U.P. POWER CORPORATION LTD.versusN.T.P.C. LTD. & ORS.

                    [2013] 9 S.C.R. 805


            U.P. POWER CORPORATION LTD.                          A
                              v.
                    N.T.P.C. LTD. & ORS.
              (Civil Appeal No. 4117 of 2006)
                   SEPTEMBER 18, 2013
                                                                 B
       [T.S. THAKUR AND VIKRAMAJIT SEN, JJ.]

   CENTRAL     ELECTRICITY      REGULA TORY
COMMISSION (TERMS AND CONDITIONS FOR
DETERMINATION OF TARIFF) REGULATIONS, 2001:                      c
      Regulation 2.5 read with Regulation 1.9 - Taking over of
Thermal Power Station - Excess expenditure - Fixation of tariff
- Relevant period being 1.4.2001 to 31.3.2004 - Held: Basis
for fixation of tariff has to be the "actual capital expenditure" D
incurred on the completion of the project -- But where the
actual expenditure exceeds the approved expenditure, the
excess so incurred can be taken into consideration to the
extent the same is allowed by Central Electricity Authority or
an appropriate independent agency nominated for the E
purpose - This implies that the excess expenditure must go
through a process of scrutiny either by CEA or the
independent agency before it can constitute an input for
determination of tariff - Scrutiny of the excess would in tum
primarily involve examination of two distinct aspects: (a)
Whether the excess expenditure has been actually incurred F
or is a make believe or an exaggeration by the generating
company; and (b) Whether the expenditure was capital in
nature - In the instant case, CERC had on a prudent check
disallowed a substantial part of the excess that was claimed
by respondent-NTPC and the claim allowed had been G
conceded by appellant-Corporation to have been actually
spent by respondent for completion of project.

    Regulation 2.5 - Fixation of tariff - Reference to CEA or
                              805                                H
    806      SUPREME COURT REPORTS                  [2013] 9 S.C.R.


A   independent agency - Held: In the instant case, prayer for
    additional capitalisation was made by respondent-Corporation
    and considered by CERC after Electricity Act 2003 had come
    into force, repealing the earlier enactments - The new
    legislation did not set out any role for CEA, in the matter of
B   approval of schemes for generating companies or the capital
    expenditure for the completion of such projects - CERC was,
    therefore, right in holding that Central Electricity Authority had
    no part to play in the matter of approval for purposes of
    capitalisation of the extra expenditure incurred on a project -
C   However, on facts, since the issue of actual expenditure had
    been concluded by the admission of appellant, and in the
    absence of any question relating to the nature of the
    expenditure, the absence of a reference to CEA cannot be
    said to have caused any miscarriage of justice for the
    appellant or vitiated the tariff fixation by the CERC.
0
          ELECTRICITY ACT, 2003:

         s. 70 ands. 73 read with s. 61 proviso, and Regulation 2.5
    of Regulations of 2001 - Fixation of tariff - Capital expenditure
E   - Excess expenditure - Determination - Reference to CEA -
    Held: The far reaching changes that came about in the legal
    framework with the enactment of the 2003 Act, made
    Regulation 2.5 redundant in so far as the same envisaged a
    reference to CEA or an Independent Agency for approval of
    the additional capitalisation - Insistence on a reference, to
F
    CEA for such approval, despite the sea change in the legal
    framework would have been both unnecessary as well as
    opposed to the spirit of new law that reduced the role of CEA
    to what has been specified in s. 73.

G        The respondent-National Thermal Power Corporation
    (NTPC) took over the Thermal Power Station in question
    from the erstwhile U.P. State Electricity Board on
    13.02.1992, on an approved project cost of Rs.927 .85
    crores. On a petition filed by NTPC for approval of tariff
H   for the tariff period 01.04.2001 to 31.03.2004 in respect of
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 807
                  ORS.
the generating plant in question, the Central Electricity A
Regulatory Commission (CERC) by an Order dated
24.10.2003 approved the tariff taking into consideration
the capital cost at Rs.940.70 crores as on 01.04.2001 but
did not consider the additional capitalisation claimed by
the respondent since the same was based only on an 8
estimated capital expenditure and was unsupported by
an auditor's certificate. The respondent-NTPC then
moved a petition before the CERC seeking approval of
the revised fixed charges in respect of the generating
plant for the relevant tariff period taking into account the c
additional capital expenditure incurred during the said
period which was estimated at Rs.6.101 crores. The
CERC disposed of the said petition approving an amount ,
of Rs.4.521 crores towards capital expenditure, but
holding that the respondent would not be entitled to tariff D
revision during the relevant period. It, however, held
respondent-NTPC entitled to the return on equity and
interest on loan on the said amount payable along with
the tariff for the period 2004-2009. Both the CERC and the
Appellate Tribunal rejected the contention of the
appellant-Corporation that the additional capital E
expenditure incurred by the respondent-NTPC could not
be taken into consideration for tariff fixation without the
same having been approved by the Central Electricity
Authority (CEA) as required under Regulation 2.5 of the
CERC (Terms and Conditions for Determination of Tariff) F
Regulations, 2001. Aggrieved, the U. P. Power
Corporation Ltd. filed the appeal.

