Allowed

M/S Shree Renuka Sugars Limited v. State of Karnataka

Karnataka HC23 Jul 2024WP/1509/2024

Case brief

AI extract

What is this about?

The Court struck down a condition granting a prompt-payment rebate to distribution licensees imposed by the State under Section 11 of the Electricity Act. The Court held that the State cannot grant rebates that detrimentally affect the generating company while requisitioning power in public interest. The petition was allowed, and licensees were directed to refund the rebate amount.

What did the court decide?

Impugned order clause quashed; distribution licensees directed to refund rebate of Rs.15,66,280.87 to the generating company.

M/S Shree Renuka Sugars Limited Vs State of Karnataka — Service and Employment | Karnataka HC (2024)

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NC: 2024:KHC:28822 WP No. 1509 of 2024

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IN THE HIGH COURT OF KARNATAKA AT BENGALURU

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DATED THIS THE 23^RD DAY OF JULY, 2024

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BEFORE

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THE HON'BLE MR JUSTICE N S SANJAY GOWDA WRIT PETITION NO. 1509 OF 2024 (GM-KEB)

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BETWEEN:

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M/S SHREE RENUKA SUGARS LIMITED, A COMPANY REGISTERED UNDER

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THE COMPANIES ACT, 1956,

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HAVING ITS ADMINISTRATIVE OFFICE AT

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No.7, (OLD No.24), 1^ST & 2^ND FLOORS,

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‘SUNANJAYA’, 1^ST CROSS, KUMARA KOT ROAD,

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BEHIND HOTEL JANARDHAN,

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RACE COURSE ROAD, BENGALURU-560 001. REPRESENTED BY ITS AUTHORISED REPRESENTATIVE/ ASSISTANT MANAGER, SRI. VINAYAK PURNAIK.

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SRI. REVANSIDAPPA KADAKOL, AGED ABOUT 49 YEARS, SHAREHOLDER OF SHREE RENUKA SUGARS, R/O HAVALAGA VILLAGE,

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AFZALPUR, KALABURAGI-585 301.

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Digitally signed by KIRAN KUMAR R Location: HIGH COURT OF KARNATAKA

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…PETITIONERS

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(BY SRI. MANMOHAN.P.N., ADVOCATE FOR PETITIONERS)

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AND:

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STATE OF KARNATAKA, DEPARTMENT OF ENERGY, ROOM No.236, 2^ND FLOOR, VIKASA SOUDHA, DR. B.R.AMBEDKAR STREET,

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BANGALORE-560 001. REPRESENTED BY ADDITIONAL CHIEF SECRETARY.

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STATE LOAD DISPATCH CENTRE, A BODY ESTABLISHED UNDER

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SECTION 31 OF THE ELECTRICITY ACT, 2003,

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NC: 2024:KHC:28822 WP No. 1509 of 2024

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SLDC, RACE COURSE CROSS ROAD, ANAND RAO CIRCLE, BENGALURU-560 009 REPRESENTED BY ITS CHIEF ENGINEER.

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UNION OF INDIA, MINISTRY OF POWER AND NEW & RENEWABLE ENERGY SHRAM SHAKTI BHAWAN, RAFI MARY, NEW DELHI-110 001. REPRESENTED BY SECRETARY.

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CENTRAL ELECTRICITY REGULATORY COMMISSION, A STATUTORY BODY, 3^RD AND 4^TH FLOOR, CHANDERLOK BUILDING, 36, JANPATH, NEW DELHI-110 001. REPRESENTED BY ITS REGISTRAR.

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…RESPONDENTS

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(BY SMT. HEMALATHA.V., AGA FOR R-1; SRI.S.SRIRANGA., SENIOR COUNSEL FOR SUMANA NAGANAND, ADVOCATE FOR R-2; SMT. SINCHANA.M.R., ADVOCATE FOR R-3; SRI. H.SHANTHI BHUSHAN, DSGI, FOR R-4)

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THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE ORDER DATED 16.10.2023 PASSED BY THE R-1 (PRODUCED AS ANNEXURE-J) AND CONSEQUENTLY DIRECT THE R-2 TO ISSUE NOC/PERMIT TO THE PETITIONER TO SUPPLY POWER THROUGH OPEN ACCESS, ETC.

