M/S. JINDAL STEEL AND POWER LIMITED versus THE CHHATTISGARH STATE ELECTRICITY REGULATORY COMMISSION AND ORS.

[2022] 7 S.C.R.

AM/S. JINDAL STEEL AND POWER LIMITED

THE CHHATTISGARH STATE ELECTRICITYREGULATORY COMMISSION AND ORS.

(Civil Appeal Nos. 3607-3610 of 2008)

SEPTEMBER 29, 2022

[AJAY RASTOGI AND B. V. NAGARATHNA, JJ.]

Electricity Act, 2003: s.14 – Distribution licence/minimum areaof supply u/s.14 of the 2003 Act granted to appellant-JSPL by theCChattisgarh State Electricity Regulatory Commission (Commission)– Cancellation of, by the Tribunal – Challenge against – Held: s.14of the 2003 Act states that appropriate Commission may grant alicense to any person (a) to transmit electricity as transmissionlicensee; or (b) to distribute electricity as distribution licensee; orD(c) to undertake trading in electricity as an electricity trader, in anyarea as may be specified in the license – The sixth proviso to s.14states that the appropriate Commission may grant license to twoor more persons for distribution of electricity through their owndistribution system within the same area, subject to the applicantcomplying with additional requirements – Explanation to r.3 of 2005Erules prescribes the area falling within Municipal Council or aMunicipal Corporation as defined under Art.243 (Q) of theConstitution of India or Revenue District – The area of supplyauthorised by the Appropriate Commission shall be the ‘minimumarea of supply’ – Thus, the expression ‘within the same area’ cannotFrefer to the entire Municipal Council or Municipal Corporationor Revenue District but ‘the area falling within’ MunicipalCouncil or Municipal Corporation or Revenue District in respectof which distribution licensee is authorised – Hence the authorized‘area of supply’ shall be the ‘minimum area of supply’ – Therefore,the contention of respondent no. 2 that the ‘minimum area of supply’Gmust comprise of the ‘entire’ Municipal Council or MunicipalCorporation or Revenue District is unsustainable – Thus, the areain respect of which the license was granted to appellant is theminimum area of supply and appellant is bound to supply electricityin the said area of supply – Judgment of tribunal set aside –HElectricity Rules, 2005 – r.3, explanation.

Allowing the appeals, the Court

HELD: 1. The 2003 Act, came into force on 10.06.2003insofar as Sections 1 to 120 and Sections 122 to 185 areconcerned. The Preamble of the 2003 Act states that it has beenenacted to consolidate the laws relating to generation,transmission, distribution, trading and use of electricity andgenerally for taking measures conducive to development ofelectricity industry, promoting competition therein, protectinginterest of consumers and supply of electricity to all areas,rationalization of electricity tariff, ensuring transparent policiesregarding subsidies, promotion of efficient and environmentallybenign policies, constitution of Central Electricity Authority,Regulatory Commissions and establishment of Appellate Tribunaland for matters connected therewith or incidental thereto. [Para27][407-B-D]2. On reading of Section 14 of the 2003 Act, it is clear thatthe appropriate Commission may, on an application made to itunder Section 15 grant licence to any person (a) to transmitelectricity as transmission licensee; or (b) to distributeelectricity as distribution licensee; or (c) to undertake tradingin electricity as an electricity trader, in any area as may bespecified in the licence. The sixth proviso which is underconsideration states that the appropriate Commission may granta licence to two or more persons for distribution of electricitythrough their own distribution system within the same area,subject to the conditions that the applicant for grant of licencewithin the same area, shall, without prejudice to the otherconditions or requirement under the Act comply with theadditional requirements relating to the capital adequacy,creditworthiness, or code of conduct as may be prescribed bythe Central Government, and no such applicant, who complieswith all the requirements for grant of licence, shall be refusedgrant of licence on the ground that there already exists licenseein the same area for the same purpose. [Paras 32 and 33][412-A-E]

3. Within the same area, there could be two or more personsfor distribution of electricity. As to what is the area within whichthere could be grant of licence to two or more persons is

Aconcerned under the sixth proviso to Section 14, the Explanationto Rule 3 prescribes the area falling within Municipal Councilor Municipal Corporation as defined under Article 243 (Q) ofthe Constitution of India or Revenue District. The area of supplyauthorised by the Appropriate Commission shall be the minimumarea of supply. Thus, the ‘minimum area of supply” would fallB‘within the area’ which is comprising of Municipal Council or aMunicipal Corporation or Revenue District but it does not implythat the licence to supply electricity for an area or an ‘area ofsupply which is the ‘minimum area of supply’ must extend to the‘entire area falling within’ Municipal Council or MunicipalCCorporation or Revenue District. Thus, the expression ‘withinthe same area’ cannot refer to the entire Municipal Council or aMunicipal Corporation or Revenue District but ‘the area fallingwithin’ Municipal Council or Municipal Corporation or aRevenue District in respect of which distribution licensee isauthorised by its licence to supply electricity. Therefore, by theDaforesaid interpretation, the authorised ‘area of supply’ shall be‘the minimum area of supply’. [Paras 37, 40, 42][414-A-B, G-H;415-A, E-G]

4. On the other hand, on reading of the licence granted tothe appellant, it is clear that respondent No.1 was conscious ofEthe fact that it was granting licence to the appellant JSPL havingregard to the fact that the said appellant had established anindustrial park for which it had the responsibility for distributionof electricity and in addition, two more villages were added tothe area comprised in the industrial park for the purpose ofFdistribution of electricity. The area in respect of which the licencewas granted and thereby authorisation provided to supplyelectricity is the minimum area of supply. The ‘area of supply’ is‘an area falling within’ Municipal Council or MunicipalCorporation or Revenue District and in the instant case, it is aRevenue District. Since, the ‘area of supply’ authorised in theGlicence granted to the appellant JSPL in the instant case is the‘minimum area of supply’, the said appellant is bound to supplyelectricity in the said area of supply. The licensee cannot resilefrom the condition of supplying electricity as per the authorisationof the area of supply indicated in the license. This would alsoHmean that the licensee cannot supply electricity in an area beyond

M/S. JINDAL STEEL AND POWER LTD. v. THE CHHATTISGARH STATEELECTRICITY REGULATORY COMMISSION

the area of supply authorised under the license. This is becausein respect of an area falling within Municipal Council or aMunicipal Corporation or Revenue District, there could be twoor more persons who could be granted licence and authorisationto distribute electricity in terms of the respective area of supplyspecified. [Para 44][416-A-E]

S. Sundaram Pillai v. V.R. Pattabiraman (1985) 1 SCC591 : [1985] 2 SCR 643; Global Energy Ltd. v. CentralElectricity Regulatory Commission (2009) 15 SCC 570: [2009] 9 SCR 22; Bhaskar Shrachi Alloys Ltd. v.Damodar Valley Corporation (2018) 8 SCC 281 :[2018] 10 SCR 773; Kerala Samsthana ChethuThozhilali Union v. State of Kerala & Ors. (2006) 4SCC 327 : [2006] 3 SCR 420; Bharathidasan University& Anr. v. All India Council for Technical Education &Ors. (2001) 8 SCC 676 : [2001] 3 Suppl. SCR 253;P. Mahendran v. State of Karnataka (1990) 1 SCC 411: [1989] 2 Suppl. SCR 385; A.A. Calton v. Director ofEducation (1983) 3 SCC 33; Gopal Krushna Rath v.M.A.A. Baig (dead) by LRs (1999) 1 SCC 544;Federation of Indian Mineral Industries & Ors. v. Unionof India & Anr. (2017) 16 SCC 186 : [2017] 12 SCR724; Hindustan Unilever Ltd. v. State of MadhyaPradesh (2020) 10 SCC 751; Gujarat Electricity Boardv. Shantilal R. Desai [1969] 1 SCR 580; DAV CollegeTrust and Management Society & Ors. v. Director ofPublic Instructions & Ors. (2019) 9 SCC 185 : [2019]12 SCR 549; C.I.T Andhra Pradesh v. M/s. Taj MahalHotel, Secunderabad (1971) 3 SCC 550 : [1972] 1 SCR168; Madhav Rao Jivaji Rao Scindia v. Union of India(1971) 1 SCC 85 : [1971] 3 SCR 9; Ramana DayaramShetty v. International Airport Authority of India (1979)3 SCC 489 : [1979] 3 SCR 1014; Energy Watchdog v.Central Electricity Regulatory Commission and Others(2017) 14 SCC 80 : [2017] 3 SCR 153; ThampanoorRavi v. Charupara Ravi (1999) 8 SCC 74 : [1999] 2Suppl. SCR 419; Peerless General Finance &Investment Co. Ltd. v. Reserve Bank of India (1992) 2SCC 343; [1992] 1 SCR 406; Chief Forest Conservator

A(Wildlife) & Ors. v. Nisar Khan (2003) 4 SCC 595 :[2003] 2 SCR 196; Howrah Municipal Corporation andOrs. v. Ganges Rope Co. Ltd. and Ors. (2004) 1 SCC663 : [2003] 6 Suppl. SCR 1212; Union of India andOrs. v. Indian Charge Chrome and Anr. (1999) 7 SCC314; M/s. Hiralal Rattanlal Etc. Etc. v. State of U.P.Band Anr. Etc. Etc. (1973) 1 SCC 216 : [1973] 2 SCR502; Dattatraya Govind Mahajan v. State ofMaharashtra (1977) 2 SCC 548 : [1977] 2 SCR 790 –referred to.