     The questions for consideration before the Court
were: (1) "What is the true scope and ambit of Regulation   G
2.5 of CERC (Terms and Conditions for Determination of
Tariff) Regulations, 2001 "; and (2) "Whether the CERC
could have allowed the additional capitalization which
was not approved by the concerned authority i.e. Central
Electricity Authority".                                     H
    808      SUPREME COURT REPORTS              [2013] 9 S.C.R.


A         Dismissing the appeals, the Court

         HELD: 1.1 A plain reading of Regulation 2.5 read with
    Regulation 1.9 of the Central Electricity Regulatory
    Commission (Terms And Conditions For Determination
    Of Tariff) Regulations, 2001 makes it manifest that the
8
    basis for fixation has to be the "actual capital
    expenditure" incurred on the completion of the project.
    But where the actual expenditure exceeds the approved
    expenditure the excess so incurred can be taken into
    consideration to the extent the same is allowed by the
C   Central Electricity Authority or an appropriate
    independent agency nominated for the purpose. This
    implies that the excess expenditure must go through a
    process of scrutiny either by the CEA or the independent
    agency before it can constitute an input for determination
D   of the tariff. Scrutiny of the excess would in turn primarily
    involve examination of two distinct aspects viz: (a)
    Whether the excess expenditure has been actually
    incurred or is a make believe or an exaggeration by the
    generating company; and (b) Whether the expenditure
E   was capital in nature. In cases where the answers to
    these two questions is in the affirmative, the CEA or the
    independent agency would have no reason to disallow
    such expenditure, nor would its consideration for tariff
    fixation present any difficulty. In case a lesser amount is
F   allowed by the CEA or the independent agency either
    because the generating company fails to substantiate its
    claim of having incurred the expenditure as claimed or
    even if the amount is incurred, only a part of the same
    was in the nature of capital expenditure, the lesser
G   amount alone will constitute an input for tariff
    determination. [Paras 13 and 14] [817-G-H; 818-A-E]

         1.2 In the instant case, the appellant-Corporation had
    fairly conceded that an amount of Rs.4.521 crores was
    indeed spent by the respondent for the completion of the
H
 U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 809
                   ORS.
project. This Court, therefore, holds that the first of the        A
two aspects that may have engaged the attention of the
CEA or the independent agency was concluded by the
admission of the appellant, which was the best evidence,
in the matter apart from the fact that the figure arrived at
by the CERC was based on a fair and prudent check of               B
the extent of admissible expenditure said to have been
incurred. [Pa~a 14-15] [818-H; 819-A, E-F]

    1.3 As regards the second aspect viz. whether the
expenditure was capital or revenue in nature, which, any           C
scrutiny or examination by the CEA may have involved,
the CERC has found the expenditure to be capital in
nature which finding has been affirmed by the Appellate
Tribunal. There is nothing perverse about that finding nor
has the appeal been admitted on the question whether
the expenditure was capital or revenue. [para 16] [819-G-          D
H; 820-A]

        2.1 Absence of a reference under Regulation 2.5 to
  the CEA or independent agency would make little or no
  difference having regard to the facts of the case at hand.       E
  This is because, although the respondent-NTPC had
  claimed an excess expenditure of Rs.6.101 crores, the
  amount actually taken into consideration for fixation of
  the tariff was Rs.4.521 crores only. The CERC had on a
  prudent check disallowed a substantial part of the excess        F
. that was claimed by the respondent-NTPC. In the absence
  of any question relating to the nature of the expenditure,
  the absence of a reference to CEA cannot be said to have
  caused any miscarriage of justice for the appellant or
  vitiated the tariff fixation by the CERC. It follows that even   G
  if a reference to CEA was in the facts of the case requir~d
  to be made, the absence of any failure of justice or
  prejudice would render it unnecessary for this Court to
  interfere with the orders passed by the CERC and the
  Appellate Tribunal. [Para 14 and 16] [818-F-G; 819-A-C]
                                                                   H
    810    SUPREME COURT REPORTS              (2013] 9 S.C.R.


