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CASE NO.:

Appeal (civil) 2149 of 2006

PETITIONER:

Tamil Nadu State Electricity Board

RESPONDENT:

Central Electricity Regulatory Commission & Ors

DATE OF JUDGMENT: 20/04/2007

BENCH:

H.K. Sema & V.S. Sirpurkar

JUDGMENT:

J U D G M E N T

WITH

CIVIL APPEAL NO.2352 OF 2006

Uttar Pradesh Power Corporation Ltd. & Anr. \005. Appellants

Versus

National Thermal Power Corporation Ltd., & Ors. \005. Respondents

WITH

CIVIL APPEAL NO.3027 OF 2006

Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. \005. Appellant

Versus

National Thermal Power Corporation & Ors. \005. Respondents

V.S. SIRPURKAR, J

1. This judgment will dispose of the above three Civil Appeals

which have been filed by three Appellants, namely, Tamil Nadu State

Electricity Board, Uttar Pradesh Power Corporation Ltd. and

Rajasthan Rajya Vidhyut Prasaran Nigam Ltd. The common question

of law is involved in all the three appeals which relates to the

interpretation of Regulation 2.7(d)(iv) of the Central Electricity

Regulatory Commission (Terms & Conditions of Tariff) Regulation,

2001 (hereinafter called the "CERC Regulations, 2001"). These

appeals are filed under Section 125 of The Electricity Act, 2003 (36 of

2003) and against the orders passed by the Appellate Tribunal

allowing the appeals filed by the respondents therein. The following

factual matrix would be necessary for the proper understanding of the

controversy involved in these appeals.

2. Before the present Act came in the anvil, the Electricity Supply

Act, 1948 was occupying the field and the Central Government norms

for fixing tariff for the period 1.11.1992 to 31.10.1997 were notified

under Section 43A of the said Act. The Legislature then brought in

Electricity Regulatory Commissions Ordinance which was ultimately

converted into an Act in the year 1998. Section 3 of the Act provides

for the establishment and incorporation of Central Electricity

Regulatory Commission (hereinafter called the "CERC" for short).

Section 13 provides power to regulate the tariff of generating

companies, owned and controlled by the Central Government, sub-

section (b) thereof provides power to regulate the tariff of the other

companies amongst the other powers which are to be found upto

clauses (i) of that Section. Section 28 of the 1998 Act reads as

under:

"28. The Central Commission shall determine by

regulations the terms and conditions for fixation of tariff

under clauses (a), (b) and (c) of Section 13, and in doing

so, shall be guided by the following namely:

(a) the generating companies and transmission entities

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shall adopt such principles in order that they may earn an

adequate return and at the same time that they do not

exploit their dominant position in the generation, sale of

electricity or in the inter-State transmission of electricity;

(b) the factors which would encourage efficiency,

economical use of the resources, good performance,

optimum investments and other matters which the Central

Commission considers appropriate;

(c) national power plans formulated by the Central

Government; and

(d) such financial principles and their applications

contained in Schedule VI to the Electricity (Supply) Act,

1948 as the Commission considers appropriate."

A bare glance of the above quoted Section suggests that the CERC

would formulate regulations for providing terms and conditions for

fixation of tariff under Clauses (a), (b) & (c) of Section 13. The power

for making Regulations is to be found in Section 55 of the 1998 Act.

Accordingly, the CERC has formulated Regulations which are called

Central Electricity Regulatory Commission (Conduct of Business)

Regulations, 1999. We are concerned herein with the Regulations

called CERC Regulations, 2001 and more particularly, clause

2.7(d)(iv) thereof.

3. Before we take up the task of interpretation, we must state the

facts which necessitate the interpretation of the above clause. In all

these appeals we are concerned with the tariff for the period 1.4.2001

upto 31.3.2004. Clause 1.4 of the CERC Regulations, 2001 provides

as under:

"1.4 The generation tariff under these Regulations shall

be determined station-wise and transmission tariff shall

be determined line-wise, sub station-wise, as the case

may be, and aggregated to regional tariff."

Provided that a utility may file a petition for fixation of tariff

in respect of the completed units/systems.

