;

l) It will be in no one’s interest if the Scheme is awarded underTBCB route especially when the planning and feasibility of theScheme is at final stage, even if it is at lower cost than thatestimated by AEMIL, if it either does not come up at all or doesnot come up within the desired timelines;

m) The rationale adopted at the Central level to undertake HVDCProjects on RTM basis despite the high cost of such Schemes,has been the intention of compressing the execution time schedule,which is equally applicable to the present Mumbai transmissionsystem;

n) Section 62 Projects can be closely and regularly monitored bythe Commission for aspects such as timely execution, costescalation, etc., unlike Section 63 Projects where the Bidders arebound by the conditions and responsibilities stipulated in the TSA,and on which the Commission has limited regulatory oversight;

o) The Commission has already constituted the MaharashtraTransmission Committee (MTC) in accordance with the MEGC,under the aegis of the Grid Coordination Committee (GCC), whichshall be responsible for planning and monitoring timely executionof transmission projects in Maharashtra including Mumbai area.Considering the importance of HVDC Scheme for strengtheningthe Mumbai Transmission system, the Commission will separatelynotify Committee for closely monitoring the progress of thisProject to ensure strict adherence to the planned timelines for itsidentified milestones;

p) The Scheme has to be undertaken at the earliest in time-bound manner in the interest of strengthening Mumbai’stransmission system, especially since almost 10 years have passedsince the HVDC Bulk Power Injection Scheme was first proposedfor Mumbai;

Aq) The early and timely completion of the HVDC Bulk PowerInjection Scheme for Mumbai will provide access to alternativepower procurement sources as compared to the embeddedgenerating units; while there is no guarantee that powerprocurement through competitive bidding will discover rates lowerthan that of the embedded generating units, at least the option willBbe available to the Mumbai Distribution Licensees andCommission’s approval, and the lower power procurement costscan be passed on to the consumers through reduction in tariff;

r) Considering the expected retirement of the embedded generationcapacity and Transmission constraints, import of potentially cheaperpower into Mumbai through competitive bidding will be facilitatedby implementation of the HVDC Scheme, which is likely to reducethe cost of power for the end-consumers.”

MERC therefore concluded that the HVDC Scheme in terms ofthe STU plan for 2019-20 to 2024-25 would be undertaken by AEMILDunder Section 62 with the safeguards stipulated in the order.

41. The appellant instituted proceedings under Article 226 of theConstitution before the High Court of Judicature at Bombay. However,it withdrew those proceedings with liberty to move APTEL under Section111 of the Act. TPC-T filed an appeal under Section 111 of the ActEbefore APTEL. APTEL, by its order dated 18 February 2022 dismissedthe appeal with the following findings:

(i)The argument that the TBCB route under Section 63 is thedominant route is premised on flawed reading of the Act.RTM under Section 62 is recognized under the Act and itFcannot be considered to be in position subservient orinferior to the TBCB route;

(ii)There was no infirmity in MERC’s order granting atransmission licence as the HVDC Project was an old/existing project in terms of the GoM’s GR dated 1 January2019. The earlier cancellation by MERC of the in-principleGapproval did not render the project new scheme since theSTU changed its stance due to its objections on thetechnology. The change in route from Nagothane to Kuduswas similar to modifications that are common to alltransmission projects and the project cannot be consideredHas new project merely due to change of connection point;(iii)That while the change of stance of the STU is not properAand decisive and timely approach is instead expected, thesame cannot be ground to vitiate the decision taken byMERC;

(iv)That the grant of licence was not contrary to Section 15which requires the publication of notice for suggestionsBand objections before granting licence. MERC had issueda public notice and the proceedings under

Section 15 cannot be conducted de hors the entity whichhas to implement the project; and

(v)That even though there may be reasons justifying theadoption of the option under Section 63, this is not reasonenough for the Tribunal to sit in appeal and supplant theviews of the Commission. Furthermore, in light of thecriticality of the project for the region, interference by thetribunal would be improper, considering the progress thatDhas already been made.

42. The appeal has been instituted under Section 125 of the Actfor challenging the judgment of APTEL.

C. The Submissions

43. Mr Shyam Divan, learned senior counsel appearing on behalfof the appellants has urged the following submissions:

(i)For all transmission projects, the rule for the award oftransmission licences is competitive bidding, subject tocertain exceptions;

(ii)The rule of competitive bidding is based on statute, statutorypolicy, and guidelines of the and State Governments ;

(iii)Two methods have been statutorily prescribed for tariffdetermination in Sections 62 and 63. However, in the factsand circumstances, the TBCB route under Section 63 ofthe Act was required to be followed;

(iv)There were no exceptional circumstances warranting adeparture from the TBCB route;

(v)The present project must be considered as new project,adopting 4 January 2019 the date on which the government

662SUPREME COURT REPORTS

of Maharashtra issued GR in consonance with the NTP2016 as the cut-off date for determining as to whether theproject in question is old or new; and

(vi)APTEL has misconstrued the scope of Section 110 bydisregarding the legal position that the provision envisagesBa full appeal on facts and law to specialised body.

44. On the other hand, Dr Abhishek Manu Singhvi and Mr VikasSingh, learned senior counsel appearing on behalf of the AEML-T andAEMIL have urged the following submissions:

(i)On proper construction of the provisions of Sections 61,C62 and 63, the legal position is that Sections 62 and 63 standon an equal footing and it would be incorrect to postulatethat Section 63 has dominant character;

(ii)The concepts of the historicity of project, the criticality ofa scheme and its urgency are factors that are embodied inDSection 61;

(iii)Irrespective of the interpretation of Sections 62 and 63, theapplication of the above test must render the award of thecontract to AEML-T valid;

(iv)MERC was correct in entering finding of fact that theEappellant is only interested in delaying the project. TheVikhroli transmission project was abandoned by the appellantand was eventually secured by the second respondent. Theaward of the HVDC project would inject much neededpower to Mumbai;

(v)TPC-T has not challenged the multi-year tariff order dated30 March 2020 issued by MERC which was product of adetailed consideration where considering the critical natureof the schemes and the time required for obtainingregulatory approvals, MERC directed STU and AEML-Tto initiate the necessary steps to implement the scheme.The impugned order granting transmission licence is onlyconsequential;

(vi)It was envisaged that from 2007 that AEML-T would obtainthe HVDC line. The HVDC project was delayed onlyHbecause MSETCL proposed that it would implement an

TATA POWER CO. v. MAHARASHTRA ELECTRICITY REGULATORYCOMMISSION [DR. DHANANJAYA Y CHANDRACHUD, CJI]

overhead transmission project from Kudus to Aarey, whichnever took off. Between 2007 and 2019 there was noobjection to the project which was envisaged to be executedby R-infra and later by AEML-T;

(vii)Even as of date, no threshold limit has been prescribed byMERC for adopting the TBCB route for the award of alicence for an intra-state transmission project; and

(viii) Both MERC and APTEL are statutory expert bodies at theprimary and appellate level and have taken concurrentview. Save and except in the case of perversity, theinterference of this Court is not warranted.

D. Regulatory Framework

45. Before proceeding to analyse the issues that fall fordetermination, it is important that we lay out the regulatory frameworkon determination of tariff with reference to the provisions of the ElectricityAct, and the policies framed by the Central Government and the Stateof Maharashtra under the provisions of the Act.

D. 1 Electricity Act 2003

46. Before the enactment of the Electricity Act 2003, the Indianelectricity sector was governed by the Indian Electricity Act 1910, theElectricity (Supply) Act 1948 and the Electricity Regulatory CommissionAct 1998. The Indian Electricity Act 1910 created basic frameworkfor the electricity supply industry in India. The Electricity (Supply) Act1948 mandated the creation of State Electricity Boards, which had theresponsibility of facilitating supply of electricity within the State. However,the State Electricity Boards were unable to use their power to fix tariffsjudiciously. It was noted that the State Governments were in practicefixing tariffs. To distance the State Governments from the exercise oftariff fixation, the Electricity Regulatory Commissions Act 1998 wasenacted.

47. Parliament enacted the Electricity Act 2003 to consolidate thelaws relating to generation, transmission, distribution, trading and use ofelectricity; to develop the electricity industry; and to promote competition.The Electricity Act 2003 was enacted with the objective of encouragingthe participation of the private sector in the generation, transmission,and distribution of electricity, and to harmonise and consolidate the

Aprovisions into self-contained code:

“With the policy of encouraging private sector participation ingeneration, transmission and distribution and the objectives ofdistancing the regulatory responsibilities from the Government tothe Regulatory Commissions, the need for harmonising andBrationalising the provisions of the Electricity Act 1910, theElectricity (Supply) Act 1948 and the Electricity RegulatoryCommissions Act 1948 in new self-contained comprehensivelegislation arose.”

48. The long title to the Act indicates that its object is to consolidateCthe laws relating to generation, transmission, distribution, trading, anduse of electricity and to take measures conducive to the development ofthe electricity industry; promote competition and protect the interest ofconsumers; ensure the supply of electricity to all areas; rationaliseelectricity tariffs and ensure transparent policies. The Statement ofObjects and Reasons of the Act states that “it gives the States enoughDflexibility to develop their power sector in the manner they considerappropriate.”

49. Section 3 provides for the formulation of National ElectricityPolicy and National Tariff Policy:

E“Section 3. (National Electricity Policy and Plan) — (1) TheCentral Government shall, from time to time, prepare the NationalElectricity Policy and tariff policy, in consultation with the StateGovernments and the Authority for development of the powersystem based on optimal utilisation of resources such as coal,natural gas, nuclear substances or materials, hydro and renewableFsources of energy.

(2) The Central Government shall publish National ElectricityPolicy and tariff policy from time to time.

(3) The Central Government may, from time to time, in consultationwith the State Governments and the Authority, review or revise,Gthe National Electricity Policy and tariff policy referred to in sub-section (1) .

(4) The Authority shall prepare National Electricity Plan inaccordance with the National Electricity Policy and notify suchplan once in five years:

Provided that the Authority while preparing the National ElectricityPlan shall publish the draft National Electricity Plan and invitesuggestions and objections thereon from licensees, generatingcompanies and the public within such time as may be prescribed:

Provided further that the Authority shall - (a) notify the plan afterobtaining the approval of the Central Government; (b) revise theplan incorporating therein the directions, if any, given by the CentralGovernment while granting approval under clause (a).

(5) The Authority may review or revise the National ElectricityPlan in accordance with the National Electricity Policy.”

In terms of the above provision, the Union Government has toformulate the NEP and NTP in consultation with the State Governmentsand the CEA.

50. Part III of the Act deals with the generation of the electricity;Part IV deals with licensing; Part V with transmission; Part VI withdistribution and Part VII with tariff.

51. Section 38 provides that the Central Government may notifyany government company as the CTU. The CTU is statutorilyempowered to undertake the transmission of electricity through inter-state transmission systems. The CTU has to also discharge functions ofplanning and coordination relating to inter-state transmission systems.For this purpose, the CTU is required to coordinate with the STU, Centraland State Governments, generating companies, authorities and licensees.

52. Section 39 stipulates that the State Government may notifythe Board or any government company as the STU. The STU shallundertake transmission of electricity through the intra-state transmissionsystem and discharge functions relating to the planning and coordinationof the intra-state transmission system. While discharging its functions,the STU is required to reflect the planning initiatives of intra-statetransmission system by publishing five-year plan periodically.