A      2.2 So far as the question whether or not a reference
  to CEA was necessary under Regulation 2.5, is
  concerned, the prayer for additional capitalisation was
  made by the respondent-Corporation and considered by
  CERC after the Electricity Act 2003 had come into force,
B repealing the earlier enactments. The new legislation did
  not set out any role for the CEA, in the matter of approval
  of the schemes for the generating companies or the
  capital expenditure for the completion of such projects.
  The entire exercise touching the regulation of the tariff of
c generating companies owned or controlled by the Central
  Government, like the respondent was entrusted to the
  Central Commission. The role of the Central Electricity
  Authority established u/s. 7 of the 2003 Act, was limited
  to matters enumerated u/s. 73 of the Act, approval of the
0 scheme for generating companies or the capital
  expenditure for the completion of such projects or
  capitalisation of the additional expenditure not being one
  such function. The CERC was, therefore, right in holding
  that the Central Electricity Authority had no part to play
E in the matter of approval for purposes of capitalisation of
  the extra expenditure incurred on a project. That was so
  notwithstanding the continuance of Regulation 2.5 of the
  regulations framed by the CERC providing for such an
  approval by the CEA. [Paras 17 and 22) [820-C; 824-A-E]

F      2.3 The far reaching changes that came about in the
  legal framework with the enactment of the 2003 Act, made
  Regulation 2.5 redundant in so far as the same envisaged
  a reference to the CEA or an Independent Agency for
  approval of the additional capitalisation. Insistence on a
G reference, to the CEA for such approval, despite the sea
  change in the legal framework would have been both
  unnecessary as well as opposed to the spirit of new law
  that reduced the role of CEA to what has been specified
  in s.73 of the Act. The CERC and the Tribunal were in that
H view justified in holding that a reference to the CEA was
 U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 811
                   ORS.
not indicated nor did the absence of such a reference               A
denude the CERC of its authority to fix the tariff after the
2003 Act had come into force. That was so
notwithstanding the fact that proviso to s. 61 of the
Electricity Act, 2003 continued the terms and conditions
for determination of tariff under the enactments                    B
mentioned therein and those specified in the Schedule
for a period of one year or till such terms were specified
under that section whichever was earlier. [Para 22] [824-
E-H; 825-A-B]

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.                 C
4117 of 2006.

     From the Judgment and Order dated 07.07.2006 of the
Appellate Tribunal for Electricity, New Delhi in Appeal No. 36
of 2006.                                                            D
                                WITH
C.A. Nos. 5361-5362 of 2007.
     Pradeep Misra, Suraj Singh for the Appellant.
                                                                    E
     M.G. Ramachandran, K.V. Mohan, Rakesh K. Sharma for
the Respondents.
    The Judgment of the Court was delivered by
     T.S. THAKUR, J. 1. This appeal under Section 125 of the        F
Electricity Act, 2003 calls in question the correctness of a
Judgment and Order dated 7th July, 2006 passed by the
Appellate Tribunal for Electricity whereby the Tribunal has while
partially modifying the Order passed by the Central Electricity
Regulatory Commission ('CERC' for short) dismissed Appeal           G
No.36 of 2006 filed by the appellant.
    2. The CERC had by the Order impugned before the
Tribunal allowed Petition No.139 of 2004 filed by the
respondent-Corporation and permitted capitalisation of
Rs.4.521 crores over the approved cost for the completion of        H
    812     SUPREME COURT REPORTS                    [2013] 9 S.C.R.


A Feroz Gandhi Unchahar Thermal Power Station Stage-I for the
  period 1st April, 2001 to 31st March, 2004. While doing so the
  CERC had in Para 37 of its Order held respondent No.1 entitled
  to return on equity and interest on loan on the said amount
  payable along with the tariff for the period 2004-2009. What is
B significant is that both the CERC and the Appellate Tribunal
  rejected the contention urged on behalf of the appellant-
  Corporation that the additional capital expenditure incurred by
  the respondent-Corporation could not be taken into
  consideration for tariff fixation without the same having been
c approved by the Central Electricity Authority ("CEA" for short)
  as required under Regulation 2.5 of the CERC (Terms and
  Conditions for Determination of Tariff) Regulations, 2001. The
  primary question that therefore falls for consideration in this
  appeal is whether the CERC and the Tribunal have correctly
D interpreted Regulation 2.5 of the said regulations while
  permitting capitalisation of the additional expenditure for
  purposes of determining the tariff. That question arises in the
  following factual backdrop:

       3. Feroz Gandhi Unchahar Thermal Power Station Stage-
E I was taken over by the respondent-National Thermal Power
  Corporation from the erstwhile U.P. State Electricity Board on
  13th February, 1992. The Central Government had approved
  the takeover cost of Rs.925 crores in terms of a communication
  dated 2nd May, 1993 issued by the Ministry of Power. By a
F subsequent letter dated 5th August, 1996 the CEA accorded
  approval for an additional Rs.2.85 crores for R&M under
  Environment Action Plan, thereby taking the total approved
  project cost to Rs.927.85 crores.