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 3607-3610 of 2008.

From the Judgment and Order dated 07.05.2008 of the AppellateTribunal for Electricity, New Delhi in Appeal Nos. 179, 188 of 2005, 16and 27 of 2006.

With

Civil Appeal Nos. 4104-4107 of 2008.

Sanjay Sen, Sr. Adv., Sanjeev K. Kapoor, Ms. Divya C., SaranshShaw, Ms. Mandakini Ghosh, Ms. Neha Dabral, Pranav Sood,M/s Khaitan & Co., Shibashish Misra, Ms. Divya, Ms. Swapna Seshadri,Anand K. Ganesan, Pramod Dayal, Nikunj Dayal, Ms. Kriti Soni, RakeshKumar, Raj Kumar Mehta, Ms. Rashmi Singh, Pukhrambam RameshKumar, Damodar Solanki, Karun Sharma, W. Immanuel M., Advs. forthe appearing parties.

The Judgment of the Court was delivered by

NAGARATHNA, J.

1. These Civil Appeals filed under Section 125 of the ElectricityAct, 2003 arise out of common impugned Judgment dated 07.05.2008passed by the Appellate Tribunal for Electricity, New Delhi (‘AppellateTribunal’, for short). By the said judgment, the Appellate Tribunal has setaside the order of respondent No.1 dated 29.11.2005 and cancelled thedistribution licence granted to the appellant in C.A. Nos.3607-3610 of2008. Hence, these appeals.

2. Since the questions of law and facts which arise in both theabove captioned Civil Appeals are similar, these appeals are being disposedGof by this common judgment.

Re: Civil Appeal Nos. 3607-3610 of 2008:

3. The appellant-Jindal Steel and Power Ltd. (‘JSPL’, for short)in this civil appeal established sponge iron/steel plant at Raigarh,

AChhattisgarh in the year 1990. captive power plant was also set up byJSPL at distance of 40 km from the aforesaid steel plant.

4. Respondent No.1 is Chhattisgarh State Electricity RegulatoryCommission (‘Commission’, for short), respondent No.2 is ChhattisgarhState Electricity Board (‘CSEB’, for short) later became ‘ChhattisgarhBState Power Distribution Company’ and respondent No.3 is ChhattisgarhVidyut Mandal Abhiyanta Sangh (‘CVMAS’, for short).

5. The newly created State of Chhattisgarh formulated its industrialpolicy for 2001-2006 which encouraged the establishment of industrialestates in private-public partnership as well as the installation of captiveCpower plant.

6. proposal for permission to set up an industrial estate in 500acres of land, adjacent to the existing land at Raigarh, was submitted byJSPL vide letter dated 28.12.2001. The land was to comprise of villagesof Kosampali, Dhanagar, Barmuda or at site in the Tehsil of GharghodaDcomprising villages Tarai Mal and Ujjalpur. JSPL, addressed letter dated09.04.2002 to the Department of Mineral Resources, Commerce andIndustries, Government of Chhattisgarh seeking permission forestablishing such an industrial estate at Raigarh. map showing theproposed industrial area was annexed with the letter. The Governmentof Chhattisgarh, vide letter dated 26.04.2002 informed JSPL that theEEnergy Department was taking action to grant permission for sale ofpower and to lay transmission lines to various units in the private industrialestate being established by JSPL and requested JSPL to prepare andsubmit draft of Memorandum of Understanding (‘MoU’, for short) forthe said purpose for approval. The facilities were to be provided as perFthe new industrial policy dated 01.11.2001.

7. JSPL, on 16.07.2002, requested the Chief Minister ofChhattisgarh to issue appropriate directions for grant of permission tosupply power to the units in the proposed industrial estate. TheGovernment of Chhattisgarh, on 14.08.2002, sent reply to the aforesaidGrequest made by JSPL and informed that it shall have to take certainactions /steps with regard to the supply of power to the proposed industrialunits. In compliance of the aforesaid letter on 04.09.2002, JSPL addresseda letter requesting for grant of permission under Section 28 of the IndianElectricity Act, 1910 (‘1910 Act’, for short) for sale of power to theproposed units in the industrial state from its captive power plant and for

grant of permission to set up transmission and distribution lines/systemfor supply of power to the industrial units in the proposed industrial estate.JSPL further stated that they will obtain necessary permission under theElectricity Supply Act, 1948 (‘1948 Act’, for short) for setting uptransmission and distribution lines from CSEB.

8. MoU was signed on 23.10.2002 between Chhattisgarh StateIndustrial Development Corporation (‘CSIDC’, for short) acting on behalfof Government of Chhattisgarh and JSPL for setting up the industrialestate. The Government of Chhattisgarh, on 29.01.2003 grantedpermission for supply of power by JSPL to the new industrial units beingset up in the private industrial estate proposed in four villages of RaigarhDistrict i.e., Punjipathra, Tumdih, Jorapalli and Dhanagarh from its captivepower plant and laid down certain terms and conditions. CSEB, on31.05.2003 granted permission for laying transmission and distributionlines of 220 KV for supply of power to the prospective units at theIndustrial Estate in Raigarh, Chhattisgarh by tapping 220 KV from thecaptive power plant of JSPL.9. On 06.10.2003, JSPL made formal application for sanctionunder Section 28 of the 1910 Act wherein it provided details of the projectenclosing relevant documents. The Government of Chhattisgarh passedtwo orders on 28.02.2004. Vide its first order exercising power underSections 68(1) and 68(3) of the Electricity Act, 2003 (‘2003 Act’, forshort), the State Government accorded permission for construction oftransmission and distribution lines as recommended by the CSEB oncertain terms and conditions. Vide its second order, relating to theNo-Objection of the State Government regarding direct power supplyby JSPL from their power plant to the industrial units proposed to be setup in the private industrial estate in Raigarh, Chhattisgarh, the StateGovernment of Chhattisgarh opined that since the 2003 Act was in forcein the State from 09.12.2003 and the 1910 Act stood repealed, nopermission could be granted under the latter Act.

10. JSPL commenced supply of electricity to the industrial unitswhich were already setup with effect from 01.03.2004.

11. Thereafter, on 15.09.2004, JSPL filed an application for grantof distribution licence before the Commission under Section 14 of the2003 Act. The same was returned by the Commission on 15.09.2004 forfiling in the prescribed format. On 25.01.2005, JSPL applied for the licenceto the Commission in Form 1-A with all necessary enclosures as per

ARegulation 3 (1) of the Chhattisgarh State Electricity RegulatoryCommission (License Regulations), 2004 (‘State License Regulations’,for short) along with Demand Draft of Rs.5 Lakhs. In the said application,JSPL stated that the area to which supply was to be made was the JindalIndustrial Park in the private sector in Punjipathra and Tumdih villages ofGarghoda Tehsil, Raigarh District having an area of 750 acres and shallBaccommodate seventy units. Pursuant to the filing of the said application,notices were published in the newspapers and objections were invitedunder Section 15 of the 2003 Act. Three objections were received, oneeach from respondent Nos.2 and 3 and the third objection was fromMr. R.K. Aggarwal. The objection of Mr. R.K. Aggarwal wasCsubsequently rejected by the Commission on 27.08.2005 being bereft ofany locus standi.

12. Various correspondences and pleadings were exchangedbetween JSPL, CSEB, CVMAS and the Commission and thereafterthe Commission framed total of five issues and vide its Order datedD29.09.2005, decided to grant distribution licence under Section 14 of the2003 Act. The pertinent findings of the Commission can be encapsulatedas under:

i.A harmonious reading of Sections 10(2), 42(2), 2(47) & 12of the 2003 Act, clearly brings out that generating companyEmay supply electricity to consumer under the provisionsof Section 10(2) of the 2003 Act only subject to the provisionsof open access. The scheme of the Act, particularly PartIV (Licensing) thereof, is such that it cannot authorize agenerator to supply electricity to consumer without alicence. That the present application is not for supply throughFopen access and the same is for distribution of electricityto significant number of industries in an industrial area setup under specific permission of the State Government.

ii.Section 28 of the 1910 Act is quite clear that supply ofelectricity to the public mandates the previous sanction ofGthe State Government. That, by no stretch of the argument,can the letter of the State Government dated 29.01.2003be treated as sanction of the State government. Therefore,the said letter does not confer any right on JSPL underSection 28 of the 1910 Act to supply electricity.H

iii.No-objection letter dated 28.02.2004 also does not conferany such right on the applicant. If the said letter conveyedany right, either the application for licence would not havebeen made or claim of existing right should have beenmade. The application of JSPL clearly stated that it had nolicence. Further, the second letter of the said date, conveyingNo-objection of the State Government cannot be said tobe valid since there is no provision for such no objectionfrom the State Government. Therefore, as on that date,distribution of electricity by JSPL was without any legalauthority.

