1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.4881 OF 2010

DAMODAR VALLEY CORPORATION ...APPELLANT(S)

VERSUS

CENTRAL ELECTRICITY REGULATORY

COMMISSION & OTHERS ...RESPONDENT(S)

JUDGMENT

K.M. JOSEPH, J.

1. By this appeal maintained under Section 125 of the

Electricity Act 2003 (hereinafter referred to as ‘the Act

of 2003), the appellant seeks to challenge the order passed

by the Appellate Tribunal dismissing the appeal filed by

the appellant against the orde r of the Central Electricity

Regulatory Commission (hereinafter referred to as ‘the

Commission’).

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BACKGROUND FACTS

2. The appellant is a statutory body constituted

under the Damodar Valley Corporation Act, 1948 (hereinafter

referred to as ‘the DVC Act ’). It was entrusted with

multifarious functions. One of the functions it was

entrusted was that it was duty bound to carry out

generation, transmission and distribution of electrical

energy both hydro electrical and thermal. It w as also called

upon to, operate schemes for irrigation, water supply and

drainage besides flood control in the Damodar river and its

tributaries. Acting under Section 20 of the DVC Act , the

appellant was fixing the tariff for the electricity which

it was generating and transmitting to its consumers. With

the enactment of the Electricity Act in 2003, a suo motu

proceeding was taken by the Comm ission with respect to the

determination of the tariff of the appellant . Pursuant to

the order dated 29.3.2005, the appellant filed Petition No.

66/2005 seeking determination of its tariff for the period

from 2004 to 2009. By order dated 3.10.2006, the Commission

proceeded to determine the tariff. The Commission proceeded

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to take note of the multifarious function s with which the

appellant was entrusted. Its case that it was following a

cost plus policy for fixation of its tariff as also the

difficulties that would be posed by imposing the tariff

under the Act of 2003 with effect from 1.4.2004 was noticed.

It was ordered that the tariff fixed by the Commission would

apply from 2005-2006 and it was to operate from 1.4.2006.

The Commission had also appointed one-man Commission.

Besides the same it appreciated the scope of the Fourth

proviso to Section 14 of the DVC Act and found that the

provisions of the DVC Act which were not inconsistent with

the 2003 Act would continue to hold good even after the

enactment of the 2003 Act. Even if there was inconsistency

between the DVC Act and the regulation ma de under the 2003

Act, the DVC Act would continue to operate. After settling

the legal position , in this regard , the Commission

proceeded to decide upon the various contentions relating

to elements which were to constitute the tariff.

3. This order came to be challenged by the appellant

before the Appellate Tribunal for Electricity. There were

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also appeals filed by the consumers. By order dated

23.11.2007 the Appellate Tribunal allowed the appeal filed

by the appellant and ordered as follows:

“In view of the above the subject Appeal

No.273 of 2006 against the impugned order of

Central Commission passed on October 3, 2006

is allowed to the extent described in this

judgment and we remand the matter to Central

Commission for de novo consideration of the

tariff order dated October 3, 2006 in terms of

our findings and observations made hereinabove

and according to the law. Appeal No.271, 272

and 275 of 2006 and No.08 of 2007 are also

disposed of, accordingly.”

4. Pursuant to the said orde r of the Appellate

Tribunal remanding the matter back for consideration, a

revised tariff order came to be passed on 6.8.2009 by the

Commission. The order dated 6.8.2009 came to be impugned

by the appellant before the Appellate Tribunal and said

appeal came to be dismissed. It is said order by the

Appellate Tribunal which is challenged in the present

appeal. It may be noted at this juncture itself that the

first order of the Appellate Tribunal dated 23.11.2007 came

to be challenged before this Court by cert ain consumers of

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the appellant. Those appeals were taken up earlier and they

came to be dismissed by this Court and the said decision

is reported in the judgment of this Court in the case of

Bhaskar Shrachi Alloys Limited & Ors. Vs. Damodar Valley

Corporation & Ors 2018 (8) SCC 281. This Court agreed with

the Appellate Tribunal that the effect of the Fourth proviso

to Section 14 of the Act of 2003 was to countenance the

continued application of the certain provisions contained

in the DVC Act which w ere not inconsistent with the 2003

Act. This Court also took the view that having reg ard to

the fact that the appellant in addition to generation,

transmission and distribution of electricity is under the

Act obliged to undertake certain social security/

beneficial matters like flood control, control of soil

erosion, afforestation, navigation, promotion of public

health etc, the grant of the transitory period c ould not

be interfered with. It was reiterated that the provisions

of the DVC Act would also have a n overriding effect over

the inconsistent provisions of the tariff re gulations.