        4. The CERC (Terms & Conditions for Determination of
G Tariff) Regulations, 2001 for the period 1st April, 2001 to 31st
  March, 2004 came to be notified on 26th March, 2001, pursuant
  whereto the respondent-Corporation filed Petition No.41 of
  2001 for approval of tariff for the relevant tariff period in respect
  of the generating plant in question. By an Order dated 24th
H
 U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 813
             ORS. [T.S. THAKUR, J.]
October, 2003, the CERC approved the tariff taking into                A
consideration the capital cost at Rs.940.70 crores as on 1st
April, 2001 but did not consider the additional capitalisation
claimed by the respondent since the latter was based only on
an estimated capital expenditure and was unsupported by an
auditor's certificate. Respondent-Corporation then moved               B
petition No.139 of 2004 before the CERC on 5th October, 2004
seeking approval of the revised fixed charges in respect of the
generating plant for the relevant tariff period taking into account
the additional capital expenditure incurred during the said
period which was estimated at Rs.6.101 crores. By an order             c
dated 31st March, 2005, the CERC disposed of the said
petition approving an amount of Rs.4.521 crores towards
capital expenditure while disallowing the rest.

      5. The CERC held that the respondent would not be
entitled to tariff revision during the relevant period in the light    D
of Regulation 1.10 of the CERC Regulations which prohibited
allowance of an additional capital expenditure, if such
expenditure happened to be less than 20 per cent of the
approved project cost. It all the same held in Para 37 of its
Order that the respondent was entitled to relief in the form of        E
return on equity at the rate of 16% and interest on loan on the
approved additional capital expenditure for the period 2004-
2009. The CERC observed :

     "37. As there is nothing in the notification dated 26.3.2001      F
     to deny the petitioner the reasonable return to service the
     capital expenditure incurred by the petitioner and found to
     be justified by us, we direct that the petitioner shall earn
     return on equity @ 16% on the equity portion of the
     additional capitalization approved by us. Similarly, the          G
     petitioner shall also be entitled to the interest on loan as
     applicable during the relevant period. Return on equity and
     interest shall be worked out on the additional capitalization
     of Rs.4.521 crore approved by us from 1st April of the
     financial year following the financial year to which additional
                                                                       H
    814       SUPREME COURT REPORTS                 [2013] 9 S.C.R.


A         capital expenditure relates up to 31.3.2004. The lump sum
          of the amount of return on equity and interest on loan so
          arrived at shall be payable by the respondents along with
          the tariff for the period 2004-09 to be approved by the
          Commission. The exact entitlement of the petitioner on this
B         account shall be considered by the Commission while
          approving tariff for the period 2004-09."

          6. Aggrieved by the order passed by the CERC the
    appellant-Corporation approached the Appellate Tribunal for
    Electricity in Appeal No.36 of 2006. The appellant thereby
C   questioned the CERC's authority to approve the additional
    capital expenditure of Rs.4.521 crores as also the power to
    award relief in the nature specified in para 37 supra. It was
    contended on behalf of the Corporation that in the absence of
    approval of the expenditure by CEA as required under
D   Regulation 2.5 of the CERC Regulations, the CERC had no
    authority to hold that the respondent-NTPC was entitled to
    additional capitalisation. The Appellate Tribunal for Electricity,
    however, repelled that contention and dismissed the appeal
    filed by the appellant on the ground that CERC's approval of
E   additional capitalisation to the tune of Rs.4.521 crores did not
    call for any interference and that the respondent-Corporation
    had placed sufficient material before the CERC to substantiate
    its claim. The Tribunal declared that the CERC was empowered
    to undertake a prudent check and approve additional
F   capitalisation after the deletion of Section 43-A(2) of the
    Electricity (Supply) Act, 1948 because of which deletion CEA
    ceased to have any role in such matters. The Tribunal further
    held that the project had been originally approved by CEA as
    far back as on 5th August, 1986 and was taken over while still
G   incomplete by the respondent-NTPC in 1992. The incomplete
    items were then completed by the respondent NTPC after the
    takeover which required investment of additional capital. The
    Tribunal was, therefore, of the view that the additional capital
    was well within the approved cost of the project which remained
H   unexecuted on the date of vesting. The Appellate Tribunal,
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 815
            ORS. [T.S. THAKUR, J.]
however, accepted the appellant's contention that the relief       A
regarding the return on equity and interest on loan could not be
granted until the next tariff period. Consequently the Tribunal
directed deletion of Para 37 of the CERC's order giving liberty
to the CERC to take the said relief into consideration while
determining the tariff for the next period. The present appeal     s
assails the correctness of the view taken by the CERC and the
Appellate Tribunal.

