Torrent Power Limited v. U.P. Electricity Regulatory Commission & Ors.

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of the 2003 Act deals with the power to issue directions by the State Government. The Commission shall be guided by such directions in the matter of policy involving public interest as the State Government may give to it in writing. ---xxx---

23. It is apparent from a bare reading of the aforesaid provisions of the Electricity Act, 2003 and the Reforms Act, 1999 that in discharge of its functions, the State Commission shall be guided by such directions in matters of policy involving public interest as the State Government may give to it in writing. Such decision/direction of the State Government in the matter of policy, subsidy and public interest shall be final. Under Section 65 it is a prerogative of the State Government to grant any subsidy to any consumer or class of consumers in the tariff determined by the Commission under Section 62. It is apparent from the provisions contained in Sections 65 and 108 of the 2003 Act that to grant subsidy to any consumer or class of consumers is the prerogative of the State Government and such other direction issued in the public interest shall be binding upon the Commission.”

38. Electricity being a natural resource that vests in the State, the provisions of the Act, 2003 keep consumers’ interest at the core of all processes that are sought to be governed under the Act, 2003 namely, generation, transmission and distribution of electricity.

39. Following the observation in Energy Watchdog v. CERC reported in (2017) 14 SCC 80 that “the appropriate Commission does not act as a mere post office...” for the purpose of tariff determination but must ensure transparency in the procedure for such determination, this Court, in M.P. Power Management Co. Ltd. v. Sky Power Southeast Solar India (P) Ltd., reported in (2023) 2 SCC 703, has observed that any impact on the electricity tariff, directly affects consumer interest and therefore, implicates public interest and such a concern finds statutory recognition under Sections 61 to 63 of the Act, 2003. Para 133 reads thus: “133. In the said case, the Court further held that the moment the electricity tariff gets affected, the consumer interest comes in and public interest gets affected and

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further that there is a statutory recognition for the same in Sections 61 to 63 of the Electricity Act, 2003. Therefore, this judgment, though in the context of a statutory appeal, has laid down that consumer interest in tariff is intertwined with public interest.”

40. Similarly, in Jaipur Vidyut Vitran Nigam Ltd. v. MB Power (M.P.) Ltd., reported in (2024) 8 SCC 513, this Court reiterated the requirement of balancing consumer interest with that of the interest of the generators. Para 127 reads thus: “127. It is needless to state that this Court, time and again, in various judgments including the one in GMR Warora Energy [GMR Warora Energy Ltd. v. CERC, (2023) 10 SCC 401 : 2023 INSC 398] has recognised the requirement of balancing the consumers’ interest with that of the interest of the generators. It will not be permissible to take a lopsided view only to protect the interest of the generators ignoring the consumers’ interest and public interest.”

41. This Court, in All India Power Engineer Federation v. Sasan Power Ltd., reported in (2017) 1 SCC 487, while rendering the judgment in the context of a statutory tariff appeal, has underscored that consumer interest in tariff is intertwined with public interest. Para 30 reads thus: “31. (…) This is for the reason that what is adopted by the Commission under Section 63 is only a tariff obtained by competitive bidding in conformity with Guidelines issued. If at any subsequent point of time such tariff is increased, which increase is outside the four corners of the PPA, even in cases covered by Section 63, the legislative intent and the language of Sections 61 and 62 make it clear that the Commission alone can accept such amended tariff as it would impact consumer interest and therefore public interest.” (Emphasis supplied)

42. What is pertinent to note is that all the judgments referred to hereinabove pertain to the adoption of tariff under Section 63 of the Act, 2003 in a manner that seeks to balance consumers’ interest in the arena of procurement of electricity from generating stations. The said judgments are not in respect of the relationship between

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distribution licensees or franchisees. While consumer interest is an important consideration in the overall scheme of the Act, 2003, it remains to be seen whether the ERCs have jurisdiction to entertain petitions in respect of disputes between consumers and distribution licensees/franchisees.

43. The ERCs, being creatures of a statute, derive their jurisdiction and powers from the provisions of that statute i.e., the Act, 2003. Therefore, it would not be permissible for them to exercise powers not expressly vested in them. In this context, we may refer to the decision of this Court in the case of Rajeev Hitendra Pathak v. Achyut Kashinath Karekar, reported in (2011) 9 SCC 541. Para 34 reads thus: “34. On a careful analysis of the provisions of the Act, it is abundantly clear that the Tribunals are creatures of the statute and derive their power from the express provisions of the statute. The District Forums and the State Commissions have not been given any power to set aside ex parte orders and the power of review and the powers which have not been expressly given by the statute cannot be exercised.”

44. An authority created by a statute must act under the statute and not beyond it. In Chiranjilal Shrilal Goenka v. Jasjit Singh, reported in (1993) 2 SCC 507, this Court observed thus: “17. (…) In this country, jurisdiction can be exercised only when provided for either in the Constitution or in the laws made by the legislature. Jurisdiction is thus the authority or power of the court to deal with a matter and make an order carrying binding force in the facts. Oza, J. supplementing the question held that the jurisdiction to try a case could only be conferred by law enacted by the legislature. The Supreme Court could not confer jurisdiction if it does not exist in law. Ray, J. held that the Court cannot confer a jurisdiction on itself which is not provided in the law. In the dissenting opinion Venkatachaliah, J., as he then was, lay down that the expression jurisdiction or prior determination is a “verbal coat of many colours”. In the case of a tribunal, an error of law might become not merely an error in jurisdiction but might partake of the character of an

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error of jurisdiction. But, otherwise, jurisdiction is a ‘legal shelter’ and a power to bind despite a possible error in the decision. The existence of jurisdiction does not depend on the correctness of its exercise. The authority to decide embodies a privilege to bind despite error, a privilege which is inherent in and indispensable to every judicial function. The characteristic attribute of a judicial act is that it binds whether it be right or it be wrong. Thus this Court laid down as an authoritative proposition of law that the jurisdiction could be conferred by statute and this Court cannot confer jurisdiction or an authority on a tribunal. In that case this Court held that Constitution Bench has no power to give direction contrary to Criminal Law Amendment Act, 1952. The direction per majority was held to be void.” (Emphasis supplied)

45. In A.R. Antulay v. R.S. Nayak, reported in (1988) 2 SCC 602, in para 91, this Court observed thus: “91. (…) Instances of conferment of jurisdiction by specific law are very common. The laws of procedure both criminal and civil confer jurisdiction on different courts. Special jurisdiction is conferred by special statute. It is thus clear that jurisdiction can be exercised only when provided lower either in the Constitution or in the laws made by the legislature. Jurisdiction is thus the authority or power of the court to deal with a matter and make an order carrying binding force in the facts. In support of judicial opinion for this view reference may be made to the Permanent Edition of “Words und Phrases” Vol. 23-A at page 164. It would be appropriate to refer to two small passages occurring at pages 174 and 175 of the volume. At page 174, referring to the decision in Carlile v. National Oil & Development Co. it has been stated. Jurisdiction is the authority to hear and determine, and in order that it may exist the following are essential: (1) A court created by law, organized and sitting; (2) authority given to it by law to hear and determine causes of the kind in question; (3) power given to it by law to render a