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CONTENTIONS IN THE PRESENT APPEAL

5. Mr. M.G. Ramachandran, learned counsel for the

appellant has narrowed down the sc ope of the appeal by

limiting his submissions to two in number. The first

complaint which is raised is that both the Commission and

the Appellate Tribunal have not given the benefit of Section

38 of the DVC Act to the appellant in the computation on

tariff. The second contention relates to the question of

treating cumulative depreciation as on 31.3.2006 as

repayment of loan and thereby reducing the notional loan

component in the capital cost after applying the debt equity

ratio. The substantial question of law apparently relating

to the same are as follows:-

“Whether the Appellate Tribunal has correctly

interpreted and applied the provisions of Section

38 of the DVC Act in regard to the claim of the

Appellant on interest on capital despite the same

had been considered and directed to be allowed in

the earlier Order dated 23.11.2007 passed in

Appeal No.273 of 2006?

Whether the decision of the Appellate

Tribunal in approving the Order of the

Central Commission equating cumulative

depreciation recovered as adjustment

towards loan repayment during the period

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till 31.3.2006 is not contrary to the

decision of this Hon’ble Court in the case

of Delhi Electricity Regulatory Commission

v. BYPL Limited, (2007) 3 SCC 33 and also

the decision of the Appellate Tribunal

itself in the case of judgment and orders

dated 16.3.2009 passed in Appeals No.

133/08, 135/08, 136/08 & 148/08 and order

dated 13.6.2007 passed in Appeals No.139 to

142 etc. of 2006?”

6. Section 38 of the DVC Act reads as follows:

“38. Payment of interest – The Corporation

shall pay interest on the amount of capital

provided by each participating Government at

such rate as may, from time to time, be fixed,

by the Central Governm ent and such interest

shall be deemed to be part of the expenditure

of the Corporation.”

7. It is the case of the appellant that this Court in

the judgment in Bhaskar Shrachi Alloys Limited & Ors. Vs.

Damodar Valley Corporation & Ors 2018 (8) SCC 281 has

approved of Section 38 being available to the appellant

despite passing of Act of 2003 and the regulation s.

Appellant is entitled to interest on the capital. It is the

case of the appellant that interest on capital under Section

38 is to be allowed to the appellant in addition to the other

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tariff elements including the interest on loan, return on

equity etc. permissible under the tariff re gulation.

Appellant would point out that interest on capital is not

to be mixed up with interest on loan including interest on

normative loan. Interest on capital , it is contended is a

distinct element from interest on loan or return on equity.

The contention of the respondent s that interest on capital

has also being considered by the Commission , is described

as patently wrong as it is pointed out that this aspect was

the subject matter of the appeal by the Central Commission

in the appeal leading to the decision of this Court and this

Court affirmed the availability of the element of interest

under Section 38. In the second order passed by the

Commission in pursuan ce to remand, it is contended th at

there is no reference to any interest on capital as

contemplated under Section 38 which has not been given and

the appellant must be held entitled to t he same.

8. Regarding the second contention namely , reducing

the cumulative depreciation from the notional loan, it is

the case of the appellant that what is serviced under the

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tariff is the interest on loan and not the repayment of loan.

The interest being computed on the outstanding during the

financial year when the loan gets repaid in a progressive

manner, the loan gets reduced and therefore the amount of

interest to be allowed in the tariff towards the loan is

lessened. Till the enactment of the Act of 2003 and the

transition period allowed till 1. 4.2006, the entire capital

cost has to be treated as equity alone. There cannot be a

loan and therefore th ere cannot be repayment of loan or

progressive reduction of loan reducing the outstanding loan

to be serviced through interest on loan among other things.

It is contended that these implications would be from

1.4.2006. Reference is made to Section 30 and 32 of the

DVC Act. It is contended that the entire capital of the DVC

was to be treated as equity. The capital cost as on

1.4.2006 should have been consi dered to be the total amount

of gross fixed asset. This cost was to be totally divided

to debt and equity for generating project at the rate of

50:50 established prior to 30.3.1992 and at the rate of

70:30 for generation project established after 30.03.1992.

