Reliance Infrastructure Limited vs State of Maharashtra and Ors.

MERC (Multi Year Tariff) Regulations, 2011 – Regn. 44.2(d) – Validity of – Plea of discrimination by the appellant – The grievance of the appellant arises from the fact that a tighter standard or norm has been prescribed for its thermal generating station Dahanu TPS as compared to other generating stations in the State – The discrimination, according to the appellant, lied in a statutory regulations determining the Station Heat Rate (SHR) – Held: The power to frame regulations is of a legislative nature – The Central Power Research Institute (CPRI) report was an input before the Maharashtra Electricity Regulatory Commission (MERC) in carrying out that exercise – MERC followed the statutory procedures laid down for the determination of tariffs – It took into account factors which it is mandated by the statute to consider – The National Tariff Policy, suggestions of stakeholders as well as the assessment carried out by the CPRI were duly considered – Thus, the present case does not fall in the paradigm of manifest unreasonableness or arbitrariness to warrant the interference of the Supreme Court – Regulation 44.2(d) of the MERC (Multi Year Tariff) Regulations, 2011 does not suffer from any constitutional or statutory infirmity – National Tariff Policy, 2006.

On 04.02.2011, the MERC (Multi Year Tariff) Regulations, 2011 were notified. Regulation 44 provides norms for the operation of thermal generating stations. Regulation 44.2 stipulates gross station heat rates for existing generating stations. The above regulation indicated that save and except for the excluded categories set out in clauses (b), (c) and (d), the Station Heat Rate (SHR) for existing coal based thermal generating stations is pegged at a uniform level of 2450 kCal/kWh (for 200/210/250 MW sets) and 2425 kCal/kWh (for 500 MW sets and above). As opposed to the uniform criterion of 2450 kCal/kWh in Regulation 44.2(a), the SHR for the Dahanu TPS was varied between 2350 in financial year 2011-12 to 2370 in financial year 2015-16. It was this prescription of a more stringent SHR in the case of R-Infra’s Dahanu TPS which forms the focus of dispute in the present case.

Disposing of the appeal, the Court

HELD: 1. On the maintainability of the petition under Article

226 of the Constitution, the High Court, has overlooked the position in law established by the judgment of a Constitution Bench of this Court in PTC India Limited v Central Electricity Regulatory Commission. The Constitution Bench considered whether the Appellate Tribunal for Electricity has jurisdiction to decide upon the validity of the regulations framed by the Central Electricity Regulatory Commission (CERC). CERC has been entrusted with the power to frame regulations under Section 178 of the Electricity Act 2003. The Constitution Bench held that the validity of a regulation framed under Section 178 can be tested only before the court exercising judicial review. While the Tribunal may decide upon a dispute involving the interpretation of a regulation, for which an appeal under Section 111 of the Act would be maintainable, no appeal can lie before the Tribunal on the validity of a regulation. [Para 18][905-E-H]

2. In view of the legal position settled by the Constitution Bench, the High Court was not justified in disparaging the appellant for taking recourse to a constitutional remedy under Article 226. Indeed, a challenge to the validity of the regulations framed by the Maharashtra Electricity Regulatory Commission (MERC) could only lie before the High Court. Hence, the imposition of costs for having adopted the remedy under Article

226 was unjustified. There was no suppression of fact on the part of the appellant which had indicated the recourse it had taken in the appeal before the Tribunal, arising from its prayer for relaxation of the Station Heat Rate (SHR) norms before MERC. The plea before the Appellate Tribunal was for relaxation of the SHR norms. The plea before the High Court was that the SHR fixed was discriminatory and ultra vires. Undoubtedly, if the appellant were to succeed before the Tribunal, it would perhaps obviate the challenge in the High Court. The appellant, did not press ahead with its plea before the Tribunal. Hence, the writ petition could not have been held not to be maintainable. [Para 18][906-G-H; 907-A-B]