    7. When this appeal came up for admission on 29th
September, 2006, this Court admitted the same only to              C
examine the following two questions:

     "a. What is the true scope and ambit of Regulation 2.5 of
     CERC (Terms and Conditions for Determination of Tariff)
     Regulations, 2001?
                                                                   D
     b.xxxxxxx
     c.xxxxxxx
    d.    Whether the CERC could have allowed the
    additional capitalization which was not approved by the        E
    concerned authority i.e. Central Electricity Authority?

    e. xxxxxxx"

     8. Appearing for the appellant Mr. Pradeep Misra
strenuously contended that the CERC and so also the F
Appellate Tribunal had failed to correctly interpret Regulation
2.5 of the Regulations in question. He submitted that Regulation ·
2.5 of the Regulations was much too clear to admit of any
equivocation. A plain reading of the Regulation, argued Mr.
Misra, left no manner of doubt that any additional capital G
expenditure incurred on the completion of the project could be
taken into consideration for fixation of tariff only if such excess
was allowed by the CEA or an appropriate independent agency
constituted under the said Regulations. So long as the capital
expenditure incurred in excess of the approved expenditure did H
    816     SUPREME COURT REPORTS                  [2013] 9 S.C.R.

A not have the sanction of the CEA or the independent agency
  nominated by the CERC, the same could not, according to the
  learned Counsel, constitute a valid input for fixing the tariff. No
  such approval having been sought or granted either by the CEA
  or any independent agency in this case, the CERC could not
B have taken the additional capital expenditure into consideration
  for purposes of fixing the tariff. It was also contended that the
  CERC as also the Appellate Tribunal had fallen in error in
  holding that deletion of Section 43A(2) of the Electricity
  (Supply) Act, 1948 made a reference to the CEA in terms of
c Regulation 2.5 of the Regulations unnecessary. The deletion of
  Section 43A(2) notwithstanding, the CEA continued to exercise
  powers in terms of Sections 28 to 32 of the Act. The statutory
  requirement of an approval from the CEA of the additional cost
  had not, therefore, been rendered a surplusage by reason of
  the removal of Section 43A(2) from the statute book.
0
        9. On behalf of the respondent it was contended by Mr.
  Ramachandran that the CERC as also the Tribunal were
  perfectly justified in taking into consideration the additional
  expenditure incurred on the completion of the project, not only
E because there was no dispute that such an expenditure had in
  fact been incurred but also because the said expenditure was
  found to be capital in nature. The question of an approval from
  the CEA or the independent agency was, therefore, rendered
  academic in the facts and circumstances of the case.
F
        10. It was further argued that since the appellant itself
  accepted the expenditure to have been incurred and the nature
  of the expenditure having been found to be capital in character,
  the CEA or the independent agency could not have, even if a
  reference was made, declined approval to the same. It was also
G argued that the deletion of Section 43A(2) of the Electricity
  (Supply) Act, 1948 from the statute book made a material
  difference and that the CERC and the Tribunal had correctly
  held that a reference to the CEA or independent agency was
  on that count unnecessary.
H
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 817
            ORS. [T.S. THAKUR, J.]
     11. Regulation 2.5 of the Regulations reads as under:            A

     "2.5 Capital Expenditure

     The capital expenditure of the project shall be financed as
     per the approved financial package set out in the techno-
     economic clearance of the Authority or as approved by an         B
     appropriate independent agency as the case may be. The
     project cost shall include reasonable amount of capitalized
     initial spares.

     The actual capital expenditure incurred on completion of         c
     the project shall form the basis for fixation of tariff. Where
     the actual expenditure exceeds the approved project cost,
     the excess expenditure as allowed by the Authority or an
     appropriate independent agency shall be considered for
     the purpose of fixation of tariff.                               D

     Provided that such excess expenditure is not attributable
     to the Generating Company or its suppliers or contractors;

     Provided further that where a Power Purchase Agreement
     entered into between the Generating Company and the              E
     beneficiary provides a ceiling on capital expenditure, the
     capital expenditure shall not exceed such ceiling for
     computation of tariff."