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The Tribunal had gone wrong in holding that there was deemed

repayment of the above loan in the past years prior to

1.4.2006 on the basis of cumulative depreciation of the

assets in the past. The tariff regulation of 2004 for the

period 1.4.2004 to 31.3.2009 though relevant, does not

provide for any such adjustment of cumulative depreciation

towards repayment of loan. In this regard , appellant relies

on orders passed by the Appellate Tribunal in the case of

NTPC which took the view that cumulative depreciation

cannot be treated as deemed repayment of loan. Reference

is also placed on the judgment of this Court in the case

of Delhi Electricity Regulatory Commission Vs. BSES Yam una

Power Limited & Others 2007 (3) SCC 33 for the proposition

that depreciation is not repayment of loan and therefore ,

by the cumulative depreciation, the quantum of loan cannot

be reduced. Yet it is pointed out that the Commission has

applied the concept of cumulative depreciation as resulting

in deemed repayment for the period prior to 31.3.2006, which

is impermissible.

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CONTENTIONS OF THE RESPONDENTS

9. As far as the respondents are concerned, they would

support the order passed by t he Tribunal. In regard to the

complaint of the appellant that interest on capital under

Section 38 was not applied though this court also h eld that

Section 38 would continue to operate , it is contended that

as a matter of fact appellant has been given the benefit

of interest on capital. It is the case of the respondent

that what the appellant is seeking is the grant of a double

benefit. On the basis of debt equity ratio of 50:50, it is

pointed out that authorities have a lready calculated return

to the appellant by way of interest on the loan component

of 50% and also vouchsafed for the appellant return on

equity on the equity part. What the appellant is asking is

over and above the same further interest on the entire

capital on the basis of Section 38 which is impermissible.

10. As far as the point relating to non -availability

of cumulative depreciation for reduction of the loan, the

contention taken is that the appellant did not take this

contention in the first round of litigation in the appeal

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before the appellate Tribunal. 10 contentions were taken

before the Appellate Tribunal in the first round. In regard

to 5 contentions, the Appellate Tribunal agreed with the

complaint of the appellant and remanded the matter back for

de novo consideration in accordance with the observations

which were contained in the order. In regard to 5 other

issues, the matter was decided against the appellant. There

is no appeal carried further by the appellant. Therefore,

the first order of the Appellate Tribunal has become final,

particularly, after the dismissal of the appeal which was

carried out not by appellant but by the respondents which

is reported in the case of Bhaskar Shrachi Alloys Limited

& Ors. Vs. Damodar Valley Corporation & Ors. 2018 (8) SCC

281. They also have taken the contention that the orders

passed by the Appellate Tribunal in the case of NTPC does

not bear out the contentions of the appellant. It is their

further contention that even in the order dated 3.10.2006

which is the first order passed by the Commission, the

Commission had made use of the cumulative depreciation for

reducing the loan and consequently reducing the interest

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on loan. The appella nt had not complained against the

methodology employed by the Commission. Matters which have

become final cannot be allowed t o be reopened in the appeal

from the order passed pursuant to remand.

DISCUSSION AND FINDINGS

11. An appeal under Section 125 of t he Act of 2003 is

permitted only if there are substantial questions of law.

We may also bear in mind the view taken by this Court in

the order in earlier batch of appeals between the parties

reported in Bhaskar Shrachi Alloys L imited & Ors. Vs.

Damodar Valley Corporation & Ors. 2018 (8) SCC 281, namely,

“Having considered the matter in the conspectus of

aforesaid declaration of law we must proceed to examine the

complaint of the appellant, whether the approach of the

appellate Tribunal is fundamentally flawed and therefore

there is merit in the appellant’s case. ”

12. We have already referred to Section 38 of the DVC

Act. There can be no dispute that Section 38 of the DVC Act

will survive despite the enactment of the Act of 2003. In

other words, it cannot be in the region of dispute that

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appellant would be entitled to interest on capital under

Section 38, in the computation of the tariff which the

appellant is allowed to charge from its consumers . The

question, however, is whether the appellant has been

actually given the benefit of interest on capital under

Section 38 of the DVC Act.