iv.On the aspect of area for which the licence had been appliedfor, it was observed that the present case ought to be treatedas an exception to Rule 3 of the Distribution License Rulesand to Para 5.4.7 of the National Electricity Policy sinceeffective steps for setting up of the industrial estate hereinand an understanding with the State Government to theeffect that JSPL would provide electricity from its captivepower plant were taken much before the National ElectricalPolicy was notified. As per the application, supply ofelectricity commenced with effect from 01.03.2004 to someindustries on the basis of the letter dated 28.02.2004 andtherefore, the National Electrical Policy notified subsequentlycannot be invoked to deny distribution licence in this case.

v.That if distribution licence is refused at this stage, whichis approximately one and half years after supply of electricityhas commenced, whether with or without legal authority,the same shall impact the consumers of JSPL. CSEB alsoconveyed its no objection to lay transmission and distributionnetwork as early as on 30.05.2003. That JSPL had goneway ahead with the industrial estate project in full, includingdistribution of power on the basis of the understanding withthe State Government. large investment of Rs.17.79Crores was made, and there were twenty-four industries,most of which were power intensive. If distribution licencewas denied, they will have to close down their industries.Apart from that, the consumers will be forced to buy powerfrom CSEB at much higher rate than at present. Therefore,

388SUPREME COURT REPORTS

Athe grant of distribution licence in this case may be in theinterest of the competition and in the interest of consumerswho have already entered into long-term supply contractwith JSPL.

vi.Further, in view of the overall position of the case, the balanceBof convenience would lie in grant of distribution licence toJSPL and there was an adequate justification for the same.Moreover, the CSEB could not clarify as to why it was inopposition to distribution licence in limited area whenCSEB was itself not in position to supply quality power totheir existing industrial consumers.C

vii.In respect of JSPL’s eligibility for grant of such distributionlicence, it was observed that JSPL met all the requirementsof capital adequacy, creditworthiness and code of conductas laid down by the Central Government in the DistributionLicense Rules.D

viii.In respect of levy of cross-subsidy charges on the consumerof JSPL, the Commission held that there was no justificationin such levy since the same was not case of open access.The scheme of the 2003 Act is such that distributionlicensee cannot recover cross-subsidy surcharge fromEanother distribution licensee and that JSPL had undertakento supply electricity to all its consumers in the area for whichlicence was proposed to be granted.

ix.Lastly, it was held that JSPL was liable to pay penaltyof Rs. One Lakh for contravention of Section 12 of theF2003 Act which mandates licence to be obtained for supplyof electricity and violation of the same was punishable underSection 142 of the 2003 Act.

13. The following conditions, apart from the general and specialconditions applicable to such licenses under the Regulations, were imposedGon JSPL by the Commission for grant of distribution license:

“(i)The license will be for the area of the two villages, Tumdihand Punjipathra of Gharghoda Tehsil of Raigarh District.However, the number of industrial consumers in the JindalIndustrial Park shall be limited to 70 and their total demand

for electricity not increasing 299 MW, as agreed with theState Government.

(ii)The applicant shall lay necessary distribution lines and put-upsub-station at his own cost in the two villages for supply ofelectricity to any person who may apply for it and supplyelectricity at rate not more than Rs.2.50 per unit or at thesupply rate of the Board for that category of consumer,which is lower. This will include domestic, agriculture,industrial and other consumers. The option to choosebetween the licensee and the Board shall be with theconsumer.

(iii)All other general and special conditions applicable to adistribution licensee as per the provisions of the LicenseRegulations.”

14. Respondent Nos.2 and 3 on 07.10.2005, filed objections tothe order dated 29.09.2005 before the Commission. Thereafter, respondentNo.2 filed Appeal No.179/2005 and respondent No.3 filed Appeal No.188/2005 before the Appellate Tribunal. The appellant herein challenged theimposition of penalty of Rs. One Lakh before the Appellate Tribunal inAppeal No.27/2006.

15. On hearing the respective parties, the Commission, vide itsOrder dated 29.11.2005, granted licence to JSPL on the following termsand conditions:

“(i)The distribution license shall be valid for period oftwenty-five years from the date of issue, as per the provisionof Section 15(8) of the Act, unless revoked earlier.

(ii)The area of the license shall be the geographical area ofthe villages Tumdih and Punjipathra, including the JindalIndustrial Park aforementioned, of Gharghoda tahsil ofRaigarh District of the State as indicated in the map enclosedherewith.

(iii)The distribution licensee shall abide by all the relevantprovisions of the Electricity Act, 2003, the NationalElectricity Policy, i.e. Rules 1956 and Electricity Rules 2005,as amended from time to time.

[2022] 7 S.C.R.

A(iv)The licensee shall abide by the general conditions of licenseas given in chapter III and the other conditions applicableto distribution licensee as given in chapter V of the CSERC(Licence) Regulations 2005, as amended from time to time.He shall also comply with the relevant provisions of all theregulations issued or as may be issued by the Commission,Bas amended from time to time.

(v)The licensee shall abide by all the relevant provisions ofthe Chhattisgarh State Electricity Supply Code, 2005.

(vi)The licensee shall lay necessary distribution lines and put-upCsub-stations at his own cost in the two villages for supplyof electricity to any person who may apply for it and supplyelectricity at provisional rate of not more than Rs.2.50per unit or at the supply rate of the Board for that categoryof consumer, whichever is lower, till the tariff for supply isdetermined by the Commission. This will include domestic,Dagriculture, industrial and other consumers.

(vii)The consumers of the area other than area of JindalIndustrial Park (JIP) shall have the option to choose betweenthe licensee and the Chhattisgarh State Electricity Board(CSEB) or its successor entity/entities.E

(viii) The existing tariff being charged from the industrialconsumers in the designated area of JIP shall continue tobe charged by the licensee till the tariff is determined by theCommission.

F(ix)For determination of tariff in the area of supply, thedistribution licensee shall file the necessary application underSection 64 of the Act and clause 10 of the CSERC (Detailsto be ‘furnished by licensee or generating company fordetermination of tariff and manner of making application)Regulations, 2004 before the Commission on or before 31stGMarch 2006, and thereafter in terms of the provisions ofthe same Regulations.

(x)The licensee shall abide by the safety rules and safetystandards issued by the Central Electricity Authority,Ministry of Power, Govt. of India and other GovernmentHagency/department.

(xi)The licensee shall not transfer or assign, by sale, leaseexchange or otherwise, this license or part thereof to anyother person without prior approval of the Commission.

(xii)The licensee shall undertake electrification of villages Tumdihand Punjipathra as per the norms laid down for ruralelectrification within period of six months, i.e., beforeB29.05.2006. It shall also provide public lamps in adequatenumber in these two villages on the request of the concernedGram Panchayat and maintain the same.

(xiii) All issues relating to interpretation of this licence and itsterms and conditions, shall be matter for determination bythe Commission and the decision of the Commission on suchissues shall be final, subject only to the right of appeal.

(xiii) The conditions of the license may be altered or amended bythe Commission at any time, if it deems fit in the publicinterest, in terms of Section 18 of the Act.”

16. Respondent No.2 filed Appeal No.16/2006 before theAppellate Tribunal challenging the order dated 29.11.2005 passed by theCommission. The Appellate Tribunal, vide it Order dated 11.05.2006,upheld the order granting distribution licence dated 29.11.2005 passed bythe Commission. Aggrieved by the order dated 11.05.2006 passed by theAppellate Tribunal, respondent Nos.2 and 3 filed appeals before this Courtbeing Civil Appeal Nos. 3996 of 2006 and 4268 of 2006. JSPL alsopreferred an appeal before this Court being Civil Appeal No.4529 of2006. This Court, vide its order dated 19.09.2007, allowed the aforesaidappeals, set-aside the order dated 11.05.2006 passed by the AppellateTribunal and remanded the matter to the Appellate Tribunal for freshdetermination.

