2024:HHC:2897

HON’BLE HIGH COURT OF HIMACHAL PRADESH

AT SHIMLA

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CWP No. 7667/2023

.P
Reserved on: 02.05.2024
Decided on: 28.05.2024

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JSW Hydro Energy Ltd & Anr. .…Petitioners

Versus

of
State of Himachal Pradesh & Ors. ....Respondents
Coram
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The Hon’ble Mr. Justice M.S. Ramachandra Rao,Chief Justice.
The Hon’ble Ms. Justice Jyotsna Rewal Dua, Judge.
Whether approved for reporting?1 yes
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For the petitioners : Mr. P. Chidambaram, Sr. Advocate with Mr.

Aman Anand (through V.C.) and Mr. Janesh
Gupta, Advocate.
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For the respondents : Mr. Anup Rattan, Advocate General with

Mr. Rakesh Dhaulta, Mr. Pranay Pratap
Singh, Mr. Sushant Keprate & Mr. Gobind
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Korla, Additional Advocates General and

Mr. Arsh Rattan & Mr. Sidharth Jalta,
Deputy Advocates General, for respondents
No.1 & 2.

Ms. Sunita Sharma, Sr. Advocate with Mr.

Dhananjay Sharma, Advocate, for
respondent No.3.

1
Whether reporters of the local papers may be allowed to see the judgment? yes

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Mr. Anand Sharma, Sr. Advocate with Mr.

Karan Sharma, Advocate, for respondent

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No.10.

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Mr. Balram Sharma, Deputy Solicitor
General of India, for respondents No.11 &

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12.

Jyotsna Rewal Dua, Judge

of
1
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Sr. No. Particular
The case
Pages
2-4
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2 Facts 4-18
3 Submission 18-22
4 Consideration 22-52
5 A. Conclusion 52-60
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B. Result 60
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The case
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Petitioner is a hydro power generating company. It is

running 1045 MW (4 units X 261.25 MW) Karcham Wangtoo

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Hydroelectric Power Project (KW-HEP) in the State of Himachal

Pradesh. Some percentage of its generated power is supplied free of

cost to the State of Himachal Pradesh (respondent No.1), which is

further sold in power exchange by respondent No.1 through its agent.

Remaining power is sold by the petitioner through PTC India

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Limited (respondent No.4)-an Inter-State trading licensee. Power

Purchase Agreement (PPA) has been entered into between the two

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for the purpose. To sell the power purchased from the petitioner, the

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PTC India Limited has executed Power Sale Agreements (PSAs)

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with distribution licensees/nodal agencies (respondents No.5-10) for

procurement of power in the States of Punjab, Haryana, Uttar

of
Pradesh and Rajasthan.

a) The issue raised in this petition revolves around the

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quantum of free power to be supplied by the petitioner to respondent
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No.1-State. Petitioner’s case is that it is being compelled by the State

to supply 18% power w.e.f. 13.09.2023, whereas Central Electricity

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Regulatory Commission (CERC-respondent No.11) in its decision

dated 17.03.2022 on a petition filed by the petitioner has held that in

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view of CERC (Terms and Conditions of Tariff) Regulations 2019

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framed in exercise of power under Section 178 of the Electricity Act

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2003, maximum free energy supply to home State has to be taken as

13%. The CERC has also ordered that provisions in the previously

executed PPA & PSAs in respect of free power supply shall stand

overridden by the ones in the Tariff Regulations 2019. Petitioner

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seeks aligning of its agreements executed with State with the Tariff

Regulations 2019 on the subject of free power supply.

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b) Neither the Central Electricity Regulatory Commission

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(respondent No.11) nor the Central Power Ministry (respondent

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No.12) has opposed the writ petition. Respondents No.5-9 have also

not contested the writ petition. Respondent No.10 in its reply filed to

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the writ petition has not opposed grant of reliefs prayed by the

petitioner. The State of Himachal Pradesh (respondents No.1 to 3)

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has defended its action in taking 18% free power from the petitioner
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primarily on the basis of agreements executed by it with the

petitioner. Applicability of Tariff Regulations 2019 for determining

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the quantum of free power supply has also been disputed.

Maintainability of the writ petition in view of an Arbitration clause

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existing in the Implementation Agreement, has also been questioned.

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2. Following facts are not in dispute

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2(i) Pertaining to MoU & Implementation Agreement for

execution of KW-HEP.

2(i)(a) On 28.08.1993, a Memorandum of Understanding

(MOU) was entered into between Jaiprakash Industries Limited

(JIL),-the original project proponent and respondent No.1

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authorizing investigation and implementation of KW-HEP 900 MW

in District-Kinnaur. As per MOU, JIL had agreed to surrender 12%

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of the generated power free of cost to the State.

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2(i)(b) On 18.11.1999, an Implementation Agreement (IA) was

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executed between JIL and the State for 1000 MW KW-HEP. Clause

3.2 of the IA put the life of the agreement to 40 years from the

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Commercial Operation Date (COD) of the project. Clause 5.1 of the

IA set down petitioner’s liability to supply 12% of the net generation

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free of cost to the home State for first 12 years from COD of the
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project and 18% for the next 28 years. Clause 5.1 reads as under:-

“5.1 Government Supply

(a) The Company shall supply to the Government or its Agent,
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during the Agreement Period at the interconnection Point, without any

cost or charges to the Government, the quantum of electrical
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generated as specified below (Government Supply):-

i) Commencing from the date of Twelve (12) percent of
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synchronization of the first unit net generation.

and for the first twelve (12)
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years from Commercial

Operation Date (COD) of the
project.
ii) For the next twenty eight (28) Eighteen (18) percent
years after expiry of the period of Net Generation
specified in (i) above

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Remaining energy as per Clause 4.8 of the IA could be sold by the

petitioner to any other party/consumer outside the State and could

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also be utilized for its captive use in the State.

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2(ii) Pertaining to execution of Addendum/SIAs to the IA

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& Commencement of Commercial Operations.

2(ii)(a) On 28.05.2001 by an addendum to the IA dated

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18.11.1999, the time period for starting construction of the project

was extended. rt
2(ii)(b) On 29.04.2002, in accordance with provisions of the IA,
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Jaypee Karcham Hydro Corporation Limited (JKHCL) was

incorporated for implementing KW-HEP. Under a tripartite

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agreement executed on 30.12.2002 between respondent No.1, JIL

and JKHCL, all rights, liabilities and assets of JIL in KW-HEP were
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transferred to JKHCL.
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2(ii)(c) On 20.12.2007, a 2nd Supplementary Implementation

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Agreement (2nd SIA) was executed between JKHCL and respondent

No.1 for amending the definition of Scheduled Commercial

Operation Date of the project.

2(ii)(d) On 25.07.2011, JKHCL amalgamated with Jaiprakash

Power Ventures Limited (JPVL) in accordance with law. On

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25.06.2015 pursuant to another amalgamation scheme, all rights,

liabilities, assets and privileges etc. of JPVL over KW-HEP were

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transferred to Himachal Baspa Power Company Ltd (HBPCL) w.e.f.

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01.09.2015.

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On 11.09.2018, name of HBPCL was changed to JSW

Hydro Energy Limited (petitioner). On 21.10.2019, 3rd SIA was

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executed between respondent No.1 and the petitioner for effecting

change in company’s name from HBPCL to JSW Hydro Energy Ltd.

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2(ii)(e) On 29.04.2021, the Central Electricity Authority (CEA)
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approved enhancing the installed capacity of the project from 1000

MW to 1091 MW in two stages.

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2(ii)(f) On 08.07.2021, 4th SIA was executed between the

petitioner and respondent No.1 for enhancing the capacity of the

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project. This SIA also had a provision for petitioner’s supplying 3%

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additional free power on increased capacity to the State.

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2(ii)(g) The KW-HEP became commercially operative and was

synchronized on 12.09.2011.

2(iii) Supply of Free Power under the PPA & PSAs.

2(iii)(a) Under a Power Purchase Agreement (PPA) executed on

21.03.2006 and supplemented on 01.12.2017, the PTC India Limited

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(respondent No.4) was to purchase 704 MW gross capacity and

corresponding energy from the petitioner at KW-HEP for onward

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sale of power on long term basis for a period of 35 years from COD.

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In the PPA, free power has been defined as under:-

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“Free Power means the quantum of power (in kW or multiples thereof)
supplied free of cost by the Company at or before the Delivery Point to
the Project State Government . This shall be equal to 12% (twelve

of
percent) of net generation (gross generation at generator terminals
less Auxiliary Consumption), for the first 12 (twelve) Tariff years from
the COD and 18% (eighteen percent) of such net generation from the
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start of the 13th (thirteenth) Tariff Year till the end of the term of this
Agreement.”
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2(iii)(b) Respondent No.4 in turn executed Power Sale

Agreements (PSAs) with distribution licensees (respondents No.5-

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10) of States of Punjab, Haryana, Uttar Pradesh and Rajasthan.

2(iii)(c) In all the PSAs, definition of free power is the same as

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in the PPA, which in turn matches with the terms of free power
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supply stipulated in the IA.

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2(iv) Supply of Free Power by the Petitioner & the CERC

order dated 30.03.2017 on the issue.

2(iv)(a) The petitioner supplied free power to the extent of 12%

to respondent No.1 from 12.09.2011 (the COD) till 12.09.2023 i.e.

for a period of 12 years. The petitioner was also required to supply

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some additional free power towards Local Area Development Fund

(LADF) as insisted by respondent-State.

