Electricity Act | SEZ Developer Not Ipso Facto A ‘Deemed Distribution Licensee’, Must Apply for Recognition and Be Scrutinized: Supreme Court
Case title: SUNDEW PROPERTIES LIMITED VS TELANGANA STATE ELECTRICITY REGULATORY COMMISSION & ANR.
Case no.: CIVIL APPEAL NO. 8978/2019
Dated on: 17TH May 2024
Quorum: Hon’ble Mr. Justice DIPANKAR DATTA And Hon’ble Mr. Justice SANJIV KHANNA.
FACTS OF THE CASE
This is a statutory appeal before us under section 125 of the Indian Electricity Act, 2003. It registers a challenge to the judgment and order dated 27th September, 2019 passed by the Appellate Tribunal for Electricity dismissing an appeal carried under section 111 of the Electricity Act by the appellant from the judgment and order dated 15th February, 2016 passed by the Telangana State Electricity Regulatory Commission. Consequently, the impugned judgment and order of the TSERC was upheld. The appellant was notified by the Ministry of Commerce & Industry (Department of Commerce), Government of India4 as a ‘Developer’, in terms of sections 3 and 4 of the Special Economic Zones Act, 2005, to establish a sector-specific Special Economic Zone unit for Information Technology/Information Technology Enabled Services sector in Madhapur, Ranga Reddy District, Hyderabad, in the former State of Andhra Pradesh. MoCI, vide a Notification bearing No.SO 528(E) dated 3rd March, 2010 introduced a proviso to section 14(b) of the Electricity Act. The proviso accords upon the developer of a SEZ, the status of a deemed distribution licensee under the provisions of the Electricity Act. Pursuant to the 2010 Notification, the appellant filed an application before the erstwhile Andhra Pradesh Electricity Regulatory Commission seeking identification as a deemed distribution licensee, in terms of the proviso to section 14(b) of the Electricity Act read with regulation 13 and Schedule-2 of the Andhra Pradesh Electricity Regulatory Commission (Distribution License) Regulations, 2013 and section 49 of the SEZ Act. Upon the Andhra Pradesh Reorganization Act, 2014 coming into force, the application was transferred to the TSERC. By its aforesaid judgment and order dated 15th February, 2016, the TSERC identified and accorded the status of a deemed licensee to the appellant. However, this grant of status was made conditional upon the appellant satisfying the requirements stipulated in rule 3 of the Distribution of Electricity License (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005, compliance whereof was mandatory per regulation 12 [which stipulates that an applicant for grant of distribution license shall, in addition to regulations 4 to 11, comply with the 2005 Rules] read with regulation 49 of the 2013 Regulations [which stipulates that all the general conditions applicable to a distribution licensee are also equally applicable to a deemed licensee]. The appellant was, therefore, directed to infuse an additional capital of Rs. 26.90 crore as equity share capital, contributed by its promoters, into its power distribution business via account payee cheques by 31st March, 2016.
CONTENTIONS OF THE APPELLANT
Singh, Counsel for the appellant submitted that the TSERC and the APTEL erred in failing to recognize that under section 14(b) of the Electricity Act, a developer of an SEZ is ipso facto and unconditionally deemed to be a distribution licensee, thus eliminating the need for a separate licence application. Recognition of the status of a deemed distribution licensee is a ministerial act, effected automatically upon fulfilment of conditions laid down in the SEZ Act, independent of rule 3(2) of the 2005 Rules read with regulation 12 of the 2013 Regulations. Under the 2013 Regulations, there are two types of licensees: first, those who apply for a distribution license under regulations 2(d) and 12, and secondly, those already deemed licensees, seeking recognition of their status as such, under regulations 2(h) and 13. The appellant belongs to the latter category. Regulation 12 of the 2013 Regulations applies to general applicants seeking a distribution license, mandating compliance with both the 2005 Rules and the procedures prescribed in regulations 4 to 11. It cannot apply to a deemed licensee under regulation 13. The TSERC’s finding, as approved by the APTEL, that the 2005 Rules are in-built into the 2013 Regulations and therefore have to be satisfied by the appellant because of implied application of regulation 12 to deemed licensees, is contrary to the provisions of the Electricity Act and the very scheme of the 2013 Regulations. APTEL erred by agreeing with the TSERC’s reasoning that the requirement to infuse Rs. 26.90 crore in equity was imposed on the appellant under section 16 of the Electricity Act, despite recognizing the appellant as a deemed distribution licensee. Resting on the aforesaid submissions, learned senior counsel urged this Court to allow the appeal and set-aside the orders of the TSERC and the APTEL to the extent requiring the appellant to comply with the conditions stipulated in rule 3 of the 2005 Rules and infuse additional capital to gain the status of a deemed licensee.
CONTENTIONS OF THE RESPONDENTS
Vaidyanathan, counsel for the respondent submitted that no doubt, the appellant, a SEZ developer, may be granted the status of a deemed licensee; however, the 2005 Rules and the 2013 Regulations will be applicable to the appellant. The appellant cannot be deemed to be a distribution licensee on its own without making an application under regulation. There is a necessity to harmoniously interpret the SEZ Act and the Electricity Act to uphold the provisions of both enactments. The appellant cannot argue that the 2005 Rules and the 2013 Regulations do not apply to it, being a SEZ developer. No doubt, the appellant, a SEZ developer, may be granted the status of a deemed licensee; however, the 2005 Rules and the 2013 Regulations will be applicable to the appellant as per the law laid down by this Court in Sesa Sterlite Limited. v. Orissa Electricity Regulatory Commission and others. The appellant cannot be deemed to be a distribution licensee on its own without making an application under regulation 13. There is a necessity to harmoniously interpret the SEZ Act and the Electricity Act to uphold the provisions of both enactments. The appellant cannot argue that the 2005 Rules and the 2013 Regulations do not apply to it, being a SEZ developer. TSERC is empowered to impose general and specific conditions at its discretion. The purpose of requiring the appellant to infuse an additional capital under the 2005 Rules was to assess the credit-worthiness of the appellant as it had accumulated losses at the end of the financial year 2013-2014 and more than 50% of its net-worth has been wiped-out, a fact which is reflected from the Statutory Auditor’s report. No case for interference having been set up by the appellant, learned counsel for respondents prayed for dismissal of the appeal.