    12. The term "independent agency" referred to in the
                                                                      F
above Regulation is defined in regulation 1.9 as under:

     "1.9 'Independent agency' means the agency approved by
     the Commission by a separate notification."

      13. A plain reading of the above makes i it manifest that       G
the basis for fixation has to be the "actual capital expenditure"
incurred on the completion of the project. But where the actual
expenditure exceeds the approved expenditure the excess so
incurred can be taken into consideration to the extent the same
is allowed by the Central Electricity Authority or an appropriate     H
    818         SUPREME COURT REPORTS               [2013) 9 S.C.R.


A independent agency nominated for the purpose. This implies
  that the excess expenditure must go through a process of
  scrutiny either by the CEA or the independent agency before it
  can constitute an input for determination of the tariff. Scrutiny
  of the excess would in turn primarily involve examination of two .
B distinct aspects viz.

          (a)    Whether the excess expenditure has been actually
                 incurred or is a make believe or an exaggeration
                 by the generating company; and

C         (b)    Whether the expenditure was capital in nature.

       14. In cases where the answers to these two questions is
  in the affirmative, the CEA or the Independent Agency would
  have no reason to disallow such expenditure, nor would its
0 consideration for tariff fixation present any difficulty. In case a
  lesser amount is allowed by the CEA or the Independent
  Agency either because the generating company fails to
  substantiate its claim of having incurred the expenditure as
  claimed or even if the amount is incurred, only a part of the
E same was in the nature of capital expenditure, the lesser
  amount alone will constitute an input for tariff determination. To
  that extent, there is no difficulty nor was Mr. Misra, Counsel for
  the appellant, able to suggest any other dimension which the
  CEA or the Independent Agency would be entitled to consider
F while examining the question of allowing or disallowing the
  excess expenditure incurred by the generating unit. If that be
  so, absence of a reference under Regulation 2.5 (supra) to the
  CEA or Independent Agency would make little or no difference
  having regard to the facts of the case at hand. We say so
  because although the respondent-Corporation had claimed an
G excess expenditure of Rs.6.101 crores the amount actually
  taken into consideration for fixation of the tariff was Rs.4.521
  crores only. The CERC had on a prudent check disallowed a
  substantial" part of the excess that was claimed by the
  respondent-Corporation. What is significant is that the appellant-
H Corporation had fairly conceded that an amount of Rs.4.521
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 819
            ORS. [T.S. THAKUR, J.]
crores was indeed spent by the respondent for the completion         A
of the project. That is evident from the following observation of
the Electricity Appellate Tribunal, where Mr. Misra learned
counsel for the appellant made a candid admission as to the
extent of the expenditure incurred over and above the approved
Project cost:                                                        B

    "Mr. Pradeep Misra, learned counsel for the appellant,
    while relying on Regulation 1.10 which provides that there
    shall be no tariff revision if the capital expenditure is less
    than 20% of the approved cost of the project contended
    that there could be no tariff revision at all much less the      C
    appellant shall be made liable to pay 16% ROE as well
    as interest as directed in Para 37 of the Impugned Order
    under challenge. Mr. Pradeep Misra also contended that
    the claim of this additional expenditure. under five Heads.
    are not disputed but they are only maintenance                   D
    expenditure. It was also contended by the learned counsel
    that in the absence of approval of expenditure by CEA and
    there being no proof of such approval, CERC has no
    authority to hold that NTPC had incurred additional capital
    expenditure and entitled to. additional capitalisation."         E

                                           (emphasis supplied)

      15. From the above, we have no difficulty in holding that
the first of the two aspects that may have engaged the attention
of the CEA or the Independent Agency was concluded by the
                                                                 F
admission of the appellant, which was the best evidence, in the
matter apart from the fact that the figure arrived at by the
Commission was based on a fair and prudent check of the ,
extent of admissible expenditure said to have bee;n incurred.
                                                                 G
      16. That leaves us with the second aspect which, any
scrutiny or examination by the CEA may have involved viz.
whether the expenditure was capital or revenue in nature. The
CERC has found the expenditure to be capital in nature which
finding has been affirmed by the Appellate Tribunal. There is H
    820      SUPREME COURT REPORTS                  [2013) 9 S.C.R.