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2(iv)(b) During the period of supply of 12% free power to the

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State, the petitioner instituted a petition before the CERC for

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determining tariff of KW-HEP for the period 2014-19. The claim was

inter alia based upon CERC (Terms and Conditions of Tariff)

of
Regulations 2014. Petitioner pointed out that saleable design energy

of its project was arrived at after deducting amongst other factors,

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the 12% free power being supplied to the State at that time.
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i) The CERC passed an order on 30.03.2017 taking the

design energy of the generating station at 4131.06 million units

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(MU) corresponding to the installed capacity of 1000 MW. Saleable

design energy of the project was ordered to be calculated after

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deduction of auxiliary energy consumption as specified under Tariff

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Regulations 2014 i.e. 1.2% & 12% free power supplied to respondent
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No.1 for the period 2014-19. The saleable design energy was

accordingly arrived at 3591.71 MU.

ii) In the above petition before the CERC, the petitioner

also raised an issue about the requirement under the IA dated

18.11.1999 to supply 18% free power to the State for 28 years after

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expiry of 12 years from the COD and requested for future

determination of tariff accordingly. The CERC observed that:- Under

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the Tariff Regulations 2014, which covered the period 2014-19, the

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free power to home State was limited to 13% or actual whichever

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was less; The petitioner had to supply 12% free power under the IA

dated 18.11.1999 for 12 years from COD (12.09.2011); The period

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for supplying 18% free power had not commenced at that time; The

Tariff Regulations 2014 covered the period only upto the year 2019;
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Therefore, the issue of supply of free power at 18% and Tariff
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determination on that basis would be considered at an appropriate

time as per prevailing Tariff Regulations. Relevant paragraphs from

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the CERC decision are as under:-

“33. It is noticed that in terms of the IA dated 18.11.1999 entered into

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between the petitioner and the Govt. of H.P, free power to the Govt. of
H.P shall be 18% for the next 28 years from the expiry of the period of
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first 12 years. It is pertinent to mention that in terms of the 2014 Tariff

Regulations, free energy to home state is limited to 13% or actual,
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whichever is less. However, the respondents in their respective PPAs

have agreed to the enhanced free power to home state after 12 years. In
this background and considering the fact that this issue of enhanced
free power to home state after 12 years is not relevant for the purpose
of determination of tariff of the generating station for the period 2014-
19, the same has not been considered. However, the parties are at
liberty to claim the relief and the same will be considered at an
appropriate time as per the prevailing tariff regulations.

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34. The petitioner has submitted that it may be required to supply

additional free power towards LADF as insisted by Govt. of H.P. The
petitioner has also stated that the same has not been considered for

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determination of tariff for the present but shall be duly considered as

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and when necessary. We are of the view that in case the petitioner is
required to supply additional free power towards LADF, it may
approach the Commission by an appropriate application for relief on

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this count.”

2(v) Free Power Supply by the petitioner, Tariff

of
Regulations 2019 & the order passed by CERC on 17.03.2022.

2(v)(a) On 07.03.2019, respondent No.11 notified the CERC

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(Terms and Conditions of Tariff) Regulations 2019. These
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regulations were applicable for the period 01.04.2019 to 31.03.2024.

As per regulation No. 55(2) of these regulations, “……..payment of

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capacity charge and energy charge for a hydro generating station

shall be shared by the beneficiaries of the generating station in

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proportion to their shares (inclusive of any allocation out of the un-

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allocated capacity) in the saleable capacity to be determined after

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deducting the capacity corresponding to free energy to home State as

per Note-3. Note-3 reads as under:-

“FEHS = Free energy for home State, in percent and shall be

taken as 13% or actual whichever is less.
Provided that in cases where the site of a hydro project is
awarded to a developer, by the State Government by following a two
stage transparent process of bidding, the 'free energy' shall be taken as
13%, in addition to energy corresponding to 100 units of electricity to

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be provided free of cost every month to every project affected family

for a period of 10 years from the date of commercial operation of the
generating station:

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Provided further that the generating company shall submit detailed

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quantification of energy corresponding to 100 units of electricity to be
provided free of cost every month to every project affected family for a
period of 10 years from the date of commercial operation.”

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2(v)(b) The petitioner in accordance with regulation No. 9 of

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Tariff Regulations 2019 moved petition No.391/GT/2019 before the

CERC seeking determination of its tariff for the period 2019-2024.

Petitioner’s liability under the IA to supply 18% free power was to

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commence during this period i.e. w.e.f. 13.09.2023.
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i) Before the CERC, petitioner’s case was that it had

agreed in the IA for supplying 18% free power to the home State
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from 13.09.2023 but the Tariff Regulations 2019 provide for working
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of tariff based upon maximum 13% free power; Working of tariff

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based upon 13% free supply shall result in severe loss of 5% in tariff;

Loss of 5% in tariff working would affect balance life of the project;

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It shall have to be borne by the petitioner from Return on Equity

(ROE) resulting in an anomalous situation, where the petitioner will

not be able to recover ROE of 16.5% as per Tariff Regulations. The

petitioner requested the CERC to exercise its powers under the Tariff

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Regulations 2019 and allow the free power as stipulated in the IA,

the PPA and PSAs to be accounted for while determining the tariff.

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ii) Respondent No.1 though party before the CERC, did

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not contest the petition. It did not even file reply to the petition.

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Respondent No.4 (PTC India Limited) opposed the changes in tariff

regime of KW-HEP based upon enhanced free power supply at 18%

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after 13.09.2023. One of its contentions was that Tariff Regulations

2019 would override the existing contracts and will apply to even
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those projects, which were commissioned prior to the coming into
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force of Tariff Regulations 2019.

iii) Upon considering the rival claims, the CERC in its

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order dated 17.03.2022, acknowledged the relevancy & significance

of issue of free power for the 2019-24 tariff period and held that:-
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The provisions of PPA/PSAs executed by the petitioner regarding

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supply of free power to the home State are inconsistent and shall
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stand over-ridden by Note-3 under Regulation 55 of the Tariff

Regulations 2019; The free power to be supplied by the petitioner to

the State shall be considered as 13%. It, therefore, declined

petitioner’s prayer to determine tariff at 18% of the free power w.e.f.

13.09.2023. Relevant paragraphs from the CERC order are as under:-

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“144. We have examined the matter. In terms of the Implementation

Agreement dated 18.11.1999 entered into between the Petitioner and
the Government of Himachal Pradesh, free power equal to 12% of net

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generation, is to be supplied by the Petitioner to the Government of HP

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for the first 12 years from COD of the Project and at 18% of the net
generation for the next 28 years, after expiry of the period of 12 years,
as above. PPA/ Supplementary PPA executed by the Respondents with

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PTC defines the term ‘free power’, which is same as the aforesaid
provision in the IA. It is, therefore, evident that the issue of ‘free
power’ is significant and relevant for the 2019-24 tariff period (i.e.

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from 30.9.2023).
145. The main contention of the Petitioner is that since the quantum
of free power to be supplied to the home State was based on the
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agreement between the parties, which were executed prior to coming
into force of the Tariff Regulations notified by the Commission, the
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same may be considered by the Commission in exercise of the power to
relax/ power to remove difficulties. The Respondent HPPC has
submitted that in terms of the judgment of the Hon’ble Supreme Court
in PTC v CERC & ors, Tariff Regulations override existing contracts.
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Note 3 under Regulation 55 of the 2019 Tariff Regulations provides as

under:
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Note 3: FEHS = Free energy for home State, in percent and shall
be taken as 13% or actual whichever is less.
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146. The Constitution Bench of the Hon’ble Supreme Court in PTC

India Ltd Vs CERC & ors (2010 4 SCC 603) has laid down the
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principle of law, whereby any provision of an agreement, if it falls

within the domain of the Regulations of subordinate legislation, has to
be aligned with the Regulations. The relevant portion of the judgment is
quoted below:
“58. One must understand the reason why a regulation has been
made in the matter of capping the trading margin under Section
178 of the Act. Instead of fixing a trading margin (including
capping) on a case to case basis, the Central Commission
thought it fit to make a regulation which has a general

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application to the entire trading activity which has been

recognized, for the first time, under the 2003 Act. Further, it is
important to bear in mind that making of a regulation under

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Section 178 became necessary because a regulation made under

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Section 178 has the effect of interfering and overriding the
existing contractual relationship between the regulated entities.
A regulation under Section 178 is in the nature of a subordinate

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Legislation. Such subordinate Legislation can even override the
existing contracts including Power Purchase Agreements which
have got to be aligned with the regulations under Section 178

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and which could not have been done across the board by an
Order of the Central Commission under Section 79(1)(j).”

147. Thus, the provisions of the PPA/PSAs executed by the Petitioner in

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respect of free power to the home State is inconsistent and shall
accordingly stand overridden by Note 3 under Regulation 55 of the
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2019 Tariff Regulations. We, therefore, find no reason to exercise the
power to relax and grant relief, as prayed for by the Petitioner.
Accordingly, the free energy to home state is to be considered as 13% in
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this case.”

The above order has been accepted by the litigating

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parties and has attained finality.

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2(vi) Events after the CERC order dated 17.03.2022.

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Petitioner’s repeated written requests made thereafter to

the respondent State to align the provisions of IA relating to supply

of free power in accordance with CERC order dated 17.03.2022,

remained unsuccessful. A lot of correspondence on the subject was

exchanged between the petitioner & respondent State. On

13.09.2023, the State/Directorate of Energy (respondent No.2) issued

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a notice to the petitioner stating that CERC Tariff Regulations 2019

will not have any bearing on provisions of the IA concerning supply

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of free power to the home State. On 16.09.2023, respondent No.2

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called upon Northern Regional Load Dispatch Centre (NRLOC) to

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schedule 18.46% free power supply from petitioner’s project.