17. On remand, the Appellate Tribunal reconsidered the matterand all the aforesaid appeals (Appeal No.179/2005, Appeal No.188/2005,Appeal No.27/2006 and Appeal No.16/2006) were allowed vide commonimpugned order dated 07.05.2008 which is challenged before this Courtby way of the present appeals. The pertinent observations and decisionof the Appellate Tribunal are encapsulated as under:

i.With respect to JSPL’s argument that the MoU had specificclause that allowed JSPL to directly sell power to the

industrial units set up in the proposed industrial estate, itwas held that it was not the correct way to read the MoU.The MoU was entered into when the estate had not evencome into existence and the terms therein only envisionedwhat would happen in the future. Therefore, it was too earlyto grant licence for supply or distribution of electricity byJSPL. It was further held that JSPL itself did not treat thisclause in the MoU as grant of license. Had the MoU itselfmeant grant of license, there would have been no occasionfor the subsequent correspondence between the JSPL andthe Government of Chhattisgarh. Therefore, neither theState Government nor JSPL was acting under anunderstanding that JSPL had already been granted license.

ii.That the letter dated 29.01.2003 which is ‘No-Objection’from the Government of Chhattisgarh had clear stipulationthat JSPL was required to take permission under Section28 of the 1910 Act for direct power supply from its captivepower plant to the industrial estate and the said letter cannotbe read as Government’s promise to give license.

iii.On examining the two letters dated 28.02.2004, it was foundby the Appellate Tribunal that the first order accordedpermission for construction of power, transmission anddistribution lines under Sections 68(1) and (3) of the 2003Act and the second order dealt with prayer for approvalunder Section 28 of the 1910 Act. Vide the second order, itwas made sufficiently clear that JSPL will have to get thepermission/licence from the Commission since Section 28of the 1910 Act stood repealed and no permission thereofcould be given.

iv.That there cannot be an estoppel against the statute. Therelevant authority at that time was the Commission and thelicence was to be obtained under Section 14 of the 2003Act from the Commission, after fulfilling the requisite termsand conditions. JSPL could not have taken advantage ofthe doctrine of promissory estoppel since, even if theaforesaid letters were construed to be promise, the samewould only be binding on the Government of the State of

Chhattisgarh and not the Commission which is notsubordinate to the Government or its successor or assignee.

v.The Appellate Authority, on considering the issue as towhether JSPL was entitled to the license/minimum area ofsupply under Section 14 of the 2003 Act observed that onthe date when the application for licence filed by JSPL underthe 2003 Act was under consideration, the Commission wasrequired to apply the regulation in force at that point of timewhich included the rule of minimum area of supply. It wasobserved that the Commission was incorrect in ignoring thesaid rule and granting the licence in violation thereof. Noexception to the aforesaid rule could have been made outby the Commission.

vi.While interpreting Section 10(2) of the 2003 Act that alloweda generating company to supply electricity to any licenseeor to any consumer, it was held that the JSPL is captivepower plant and is governed by Section 9 of the 2003 Actand not by Section 10 of the said Act.

vii.That JSPL had applied for distribution licence because itintended to purchase power from another generatingcompany called Jindal Power. JSPL, being captive powerplant and not generating company at the relevant timecould not have made any supply to any third person withouta license.

viii.On considering CSEB’s argument that the supply from acaptive power plant or even under Section 10(2) of the2003 Act is permissible only when the same is made by useof the grid or the transmission lines of distribution licenseeor transmission licensee by use of open access and thatunless open access is availed, the supply cannot be made, itwas held that open access is an enabling provision that helpsexpansion of the electricity sector and not to limit itsdevelopment. If it was the intention of the 2003 Act that nosale was possible except by availing open access, it wouldhave said so. It was further observed that Section 10(2) ofthe 2003 Act prescribes that the supply to consumer willbe subject to Regulations made under sub-section (2) of

ASection 42 of the 2003 Act. While interpreting the use ofthe words ‘subject to the rules made under sub-section(2) of Section 42’, it was held that the provision underSection 42(2) of the 2003 Act would only be attracted whenthe access through the existing distribution was sought; whensuch access was not sought, the aforesaid provision shallBnot apply.

ix.With respect to the Commission’s order imposing penaltyof Rs. One Lakh on JSPL, the same was set-aside. Thiswas because, although JSPL did not have licence when itstarted supplying electricity to Jindal Industrial Park, aCpenalty was not automatically attracted. As per Section 142of the 2003 Act, person sought to be punished has to begiven an opportunity to be heard. Admittedly, the saidopportunity was not given to JSPL. It was found that theCommission was merely hearing the application for grantDof distribution license. The issue as to whether JSPL hadrendered itself liable to punishment at all was never an issuebefore the Commission.

Re: Civil Appeal Nos. 4104-4107 of 2008:

18. The facts and circumstances in both these appeals are similarEand therefore have not been reproduced to avoid repetition except to theextent it is necessary to do so.

19. The appellant in these civil appeals is the consumer ofelectricity in Jindal Industrial Park in Raigarh, Chhattisgarh who isaggrieved by the cancellation of distribution licence granted in favour ofFJSPL and due to unavailability of an alternative distribution licensee. It isthe grievance of the appellant herein that it was not party before theAppellate Tribunal.

20. JSPL, on 08.05.2008, by way of its notice, informed theappellant in this appeal that since its distribution licence had beenGcancelled, it had to stop supplying power to all the industries in the JindalIndustrial Park whereafter on 09.05.2008, at 1:00 p.m., the electricitysupply to all the units of the appellant was disconnected. The appellantcontends that all the units were brought to standstill and the appellanthas been facing losses running to crores of rupees. The appellant aversthat it is third party and an end consumer of JSPL who is deprivedH

of electricity in the absence of any alternative distributor in place. Hencethese appeals.

21. We have heard Sri Sanjay Sen, learned senior counsel for theappellant in C.A. Nos. 3607-3610 of 2008 and Sri C.S. Vaidyanathan,learned senior counsel for the appellant in C.A. Nos. 4104-4107 of 2008duly assisted by their instructing counsel; Ms. Swapna Seshadri, learnedcounsel for the respondent No.1, Sri Raj Kumar Mehta, learned counselfor the respondent No.2 and perused the material on record.

22. The submissions of the learned senior counsel for theappellant- JSPL in Civil Appeal Nos.3607-3610 of 2008 are epitomisedas under:

22.1That the Commission in its order dated 29.11.2005, aftertaking note of the Distribution of Electricity (AdditionalRequirement of Capital and Adequate Creditworthinessand Code of Conduct) Rules, 2005 (‘2005 Rules’, for short)had proceeded to grant licence keeping in view theDhistorical background, investment made by theappellant-JSPL and the benefits that accrued in favourof industrial consumers who had set up their industrialplants and had no other source of power supply at therelevant time. By its Order dated 29.09.2005, theCommission had specifically noticed the inability of CSEBEto provide electricity for want of physical infrastructureand unavailability of surplus power. In fact, the State ofChhattisgarh was suffering from power shortages andwas buying power from the captive power plant of thisappellant-JSPL. On the basis of the permission grantedFby the State Government/CSEB, in terms of MoU dated23.10.2002, the construction of transmission anddistribution network was undertaken and completed andsupply of power on the basis of the long-term agreementhad commenced on or about 01.03.2004 which was muchprior to the coming in to existence of the Commission andGthe 2005 Rules. Further, the State Government with theconcurrence of CSEB had acted substantially in terms ofpowers vested under the repealed law i.e., Section 28 ofthe 1910 Act and the State’s Industrial and Energy Policies.The original application for grant of licence filed onH

15.09.2004 and revised application for grant of licencefiled on 25.01.2005 were both before notification of the2005 Rules. However, the Appellate Tribunal has taken anarrow and pedantic view solely on the basis of Explanationto Rule 3 of the 2005 Rules.

22.2It was contended that an ‘explanation’ to provision ismerely meant to explain or clarify certain ambiguitiesand cannot be treated as substantive provision. In thisregard, the learned senior counsel appearing on behalf ofthe appellant-JSPL has placed reliance on S. SundaramPillai v. V.R. Pattabiraman (1985) 1 SCC 591 andGlobal Energy Ltd. v. Central Electricity RegulatoryCommission (2009) 15 SCC 570. He further states thatthe Explanation to Rule 3 is not part of the statute’sprovisions or primary legislation but is in the contextof subordinate legislation. From conjoint reading ofSection 2(3), Section 14 and sixth proviso thereof, Section86 and Section 176(2)(b) of the 2003 Act, it is clear thatthe Central Government has not been vested with thejurisdiction to define the area of supply. It is clear thatthe statute required the Central Government to specifyconditions only on three subjects namely capital adequacy,credit worthiness and code of conduct. If the CentralGovernment indeed had delegated the power to definethe area of supply of distribution licensee, it would havemade substantive rule and not inserted it through anExplanation. According to learned senior counsel,Explanation to Rule 3, at the highest, can act as guidelinefor discharge of regulatory functions which should begenerally followed.

22.3The position that the Explanation to Rule 3 is in the natureof guideline is strengthened by the fact that Clause 5.4.7of the National Electricity Policy has similar provisionrelating to minimum area of supply that acts only as aguidance in discharge of statutory functions. Sections 61(i)and 86(4) of the 2003 Act clearly states that both theNational Electricity Policy and the Tariff Policy will actas guidance.

22.4The learned senior counsel for the appellant-JSPLreiterated that the Central Government’s power tointroduce substantive rule defining the area of licencecannot be traced to any provision under the statute. Onthe contrary, the area of supply has to be prescribed inthe licence issued by the State Government under Sections2(3), 14, 15 and 86(1)(d) of the 2003 Act to each andevery supplier. Therefore, Explanation to Rule 3 is withoutauthority of law. In this behalf, the learned senior counselfor the appellant placed reliance on Bhaskar ShrachiAlloys Ltd. v. Damodar Valley Corporation (2018) 8SCC 281, Kerala Samsthana Chethu Thozhilali Unionv. State of Kerala & Ors. (2006) 4 SCC 327 andBharathidasan University & Anr. v. All India Councilfor Technical Education & Ors. (2001) 8 SCC 676.