53. Sections 76 and 82 constitute the Central RegulatoryCommission and State Regulatory Commissions respectively. The Centraland State Regulatory Commissions shall among other functions, determineand regulate the tariff for inter-state transmission of electricity and intra-state transmission of electricity respectively. Sections 79(3) and 86(3)stipulate that the Central and State Commissions shall while discharging

Atheir functions ensure transparency, and ‘shall be guided’ by the NEP,NTP and National Electricity Plan. The Central and the StateCommissions also discharge advisory functions, where they shall advisethe Central Government and State Government respectively on, interalia, promotion of competition in activities related to the electricity industryand in matters concerning generation, transmission, and distribution ofBelectricity. Section 25 states that the Central Government may make aregion-wise demarcation of the country for the purpose of integratedtransmission of electricity to facilitate inter-state, regional and inter-regional transmission of electricity. Section 30 provides that the StateCommission shall facilitate and promote transmission, wheeling, and inter-Cconnection arrangements within its territorial jurisdiction for thetransmission of electricity.

54. Section 14 envisages that the Appropriate Commission, definedin Section 2(4) to mean the Central or as the case may be the StateRegulatory Commission, may grant licence to any person:D(a) To transmit electricity as transmission licensee;

(b) To distribute electricity as distribution licensee; and

(c) To undertake trading and electricity in any area specified inthe licence.

E55. Section 15 prescribes the procedure to be followed for thegrant of licences. The application for licence under Section 14 has tobe filed in the manner prescribed by the Appropriate Commission. Theperson who has applied for the grant of licence must publish noticeof the application. The licence shall not be granted by the AppropriateFCommission until the objection(s), if any received, are considered by theCommission. The application shall also be forwarded to the CTU or theSTU, as the case may be. The CTU or STU must send itsrecommendation to the Appropriate Commission. The recommendationof the CTU or the STU is however, not binding on the Commission. TheAppropriate Commission is also required to publish notice of theGapplication if it proposes to issue the licence. The Commission has toconsider the objections and the recommendations of the TransmissionUtility before granting the licence.

56. In enacting the above provisions of law, Parliament has madea clear demarcation between intra-state and inter-state transmission ofHelectricity. While the CTU, Central Government and the Central

Regulatory Commission are responsible for the facilitation of inter-statetransmission of electricity, the State Commission and the STU have beengranted full autonomy with respect to intra-state transmission ofelectricity.

57. Part VII deals with tariffs. Part VII comprises of Section61(tariff regulations), Section 62 (determination of tariff), Section 63(determination of tariff by bidding process), Section 64 (procedure fortariff order), Section 65 (provision of subsidy by the state government)and Section 66 (development of market). In terms of Section 61, theAppropriate Commission is entrusted, subject to the provisions of theAct, to specify the terms and conditions for the determination of tariffs.While specifying the terms and conditions, the Appropriate Commissionshall be guided by the requirements specified in clauses (a) to (i). Amongstthem, in clause (i) is the NEP and tariff policy, while clause (c) emphasizesthe need to encourage competition, efficiency, economical use ofresources, good performance and optimum investment. Section 62(1)empowers the Appropriate Commission to determine the tariff “inaccordance with the provisions of this Act” for :

a. Supply of electricity by generating company to distributinglicensee;

b. Transmission of electricity;

c. Wheeling of electricity; and

d. Retail sale of electricity.

Section 63 provides that notwithstanding the provisions of Section62, the Commission shall adoptthe tariff determinedthrough the biddingprocess if the tariff has been determined through transparent processin accordance with the guidelines issued by the Central Government.

D.2 Policy framework

58. The Central Government has under the provisions of the Actissued resolutions and framed policies. In order for us to understand thegamut of the issues before us, it is necessary that we refer to the policiesnotified by the Central Government and the State Government ofMaharashtra.

D. 2.1 Central Policies

59. On 6 January 2006, the Ministry of Power notified the NTP2006 in exercise of its power under Section 3 of the Act. The NTP 2006,inter alia, emphasizes the need for transparency and competition in the

Apower sector and the need to ensure the availability of electricity toconsumers at reasonable and competitive rates.

60. Clause 5.1 states that one of the key features of the Act isthat it introduced competition in different segments of the electricityindustry. The policy deals with transmission in clause 7. Clause 7.1(6)Bdeals with transmission pricing where it is emphasised that “investmentof transmission developer other than CTU/STU would be invited throughcompetitive bids”. Clause 7.1(6) inter alia provides as follows:

“(6) Investment by transmission developer other than CTU-STUwould be invited through competitive bids. The Central GovernmentCwill issue guidelines in three months for bidding process fordeveloping transmission capacities. The tariff of the projects tobe developed by CTU-STU after the period of five years or whenthe Regulatory Commission is satisfied that the situation is right tointroduce such competition (as referred to in para 5.1) would also

be determined on the basis of competitive bidding.”D

61. Clause 7.1(7) stipulates that after implementing the frameworkfor inter-state transmission, similar approach shall be implemented bySERCs for intra-state transmission within two years after consideringfactors like voltage, distance, direction and quantum of flow. However,Clause 5.1 dealing with the General Approach to Tariff notes that evenEfor public sector projects, tariff for new projects must be determinedthrough the TBCB route after five years or when the RegulatoryCommission deems it fit. The relevant clause is extracted below:

“5.1 […] Even for the Public Sector projects, tariff of all newgeneration and transmission projects should be decided on theFbasis of competitive bidding after period of five years or whenthe Regulatory Commission is satisfied that the situation is ripe tointroduce such competition.”

62. On 13 April 2006, the Union MoP notified Tariff BasedCompetitive Guidelines for Transmission Services under Section 63 ofGthe Act to promote competitive procurement of transmission servicesand encourage private investment in the development of transmissionlines. The objects for making the guidelines are:

•Promote competitive procurement of transmission services.H

•Encourage private investment in transmission lines.

•Facilitate transparency and fairness in procurementprocesses.

•Facilitate reduction of information asymmetries for variousbidders.

•Protect consumer interests by facilitating competitiveconditions in procurement of transmission services ofelectricity.

•Enhance standardization and reduce ambiguity and hencetime for materialization of projects;

•Ensure compliance with standards, norms and codes fortransmission lines while allowing flexibility in operation tothe transmission service providers.”

63. On 13 April 2006, the MoP notified Guidelines for EncouragingCompetition in Development of Transmission Projects. In terms of Clause13, an Empowered Committee was constituted to identify projects to bedeveloped under the scheme. In terms of Clause 19, the selection of thedeveloper for identified projects would be through TBCB for transmissionservices according to the guidelines issued by the MoP under Section63. However, for intra-state projects the guidelines provide that the Statesshall have the discretion to adopt the guidelines. Clause 24 noted asfollows:

24. As far as intra state projects are concerned the stategovernments may adopt these guidelines and may constitute similarcommittees for facilitation of transmission projects within the state.

64. On 28 January 2016, MoP issued the NTP 2016. Paragraph 5of the policy spells out the “general approach to tariff”. Paragraph 5.1indicates:

“5.1 Introducing competition in different segments of the electricityindustry is one of the key features of the Electricity Act 2003.Competition will lead to significant benefits to consumers throughreduction in capital costs and also efficiency of operations. It willalso facilitate the price to be determined competitively. The CentralGovernment has already issued detailed guidelines for tariff basedbidding process for procurement of electricity by distributionlicensees.”

AIn similar vein, paragraph 5.3 specifies that:

“5.3 The tariff of all new generation and transmission projects ofcompany owned or controlled by the Central Government shallcontinue to be determined on the basis of competitive bidding asper the Tariff Policy notified on 6[th] January, 2006 unless otherwisespecified by the Central Government on case-to-case basis.

Further, intra-state transmission projects shall be developed byState Government through competitive bidding process for projectscosting above threshold limit which shall be decided by theSERCs.”

65. Paragraph 5.3 which has been extracted above envisagesthat competitive bidding process should be followed for intra-statetransmission projects developed by the State government where theproject cost is above threshold limit that is to be prescribed by theSERCs.

66. On 22 September 2017, the Forum of Regulators in its 61[st]Meeting, while reiterating the NTP 2016, urged all members to determinethe threshold limits for their respective intra-state transmission projectsabove which the TBCB route would be followed. The relevant portionof the Minutes of Meeting is extracted below:

“Agenda Item No. 5 (i) Action to be taken by States to define aframework (including setting threshold limit) for developing intra-State transmission projects on competitive basis.

The FoR Secretariat updated the Forum that as per provisions ofthe revised Tariff Policy notified by the Central Government,development of intra-State transmission projects is to be carriedout by the State Government through competitive bidding processfor projects costing above threshold limit decided by the SERCs.In this regard, it was placed before the Forum that in some States,development of State-level transmission projects was carried outthrough tariff based competitive bidding (TBCB) route and in someStates, the conventional route of EPC based contracting isreportedly followed. Further, SERCs have not determined thethreshold limit of the projects to be considered under TBCB route.

The Forum observed that in order to encourage transparency andefficiency in project costs, threshold limit for intra-State transmissionprojects is required to be determined by the SERCs as provided

for in the Tariff Policy. Therefore, the Forum urged the Membersto determine the threshold limit for their respective State-leveltransmission projects, while taking all relevant parameters of theirState into consideration.”

67. On 15 March 2021, the MoP addressed communication tothe States and Union Territories recording that the NEP 2005 and theNTP 2006 had laid down the framework for ensuring optimal developmentof transmission networks to promote efficient utilisation of generationand transmission assets, attract investment in the transmission sectorand provide adequate returns. It noted that this had resulted in

(i) lower tariff as compared to cost plus; and

(ii) Risk sharing.

In the above backdrop, the communication stated that:

“7. As intra-state transmission system has major share in thetransmission sector in the country, adoption of Tariff BasedCompetitive Bidding (TBCB) in development of intra-statetransmission system can effectively reduce burden on StateGovernments’ finances as well as reduce tariff of intra-Statetransmission system leading to consumers’ benefit. The matterwas also discussed in meeting taken by Hon’ble Union Ministerof State (Independent Charge) for Power and New and RenewableEnergy on 03.02.2021 and it was decided to request the State/UT Governments to adopt TBCB in development of intra-State transmission system.”

(emphasis supplied)

The communication urged that in the larger interest of consumers,it was strongly recommended that TBCB may be adopted also for thedevelopment of the intra-state transmission system.

D. 2.2 State Policies

68. On 4 January 2019, the GoM notified government resolutionwith the object of setting up new transmission projects through TBCB inline with MoP’s guidelines dated 13 April 2006, as subsequently modified.While notifying the guidelines, the object of the GR was spelt out in thefollowing terms:

“It would be possible to use state-of-the-art technology fortransmission projects if Tariff Based Competitive Bidding isadopted for transmission projects in the state. Since this process

Ais transparent, it will help in improving the standard and efficiencyof the project. Thus, transmission projects can be establishedquickly. Since investment for establishing these projects is to bedone by the developers on external basis, it will ease the financialburden on the state. Therefore, the government was consideringconstitution of committees like Empowered Committee, BidBEvaluation committee in accordance with the above-mentionedguidelines of Central government for undertaking transmissionprojects in the state through Tariff Based Competitive Bidding.”

The GR notes that:

“For establishing new Transmission Projects, after consideringCthe guidelines issued by the Central Government the StateGovernment has decided to implement Tariff Based CompetitiveBidding-TBCB process for new Projects….”

In terms of the GR, an Empowered Committee was to be set upto undertake transmission projects in accordance with the guidelines ofDthe Central Government. The functions of the Committee were:

A) To provide impetus to new transmission projects in the statethrough this plan.

B) Selection of transmission projects according toErecommendations of State Transmission Undertaking.