2(vii) Present petition

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2(vii)(a) In the above background, this writ petition has been

instituted seeking direction to respondents No.1 and 2 to align the

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provisions of free power supply in the Implementation Agreement
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dated 18.11.1999 & subsequent Supplementary Implementation

Agreements with the provisions on free power supply in the CERC

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Tariff Regulations 2019 also keeping in view the order dated

17.03.2022 passed by the CERC. The substantive relief prayed for by

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the petitioner runs as under:-

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“ a) Issue a writ in the nature of mandamus or any other ar appropriate

writ, order or direction, directing the Respondent No. 1 & 2 to perform
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the ministerial act of aligning the provisions of the Implementation

Agreement dated 18.11.1999 and the Supplementary Implementation
Agreements, on the subject of free power supply with the CERC Tariff
Regulations, 2019 and the judgment and order dated 17.03.2022 of the
CERC;
b) Declare the policies dated 07.07.2012 & 18.08.2017 to be ultra vires
the CERC Tariff Regulations, 2019 made under the Electricity Act,
2003 on the topic of free power, in so far as the same require the

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Petitioner to supply free power beyond the cap prescribed under the
CERC Tariff Regulations, 2019 on the enhanced capacity; and
c) As a consequence, quash the impugned notices dated 13.09.2023 &

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16.09.2023, issued by the Respondent No.2.”

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2(vii)(b) This writ petition was listed on 12.10.2023, when

following order was passed in the matter:-

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“ CWP No.7667/2023 & CMP No.14596/2023
Heard Mr. P. Chidambaram, learned Sr. Advocate for the petitioners

of
and Mr. Anup Rattan, learned Advocate General for respondents no.1
and 2.
2.rt The issue raised in this Writ petition is “whether the 13% cap
of free energy to be supplied to the home State, as specified in
Regulation 55 Note 3 of the Central Electricity Regulatory Commission
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(Terms and Conditions of Tariff) Regulation Act, 2019 would over-ride
the terms of the Implementation Agreement dt. 18.11.1999 entered into
between 1st petitioner and 1st respondent.” This matter requires
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consideration.
3. Issue notice. Mr. Rakesh Dhaulta, learned Additional Advocate
General, Mr. Dhananjay Sharma, learned Standing Counsel and Mr.
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Balram Sharma, learned Deputy Solicitor General of India, accept

notice on behalf of respondents no.1 & 2, respondent no.3 and
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respondents no. 11 & 12, respectively. Issue notice to PTC India Ltd-
respondent no.4 only, returnable for 06.12.2023, on taking steps within
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one week.
4. Reply on behalf of the appearing respondents be filed before
the next date of hearing.
5. List on 06.12.2023.
6. Status quo as on today be maintained until further orders
without prejudice to the rights of both the sides subject to respondents
no.1 and 2 maintaining an account of 18% free power being supplied to
the respondents by the petitioners, and subject to further orders on the
disputed fraction of free power.”

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3. Submissions:-

3(i) Learned Senior Advocate for the petitioner in support

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of the case has contended that:-

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3(i)(a) Present day insistence of respondents No.1 and 2 on

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performance of obligations regarding the quantum of free power

supply in terms of the IA dated 18.11.1999 & subsequent SIAs, is

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illegal. The agreements require supply of free power at 18% of the

net generation for 28 years after 12 years of the COD, whereas

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subordinate legislation framed by the CERC in exercise of power
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conferred upon it under the Electricity Act 2003, cap the maximum

free supply at 13% of the net generation. On the issue of extent of

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free power supply, the Tariff Regulations 2019 shall have supremacy

over the agreements executed between the petitioner & the State.
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3(i)(b) Respondents No.1 and 2’s demand of free power at 18%

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is against the order dated 17.03.2022 passed by the CERC in petition

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No.391/GT/2019. As per this order, the provisions in the PPA &

PSAs on free power supply from KW-HEP shall stand overridden by

the provisions in Tariff Regulations 2019 on the subject. Having not

assailed the CERC order, the State is bound to implement the same

by aligning the provisions of free power supply in the

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Implementation Agreement with Tariff Regulations 2019. There

cannot be any mismatch on quantum of supply of free electricity in

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different agreements.

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3(i)(c) Demand by the State of free power supply at 18% is not

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only illegal but unjust as well on the face of Tariff Regulations 2019,

which put the cap on supply of free power at 13% maximum. Loss

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of 5% in tariff would make petitioner’s project completely unviable

and unsustainable. Once the petitioner’s prayer for determination of

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its tariff by taking into consideration 18% free power supply as
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obligated under the agreements has been turned down by CERC in

view of 13% cap on free power supply in Tariff Regulations 2019,

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then as resultant corollary the State is also bound to align the free

power supply provisions in the agreements with the Tariff

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Regulations 2019. Otherwise there would be an anomalous position

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where the petitioner would supply free power at 18%, but 5% of the
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same would not to be accounted for in its tariff and when the Tariff

Regulations cap free power supply maximum only at 13%.

3(i)(d) Neither the provisions in the Implementation Agreement

or the Supplementary Implementation Agreements executed by the

petitioner with the State nor the Hydro Policies notified by

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20

respondent No.1 can be enforced against the petitioner to the extent

the same contravene the provisions of the Tariff Regulations 2019 on

.
supply of free power.

.P
3(i)(e) Submission made by learned Senior Advocate for the

H
petitioner is that every contract is subject to law. Performance of

contract must conform to law in force at the time when action is

of
taken. Impugned action of respondent No.1-State in compelling the

petitioner to supply free power as per the agreements is against the

rt
statutory Tariff Regulations 2019 and the order passed by CERC on
ou
17.03.2022. The petitioner cannot be forced to give free power more

than 13%.
C

3(ii) The State asserts that the agreements executed by it

with the petitioner will have supremacy over the Tariff Regulations
h

2019 and petitioner’s liability thereunder is for supplying 18% free

ig

power for 28 years after 12 years from the COD. Learned Advocate
H

General submitted that:-

3(ii)(a) In view of Clause 10.1 of the Implementation

Agreement dated 18.11.1999, any dispute in relation to, arising out

of or in connection with the Implementation Agreement’ is referable

to arbitration. This writ petition without availing the remedy

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21

provided in the Implementation Agreement is, therefore, not

maintainable.

.
3(ii)(b) Petitioner is not only bound by the Implementation

.P
Agreement to supply 12% of the net electricity generation for 12

H
years from the COD date and 18% for 28 years thereafter but it has

also executed PPA and PSAs on that basis containing same

of
provisions for free supply of power. Petitioner is bound by the terms

of the agreements in particular the IA for supplying 18% free power.

rt
The petitioner has itself acknowledged this liability in the PPA
ou
executed by it with respondent No.4. This fact has also been

acknowledged in PSAs entered into between respondent No.4 and

C

respondents No.5-10.

3(ii)(c) The CERC Tariff Regulations 2019 cannot override the

h

terms agreed between the parties in the Implementation Agreement.

ig

Petitioner is bound to supply 18% free power under the agreement.

H

It cannot escape its liability to supply free power in terms of the

agreement by taking shelter of CERC order dated 17.03.2022.

3(ii)(d) The CERC order dealt with petitioner’s prayer to take

quantum of free power at 18% from 13.09.2023 only for the purpose

of determining the tariff for the period 2019-2024. Petitioner’s prayer

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22

was declined by the CERC. This order has no effect upon petitioner’s

liability to supply 18% free power to the State under the agreements

.
executed between the parties.

.P
3(ii)(e) The Hydro Power Policy 2008 also recognizes supply of

H
free power beyond 13%. It provides that cost of supply of free power

more than 13% would be met by the developer from its own

of
resources and would not be a pass through in tariff. The project

developer-the petitioner is thus liable to supply free power at 18% as

rt
agreed under the IA. The cost for supplying free power over &
ou
above 13% is to be borne by the petitioner. The petitioner was very

well aware of its obligations under the agreements willingly executed

C

by it. It cannot be permitted now to step back from the same.

4. Consideration
h

Whether the provisions in the agreements executed

ig

between the petitioner and the State, on point of free power to be

H

supplied by the petitioner, are required to be aligned with the CERC

Tariff Regulations 2019, is the main issue to be adjudicated in this

petition.

4(i) Considering the relief prayed by the petitioner and the

controversy involved in the case, the nature of dispute cannot be

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23

stricto senso said to be within the realm of the arbitration clause in

the Implementation Agreement. The lis is whether the CERC Tariff

.
Regulations 2019-24 will have supremacy over the Implementation

.P
Agreement in respect of supply of free power and whether clauses

H
pertaining to free power supply in the Implementation Agreement

shall have to be aligned with the provisions of Tariff Regulations.

of
Effect of order already passed by CERC on 17.03.2022 on the issue

is also intrinsically entwined. Given the nature of dispute, arbitration

rt
clause in the Implementation Agreement cannot be held to be in the
ou
way of petitioner to invoke writ jurisdiction for enforcing statutory

regulations and to seek aligning the provisions in the IA on subject of

C

free power with the Tariff Regulations. Reference in this regard can

be made to following paras in Union of India & Ors Vs. Tantia

h

Constructions Private Limited2 :-

ig

“33. Apart from the above, even on the question of maintainability

of the writ petition on account of the Arbitration Clause included in the
H

agreement between the parties, it is now well-established that an

alternative remedy is not an absolute bar to the invocation of the writ
jurisdiction of the High Court or the Supreme Court and that without
exhausting such alternative remedy, a writ petition would not be
maintainable. The various decisions cited by Mr. Chakraborty would
clearly indicate that the constitutional powers vested in the High Court
or the Supreme Court cannot be fettered by any alternative remedy
available to the authorities. Injustice, whenever and wherever it takes
2
(2011) 5 SCC 697

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24

place, has to be struck down as an anathema to the rule of law and the
provisions of the Constitution.