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THIS PETITION HAVING BEEN HEARD AND RESERVED FOR ORDERS ON 05.07.2024, COMING ON FOR PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING

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CORAM: THE HON'BLE MR JUSTICE N S SANJAY GOWDA

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NC: 2024:KHC:28822 WP No. 1509 of 2024

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CAV ORDER

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(PER: THE HON'BLE MR JUSTICE N S SANJAY GOWDA)

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The petitioner herein is a company running sugar factories across the State, and also generates green power using bagasse. The excess power generated was being sold by the petitioner through the Indian Energy Exchange registered with the 4^th respondent (mainly inter-State supply through open access). In this regard, clearance was obtained by the petitioner from the State Load Despatch Centre (“ SLDC ”) on 29.09.2023.

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The petitioner, though initially did not generate requisite surplus power for sale, thereafter attempted to sell the same through open access, and this was denied by the 2^nd respondent stating that due to imposition of the provisions of Section 11 of the Electricity Act, 2003 (“ the

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Act ”), the petitioner’s request for NOC could not be considered.

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3. While so, the State Government formulated a scheme

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under which it decided to supply power to power looms as below:

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a. Free power – up to 10 HP and 250 units per month; and

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b. At Rs.1.25/- per unit – between 10 HP and 20 HP up to 500 units per month.

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In addition to the above, the State Government also

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came up with the Gruha Lakshmi Scheme which was implemented from of August, 2023.

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While so, the State Government, in exercise of the powers conferred to it under Section 11 of the Act, proceeded to issue a direction to the generating companies to supply all the power generated to the distribution licencees, in view of an extraordinary circumstance faced by the State i.e., deficit rainfall. While issuing this direction, the State also imposed certain conditions regarding the rate at which the power was to be

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supplied, as an interim measure and subject to the ultimate determination of the KERC.

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It also imposed a condition — which this petition is targeting — that the distribution licensees would have an incentive in the form of a rebate for prompt payment of the bills raised by the generating companies.

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The petitioner, who is also a generating company, is aggrieved by this direction and has consequently filed the present petition challenging the legality of this direction. During the pendency of this petition, however, the State proceeded to withdraw the direction that it had issued and, thus, the original prayer made in the petition does not survive for consideration.

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However, the petitioner contends that it has the right to maintain the petition, at least insofar as it relates to one of the conditions imposed in the direction, on the ground that the State did not possess the power to impose such a condition, and the licensees have, during the subsistence

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of this direction, availed the benefit of the condition and the same would be illegal, as a consequence of which the financial benefit that they have derived from the petitioner ought to be reimbursed.

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In fact, the counsel appearing for the petitioner has filed a memo restricting his prayer only to the extent of the condition which granted rebate for prompt payment.

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In my view, since a condition was imposed by which rebate was granted and since this rebate was also availed during the subsistence of the direction issued, the prayer of the petitioner insofar as it relates to the grant or rebate would survive for consideration.

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The impugned condition, with which we are now concerned, reads as follows:

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“ Clause 1(d): Rebate of 2% shall be allowed on the bill amount if the payment is made within 5 days from the date of presentation of bill or other wise

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1% shall be allowed if the payments are made

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within 30 days. ”

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It is the case of the petitioner that the State, though conferred with the power to issue directions to a generating company to operate and maintain any generating station under Section 11 of the Act in accordance with its direction, does not however possess the power to grant a financial benefit in the form of an incentive by way of rebate to the distribution licensees. It is therefore contended that said condition be struck down and, as a consequence, direct the distribution licensees to refund the financial benefits availed by them.

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Per contra , it is the case of the distribution licensees that the State does have the power to issue directions that it may deem appropriate and if the generating company has suffered any adverse financial impact, it would be open for it to establish the same before the KERC, before whom proceedings are, in fact, pending, and there is thus no justification to entertain this petition. It is also

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contended that the incentive, in the form of a rebate granted for prompt payment, is the standard norm in the industry and is found in all power purchase agreements (“ PPA ”) and the generating companies cannot therefore contend that this incentive cannot be granted.

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In light of the above contentions, the only question that arises for consideration in this petition is:

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Whether the Government possesses the power to grant rebate to distribution licensees for prompt payment on the bills raised by the generating companies, while issuing a direction in exercise of the power conferred under Section 11 of the Act.