C) Helping in evaluation of received tenders as well as formationof Bid Empowered Committee.”

The Empowered Committee was required to appoint Bid ProcessCoordinator in terms of paragraph 3 of the GR to co-ordinate the biddingFprocess as per Central Government’s guidelines. The GR also envisagedsetting up of Bid Empowerment Committee inter alia for theexamination of technical bids and the fulfilment of the technical criteriaprescribed in bid documents. We have already laid out the decisions ofthe said Empowered Committee relevant to the current proceedings inthe earlier section.G

E. The Analysis

69. In the backdrop of the factual narration, the essential aspectthat falls for consideration is whether the decision of MERC to allow thejoint licence petition submitted by AEML-T and AEMIL, granting aHtransmission licence for the 1000MW Aarey- Kudus HVDC project is

vitiated by the failure to follow the TBCB route (the Section 63 route).In the course of answering this question, the following issues fall forconsideration:

(i)Whether the Electricity Act 2003 envisages the TBCB routeunder Section 63 as the dominant method to determine tariff;

(ii)Whether the NTP framed under Section 3 of the Act isbinding on the State Regulatory Commissions, particularlyin view of the observations made by this Court in EnergyWatchdog (supra);

(iii)Whether the Regulatory Commissions have the power toprescribe the modalities to determine the tariff under theprovisions of the Electricity Act 2003 (and the regulationsframed under it);

(iv)Whether MERC was bound to decide the tariff for theHVDC Project through TBCB under Section 63 in view ofGovernment of Maharashtra’s Resolution dated 04 January2019 notifying the decision to allocate new intra-statetransmission projects through TBCB route and setting upan Empowered Committee; and

(v)Whether MSETCL’s decision to not refer the HVDCProject to the Empowered Committee for holding biddingunder the TBCB route is in breach of the GR.

E. 1 Section 63: The dominant route or the alternative route

70. Section 61 grants the Appropriate Commission the power,subject to the provisions of the Act, to specify the terms and conditionsfor the determination of tariff. The provision stipulates that in specifyingthe terms, the Commission shall be guided by principles that are listed inthe nine clauses of the provision. Of particular importance are clauses(a), (c), and (i). Clause (a) provides that the Appropriate Commissionshall be guided by the principles and methodologies specified by theCentral Commission for determination of transmission tariff. Clause (c)states that the factors that would encourage competition and efficiencymust be followed. Clause (i) provides that the Commission shall be guidedby the NEP and NTP. Section 61 reads as follows:

“Section 61. (Tariff regulations):

The Appropriate Commission shall, subject to the provisions ofthis Act, specify the terms and conditions for the

674SUPREME COURT REPORTS

Adetermination of tariff, and in doing so, shall be guided bythe following, namely:-

(a) the principles and methodologies specified by theCentral Commission for determination of the tariffapplicable to generating companies and transmissionBlicensees;

(b) the generation, transmission, distribution and supply of electricityare conducted on commercial principles;

(c) the factors which would encourage competition,efficiency, economical use of the resources, goodCperformance and optimum investments;

(d) safeguarding of consumers’ interest and at the same time,recovery of the cost of electricity in reasonable manner;

(e) the principles rewarding efficiency in performance;

(f) multi year tariff principles;

(g) that the tariff progressively reflects the cost of supply ofelectricity and also, reduces cross-subsidies in the manner specifiedby the Appropriate Commission;]

(h) the promotion of co-generation and generation of electricityfrom renewable sources of energy;

(i) the National Electricity Policy and tariff policy:

Provided that the terms and conditions for determination of tariffunder the Electricity (Supply) Act, 1948, the Electricity RegulatoryCommission Act, 1998 and the enactments specified in theFSchedule as they stood immediately before the appointed date,shall continue to apply for period of one year or until the termsand conditions for tariff are specified under this section, whicheveris earlier.”

(emphasis supplied)

G71. Section 62 grants the Appropriate Commission the power todetermine the tariff for the (i) supply of electricity by generatingcompany to distribution licensee; (ii) transmission of electricity; (iii)wheeling of electricity; and (iv) retail sale of electricity. While Section61 stipulates the principles that shall guide the determination of tariff,Section 62 grants the Commission the discretion to determine the tariff.H

Clause (3) of Section 62 fetters the discretion of the Commission indetermining tariff. Section 62(3) provides that the Commission whileexercising its discretion to determine the tariff, shall not ‘show unduepreference to any customer of electricity but may differentiate accordingto the customer’s load factor, power factor, voltage….’. Section 62(3)reads as follows:

“(3) The Appropriate Commission shall not, while determiningthe tariff under this Act, show undue preference to any consumerof electricity but may differentiate according to the consumer’sload factor, power factor, voltage, total consumption of electricityduring any specified period or the time at which the supply isrequired or the geographical position of any area, the nature ofsupply and the purpose for which the supply is required.”

This method of tariff determination is commonly referred to asthe Regulated Tariff Mechanism.

72. Section 63 provides that notwithstanding anything containedin Section 62, the Appropriate Commission shall adopt the tariffdetermined through bidding:

“63. Determination of tariff by bidding process -Notwithstanding anything contained in Section 62, the AppropriateCommission shall adopt the tariff if such tariff has been determinedthrough transparent process of bidding in accordance with theguidelines issued by the Central Government.”

73. Section 63 has five significant features: (i) Section 63 beginswith non-obstante clause. The non-obstante provision overrides Section62 alone and not all the provisions of the Act; (ii) as opposed to Section62 where the Commission is granted the power to determinethe tariff,under the Section 63 route, the bidding process determines the tariff; (iii)the Commission is mandated to adoptsuch tariff that is determined bythe bidding process; (iv) the Commission has the discretion to not adoptthe tariff determined through the bidding process only if the twin conditionsas mentioned in the provision are not fulfilled; and (v) the twin conditionsare that (a) the bidding process must have been transparent; (b) thebidding process must have complied with the guidelines issued by theCentral Government.

74. Section 63 indicates that the provision would be invoked afterthe tariff has been determined by the bidding process. There is nothing

Ain Sections 62 or 63 that could lead us to interpret that Section 63 is thedominant route for determination of tariff. Both the provisions providealternative modalities through which tariff can be determined. The non-obstante clause in Section 63 must be read in the context of Sections 61and 62. Section 62 bestows the Commission with wide discretion todetermine tariff. Section 63 seeks to curtail this discretion where biddingBprocess for tariff determination has already been conducted. Section 63contemplates that in such situations where the tariff has been determinedthrough the bidding process, the Commission cannot by falling back onthe discretion provided under Section 62 negate the tariff determinedthrough bidding. This interpretation of Section 63 is fortified by the useCof the phrase ‘such’ in Section 63 - the Commission is bound to ‘adopt’‘such’ tariff determined through bidding.

75. The Commission under Section 61 of the Act must frameguidelines for deciding the modality to determine tariff. This is evidencedfrom reading of Section 61(a) which provides that the AppropriateDCommission while specifying the terms and conditions for thedetermination of tariff shall be guided by the principles and‘methodologies’ specified by the Central Commission for thedetermination of tariff applicable to transmission licensees.

76. In this backdrop, it is necessary to advert to the judgment ofEthis Court in Energy Watchdog (supra). two-Judge Bench of thisCourt analysed the provisions of Section 63 and its interplay with Section62. The relevant observations are extracted below.

“19…. It may be noticed that Section 63 begins with non obstanteclause, but it is non obstante clause covering only Section 62.FSecondly, unlike Section 62 read with Sections 61 and 64, theappropriate Commission does not “determine” tariff but only“adopts” tariff already determined under Section 63. Thirdly, such“adoption” is only if such tariff has been determined through atransparent process of bidding, and, fourthly, this transparentprocess of bidding must be in accordance with the guidelines issuedGby the Central Government. What has been argued before us isthat Section 63 is standalone provision and has to be construedon its own terms, and that, therefore, in the case of transparentbidding nothing can be looked at except the bid itself which mustaccord with guidelines issued by the Central Government. OneHthing is immediately clear, that the appropriate Commission

does not act as mere post office under Section 63. It mustadopt the tariff which has been determined through atransparent process of bidding, but this can only be done inaccordance with the guidelines issued by the CentralGovernment. Guidelines have been issued under this section on19-1-2005, which guidelines have been amended from time totime. Clause 4, in particular, deals with tariff and the appropriateCommission certainly has the jurisdiction to look into whether thetariff determined through the process of bidding accords withClause 4.”

(emphasis supplied)

The observations of this Court in Energy Watchdog (supra) aresummarised below:

(i)The Appropriate Commission while ‘adopting’ the tariffdetermined through bidding is not mere ‘post office’; and

(ii)The Commission is mandated by Section 63 to adopt thetariff determined through bidding only if the bidding processwas transparent, and such process has been held inaccordance with the guidelines issued by the CentralGovernment under Section 63. If the bidding process doesnot satisfy the two checks, then the Commission shalldetermine the tariff through the RTM route under Section62.

77. Thus, the Appropriate Commission is not mandated to adoptthe tariff determined through the bidding process irrespective of thefulfilment of the statutory requirements. The Commission can reject thetariff determined through the bid if the tariff process is not (i) transparent;and (ii) in accordance with the guidelines issued by the CentralGovernment. Thus, if the Commission does not adopt the tariff determinedthrough bidding, and if the decision is challenged, the bidding processcan be reviewed substantively (on the ground of transparency) andprocedurally (on the ground of compliance with Central Governmentguidelines) to determine if the Commission could have exercised itsdiscretion to determine the tariff under Section 62 while rejecting thetariff determined under Section 63. Therefore, Section 63 can only beinvoked after the tariff has been determined through bidding. The termsand conditions notified by the Appropriate Commission under Section 61

Awill have to be referred for the purpose of choosing the modality of tariffdetermination that the Commission should undertake. In view of theabove discussion, the argument of the appellant that reading of Section61, 62 and 63 indicates that the TBCB route is the dominant route oftariff determination does not hold merit.

BE. 1.1. The value of TBCB Guidelines prescribed underSection 63

78. Section 63 of the Act does not prescribe bidding as the dominantroute of tariff determination. The Guidelines framed by the CentralGovernment under Section 63 prescribe the mechanism and procedureCfor bidding. The Guidelines framed under Section 63 of the Act cannotbe used to determine whether the RTM route or the TBCB route oughtto be followed.

79. On 13 April 2006, the MoP framed the TBCB Guidelines underSection 63 of the Act. Clause 2.2 of the Guidelines states that it shallDapply for the procurement of transmission services through competitivebidding according to the mechanism described in the notification. Theclause reads as follows:

“2.2. The guidelines shall apply for procurement of transmissionservices for transmission of electricity through tariff basedEcompetitive bidding, through the mechanism described in thisnotification and to select transmission service provider foranew transmission line and to build, own, maintain and operatethe specified transmission system elements.”

(emphasis supplied)

FClause 2.4 states that the procurement of transmission serviceswould include HVDC terminal stations and HVDC transmission lines:

“2.4 Procurement of transmission services would include allactivities related to survey, detailed project report formulation […]and/or HVDC links including terminal stations and HVDCGtransmission line […].”