34. We endorse the view of the High Court that notwithstanding

.
the provisions relating to the Arbitration Clause contained in the

.P
agreement, the High Court was fully within its competence to entertain
and dispose of the Writ Petition filed on behalf of the Respondent
Company. We, therefore, see no reason to interfere with the views

H
expressed by the High Court on the maintainability of the Writ Petition
and also on its merits.”

of
Uttar Pradesh Power Transmission Corporation

Limited and Another Vs. CG Power and Industrial Solutions

rt
Limited and Another3 reiterates that existence of an arbitration
ou
clause does not debar the court from entertaining a writ petition in an

appropriate case. Relevant paragraphs are as under:-

C

“66. Even though there is an arbitration clause, the Petitioner herein

has not opposed the writ petition on the ground of existence of an
arbitration clause. There is no whisper of any arbitration agreement in
h

the Counter Affidavit filed by UPPTCL to the writ petition in the High
Court. In any case, the existence of an arbitration clause does not
ig

debar the court from entertaining a writ petition.

67. It is well settled that availability of an alternative remedy does not
H

prohibit the High Court from entertaining a writ petition in an

appropriate case. The High Court may entertain a writ petition,
notwithstanding the availability of an alternative remedy, particularly
(1) where the writ petition seeks enforcement of a fundamental right;
(ii) where there is failure of principles of natural justice or (iii) where
the impugned orders or proceedings are wholly without jurisdiction or
(iv) the vires of an Act is under challenge. Reference may be made to
Whirlpool Corporation v Registrar of Trade Marks, Mumbai and Ors.

3
(2021) 6 SCC 15

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25

reported in AIR 1999 SC 22 and Pimpri Chinchwad Municipal

Corporation and Ors. V. Gayatri Construction Company and Ors,
reported in (2008) 8 SCC 172, cited on behalf of Respondent No.1.

.
68. In Harbanslal Sahnia and Ors. v. Indian Oil Corporation Ltd.

.P
reported in (2003) 2 SCC 107, this Court allowed the appeal from an
order of the High Court dismissing a writ petition and set aside the
impugned judgment of the High Court as also the impugned order of

H
the Indian Oil Corporation terminating the dealership of the
Appellants, notwithstanding the fact that the dealership agreement
contained an arbitration clause.

of
69. It is now well settled by a plethora of decisions of this Court that
relief under Article 226 of the Constitution of India may be granted in a
case arising out of contract. However, the writ jurisdiction under
rt
Article 226, being discretionary, the High Courts usually refrain from
entertaining a writ petition which involves adjudication of disputed
ou
questions of fact which may require analysis of evidence of witnesses.
Monetary relief can also be granted in a writ petition.
70. In this case, the action of UPPTCL in forcibly extracting building
cess from the Respondent No.1 in respect of the first contract, solely on
C

the basis of the CAG report, is in excess of power conferred on

UPPTCL by law or in terms of the contract. In other words, UPPTCL
h

has no power and authority and or jurisdiction to realize labour cess

under the Cess Act in respect of the first contract by withholding dues
ig

in respect of other contracts and/or invoking a performance guarantee.

There is no legal infirmity in the finding of the High Court that
UPPTCL acted in excess of power by its acts impugned, when there
H

was admittedly no assessment or levy of cess under the Cess Act.”

Unitech Limited & Ors Vs. Telangana State Industrial

Infrastructure Corporation & Ors4., held ‘it is well settled that

jurisdiction under Article 226 cannot be ousted only on the basis that

4
2021 (2) SCALE 653

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26

the dispute pertains to contractual arena. This is for simple reason

that the State and its instrumentalities are not exempt from the duty

.
to act fairly merely because in their business dealings they have

.P
entered into realm of contract. Presence of an arbitration clause does

H
not oust the jurisdiction under Article 226 in cases though it still

needs to be decided from case to case as to whether recourse to a

of
public law remedy can justifiably be invoked.’

In the background of above legal position and taking

rt
into consideration the dispute involved in the case, we hold that writ
ou
petition is maintainable.

4(ii) It is an undisputed fact that in the IA dated 18.11.1999,

C

the petitioner had agreed to supply 12% of its generated power free

of cost to the State for 12 years from the COD and at 18% for next
h

28 years, life of agreement being 40 years.

ig

Supplementary Implementation Agreements have been

H

executed between the petitioner and the State on 28.05.2001 (for

extending date of commencement of construction of KW-HEP),

20.12.2007 (for amending definition of Scheduled Commercial

Operation Date) and 21.10.2019 (for changing name of project

proponent from Himachal Baspa Power Company Ltd to JSW

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27

Hydro Energy Ltd.). Execution of another Supplementary

Implementation Agreement was necessitated on 08.07.2021

.
consequent upon increase of installed capacity from 1000 MW to

.P
1045 MW in first stage and 1091 MW in the second stage,

H
whereunder in view of policy guidelines of the State issued on

07.07.2012, the petitioner agreed to provide additional free power at

of
3% of deliverable energy on capacity increased beyond the allotted

capacity. rt
4(iii) The Implementation Agreement dated 18.11.1999 is the
ou
basic document obligating the petitioner to supply free power in

terms thereof. Article 9 of this agreement states that “the right and
C

obligations of the Parties under or pursuant to this Agreement shall

be governed by and construed according to Law. This agreement

h

shall be subject to the jurisdiction of the competent courts of

ig

Himachal Pradesh”. ‘Law’ in the Implementation Agreement has

H

been defined to mean ‘any act, rule, regulation, notification,order or

instruction having the force of Law enacted or issued by any

competent legislature, Government or statutory authority in India’. It

is evident from the record that no Tariff Regulations were in place at

the time of execution of the Implementation Agreement. The

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28

Electricity Act, 2003 had not been enacted by that time. The

Electricity Act (the Act in short) came into force on 10.06.2003.

.
Some relevant provisions of the Act are being referred to

.P
hereinafter:-

H
“Generating company” is defined under

“Section 2(28) of the Act as under:-

of
“2. Definitions
(28) "generating company" means any company or body corporate or
rtassociation or body of individuals, whether incorporated or not, or
artificial juridical person, which owns or operates or maintains a
generating station;
ou
The petitioner is a generating company within the

meaning of above section.

C

 Section 2(39) defines “licensee” as a person, who

h

has been granted a licence under Section 14”. Section 14

ig

is about grant of transmission, distribution and trading

licensees by the Appropriate Commission. Third proviso

H

to this sub section states that in case an appropriate

Government transmits or distributes or undertakes

trading in electricity, such Government shall be deemed

to be a licensee under the Act, but shall not be required

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29

to obtain a license. Respondent No.1 is a deemed

licensee under the Act.

.
 Constitution of Central Electricity Regulatory

.P
Commission (CERC) is provided under Section 76 for

H
exercising the powers conferred on, and for discharging

the functions assigned to it, under the Act. Section 79

of
enumerates several functions of CERC and reads as

under:-
rt “ Section 79. (Functions of Central Commission): - (1) The Central
Commission shall discharge the following functions, namely:-
ou
(a) to regulate the tariff of generating companies owned or controlled
by the Central Government;
(b) to regulate the tariff of generating companies other than those
C

owned or controlled by the Central Government specified in clause

(a), if such generating companies enter into or otherwise have a
composite scheme for generation and sale of electricity in more than
h

one State;
(c) to regulate the inter-State transmission of electricity ;
ig

(d) to determine tariff for inter-State transmission of electricity;

(e) to issue licenses to persons to function as transmission licensee and
electricity trader with respect to their inter-State operations;
H

(f) to adjudicate upon disputes involving generating companies or

transmission licensee in regard to matters connected with clauses (a)
to (d) above and to refer any dispute for arbitration;
(g) to levy fees for the purposes of this Act;
(h) to specify Grid Code having regard to Grid Standards;
(i) to specify and enforce the standards with respect to quality,
continuity and reliability of service by licensees;
(j) to fix the trading margin in the inter-State trading of electricity, if
considered, necessary;

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30

(k) to discharge such other functions as may be assigned under this

Act.”
(2) The Central Commission shall advise the Central Government on
all or any of the following matters, namely:-

.
(i) formulation of National electricity Policy and tariff policy;

.P
(ii) promotion of competition, efficiency and economy in activities of the
electricity industry;

H
(iii) promotion of investment in electricity industry;
(iv) any other matter referred to the Central Commission by that
Government.
(3) The Central Commission shall ensure transparency while exercising

of
its powers and discharging its functions.
(4) In discharge of its functions, the Central Commission shall be
guided by the National Electricity Policy, National Electricity Plan and
rt tariff policy published under section 3.
ou
The functions of CERC include regulating tariff

of generating companies and adjudicating disputes

C

involving generating companies or transmission

licensees in regard to matters connected with Clauses (a)

h

to (d) of Section 79(1).

ig

 Section 61 enables the Appropriate Commission

(in this case the CERC) to specify the terms and

H

conditions for determining the tariff subject to the

provisions of the Act and guiding factors as under:-

“Section 61. (Tariff regulations): The Appropriate Commission shall,

subject to the provisions of this Act, specify the terms and conditions for
the determination of tariff, and in doing so, shall be guided by the
following, namely:-

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(a) the principles and methodologies specified by the Central

Commission for determination of the tariff applicable to generating
companies and transmission licensees;
(b) the generation, transmission, distribution and supply of electricity

.
are conducted on commercial principles;

.P
(c) the factors which would encourage competition, efficiency,
economical use of the resources, good performance and optimum

H
investments;
(d) safeguarding of consumers' interest and at the same time, recovery
of the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;

of
(f) multi year tariff principles;
(g) that the tariff progressively reflects the cost of supply of electricity
and also, reduces cross-subsidies in the manner specified by the
rt Appropriate Commission;
(h) the promotion of co-generation and generation of electricity from
renewable sources of energy;
ou
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for determination of tariff under
the Electricity (Supply) Act, 1948, the Electricity Regulatory
C

Commission Act, 1998 and the enactments specified in the Schedule as

they stood immediately before the appointed date, shall continue to
apply for a period of one year or until the terms and conditions for
h

tariff are specified under this section, whichever is earlier.