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judgment such as it assumes to render; (4) authority over the parties to the case if the judgment is to bind them personally as a judgment in personam, which is acquired over the plaintiff by his appearance and submission of the matter to the court, and is acquired over the defendant by his voluntary appearance, or by service of process on him; (5) authority over the thing adjudicated upon its being located within the court’s territory, and by actually seizing it if liable to be carried away; (6) authority to decide the question involved, which is acquired by the question being submitted to it by the parties for decision.” (Emphasis supplied)

46. In Bhadreshwar Vidyut (P) Ltd. v. Maharashtra ERC, reported in 2024 SCC OnLine APTEL 47 in para 149, this Court observed thus: “149. As noted hereinabove, the possibility of inconvenience or hardship would not confer jurisdiction on the CERC, since jurisdiction can be conferred only by a statutory enactment and not by judicial pronouncement. In the present case, it is evident that the jurisdiction, to adjudicate on whether or not the Appellant is a Captive Generation Plant in terms of Section 2(8) read with Section 9 of the Electricity Act and Rule 3(1) of the Electricity Rules, 2005, lies with the State Commission under Section 86(1)(f) of the Electricity Act, and not with the CERC under Section 79(1)(f).”

47. With respect to the ERCs in particular, this Court in Gujarat Urja Vikas Nigam Ltd. v. Solar Semiconductor Power Co. (India) (P) Ltd., reported in (2017) 16 SCC 498, has held that such statutory authorities cannot act beyond the powers vested in them by their parent statute. The relevant paras are reproduced below: “39. The Commission being a creature of statute cannot assume to itself any powers which are not otherwise conferred on it. In other words, under the guise of exercising its inherent power, as we have already noticed above, the Commission cannot take recourse to exercise of a power, procedure for which is otherwise specifically provided under the Act… ---xxx---

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59. The inherent power is not a provision of law to grant any substantive relief. But it is only a procedural provision to make orders to secure the ends of justice and to prevent abuse of process of the Court. It cannot be used to create or recognize substantive rights of the parties.” (Emphasis supplied)

48. Under the scheme of the Act, 2003, the Central and State ERCs are vested with regulatory functions, tariff determination functions, and adjudicatory functions, in particular under Sections 79 and 86 respectively. Whilst in the exercise of regulatory functions, the ERCs are also required to comply with the various Regulations made by the respective Central and State Commissions under Sections 178 and 181 respectively of the Act, 2003. A close reading of most of the Regulations framed by the ERCs i.e., Regulations pertaining to Open Access, Connectivity Regulations, Regulations on Renewable Power Purchase Obligations etc., indicate that regulatory powers and functions of the ERCs must be exercised in public or consumer interest alongside commercial principles. The function of tariff adoption or determination is also mandated to be carried by ERCs in accordance with public interest and to safeguard consumer needs. It is noteworthy that Section 61 of the Act, 2003 also requires ERCs to consider commercial principles in matters of tariff and therefore ERCs are expected to undertake a balancing act between commercial prudence and consumer interest.

49. The adjudicatory functions of ERCs are specifically governed by Sections 79 and 86 respectively of the Act, 2003. The ERCs also have the discretion to refer disputes to arbitration. Adjudicatory jurisdiction of the Central Commission is specified under Section 79(1)(f) and is limited to adjudication of disputes involving generating companies or transmission licensee, in regard to matters connected with clauses (a) to (d), which are extracted below: 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 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 one State;

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c) to regulate the inter-State transmission of electricity; d) to determine tariff for inter-State transmission of electricity.

50. The State ERCs have a comparatively broader jurisdiction under Section 86, to adjudicate upon all disputes between the licensees and generating companies, without being limited to categories specified in (a) to (d) of Section 79. However, even this enlarged jurisdiction of the State ERCs, more particularly the UPERC, does not include within its fold the power to adjudicate disputes involving consumers and by extension their grievances, irrespective of whether such issue is raised in furtherance of public interest. However, a perusal of the petition filed by the respondent no. 4 shows that there is no occasion for application of Section 86, as the said petition was filed praying for an investigation under Section 128 of the Act, 2003 against the respondent nos. 2 and 3 as well as the appellant. To this extent, we agree with the impugned order of the APTEL.

51. To contest the jurisdiction of the UPERC to decide the petition of the respondent no. 4, the appellant has relied on this Court’s dictum in Maharashtra Electricity Regulatory Commission v. Reliance Energy Ltd., reported in (2007) 8 SCC 381 wherein it was held that in view of the mechanism for redressal of consumers’ grievance provided under Section 42(5) of the Act, 2003, there is no occasion for the State ERC to exercise jurisdiction over such matters in place of the forum created under the Act, 2003 for this very purpose. It was further held that the ERCs are empowered to adjudicate upon disputes under Section 86(1)(f) but the said provision does not appertain to the individual consumers’ disputes. The relevant observations from the said decision are reproduced below: “31. The basic question which arises for our consideration in this appeal is whether the individual consumer can approach the Commission under the Act or not.

32. For deciding this question, the relevant provision is Section 42(5) of the Act, which reads as under: “42. Duties of distribution licensee and open access.— (1)-(4) * * * (5) Every distribution licensee shall, within six months from the appointed date or date of grant of licence,

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whichever is earlier, establish a forum for redressal of grievances of the consumers in accordance with the guidelines as may be specified by the State Commission.”

33. As per the aforesaid provision, if any grievance is made by a consumer, then they have a remedy under Section 42(5) of the Act and according to sub-section (5) every distribution licensee has to appoint a forum for redressal of grievances of the consumers. In exercise of this power the State has already framed the Maharashtra Electricity Regulatory Commission (Consumer Grievance Redressal Forum and Ombudsman) Regulations, 2003 (hereinafter referred to as “the 2003 Regulations”) and created Consumer Grievance Redressal Forum and Ombudsman. Under these 2003 Regulations a proper forum for redressal of the grievances of individual consumers has been created by the Commission. Therefore, now by virtue of sub-section (5) of Section 42 of the Act, all the individual grievances of consumers have to be raised before this forum only. In the face of this statutory provision we fail to understand how could the Commission acquire jurisdiction to decide the matter when a forum has been created under the Act for this purpose. The matter should have been left to the said forum. This question has already been considered and decided by a Division Bench of the Delhi High Court in Suresh Jindal v. BSES Rajdhani Power Ltd. [(2006) 132 DLT 339 (DB)] and Dheeraj Singh v. BSES Yamuna Power Ltd. [Ed. : (2006) 127 DLT 525 (DB)] and we approve of these decisions. It has been held in these decisions that the forum and ombudsman have power to grant interim orders. Thus a complete machinery has been provided in Sections 42(5) and 42(6) for redressal of grievances of individual consumers. Hence wherever a forum/ ombudsman have been created the consumers can only resort to these bodies for redressal of their grievances. Therefore, not much is required to be discussed on this issue. As the aforesaid two decisions correctly lay down the law when an individual consumer has a grievance

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he can approach the forum created under sub-section (5) of Section 42 of the Act.