Clause 1.11 provides:

"For removal of doubts, it is clarified that the norms

prescribed herein are the ceiling norms only and this shall

not preclude the Generating Company and other

beneficiaries from agreeing to improved norms."

Chapter 2 relates to other power generating stations. Para 2.1 is a

definition clause and the definition of "Operation and Maintenance

Expenses" provides as under:

"Operation and Maintenance Expenses" or "O&M

Expenses" \026 In relation to a period means the

expenditure incurred in operation and maintenance of the

generating station including manpower, spares,

consumables, insurance and overheads."

Regulation 2.2 in the same Chapter provides as under:

"2.2 The tariff for sale of electricity from Thermal

Generating Stations (including Gas and Naphtha based

stations) shall comprise of two parts, namely, the

recovery of annual capacity (fixed) charges and Energy

(variable) charges. The annual capacity (fixed) charges

shall consist of interest on loan capital, depreciation,

return on equity, advance against depreciation, operation

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and maintenance expenses, and interest on working

capital. The Energy (Variable) charges shall cover fuel

cost." (Emphasis Supplied)

Then comes Regulation 2.7 which under sub-clause (d) provides for

Operation and Maintenance expenses including insurance. We are

not concerned with sub-clauses (i), (ii) & (iii) thereof. However, the

relevant clause which has fallen for our consideration is clause (iv)

which reads as under:

"2.7 Payment of Capacity (Fixed) Charges:

The Capacity Charges shall be computed on the following

basis and its recovery shall be related to Availability.

(a) \005..

(b) \005..

(c) \005..

(d) Operation and Maintenance expenses including

insurance:

(i) \005..

(ii) \005.

(iii) \005.

(iv) The escalation factor of 6 percent per annum shall

be used to revise the base figure of O&M expenses. A

deviation of the escalation factor computed from the

actual inflation data that lies within 20 percent of the

above notified escalation factor of 6 percent (which works

out to be 1.2 percentage points on either side of 6

percent) shall be absorbed by the utilities/beneficiaries.

In other words if the escalation factor computed from the

observed data lies in the range of 4.8 to 7.2 percent, this

variation should be absorbed by the utilities. Any

deviations beyond this limit shall be adjusted on the basis

of the actual escalation factor arrived at by applying a

weighted price index of CPI for industrial

workers(CPI_IW) and an index of select components of

WPI (WPIOM) as per formula given in note below clause

(v) herein below, for which the utility shall approach the

Commission with a petition."

4. National Thermal Power Corporation (hereinafter called the

NTPC) generates the electricity at its various plants and sells it to the

State utilities like appellants at the tariff fixed by CERC. We have

already pointed out that it is the CERC which has the exclusive task

of fixing the tariff. After CERC Regulations, 2001 were notified which

provide the method for working out the allowable Operation and

Maintenance expenses and escalation factors thereupon, the

Commission with a view to look into the question of revision of O&M

expenses from 2001-2002 to 2003-2004 initiated suo motu

proceedings being Petition No.196 of 2004. As per procedure the

Commission circulated its Draft Order dated 4.1.2005 dealing with

adjustment of O&M expenses based on actual escalation factor for

the deviation beyond the limit prescribed by Regulation 2.7(d)(iv). The

inflation rates for the relevant years were specified by the

Commission in this order which were based on computation arrived at

by the staff of CERC. The Draft Order was circulated to the Central

Utilities as also the State Utilities like UPCL. The UPCL did not

question the inflation rates. The stand of the NTPC throughout was

that revision of O&M expenses be undertaken on the notional 6%

escalation factor based on actual escalation between 4.8 and 7.2

since 20% was considered to normal deviation. Its further stand was

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that in case the deviation goes below 4.8 or beyond 7.2, as the case

may be, it would be required to be adjusted on the basis of the actual

escalation factor meaning thereby it would be only the deviation of

the two points, namely, below 4.8% and beyond 7.2% which would be

taken into consideration whereas the stand of the Utilities was that

the said escalation factor should be related to the standard 6%. For

example, according to the NPTC, if the escalation went to 4% which

was below 4.8% then only .8% should be taken as an escalation

factor so also if the escalation went beyond 7.2, i.e., 8%, then it would

be only .8% which would be taken as an escalation factor. On the

other hand as per the Utilities the said escalation factor should not be

limited to the deviation but it should be 2% in the first and the second

case because it was actually the deviation of 2% from the standard

6%.