 Mechanism for determining tariff by Appropriate

ig

Commission is given in Section 62. Sub-section 4

H

thereof states that no tariff or part thereof will ordinarily

be amended more frequently than once in any financial

year, except in respect of changes expressly permitted

under the terms of any specified fuel surcharge formula.

Section 64 lays down the procedure for determining

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32

tariff on the application of a generating company or

licensee as under:-

.
“Section 64. (Procedure for tariff order): --- (1) An application for

.P
determination of tariff under section 62 shall be made by a generating
company or licensee in such manner and accompanied by such fee, as
may be determined by regulations.

H
(2) Every applicant shall publish the application, in such abridged form
and manner, as may be specified by the Appropriate Commission.
(3) The Appropriate Commission shall, within one hundred and twenty

of
days from receipt of an application under sub-section (1) and after
considering all suggestions and objections received from the public,-
(a) issue a tariff order accepting the application with such
rt modifications or such conditions as may be specified in that
order;
(b) reject the application for reasons to be recorded in writing if
ou
such application is not in accordance with the provisions of this
Act and the rules and regulations made thereunder or the
provisions of any other law for the time being in force: Provided
that an applicant shall be given a reasonable opportunity of
C

being heard before rejecting his application.

(4) The Appropriate Commission shall, within seven days of making the
order, send a copy of the order to the Appropriate Government, the
h

Authority, and the concerned licensees and to the person concerned.

ig

(5) Notwithstanding anything contained in Part X, the tariff for any

interState supply, transmission or wheeling of electricity, as the case
may be, involving the territories of two States may, upon application
H

made to it by the parties intending to undertake such supply,

transmission or wheeling, be determined under this section by the State
Commission having jurisdiction in respect of the licensee who intends
to distribute electricity and make payment therefor.
(6) A tariff order shall, unless amended or revoked, continue to be in
force for such period as may be specified in the tariff order.”

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33

 Section 178 empowers the CERC to make

regulations & rules consistent with the Act to carry out

.
the provisions of the Act and reads as under:-

.P
“Section 178. (Powers of Central Commission to make regulations): ---
(1) The Central Commission may, by notification make regulations

H
consistent with this Act and the rules generally to carry out the
provisions of this Act.”

of
 Section 179 of the Act mandates that rules and

regulations made by the CERC are to be laid before

rt
each house of the parliament. If both houses agree in
ou
making any modification in the rules or regulations or

agree that rules or regulations should not be made, the

C

rules or regulations shall thereafter have effect only in

such modified form or be of no effect as the case may

h

be. The Section reads as under:-

ig

“ Section 179. (Rules and regulations to be laid before

Parliament): Every rule made by the Central Government, every
H

regulation made by the Authority, and every regulation made by

the Central Commission shall be laid, as soon as may be after it
is made, before each House of the Parliament, while it is in
session, for a total period of thirty days which may be comprised
in one session or in two or more successive sessions, and if,
before the expiry of the session immediately following the session
or the successive sessions aforesaid, both Houses agree in
making any modification in the rule or regulation or agree that
the rule or regulation should not be made, the rule or regulation

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34

shall thereafter have effect only in such modified form or be of no

effect, as the case may be; so, however, that any such
modification or annulment shall be without prejudice to the

.
validity of anything previously done under that rule or

.P
regulation.”

4(iv) The CERC has been framing Tariff Regulations after

H
coming into force of the Electricity Act, 2003. The CERC framed

Tariff Regulations 2004 for the period 2004-09. These regulations

of
provided for saleable energy for hydro projects as “the quantum of

primary energy available for sale (ex-bus) after allowing 12% free
rt
energy to the home State.”
ou
In the CERC Tariff Regulations 2009-2014 ‘free energy’

was taken as 13% which was also to include energy corresponding to

C

100 units of electricity to be provided free of cost.

Under the CERC Tariff Regulations 2014-19, free

h

energy for home Sate was taken as 13% or actual whichever was
ig

less.
H

The CERC Tariff Regulations 2019-24, have retained

‘the free energy’ provision as it existed in Tariff Regulations 2014-19

i.e. 13% or actual whichever is less [provision extracted in para 2(v)

(a) above].

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4(v) Petitioner in terms of the Implementation Agreement

was to supply 12% free power for 12 years from the COD i.e. till

.
13.09.2023. This extent of power to be supplied free of cost as per

.P
provision in the Implementation Agreement matched with free power

H
supply provision in the CERC Tariff Regulations as they existed at

the relevant time. Petitioner apparently faced no difficulty in

of
supplying 12% free power as the supplied energy was duly credited

for and taken into account for determining petitioner’s tariff upto
rt
13.09.2023.
ou
4(v)(a) Anticipating that difficulties about the quantum of free

supply of power may arise at the end of 12 years period from COD
C

keeping in view the Tariff Regulations 2014-2019, the petitioner in

its tariff determination application for the period 2014-2019

h

requested the CERC to look into this issue as well while determining
ig

the tariff for next 5 years i.e. 2014-2019. The CERC in its order
H

dated 30.03.2017 held that though free energy to home State was

limited to 13% but the period, when the petitioner was supposed to

supply more than 13% free power, would commence beyond the

period covered under 2014-2019 Tariff Regulations i.e. after

13.09.2023. Hence the CERC observed that the grievance sought to

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36

be raised by the petitioner was not necessary to be dealt with at that

stage and further that the said issue would be considered as and when

.
the situation will arise in future in accordance with prevailing

.P
regulations.

H
4(v)(b) Next Tariff Regulations were framed in 2019 covering

the period upto 2023. This time zone included the period, where it

of
was expected of the petitioner under the agreements to supply 18%

free power to the home State.

rt The petitioner in its fresh tariff

determination application under the CERC Tariff Regulations 2019-

ou
2024 again raised the issue that while determining its tariff, 18% free

power to be supplied by it in terms of Implementation Agreement

C

executed between it & the State, the PPA entered into between it &

PTC India Ltd (respondent No.4) and the PSAs executed between
h

respondent No.4 & distribution licensees (respondent No.5-10) be

ig

also accounted for. The CERC in its order dated 17.03.2022 held
H

that:- the Tariff Regulations 2019 will override the existing contracts

with respect to supply of free power; The Tariff Regulations 2019

cap the free power to the home State at 13%; Therefore maximum

13% free power as stipulated in Tariff Regulations 2019 can be

considered for determining the tariff; Free energy to home State is be

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37

considered as 13%. The PPA and PSAs executed between the

petitioner & respondent No.4, and between respondent No.4 &

.
respondents No.5-10 respectively, in respect of free power to the

.P
home State @18% after 12 years of COD were held ‘inconsistent

H
and overridden by Tariff Regulations 2019’. Meaning thereby that

the same were ordered to be aligned with free power provisions in

of
the Tariff Regulations 2019. The operative part of the order is as

follows:- rt
“147. Thus, the provisions of the PPA/PSAs executed by the Petitioner
in respect of free power to the home State is inconsistent and shall
ou
accordingly stand overridden by Note 3 under Regulation 55 of the
2019 Tariff Regulations. We, therefore, find no reason to exercise the
power to relax and grant relief, as prayed for by the Petitioner.
C

Accordingly, the free energy to home state is to be considered as 13% in

this case.”
h

4(vi) State’s contention is that in the petition preferred before

ig

the CERC, only tariff was required to be determined for the project

and it was only towards determining the tariff that free supply power
H

was taken at 13% and, therefore, no inference should be deduced

from the order passed by the CERC that free power supply to the

State cannot be more than 13%.

The interpretation by the State of the CERC order dated

17.03.2022 is only self serving. Tariff of electricity was to be

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38

determined by the CERC under the applicable Tariff Regulations.

Petitioner had moved the CERC for determining the tariff under the

.
applicable Tariff Regulations 2019-2024. Petitioner’s case inter alia

.P
was that 12% free power being supplied by it had been accounted for

H
while determining tariff for the previous years but w.e.f. 13.09.2023,

it was to supply 18% free power to the home State for next 28 years;

of
This 18% power should be considered while determining its tariff.