34. In this connection, we may also refer to Section 86 of the Act which lays down the functions of the State Commission. Sub-section (1)(f) of the said section lays down the adjudicatory function of the State Commission which does not encompass within its domain complaints of individual consumers. It only provides that the Commission can adjudicate upon the disputes between the licensees and generating companies and to refer any such dispute for arbitration. This does not include in it an individual consumer. The proper forum for that is Section 42(5) and thereafter Section 42(6) read with the Regulations of 2003 as referred to hereinabove.

35. Therefore, in the facts and circumstances of the present case, we are of the opinion that the views taken by the Commission as well as the appellate authority are unsustainable and they have erred in coming to the conclusion that the Commission has jurisdiction. Consequently, we set aside the order dated 18-10-2005 passed by the Commission and the orders dated 5-4- 2006 and 2-6-2006 passed by the appellate authority and remit the matter to the proper forum created under Section 42(5) of the Act to decide the grievance of the respondent herein in accordance with law. We make it clear that we have not made any observation with regard to the merits of the demand raised by the appellant upon the respondent Company and it will be open for the proper forum to adjudicate the same. The payment, if any, made by the Company will not operate as an estoppel against the respondent Company. We hope that the forum will decide the matter expeditiously.” (Emphasis supplied)

52. Although we are in respectful agreement with the principles enunciated in the decision in Reliance Energy (supra) to the extent that it observes that a State ERC cannot usurp the jurisdiction of the consumer grievance redressal forum established under Section

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42(5), yet we are of the view that in the specific case on hand, the said judgment is not applicable. The present matter pertains to the State of Uttar Pradesh where the UPERC had enacted the Uttar Pradesh Electricity Regulatory Commission (Consumer Grievance Redressal Forum & Electricity Ombudsman) Regulations, 2007 dated 04.10.2007 (hereinafter referred to as “UPERC Consumer Grievance Regulations”) under Section 181 of the Act, 2003. Regulation 5 thereof relates to the jurisdiction of the consumer grievance redressal forum wherein it has been specified that the forum is not empowered to entertain a complaint pertaining to matters under Section 128 of the Act, 2003. The relevant regulations are extracted below: “5.0 Jurisdiction of the Forum- 5.1 The Forum shall not entertain a complaint, if it pertains to matters mentioned in Section 126, 127, 128, 135 to 139, 143, 152 and 161 of the Electricity Act, 03. 5.2 The Forum shall have the jurisdiction to take up complaints, except those under Regulation 5.1, on an application before it or suo-moto if it considers appropriate in the interest of justice. 5.3 The Forum shall not entertain a complaint if it pertains to the same subject matter for which any proceedings before any court, authority or any other Forum is pending or a decree, award or a final order has already been passed by any competent court, authority or Forum.” (Emphasis supplied)

53. We now examine the provision of law under Section 128 of the Act,

2003. Sub-section (1) of the provision reads thus: “(1) The Appropriate Commission may, on being satisfied that a licensee has failed to comply with any of the conditions of licence or a generating company or a licensee has failed to comply with any of the provisions of this Act or rules or regulations made thereunder, at any time, by order in writing, direct any person (hereafter in this section referred to as “Investigating Authority”) specified in the order to investigate the affairs

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of any generating company or licensee and to report to that Commission on any investigation made by such Investigating Authority”

54. The language of the Section is clear inasmuch as it places the onus of initiating an investigation on the appropriate commission, which is either the Central ERC or the State ERCs. Read with Regulation 5.1 of the UPERC Consumer Grievance Regulations, it is clear that a request for investigation under Section 128 cannot be made by an individual before the consumer forum for the simple reason that directing such investigation is out of the scope of the said body as it does not exercise regulatory powers under the Act, 2003. Therefore, this Court’s observations in Reliance Energy (supra) are of no avail to the appellant.

55. Having dealt with the said submission, we now proceed to ascertain whether the ERCs have suo motu power to initiate a proceeding under Section 128. For this purpose, we may refer to the Uttar Pradesh Electricity Regulatory Commission (Conduct of Business) Rules, 2004 (the “Conduct of Business Rules, 2004”), more particularly, Regulation 14 thereof, which deals with initiation of proceedings. The Regulation is extracted below: “14. Initiation of Proceedings: a. The Commission may initiate any proceeding suo moto or on a Petition filed by any affected person. b. When the Commission initiates the Proceedings, it shall be by a notice issued by the Office of the Commission through Secretary and the Commission may give such orders and directions as may be deemed necessary, for service of notices to the affected parties, for the filing of replies and rejoinder in opposition or in support of the Petition in such form as the Commission may direct. The Commission may, if it considers appropriate, issue orders for advertisement of the Petition inviting comments on the issue involved in the Proceedings in such form as the Commission may direct. c. While issuing the notice of inquiry the Commission may, in appropriate cases, designate an Officer of the Commission or any other person whom the Commission

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considers appropriate to present the matter in the capacity of the Party, which cannot afford to engage its representative” (Emphasis supplied)

56. A perusal of the Regulation compels us to conclude that the UPERC had jurisdiction to entertain a petition praying for investigation under Section 128. Therefore, in our considered view, the first issue must be answered against the appellant. In the same breath, we also clarify that as a principle of law, the ERCs are not competent to entertain a matter on the singular ground of public interest. Accordingly, we answer this issue in negative.

(iii) Whether the petition filed by the respondent no. 4 under Section 128 of the Act, 2003 was maintainable in law?

57. We may now look into the “satisfaction” required under Section 128. Such satisfaction must be on either of the two grounds: (1) that a licensee has contravened the conditions of its license; or (2) that a licensee has failed to act in accordance with the provisions of the Act, 2003 and/or the regulations made thereunder. In the case at hand, the respondent no. 4 had approached the UPERC under Section 128 to investigate the respondent no. 3 along with the appellant on the following grounds: (i) First, the entire assets of the respondent no. 3 (i.e., the distribution licensee) deployed in the urban area of Agra were transferred to the appellant without the prior approval of the UPERC under Section 17. (ii) Secondly, the grant of franchisee for an urban area by a distribution licensee is not permissible under Section 13. (iii) Lastly, the appellant and respondent no. 3 were in violation of the tariff orders passed by the UPERC under Section 62, by adopting their own fixed schedule of annualized input rates.

