Does The Term 'Regulate' In S. 79(1) Electricity Act Cover Regulation Of Trade In Electricity Industry? Supreme Court To Decide

In the context of certain clauses of Section 79(1), Electricity Act 2003, the Supreme Court is set to consider the issue as to whether the word "regulate" used therein is limited to framing of regulations or subordinate legislation, or can it extend to regulation of trade in the electricity industry.

"Our attention is drawn to paragraphs 53 to 55 of the Constitution Bench judgment of this Court in “PTC India Limited v. Central Electricity Regulatory Commission, through Secretary” and it is submitted that clauses (b), (c) and (f) to Section 79(1) of the Electricity Act, 2003, which use the expression, “regulate”, is not only restricted to framing or making of regulations or subordinate legislation, but to regulate trade in the electricity industry itself. The present matter requires consideration", a bench of CJI Sanjiv Khanna and Justice Sanjay Kumar recently noted in its order.

The bench was dealing with a petition filed by PTC India Limited against an order of the Delhi High Court, whereby its application under Order 7 Rule 11 CPC for rejection of suit filed by MB Power (Madhya Pradesh) Limited was dismissed.

To briefly put facts of the case, in 2021, PTC India Limited entered into a Power Supply Agreement with Tamil Nadu Generation and Distribution Corporation Limited and executed a back-to-back Power Purchase Agreement with MB Power. In terms of the PPA, State Bank of India issued performance security in the form of a Bank Guarantee on behalf of MB Power in favor of PTC India Limited.

The PPA entailed that certain conditions be fulfilled by the parties, one of which was that PTC India Limited issue a Letter of Credit. Some objections were raised by MB Power with regard to the Letter of Credit and amendments sought. Accordingly to PTC India Limited, the amendments were made but MB Power did not respond. Subsequently, when a communication was sent to MB Power about the amendments, a reply was received that the PPA was deemed terminated as the "Appointed Date" (on which contract was to commence) did not fructify within 120 days of the date of the PPA.

In this backdrop, a suit was filed by MB Power claiming that the Bank Guarantee was being unlawfully withheld by PTC India Limited despite lapse of the PPA. It sought a mandatory and permanent injunction against the defendants invoking the Bank Guarantee.

Before the High Court, PTC India Limited sought rejection of the suit on the ground that it was barred by law. It contended that the underlying transaction was covered by Section 79(1) of the Electricity Act, and as such, the issue ought to be determined by the Central Electricity Regulatory Commission.

Section 79 (Functions of Central Commission), it was argued, grants power to CERC to adjudicate upon disputes involving generating companies or transmission licensee with regard to the matters connected with clauses (a) to (d) of Section 79(1). As per PTC India Limited, the case was covered by Section 79(1)(b), which reads thus: “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 generating and sale of electricity in more than one State."

Another contention raised was that MB Power issued a back-dated letter informing PTC India Limited about the deemed termination of PPA, to wriggle out of its contractual obligations to supply power, with an intent to sell it at a higher price at the power exchange. Until the dispute of the alleged deemed termination of the PPA was decided by the Commission, the issue of Bank Guarantee could not be finally decided, PTC India Limited urged.

MB Power, on the other hand, pointed that it was an admitted case of the parties that the PPA had not commenced, and as such the dispute was not an electricity case, but merely a case of an inchoate agreement without any existing reciprocal promises to be performed by either of the parties. Further, it argued that the suit was maintainable as it did not fall within Section 86(1) or Section 79(1)(f) of the Electricity Act. 

According to MB Power, under Section 79(1)(f), CERC only has power to adjudicate dispute involving generating companies or transmission licensee in regard to matters connected with Section 79(1)(a) to (d), which pertains to determination and regulation of tariff. The instant dispute however did not pertain to tariff for supply of power, it contended.

After hearing the submissions, the High Court concluded, "the agreement for procurement of electricity between the plaintiff and the applicant which is a trading company, stood terminated, and in that sense, there is no agreement or a composite scheme governing the plaintiff and defendant No.2 for generation and sale of electricity...in the absence of any agreement / scheme governing the plaintiff and the defendant No.2 / applicant, there exists no dispute with respect to tariff to be adjudicated by the CERC".

"Therefore, the submission of the learned counsel for the defendant Nos. 2 and 3 that the present matter relates to Section 79(1)(b) and as such needs to be adjudicated by the CERC under Section 79(1)(f) is liable to be rejected. Further, there are no averments in the plaint and/or the documents filed by the plaintiff which shows that the dispute is with regard to tariff of the generating company (plaintiff). In fact, the prayer made is with regard to return of the Bank Guarantee pursuant to termination of the PPA by the plaintiff", it further noted.

Ultimately, the suit of MB Power was held maintainable, with the observation, "The plea that the right of the plaintiff to seek relief squarely entails adjudication of the rights and obligations under the PPA, and can only be done by the Commission is also not appealing in the facts of this case when the PPA has not commenced which governs tariff".

However, it was added that a dispute relatable to tariff for the period when PPA was in operation before termination could be decided by the Commission as the same fell within the ambit of Section 79(1)(b) of the Act.

Challenging the High Court decision, PTC India Limited approached the Supreme Court. While issuing notice in April, 2023, the Court passed an interim order directing that the Bank Guarantee not be encashed.

Insofar as the proceedings stated to be initiated by PTC India Limited before CERC, the Court directed that the same may continue in accordance with law, but the CERC shall not pass the final order, as challenge to the High Court's order is sub-judice before Supreme Court. In the context of the suit before the High Court, it was directed that evidence may not be recorded. 

In the latest order, the interim directions were continued.

Case Title: PTC INDIA LIMITED v. MB POWER (MADHYA PRADESH) LIMITED, SLP(C) No. 5276/2023