80. reading of the above clauses indicates that the TBCBGuidelines shall apply for (i) procurement of transmission services, whichwould include HVDC links; and (ii) selecting the transmission providerfor new transmission line. The TBCB Guidelines also advert to theHappointment of Bid Process Coordinator who would be responsible for

coordinating the bid process for procurement of required transmissionservices. The TBCB Guidelines prescribe the procedure for conductingbids for procurement of, among other services, transmission services.Clause 3.3 states that for the procurement of transmission servicesrequired for intra-state transmission, the State Government may notifythe organisation or the State Public Sector Undertaking to be the BidProcess Coordinator. reading of clauses 2.2 and 2.4 does not indicatethat that the tariff for all new transmission projects shall be determinedby competitive bidding. It notifies the procedural mechanism forcompetitive bidding. As observed earlier, the reference in Section 63 tothe Guidelines framed by the Central Government is made to the limitedextent of determining whether the procedure of bidding was in accordanceto the Guidelines framed thereunder, which is the TBCB Guidelines.

E. 2 General Regulatory Power of the Appropriate Commission

81. Since the guidelines framed under Section 63 only prescribethe procedure for conducting the bidding, reference has to be made tothe general regulatory power of the Appropriate Commission under theprovisions of the Act.

82. Section 181 of the Act stipulates that the State Commission(s)may by notification, make regulations consistent with the Act and therules framed by the State Government under Section 180 of the Act tocarry out the provisions of the Act. Clause (zd) of Section 181 stipulatesthat the State Commission may make regulations on the ‘terms andconditions for determination of tariff under Section 61.’ The relevantportion of Section 181 is extracted below:

“181. Powers of State Commissions to make regulations.-(1) The State Commissions may, by notification, make regulationsconsistent with this Act and rules generally to carry out theprovisions of this Act.

(2) In particular and without prejudice to the generality of thepower contained in sub-section (1), such regulations may providefor all or any of the following matters, namely:-

(a) […]

(zc) the terms and conditions for determination of tariff undersection 61;”

680SUPREME COURT REPORTS

AHowever, as on the date when MERC granted AEMIL the licencefor the HVDC project from Kudus- Aarey, MERC had not framed anyregulation under Section 181(zc) of the Act for the determination of

Tariff.

83. At this juncture, it is necessary to refer to Section 86 of theAct. Section 86 lists the functions of the State Commission. SectionB86(a) states that the State Commission shall discharge the function ofdetermining the tariff for transmission. Section 86(c) stipulates that theState Commissions shall facilitate intra-state transmission of electricity.Section 86(4) provides that in the discharge of its functions, whichincludes the determination of tariff for the transmission of electricityCunder clause (a), the State Commission shall be guided by the NEP,National Electricity Plan and NTP notified under Section 3 of the Act.The relevant portion of Section 86 is extracted below:

“86. Functions of State Commission - (1) The State Commissionshall discharge the following functions, namely:-D(a) Determine the tariff for generation, supply, transmission andwheeling of electricity, wholesale, bulk or retail, as the case maybe, within the State.

(c) facilitate intra-State transmission and wheeling of electricityE[…]

(3) The State Commission shall ensure transparency whileexercising its powers and discharging its functions.

(4) In discharge of its functions, the State Commission shall beguided by the National Electricity Policy, National Electricity PlanFand Tariff Policy published under section 3.”

84. In Energy Watchdog (supra), this Court opined that the CentralCommission shall determine the tariff under the guidelines issued by theCentral Government under Section 63 of the Act. It is only in situationwhere no guidelines are framed or where the guidelines do not addressGa specific situation that the Central Commission’s repository of powerunder Section 79 is invoked. The relevant observations of the judgmentare extracted below:

“20… The reason why Section 62 alone has been put out of theway is that determination of tariff can take place in one of twoways — either under Section 62, where the Commission itselfH

determines the tariff in accordance with the provisions of the Act(after laying down the terms and conditions for determination oftariff mentioned in Section 61) or under Section 63 where theCommission adopts tariff that is already determined by atransparent process of bidding. In either case, the generalregulatory power of the Commission under Section 79(1)(b) isthe source of the power to regulate, which includes the power todetermine or adopt tariff. In fact, Sections 62 and 63 deal with“determination” of tariff, which is part of “regulating” tariff.Whereas “determining” tariff for inter-State transmission ofelectricity is dealt with by Section 79(1)(d), Section 79(1)(b) is awider source of power to “regulate” tariff. It is clear that in asituation where the guidelines issued by the Central Governmentunder Section 63 cover the situation, the Central Commission isbound by those guidelines and must exercise its regulatory functions,albeit under Section 79(1)(b), only in accordance with thoseguidelines. As has been stated above, it is only in situation wherethere are no guidelines framed at all or where the guidelines donot deal with given situation that the Commission’s generalregulatory powers under Section 79(1)(b) can then be used.”

85. Thus, in the case of intra-state transmission of electricity, theState Commission would be bound by the guidelines issued under Section63. In addition to the guidelines under Section 63 of the Act, the StateCommission shall also be bound by the regulations framed by it underSection 181(zd) read with Section 61 while it discharges its function ofdetermining the tariff under Section 86 of the Act. However, if theguidelines issued under Section 63 or the regulations framed under Section181(zd) of the Act have not been notified or if the guidelines do not dealwith given situation, then the Commission shall exercise its generalregulatory power under Section 86(1)(a) of the Act to regulate tariff.

86. In PTC India Ltd. v. Central Electricity RegulatoryCommission,[2] Constitution Bench of this Court referred to Section79 and observed that the Appropriate Commission is both regulation-making authority and decision-making authority. It was observed thatthe Regulatory Commission while exercising its functions must conformto the regulations that the Commission has formulated under Section178 (the corresponding provision for the State Commission’s power to

2 (2010) 4 SCC 603

ABC

Aframe Regulations in Section 181). However, it was held that theCommission would not be precluded from exercising its function underSection 79 merely because there is no regulation framed by theCommission. In the context of tariff determination, it was observed thateven in the absence of Tariff Regulations, it would be open to theCommission to frame the terms and conditions of tariff determinationBunder Section 61 of the Act:

53. Applying the abovementioned tests to the scheme of the 2003Act, we find that under the Act, the Central Commission is adecision-making as well as regulation-making authority,simultaneously. Section 79 delineates the functions of the CentralCCommission broadly into two categories —mandatory functionsand advisory functions. Tariff regulation, licensing (including inter-State trading licensing), adjudication upon disputes involvinggenerating companies or transmission licensees fall under the head“mandatory functions” whereas advising the Central GovernmentDon formulation of National Electricity Policy and tariff policy wouldfall under the head “advisory functions”. In this sense, the CentralCommission is the decision-making authority. Such decision-makingunder Section 79(1) is not dependent upon making of regulationsunder Section 178 by the Central Commission. Therefore, functionsof the Central Commission enumerated in Section 79 are separateEand distinct from functions of the Central Commission underSection 178. The former are administrative/adjudicatory functionswhereas the latter are legislative.

The following observations were made on the general regulatorypower of the Regulatory Commission:F

54. […] On reading Sections 76(1) and 79(1) one finds that theCentral Commission is empowered to take measures/steps indischarge of the functions enumerated in Section 79(1) like toregulate the tariff of generating companies, to regulate the inter-State transmission of electricity, to determine tariff for inter-StateGtransmission of electricity, to issue licences, to adjudicate upondisputes, to levy fees, to specify the Grid Code, to fix the tradingmargin in inter-State trading of electricity, if considered necessary,etc. These measures, which the Central Commission isempowered to take, have got to be in conformity with theregulations under Section 178, wherever such regulations

are applicable. Measures under Section 79(1), therefore,have got to be in conformity with the regulations underSection 178.

55. To regulate is an exercise which is different from making ofthe regulations. However, making of regulation underSection 178 is not precondition to the Central Commissiontaking any steps/measures under Section 79(1). As stated,if there is regulation, then the measure under Section 79(1) hasto be in conformity with such regulation under Section 178. Thisprinciple flows from various judgments of this Court which wehave discussed hereinafter. For example, under Section 79(1)(g)the Central Commission is required to levy fees for the purposeof the 2003 Act. An order imposing regulatory fees could be passedeven in the absence of regulation under Section 178. If the levyis unreasonable, it could be the subject-matter of challenge beforethe appellate authority under Section 111 as the levy is imposedby an order/decision-making process. Making of regulationunder Section 178 is not precondition to passing of anorder levying regulatory fee under Section 79(1)(g).However, if there is regulation under Section 178 in thatregard then the order levying fees under Section 79(1)(g)has to be in consonance with such regulation.56. Similarly, while exercising the power to frame the terms andconditions for determination of tariff under Section 178, theCommission has to be guided by the factors specified in Section61. It is open to the Central Commission to specify termsand conditions for determination of tariff even in theabsence of the regulations under Section 178. However, if aregulation is made under Section 178, then, in that event, framingof terms and conditions for determination of tariff under Section61 has to be in consonance with the regulations under Section178.

(emphasis supplied)

87. The TBCB Guidelines issued by the Central Government underSection 63 of the Act prescribe the mechanism of the bidding processand do not lay down the criteria or guidelines for choosing between thealternative routes under Section 62 and 63 of the Act. MERC has neithernotified any Regulations under Section 181 nor has it notified the terms

Aand conditions under Section 61 of the Act. That being the case, theCommission could choose the modality of tariff determination by takingrecourse to the general regulatory power under Section 86.

E.2.1 The nature of NTP- binding or material consideration

88. Even in the absence of guidelines under Section 61 orBRegulations under Section 181 (zd), the Commission does not possessunbridled power or discretion while choosing the modality to determinetariff. Sub-Sections (3) and (4) of Section 86 provide that the StateCommission while discharging its functions must ensure transparencyand ‘shall be guided’ by the NTP and NEP.

89. Before proceeding to interpret the phrase ‘shall be guided’, itis necessary that we refer to the prominent features of the NTP 2006and NTP 2016 vis-à-vis modalities of tariff determination. comparativechart of the relevant provisions of NTP 2006 and NTP 2016 is set outbelow:

90. Both NTP 2006 and NTP 2016 as general rule prescribeGcompetitive bidding for determination of tariff for all ‘new projects’.There are two prominent differences between NTP 2006 and NTP 2016.Firstly, the projects owned or controlled by the Government wereexempted from bidding under NTP 2006. However, according to NTP2016, the tariff for government owned projects is also to be determined

by bidding, unless otherwise specified. Secondly, NTP 2016 introducedthe threshold limit rule. State Commissions are required to notify thethreshold limit. If the cost of the project exceeds the threshold limit, thenthe Commission is mandated to follow the bidding process for thedetermination of tariff.

91. NTP 2016, by providing that state owned projects are notexempted from the TBCB process, has implemented the object of theAct, which is to create fine balance between promoting competitionand protecting the interests of the consumers. NTP 2006 was formulatedwith the objective of enhancing the participation of private players in thegeneration, transmission and distribution of electricity. The CentralGovernment adopted policy decision to introduce the bidding processfor the determination of the tariff for all new transmission projects in2006 but excluded its application to State projects. However, thedistinction between State and private parties for the purpose of tariffdetermination through bidding was removed in NTP 2016. This transitionbetween NTP 2006 and NTP 2016 depicts the intention of theGovernment to rationalise the tariff policy and to transfer the benefits ofthe rationalised tariff to the consumers.92. According to NTP 2016, the tariff for all new electricitytransmission projects that cost above the threshold amount notified bythe State Commission shall be determined through bidding. However,the MERC had not notified the threshold limit as on the date when itpassed the order granting transmission licence to AEML-T. MERCnotified the Maharashtra Electricity Regulatory Commission (Multi YearTariff) Regulations 2019 under Section 181 of the Act. The MERC MYTRegulations does not provide the guidelines or the criteria for the choosingthe modality of tariff determination. The guidelines for choosing themodalities are sought to be introduced by the Maharashtra ElectricityRegulatory Commission (Multi Year Tariff) (First Amendment)Regulations 2022. MERC circulated the draft of the MERC MYTAmendment Regulations on 19 August 2022 for comments, suggestionsand objections. The preamble of the MERC MYT AmendmentRegulations reads as follows:

“The State Electricity Regulatory Commission has been vestedwith the responsibility to determine the tariff for generation, supply,transmission and wheeling of electricity, wholesale, bulk or retail,as the case may be, within the State under Section 86 of the

AElectricity Act 2003. The tariff for intra-State Transmission Systemcan be decided under Section 62 or Section 63 of the ElectricityAct, 2003. Section 63 provides for adoption of the tariff determinedthrough transparent process of bidding. Clause 5.3 of the TariffPolicy 2016 as regards development of intra-State TransmissionSystem stipulates that the same shall be executed throughBcompetitive bidding route provided for projects costing above athreshold limit, which shall be decided by the State Electricityregulatory Commission.