58. As regards the first objection, we are of the view that the same does not afford any ground for investigation under Section 128 in the present case. Section 17 places the requirement of a prior approval on a licensee in respect of transactions with other licensees and not with a franchisee. In terms of the seventh proviso to Section 14

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read with Sections 2(27) and 2(49), a franchisee is not required to obtain a separate license and therefore, is not considered to be a licensee under Section 2(38) and Section 14. The Uttar Pradesh Electricity Regulatory Commission (General Conditions of Distribution License) Regulations, 2004 (the “Conditions of Distribution License Regulations, 2004”) reiterate the aforesaid explanation of Section 17. Regulation 5.8 of the said Regulations permits a distribution licensee to undertake distribution in a particular area through a franchisee, and Regulation 5.11 thereof clarifies that a distribution licensee is not restricted from transferring or assigning its functions under its license to a franchisee. As such, the facts of the case on hand fall outside the scope of an enquiry under Section 17 and no request for investigation under Section 128 can be made on this count. The relevant Regulations are extracted hereinbelow: “5. ACTIVITIES OF THE DISTRIBUTION LICENSEE 5.8 The Licensee may undertake distribution of electricity for a specified area (franchise) within his Area of Supply through another Person. Such Person shall not be required to obtain any separate Licence from the Commission. The Licensee shall continue to be responsible for distribution of electricity in its Area of Supply and – (a) Such Person shall operate under the overall supervision and control of the Licensee and upon the terms and conditions of the Licence and comply with all Regulations, guidelines or orders of the Commission; (b) Establishment of such arrangements shall not alter the Licensee’s duties and obligations pursuant to general or specific conditions of Licence; (c) The cost of providing service shall not be higher than if the Licensee performed such tasks itself; and (d) For any act or omission of such Person, the Licensee shall be responsible. ---xxx--- 5.10 The Distribution Licensee may establish Subsidiaries or associated companies or grant a Franchisee or enter into management contracts including appointment of billing

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agent to conduct or carry out any of the functions, which the Distribution Licensee is authorised to conduct or carry under the Licence Provided that the Licensee shall be responsible for all actions of the Subsidiaries or associated companies or Franchisees or agents or contractors. 5.11 Except as provided in clause 5.8 above the Distribution Licensee shall not transfer or assign the Licence or any of the functions under the Licence to any other Person without the prior approval of the Commission.”

59. The second objection, in our view, does not serve as a ground for initiating an investigation under Section 128. The respondent no. 4 may argue that appointment of the appellant as a distribution franchisee in the urban area is inconsistent with Section 5 of the Act, 2003, however, in our considered opinion, the said argument is devoid of substance. Section 5 lays down the “National policy on electrification and local distribution in rural areas” wherein franchisees have been identified as important stakeholders to achieve this policy but such provision cannot be taken to mean that the Act, 2003 restricts the role of franchisees to rural areas. A conjoint reading of Sections 2(27), 2(49), 13 and seventh proviso of Section 14 indicates that distribution franchisees may be appointed for urban areas as well and the Act, 2003 places no limitation on the area of operation of such franchisees. [See: Citizen Forum, Maharashtra v. State of Maharashtra, reported in 2008 SCC OnLine Bom 165]

60. As regards the last objection, we understand such objection to be one that challenges the very concept of “input-rate model of distribution of franchisee”. The crux of the objection raised by the respondent no. 4 is that the appellant herein is benefiting from the fixation of lower rates as annualized input rates in the DFA between it and the respondent no. 3. According to the respondent no. 4, such input rates are lower than the bulk supply rate of the respondent no. 2 and therefore, the difference between such rates has to be subsidized by public money, that is, by consumers who consume electricity supplied by the respondent no. 2 in areas other than the urban area of Agra.

61. For the purpose of discussing this objection, we find it apposite to first explain the “input-rate model of distribution franchisee”. In this model, a franchisee buys electricity from a distribution licensee at

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defined input point(s) at a pre-determined rate which is annualized for consistency on a yearly basis. This pre-determined rate that has to be paid by the franchisee to the distribution licensee for purchase of electricity, is usually fixed by way of bids received from private players interested in assuming the role of a franchisee. The private party that quotes the highest rate is awarded the bid subject to other terms and conditions of the bidding process. It is for this reason that quoting of such annualized rates is required even by the Ministry of Power’s “Standard Bidding Document for Appointment of Input based Distribution Franchisee, June 2012”

62. Once a franchisee signs an input-based franchisee agreement, it has to pay the distribution licensee or any utility it is purchasing electricity from, the agreed input rate for all the energy received by it. However, it is pertinent to note that the franchisee collects revenue from the consumers by raising bills at the tariff decided by the appropriate ERC. Therefore, after collecting the revenue from the consumers, the surplus left with it after paying the input rate to the distribution licensee or utility is its profit. This profit margin can be increased by the franchisee by reducing the aggregate technical and commercial losses (“AT&C losses”) and increasing efficiency in improving collection of revenue for the same specified quantity of power or energy purchased by it from the distribution licensee or utility. In the same breath, we must also clarify that generally, the level of investments and expenses anticipated by the franchisee for increasing efficiency is incorporated in the input rates quoted by it in the bid. The higher the level of investment is required, the lower the input rate is likely to be. In other words, the input price that a private player proposes in its bid is inversely proportional to the capital expenditure that a private player believes it will have to make to ensure that the distribution exercise is profitable.

63. It is because there is no fixed incentive for the franchisee envisaged in such a model that the franchisees are motivated to reduce all kinds of losses to earn more revenue to increase their profit margin. Even though the model is advantageous for the purpose of reducing losses through theft and non-payment, yet it is also considered to be prone to misuse and not without its demerits. A bidding franchisee may over-project the investments and expenses required to distribute electricity efficiently, which in turn would lead to a reduction in the input rate fixed between the distribution licensee and the franchisee,

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as operation in the particular area that the franchisee is bidding for will be considered to be a loss-making venture. Lack of data about baseline loss levels puts the distribution licensee in a weaker position vis-à-vis the distribution franchisee. One could argue that this is a demerit of the input-rate model. However, it does not seem to be a plausible criticism of the model considering that most distribution licensees would ideally have the knowledge of AT&C loss levels prevailing in an area that they used to service before the franchisee came into picture.

64. The objection raised by the respondent no. 4 is two-pronged: (1) that the Average Tariff Rate (ATR) for the base year 2008-09 derived by the respondent nos. 2 and 3 is based on fabricated data without any authentication thereof; and (2) that the input rate fixed between the appellant and respondent no. 3 is undervalued with the ulterior motive to enable the appellant to profit at the cost of public money. The respondent no. 4 assailed such action on part of the respondent no. 2 and the appellant to be a willful and deliberate violation of the tariff order passed by the UPERC.