ISSUES
- Whether the designation of an entity as a SEZ developer by the MoCI ipso facto qualifies the entity to be a deemed distribution licensee, obviating the need for an application under section 14 of the Electricity Act?
- Whether regulation 12 of the 2013 Regulations, and by implication rule 3(2) of the 2005 Rules, are applicable to a SEZ developer recognised as a deemed distribution licensee under the proviso to section 14(b) of the Electricity Act read with regulation 13 of the 2013 Regulations?
LEGAL PROVISIONS
- Indian Electricity Act, 2003
Section 14(b): Pertains to the grant of distribution licenses and includes a proviso for Special Economic Zone (SEZ) developers to be deemed distribution licensees.
Section 16: Allows the Regulatory Commission to impose conditions on the grant of licenses.
Section 49: Deals with the supply of electricity by the distribution licensee to a consumer.
- Special Economic Zones Act, 2005
Sections 3 and 4: Define the establishment of SEZs and the roles of developers.
- Andhra Pradesh Electricity Regulatory Commission (Distribution Licence) Regulations, 2013
Regulation 2(d): Defines an “applicant” for a distribution license.
Regulation 2(h): Defines a “deemed licensee.”
Regulation 12: Stipulates that an applicant for a distribution license must comply with the 2005 Rules and regulations 4 to 11.
Regulation 13: Pertains to deemed licensees seeking recognition of their status.
Regulation 49: States that general conditions applicable to a distribution licensee are also applicable to a deemed licensee.
- Distribution of Electricity Licence (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005
Rule 3: Specifies the additional requirements of capital adequacy and creditworthiness for applicants seeking a distribution license.
COURT’S ANALYSIS AND JUDGEMENT
In view of the existing facts, we are inclined to the view that the very purpose of the deeming fiction in the proviso to section 14(b) of the Electricity Act is to confer upon an entity like the appellant a status which is otherwise available in accordance with the Electricity Act. In other words, as an effect of the 2010 Notification inserting the proviso to section 14(b), the appellant is entitled to the privilege of being acknowledged as a (deemed) distribution licensee under the Electricity Act for supply of power within its SEZ area. Once the appellant is a (deemed) distribution licensee, certain benefits and/or privileges do ensure in its favour. This Court interpreted the expression ‘open access’ and the rationale behind CSS and additional surcharge to observe that the former was payable by a distribution licensee and the latter was to meet the fixed cost of the distribution licensee of the area. The provision of open access, it is observed, balances the right of the consumers to purchase from a source of their choice. The rationale and the ratio of the decision, therefore, is that a deemed distribution licensee is treated at par and not different from a distribution licensee. Accordingly, if CSS is payable by a distribution licensee, the deemed distribution licensee is equally liable to pay the same. The status of a SEZ developer as a deemed licensee emanates from the 2010 Notification, which introduced the proviso to section 14(b), conferring deemed licensee status to SEZ developers. Reading anything beyond this would defeat the very purpose of the proviso and the concept of the deemed licence. The sixth proviso does not pertain to deemed licensees and, therefore, the 2005 Rules are not applicable to the appellant. Reading down and reading up are two principles often discussed in legal contexts, particularly in the realm of statutory interpretation. Reading down, which has been firmly ingrained in our jurisprudence, refers to the practice of interpreting a statute narrowly, limiting its scope or application to specific situations or individuals. This approach is commonly employed when the language of a statute is ambiguous or when there is a need to avoid potential conflicts with other laws or constitutional provisions. Reading up is a concept that is invoked with great caution within our legal framework because it can lead to judicial activism or judicial overreach, where courts expand the reach of laws beyond what the legislature intended. In the present case, the TSERC, in paragraph 19, asserted that regulation 12 applies implicitly to a deemed licensee as well. We do not agree with this reasoning, mainly for two reasons. First, the primary legislation, the Electricity Act, through the proviso inserted in section 14(b), confers deemed licensee status upon SEZ developers without imposing any specific conditions. Secondly, the 2013 Regulations make a clear distinction between an applicant seeking a license [as defined under regulation 2(d)] and a deemed distribution licensee seeking recognition as such [as defined under regulation 2(h)].
The 2013 Regulations clearly delineate distinct categories of licensees. Regulation 12 pertains solely to regular distribution licensees as defined under regulation 2(h), not to deemed licensees. ‘Reading up’ regulation 12 so as to expand its ambit to include within it deemed licensees, especially when the Electricity Act does not stipulate any such inclusion, runs counter to the subsequently inserted proviso to clause (b) of section 14 of the Electricity Act—an exercise which is impermissible and which we cannot approve. Therefore, the recognition of the status of a deemed distribution licensee cannot hinge on compliance with rule 3(2) of the 2005 Rules read with regulation 12 of the 2013 Regulations. set aside to this extent. The order of the TSERC, which grants the status of a deemed licensee to the appellant, however, subject to the condition that its promoters infuse additional capital is accordingly modified to the extent of excluding such condition. The appeal is partly allowed in the aforesaid terms. No costs.
“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”
Judgement Reviewed by – HARIRAGHAVA JP
click here to read the judgement