In order to consider the question , it is necessary for

us to consider the orders which have been passed by the

Commission and also the Appellate Tribunal. The order

dated 3.10.2006 passed by the Commission which was the first

order passed by it referred to the recommendations of the

one Member Bench regarding the capital cost in a total sum

of Rs.3146.01 crores and decided to accept the sa me insofar

as generating assets were concerned. The Commission also

accepted the 70:30 debt equity ratio which was recommended

by the one Member Commission. It referred to the return

on equity in terms of 2004 Regulations and adopted a rate

of return on equity at 14% which is allowed on 30% of the

capital cost in terms of the debt equity ratio.

Thereafter, the Commission dealt with interest on loan.

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The matter was dealt with under the 2004 Regulations .

After extracting the relevant re gulation, the Commission

proceeded to take the view that the normative loan

outstanding for individual station as on 31.03.2004 was to

be computed by applying normative debt-equity ratio of

70:30 to the capital cost with weighted average rate of

interest of the loan on appellant’s Corporation as a whole.

The Commission thereafter, in fact , refers to the

cumulative depreciation as on 30.03.2004 or notional loan

amount whichever is lower being taken as loan repayment and

has been allowed to be serviced till it is fully repaid.

The weighted average rate of interest thereafter arrived

as shown in the table at paragraph 57 of its order and the

loan for various projects were given.

13. This order was appealed against by the appellant.

The appeal culminated in the order dated 23.11.2007. Let

us examine what the appellate Tribunal said about the

complaint of the appellant based on Section 38 of the DVC

Act. The main order was written by the Technical Member

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with whom the Chairman agreed with the separate concurring

judgment.

14. The debt equity ratio which was fixed by the

Commission at 70:30 was altered to 50:50 in respect of the

old projects commissioned prior to 1992 on a normative basis

and in respect of recent projects such as MEJIA , they were

to be aligned with 70:30 capital structure specified in the

Regulations. We may also refer to the following findings:

“A-9. The Appellant has contended that DVC

having been created with the functions of

deemed state to support the state’ s social

functions of West Bengal and Jharkhand, it

serves public interest at large and,

therefore, by statute equity has been

primary source of capital. It has further

added that business risks, financials

risks, etc. are largely, therefore,

carried by t he owner Governments who,

therefore, by fundamental principles of

risk and return are entitled to return on

their entire share of capital investment.

A-10. It is true that the owners take upon

themselves business related risks and are

entitled for return on their share of

capital investment. But the return is to

be governed by the scheme of determination

of tariff for supply of electricity as

mandated by the law in place. The scheme

provides for an assured ROE, as permissible

under the Tariff Regulations , at the rate

of 14%, on the equity deployed for the

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purpose of supplying electricity. The

scheme does not permit return on

investments made on projects other than

supply of electricity, to be recovered

through tariff for supply of electricity.

A-13. Some of the Respondents have

submitted that “combined reading of

Sections 30, 31 and 38 of the DVC Act

clearly indicates that the entire capital

invested on the projects as per the DVC Act

is the loan capital and interest is a part

of the expenditure. There i s no provision

of any equity capital under the DVC Act .”

A-14. The DVC Act provides for infusion of

capital by the participating Governments

and for payment of interest thereon. The

DVC Act does not categorize such capital as

borrowings and there is no re ference about

repayment of such capital to the

participating Governments. It is

difficult to assume a commercial

organization running solely on borrowed

funds. Lenders invariably prescribe for a

margin money to be invested by the borrower

also. In our opinion the capital infused

by the participating Governments is in the

nature of equity capital and for the

purpose of determination of tariff, same

would be eligible for return on equity, as

may be permitted by the Tariff Regulations

2004.

A-15. It is to be noted that DVC provides

interest on capital contributed by the

participating Governments. The accrued

interest has been allowed to be retained by

DVC and is ploughed back into capital with

the tacit consent of the participating

Governments. This has to be provided to

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DVC as per the provisions of Section 38 of

the DVC Act.

A-16. It is observed that the DVC Act

envisages the projects to be built only on

capital contributed by the participating

Governments and any deficit in the capital

amount is to be made good by taking loan on

behalf of the participating Government.

