Holding

The Court held that the State Commission’s tariff fixation must be based on a verified calculation of capital costs as per the PPA, and directed Ernst & Young to undertake this verification before the Commission determines the tariff.

Summary

The Supreme Court heard civil appeals challenging the Appellate Tribunal for Electricity’s dismissal of an appeal against the Jharkhand State Electricity Regulatory Commission’s tariff order concerning two power plants of DLF Power Ltd. The Court examined whether the State Commission had jurisdiction under the Electricity Act, 2003, to fix tariffs that were already governed by a power purchase agreement (PPA) and whether the tariff determination amounted to an arbitral award. While noting the Tribunal’s view that the matter was essentially a commercial dispute subject to the PPA, the Court found it necessary to verify the capital costs incurred up to commissioning of the plants. Accordingly, it directed the Cost Accounts Wing of Ernst & Young to determine the actual capital costs based on the PPA formula and to submit a report to the State Commission. The State Commission was then instructed to fix the tariffs within two months of receiving the report, and to file the tariff order with the Court. The Court’s directions effectively allowed the appeal to proceed and ensured a cost‑verified tariff determination.

Issues considered

Whether the State Electricity Regulatory Commission has authority under the Electricity Act, 2003 to fix tariffs for a commercial transaction already covered by a power purchase agreement.
Whether the tariff determination by the State Commission constitutes an arbitral award enforceable under arbitration law.
Whether an appeal against such a tariff order is maintainable before the Appellate Tribunal for Electricity.
Whether verification of capital costs incurred up to commissioning of the power plants is required for tariff fixation.

Legislation cited

Electricity Act

Subjects

electricity lawtariff fixationpower purchase agreementcost capitalizationarbitrationregulatory commission jurisdictioncost accountantsSupreme Court

Judgment

. -r·
A MIS. DLF POWER LIMITED
v.
CENTRAL COALFIELDS LTD. AND ANR.

JULY 11, 2007

B [DR.ARIJITPASAYAT ANDLOKESHWARSINGHPANTA,JJ.]

Electricity Laws:

Electricity tariff-Fixation of-Power purchase agreement-Need for
c verification of capitalization of the costs incurred upto commissioning of
Appellants· power plants-Direction to appoint Cost Accountants for the
purpose.

Respondent No.I filed appeal before tbe Appellate Tribunal for
Electricity ch;:illenging the order dated 4th Deceinber, 2004 as amended by
D order dated 28th February, 2005 passed by ·the State Electricity Regulatory
Commission. Appellate Tribunal dismissed the appeal as incompetent and not
maintainable. Hence the present appeals. During the course of hearing, this
Court felt the need for verification of the capitalization of the costs incurred
upto commissioning of appellants' power plants at Rajrappa and Gidi by reputed
E Cost Accountants.

Adjourning the matters and issuing certain directions, the Court

HELD: The Cost Accounts Wing of Mis Ernst & Young, Chartered
Accountants is directed to determine the actual capital costs based on the
F formula for the power purchase agreement between Coal India Ltd. and Mis
DLF Power Company Ltd. for the aforesaid two plants. Copies of the report of
the Cost Accounts Wing shall be given to the parties and also submitted to
the State Commission. On receipt of the report, the Commission shall
determine the tariff as per the terms of the power purchase agreement between
the parties for tile two power plants. For the purpose oherification, necessary
G datas and information shall be made 2vailable to the Cost Accounts Wing as
may be required. Within a period of two months from the date of receipt of
the report from the Cost Accounts Wing the State Commission shall
determine the tariffs. Copies of the tariff order shall be issued to the parties
and shall also be submitted before this Court. lo case M/s Ernst & Young
H 266

I
MIS. DLF POWERLIMITED•·.CENTRALCOALFIELDS LTD. [PASAYAT.J] 267

Chartered Accountants express any difficulty, ~ithin a period of three weeks, A
the Cost Accounts Wing of Neyvely Lignite Corporation Ltd., shall undertake
( the assignment as directed above. (Para 5) (268-F-H; 269-A)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3109 of2006.

From the Final Judgment & Order dated 11.05.2006 of the Appellate B
Tribunal for Electricity, New Delhi in Appeal No. 166 of2005.