22.5It was further contended that in the instant case, thedistribution licence was granted on 29.09.2005 and thesame was confirmed by the Appellate Authority vide orderdated 11.05.2006 in Appeal No.27 of 2006. Therefore,there was no occasion to challenge the vires of 2005Rules. Even if the Rules have not been specificallychallenged, the same cannot be applied if found to violateany provision.

22.6It was submitted that if the Explanation to Rule 3 is appliedto the present case as substantive rule, it would result inimpairment of vested/accrued rights of the appellant-JSPLand the consumers of Jindal Industrial Park. At the timeof making formal application on 15.09.2004, the 2005Rules were not in existence. The appellant-JSPL hadacted bonafide, in terms of concurrence/permission ofthe State Government under the repealed 1910 Act andalso under the present 2003 Act, the same cannot be nowmade to suffer on account of delay in grant of licenceand introduction of the 2005 Rules. The learned seniorcounsel for the appellant stated that the same cannot bedone in terms of various judgments passed by this Courtviz. P. Mahendran v. State of Karnataka (1990) 1 SCC411, A.A. Calton v. Director of Education (1983) 3 SCC

33 and Gopal Krushna Rath v. M.A.A. Baig (dead) byLRs (1999) 1 SCC 544. Placing reliance on Federationof Indian Mineral Industries & Ors. v. Union of India& Anr. (2017) 16 SCC 186, the learned senior counselurged that subordinate legislation cannot be made tohave retrospective effect unless the parent statute,expressly or by necessary implication authorizes it to doso.

22.7The next limb of argument was that the exercise of powerby the State Government in allowing the appellant-JSPLin these appeals to proceed with supply of electricitymanifests in the form of the terms of the MoU dated23.10.2002 as well as letters dated 29.01.2003 and28.02.2004. These permissions were no less than asanction contemplated under Section 28 of the 1910 Actand thus saved in terms of Section 6 of the GeneralClauses Act, 1897 and Section 185 of the 2003 Act. Inthis regard, the learned senior counsel for theappellant-JSPL banked upon Hindustan Unilever Ltd.v. State of Madhya Pradesh (2020) 10 SCC 751 andGujarat Electricity Board v. Shantilal R. Desai (1969)1 SCR 580.22.8It was further submitted that on the basis of amendmentthat came into effect on 27.01.2004, the legislaturereplaced the word ‘including’ with ‘relating to’ in sixthproviso to Section 14 of the 2003 Act. The word ‘including’makes the provision expansive as has been held by thisCourt in the cases of DAV College Trust andManagement Society & Ors. v. Director of PublicInstructions & Ors. 2019 (9) SCC 185 and C.I.TAndhra Pradesh v. M/s. Taj Mahal Hotel,Secunderabad 1971 (3) SCC 550. Further, theParliament curtailed the power of the Central Governmentand by an amendment removed the word ‘including’ andinstead used the term ‘relating to’. For something to betreated as ‘relating to’ provision, it has to establishedthat ‘the dominant purpose and theme of the provision isone and one only’ as was observed in the case of Madhav

Rao Jivaji Rao Scindia v. Union of India (1971) 1 SCC85. Therefore, restrictive meaning must be given to thesixth proviso.

22.9Placing reliance on Ramana Dayaram Shetty v.International Airport Authority of India (1979) 3 SCC489, it was further urged that the appellant-JSPL hasBbeen supplying electricity to its consumers since01.03.2004 and has taken regulatory/contractual/legal stepsthereof and the decision to deny distribution licence isdetrimental to the interest of the appellant-JSPL as wellas the consumers.

23. The submissions of the learned senior counsel SriVaidyanathan for the appellant in Civil Appeal Nos.4104-4107 of 2008are encapsulated as under:

23.1The appellant herein is consumer of electricity suppliedby JSPL in Jindal Industrial Park. The judgment of theAppellate Tribunal in so far as the same sets aside the grantof distribution licence by the Commission without appointingany alternative distribution licence is ultra vires the 2003Act read with the 2005 Rules.

23.2The Appellate Tribunal failed to appreciate the scheme ofthe 2003 Act that does not permit the Commission or theTribunal to cancel distribution licence without hearing theconsumers. The entire purpose and object of the 2003 Actwas to liberalise the generation, transmission, distributionand supply of electricity to prevent monopolies fromdemanding heavy electrical charges from consumers andopen access was permitted so that any trader or distributorcould, as of right, distribute and supply electricity to industriesor consumers who demanded electricity through theparticular trader or distributor. The sixth proviso to Section14 of the 2003 Act makes the aforesaid position even clearerby providing for more than one licensee distributing andsupplying power in the same area.

23.3The area of supply is defined under Section 2(3) of the2003 Act and nowhere, the Act has defined the area ofsupply as restricted to mean an entire district or an entire

400SUPREME COURT REPORTS

Aarea of the municipality under Article 243Q of theConstitution of India.

23.4The Appellate Tribunal failed to note that CSEB was notoperating in the Jindal Industrial Park and thereforecancelling the distribution licence on this ground wasBincorrect. CSEB itself expressed its inability to supply powerin the Jindal Industrial Park during the hearing before theAppellate Tribunal.

23.5Further, Explanation to Rule 3 does not indicate that thesecond licensee must have minimum area of supply asCconstrued by the Appellate Tribunal. The term ‘same area’appearing in the Explanation states what should be the areafor which the two licensees may be said to be operating‘within the same area’. The term same area has not beenexplained in the 2003 Act or in the 2005 Rules and theExplanation, gives the meaning that the overlapping mustDbe at least of an area comprised within MunicipalCorporation or revenue district, etc.23.6The Central Government in making rules under Section 14of the 2003 Act has added an Explanation to Rule 3(2) ofthe 2005 Rules by which it has restricted the concept ofEsame area in terms of the sixth proviso to Section 14 of the2003 Act to ‘the area comprising municipal council or amunicipal corporation as defined in Article 243Q of theConstitution of India or revenue district, which shall bethe minimum area of supply. The said construction is fullyFinconsistent and violative of the express provision of sixthproviso to Section 14 of the said 2003 Act and goes counterto the entire spirit, purpose and object of the 2003 Act.

23.7The grant of distribution licence is an administrativefunction of the Commission and the Appellate Tribunal hadGno jurisdiction to interfere as was rightly held in the earlierjudgment of the Appellate Tribunal dated 11.05.2006. Thatunder the 2003 Act, the Appellate Tribunal is neitherempowered to grant licence nor to cancel the same.

23.8By virtue of Section 19 of the 2003 Act, only the Commissionis empowered to revoke license, that too, after complyingH

with the procedural safeguards therein and no such powerhas been conferred upon the Appellate Tribunal. Further,no appeal can lie from an executive order passed by theCommission.

23.9There are more than thirty industries that have been set upin Jindal Industrial Park by investing more than Rs.600crores. More than 4000 direct employees are providedemployment. Therefore, cancelling the said distributionlicence is opposed to public policy.

23.10 Learned senior counsel, Sri C.S. Vaidyanathan appearingfor the appellant in C.A. Nos. 4104-4107 of 2008 contendedthat the said appellant was one of the consumers of electricitybeing supplied by JSPL and on account of the cancellationof the licence, the appellant had been adversely affectedand therefore the impugned judgment of Appellate Tribunalmay be set aside and the Order of the respondent No.1may be given effect to.

24. The submissions of the learned counsel for respondent No.1in Civil Appeal Nos.3607-3610 of 2008 are summarised as under:

24.1The term ‘within the same area’ appearing in the Explanationto Rule 3 of the 2005 Rules has to be read as being an areacomprising of Municipal Council or MunicipalCorporation as defined in Article 243(Q) of the Constitutionof India or revenue district. The said Explanation providesfor minimum area of supply for grant of parallel/seconddistribution license. For minimum area to be provided as aqualifying condition for grant of distribution license, aninterpretation that the area should merely fall within arevenue district or the municipal council, would negate thevery provision of minimum area as qualifying criterion.Thus, the concept of minimum area would be inherentlyinconsistent or contradictory to the interpretation that thearea needs to fall within and not equivalent to the areacomprised of municipal corporation or revenue district.

24.2A distribution licensee has universal supply obligation underSection 43 of the 2003 Act, i.e., to supply electricity to anyperson requiring the same within the area of its operation.

EFG

402SUPREME COURT REPORTS

It was submitted that Para 5.4.7 of the National ElectricityPolicy makes clear the intention of Government of India onthe minimum area to be provided for grant of second/parallel distribution license. The purpose of prescription ofminimum area as comprising of municipal corporation/council or revenue district is that there would be mix ofall categories of consumers within the said area. Thus, thesecond distribution licensee would also be under an obligationto supply electricity to all consumers within such area, andnot only to high paying consumers. Hence, cherry pickingof the consumers has to be avoided and therefore theGovernment of India thought it fit to prescribe minimumarea for which second distribution licence can be granted.