3. The substratum of the case of the appellant is founded on a plea of discrimination. Simply put, the plea is founded on the hypothesis that the Central Power Research Institute (CPRI) report regarded the units of Dahanu TPS (DTPS) as identical to Parli Unit 6 and Paras Unit 3 (of MSPGCL) and Trombay Unit 8 (of TPC-G). The observations contained in the Central Power Research Institute (CPRI) report must be read in their entirety. The fact that the manufacturing specifications of the units may be similar (assuming they are so) is only one aspect of the total range of considerations which are required to be borne in mind under the terms of the National Tariff Policy notified u/s. 3 of the Electricity Act 2003. The tariff policy requires that the operating norms should be efficient, relatable to past performance, capable of achievement and progressively reflect increased efficiencies. They may also take into consideration technical advancements, fuel, vintage of equipment, nature of operations and the level of service among other factors. Appellant laid emphasis on clause 5.3(f) of the National Tariff Policy where it prescribes that the operating parameters and tariffs should be at “normative levels” only and not at the “lower of normative and actuals” except in the case of those units governed by para 5.3(h)(2). This submission will not, however, carry the case of the appellant any further. Normative levels are those which are fixed by the application of the standards guided by the terms of the tariff policy while actual levels are those which have been achieved as a matter of fact, in the past. The emphasis in the tariff policy is on creating incentives for achieving higher efficiency in order to enable the ultimate consumer to have the benefit of efficient operations. [Para 29][915-G-H; 916-A-D]

4. MERC is an expert body which is entrusted with the duty and function to frame regulations, including the terms and conditions for the determination of tariff. The Court, while exercising its power of judicial review, can step in where a case of manifest unreasonableness or arbitrariness is made out. Similarly, where the delegate of the legislature has failed to follow statutory procedures or to take into account factors which it is mandated by the statute to consider or has founded its determination of tariffs on extraneous considerations, the Court in the exercise of its power of judicial review will ensure that the statute is not breached. However, it is no part of the function of the Court to substitute its own determination for a determination which was made by an expert body after due consideration of material circumstances. [Para 30][917-F-G]

5. The power to frame regulations is of a legislative nature. The CPRI report was an input before the MERC in carrying out that exercise. MERC followed the statutory procedures laid down for the determination of tariffs. It took into account factors which it is mandated by the statute to consider. The national tariff policy, suggestions of stakeholders as well as the assessment carried out by the CPRI were duly considered. Hence, the present case does not fall in the paradigm of manifest unreasonableness or arbitrariness to warrant the interference of this Court. It would be rather formulaic for the Court to accept that merely because DTPS was placed at par in the immediately previous period (200607) and the period immediately succeeding (2016-20), that this must necessarily be extrapolated to the intervening period governed by the MYT Regulations 2011. A body which is entrusted with the task of framing subordinate legislation has a range of options including policy options. If on an appraisal of all the guiding principles, it has chosen a particular line of logic or rationale, this Court ought not to interfere. [Para 31][918-D-F]

5. Thus, this Court has come to the conclusion that regulation 44.2(d) of the MERC (Multi Year Tariff) Regulations, 2011 does not suffer from any constitutional or statutory infirmity. However, the ultimate decision of the High Court to dismiss the writ petition is affirmed. The High Court was not right in holding that the writ petition under Article 226 was not maintainable and accordingly the direction on the imposition of costs is set aside. However, this Court holds that there is no infirmity in the impugned regulation and accordingly affirm the ultimate conclusion of the High Court to dismiss the writ petition under Article 226. [Para 32][918-F-H]

PTC India Limited v. Central Electricity Regulatory Commission (2010) 4 SCC 603 : [2010] 3 SCR 609 – followed.

Transmission Corporation of Andhra Pradesh Ltd. v. Sai Renewable Power Pvt. Ltd. (2011) 11 SCC 34 : [2010] 8 SCR 636; Association of Industrial Electricity Users v. State of Andhra Pradesh (2002) 3 SCC 711 : [2002] 2 SCR 273 – relied on.