The CERC held that Tariff Regulations 2019-2024 provide for

rt
supplying free power maximum at 13%. The contentions of PTC
ou
India Ltd. (Respondent No.4) that the petitioner was fully aware

about the extent of free power it was to supply under the agreements;
C

Petitioner had executed agreements in that regard not only with the

State but also with respondent No.4; The PPA executed by the
h

petitioner with respondent No.4 and on that basis the PSAs entered
ig

into between respondent No.4 for onwards sale with respondents

H

No.5-10 wherein free power was mentioned at 18% after 12 years of

COD till next 28 years, were also considered by the CERC. The

CERC held that tariff regulations had been framed in exercise of

powers under the statute, the Electricity Act; In terms of judicial

pronouncements the statutory regulations will encroach upon the

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39

existing contracts executed between the parties having covenants

contrary to the provisions of Tariff Regulations; Such covenants to

.
the extent, they are contrary to the Tariff Regulations shall stand

.P
overridden in terms of the Regulations. The CERC specifically held

H
that PPA and PSAs executed between the petitioner & respondent

No.4, and between respondent No.4 & respondents No.5-10

of
respectively in respect of free power supply to the home State are

inconsistent with Tariff Regulations 2019-24 and shall stand

rt
overridden by the Tariff Regulations on the issue of supply of free
ou
power.

The order passed by the CERC has direct bearing on

C

supply of free power by the petitioner to the State. The State, a

respondent before CERC had not contested the case. Free power to
h

State was held therein capped at 13% maximum. This capping was
ig

not just for determining the tariff but is relevant for every other
H

incidental & connected purpose as well. The PPA & PSAs having

the same provisions on free power supply as are there in IA & SIAs,

have been ordered by the CERC to be overridden/aligned on the

aspect of supply of free power with Tariff Regulations 2019-24. The

respondent-State has accepted the CERC order dated 17.03.2022.

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40

The petitioner is well within its right to claim aligning of the

agreement executed by it with the State on the issue of supply of free

.
power on the basis of CERC order, which in turn had made the

.P
CERC Tariff Regulations 2019-2024 as the foundation for holding

H
that free power supply to State is capped at 13% maximum and

therefore contrary provisions in the PPA & PSAs shall stand

of
overridden by/required to be aligned with the Tariff Regulations

2019. It is a fact that PPA & PSAs have provisions of free power
rt
supply as are there in the Implementation Agreement. The CERC has
ou
already ordered that provisions of free power supply in PPA & PSAs

shall stand overridden by Tariff Regulations 2019. That being so,

C

there cannot be any mismatch in supply of free electricity and sale &

purchase of remaining electricity. The consequence of State’s

h

acceptance of CERC order is that provisions of free power supply

ig

existing in Implementation Agreement executed by it with the

H

petitioner, are required to be aligned with CERC Tariff Regulations

2019.

4(vii) The CERC Tariff Regulations 2019-2024 undoubtedly

cap supply of free power at 13% maximum. The CERC has already

held that Tariff Regulations 2019-2024 have binding force and will

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41

make inroads in the agreements executed between the parties. It has

also been held that contrary provisions in the PPA & PSAs on supply

.
of free power shall stand overridden by the Regulations. The order

.P
has not been assailed any further. Next contention of the State is that

H
Tariff Regulations 2019-2024 will not make inroads in existing

contracts on the issue of free power. Strong reliance in support of this

of
argument has been placed upon (Haryana Power Purchase Centre

vs. Sasan Power Limited & Ors.)5.

rt
4(vii)(a) Before adverting to Sasan Power’s case5, it will be in
ou
order to first refer to PTC India Ltd. Vs. Central Electricity

Regulatory Commission,6. It was a case where the CERC had issued

C

CERC (Fixation of Trading Margin) Regulations 2006 whereunder

ceiling of trading margin for inter-state trading of electricity was

h

fixed. The validity of these regulations were challenged inter alia

ig

on the ground that CERC could cap trading margin by issuing an

H

order under Section 79(1) (j) of the Electricity Act, 2003, but not by

issuing Regulations under Section 178. The appellate-Tribunal

rejected the appeal on the ground that it did not have jurisdiction to

examine the validity of the regulations. Against this decision, appeal

5
2024(1) SCC 247
6
(2010) 4 SCC 603

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42

was preferred before the Hon’ble Apex Court. Dismissing the appeal,

the Apex Court held that:-

.
“In the hierarchy of regulatory powers and functions”

.P
under the Act, Section 178 deals with making of regulations by the

H
CERC under authority of subordinate legislation. This power is

wider than Section 79(1) of the Act. There was reason as to why the

of
regulations had been made in the matter of capping margin under

Section 178 of the Act. Instead of fixing trading margin including

rt
capping on case to case basis, the CERC thought it fit to make
ou
regulations on general application to the entire trading activity,

which had been recognized for the first time under the Act. Making
C

regulations under Section 178 became necessary because such

regulations have the affect of interfering and overriding existing

h

contractual relationships between regulated entities. Regulations

ig

under Section 178 are in the nature of subordinate legislation. Such

H

subordinate legislation can even override existing contracts including

power purchase agreements, which have got to be aligned with

regulations under Section 178 and which could not have been done

across the board by an order of CERC under Section 79(1)(j). A

regulation under Section 178 as part of regulatory frame work

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43

intervenes and overrides existing contracts inasmuch as it casts a

statutory obligation on regulated entities to align their existing &

.
future contracts with the said regulation applying the principle of

.P
‘generality versus enumeration’. It was also held that CERC is a

H
decision as well as regulation making authority simultaneously.

Section 79 delineates functions of CERC broadly into two

of
categories- mandatory functions and advisory functions. Tariff

Regulations, licensing including

rt inter-state trading licensing,

adjudication upon disputes involving generating companies or

ou
transmission licensees fall under the head ‘mandatory functions’,

whereas advising Central Government on formulation of National

C

Electricity Policy and Tariff Policy would fall under the head

‘advisory functions’. In this sense, the CERC is a decision making

h

authority. Such decision making under Section 79(1) is not

ig

dependent upon making of regulations by the CERC under Section

H

178. The functions of CERC enumerated in Section 79 are separate

and distinct from the functions of CERC under Section 178.

Functions under Section 79 are administrative/adjudicatory, whereas

those under Section 178 are legislative. Making of a regulation under

Section 178 is not a pre-condition to passing of an order under

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44

Section 79, however, if there is a regulation under Section 178 on a

particular subject then the order on that subject under Section 79 has

.
to be in consonance with such regulation. Under the Act, applying

.P
the test of general application, a regulation stands on a higher

H
pedestal vis-a-vis an order (decision) of CERC, since the order has to

be in-conformity with the regulation, however, this does not mean

of
that a regulation is a pre-condition to the passing of order (decision).

Relevant paragraphs from the judgment are extracted hereinafter :-

rt
“53. Applying the abovementioned tests to the scheme of 2003 Act, we
find that under the Act, the Central Commission is a decision-making
ou
as well as regulation-making authority, simultaneously. Section
79 delineates the functions of the Central Commission broadly into two
categories - mandatory functions and advisory functions. Tariff
C

regulation, licensing (including inter-State trading licensing),

adjudication upon disputes involving generating companies or
transmission licensees fall under the head "mandatory functions"
h

whereas advising Central Government on formulation of National

ig

Electricity Policy and tariff policy would fall under the head "advisory
functions". In this sense, the Central Commission is the decision-
making authority. Such decision-making under Section 79(1) is not
H

dependant upon making of regulations under Section 178 by the

Central Commission. Therefore, functions of Central Commission
enumerated in Section 79 are separate and distinct from function of
Central Commission under Section 178. The former is
administrative/adjudicatory function whereas the latter are legislative.
54. As stated above, the 2003 Act has been enacted in furtherance
of the policy envisaged under the Electricity Regulatory Commissions
Act, 1998 as it mandates establishment of an independent and
transparent Regulatory Commission entrusted with wide ranging

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responsibilities and objectives inter alia including protection of the

consumers of electricity. Accordingly, the Central Commission is set up
under Section 76(1) to exercise the powers conferred on, and in

.
discharge of the functions assigned to, it under the Act. On reading

.P
Sections 76(1) and 79(1) one finds that Central Commission
is empowered to take measures/steps in discharge of the functions
enumerated in Section 79(1) like to regulate the tariff of generating

H
companies, to regulate the inter-State transmission of electricity, to
determine tariff for inter-State transmission of electricity, to issue
licenses, to adjudicate upon disputes, to levy fees, to specify the Grid

of
Code, to fix the trading margin in inter-State trading of electricity, if
considered necessary, etc.. These measures, which the Central
Commission is empowered to take, have got to be in conformity with
rt
the regulations under Section 178, wherever such regulations are
applicable. Measures under Section 79(1), therefore, have got to be in
ou
conformity with the regulations under Section 178.
55. To regulate is an exercise which is different from making of the
regulations. However, making of a regulation under Section 178 is not
a pre-condition to the Central Commission taking any steps/measures
C

under Section 79(1). As stated, if there is a regulation, then the

measure under Section 79(1) has to be in conformity with such
h

regulation under Section 178. This principle flows from various

judgments of this Court which we have discussed hereinafter. For
ig

example, under Section 79(1)(g) the Central Commission is required to

levy fees for the purpose of the 2003 Act. An Order imposing
regulatory fees could be passed even in the absence of a regulation
H

under Section 178. If the levy is unreasonable, it could be the subject

matter of challenge before the Appellate Authority under Section 111
as the levy is imposed by an Order/decision making process. Making of
a regulation under Section 178 is not a pre-condition to passing of an
Order levying a regulatory fee under Section 79(1)(g). However, if
there is a regulation under Section 178 in that regard then the Order
levying fees under Section 79(1)(g) has to be in consonance with such
regulation.