The debt taken will obviously attract

interest. The average interest rate of

repayment payable during the tariff year is

to be applied on 50:50 normative debt

capital for tariff purposes. This would

mean that out of aggregate equity including

reserves, equity considering a normative

Debt Equity Ratio of 50:50 would be

eligible for ROE, at the rates prescribed

in the Tariff Regulations and excess of

equity if any over the equity earning ROE

@14% shall be considered as interest

bearing debt. For example, if the actual

Debt Equity Ratio comes to 40:60, ROE would

be available on 50% portion of the equity

and interest would be available on 10%

portion of equity and interest would be

available on 10% portion of equity and 40%

loan, as reduced by repayments. ”

It is also relevant to notice paragraph E-13 and the same

is extracted below:

“E-13. As regards the liability arising

under section 38 of the DVC Act on account

of interest on capital provided by each of

the participating Governments , we have to

keep in mind that the total capital to be

serviced has to be equal to the value of

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operating assets when they are first put to

commercial use. Subsequently , the loan

component gets reduced on account of

repayments while equity amount remain

static. As per the scheme of the

determination of tariff as per Tariff

Regulations 2004, the recovery is in two

forms; either by way of ROE or by way of

interest on loans. We direct the Central

Commission to ensure that capital deployed

in financing operating assets is getting

fully serviced either through Return on

Equity or interest on loan (including on

the equity portion not covered as part of

equity eligible for Return of Equity).”

THE ORDER DATED 6.8.2009 PASSED BY THE COMMISSION PURSUANT

TO THE AFORESAID ORDER OF THE APPELLATE TRIBUNAL

15. In paragraph 38 of the order dated 6.8.2009, the

Commission worked out the return on capital, interest on

loan and depreciation on common assets and apportioned to

each of the productive generating stations/ transmission

system in terms of the capital cost which is already

allocated as on 31.03.2004 . This is purportedly done in

terms of what was stated by the Appellate Tribunal in

paragraphs 1.3 and 1.4 of its order dated 23.11.2007 .

Paragraph 37 reads as under:

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“1.3. With the above process it is true th at

the cost of operating and maintaining the

above facilities would be recovered but the

recovery of capital cost in the form of

depreciation and return on corresponding

equity, interest on loans, if any, would be

missed out without any justification.

1.4. We feel that once the Commission has

agreed to treat these assets as part of the

generating and transmission activities of

the Appellate by permitting recovery of their

O&M cost, these assets, after due prudence

check, should also be included in the capit al

cost and consequential effect be given

through determination of tariff.”

16. The total capital cost as on 1.4.2004 is shown as

Rs.314601 lakhs. The additional capitalisation allowed

for 2004-05 and 2005-06 at paragraph 35 was also reckoned

and the total average capital was shown as Rs.322797 lakhs

for the year 2004 -05 and Rs.326786 lakhs for 2005 -06.

Thereafter, the Commission also referred to the debt equity

ratio fixed by the Appellate Tribunal in paragraph A-8 which

we have extracted hereinabove . Thereafter, the commission

proceeded to work out return on equity under the heading

‘Interest on Loan’. This is what the Commission has stated

in paragraph 48.

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“48. The petitioner has submitted that it

has not availed any loans to meet the

expenditure towards additional

capitalization. Based on the additional

capitalization allowed and the revised

debt-equity ratio and depreciation

considered in line with the directi ons of the

Appellate Tribunal, the interest on loan has

been worked out with the weighted average

rate of interest considered as per the

Commission’s order dated 3.10.2006.

Depreciation calculated for the year has been

treated as repayment of loan during that

year.”

17. Now let us see how in the order which was impugned

before us, the Appellate Tribunal has deal t with the issue

relating to interest on capital under Section 38 of the DVC

Act. We may note paragraph 70 where the Appellate Tribunal

holds as follows:

70. We have carefully considered the

above grounds urged by the Appellant. On

going through records, as indicated above,

the operation of the limited remand order

would relate to this issue also. The

operations of the DVC which have to be

implemented have been clearly spelt out in

the following paragraphs of Remand Order:

“E-13. As regards the liability arising

under section 38 of the DVC Act on account

of interest on capital provided by each of

the participating Governments we have to

keep in mind that the total capital to be

serviced has to be equal to the value of

operating assets when they are first put to

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commercial use. Subsequently the loan

component gets reduced on account of

repayments while equity amoun t remain

static. As per the scheme of the

determination of tariff as per Tariff

Regulations 2004, the recovery is in two

forms, either by way of Return on Equity or

by way of interest on loans. We direct the

Central Commission to ensure that capital

deployed in financing operating assets is

getting fully serviced either through

Return on Equity or interest on loan

(including on the equity portion not

covered as part of equity eligible for

Return of Equity).”