5. By its order dated 28.2.2005, the CERC held that where the

escalation factor is not in the prescribed norm, O&M expenses should

be calculated by working out "the actual escalation factor" and not

"the marginal adjusted escalated factor" as explained above.

Consequently, the CERC directed that the O&M charges between

April 1, 2001 to March 31, 2004 should be worked out by applying

the actual escalation rates for the years 2001-2002 and 2003-2004

which was calculated by the staff of CERC.

6. A Review Petition was filed before the CERC by the NTPC.

However, that review petition was rejected by the CERC by its order

dated 7.6.2005. NTPC, therefore, filed an appeal before the

Appellate Authority vide Appeal No.103 of 2005 (We have taken the

facts only in the case of UPCL, i.e., CA No.2352/2006 for the sake of

convenience as there is no difference in the facts of the other two

appeals and the question is absolutely common).

7. The Appellate Authority vide its order dated 3.1.2006 allowed

the appeals filed by the NTPC and set aside the orders passed by the

CERC dated 28.2.2005 and 7.6.2005. It is against this order of the

Appellate Authority that the present appeals have been filed.

8. We would reproduce para 13 of the order of the Appellate

Tribunal which contains the findings arrived at by the Appellate

Authority:

13. The aforesaid calculations reveal that the CERC did

not attach any importance to the deviation beyond the

range of 4.8 to 7.2%. It did not work out the deviations at

all. Deviations beyond the terminal limits of 4.8% to 7.2%

were required to be adjusted on the basis of the actual

escalation factor. In Regulation 2.7(d)(iv), the words 'any

deviation beyond this limit shall be adjusted on the basis

of actual escalation factor' are very significant and must

be given effect to. The word 'adjust' used in the

Regulation means to accommodate. CERC has not

accommodated the deviation at all. In fact the CERC

ought to have deducted the actual deviation from the limit

of 4.8%. In order to give effect to the real meaning of the

Regulation 2.7(d)(iv), the CERC should have made the

calculations in the following manner in respect of say for

the year 2000-2001:

6x-0.35x

=x(6-0.35) = 5.65x

{where

x= signifies normalized O&M expenses for the year 2000-

2001;

4.45 is actual escalation factor;

4.8 is the terminal limit;

0.35 has been arrived at by deducting 4.45 from 4.8; and

all figures represent percentages}."

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9. Shri Sunil Gupta, Senior Advocate for UPCL and Shri

Aruneshwar Gupta addressed us on behalf of the appellants whereas

Shri G.E. Vahanvati, Solicitor General addressed us on behalf of

respondents. The contentions raised by Shri Sunil Gupta and Shri

Aruneshwar Gupta were as under.

10. The Appellate Authority has clearly erred in giving a literal

interpretation to the said provision, namely, Clause 2.7(d)(iv).

Learned counsel urged that the Appellate Authority was bound to

discern the true intendment of the provision and should have given it

a meaningful interpretation, in that, the escalation factor should have

been calculated keeping 6% as the base and it should not have been

limited to the difference alone. Learned counsel Shri Sunil Gupta

further argued that the rule was manifestly neutral rule founded on

purely neutral considerations and while interpreting the same, the

Appellate Court has divested itself with the logic thereof. Learned

counsel buttressed his arguments by suggesting that the rule was

meant for the convenience of all concerned which included both

administrative as well as financial convenience. According to both

the counsel the intention behind the rule was that the CERC should

not be exposed to the tedious exercise of review and re-adjustment of

tariff already fixed so long as the deviation was within 20% which was

perceived to be the reasonable tolerance limit and that being the only

objective behind the peculiar language of the rule. By adopting the

literal interpretation, the Utilities could not have been deprived of the

full benefits if the O&M factor went below 20% of the escalation factor

of 6%. Learned counsel very fairly submitted that in case the O&M

factor went beyond the 20% by way of an upswing then the

generating unit like NTPC was always justified to charge on the basis

of the full difference between the actual upswing point and the 6%.