The Maharashtra Electricity Regulatory Commission (Multi YearTariff) (First Amendment) Regulations 2022 specifies suchCthreshold limit and other conditions for intra-State TransmissionProjects to be developed through Tariff Based CompetitiveBidding.”

The MERC MYT Amendment Regulations seeks to amendRegulation 56 of the MERC MYT Regulations by adding RegulationD56.3. Regulation 56.3 states that ‘all new’ intra-state transmission systemscosting above threshold limit shall be developed through the Section 63route, provided all other conditions stipulated in Annexure IV are alsofulfilled. Regulation 56.3 reads as follows:

“56.3 All the new intra-State transmission systems costing aboveEa Threshold Limit and meeting other conditions as laid down inAnnexure IV, shall be developed through Tariff Based CompetitiveBidding in accordance with the guidelines issued by the CentralGovernment under Section 63 of the Act.”

According to Annexure IV, which is proposed to be added to theFMERC MYT Regulations, the threshold was determined at 200 Crores.The relevant extract of the MERC MYT Amendment Regulations is asfollows:

“1. The Commission hereby determines the Threshold Limit ofRupees Two Hundred (200) Crore.G2. All new Intra-State Transmission Systems costing Rupees TwoHundred (200) Crore or more shall be implemented by STUthrough Tariff Based Competitive Bidding in accordance with thecompetitive bidding guidelines notified by the Central Governmentfrom time to time.”

The Annexure also states that the threshold limit shall be appliedto all new Intra- State Transmission projects for which approval is yet tobe accorded by the Commission or where the Commission’s approval isnot valid or where the approval has been cancelled. The relevant portionis extracted below:

“3. This Threshold Limit shall be applicable for all new Intra-State Transmission Systems (Projects) for which approval is yetto be accorded by the Commission (excluding the projects forwhich application for in-principle approval is already submitted tothe Commission and the same is under consideration by theCommission) or Commission’s approval is not valid or approvalcancelled by the Commission as the case may be.”

93. However, the MERC MYT Amendment Regulations are yetto be notified. When the application seeking licence for the HVDCKudus- Aarey transmission project was filed, and when it was grantedby MERC, the threshold limit as required to be provided by NTP 2016was not notified by MERC. Thus, the question is whether in the absenceof any notification of the threshold by MERC, would MERC still bemandated to determine tariff for the transmission project through theTBCB route in view of NTP 2016.

94. The answer to this question turns on the interpretation of thephrase ‘shall be guided’ in Section 86(3) of the Act. This Court haspreviously had the opportunity to interpret the phrase ‘shall be guidedby’ as it finds place in the Act. two-Judge Bench of this Court inReliance Infrastructure Limited v. State of Maharashtra[3] interpretedthe phrase with reference to Section 61 of the Act. This Court observedthat ‘shall be guided by’ comprises of two elements, ‘shall’ and ‘guided’which would mean that the guiding factors provide considerations whichare materialto the determination of tariffs by the appropriate Commission:

“29. Section 181 empowers the State Commissions to makeregulations consistent with the Act and the Rules to carry out theprovisions of the Act. Among the matters for which the regulationsmay provide are “the terms and conditions for the determinationof tariff under Section 61” [Section 181(2)(zd)] . In specifyingthe terms and conditions for the determination of tariff, theappropriate Commission (as Section 61 provides) “shall be guided”

3 (2019) 3 SCC 352

by the factors which are set out in clauses (a) to (i). The expression“shall be guided” comprises of two elements : the “shall” and, the“guidance”. Clauses (a) to (i) provide guidance to the Commissionin specifying the terms and conditions for the determination oftariff. The expression “shall” indicates that the factors which arespecified in clauses (a) to (i) have to be borne in mind by theappropriate Commission. As guiding factors, they provideconsiderations which are material to the determination oftariffs by the appropriate Commission.

32. The Tariff Policy provides guidance to the appropriateCommission when it frames regulations. The power to frameregulations is legislative in nature. It is conferred upon theappropriate Commission. The Commission weighs numerousfactors. Its discretion in carrying out complex exercise cannotbe constrained. The delegate of the legislature is thereforeunder mandate to bring about fair and equitable balancebetween competing considerations.Standing at the forefrontof those considerations is above all the need to ensureefficiency and to protect the interests of consumers. Thesubmission which has been urged on behalf of the appellant wouldreduce tariff fixation to rather simplistic process of bringingabout equality between generating units which have the samedesign and manufacturing origin. Such an approach overlooks thecomplex factors which have to be borne in mind in thedetermination of tariffs.

(emphasis supplied)

This Court held that the principles prescribed in Section 61 are allmaterial considerations that must guide the Appropriate Commission whileit prescribes the terms and conditions for determining the tariff. It washeld that it was the responsibility of the Commission to ensure delicatebalance of the principles prescribed under Section 61. Thus, while theNTP which is prescribed as one of the principles under Section 61 shallbe material consideration, it cannot be interpreted to mean that it is the‘only’ material consideration. This interpretation of ‘shall be guided’ isequally applicable to the use of the phrase in Section 86(3).

95. The counsel for the appellants has relied on observations madeby two-Judge Bench of this Court in Energy Watchdog (supra) thatthe NTP 2016 is ‘statutory document being issued under Section 3 ofthe Act and has the force of law’ to argue that the NTP is binding on theCommission. In Energy Watchdog (supra), Adani EnterprisesConsortium submitted its bid for the proposed project and it was selectedas the successful bidder. However, the law in Indonesia had changed in2010 and 2011 which aligned the export price of coal from Indonesia tointernational market prices instead of the price that was prevalent in thelast forty years. Adani Power filed petition before CERC seeking reliefdue to the impact of the Indonesian Regulation to either discharge themfrom the performance of the Power Purchase Agreement on account offrustration, or to evolve mechanism to restore the petitioners to thesame economic condition prior to the occurrence of the change in law.Clause 4.7 of the Guidelines for determination of Tariff by BiddingProcess which was included through an amendment stipulates that:

“any change in law impacting cost or revenue from the businessof selling electricity to the procurer with respect to the lawapplicable on the date which is 7 days before the last date for bidsubmission shall be adjusted separately. In case of any disputeregarding the impact of any change in law, the decision of theappropriate Commission shall apply.”

In this context, this Court held that ‘law’ means all laws includingelectricity laws in force in India, and that electricity laws means theElectricity Act, rules and regulations made thereunder and ‘any otherlaw’ pertaining to electricity. It was in this context that it was observedthat the NTP is ‘law’. However, to understand the context of theobservations, brief historical background of the amendment to theguidelines will have to be noted. CERC issued statutory advice underSection 79(2) of the Act to the Central Government on the impact ofdomestic coal non-availability and the additional cost of imported coal ontariff. CERC advised that suitable amendments would have to be madeto the TBCB Guidelines that were issued under Section 63, the NEP,and NTP. The amendments allow the Appropriate Commissions to takecare of the situations arising out of the ‘change in policy of the SovereignGovernment.’ In view of the advice of CERC under Section 79(2), theMoP issued an advisory on 31 July 2013 stating that in view of the shortfallof domestic supply of coal, the cost of imported coal shall be considered

Afor being made pass through by the Appropriate Commission.Subsequently, in pursuance of the advisory issued by the MoP, the NTP2016 was amended to include Clause 6.1 providing relief as mentionedin the advisory. The relevant extract is as under:

“6.1 Procurement of power

As stipulated in Para 5.1, power procurement for futurerequirements should be through transparent competitive biddingmechanism using the guidelines issued by the Central Governmentfrom time to time. These guidelines provide for procurement ofelectricity separately for base loan requirements and for peakCloan requirements. This would facilitate setting up of generationcapacities specifically for meeting such requirements.

However, some of the competitively bid projects as per theguidelines dated 19-1-2005 have experienced difficulties in gettingthe required quantity of coal from Coal India Limited (CIL). InDcase of reduced quantity of domestic coal supplied by CIL, vis-à-vis the assured quantity or quantity indicated in letter of assurance/FSA the cost of imported market based e-auction coal procuredfor making up the shortfall, shall be considered for being made apass through by appropriate Commission on case-to-case basis,as per advisory issued by Ministry of Power vide OM No. FU-E12/2011-IPC (Vol-III) dated 31-7-2013.”

96. It is pertinent to note that this Court in Energy Watchdog(supra) did not interpret the phrase ‘shall be guided’ as it finds place inthe Act. This Court dealt with the interpretation of the phrase ‘change inlaw’. It was held that the amendment in the NTP 2016 taking cognizanceFof the domestic coal shortage was ‘change in law’ since it is statutorypolicy. There is no doubt that NEP and NTP are statutory policies sincethey were framed under the provisions of the Act. However, theobservation in Energy Watchdog (supra) that the NTP is ‘law’ cannotbe held to bind the interpretation of the phrase ‘shall be guided’. Further,Git must also be noted that this Court in Energy Watchdog (supra) wasdealing specifically with changes due to coal procurement and theamendments in the policies were recommended to be made by the CentralRegulatory Commission.

97. reading of the judgment of this Court in PTC India (supra)and the provisions of the Act indicates that the determination of tariffH

and framing regulations for the determination of tariff fall within theexclusive domain of the Appropriate Commission. Section 61 stipulatesthat the Appropriate Commission shall ‘specify the terms and conditions’for the determination of tariff. Section 86 provides that one of the functionsof the State Commission is to determine tariff for transmission. Section181 states that the Commission shall make regulations on the terms andconditions for the determination of tariff. Thus, the regulation anddetermination of tariff is the function of the Appropriate Commission.

98. While the determination and regulation of tariff falls withinthe exclusive domain of the Regulatory Commission, it is crucial to notethat Sections 61 and 86 stipulate that the Commission shall be guided bythe NTP while specifying terms and conditions for determining tariff.The State Commission while exercising its power to make regulationsunder Section 181(2)(zd) on the terms and conditions for determinationof tariff under Section 61 must conform to the provisions of the Act.Thus, while framing regulations under Section 181(2)(zd), the Commissionmust be guided by the principles mentioned in Section 61, which includesthe NEP and NTP.99. This Court in Reliance Infrastructure (supra) has alreadyheld that the NTP is one of the material considerations. The NTP is oneof the many guidelines that the Commission must necessarily considerwhile regulating tariff. The State and the Central Government only havean advisory role in the regulation of tariff. The Electricity RegulatoryCommissions Act 1998, which was consolidated with other statutes onelectricity while enacting the Electricity Act 2003, was enacted todistance the governments from the determination of tariffs. Further, theAct does not seek to centralise the power to regulate tariff with theCentre. One of the objectives of the Act was to provide the “statesenough flexibility to develop their power sector in the manner theyconsider appropriate.” Thus, since the Appropriate Commissions possessfull autonomy in the determination and regulation of tariff, and the Stateshave been provided flexibility to develop their power systems for intra-state transmission of electricity, the NTP 2016 shall be one of the materialconsiderations. Further, even in the letter dated 15 March 2021, the MoPonly ‘strongly recommended’ that the states adopt TBCB for thedevelopment of intra-state transmission systems.