18. Thereafter, the Appellate Tribunal undoubtedly

notes that in its remand order dated 23.11.2007, it has

directed the Central Commission to ensure that the capital

employed in financing the operating assets is getting fully

serviced either through return on equity or on interest on

loan. The Appellate Tribunal goes on to hold that in

compliance of the said order the Commission allowed debt

equity ratio on the total capital employed. It further

provided return of 14% on the normative equity capital in

terms of Regulation 21(1 )(iii), i.e., return on equity.

The Commission also provided interest on loan of the

normative type in accordance with Regulation 21(1)( i).

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19. It is in the light of these orders that we must

consider the contention of the appellant that despite

appellant being entitled to the benefit of interest on

capital it was not given the benefit despite the final

pronouncement of this Court in 20 18(8) SCC 281 upholding

the view of the Appellate Tribunal itself that Section 38

of the DVC Act will continue to apply for the benefit o f

the appellant-corporation. On the other hand, the

contention of the contesting respondents is that the

benefit under Section 38 of the DVC Act as claimed by the

appellant would result in appellant getting a benefit which

would be a duplication of claims insofar as on the total

capital, applying the normative debt equity ratio ,

appellant has been given the benefit of return on capital

on the normative equity portion and it has also been allowed

interest on the loan portion. The case of the appellant

on the other hand, is that even after interest has been given

on the loan portion and the return on equity has also been

ensured on the normative equity portion by the impugn ed

order, over and above the same, the appellant is entitled

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to the benefit of interest on capital on the whole amount

as that is so provided under Section 38 of the DVC Act .

20. In the order of the Appellate Tribunal dated

23.11.2007 the matter came to be dealt with under the

heading ‘debt equity ratio’. The Tribunal went on to

accept the case of the appellant in respect of all old

projects of DVC and normative debt equity of 50:50 was

assigned, commissioned prior to 1992 . In respect of recent

projects such as Mejina, it was assigned debt equity ratio

of 70:30 on capital structure as specified in the

Regulations. This finding has become final. It was

contended on behalf of the appellant that equity has been

the primary source of capital . Thereafter, in paragraph

A-10, it was found by the Appellate Tribunal that owners

take upon themselves business related risk and are entitled

to interest on capital investment, but the return is to be

governed by the scheme of determination of tariff for the

supply of electricity as mandated by the law in place. The

Appellate Tribunal further proceeds to hold that the scheme

25

provides for assured Return on Equity (ROE) which is at the

rate of 14% on the equity employed for the purpose of

supplying electricity. The scheme does not permit return

on investment made on projects other than for supply of

electricity to be recovered from supply of electricity.

The Tribunal went on to hold that the DVC Act does not

recognise capital as borrowings and there is no reference

about repayment of such capital to the participating

Governments. The Appellate Tribunal proceeds to hold that

the capital infused by participating Governments is in the

nature of equity capital and for the determination of

tariff, the same would be eligible for return on equity but

the Appellate Tribunal does not end there. It clearly

provides that the return on equity is as may be permitted

by the tariff Regulation of 2004 . It is thereafter that

the Appellate Tribunal in para 15 proceeded to hold that

the DVC Act provides for interest on capital which is

contributed by the participating Governments . The accrued

interest due to the Governments apparently has been allowed

to be retained by the appellant. The same however came to

26

be ploughed back into the capital with the tacit con sent

of the participating Governments. Thereafter, it is

stated that this has to be provided to the DVC as per the

provisions of Section 38 of the DVC Act . It is thereafter

paragraph A-16 which we have already ext racted, the

Tribunal proceeded to observe that under the DVC Act if

there is any deficit in the capital contributed by the

participating Governments, it is to be made good by taking

loan on behalf of the participating Governments. The said

debt would attract interest. The average interest rate of

the repayment payable is to be applied on a 50:50 normative

debt capital. This means that out of the aggregate equity

including reserves, equity considering the normative debt

ratio of 50:50 would be eligible fo r return on equity as

specified in the Regulations and the excess of equity, if

any, over the equity earning ratio of 14% is to be considered

as interest bearing debt. In the example which has been

given it is shown that if the debt equity ratio is 40:60,

return on equity at 14% will be available on 50% equity

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whereas interest would be available at 10% portion of equity

and 40% loan which were reduced by repayments.