According to the learned counsel this was the only intendment of the

rule.

11. Learned counsel further urged that the range of 20% upswing

or downswing, i.e., between 7.2 and 4.8 was not to be viewed as a

cushion so as to keep it to be a constant factor and in fact there was

no question of the generating station being allowed to suffer in the

event of the upswing beyond 7.2%.

12. According to learned counsel the range of 20% up or down

from the presumed notional escalation factor of 6% only represented

the margin of error in its tariff fixation exercise which the Regulator,

i.e., CERC could overlook because of the considerations like

administrative and financial convenience of all concerned. For this

proposition the learned counsel sought to rely on the margin of 3% in

Rule 57(1) of the Indian Electricity Rules, 1956. Lastly, the learned

counsel urged that the literal interpretation would be illogical,

unprincipled and impractical.

13. Learned counsel Shri Suresh Tripathi appearing on behalf of

Tamil Nadu Electricity Board also filed written submissions more or

less on the same lines. According to those submissions, it is urged,

that the Appellate Authority completely missed the meaning of

"adjust" which could only mean "accommodate". The said adjustment

was concerned with the tariff setting or in simple terms readjustment

of the tariff. The submissions further suggest that the underlying

philosophy behind the Regulations in question was that the tariff

setting should not be disturbed every now and then on trivial

adjustments and, therefore, the Regulator had taken a pragmatic

view in making provision for 20% adjustment. Therefore, if the

deviation went beyond 20%, there was no scope to limit it only to the

extent of beyond the margin. The argument goes further and

suggests that the statute envisaged the interest of the consumers to

be safeguarded and, therefore, when the O&M factor dipped beyond

20% limit, the full advantage should have been given to the

beneficiaries, i.e., consumers because the dipping of the O&M factor

would certainly bring down the price required to be paid by the

consumers for the electricity.

14. Shri Aruneshwar Gupta, learned counsel also argued the

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matter more or less on the same lines explaining the actual effect of

the judgment by the Appellate Authority on the price of the electricity

payable by the consumers.

15. As against this, the learned Solicitor General urged that as per

the established legal principles no unnatural interpretation could be

given to the concerned legal provisions particularly when its plain

meaning was crystal clear. Learned counsel analysed the whole

provision taking each line of the same and urged that there was no

necessity of any interpretation to be given when provision was crystal

clear. It was urged that where the plain meaning of the provision did

not, in any manner, do harm to the objective nor could bring out any

absurdity, the golden rule of literal interpretation was the only course

to be adopted by the courts of law. Learned counsel went on to

analyse the first order of the CERC as also the review order and on

that backdrop compared the same with the Appellate Authority's

order.

16. In the wake of these rival submissions, the only question that

falls for our consideration is whether we should adopt the literal

construction which has been given by the Appellate Authority or

should interpret the provision keeping in mind the various other

factors like the intended logic behind the rule, the benefit which is

likely to be given to the ultimate consumers, etc.

17. It will be our first task to see whether the provision as it stands

is clear in its language. It is obvious from the plain reading of the

clause that the escalation factor of 6% was to be used for revising the

base figure of O&M charges. Plainly speaking it would mean that the

O&M charges would be revised on the basis of escalation factor of

6%. The 6% would be the standard. It is further provided that each

year the escalation factor would be computed on the basis of actual

inflation data and if the said deviation factor works out to be within

20% of the standard escalation factor of 6%, such deviation shall be

ignored meaning thereby if the deviation factor goes beyond 6% upto

7.2%, still the deviation would be treated to be 6% only. So also if the

deviation goes below upto 4.8%, still deviation to this extent, as per

the clause, would not make any change. However, if the deviation

goes beyond 7.2% on upper side or below 4.8% on the lower side,

the same would be adjusted, in the sense that then the calculation

would have to be made of O&M factor on the basis of the deviation.