100. In view of the above discussion, merely because the thresholdlimit is not notified, it would not mean that MERC only had to determine

Atariff through the RTM route. It is open to MERC to determine the tariffthrough either the Section 63 or the Section 62 route. When MERC isexercising its general regulatory power under Section 86 to determinetariff, the NTP is material consideration. Thus, the absence of athreshold limit would not affect the power that MERC holds to determinetariff (and its modalities). Since MERC has the power to regulate andBdetermine tariff for the intra-state transmission of electricity, the guidelinesand regulations issued by MERC, if any, must be analysed to determineif MERC was mandated to choose one of the two routes for thedetermination of tariff or whether it could exercise its discretion to choosethe modality.C

101. As already noted above, on the date when MERC determinedthe tariff for the HVDC transmission project, it had neither notifiedRegulations under Section 181(2)(zd) nor the terms and conditions underSection 61 of the Act. On 4 January 2019, the Government ofMaharashtra passed resolution ‘Regarding Adoption of new TariffDBased Competitive Bidding Process in the State’. The resolution statesthat it has been issued in pursuance of the guidelines on competitivebidding that were issued by the MoP by Gazette Notification No. 11/5/2005-PG(I) dated 13 April 2006 which indicated that the ‘StateGovernment may adopt these guidelines for intra-state transmissionprojects or having considered these guiding principles may constituteEsimilar committees for facilitating establishment of state transmissionprojects in the State.” The resolution further notes that the Governmenthas decided to constitute committees such as the Empowered Committeeand Bid Evaluation Committee for undertaking transmission projectsthrough TBCB. The resolution notes that the State Government hasFdecided to implement TBCB for new intra-state projects. The constitutionof the Empowered Committee and Bid Evaluation Committee are tracedto the constitution of similar committees under the TBCB Guidelinesand Development Guidelines. The resolution notes that the EmpoweredCommittee is being constituted in accordance with the Central

Government’s guidelines. Paragraph 3 of the notification notes that theGBid Process Coordinator will be appointed by the Empowered Committeeto coordinate the bid process and that the functions of the Bid ProcessCoordinator would be according to the Central Government’s guidelines.

E. 3 Value of GoM GR

H102. The GoM’s GR raises two separate issues for consideration:

a)the relevance of the GoM’s GR for MERC’s decision onAthe application for licence filed by AEML-T; and

b)the relevance of the GoM’s GR in terms of the decision ofthe MSETCL to not hold bidding for the HVDC project.

103. However, before venturing into these two issues, it would beimportant to discuss the applicability of the GoM GR to the HVDC project.The GoM GR was notified on 4 January 2019. The GR mandates thattariff shall be determined through the TBCB route under Section 63 forall ‘new projects’. Therefore, we need to analyse whether as on 4 January2019, the HVDC Kudus-Aarey project could be considered as ‘newproject’.

E. 3.1 The New - Old Conundrum

104. The GoM’s GR does not provide any clarity on the term‘new’ project leaving it open to MERC to interpret the phrase. MERCby its order dated 21 March 2021 granted licence for the HVDCKudus-Aarey transmission project under Section 62 of the Act to AEML-T holding that it was an ‘existing’ project as on the date the GoM’s GRwas notified, that is 4 January 2019. For arriving at this conclusion, MERCreferred to the application for grid connectivity for the Kudus- AareyHVDC project filed by AEML-T on 23 November 2018. By its letterdated 23 November 2018, AEML-T sought an amendment to the letterissued by MERC granting grid connectivity to the 2 x 500 HVDC (VSCbased) scheme from Nagothane to Aarey. The amendment sought byAEML-T to the letter issued by MERC must be read in the context of ameeting that was held between MSETCL and AEML-T where MSETCLsuggested that the HVDC project be considered from Kudus substationas opposed to Nagothane substation since it is closer to the Aareysubstation. However, MSETCL did turn-around and on 5 January 2015cancelled the Nagothane- Aarey project of R-Infra and instead proposeda Kudus-Aarey HVAC project by itself. By the proposal dated 5 January2015, MSETCL altered the point from Nagothane to Kudus, and thetechnology from HVDC to HVAC. Accordingly, MERC cancelled thein-principle approval granted to AEML-T for the HVDC Nagothane -Aarey scheme. However, due to right of way issues in the constructionof the overhead line, the 400KV Aarey to Kudus HVAC scheme nevertook off.

A105. MERC held that the cancellation of the in-principle approvalwould generally amount to closure of the project. However, MERCtook into account the unique historical background of the HVDC projectwhen the Kudus-Aarey project was proposed by AEML-T in November2018. The relevant extract from the order of MERC is set out below:

BHowever, the proposed HVDC Scheme, with the sameconfiguration, has historical background from November 2018.The 1000 MW HVDC VSC based link between MSETCL Kudusand AEML Aarey was proposed by AEML-T, vide its applicationfor grid connectivity, on 23 November, 2018. The said applicationthus, pre-dates the GoM GR dated 4 January, 2019. CertainCplanning and preparatory work such as technical studies, costestimation, cable route survey, identification of land, preparationof DPR along with feasibility studies were also initiated. This freshConnectivity Application also addresses TPC-T’s contention thata fresh Connectivity Application has to be made when there is aDchange in the network configuration. Hence, the proposed HVDCScheme is new Scheme qua the earlier approved Scheme, butthe fresh Connectivity Application for this HVDC Scheme wasfiled before the notification of the GoM GR dated 4 January, 2019.In its judgment dismissing the appeal against the order of MERC,EAPTEL concurred with the observation made by MERC that the HVDCScheme is an ‘existing scheme’. APTEL observed that the cancellationof the in-principle approval cannot render it new scheme since it wasthe STU which took an about-turn on its objections to the HVDCtechnology:

F“149. The cancellation of the in-principle approval earlier accordedcannot render it new scheme since the STU itself later took anabout-turn on its objections as to the technology for which reasonthe cancellation had been earlier commended and so acted uponby the Commission. The scheme has remained the same, the primechange being with regard to modified route (to save distance andGcosts) the HVDC technology being the one initially proposed andnow eventually accepted by the STU upon endorsement by CEA.The effect of the confusion caused by the flip-flop or re-thinkmore than once by the STU is being discussed by us in the sectionthat follows (under the caption “Shifting stand of STU on HVDCHproject”) and dwelling upon it here will make the discourse

repetitive. Suffice it to say here that such confusion forreasons attributable to the indecisiveness of the STU cannotdivest the scheme of its “old” character because, with somehiatus (again on account of doubts over HVDC as comparedto HVAC), the Scheme has consistently and throughoutremained, since FY 2013-14, part of the five- year plans ofthe STU, as project entrusted to the proponent R-Infra(now AEML-T or its SPV), the GR of GoM having come inmuch later in the day.

150. We, thus, do not find any error, infirmity or impropriety in theconclusions reached by the Commission on the captioned issue.The arguments of the appellant to the contrary are rejected.”

“159. […] There was virtually no resistance on the suggestion forchange of route (Kudus rather than Nagothane being one end) asthe proponent readily agreed to it. The flip-flop vis-à-vis theappropriate technology (HVDC versus HVAC) is where theprogress came stuck for prolonged period. We do not find meritin the explanation of STU about exclusion from its published plansfor few years in-between. […] The temporary uncertainty inthe mind of the STU, which had only recommendatory role, hasonly delayed the decision-making process. It, however, cannotvitiate the decision taken by MERC in whose hands thejurisdiction is placed by the law to take call on grant oflicense.”

(emphasis supplied)

106. In view of the above discussion, the 1000MW Aarey-KudusHVDC project by AEMIL is an ‘existing’ or an ‘old’ project with referenceto the GoM GR for the following reasons:

106.1 Firstly, the GR does not provide or explain the meaning ofthe phrase ‘new’ projects. Hence, MERC has the discretionGto formulate its understanding of the phrase ‘new’ projectsso long as it is reasonable and does not rely on factorsextraneous to the decision making process. In view of thedecisions of this Court discussed above and the provisionsof the Act, MERC has the power to regulate tariffdetermination. MERC has not defined the phrase ‘new’H

projects through the regulations. In this situation, MERChas the discretion to interpret the phrase ‘new’ projectswhich it did in the course of its judgment granting AEMILthe transmission license. MERC held that generally thecancellation of approval would amount to the closure of theproject, unless the peculiar nature of the facts leads to analternative conclusion (as in this case);

106.2 Secondly, on applying the facts to the interpretation of thephrase ‘new’ project, MERC observed that the HVDCKudus-Aarey project is not new project. APTEL, onappeal, upheld the observations of MERC that it is an‘existing project’. The appeal against the judgment ofAPTEL before this Court under Section 125 of the Act canonly be on the grounds mentioned in Section 100 of CPC.Section 125 reads as under:

“125. Any person aggrieved by any decision or order ofthe Appellate Tribunal, may, file an appeal to the SupremeCourt within sixty days from the date of communicationof the decision or order of the Appellate Tribunal, tohim, on any one or more of the grounds specifiedin section 100 of the Code of Civil Procedure,1908.

Provided that the Supreme Court may, if it is satisfiedthat the appellant was prevented by sufficient cause fromfiling the appeal within the said period, allow it to befiled within further period not exceeding sixty days.”

(emphasis supplied)

Section 100 of the Code of Civil Procedure 1908 stipulates that asecond appeal shall lie only if the court (in this case the Supreme Court)is satisfied that the case involves substantial question of law. It issettled law that concurrent findings of fact recorded by the fora below(MERC and APTEL) cannot be interfered with by this Court. In DSRG(Steel) Pvt. Ltd. v. State of Rajasthan[4],a two Judge Bench of thisCourtobserved that findings of fact by the Regulatory Commission andthe Tribunal cannot be reopened by this Court on appeal under Section125 of the Act. The court held:

14. An appeal under Section 125 of the Electricity Act, 2003 ismaintainable before this Court only on the grounds specified inSection 100 of the Code of Civil Procedure. Section 100 CPC inturn permits filing of an appeal only if the case involves asubstantial question of law. Findings of fact recorded by thecourts below, which would in the present case, imply theRegulatory Commission as the court of first instance andthe Appellate Tribunal as the court hearing the first appeal,cannot be reopened before this Court in an appeal underSection 125 of the Electricity Act, 2003. Just as the HighCourt cannot interfere with the concurrent findings of factrecorded by the courts below in second appeal under Section100 of the Code of Civil Procedure, so also this Court would beloath to entertain any challenge to the concurrent findings of factrecorded by the Regulatory Commission and the AppellateTribunal. The decisions of this Court on the point are legion.Reference to Govindaraju v. Mariamman [(2005) 2 SCC 500 :AIR 2005 SC 1008] , Hari Singh v. Kanhaiya Lal [(1999) 7 SCC288 : AIR 1999 SC 3325], Ramaswamy Kalingaryar v. Mathayan Padayachi [1992 Supp (1) SCC 712 : AIR 1992 SC115] , Kehar Singh v. Yash Pal [AIR 1990 SC 2212]and Bismillah Begum v. Rahmatullah Khan [(1998) 2 SCC 226: AIR 1998 SC 970] should, however, suffice.