A nothing perverse about that finding in our opinion nor has this
  appeal been admitted on the question whether the expenditure
  was capital or revenue. In the absence of any question relating
  to the nature of the expenditure, we find it difficult to appreciate
  how the absence of a reference to CEA has caused any
B miscarriage of justice for the appellant or vitiated the tariff
  fixation by the CERC. It follows that even if a reference to CEA
  was in the facts of the case required to be made, the absence
  of any failure of justice or prejudice would render it unnecessary
  for us to interfere with the orders passed by the CERC and the
c Appellate Tribunal.
      17. Since the question whether or not a reference to CEA
  was necessary under Regulation 2.5 was argued before us at
  some length we may as well deal with the same before parting.
  A reference to the backdrop in which the question arises
D becomes necessary and may be summarised as under:

       18. The Electricity (Supply) Act, 1948 inter alia dealt with
  the generation and supply of electricity by generating
  companies. Chapter V comprising Sections 28 to 58 of the said
E Act dealt with the preparation of schemes by generating
  companies and concurrence of the CEA for such schemes
  including the capital cost to be incurred by these generating
  companies. Section 43A of the Act dealt with sale of electricity
  by the generating companies and provided norms and
F parameters to be determined by the CEA and notified by the
  Government of India. Since much of the debate at the Bar was
  around the said provision and the effect of deletion of sub-
  section (2) thereof, it would be useful to reproduce the same
  at this stage.

G         "43A. Terms, conditions and tariff for sale of
          electricity by Generating Company.- (1) A Generating
          Company may enter into a contract for the sale of
          electricity generated by it-

H               (a) with the Board constituted for the State or any
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 821
            ORS. [T.S. THAKUR, J.]
           of the States in which a generating station owned         A
           or operated by the company is located;

            (b) with the Board constituted for any other State
            in which it is carrying on its activities in pursuance
            of sub-section (3) of section 15A; and
                                                                     B
            (c) with any other person with consent of the
            competent government or governments.

           (2) The tariff for the sale of electricity by a
           Generating Company to the Board shall be                  c
           determined in accordance with the norms regarding
           operation and the Plant Load Factor as may be laid
           down by the Authority and in accordance with the
           rates of depreciation and reasonable return and
           such other factors as may be determined, from time        D
           to time, by the Central Government, by notification
           in the Official Gazette:

                Provided that the terms, conditions and tariff
           for such sale shall, in respect of a Generating
           Company wholly or partly owned by the Central             E
           Government, be such as may be determined by the
           Central Government and in respect of a Generating
           Company wholly or partly owned by one or more
           State Governments be such as may be determined,
           from time to time, by the government or                   F
           governments concerned."

     19. In the year 1998, came the Electricity Regulatory
Commissions Act, 1998, which established the Central
Electricity Regulatory Commission (hereinafter referred to as        G
"the Central Commission"). The Central Commission was inter
alia charged with the function of determining tariffs of Central
Units such as those owned and controlled by the respondent-
Corporation. Significantly enough Section 51 of this Act
empowered the Central Government to delete sub-section (2)
                                                                     H
    822       SUPREME COURT REPORTS                     [2013] 9 S.C.R.


A of Section 43A with effect from such date as the Central
  Government may decide. The Central Government, invoked that
  power and by a notification dated 11th September, 2000,
  directed the deletion of Section 43A (2) of the Electricity Supply
  Act, 1948 in respect of generating companies regulatP.d by the
B Central Commission retrospectively w.e.f. 24th July, 1998.
  Shortly thereafter the Central Commission issued an order in
  regard to operational norms applicable to generating stations
  owned among others by respondent-NTPC. The order was to
  the following effect:
c         "As regards capital costs, the situation is somewhat
          difficult. As the law stands today in respect to PSUs, the
          required approvals from the Government and clearance
          from CEA have to be obtained before the commencement
          of the project, subject to certain limits for which no
D         clearance is required. After the completion of the project,
          if the actual expenditure or the scope of the project vary
          beyond certain limits, they are required to be further
          approved. This process of approval is time consuming,
          resulting in a provisional clearance, making a s~bsequent
E         retrospective revision inevitable. Changes in legislation
          are being contemplated by which the clearance from CEA
          for projects might be done away with. However, as the law
          stands today, approvals are inevitable. Still it is possible
          to bring about stability in tariff in case a time schedule is
F         worked out by which utilities may submit data of CEA at
          least 6 months prior to the completion of a project, so that
          clearance could be obtained sufficiently in time before the
          tariff for the station/lines is determined. It is hoped that any
          variations on actual finalization of accounts thereafter
G         should be minor in nature which could be absorbed by the
          utility and if substantial, can be taken care of in the next
          revision. In view of the above, all utilities seeking
          determination of tariff in respect of new projects, shall
          submit their applications to us at least 3 months in
H         advance of the anticipated date of completion, along with
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 823
            ORS. [T.S. THAKUR, J.]
     the project cost as approved by the appropriate                   A
     independent authorities, other than the Board of Directors
     of the Company. This project cost will constitute the basis
     for tariff fixation, and no revision would be entertained till
     the next tariff period. This direction presupposes that CEA
     may hereafter, unlike the past, clear capital cost                s
     escalations on factors other than the change in scope as
     well. We would urge upon CEA to consider and deal with
     the approval of additional capital costs other than those
     due to change in the scope of the project as well, in the
     interest of avoidance of tariff shocks down stream. In case       c
     the projects exempted from CEA clearance, the
     Commission would consider accepting a due diligence
     clearance from any recognised agency."