21. On the basis of the remand, the Commission has

worked out the debt equity ratio as di rected by the

Appellate Tribunal. It has further provided return on

equity at the rate of 14% on the equity portion, namely 50%.

In respect of the debt portion, interest has been calculated

no doubt after deducting depreciation, the legality of

which is the subject matter of the other contention which

we will deal with separately. It is quite clear to us that

appellant has already been given return on equity in terms

of the tariff Regulation in respect of capital on the basis

of debt equity ratio which has been fixed by the Appellate

Tribunal on a ratio which has become final between the

parties.

22. Though a perusal of para A-9 of order dated

23.11.2007 may appear to show that e quity has been found

to be the main source of capital , a perusal of paragraph

28

A-10, A-16 and more importantly E-13 would show that capital

under Section 38 of the DVC Act has been understood as the

value of the operating assets when they were first put to

commercial use. Capital is also understood not as equity

alone but it has been understood both as loan and equity.

The ratio between loan and equity is also fixed in respect

of the old projects at 50:50 and under the new projects it

is at 70:30. It is further clear from paragraph E-13 of the

order of the Appellate Tribunal dated 23.11.2007 that the

appellate Tribunal contemplated that the equity component

would remain static and it would earn the rate of return

as provided in the tariff Regulation . As far as the loan

component is concerned, it would get reduced on account of

repayments. Therefore, the recovery as contemplated under

the Regulations was found to be in two forms, namely, either

as return on equity in respect of the equity portion and

as interest on the loan c omponent.

23. There remains only one area of doubt. In

paragraph A-15, the Appellate Tribunal noted that the

29

interest due from DVC on the capital employed by the

participating Governments have been allowed to be retained

by the appellant and it has been ploughed back into the

capital. To this portion also, the Appellate Tribunal

directed to apply under Section 38 of the DVC Act . However,

firstly, it is after so providing that the Appellate

Tribunal has later in paragraph E-13 given its direction

under Section 38 of the DVC Act. Secondly, even in the

written submission made this aspect has not been taken up

as such and at any rate , the particulars are not given.

Also in paragraph 73 of the impugned order which refers to

the complaint of the appellant relating to cumulative

depreciation being employed to reduce the loan component

being illegal and reference is made to the retained interest

being ploughed back as capital to the creation of capital

assets resulting in the appellant enjoying perpetual

moratorium as it has never repaid the loan and the question

of adjustment of the depreciation for the loan did n ot

arise. There is no complaint raised about interest under

30

Section 38 of the Act not being given in respect of interest

which is ploughed back as capital.

24. The next question relates to the legality of taking

into consideration the cumulative depreci ation for

reducing the loan component. The complaint of the

appellant is that both the Commission and the Tribunal have

calculated interest on the basis that cumulative

depreciation will result in a reduction of loan which is

unsustainable. The answer to the same which is raised by

the respondents is that it is not open to the appellant to

raise this contention as this contention was not raised

before the appellate Tribunal in the first round of

litigation which culminated in the order dated 23.11.2007

being passed by the Appellate Tribunal. The appellant no

doubt seeks support from the order of the Appellate Tribunal

passed in the case of NTPC. It is no doubt true that in

the order of the Appellate Tribunal in the case of NTPC ,

the Tribunal discountenan ced adjusting cumulative

depreciation reducing the loan. As far as the judgment of

31

this Court in 2007 (3) SCC 33, there the question which

really arose was related to the rate of depreciation. This

Court took the view for power companies keeping in view the

need to replace the assets, a higher rate of depreciation

was necessary as it would reduce the number of years

required for replacing the assets. The observation made

therein incidentally may not have the effect which the

appellant seeks to persuade us to accept. But the question

would be whether the appellant would be entitled to raise

the complaint in this appeal. In the original order passed

on 3.10.2006 by the Central Commission , the Commission held

as follows:-

57. Majority of the loans ra ised by the

petitioner Corporation are not project

specific. The normative loan outstanding

for individual station, as on 31.3.2004,

has been computed by applying the normative

debt-equity structure of 70:30 (as

mentioned above) to the capital cost with

weighted average rate of interest of the

loan for the petitione r Corporation as a

whole. The cumulative depreciation as on

31.3.2004 or notional loan amount,

whichever is lower, has been deemed as loan

repayment and balance amount, if any, has

been allowed to be serviced till it is fully

repaid. Annual depreciation amount has

been treated as normative loan repayment.

