Indian Railways Not a Deemed Distribution Licensee Under Electricity Act

The Supreme Court has settled a long-running dispute between Indian Railways and several State Distribution Companies over whether the Railways can claim the status of a Deemed Distribution Licensee under the Electricity Act, 2003. A bench of Justice Dipankar Datta and Justice Satish Chandra Sharma, in a judgment authored by Justice Sharma, dismissed eight statutory appeals filed by Indian Railways under Section 125 of the Electricity Act and upheld the common judgment of the Appellate Tribunal for Electricity dated 12 February 2024.

Background

The controversy began when Indian Railways, by a letter dated 17 March 2015, sought connectivity from the Maharashtra State Electricity Transmission Co. Ltd. to procure 100 MW of power from Gujarat Urja Vikas Nigam for 16 traction substations of the Central and Western Railways through inter-state open access. MSETCL declined and asked the Railways to first obtain an order on its status as a Deemed Distribution Licensee.

The Railways approached the Central Electricity Regulatory Commission, relying on a Ministry of Power letter dated 6 May 2014 which stated that Railways is a deemed licensee under the third proviso to Section 14 of the Electricity Act. CERC, by its order of 5 November 2015, accepted this position. APTEL later set aside that order in a common judgment covering eight connected appeals from various State Electricity Regulatory Commissions and DISCOMs, including those of West Bengal, Odisha, Kerala, Madhya Pradesh, Rajasthan, Maharashtra, Haryana and Punjab.

Issues Before the Court

Two questions were considered: whether Indian Railways qualifies as a Deemed Distribution Licensee under the third proviso to Section 14 of the Electricity Act, and if so, whether it remains liable to pay Cross-Subsidy Surcharge and Additional Surcharge to distribution licensees for availing open access under Section 42.

Holding

The Court held that the Railways does not pass muster as a deemed distribution licensee under the Act. The deeming fiction in the third proviso to Section 14 could not be extended in the manner urged by the Railways, and the 2014 Ministry of Power letter could not override the statutory framework. The Court also addressed the Railways' reliance on Section 11 of the Railways Act read with Section 173 of the Electricity Act, finding that the authorisation to erect and operate power supply and distribution installations for working the railways did not, by itself, confer the status of a distribution licensee under the Electricity Act.

The Court further observed that reliance on a draft amendment bill could not assist the Railways, and that as a Central Government entity it was bound by principles of consistency and could not approbate and reprobate.

Consequences

The Railways cannot escape liability for Cross-Subsidy Surcharge and Additional Surcharge as a consumer of electricity availing open access. The respondent DISCOMs were directed to compute and issue detailed calculations of the outstanding surcharge amounts, disaggregated by area of supply and period of open access. The Railways must be given a reasonable opportunity to respond, with disputes subject to judicial scrutiny of the appropriate Commission. All appeals were dismissed with no order as to costs.

Takeaway

Large Central Government consumers procuring power through open access cannot avoid Cross-Subsidy Surcharge and Additional Surcharge by claiming deemed licensee status outside the statutory framework of Section 14.