65. To get a better background of the operations of the appellant in the urban city of Agra, we may refer to the APTEL’s decision in Amausi Industries Association v. Uttar Pradesh Electricity Regulatory Commission reported in 2013 SCC OnLine APTEL 138, with profit. The APTEL was faced with inter alia, the question whether Torrent Power (the appellant herein) could be supplied power at a price below the bulk power purchase price. The appellants therein argued that despite the bulk supply price fixed by the State ERC for purchase of power by the distribution licensees being Rs. 2.64 per unit for the FY 2011-12 and Rs. 3.75 per unit for FY 2012-13, such power was supplied to Torrent Power at Rs. 1.54 per unit for FY 2010-11, Rs. 1.55 per unit for FY 2011-12 and Rs. 1.71 per unit for FY 2012-

13. The supply of electricity to Torrent Power at rates lower than the bulk supply price fixed by the UPERC meant that the consumers of other areas were cross subsidizing the supply of power by DVVNL to Torrent Power. The appellants therein took strong exception to the consumers of other areas bearing the tariff burden on account of cheaper supply of power in Agra by DVVNL to Torrent Power. The APTEL succinctly pointed out that due to high AT&C losses in the urban area of Agra, the distribution licensee, DVVNL was unable to recover the bulk supply rate of Rs. 2.64 per unit and was able

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to collect revenue to the extent of Rs. 1.27 per unit by bearing a loss of Rs. 1.37 per unit. Such loss of Rs. 1.37 per unit was being subsidized by consumers of other areas. Therefore, to alleviate the situation, DVVNL called for bids on the basis of input-rate model of distribution franchisee in which the highest bidder was the appellant herein, Torrent Power. Accordingly, an input rate of Rs. 1.54 per unit was decided among the distribution licensee and franchise. DVVNL, which was initially recovering Rs. 1.27 initially started recovering Rs. 1.54. The APTEL observed that after the introduction of the franchisee, the cross subsidization by consumers of other areas was mitigated by 27 paise. The relevant portion of the judgment is reproduced below: “56. The fifth issue is regarding the Power Purchase cost and other cost in excess of the legitimate claims and allowing supply of bulk power to Torrent Power - a franchisee at a price below the bulk power purchase price.

57. The learned Counsel for the Appellant has made the following submissions on this issue: (a) The State Commission has allowed exaggerated power purchase costs to the Distribution Licensees. The Distribution Licensees are purchasing high cost power on short term basis without proper planning and without entering into long term PPAs at competitive rates. The State Commission ought to have initiated an enquiry into such power purchase by the Distribution Licensees and held against them for excess power purchase cost. (b) One of the Distribution Licensees - Dakshin anchal Vidyut Vitran Nigam Limited has given a franchisee in the Agra area which has been given to Torrent Power Limited. The bulk supply price fixed by the State Commission for purchase of power by the distribution licensees is Rs. 2.64 per unit for FY 2011–12 and Rs. 3.75 per unit of FY 2012–13 and the same is being supplied to Torrent Power Limited at Rs. 1.54 per unit for FY 2010–11, Rs. 1.55 per unit for FY 2011–12 and Rs. 1.71 per unit 2012–13, Therefore, the consumers in all other areas are cross

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subsidizing the supply of power by Dakshinanchal Vidyut Vitran Nigam Limited to Torrent Power Limited. (c) The issue is not with regard to the power of the Distribution Licensee to appoint a franchisee but that if a franchisee is given by a Distribution Licensee in its area of operation, why should the consumers of the other Distribution Licensees bear the tariff burden on account of supply of cheaper power by one of the Distribution Licensees to the franchisee. (d) The Rosa Power Plant was commissioned on 12/13.3.2010. However, the necessary transmission evacuation facility (220 KV line) was not available due to the mistakes of the distribution licensee/ transmission licensee/Rosa Power Supply Co. Ltd and the power could not be evacuated from the COD of Rosa Power Plant on 13.3.2010 for a period of 6 months till the transmission facility came. The power generated by Rosa in these 6 months was supplied to nearby rural areas. The licensees received fix amount per month from such consumers. The balance amount (i.e. the difference between the tariff paid to Rosa and fix charges recovered from rural consumers) cannot be passed on to the consumers. (e) Rosa Power is one of the generating companies having entered into a PPA with the Holding Company for supply of power to the consumers in the State of Uttar Pradesh. Any money excess paid to or recovered from Rosa Power will necessarily be a pass through in tariff and therefore, becomes a tariff issue.

58. In reply to above submissions, the learned counsel for the State Commission has made the following submission: a) The aforesaid argument is irrelevant and immaterial since in determining the ARR of the distribution licensee the cost of power purchased by the licensee is the same. The revenue realized by the licensee is calculated at the rate at which energy is sold to the consumer, whether by the licensee directly or through

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its franchisee. Hence, the rate at which the franchisee draws power from the licensee is immaterial for the purpose of ARR determination of the licensee. b) In calculating the revenue of the licensee it is only the rate which the consumer ultimately pays which would be taken into account for determining the revenue in the ARR. Hence, whatever may be the transaction between the distribution licensee and the franchisee will not alter in any way the ARR of the licensee as a whole. c) The Appellant has also been unable to establish as to how the ARR has in any way been impacted by the so called difference in rates as mentioned above.

59. The learned Counsel for the Distribution Licensees has made the following submissions: a) The bulk supply price of Rs. 2.64 per unit has been fixed for the distribution licensee. The Discoms are unable to recover the bulk supply price of Rs. 2.64 per unit and are incurring heavy losses. The distribution in Agra was recovering only Rs. 1.27 per unit. b) In order to mitigate the situation, DVVNL initiated bidding process for identifying the Franchisee on the Input based Model, i.e., the franchisee will buy the electricity from the utility and shall pay the energy charges to the utility at a pre-determined rate. The franchisee will have to collect revenues from the consumers through raising bills so as to have sustainable commercial operation. The Torrent Power among all the bidders quoted the highest rate of Rs. 1.54 per unit for the first year and consequent increase every year. Accordingly, DVVNL entered into agreement with Torrent to operate as their franchisee. c) The payment made by Torrent Power Ltd a franchise of DVVNL is based on Input unit on the basis of agreement entered into between Torrent Power Ltd and DVVNL.

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d) The Hon’ble High Court of Bombay, Nagpur Bench in its judgment dated 12.02.2008 in W.P. No. 3701 of 2007; Citizen Forum Maharashtra v. state of Maharashtra (Paras 45-51) has upheld the power of distribution licensee to appoint distribution franchisee for the benefit of consumers. e) The delay in commissioning of Transmission lines relates FY 2009–10 and UP Transmission Licensee and the said issue cannot be raised in the present Appeal relating to Discoms.