32

The weighted average rate of interest as

claimed by the petitioner Corporation and

as adopted for the tariff calculations is

as follows:

Calculation of weighted average rate of interest

Total Loan 2004-05 2005-06 2006-07 2007-08 2008-09

Gross Loan opening 77095 77095 77095 77095 77095

Cumulative re -payment

of loan up to previous

year

6143 14948 22281 29614 39858

Net Loan opening 70952 62147 54814 47481 37237

Increase/Decrease due

to FERV

0 0 0 0 0

Increase/Decrease due

to ACE

0 0 0 0 0

Total 70952 62147 54814 47481 37237

Re-payment of loan

during the year

8819 7333 7333 10244 5165

Net Loan closing 62133 54801 47468 37224 32059

Average Net loan 66543 58467 51134 42346 34641

Rate of Interest on loan

including Guarantee fee

11.19% 10.67% 10.50% 10.23% 9.56%

Interest on Loan 7445 6239 5367 4332 3311

25. Being dissatisfied by the same, the appellant

approached the Appellate Tribunal. Apparently, 10 issues

were agitated by the Appellate Tribunal at the instance of

the appellant. Since the matter has attained finality by

the decision of this Court in 2018 (8) SCC 281, it is but

apposite that we have set out paragraph 11 of the said

33

judgment. Paragraph 11 of the said judgment is extracted

below:

11. Accordingly, the learned Appellate

Tribunal while rejecting the following five

claims and upholding the order of CERC on the

aforesaid counts thought it proper to remand

the matter, for a de novo consideration of the

remaining five issues by CERC in the light of

the findings recorded by it. The tabular

chart, extracted below, would indicate the

five issues that have been finalised by the

learned Appellate Tribunal by upholding the

order of CERC dated 3-10-2006 and the other

five issues which have been remanded for

redetermination by CERC:

Issues finalised by the

learned Appellate Tribunal

by upholding the order of

CERC dated 3-10-2006

Issues remanded for

redetermination by CERC

(i) Higher return on equity; (i) Additional capitalisation

for the period 2004 -2005

and 2005-2006;

(ii) Depreciation rate; (ii) Pension and gratuity

contribution;

(iii) Resetting of operating

norms at variance from the

operating norms prescribed

in the 2004 Regulations;

(iii) Revenue to be allowed to

the DVC under the DVC Act;

(iv) Return on capital

investment on Head Office,

Regional Offices,

administrative and other

technical centres, etc.;

and

(iv) Operation and maintenance

expenses;

(v) Generation projects

presently not operating.

(v) Debt-equity ratio

34

26. A perusal of the same would appear to suggest the

substantive question of law sought to be raised as part of

the second contention, does not remain open for

adjudication.

27. When the matter went back pursuant to the remand

order in the first round of litigation which has become

final in view of the dismissal of appeal by th is Court, the

Central Commission has only reiterated the procedure in the

matter of calculating interest on loan by reducing the loan

amount by the cumulative depreciation. This is a procedure

to which exception was not taken in the first round when

the appellant could have taken exception to the same. This

is also for the period prior to 31. 3.2006. Having regard

to what is stated in paragraph 57 in the earlier round of

litigation, therefore, on a point which has become final

in the earlier round, we are not persuaded to hold that it

will be open for the appellant to raise the same issue in

the second round in respect of a matter which has attained

finality. On this ground, we thin k that the appellant is

35

not entitled for consideration of the said point at our

hands. Accordingly, we refuse to answer the question of

law which is raised. The upshot of the above discussion

is that the appellant has not made out a case for

interference. The appeal fails and is dismissed. The

parties will bear their respective costs.

….……….……………………………CJI.

(Ranjan Gogoi)

…………………………… J.

(Sanjay Kishan Kaul)

………………………… J.

(K.M. Joseph)

New Delhi;

December 3, 2018