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46

56. Similarly, while exercising the power to frame the terms and
conditions for determination of tariff under Section 178, the
Commission has to be guided by the factors specified in Section 61. It

.
is open to the Central Commission to specify terms and conditions for

.P
determination of tariff even in the absence of the regulations under
Section 178. However, if a regulation is made under Section 178, then,
in that event, framing of terms and conditions for determination of

H
tariff under Section 61 has to be in consonance with the regulation
under Section 178.

of
57. One must keep in mind the dichotomy between the power to
make a regulation under Section 178 on one hand and the various
enumerated areas in Section 79(1) in which the Central Commission is
mandated to take such measures as it deems fit to fulfil the objects of
rt
the 2003 Act. Applying this test to the present controversy, it becomes
clear that one such area enumerated in Section 79(1) refers to fixation
ou
of trading margin. Making of a regulation in that regard is not a
pre- condition to the Central Commission exercising its powers to fix a
trading margin under Section 79(1)(j), however, if the Central
C

Commission in an appropriate case, as is the case herein, makes a

regulation fixing a cap on the trading margin under Section 178 then
whatever measures a Central Commission takes under Section 79(1)(j)
h

has to be in conformity with Section 178.

ig

58. One must understand the reason why a regulation has

been made in the matter of capping the trading margin under Section
H

178 of the Act. Instead of fixing a trading margin (including capping)

on a case to case basis, the Central Commission thought it fit to make
a regulation which has a general application to the entire trading
activity which has been recognized, for the first time, under the 2003
Act. Further, it is important to bear in mind that making of a regulation
under Section 178 became necessary because a regulation made under
Section 178 has the effect of interfering and overriding the existing
contractual relationship between the regulated entities. A regulation
under Section 178 is in the nature of a subordinate Legislation. Such

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47

subordinate Legislation can even override the existing contracts

including Power Purchase Agreements which have got to be aligned
with the regulations under Section 178 and which could not have been

.
done across the board by an Order of the Central Commission under

.P
Section 79(1)(j).

59. To elucidate, we may refer to the Central Electricity

H
Regulatory Commission (Terms and Conditions of Tariff) Regulations,
2004. The said Regulations have been made under Section 178 of the
2003 Act. Regulation 15 deals with various components of tariff. It

of
includes Advance Against Depreciation ("AAD" for short). Regulations
21(1)(ii) and 38(ii) deal with computation of depreciation including
AAD.
rt
60. Recently, this concept of AAD came for consideration
ou
before this Court in the case of National Hydroelectric Power
Corporation Ltd. v. CIT reported in 2010 (1) SCALE 5. AAD was
suggested by the Central Commission as part of the tariff in order to
overcome the cash flow problems faced by Central Power Sector
C

Utilities for meeting loan repayment obligations. The important point

to be noted is that although under Section 61 of the 2003 Act the
Central Commission is empowered to specify AAD as a condition for
h

determination of the tariff, the Central Commission in its wisdom

ig

thought it fit to bring in the concept of AAD by enacting a regulation

under Section 178 giving the benefit of AAD across the board to all
Central Power Sector Utilities. In other words, instead of giving the
H

benefit of AAD on a case to case basis under Section 61, the Central
Commission decided to make a specific regulation giving benefit of
AAD across the board to all Central Power Sector Utilities.

61 to 91…………….

92.Summary of Our Findings:

(i) In the hierarchy of regulatory powers and functions under the
2003 Act, Section 178, which deals with making of regulations by the

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48

Central Commission, under the authority of subordinate legislation, is

wider than Section 79(1) of the 2003 Act, which enumerates the
regulatory functions of the Central Commission, in specified areas, to

.
be discharged by Orders (decisions).

.P
(ii) A regulation under Section 178, as a part of regulatory
framework, intervenes and even overrides the existing contracts
between the regulated entities inasmuch as it casts a statutory

H
obligation on the regulated entities to align their existing and future
contracts with the said regulations.
(iii) A regulation under Section 178 is made under the authority of

of
delegated legislation and consequently its validity can be tested only in
judicial review proceedings before the courts and not by way of appeal
before the Appellate Tribunal for Electricity under Section 111 of the
rt
said Act.
(iv) Section 121 of the 2003 Act does not confer power of judicial
ou
review on the Appellate Tribunal. The words "orders", "instructions"
or "directions" in Section 121 do not confer power of judicial review in
the Appellate Tribunal for Electricity. In this judgment, we do not wish
to analyse the English authorities as we find from those authorities
C

that in certain cases in England the power of judicial review

is expressly conferred on the Tribunals constituted under the Act.In the
h

present 2003 Act, the power of judicial review of the validity of the
Regulations made under Section 178 is not conferred on the Appellate
ig

Tribunal for Electricity.

(v) If a dispute arises in adjudication on interpretation of a
regulation made under Section 178, an appeal would certainly lie
H

before the Appellate Tribunal under Section 111, however, no appeal to

the Appellate Tribunal shall lie on the validity of a regulation made
under Section 178.
(vi) Applying the principle of "generality versus enumeration", it
would be open to the Central Commission to make a regulation on any
residuary item under Section 178(1) read with Section 178(2)(ze).
Accordingly, we hold that the CERC was empowered to cap the trading

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49

margin under the authority of delegated legislation under Section 178

vide the impugned notification dated 23.1.2006.
(vii) Section 121, as amended by Electricity (Amendment) Act 57 of

.
2003, came into force with effect from 27.1.2004. Consequently, there

.P
is no merit in the contention advanced that the said section is not yet
been brought into force.”

H
4(vii)(b) State’s contention that Tariff Regulations 2019-24,

wherein free power supply is capped at 13% maximum for the

of
period 2019-2024, cannot override existing contracts, has no force in

view of the decision in PTC India Limited’s case6.

rt
The reliance placed by the State on Sasan’s case5 in
ou
misplaced. In that case the PPA contemplated a situation, where if

seller was affected by the change in law, it could claim for such
C

change. Change of law was sought to be projected by respondent

No.1 (therein) under a notification issued by the Joint Secretary

h

Ministry of Power (respondent No.2 therein).

ig

The Hon’ble Apex Court considered the law laid down

H

in PTC India’s Limited6 and observed that the said judgment was not

applicable to the facts of the case under consideration. It was held

that power of CERC to frame regulation indicates that it has

legislative functions but no such regulations or legislative functions

were involved in that case. The case involved purely adjudicatory

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50

function of the CERC. The Court said that in exercise of

adjudicatory functions in a case where the CERC was governed by

.
express terms of contract, it may not be open to the commission even

.P
donning the role of regulatory body to go beyond the express terms

H
of contract. The word “regulatory body” used for CERC was in

relation to its power to regulate under Section 79 of the Act in

of
contrast to its separate power to frame regulations under Section 179

of the Act. The Court emphasized that a party can be extricated from
rt
its contractual obligations by regulations but in the course of
ou
adjudicatory power, it was not open for CERC to disregard the terms

of the contract. Relevant paragraphs from the judgments read as

C

under:-

“94 Reliance was placed on the judgment of this Court PTC India
h

Limited v. Central Electricity Regulatory Commission (2010) 4 SCC

603. In PTC, the actual question which arose was as to whether the
ig

appellate Tribunal under the Act has jurisdiction under Section 111 to
examine the validity of regulations framed in exercise of power
H

under Section 178 of the Act. The further question which arose was
whether Parliament has conferred power of judicial review on the
Tribunal under Section 121 of the Act. In the course of this judgment,
the Court inter alia held as follows:
“53.-----------------------------------

95. We are unable to see how the said judgment can advance the
case of the first respondent. The question which fell for consideration
and the opinion which has been rendered do not in any way detract

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from the view which we have taken. Substantially, it was held that the
making of regulation was not a pre condition for levying a regulatory
fee under Section 79(1)(g). It is no doubt true that Commission has an

.
adjudicatory function. It is also empowered to give opinions. Power to

.P
frame regulations indicates that it also has legislative powers. The
point is that since in this case we are concerned with the adjudicatory
function of the Commission, we are concerned with the trammels to

H
which it is subject in the form of the express terms of the contract. All
that we are holding is that in a case where the matter is governed by
express terms of the contract, it may not be open to the Commission

of
even donning the garb of a regulatory body to go beyond the express
terms of the contract. It is apposite that we notice para 58 reads as
follows:
rt “58. ------------------
ou
96 While it may be open as indicated therein for a regulation to
extricate a party from its contractual obligations, in the course of its
adjudicatory power it may not be open to the Commission by using the
C

nomenclature regulation to usurp this power to disregard the terms of

the contract.”
h

Principle that statutory regulations will have supremacy

ig

over the contracts executed between the regulated entities, was

reiterated in Sason’s case5 as well. Facts in Sason’s case5, however,

H

differed from the facts in PTC India Ltd’s case6. Statutory regulations

under Section 178 of the Act were not involved in Sason’s case5.

Only adjudicating functions discharged by the CERC under Section

79 were under consideration. In that background, it was held that in

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52

exercise of adjudication functions, contractual liabilities cannot be

ignored.