WITH

C.A. No. 3561 of2006.

S. Ganesh, Sr. Adv., Kamal Budhiraja, Amit Dhingra, Nishant Menon.
c
Manu Seshadri, Richa Mishra (for Dua Associates), Ajit Kumar Sinha,
Kamlendra Mishra and Shiraz Contractor Patodia for the Appearing parties.

The Judgment of the Court was delivered by
D
DR. ARIJIT PASAYA T, J. l. Challenge in these appeals is to the order '
dated I Ith May, 2006, passed by the Appellate Tribunal for Electricity (in
short 'Appellate Tribunal'). The appeal was filed by the respondent No. I to
set aside the order dated 4th December, 2004 as amended by order dated
28.2.2005 passed by the Jharkhand State Electricity Regulatory Commission,
Ranchi (in short the 'State Commission'). 'E
2. While disposing of the appeal, the Appellate Tribunal held as follows:

"In the result-

(i) On the first point, we hold that the Regulatory Commission has ,F
neither the authority nor jurisdiction in terms of The Electricity Act
2003 to fix a tariff between the appellant a consumer and the second
Respondent a generator being a commercial transaction pure and
simple, which relationship is governed by an existing PPA. We also
hold that it is not an order or a tariff determination/order by the
Regulatory Commission falling under one or more the provisions of G
The Electricity Act 2003, which alone is appellable.

(ii) On the second point, we hold that the Regulatory Commission as
an expert Arbitral Tribunal has resolved the dispute as referred to it
by parties to the dispute on invitation and it is an award in terms of
_, the PPA entered between the parties and it is enforceable as it has all H
268 SUPREME COURT REPORTS [2007] 8 S.C.R.

A the force of an arbitral award passed by a validly constituted Arbitral
Tribunal.

(iii) On the third point, we hold that no appeal is maintainable before
the Appellate Tribunal for Electricity and appeal deserves to be rejected
as not maintainable, as it is not in dispute that in law as against the
B award of an Arbitral Tribunal no appeal is maintainable before this
Appellate Tribunal.

(iv) On the last point, we hold that the resolution of dispute by the
State Regulatory Commission is by way of arbitral proceedings and
it is an award which is binding on the parties. We have neither the
c jurisdiction nor authority to interfere with the impugned resolution of
tariff by way of arbitration: and

(v) In the result, all the points are answered against the appellant and
the appellant is not entitled to any relief in this appeal.''

D 3. The appeal was dismissed as incompetent and not maintainable.

4. During the course of hearing of the appeal it appeared to us that there
is need for verification of the capitalization of the costs incurred upto
commissioning of appellants' power plants at Rajrappa and Gidi. For this
purpose the reputed Cost Accountants have to do the verification and for
E this purpose we have required the parties to suggest the names. While the
appellants have suggested names of three Chartered Accountants, respondents
have suggested that it will be done by Cost Accountants Unit of Neyvely
Lignite Corporation Ltd., a public sector undertaking.

5. We have considered the names suggested. We direct that let the Cost
F Accounts Wing of Mis Ernst & Young, Chartered Accountants determine the
actual capital costs based on the formula for the power purchase agreement
between Coal India Ltd. and Mis DLF Power Company Ltd. for the aforesaid
two plants. Copies of the report of the Cost Accounts Wing shall be given
to the parties and also submitted to the State Commission. On receipt of the
G report, the Commission shall determine the tariff as per the terms of the power
purchase agreement between the parties for the two power plants. Needless
to say that for the purpose of verification, necessary datas and information
shall be made available to the Cost Accounts Wing as may be required.
Within a period of two months from the date of receipt of the report from the
Cost Accounts Wing the State Commission shall determine the tariffs. Copies
H
MIS. DLF POWER LIMITED''· CENTRAL COALFIELDS LTD. [PASAYA T. J.) 269
of the tariff order shall be issued to the parties and shall also be submitted A
before this Court. In case Mis Ernst & Young Chartered Accountants express
any difficulty, within a period of three weeks, the Cost Accounts Wing of
Neyvely Lignite Corporation Ltd., shall undertake the assignment as directed
above.

6. Call these matters in February, 2008. B
B.B.B. Matters adjourned.