60. We have carefully considered the submissions made by both the parities. The crux of the submissions made by the Appellant is that the Franchisee is being supplied power at rate lower than the bulk supply rate of the Distribution Licensee itself. The shortfall in the revenue of the licensee is to be recovered from the consumers of the Licensee in the remaining area to meet its ARR.

61. According to the Appellant, the State Commission has allowed higher power purchase cost to the Distribution Licensees. It is further stated that the distribution licensees are purchasing high cost power on short term basis without proper planning and without entering into long term PPAs at competitive rates. But the State Commission has failed to initiate an enquiry into such power purchase by the distribution licensees.

62. According to the State Commission the ground urged by the Appellant is irrelevant and immaterial since in determining the ARR of the distribution licensee, the cost of power purchased by the licensee is the same and hence, the rate at which franchise draws power from the licensee is immaterial for the purpose of ARR determination of the licensee.

63. The reply statements of the Respondent including the State Commission are not only evasive but also not to the core of the issue raised by the Appellant.

64. On going through the impugned order it is clear that the State Commission has allowed the power purchase cost

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as claimed by the distribution licensee without considering the following salient aspects. “i) One of the Distribution Licensees - Dakshin anchal Vidyut Vitran Nigam Limited has given a franchisee in the Agra area which has been given to Torrent Power Limited. The bulk supply price fixed by the State Commission for purchase of power by the distribution licensees is Rs. 2.64 per unit for FY 2011–12 and Rs. 3.75 per unit of FY 2012–13 and Rs. and the same is being supplied to Torrent Power Limited at Rs. 1.54 per unit for FY 2010–11, Rs. 1.55 per unit for FY 2011–12 and Rs. 1.71 per unit 2012–13, Therefore, the consumers in all other areas are subsidizing the supply of power by Dakshin anchal Vidyut Vitran Nigam Limited to Torrent Power Limited. ii) The Rosa Power Plant was commissioned on 12/13.3.2010. However, the necessary transmission evacuation facility (220KV line) was not available due to the mistakes of the distribution licensee/transmission licensee/Rosa Power Supply Co. Ltd and the power could not be evacuated from the COD of Rosa Power Plant on 12/13.3.2010 for a period of 6 months, when the transmission facility came and maximum power generated by Rosa supply to nearby rural area in 6 months were licensees received fix amount per month from such consumers. This amount can not be passed on to the consumers. This aspect was raised by the Appellants but no finding has been given by the State Commission.

65. The finding of the State Commission is only this:— “C) The Commission’s view:— 3.8.6 The Commission notes that M/s Torrent Power Ltd has been appointed input based franchisee by the licensee.”

66. According to the distribution licensee, since the Torrent Power was chose as a input based franchisee which was improving recovery of the prices in a particular franchisee area and the franchise arrangement has been approved by the High Court of Bombay in W.P. No. 3701 of 2007 and therefore there is nothing wrong in appoint Torrent Power as a franchisee. This contention by the Distribution Licensee

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is not relevant. The issue raised by the Appellants is not with reference to the power of the distribution licensee to appoint a franchisee. The real question arises is this - “When a franchisee has been given by the distribution license in its area of operation, who should the consumers of the other distribution licensees bear the tariff burden on account of supply of cheaper power by one of the Distribution Licensees to the franchisee?”

67. The contention of the Appellant appears to be attractive at first rush of blood. But there is something deeper. The issue in the present case can be addressed simply by saying that the Commission did not allow the Licensee to recover its full ARR. The approved average revenue recovery rate through tariff is only 77% of the average cost of supply. Thus, the Commission has left huge gap including the loss suffered due to lesser tariff to the franchisee.

68. Let us tackle the issue from the root to settle it for once and all.

69. The Licensee gathers power to distribute electricity in its area of supply through another person (Franchisee) from 7th Proviso to section 14 of the Act reproduced below: Provided also that in a case where a distribution licensee proposes to undertake distribution of electricity for a specified area within his area of supply through another person, that person shall not be required to obtain any separate licence from the concerned State Commission and such distribution licensee shall be responsible for distribution of electricity in his area of supply:

70. The question arises as to why a licensee should appoint a franchise for a particular area. The licensee control large area of supply. Some areas within its area of supply have higher losses than the average loss. The licensee may deem it fit to hand over such an area, where system losses are higher than the average losses in his area of supply to some franchise. It is to be noted that when losses are higher, the average revenue recovery rate would have to be lesser than average revenue recovery

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rate of the licensee. The franchise is expected to purchase power from the licensee and supply to the consumers at the same tariff fixed for other areas of the licensee. The franchise has to incur capital expenditure to reduce the losses to make the franchise business workable. If the franchise purchase power at average power purchase cost of the licensee and supply at tariff applicable to other areas, the franchise business will never become viable.

71. There are many models of appointing the Franchisee and one of such model is ‘on the basis of Input costs’. Under this model the Franchisee is sold electricity by the licensee at certain predetermined rate and the franchisee distributes the electricity in its area and recovers the costs at price not more than retail tariff of the Licensee. The Franchisee is responsible for the reduction of losses. The areas given to it for distribution is high loss area. The franchisee would earn profit only if he is able to reduce the losses to a certain level else he would suffer loss.

72. The average revenue recovery rate of Agra was only Rs. 1.27 per unit. The bulk supply rate for the licensee was Rs. 2.64 per unit. Thus, the licensee was suffering a loss of Rs. 1.37 per unit to supply power in this area. Accordingly, the consumers of other areas would have been subsidizing this amount. With the appointment of a Franchisee at Bulk supply rate of Rs. 1.54 per unit, the cross subsidisation by the consumers of other areas gets mitigated by 27 paise per unit.

73. Accordingly, the issue is decided against the Appellants.” (Emphasis supplied)

66. What is worth noting is that the concept of cross subsidization is not alien to the electricity distribution sector. It aims to balance social objectives with the financial health of the electricity sector and is done on the basis of population mix of an area or in some circumstances even when there are high losses in an area. It is a well settled position of law that the courts refrain from encroaching into the powers of the Government or the legislature. Therefore, the courts cannot question the rationale and wisdom behind cross

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subsidies. However, there is not an iota of doubt in our minds that cross subsidization as a standalone cause for challenging the fixation of an annualized input rate lower than the bulk supply rate of the distribution licensee, cannot be accepted. What can also be discerned from the aforesaid exposition is that the input-rate model of distribution franchisee may not always be successful in attracting bids that will entirely mitigate the cost of cross subsidization. Bids for input rates lower than bulk supply rate may be received for areas experiencing very high AT&C losses as the investment required would be manifold. This is because, the higher the anticipation of capital expenditure will be, the lower will be the input rate quoted by a franchisee. Such low input rates cannot be taken to mean that they are deliberately or mischievously undervalued, without any substantial evidence that there has been misrepresentation of the required investment and expenses.