.
Sason’s case5 has no applicability to the facts of instant

.P
case, where the CERC has framed Tariff Regulations 2019-24 in

H
exercise of its legislative power under Section 178 of the Act. The

Tariff Regulations 2019-2024 will certainly make their way into the

of
contracts executed between the parties. The provisions in the

contracts covered by the Regulations on the subject in question will

rt
have to be aligned with the provisions in the Regulations.
ou
5. Conclusions

5A. In view of above discussion, following conclusions are

C

drawn on facts & law:-

h

i) Under the Implementation Agreement dated 18.11.1999

ig

& subsequent Supplementary Implementation Agreements executed

between the petitioner & respondent No.1-the State, petitioner has

H

agreed to supply 12% free power to the State for 12 years from the

Commercial Operation Date (13.9.2011) and 18% for next 28 years,

project life being 40 years.

ii) Based upon terms of ‘free power’ in the Implementation

Agreement, the Power Purchase Agreement (PPA) executed between

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53

the petitioner & respondent No.4 as also the Power Sale Agreements

(PSAs) executed between respondent No.4 & distribution licensees

.
of States of Punjab, Haryana, Uttar Pradesh & Rajasthan

.P
(respondents No.5-10) have engrafted same covenants about power

H
to be supplied by the petitioner including free supply of power as are

there in the Implementation Agreement entered into between the

of
petitioner & the State.

iii) Petitioner has already supplied 12% free power to the

rt
State from the COD for 12 years in terms of the agreement. Quantum
ou
of this free power was within the ambit of the extent of free power

mentioned in different Tariff Regulations applicable at the time.

C

iv) The Electricity Act came into force on 10.06.2003.

Under the Act, the Central Electricity Regulatory Commission

h

(CERC) is the Appropriate Commission in case of petitioner’s

ig

project.
H

v) The CERC has jurisdiction under the Act to perform

adjudicatory/administrative/advisory functions under Section 79 of

the Act. Its function to regulate tariff & other matters specified in

Section 79 is different from its power to frame regulations under

Section 178 of the Act. The latter is legislative power of the CERC.

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54

Framing of regulations under Section 178 is a generative legislative

function as compared to specific action of passing orders in

.
individuals cases. The regulations framed by the CERC are in

.P
exercise of subordinate legislative power conferred upon it under

H
Section 178 of the Act. The CERC Regulations framed under

Section 178 of the Act will override the existing and future contracts

of
on the subject covered by the regulations.

vi) The Tariff Regulations are being framed by the CERC

rt
from time to time, inter-alia defining the concept & extent of power
ou
that can be supplied free of cost by the generating company and

which is to be factored while determining the tariff of the project.

C

Under the CERC Tariff Regulations 2004 (covering the period 2004-

2009), the quantum of saleable energy was after allowing 12% free
h

energy to the home State. Under the CERC Regulations 2009

ig

(applicable during 2009-2014), the free energy for home State was
H

taken as 12%. Under CERC Tariff Regulations 2014 (for period

2014-2019), the free energy for home State was 13% or actual

whichever was less. Under the CERC Tariff Regulations 2019

(covering the period 2019-2024), which are involved in the instant

case, the free energy for the home State is 13% or actual which is

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55

less. The CERC Tariff Regulations 2019-2024 will certainly override

the covenants in the Implementation Agreement dated 18.11.1999 &

.
the Supplementary Implementation Agreements executed between

.P
the petitioner & the State whereunder petitioner is to supply 18%

H
free power to the State w.e.f. 13.09.2023, at least till 31.03.2024 i.e.

till the duration of applicability of CERC Tariff Regulations 2019-

of
2024. The provision of free power in CERC Tariff Regulations 2019-

24 will have supremacy over the contrary covenants agreed inter-se

rt
between parties.
ou
vii) The Electricity Act is an exhaustive code on all matters

concerning electricity. Supply & sale of generated power has to be as

C

per the Electricity Act. Tariff for the power generated and sold is also

governed by the Electricity Act. It is not the case of the State that
h

before coming into force of 2003 Act, there was any restriction on
ig

quantum of free power to be considered for determining tariff or in

H

other words at the time of execution of the IA on 18.11.1999, there

was no restriction that only 12% free power could be considered for

determining tariff and free power supplied over & above 12% was

not to be accounted for, in tariff determination. This change in law-

for determining tariff was brought about by Tariff Regulations

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notified under the Act that came in force from 10.06.2003. Petitioner

was affected by Tariff Regulations 2019-24, as per which free energy

.
to home State was capped @13% maximum though under the IA

.P
petitioner is to supply 18% free energy. Tariff Regulations are not

H
under challenge. The CERC in its order dated 17.03.2022 has

declined to take into account the free energy supplied over & above

of
13% by the petitioner towards its tariff determination for the reason

that it found provisions in the agreements executed between the

rt
parties on supply of free power inconsistent with tariff regulations
ou
and therefore ordered that PPA (executed between petitioner &

respondent No.4) and PSAs (executed between respondent No.4 &

C

respondents No.5-10) on subject of free power supply shall stand

overridden by Tariff Regulations 2019. These agreements have same

h

provisions on quantum of free power supply as are there in the IA. In

ig

a composite scheme for generation & sale of electricity in more than

H

one State, which is regulated by CERC, a mismatch in free power

cannot exist.

Tariff Regulations do not say that free energy for home

State shall be taken as 13% maximum only for purpose of

determining tariff. In its order dated 30.03.2017, the CERC did not

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57

hold that free energy was limited to 13% only for purpose of

determining tariff rather it was held that ‘free energy to home State is

.
limited to 13% or actual whichever is less.’ This interpretation was

.P
given to the free energy clause existing in Tariff Regulations 2014-

H
19, which is almost pari-materia to the free power provisions existing

in Tariff Regulations 2019-24. The CERC order dated 30.03.2017

of
did not adjudicate the issue finally as petitioner’s liability to supply

18% free energy had not commenced by that time during the
rt
applicability of Tariff Regulations 2014-19. It was to start w.e.f.
ou
13.09.2023. In its order dated 30.03.2017, besides observing that free

energy to home State was limited to 13% or actual whichever was

C

less, the CERC also observed that the respondents in the respective

PPA & PSAs, had agreed to enhance free power to home State after
h

12 years.
ig

The CERC in its order dated 17.03.2023 took

H

cognizance of provisions of IA executed between petitioner & the

State regarding supply of 12% free power for 12 years from COD &

18% for 28 years thereafter and also the corresponding provisions of

PPA and PSAs. The CERC again held that free energy for home State

is to be taken as 13%. Not just for tariff but the PPA & the PSAs

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58

were ordered to be overridden by Tariff Regulations. As a corollary,

the IA has become unworkable. Its provisions therefore are required

.
to be aligned with the provisions of Tariff Regulations 2019 on

.P
subject of free power.

H
viii) The CERC in its order dated 17.03.2022 passed in the

petition moved by the petitioner seeking determination of its tariff

of
for the year 2019-2024, has already held that free energy to home

State cannot be factored more than 13% in the Tariff for the period
rt
2019-24. This was in view of statutory Tariff Regulations 2019-2024.
ou
The extent of energy to be supplied free of cost, as mentioned in the

CERC Tariff Regulations 2019, is relevant not just for determining

C

the Tariff but also on broad overview of free power that can be

supplied by the petitioner to the home State. Apart from contending

h

that free energy supply is governed by the terms and conditions of

ig

the agreements executed between the parties, learned Advocate

H

General has not pointed out any single reason as to why the

maximum extent of free energy supply spelt out in the Tariff

Regulations 2019 will not make legal inroads into the agreements

more so in a situation where the parties (respondents No.4-10) have

already accepted aligning of their PPA & PSAs on aspect of free

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power supply with those of Tariff Regulations 2019 in terms of

CERC order dated 17.03.2022.

.
.P
ix) In view of the CERC Tariff Regulations 2019; the order

passed by the CERC on 17.03.2022; the consequence of CERC order

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dated 17.03.2022; acceptance of this order by all the parties before

the CERC including the State and the judicial precedents on the

of
subject, the petitioner can seek to align the agreements previously

executed by it vis-a-vis the quantum of ‘free power’ to be supplied

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by it to the State with the CERC Tariff Regulations 2019. Petitioner’s
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prayer has merits. The CERC in its order dated 17.03.2022 has

already held that provisions existing in the PPA and PSAs relating to
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petitioner’s project on supply of 18% free supply of power are

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contrary to the CERC Tariff Regulations 2019 and that Tariff

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Regulations 2019 will override contrary provisions existing in the

agreements executed on the subject of free power. It has held that the
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PPA and the PSAs executed in reference to petitioner’s power shall

stand overridden with the Tariff Regulations 2019. The State has also

accepted the verdict. The order has become final. There is no reason

as to why the Implementation Agreement dated 18.11.1999 &

subsequent SIAs executed by the petitioner with the State be not

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60

aligned on the quantum of free power with the provisions stipulated

in the CERC Tariff Regulations 2019-2024.

.
x) In view of nature of dispute raised in this petition,

.P
existence of arbitration clause in the Implementation Agreement will

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not debar petitioner’s invoking jurisdiction under Article 226 of the

Constitution of India.

of
5(B) The Result:

i) The writ petition is allowed. Respondents No.1 to 3 are

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directed to align the provisions of the Implementation Agreement
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dated 18.11.1999 & subsequent Supplementary Implementation

Agreements executed by them with the petitioner in respect of

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quantum of free power to be supplied by the petitioner from KW-

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HEP, with the provisions on supply of free power in the CERC

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(Terms and Conditions of Tariff) Regulations 2019 for the period in

question till Tariff Regulations 2019 remain in force.

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ii) In view of above, the power, if any, supplied to the

home State by the petitioner over & above the maximum ceiling

limit put in place under the CERC Tariff Regulations 2019 for the

period in question, shall be adjusted accordingly.

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61

The instant writ petition is disposed of as above.

Pending miscellaneous applications, if any, shall also stand disposed

.
of.

.P
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( M.S. Ramachandra Rao )
Chief Justice

of
(Jyotsna Rewal Dua)
Judge
May 28, 2024
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