The objective of the provision appears to be that there does not have

to be an exercise of computation for a little or insignificant change

ranging between 1.2% and such deviations would be ignored. The

language used is that "such changes shall be absorbed by the

utilities/ beneficiaries". This appears to be with the idea that the

calculations do not have to be made on the basis of labile deviations

upto the limit of 1.2%. The meaning becomes extremely clear from

the clause which starts from "in other words" and ends with "absorbed

by the utilities". It means any deviations beyond this limit alone shall

be adjusted. It is extremely clear from the further sentence that what

is to be adjusted is "the deviations beyond the limit of 7.2% on the

upper side and 4.8% on the lower side, i.e., if the deviation goes

below 4.8%, say, upto 4% then the O&M factor would be considered

in respect of .8% deviation because that is the deviation

contemplated by the clause. If the meaning contemplated by the

appellants is to be given, it would do harm to the unambiguous

language of the clause. Plain and simple meaning of the provision, in

our opinion, admits of, no doubt, in the sense that it would be only the

deviation "beyond the limit" of 1.2% which would be available for

adjustment. In that sense there would a cushion between the two

points, namely, 7.2% on the upper side and 4.8% on the lower side.

That is precisely provided by the words "any deviation beyond this

limit". The words "beyond this limit" would, in our opinion, signify the

extent of deviation that is to be taken into consideration and that is

required to be "adjusted."

18. The Rule of literal interpretation has been explained by this

Court time and again. In Ombalika Das & Anr. Vs. Hulisa Shaw

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[(2002) 4 SCC 539], this Court unequivocally declared as under:

"Resort can be had to the legislative intent for the purpose

of interpreting a provision of law, when the language

employed by the legislature is doubtful or susceptible of

meanings more than one. However, when the language

is plain and explicit and does not admit of any doubtful

interpretation, the Supreme Court cannot, by reference to

an assumed legislative intent, expand the meaning of an

expression employed by the legislature and therein

include such category of persons as the legislature has

not chosen to do."

19. Similar note was struck by this Court in Keshavji Ravji & Co.

vs. CIT [(1990)2 SCC 231] where Three Judge Bench went on to

observe:

"As long as there is no ambiguity in the statutory

language, resort to any interpretative process to unfold

the legislative intent become impermissible. The

supposed intention of the legislature cannot then be

appealed to whittle down the statutory language which is

otherwise unambiguous. If the intendment is not in the

words used it is nowhere else. The need for

interpretation arises when the words used in the statute

are, on their own terms, ambivalent and so not manifest

the intention of the legislature."

20. Without burdening the authorities we may only refer to the

verdict by the Privy Council in Pakala Narayanasami vs. Emperor

[AIR 1939 PC 47] where Lord Atkin had declared that "when the

meaning of the words is plain, it is not the duty of courts to busy

themselves with supposed intentions". The law has been consistent

eversince then in more than half a dozen decisions.

21. Thus in our opinion, since the language of Regulation 2.7(d)(iv)

is absolutely clear so as to take into consideration only the deviations

beyond the limit, i.e., above 7.2% or below 4.8% for the purposes of

adjustment, there will be no question of adjusting the full deviation

between 6% to the percentage beyond 7.2% or below 4.8%. It is

more than clear from the language that any deviation between 4.8 to

7.2 has to be absorbed by utilities/beneficiaries. In that view we

would have to reject the argument on behalf of the learned counsel

for the appellants that we would have to search for any logic and hold

that the full difference between the actual upswing and downswing

point and 6% would be available for adjustment. It is not the task of

this Court to find out or search for the wisdom of legislature. We are

concerned with the interpretation only. For the same reasons we

cannot accept the argument that the word "adjust" should be read to

mean "accommodate". There is no reason for doing so. We do not

agree to hold that the literal interpretation would be illogical,

unprincipled and impracticable as, in our opinion, the learned counsel

have not been able to suggest so. We, therefore, fully agree with the

order passed by the Appellate Authority and confirm the same.

22. In view of the above, the appeals are dismissed without any

order as to costs.