67. We are dismayed to find that the respondent no. 4, though, has levelled serious allegations against the respondent no. 2 and the appellant, yet has not provided any reasons or documentation in respect of how the appellant and respondent no. 2 are in violation of tariff orders. Further, even the Expert Committee Report dated 09.01.2017 does not shed any light on how tariff orders are being contravened by the appellant. The remit of the said Committee was to study the levels of loss reductions, collection efficiency and extension of benefit to the consumers. Even though the Expert Committee made some suggestions in respect of all the points of study, yet it did not make an adverse remark against the appellant that would translate to blatant illegality.

68. What is discernible from the aforesaid is that unless some satisfactory grounds are given for initiating an investigation, a petition or an application under Section 128 cannot be held to be maintainable. The ERCs are required to consider matters in public interest wherever mandated by the Act, 2003, i.e., in matters relating to tariff determination, procurement of power processes, and utility/ licensee management which requires safeguarding of consumer interest alongside the commercial principles. We are, therefore, of the considered view that in the present case, the petition of the respondent no. 4 filed under Section 128 does not fulfill the parameters of satisfaction required under the said Section.

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(iv) Whether the ERCs have the jurisdiction to review the functioning of a distribution licensee to supply electricity through a franchisee?

69. Though we have held the petition under Section 128 to be not maintainable in the case on hand, yet in our opinion, such observation cannot have blanket application over distribution licensees and franchisees.

70. Under the Act, 2003, the business of distribution/supply of electricity can be undertaken by a Distribution Licensee licensed by the ERCs under Section 12. However, according to the seventh proviso to Section 14, the supply of electricity can be undertaken either by the distribution licensee or through another person authorised by the distribution licensee. It is pertinent to note herein that ERCs under Section 181 of the Act, 2003 frame regulations to carry out the provisions of the Act including the conditions of license as mandated in Section 16. Under the Conditions of Distribution License Regulations, 2004, the following are forthcoming: “4. COMPLIANCE OF LAWS, RULES AND REGULATIONS 4.1 The Distribution Licensee shall comply with the provisions of the Applicable Legal Framework, Rules, Regulations, Orders, and Directions issued by the Commission from time to time and the provisions of all other applicable laws. 4.2 The Distribution Licensee shall act in accordance with these General Conditions except where the Distribution Licensee is exempted from any provisions of these General Conditions at the time of the grant of Licence or otherwise specifically by an approval of the Commission to any deviation there from. 4.3 The Distribution Licensee shall duly comply with the order and directions of the National Load Despatch Centre, Regional Load Despatch Centre and the State Load Despatch Centre and other statutory authorities issued in the discharge of their functions under the Applicable Legal Framework. 4.4 The Licensee shall comply with the Orders or Directions issued by the Forum and Electricity Ombudsman.

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4.5 Licensee shall give consultancies / assignment to its group companies /sister concerns/ subsidiary companies only after prior approval of Commission

5. ACTIVITIES OF THE DISTRIBUTION LICENSEE 5.8 The Licensee may undertake distribution of electricity for a specified area (franchise) within his Area of Supply through another Person. Such Person shall not be required to obtain any separate Licence from the Commission. The Licensee shall continue to be responsible for distribution of electricity in its Area of Supply and – (a) Such Person shall operate under the overall supervision and control of the Licensee and upon the terms and conditions of the Licence and comply with all Regulations, guidelines or orders of the Commission; (b) Establishment of such arrangements shall not alter the Licensee’s duties and obligations pursuant to general or specific conditions of Licence; (c) The cost of providing service shall not be higher than if the Licensee performed such tasks itself; and (d) For any act or omission of such Person, the Licensee shall be responsible. 5.10 The Distribution Licensee may establish Subsidiaries or associated companies or grant a Franchisee or enter into management contracts including appointment of billing agent to conduct or carry out any of the functions, which the Distribution Licensee is authorised to conduct or carry under the Licence Provided that the Licensee shall be responsible for all actions of the Subsidiaries or associated companies or Franchisees or agents or contractors. 5.11 Except as provided in clause 5.8 above the Distribution Licensee shall not transfer or assign the Licence or any of the functions under the Licence to any other Person without the prior approval of the Commission.

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7. PROVISION OF INFORMATION TO THE COMMISSION 7.1 The Distribution Licensee shall furnish to the Commission without delay such information, documents and details related to the Licensed Business or any Other Business of the Distribution Licensee, as the Commission may require from time to time for its own purposes or for the purposes of the Government of India, State Government, the Central Commission, the Central Electricity Authority, the State Transmission Utility and State Load Dispatch Centre. 7.2 The Distribution Licensee shall duly maintain the information as the Commission may directed under Section 128 of the Act.”

71. Therefore, whilst an ERC may not directly regulate a franchisee, it exercises regulatory oversight over the distribution licensee’s functions and duties, including the process of a distribution licensee delegating some of its functions and activities to a franchisee. Further, Sections 16, 18, 19 and 20 of the Act, 2003 respectively, prescribe that the ERC can stipulate/review the terms and conditions under which a distribution licensee may delegate its electricity distribution responsibilities to a franchisee. Such stipulation/review occurs as a part of ERC’s regulatory functions.

72. It is apposite to observe that the Act, 2003 does not provide for a direct regulatory oversight by the ERCs in respect of the distribution franchisees. Part IV of the Act, 2003, from Sections 12 to 24 deals with licensing which inter-alia includes the procedure for grant of licence, conditions of licence, actions that a licensee may not undertake, amendment of licence, revocation of licence, sale of utilities of licensees, directions to licensees, and suspension of distribution licence and sale of utility. All these stipulations are to regulate the distribution licensee. There is no such stipulation provided to control or regulate the relationship between a licensee and franchisee. Thus, the contractual terms and conditions of the authorization by the distribution licensee provided to the franchisee are privy to the said parties. [See: Global Feeds Feedback Energy Distribution Company Private Ltd. v. Govt. of Odisha, reported in 2019 SCC OnLine Ori 205]

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73. It is well settled that the relationship between the distribution licensee and franchisee is one of agency. As a natural corollary, the franchisee is accountable only to the distribution licensee, who in turn is accountable to the consumers. We refer to the APTEL’s decision in City Corporation Limited v. Maharashtra Electricity Regulatory Commission and Anr. reported in 2024 SCC OnLine APTEL 103 to fortify this point. The relevant observations therein read thus: “40. Consequently, since Section 86(1)(f) of the Electricity Act does not specifically provide for the franchisee to file a petition questioning prescription of a very low percentage towards distribution losses or reimbursement charges, the MERC must be held to lack jurisdiction, to entertain and adjudicate a petition filed by them, under the said provision. The MERC can exercise jurisdiction to determine tariff of a distribution licensee under Section 62(1)(d) of the Electricity Act in the exercise of its regulatory functions under Section 86(1)(b) on a petition filed by a Distribution licensee. It lacks jurisdiction to entertain and adjudicate a petition filed by anyone else, such as a franchisee, nor can a tariff order, passed with respect to a distribution licensee, be held to apply to a franchisee.