24.3Thus, the minimum area condition specified in Explanationto Rule 3 needs to be fulfilled for grant of the seconddistribution license. The said distribution licence is neitherDco-terminus with the existence of the revenue district norwould the distribution licence be amended, revoked or inany manner affected by delimitation or consolidation ofrevenue districts. Any subsequent change to the area onaccount of consolidation of revenue district etc. would notaffect the area for which the distribution licence has beenEgranted which is the area of minimum supply.

24.4That the cancellation of licence granted by the StateCommission was not proper in the instant case as the StateCommission, after considering the entire factual situationand while making an exception, has already directed thatFJSPL would be required to supply electricity to two villages,namely, Tumdih and Punjipathra.

24.5It was therefore contended that the Appellate Tribunal wasnot right in setting aside the order of the Commission.

G25. The submissions of the learned counsel for respondent No.2in Civil Appeal Nos.3607-3610 of 2008 are encapsulated as follows:

25.1That the National Electricity Policy framed by theGovernment of India, Ministry of Power, under Section 3 ofthe 2003 Act stipulates that the area of supply under adistribution licence has necessarily to be minimum area

comprising revenue district, municipal council for asmaller urban area or municipal corporation for largerurban area. By virtue of Section 86(4) of the 2003 Act, theState Commission is statutorily bound to be guided by thesaid National Electricity Policy. Placing reliance on thejudgment of this Court in Energy Watchdog v. CentralElectricity Regulatory Commission and Others (2017)14 SCC 80, the learned counsel for respondent No.2submitted that in the context of Tariff Policy, tariff policyissued under Section 3 of the 2003 Act has the force oflaw. Similarly, the aforesaid provision in National ElectricityPolicy was statutorily embodied in the 2005 Rules.

25.2Further, combined reading of the above provisions of theElectricity Act, 2003, the National Electricity Policy and2005 Rules, the legal position that emerges is that the‘minimum area of supply’ for grant of distribution licencehas to comprise the entire area of municipal council or amunicipal corporation or revenue district. No distributionlicence can be granted for lesser area even though suchlesser area forms part of the municipal council or amunicipal corporation or revenue district.

25.3The interpretation that it can be ‘any area’ which falls withina municipal council or municipal corporation or revenuedistrict would defeat the very object sought to be achievedby the legislature by providing for universal supply obligationof the distribution licence to supply electricity in its area ofsupply read with Explanation 3 of 2005 Rules. Suchinterpretation would render the Explanation nugatory andredundant and it is settled principle of interpretation thatredundancy cannot be attributed to the legislature. Reliancein this regard was placed on the judgment in the case ofThampanoor Raviv. Charupara Ravi (1999) 8 SCC74.

25.4The condition of minimum area of supply as mandated bysixth proviso to Section 14 of the 2003 Act read withExplanation to Rule 3(2) of the 2005 Rules is integral to‘fair competition’ and ‘level playing field’. The same isnecessary to fulfill the statutory obligations of universal

404SUPREME COURT REPORTS

supply stipulated under Section 43 of the 2003 Act. Further,in the regime of multiple licenses introduced under the 2003Act, insistence upon minimum area of supply prevents anyform of cherry picking of high end-consumers only in aself-chosen area of supply as in the present case.

B25.5While relying on the judgment of this Court in PeerlessGeneral Finance & Investment Co. Ltd. v. ReserveBank of India (1992) 2 SCC 343 and Chief ForestConservator (Wildlife) & Ors. v. Nisar Khan (2003) 4SCC 595, it was urged that the Explanation to Rule 3 of the2005 Rules was enacted so as to effectuate the workingCof the 2003 Act and is therefore part of the said Act.Thus, the requirement of minimum area of supply for grantof distribution licence is an integral part of the scheme ofgrant of distribution licence under the 2003 Act read with2005 Rules.

25.6Therefore, in light of the aforesaid submission, JSPL wasnot entitled to licence under Section 14 of the 2003 Act asit does not satisfy the condition of ‘minimum area of supply’.

25.7The Commission, while granting license, vide order dated29.09.2005 was well-aware that the appellant JSPL did notEsatisfy the requirement of the ‘minimum area of supply’ asspecified in the Explanation to Rule 3 and was not in aposition to fulfill its statutory duty/universal obligation underSection 43 of the 2003 Act. Therefore, the Commissionimposed special condition on the appellant by grantingFdistribution licence to JSPL for two villages namely Tumdihand Punjipathra of Tehsil Gharghoda, District Raigarh andremaining area of these two villages. Even the said specialcondition imposed does not amount to compliance of thecondition regarding ‘minimum area of supply’ for grant of asecond licence as mandated in the Explanation to Rule 3(2).

25.8The appellant was duty bound by the special condition inthe order granting distribution licence to provide supply ofpower to consumers of the aforesaid two villages. However,the appellant- JSPL has been making huge profits bysupplying electricity only to twenty-five industries in the

Jindal Industrial Park and has completely failed to fulfill itsobligation to supply power to two villages namely Tumdihand Punjigraha of Tehsil Gharghoda, District Raigarh.

25.9Due to this gross and flagrant violation by the appellant-JSPLof the special condition imposed by the Commission, theDistribution Company i.e., the Chhattisgarh State PowerDistribution Company Limited has been deprived of revenueto the extent of Crores of rupees per month. Thus, keepingin view the above, the licence granted needs to be quashedon this ground too.

25.10 The appellant’s contention that the 2005 Rules were not inCexistence at the time of filing of the application fordistribution licence by the appellant-JSPL and that the grantof such licence cannot be faulted with on the ground ofviolation of Rule, is highly misconceived, since, it is settledposition of law that the Authority is required to apply theDRules and legal provisions in force on the date when theapplication is considered. Further, the argument of theappellant-JSPL that the Explanation is only in the nature ofa guideline is also devoid of any merit. In this regard, thecounsel for respondent No.2 placed reliance on the followingjudgment passed by this Court in Howrah MunicipalECorporation and Ors. v. Ganges Rope Co. Ltd. and Ors.(2004) 1 SCC 663, Union of India and Ors. v. IndianCharge Chrome and Anr. (1999) 7 SCC 314, M/s.Hiralal Rattanlal etc. etc. v. State of U.P. and Anr. etc.etc. (1973) 1 SCC 216 and Dattatraya Govind MahajanFv. State of Maharashtra (1977) 2 SCC 548.25.11 Explanation to Rule 3 of the 2005 Rules cannot be said tohave no authority of law. The 2005 Rules have been enactedin exercise of power under Section 176(1) and Section176(2)(b) of the 2003 Act. Further since the appellant-JSPLhas not even challenged the vires of the 2005 Rules, theappellant-JSPL is estopped from raising the contention thatExplanation to Rule 3 of the 2005 Rules has no authority oflaw.

25.12 The contention that the appellant-JSPL acted bonafide interms of the concurrence/permission of the State

Government as the same are saved under Section 6 of theGeneral Clauses Act, 1897 as also Section 185 of the 2003Act is also misconceived and untenable. The counsel forrespondent No.2 urged that the Appellate Tribunal in theimpugned judgment rightly pointed out that all the permissionsgiven by the State Government and other authorities werespecifically made subject to and conditional upon the licencebeing granted by the Commission under the 2003 Act. It is,therefore, incorrect for the appellant to rely on thepermissions/concurrences given by the State Governmentsince the appellant does not satisfy the requirement ofminimum area of supply as mandated under Explanation toRule 3 of 2005 Rules.

25.13 The submission of the appellant-JSPL that the sixth provisoto Section 14 has been amended to narrow down the scopeof Rule-making power is also misconceived. The substitutionof the word ‘relating to’ in place of the word ‘including’does not amount to restricting the scope of the rule-makingpower. The term ‘relating to’ is of wide amplitude and cannotbe restrictive in any manner.

25.14 Further, the submission of appellant that the grant ofdistribution licence was in public interest is devoid of anymerit since the appellant has only been furthering its owninterest.

25.15 To sum up, the counsel for respondent No.2 strenuouslycontended that the ‘minimum area of supply’ as provided inthe Explanation to Rule 3 of 2005 Rules is mandatoryrequirement for grant of second or subsequent distributionlicence in the area of supply of an existing distributionlicense. It was thus contended by respondent No.2 that theTribunal was correct in setting aside the order granting licenceto the appellant.

26. Having heard learned senior counsel and counsel for therespective parties, it is noted that the appellants in both the appeals arechallenging the order dated 07.05.2008 whereby the Appellate Tribunalallowed the appeals filed by the respondents herein and set-aside theorder passed by the Commission dated 29.05.2005, thereby, canceling

the distribution licence granted in favour of the appellant for supply ofpower by the appellant from its captive power plant to the industrial unitsin Jindal Industrial Park.

27. Before delving further upon the various issues in the presentmatter, we shall analyse relevant provisions of the 2003 Act. The 2003Act, came into force on 10.06.2003 insofar as Sections 1 to 120 andSections 122 to 185 are concerned. The Preamble of the 2003 Act statesthat it has been enacted to consolidate the laws relating to generation,transmission, distribution, trading and use of electricity and generally fortaking measures conducive to development of electricity industry,promoting competition therein, protecting interest of consumers andsupply of electricity to all areas, rationalization of electricity tariff, ensuringtransparent policies regarding subsidies, promotion of efficient andenvironmentally benign policies, constitution of Central ElectricityAuthority, Regulatory Commissions and establishment of AppellateTribunal and for matters connected therewith or incidental thereto.