(emphasis supplied)

Since both APTEL and MERC have recorded concurrent findingsthat the HVDC Aarey- Kudus project is an existing project, it would notbe open to this Court in an appeal under Section 125 of the Act to reopenthe findings..

Thirdly, even otherwise, we are in agreement with the findings ofMERC and APTEL that the 1000MV HVDC Scheme from Aarey toKudus is an old project considering the following factual position:

106.2.1On 12 November 2007, MSETCL issued acommunication to CEA setting out the steps proposedto meet the growing demand of power for Mumbai’sload centres. The communication stated that TPC hadproposed the setting up of overhead lines andunderground cables while REL had proposed connections

to Aarey by using the HVDC (VSC based) technology.MSETCL notified five-year plan for 2009-10 to 2013-14 envisaging the use of the HVDC technology. Theplan specifically provided for the ongoing schemes ofR-infra together with new schemes including the HVDCbased link between Nagothane and Aarey. Similar detailswere provided in relation to TPC’s ongoing and newschemes. Both TPC and R-infra were in the fray fromthe inception. While TPC was primarily in the overheadtransmission line segment, R-infra had proposed thesetting up of transmission lines on the HVDC technology.

106.2.2The criticality of the HVDC technology assumesimportance after the grid failure which Mumbaiexperienced in November 2010. The committee chairedby Professor of IIT recommended the HVDCtechnology as long-term solution for ensuring reliabilityof power supply for Mumbai. MERC granted atransmission licence to R-infra on 11 August 2011. R-infra submitted DPR to MERC for the appointment ofa consultant for the transmission line from Nagothaneto Aarey on 1 February 2013. On 7 March 2013,MSETCL confirmed that the Nagothane -Aarey projectwas part of the STU five-year plan for FY 2013-14 to2017-18. MERC approved the hiring of the consultanton 5 April 2013. The application for the grant of gridconnectivity for the proposed HVDC project wasallowed on 21 August 2013. When matters were thusprogressing, in November 2013 MSETCL had in ameeting with R-Infra proposed that R-Infra can avail ofconnectivity from the Kudus sub-station which wascloser to the Aarey sub-station as compared to the sub-station at Nagothane. R-infra expressed its concern overthe proposed revision on the point of connectivity. On10 April 2014, MERC granted an in-principle clearancefor the HVDC Scheme. In January 2015, MSETCLproposed revised scheme for where the 400KV Kudus-Aarey HVAC scheme was proposed by MSETCL. On2 May 2016, the in-principle clearance granted to the

Nagothane-Aarey HVDC Scheme was cancelled byMERC.

106.2.3However, since the HVAC scheme of MSETCL did nottake off, AEML-T submitted an application for HVDCScheme between Aarey to Kudus on 23 November 2018where an amendment to the letter issued by MERCgranting grid connectivity to the 2 x 500 HVDC (VSCbased) scheme from Nagothane to Aarey was sought.

106.2.4The narration of facts indicates that AEML-T(or itspredecessor in interest) has been involved in theexecution of the HVDC Scheme since the inception ofCthe scheme. The cancellation of the in-principle approvalaccorded to AEML-T by MERC cannot be held toterminate the project in view of the peculiar backgroundof this case. It is due to the indecisiveness of MSETCLon the HVDC and HVAC technologies that AEML-T’sDclearance was cancelled. The HVDC Scheme wasattributed to R-Infra or, as the case may be, AEML-Tsince 2009. In the electricity regulatory sector, wherethe State Regulatory Commissions and STUs’ have beenfunctioning in an ad-hoc manner running in many loops,the question of whether the project is an old or newEproject must be determined through holistic purviewof the factual background. In view of the above factualnarration, it is evident that the HVDC Scheme is an oldproject and the change in the location of the injectionpoint from Nagothane to Kudus would not lead to theFclosure of the old project.

107. Regardless, we deem it appropriate to also decide upon theissues before us for consideration in terms of the relevance of the GoMGR in the decision making of MERC and holding of the bidding processby MSETCL.

E.3.2 Relevance of GoM GR for MERC’s Decision

108. The GR does not carry any reference to the provision of theAct under which it was notified. The introduction of the resolution statesthe following:

A“With the objective of setting up New Transmission Projects withTariff Based Competitive Bidding, the Ministry of Power,Government of India has issued guidelines vide Gazette NotificationNo. 11/5/2005-PG(I) dated 13.04.2006. In addition, modificationswere made vide Gazette Notifications on 04.07.2007 and10.10.2008. Additionally, the revised directives dated 02.05.2012Bindicate, that the State Government may adopt these guidelinesfor intra-state transmission projects or having considered theseguiding principles may constitute similar committees for facilitatingestablishment of state transmission projects in the State.

Therefore, the government was considering constitution ofcommittees like Empowered Committees, Bid EvaluationCommittee in accordance with the above-mentioned guidelinesof central government for undertaking transmission projects inthe state through Tariff Based Competitive Bidding. Thegovernment has, after thorough discussion, taken the followingdecision in this regard.”

The GoI Guidelines referred to above are the TBCB Guidelinesand the Development Guidelines. Paragraph 3.3 of the TBCB Guidelinesstates that for the procurement of transmission services for intra-stateEtransmission, the appropriate State Government may notify anyorganization or state public sector undertaking especially engaged forbidding to be the Bidding Process Coordinator. Paragraph 24 of theDevelopment Guidelines stipulates that the State Governments may adoptthese guidelines and may constitute similar committees for facilitation ofFintra-state transmission projects. The Guidelines stipulate that the States‘may’ adopt these guidelines for intra-state projects.

109. While the State Government has used the central guidelinesto formulate its own guidelines on competitive bidding, it does note thatthe Empowered Committee being constituted will undertake transmission’”projects “in accordance with Central Governments guidelines.Therefore, to the extent that the GoM GR deals with setting up of certainbodies for conducting bidding to allocate projects under the TBCB routein line with the Central Government’s TBCB Guidelines, it can be said tobe in furtherance of the guidelines referred under Section 63 of the Act.However, the same is limited to committees being set up for the procedural

aspects of the bidding process dealt by the Central Government’sguidelines.

110. Another contentious aspect of the GoM GR is the portionwherein it notified that the State Government “has decided to implementTariff Based Competitive Bidding-TBCB process for new Projects.”The GR did not define the term ‘new projects.’ The appellant has arguedthat the GR notified by the State Government being binding on MERC,MERC had no option but to determine tariff through the bidding processfor all ‘new’ projects, and if the HVDC project is ‘new project’ thentariff could not have been determined through the Section 62 route. Whilewe have already held that the HVDC project was an existing project interms of the GoM GR, we also clarify the aspect of the binding value ofGoM GR upon MERC.111. As discussed above, the fixation of tariff falls within theindependent statutory domain of the Regulatory Commission. The StateGovernment has the power to issue directions to the State Commissionin matters of ‘policy involving public interest’ under Section 108 of theAct. While stating that the State Government may issue directions inmatters of policy involving public interest, Section 108(2) states that ifany question arises as to whether such direction relates to matters ofpolicy involving public interest, the decision of the State Government onit shall be final. The provision further states that the State Commissionshall be guided by the directions of the State Government in discharge ofits functions. Section 108 is extracted below:

“108. Direction by State Government.- (1) In the discharge ofits functions, the State Commission shall be guided by suchdirections in matters of policy involving public interest as the StateGovernment may give to it in writing.

(2) If any question arises as to whether any such direction relatedto matter of policy involving public interest, the decision of theState Government thereon shall be final.”

112. Section 108 deals with “directions in matters of policyinvolving public interest as the State Government may give to it inwriting.” In the provision, the term ‘it’ refers to the State Commission.The GoM’s GR does not mention the State Commission and has notbeen issued as direction to the MERC as envisaged in Section 108.Therefore, the HVDC Project is, firstly, an existing project in terms of

ABC

DEF

Athe GoM GR, and secondly, the GoM GR has not been issued in termsof Section 108 as direction to the State Commission.

E.3.3 Relevance of GoM GR vis-à-vis MSETCL’s decision

113. The GoM GR provides that all new projects would be allottedunder the TBCB route. Accordingly, the question arises whetherBMSETCL was bound to refer the HVDC Project to the EmpoweredCommittee for the bidding to be held and the tariff determined throughbidding to be thereafter referred to MERC under Section 63.

114. MSETCL or any STU performs the following functions interms of Section 39 of the Electricity Act:C

“(2) The functions of the State Transmission Utility shall be–

(a) to undertake transmission of electricity through intra-Statetransmission system;

(b) to discharge all functions of planning and co-ordination relatingDto intra-State transmission system with–

(i) Central Transmission Utility;

(ii) State Governments;

(iii) generating companies;

(iv) Regional Power Committees;

(v) Authority;

(vi) licensees;

(vii) any other person notified by the State Government in thisFbehalf;

(c) to ensure development of an efficient, co-ordinated andeconomical system of intra-State transmission lines for smoothflow of electricity from generating station to the load centers;”

115. The Act clearly lays out the importance of the STU’s role inGterms of planning, development and co-ordination of intra-statetransmission systems of any State. This role is carried out in co-ordinationwith the other stakeholders listed in sub-clause (b) of Section 39(2). InMaharashtra, MSETCL has been notifying five-year plans which reflectthe upcoming projects and planning initiatives regarding intra-state

transmission system. The requirement for MSETCL to publish the five-year plans has also been captured in the MERC Gride Code 2006.

116. Paragraph 24 of the Development Guidelines allows the StateGovernments to adopt the guidelines and constitute similar committeesfor facilitation of intra-state transmission projects. In terms of theDevelopment Guidelines, the Empowered Committee has been set upwhich will perform its functions in line with the Guidelines. The GoM’sGR has also notified that the Empowered Committee shall appoint theBid Process Coordinator and the Bid Empowerment Committee.

117. The functions of the Empowered Committee include “toidentify projects to be developed under this Scheme.” Further, it isthis Empowered Committee which facilitates preparation of biddocuments, evaluation of bids as well as finalization of TransmissionService Agreements between the developer and the concerned utilities.

118. Some of the relevant provisions of the DevelopmentGuidelines, including the functions to be performed by the EmpoweredCommittee, are reproduced below:

“14. The functions of the Empowered Committee will be thefollowing:

a) To identify projects to be developed under this Scheme.

b) To facilitate preparation of bid documents and invitation of bidthrough suitable agency.

c) To facilitate evaluation of bids.

d) To facilitate finalization and signing of Transmission ServiceAgreement (TSA) between the developer and the concernedutilities.

e) To facilitate development of projects under this Scheme.

PROJECT FORMULATION

17. Once the Perspective Plan, covering three five year plans,the Short Term Plan and the Network Plan have been prepared;some of these projects will be identified as projects to be coveredunder this Scheme for competitive bidding. In order to attractprivate investment in the transmission sector it is very important

to be able to make available all the information to the stakeholders,regarding new projects and their technical and other specifications.These identified projects would then need to be formulated withadequate details to enable competitive bidding to take place.Detailed Project Report (DPR) for these projects shall beprepared….

SELECTION OF DEVELOPER

19. The selection of developer for identified projects would bethrough tariff based bidding for transmission services accordingto the guidelines issued by the Ministry Of Power under section63 of the Electricity Act, 2003. CTU/STUs and Joint VentureCompanies will also be eligible to bid, so that there is sufficientcompetition among the bidders.