41. In considering the question whether MERC has jurisdiction to adjudicate a dispute between a distribution licensee and its franchisee, it is useful to examine the provisions of the Electricity Act relating to a franchisee. Section 2(27) of the Electricity Act, 2003 stipulates that in the Electricity Act, unless the context otherwise requires, “franchisee” shall mean a person authorised by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply. Section 14 relates to grant of license and, under Section 14(b), the Appropriate Commission may, on an application made to it under Section 15, grant a licence to any person to distribute electricity as a distribution licensee. Under the seventh proviso to Section 14, in case where a distribution licensee proposes to undertake distribution of electricity for a specified area within his area of supply through another person, that person shall not be required to obtain

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a separate licence from the concerned State Commission, and such distribution licensee shall be responsible for distribution of electricity in his area of supply.

42. The person, referred to in the seventh proviso to Section 14, is the franchisee as defined in Section 2(27) of the Electricity Act. It is clear, from a conjoint reading of Section 2(27) and the seventh proviso to Section 14 of the Electricity Act, that (i) the franchisee is a person authorised by a distribution licensee to distribute electricity on its behalf, and (ii) such distribution of electricity by a franchisee is confined to a particular area within the area of supply of the distribution licensee. In other words, a distribution licensee can authorise another person as its franchisee to distribution electricity on its behalf within an area as may be specified by it, provided such a specified area forms part of the area of supply of the distribution licensee. Such a franchisee, in view of the seventh proviso to Section 14, does not require a separate licence since the responsibility to ensure distribution of electricity in its area of supply (including the specified area in which the franchisee supplies electricity on behalf of the distribution licensee) is that of the distribution licensee. In short, a distribution licensee is the principal and the franchisee is its agent. While the franchisee is, no doubt, accountable to the distribution licensee in the discharge of its obligations under the distribution franchisee agreement (entered into between the distribution licensee and the franchisee), it is the distribution licensee which is accountable to its consumers including those consumers to whom electricity is supplied, on its’ behalf, by the franchisee. Except Section 2(27) and the Seventh Proviso to Section 14, which make it clear that the franchisee is merely the agent of the distribution licensee, and it is the distribution licensee which is eventually responsible, for distribution of electricity, to the consumers in its area of supply, there is no other provision in the Electricity Act which specifically relates to a franchisee. ---xxx---

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90. Unlike the tariff of a distribution licensee (including the distribution losses it is permitted to incur) which is statutorily required to be determined by the Regulatory Commission under Section 62(1)(d) of the Electricity Act, the distribution losses which a franchisee is entitled to incur, and the reimbursement compensation it is entitled to receive, are not governed by any provision of the Electricity Act, but are those stipulated in the contractual provisions of the Distribution Franchisee Agreement which it enters into as an agent with the Distribution licensee, its principal. It is clear, therefore, that the tariff orders passed by MERC, for retail sale of electricity by the second Respondent-MSEDCL to the consumers in its area of supply, cannot be said to be an order passed by the Commission with respect to the Appellant franchisee, violation of which would require the MERC to adjudicate the dispute on its jurisdiction being invoked under Section 86(1)(k) read with Section 142 of the Electricity Act. ---xxx---

95. The challenge to the other conditions stipulated in the DFA are also matters which fall outside the jurisdiction of the MERC. Since an appeal under Section 111 of the Electricity Act lies only against orders passed by Regulatory Commissions, the Appellant cannot agitate its grievance, relating to the validity of, or the terms and conditions imposed under, the DFA in appellate proceedings before this Tribunal, as the State Commission lacked jurisdiction to examine these aspects. The issue of open access has been dealt with earlier in this order, and is therefore not being dealt with under this head.” (Emphasis supplied)

74. Further, the Conditions of Distribution License Regulations, 2004, more particularly Regulation 7.2 thereof, unequivocally places an obligation on the distribution licensee to furnish any information that the UPERC may ask for. Following the approach of decentralization of electricity distribution adopted by the Act, 2003, the said Regulations do not require furnishing of any information from the franchisee directly.

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75. The aforesaid exposition of law leaves no manner of doubt in our minds that the Act, 2003 does not envisage direct regulatory oversight as regards distribution franchisees and by virtue of their relationship of agency, such franchisees can only be indirectly regulated through the distribution licensee. Therefore, even an investigation under Section 128 can only happen in respect of a distribution licensee and not its franchisee. This is in consonance with the principle of agency. Any action of the franchisee is equivalent to such action having been committed by a distribution licensee. Therefore, only the distribution licensee can be questioned for any action that its agent commits.

76. Although the Tribunal, in para 11.7 of its impugned order, upholds the right of DVVNL as a distribution licensee, to appoint the appellant as a franchisee for Agra, yet it seeks to review the progress of the appellant without there being any specific provision in the Act, 2003 allowing for such review. The UPERC as well as the APTEL should have been mindful of the fact that it cannot micromanage a distribution franchisee transaction obliquely and question various aspects of the functioning of such franchisee including its collection, efficiency and the manner or quantum of reduction of distribution losses.

77. Even otherwise, if we were to limit our observations on the issue whether an investigation under Section 128 could be ordered against DVVNL or respondent no. 2, we will be compelled to answer in the negative. It goes without saying that the investigation to be conducted by an authority under Section 128 is to be limited to only two eventualities: (i) if the licensee fails to abide by the terms of its license, and (ii) if the licensee acts in contravention to the provisions of the Act, 2003 and the regulations thereunder. The exposition in the aforesaid clarifies that the threshold of “satisfaction” required to order an investigation under Section 128 was not met by the respondent no. 4 and even the Expert Committee did not present any findings as regards these two considerations.

E. CONCLUSION

78. In the overall view of the matter, we have reached the conclusion that the UPERC fell in serious error in entertaining the petition filed by the respondent no. 4 and passing the order constituting an expert committee. The APTEL also failed to look into the error committed by the UPERC and dismissed the appeal filed by the appellant-herein.

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79. In the result, the appeal succeeds and is hereby allowed. The impugned order passed by the APTEL is hereby set aside. As a consequence, the report of the Expert Committee also pales into insignificance.

80. Pending application(s), if any, are disposed of.

81. No orders as to cost.

Result of the case: Appeal allowed.