28. Section 2 of the 2003 Act is the definition clause and the relevantdefinitions for the purposes of the present cases read as under:

“Section 2. (Definitions): --- In this Act, unless the contextotherwise requires, --

x x x x x x x x x

(3) “area of supply” means the area within which distributionlicensee is authorised by his licence to supply electricity;

(4) “Appropriate Commission” means the Central RegulatoryCommission referred to in sub-Section (1) of Section 76 or theState Regulatory Commission referred to in Section 82 or theJoint Commission referred to in Section 83, as the case may be;

xxxxxx

(38) “licence” means licence granted under Section 14;

(39) “licensee” means person who has been granted licenceunder Section 14;

xxxxxxxx

(41) “local authority” means any Nagar Panchayat, MunicipalCouncil, Municipal Corporation, Panchayat constituted at the

village, intermediate and district levels, Body of Port Commissionersor other authority legally entitled to, or entrusted by the Union orany State Government with, the control or management of anyarea or local fund;

xxxxxxxx

(64) “State Commission” means the State Electricity RegulatoryCommission constituted under sub-Section (1) of Section 82 andincludes Joint Commission constituted under sub- Section (1) ofSection 83;”

29. Part II of the 2003 Act deals with National Electricity Policyand Plan. In compliance with section 3 of the 2003 Act, the CentralGovernment has notified the National Electricity Policy dated 12[th] February,2005, the relevant portions of which are extracted as under:

“1.0 INTRODUCTION

1.5 Electricity industry is capital-intensive having long gestationperiod. Resources of power generation are unevenly dispersedacross the country. Electricity is commodity that can not bestored in the grid where demand and supply have to be continuouslybalanced. The widely distributed and rapidly increasing demandrequirements of the country need to be met in an optimum manner.

1.6 Electricity Act, 2003 provides an enabling framework foraccelerated and more efficient development of the power sector.The Act seeks to encourage competition with appropriateregulatory intervention. Competition is expected to yield efficiencygains and in turn result in availability of quality supply of electricityto consumers at competitive rates.

1.7 Section 3 (1) of the Electricity Act 2003 requires the CentralGovernment to formulate, inter alia, the National Electricity Policyin consultation with Central Electricity Authority (CEA) and StateGovernments. The provision is quoted below:

“The Central Government shall, from time to time, preparethe National Electricity Policy and tariff policy, inconsultation with the State Governments and the Authorityfor development of the power system based on optimal

utilization of resources such as coal, natural gas, nuclearsubstances or materials, hydro and renewable sources ofenergy”.

Section 3 (3) of the Act enables the Central Government to reviewor revise the National Electricity Policy from time to time.

1.8 The National Electricity Policy aims at laying guidelines foraccelerated development of the power sector, providing supply ofelectricity to all areas and protecting interests of consumers andother stakeholders keeping in view availability of energy resources,technology available to exploit these resources, economics ofgeneration using different resources, and energy security issues.

5.4 DISTRIBUTION

5.4.7 One of the key provisions of the Act on competition indistribution is the concept of multiple licensees in the same areaof supply through their independent distribution systems. StateGovernments have full flexibility in carving out distribution zoneswhile restructuring the Government utilities. For grant of secondand subsequent distribution licence within the area of an incumbentdistribution licensee, revenue district, Municipal Council for asmaller urban area or Municipal Corporation for larger urbanarea as defined in the Article 243(Q) of Constitution of India(74[th] Amendment) may be considered as the minimum area. TheGovernment of India would notify within three months, therequirements for compliance by applicant for second andsubsequent distribution licence as envisaged in Section 14 of theAct. With view to provide benefits of competition to all sectionof consumers, the second and subsequent licensee for distributionin the same area shall have obligation to supply to all consumersin accordance with provisions of section 43 of the Electricity Act,2003. The SERCs are required to regulate the tariff includingconnection charges to be recovered by distribution licensee underthe provisions of the Act. This will ensure that second distributionlicensee does not resort to cherry picking by demandingunreasonable connection charges from consumers.”

A30. Part III deals with generation of electricity. Part IV of the2003 Act is of relevance to these cases as it concerns licensing. Section12 states that no person shall (a) transmit electricity; or (b) distributeelectricity; or (c) undertake trading in electricity, unless he is authorisedto do so by licence issued under Section 14, or is exempt under Section13. The power to exempt is prescribed in Section 13. The grant of licenceBis as per Section 14 and the procedure for grant of licence is dealt within Section 15 while the conditions of licence are in terms of Section 16.Section 18 of the said Act speaks of Amendment of licence while Section19 concerns revocation of licence.

31. Section 14 of the 2003 Act which deals with grant of licenceCreads as under:

14. Grant of licence- The Appropriate Commission may, on anapplication made to it under Section 15, grant licence to anyperson –

(a) to transmit electricity as transmission licensee; or

(b) to distribute electricity as distribution licensee; or

(c) to undertake trading in electricity as an electricity trader,

in any area as may be specified in the licence:

Provided that any person engaged in the business of transmissionEor supply of electricity under the provisions of the repealed lawsor any Act specified in the Schedule on or before the appointeddate shall be deemed to be licensee under this Act for suchperiod as may be stipulated in the licence, clearance or approvalgranted to him under the repealed laws or such Act specified inFthe Schedule, and the provisions of the repealed laws or such Actspecified in the Schedule in respect of such licence shall apply fora period of one year from the date of commencement of this Actor such earlier period as may be specified, at the request of thelicensee, by the Appropriate Commission and thereafter theprovisions of this Act shall apply to such business:

Provided further that the Central Transmission Utility orthe State Transmission Utility shall be deemed to be transmissionlicensee under this Act:

Provided also that in case an Appropriate Government transmitselectricity or distributes electricity or undertakes trading in

electricity, whether before or after the commencement of thisAct, such Government shall be deemed to be licensee under thisAct, but shall not be required to obtain licence under this Act:

Provided also that the Damodar Valley Corporation, establishedunder sub-Section (1) of Section 3 of the Damodar ValleyCorporation Act, 1948, (14 of 1948), shall be deemed to be alicensee under this Act but shall not be required to obtain licenceunder this Act and the provisions of the Damodar Valley CorporationAct, 1948, in so far as they are not inconsistent with the provisionsof this Act, shall continue to apply to that Corporation:

Provided also that the Government company or the companyreferred to in sub-Section (2) of Section 131 of this Act and thecompany or companies created in pursuance of the Acts specifiedin the Schedule, shall be deemed to be licensee under this Act:

Provided also that the Appropriate Commission may grant licenceto two or more persons for distribution of electricity through theirown distribution system within the same area, subject to theconditions that the applicant for grant of licence within the samearea shall, without prejudice to the other conditions or requirementsunder this Act, comply with the additional requirements relating tothe capital adequacy, credit-worthiness, or code of conduct asmay be prescribed by the Central Government, and no suchapplicant, who complies with all the requirements for grant oflicence, shall be refused grant of licence on the ground that therealready exists licensee in the same area for the same purpose:

Provided also that in case where distribution licensee proposesto undertake distribution of electricity for specified area withinhis area of supply through another person, that person shall not berequired to obtain any separate licence from the concerned StateCommission and such distribution licensee shall be responsiblefor distribution of electricity in his area of supply:

Provided also that where person intends to generate and distributeelectricity in rural area to be notified by the State Government,such person shall not require any licence for such generation anddistribution of electricity, but he shall comply with the measureswhich may be specified by the Authority under Section 53:

AProvided also that distribution licensee shall not require licenceto undertake trading in electricity.

32. On reading of Section 14 of the 2003 Act, it is clear that theappropriate Commission may, on an application made to it under Section15 grant licence to any person (a) to transmit electricity as transmissionBlicensee; or (b) to distribute electricity as distribution licensee; or (c) toundertake trading in electricity as an electricity trader, in any area asmay be specified in the licence.

33. The first three provisos to Section 14 of the 2003 Act are inthe nature of saving clauses. The fourth and fifth provisions are notCrelevant to these cases. The sixth proviso which is under considerationstates that the appropriate Commission may grant licence to two ormore persons for distribution of electricity through their own distributionsystem within the same area, subject to the conditions that the applicantfor grant of licence within the same area, shall, without prejudice to theother conditions or requirement under the Act comply with the additionalDrequirements relating to the capital adequacy, creditworthiness, or codeof conduct as may be prescribed by the Central Government, and nosuch applicant, who complies with all the requirements for grant of licence,shall be refused grant of licence on the ground that there already existsa licensee in the same area for the same purpose.