LICENSE FOR TRANSMISSION

20. Along with the recommendation of selection by the EmpoweredCommittee, the selected developer shall approach the AppropriateCommission, within period of 30 days, for grant of transmissionlicense. If it fails to apply for license within thirty days then it willbe liable for cancellation of its selection. Cancellation of selectionas provided above will be done by the Empowered Committeeonly after giving the selected private company an opportunity tobe heard.

(emphasis supplied)

119. In line with paragraph 17 of the Development Guidelines, itFshall be the Empowered Committee which shall identify projects fromthe transmission utility’s network plan for being covered under thecompetitive bidding process. In terms of paragraph 19 of the DevelopmentGuidelines, the relevant STU will itself be eligible to be participant inthe bid.G

120. Accordingly, it is clear from reading of these DevelopmentGuidelines read with the functions of the State Utility in terms of Section39(2) of the Act that while the State Transmission Utility shall be theapex authority for planning of intra-state transmission projects, theEmpowered Committee is to identify projects to be undertaken underHthe TBCB route.

121. However, as we have already noted above, the HVDC Projectwas an existing/old project in terms of the GoM’s GR. Furthermore, thisis also brought out in terms of the Empowered Committee’s deliberationsrecorded in its Minutes of Meetings.

122. Once the Empowered Committee was constituted, MSETCLreferred the HVDC Project to it in terms of the GoM’s GR. The Minutesof the 4[th] Empowered Committee Meeting dated 30 May 2020, recordAgenda No. 3 as the HVDC Project. The Empowered Committee wasapprised of the developments regarding this as well as the objectionfrom TPC that it should be allotted through TBCB. The EmpoweredCommittee did not take decision in the said meeting.

123. In the 5[th] Empowered Committee meeting held on 24December 2020, both the issue of the threshold limit for development ofintra-state transmission projects through TBCB as well as the HVDCProject were once again discussed.

124. The Empowered Committee laid out the limit of Rs 500 croresas the threshold and decided upon the issue of “new/old” projects underAgenda Item 3. Further, it once again took into consideration the HVDCProject and decided that MSETCL shall proceed with the project interms of the recommendation in Agenda Item 3:

“Agenda Item 4: Appraisal of inclusion of 1000 MW HVDCKudus-Aarey project in the STU five Year plan

(2019-20 – 2024-25) referred to Empowered Committee in lastmeeting.

The Agenda “1000 MW HVDC project of Kudus – Aarey to betaken under TBCB” was discussed in 4th Empowered Committeemeeting on 30th May 2020.”

At that time the HVDC project was not part of STU five-yearplan.

Hence the agenda item was deferred. Now the EmpoweredCommittee has been apprised about inclusion of 1000 MW HVDCproject of Kudus – Aarey in the STU Five-year plan. Post appraisalof inclusion, the Committee informed STU that they shouldproceed as per the decision given by the Empowered Committeevide Agenda No.3.”

125. Based on the above decision, in its additional submission dated20 January 2021 filed before MERC, MSETCL after adverting to theaforementioned minutes of meeting of the EC stated that it would proceedin accordance with the decision of the EC. Clarifying the same in itswritten submission dated 08 February 2021 filed before the MERC, itstated that this implied that the HVDC Project being an old project, itwould not be required to go through the TBCB route:

9. It is submitted that present HVDC Scheme was informed toEmpowered Committee Members during 4th EmpoweredCommittee meeting (as also recorded in MoM dated 30.05.2020)in line with the Government of Maharashtra GR dt. 04.01.2019.Earlier Nagothane-Aarey HVDC project was submitted byerstwhile Rinfra-T and was included in STU plan 2014-15 to 2018-19. This project was approved by Hon’ble MERC to beimplemented by Rinfra-T. Subsequently HVAC Kudus - Aareyscheme was submitted by MSETCL and was included in STUplan of 2015-16 to 2019-20. This project was approved by Hon’bleCommission to be implemented by MSETCL. However thisHVAC project was subsequently cancelled. Further, M/s. AEML-T has again submitted VSC based 1000 MW Kudus to AareyHVDC Scheme to STU on dated 23/11/2018 and the same wasincluded in STU five-year plan of 2018-19 to 2022-23 but later itwas deleted as other HVAC schemes viz 400 kV Velgaon, 400kV Kalwa 11 & 400 kV Kalwa - Padghe M/C line were exploredas alternative to HVDC Scheme. Subsequently after CEArecommendation the scheme was again reinstated as submittedby AEML-T in STU plan of 2019-20 to 2024-25. Hence it is seenthat the said HVDC project is old project.

10. One of the most critical factors for timely execution of aTransmission scheme is the availability of land for substations.AEML EHV substation land utilization at Aarey can be optimizedto house the Inverter Terminal of the HVDC Scheme.

11. It is further submitted that in the 5[th] Empowered Committeemeeting, Empowered Committee decided the threshold to be appliedto the new schemes that can be referred to EmpoweredCommittee. HVDC being the scheme perceived since many years;already recommended as submitted by AEML-T and also directedby Hon’ble MERC to STU and AEML to implement the schemeexpeditiously.

12. As is seen from above deliberations it is seen that HVDCproject is old project. Moreover, the threshold limit as decidedby Empowered Committee in its meeting dated 24/12/2020 hasnot yet been approved by Hon’ble Commission. However as perClause 6 (ii) this HVDC project can be considered as old projectand where MERC has initiated substantially the process of inclusionof this project in scope of petitioner.

(emphasis supplied)

Notably, the EC too did not raise any objections to MSETCL’sinterpretation.

126. Furthermore, it is also important to note that the thresholdlimit which was mentioned by the EC was merely recommendation inresponse to the request of MERC so it could accordingly notify the limitin line with the NTP 2016. The threshold limit has not yet been notifiedby MERC.

127. Accordingly, it is clear that the MSETCL’s decision regardingthe HVDC Project not being referred under the TBCB route was in linewith the Empowered Committee’s directions which have been set up interms of the GoM GR and which has been granted the power to selectprojects to be taken up under the TBCB route.

F. Conclusion

128. Based on the above discussion, we have reached the followingconclusions:

(i)The Electricity Act 2003 provides the States sufficientflexibility to regulate the intra-state transmission systems,wherein the Appropriate State Commissions possess thepower to determine and regulate tariff. The Electricity Act2003 seeks to distance the State Governments from thedetermination and regulation of tariff, placing such powercompletely within the ambit of the AppropriateCommissions;

(ii)The provisions of the Electricity Act 2003 do not prescribeone dominant method to determine tariff. Section 63operates after the bidding process has been conducted.Where the tariff has already been determined throughbidding, the Appropriate Commission has to adopt such

tariff that has been determined. The AppropriateCommission cannot negate such tariff determined throughbidding by using its powers under Section 62. The tariffdetermined through the bidding process may not be adoptedby the Appropriate Commission only if the bidding processwas not transparent (undertaking substantive review) orthe procedure prescribed by the Central Governmentguidelines under Section 63 was not followed (undertakinga procedural review);

(iii)Sections 62 and 63 stipulate the modalities of tariffdetermination. The non-obstante clause in Section 63 cannotCbe interpreted to mean that Section 63 would takeprecedence over Section 62 at the stage of choosing themodality to determine tariff. The criteria or guidelines forthe determination of the modality of tariff determinationought to be notified by the Appropriate State CommissionDeither through regulations under Section 181 of the Act orguidelines under Section 61 of the Act;

(iv)MERC has neither framed regulations nor notified guidelinesprescribing the criteria or guidelines for choosing themodalities to determine tariff. Thus, MERC shall determineEthe tariff by exercising its general regulatory powers underSection 86(1)(a) of the Act;

(v)MERC while exercising its general regulatory powers underSection 86(1)(a) shall be guided by the NTP 2016, whichshall be material consideration. Accordingly, while NTP2016 requires intra-state transmission projects above thethreshold limit to be allotted through TBCB route, thisconstitutes material consideration to be taken into account.The threshold value in the case of Maharashtra has not yetbeen notified by MERC;

(vi)The threshold limit not having been notified by MERC, itwas open to MERC to allot the HVDC project either underthe RTM or the TBCB route;

(vii)MERC and APTEL have arrived at concurrent findings thatthe 1000MW HVDC Aarey-Kudus project is an ‘existingproject’ for the purpose of the applicability of the GoM’sH

GR 2019. This Court deciding statutory appeal underSection 125 of the Act cannot interfere with the concurrentfindings on question of fact. Nonetheless, even on anindependent assessment of the facts, the HVDC project isan existing project;

(viii) Even if the HVDC Project were to be considered ‘newproject’ in terms of the GoM’s GR, the same not havingbeen issued in terms of Section 108 as direction to theState Commission, MERC’s decision cannot be challengedfor failing to comply with the same as MERC is anindependent body with statutory powers to determine andregulate tariff; and

(ix)MSETCL has acted in terms of the GoM’s GR as it hasreferred the HVDC project to the Empowered Committeeand the decision to not refer the HVDC project under theTBCB route was in line with the Empowered Committee’sdirections. The Empowered Committee has the power toselect projects to be taken up under the TBCB route underthe GoM’s GR.

129. The Electricity Act 2003 or the policy framework, particularlyNTP 2016 read with the GoM GR dated 4 January 2019, did not make itbinding upon MERC to allot the HVDC project only through the TBCBroute. For the reasons mentioned above, the Regulatory Commission’sdecision to grant the HVDC project under Section 62 was within areasonable exercise of its powers.

130. This case has brought the ad-hoc nature of the functioningof the STU to the notice of this Court. MSETCL has been changing itsstance on the HVDC technology without following any due procedure.The flip-flops by MSETCL have led to the loss of time and investmentwhile the demand in the electricity sector has been increasingexponentially. We are cognizant of the fact that in matters dealing withelectricity regulation, the regulatory commissions and the transmissionutilities are usually bogged down by factors such as technologicaluncertainty, requirement of heavy investment and issues of right of way.The ad-hoc functioning of the transmission utilities is also attributable tothe lacunae in the regulations guiding the exercise of their functions.The Electricity Act 2003 was enacted with the objective of providing theStates with sufficient flexibility to regulate the intra-state electricity

Asystem and simultaneously provided the regulatory commissions withthe power to determine tariffs. Though the Government, both at theCentre and in the States, have framed statutory policies and guidelinesregulating the electricity sector, we have noticed that the RegulatoryCommissions have not framed the necessary regulations to put into effectthe principles prescribed under the Act.

131. We direct all State Regulatory Commissions to frameRegulations under Section 181 of the Act on the terms and conditionsfor determination of tariff within three months from the date of thisjudgment. While framing these guidelines on determination of tariff, theAppropriate Commission shall be guided by the principles prescribed inCSection 61, which also includes the NEP and NTP. Where the AppropriateCommission(s) has already framed regulations, they shall be amendedto include provisions on the criteria for choosing the modalities todetermine the tariff, in case they have not been already included. TheCommissions while being guided by the principles contained in SectionD61 shall effectuate balance that would create sustainable model of

electricity regulation in the States. The Regulatory Commission shallcurate to the specific needs of the State while framing these regulations.Further, the regulations framed must be in consonance with the objectiveof the Electricity Act 2003, which is to enhance the investment of privatestakeholders in the electricity regulatory sector so as to create aEsustainable and effective system of tariff determination that is costefficient so that such benefits percolate to the end consumers.

132. For the reasons mentioned above, the appeal is dismissed.133. Pending application(s), if any, are disposed of.

Ankit Gyan and Anurag Bhaskar(Assisted by : Iram Jan, LCRA)

Appeal dismissed.