      20. The above was followed by the Central Commission
framing Tariff Regulations 2001, in which Regulation 2.5               D
extracted earlier dealt with capital expenditure. It was in the
above background that the Central Commission determined the
Tariff for the generating unit in question for the period 1st April,
1997 to 31st March, 2001 by an order dated 30th October,
2002. Shortly after that order the Parliament enacted the              E
Electricity Act, 2003 which came into force w.e.f. 10th June,
2003. The new legislation repealed the Electricity (Supply) Act,
1948. The effect of this repeal was that all provisions of the
1948 Act including those requiring approval by the CEA of the
scheme of the generating stations and capital cost which the           F
repealed Act provided for became inapplicable and irrelevant
under the new Act. The new law aimed at deregulating
electricity generation. In the case of Thermal Power Stations
the capital cost was not required to be approved by the CEA,
as was the position under the earlier law.                             G

    21. In Petition No.139 of 2004, the respondent-Corporation
sought additional capitalisation of the expenditure on the project
in question relevant to the period 2001-2004. The Central
Commission determined the additional capitalisation and
                                                                       H
    824      SUPREME COURT REPORTS                    [2013) 9 S.C.R.

A allowed the same to the respondent, which determination was
  upheld by the Tribunal with the modification to which we have
  adverted in the beginning of this order.

          22. There is no gainsaying that the prayer for additional
B   capitalisation was made by the respondent-Corporation and
    considered by CERC after the Electricity Act 2003 had come
    into force, repealing the earlier enactments. The new legislation
    did not set out any role for the CEA, in the matter of approval
    of the schemes for the generating companies or the capital
    expenditure for the completion of such projects. The entire
C   exercise touching the regulation of the tariff of generating
    companies owned or controlled by the Central Government, like
    the respondent was entrusted to the Central Commission. The
    role of the Central Electricity Authority established under
    Section 7 of the 2003 Act, was limited to matters enumerated
D   under Section 73 of the Act, approval of the scheme for
    generating companies or the capital expenditure for the
    completion of such projects or capitalisation of the additional
    expenditure not being one such function. The CERC was,
    therefore, right when it said that the Central Electricity Authority
E   had no part to play in the matter of approval for purposes of
    capitalisation of the extra expenditure incurred on a project.
    That was so notwithstanding the continuance of Regulation 2.5
    of the regulations framed by the CERC providing for such an
    approval by the CEA. The far reaching changes that came
F   about in the legal framework with the enactment of the 2003
    Act, made Regulation 2.5 redundant in so far as the same
    envisaged a reference to the CEA or an Independent Agency
    for approval of the additional capitalisation. Insistence on a
    reference, to the CEA for such approval, despite the sea
G   change in the legal framework would have been both
    unnecessary as well as opposed to the spirit of new law that
    reduced the role of CEA to what was specified in Section 73
    of the Act. The CERC and the Tribunal were in that view justified
    in holding that a reference to the CEA was not indicated nor
H   did the absence of such a reference denude the CERC of its
U.P. POWER CORPORATION LTD. v. N.T.P.C. LTD. & 825
            ORS. [T.S. THAKUR, J.]
authority to fix the tariff after the 2003 Act had come into force.   A
That was so notwithstanding the fact that proviso to Section 61
of the Electricity Act, 2003 continued the terms and conditions
for determination of tariff under the enactments mentioned
therein and those specified in the Schedule for a period of one
year or till such terms were specified under that section             B
whichever was earlier. In the result this appeal fails and is
hereby dismissed with costs assessed at Rs.50,000/-.

Civil Appeal Nos.5361-5362 of 2007

     23. In these appeals the order impugned by the appellant         C
places reliance upon the order passed by the Tribunal, in
Appeal No.36 of 2006 against which order we have in the
foregoing part of this judgment dismissed the appeal preferred
by the appellant. On a parity of reasoning these appeals are
also destined to be dismissed and are, accordingly, dismissed         D
with costs assessed at Rs.50,000/-.

R.P.                                        Appeals dismissed.