34. The Central Government had enunciated the 2005 Rules w.e.f.23.03.2005 as per Section 176 of the 2003 Act. Rule 3 is relevant for thepurpose of these cases is extracted as under:

3. Requirements of capital adequacy and creditworthiness.

— (1)The Appropriate Commission shall, upon receipt of anapplication for grant of licence for distribution of electricity undersub-Section (1) of Section 15 of the Electricity Act, 2003, decidethe requirement of capital investment for distribution network afterhearing the applicant and keeping in view the size of the area ofsupply and the service obligation within that area in terms of Section43.

(2) The applicant for grant of licence shall be required to satisfythe Appropriate Commission that on norm of 30% equity on costof investment as determined under sub-rule (1), he including thepromoters, in case the applicant is company, would be in positionto make available resources for such equity of the project on the

basis of the networth and generation of internal resources of hisbusiness including of promoters in the preceding three years afterexcluding his other committed investments.

Explanation—For the grant of licence for distribution of electricitywithin the same area in terms of sixth proviso to Section 14 of theAct, the area falling within Municipal Council or MunicipalCorporation as defined in the article 243(Q) of the Constitution ofIndia or revenue district shall be the minimum area of supply.

35. The controversy in these cases surrounds the interpretationto be given to the Explanation to Rule 3. As already noted, the 2005Rules, under consideration have been prescribed having regard to thesixth proviso to Section 14 of the Act. The said proviso would apply onlywhen the appropriate Commission considers it necessary to grant licenceto two or more persons for distribution of electricity through their owndistribution system within the same area, in which case, there are certainadditional requirements which the applicant must fulfil relating to capitaladequacy, creditworthiness or code of conduct. It is only with regard tothe aforesaid three aspects that the 2005 Rules have been prescribed.

36. In response to the arguments of learned senior counsel forthe appellants, the contention of respondent No.2 herein is that theappellant-JSPL does not fulfil the condition mentioned in the Explanationto Rule 3 inasmuch as the said appellant does not fulfil the condition ofminimum area of supply as the area that the said appellant is supplying,is not for an entire Municipal Council or Municipal Corporation or aRevenue District. The area of supply as per the licence of theappellant-JSPL is for the area comprised in the industrial park set up bythe appellant and for two other villages only. Hence, the licence issuedto the said appellant is vitiated as the area of supply prescribed in thelicence does not conform to the Explanation to Rule 3 of the 2005 Rules.

37. In order to answer the aforesaid contention, it would benecessary to consider the sixth proviso to Rule 14 in light of the definitionof ‘area of supply’ and the Explanation to Rule 3 of the 2005 Rules. Ona conjoint reading of the same, it is noted that the sixth proviso to Section14 applies to situation where the appropriate Commission may grant alicence to twoormorepersons for distribution of electricity throughtheir own distribution system withinthesameareasubject to theapplicant-JSPL complying with the additional requirements. Therefore,

Ait is clear that within the samearea, there could be twoormorepersonsfor distribution of electricity. As to what is the area within which therecould be grant of licence to two or more persons is concerned under thesixth proviso to Section 14, the Explanation to Rule 3 prescribes thearea falling within Municipal Council or Municipal Corporation asdefined under Article 243 (Q) of the Constitution of India or RevenueBDistrict. The areaof supply authorised by the Appropriate Commissionshall be theminimumareaofsupply.

38. The ‘area of supply’ is defined under sub-section 3 of Section2 to mean that areawithinwhich the distribution licensee isauthorisedby his licence to supply electricity. This ‘area of supply’ must fall ‘within’Ca Municipal Council or Municipal Corporation as defined under Article243 (Q) of the Constitution of India or Revenue District. That meansthat the ‘area of supply’ must fall ‘within’ the local authority of MunicipalCouncil or Municipal Corporation as defined in sub-section 41 ofSection 2 of the Act or Revenue District, as the case may be, andDwithin which area of supply, licence is granted for distribution ofelectricity. Therefore, the expression area in the sixth proviso of Section14 is explained as the ‘area falling within’ Municipal Council or aMunicipal Corporation as defined under Article 243 (Q) of the Constitutionof India or Revenue District which shall be the ‘area of supply’. Asalready noted, within such area, there could be two or more personsEwho are granted licence to distribute electricity which is in terms of theprovision granting license. The ‘area within which they are authorised tosupply electricity’ is the ‘area of supply’ and such ‘area of supply’ inrespect of which authorisation is granted under the licence is the“minimum area of supply”.F

39. Therefore, when two or more persons are granted licence withinan area forming Municipal Council or Municipal Corporation or aRevenue District, the authorisation to supply electricity granted to adistribution licensee within the aforesaid area is the actualareaof supplyand the actual area of supply in respect of which the authorisation isGgranted under the licence is called theminimumarea ofsupply.

40. Thus, on conjoint reading of the aforesaid provisions, itis clear that the ‘minimum area of supply” would fall ‘within the area’which is comprising of Municipal Council or Municipal Corporationor Revenue District but it does not imply that the licence to supply

electricity for an area or an ‘area of supply which is the ‘minimum areaof supply’ must extend to the ‘entireareafalling within’ MunicipalCouncil or Municipal Corporation or Revenue District.

41. But if the interpretation as suggested by the respondent No.2is to be accepted, then the expression ‘area falling within’ in theExplanation would become otiose or redundant. The object of providinga Municipal Council or Municipal Corporation or Revenue Districtas an area is to provide standard area, within which area, two ormore persons could distribute electricity. It does not mean that the licenseemust distribute electricity in the entire standard area. The words usedare ‘the area falling within’ Municipal Council or Municipal Corporationor Revenue District. The same does not mean that the area comprisingof or an area equivalent to Municipal Council or Municipal Corporationor Revenue District. It is only in an ‘area falling within’ MunicipalCouncil or Municipal Corporation or Revenue District that two ormore persons could be granted licence for distribution of electricity whichinterpretation is supported by the use of the expressions ‘within the samearea’ used twice in the sixth proviso to Section 14 of the 2003 Act.Also, the use of the expression ‘within the same area’ in the sixth provisoas well as in the Explanation to Rule 3 have to carry the same meaning.42. Moreover, the expression ‘within the same area’ in the sixthproviso to Section 14 of the 2003 Act and the Explanation is analogousto the expression ‘the area falling within’ Municipal Council or aMunicipal Corporation or Revenue District in the Explanation. Thus,the expression ‘within the same area’ cannot refer to the entire MunicipalCouncil or Municipal Corporation or Revenue District but ‘the areafalling within’ Municipal Council or Municipal Corporation or aRevenue District in respect of which distribution licensee is authorisedby its licence to supply electricity. Therefore, by the aforesaidinterpretation it is held that the authorised ‘area of supply’ shall be ‘theminimum area of supply’.

43. Hence, the contention of respondent No.2 that the ‘minimumarea of supply’ must comprise of the ‘entire’ Municipal Council or aMunicipal Corporation or Revenue District is not correct. The argumentin the instant case is that the appellant-JSPL, not complying with theprescription in Explanation to Rule 3 of the 2005 Rules as per the termsof the licence cannot be permitted to supply electricity and therefore, the

Alicence was rightly cancelled by the Appellate Tribunal also cannot beaccepted.

44. On the other hand, on reading of the licence granted to theappellant, it is clear that the respondent No.1 was conscious of the factthat it was granting licence to the appellant-JSPL having regard to theBfact that the said appellant had established an industrial park for which ithad the responsibility for distribution of electricity and in addition, twomore villages were added to the area comprised in the industrial parkfor the purpose of distribution of electricity. The area in respect ofwhich the licence was granted and thereby authorisation provided tosupply electricity is the minimum area of supply. The ‘area of supply’ isC‘an area falling within’ Municipal Council or Municipal Corporationor Revenue District and in the instant case, it is Revenue District.Since, the ‘area of supply’ authorised in the licence granted to theappellant-JSPL in the instant case is the ‘minimum area of supply’, thesaid appellant is bound to supply electricity in the said area of supply.DThe licensee cannot resile from the condition of supplying electricity asper the authorisation of the area of supply indicated in the license. Thiswould also mean that the licensee cannot supply electricity in an areabeyond the area of supply authorised under the license. This is becausein respect of an area falling within Municipal Council or MunicipalCorporation or Revenue District, there could be two or more personsEwho could be granted licence and authorisation to distribute electricity interms of the respective area of supply specified.

45. In view of the aforesaid interpretation, we find no substancein the contentions advanced on behalf of the respondent No.2. On theother hand, on reading of the order passed by the respondent No.1-FCommission in C.A. Nos. 3607-3610 of 2008, we find that there hasbeen an application of mind to the licence that was granted to theappellant for distribution of the electricity.

46. In view of the aforesaid discussion, we find that the AppellateTribunal was not right in cancelling/setting aside the licence granted toGthe appellant-JSPL and hence, the impugned judgment is liable to be setaside.

47. In the result, the appeals are allowed and the impugnedcommon judgment of the Appellate Tribunal is hereby set aside.

48. Consequently, pending applications stand disposed byreserving liberty to the applicants seeking impleadment to seek remediesin accordance with law, if so advised.

49. Parties to bear their respective costs.

Devika Gujral(Assisted by : Shevali Monga, LCRA)

Appeals allowed.