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The Electricity Act, 2003 was enacted with the objective of consolidating the laws relating to the generation, transmission, distribution, trading and use of electricity, and for taking measures conducive for the development of the electricity industry. The Act basically sought to reform the entire industry, which was earlier monopolized by the State undertaking, and sought to

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unbundle the existing structure to create an atmosphere which fostered the generation of electricity and thereby make it available in abundance to the citizens of the country.

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The Act has been divided into 18 parts dealing with various facets of electricity generation, its transmission and also its supply.

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Part III of the Act deals with the generation of electricity, which would be relevant for this petition, and this Part has been divided into five sections.

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Section 7¹ of the Act declares that any generating company could establish, operate and maintain a generating station without obtaining a licence under the Act if it complies with the technical standards relating to connectivity with the grid. Thus, the establishment of a generating station was basically de-licensed by this

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1 7. Generating company and requirement for setting up of generating stations .—Any generating company may establish, operate and maintain a generating station without obtaining a licence under the Act if it complies with the technical standards relating to connectivity with the grid referred to in clause (b) of section 73 of the Electricity Act, 2003 (Central).

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provision and the provision only imposed certain

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conditions for establishing, operating and maintaining a station.

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Section 8 deals with the setting up of a hydrogenerating station and Section 9 provides for construction of a captive generating plant (which would not be relevant for this case).

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Section 10² of Part III imposed the duties on generating companies. It declares that it would be the duty of the generating company to establish the stations, tie lines, sub-stations and dedicated transmission lines in accordance with the provisions of the Act, Rules, and Regulations made thereunder.

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2 10. Duties of generating companies.— (1) Subject to the provisions of this Act, the duties of a generating company shall be to establish, operate and maintain generating stations, tie-lines, sub-stations and dedicated transmission lines connected therewith in accordance with the provisions of the Act or the rules or regulations made thereunder.

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(2) A generating company may supply electricity to any licensee in accordance with the Act and the rules and regulations made thereunder. (3) Every generating company shall,— (a) submit technical details regarding its generating stations to the Commission and the Authority ;

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(b) co-ordinate with the Central Transmission Utility or the State Transmission Utility, as the case may be, for transmission of the electricity generated by it.

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It also enabled the generating company to supply electricity to any licensees in accordance with the Act, the Rules and Regulations specified under the Act, and this supply to any consumer was subject to the regulations made under Section 42(2) of the Act ( relating to the open access and also in determining the wheeling charges payable ).

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The generating company was also mandated to submit technical details regarding its generating stations to the Appropriate Government and coordinate with the Central transmission utility or the State Transmission utility for the transmission of the electricity. This was obviously to keep the State in the loop, so to say, and also monitor the generating capacity of the generating companies, since the generated electricity was to be ultimately transmitted and distributed to the infrastructure which belonged to the State.

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NC: 2024:KHC:28822 WP No. 1509 of 2024

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Section 11 of the Act conferred power to the Appropriate Government to issue directions. This section reads as follows:

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“ 11. Directions to the generating companies .—(1) The Government may specify that a generating company shall, in extraordinary circumstances, operate and maintain any generating station in accordance with the directions as may be issued by the Government.

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Explanation:–– For purposes of this section, the expression “extraordinary circumstances” means circumstances arising out of the threat to security of the State, public order or a natural calamity or such other circumstances arising in the public interest.

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(2) The Commission may offset the adverse financial impact of the directions referred to in sub-section (1) on any generating company in such manner as it considers appropriate.”

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As could be seen from the above provision, the appropriate Government has been conferred the absolute power, in extraordinary circumstances, to specify to the generating company the manner in which it should operate

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and maintain its generating station. Thus, the State,

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though does not own the generating company, has nevertheless been given the absolute power to specify the manner in which a generating station owned by a generating company operates. This is obviously to give the State the power to control the generation of electricity if there arises a situation which, in the larger interest of the public, warrants its intervention.

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The explanation appended to Section 11(1) seeks to explain the term “extraordinary circumstances” found in Section 11(1) and all circumstances indicated therein are fundamentally situations relating to the exercise of the sovereign power of the State to control the resources of the State in the largest public interest.

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Section 11(2), being conscious of the fact that the State was basically appropriating a property which did not belong it, casts an obligation on the State to set-off the adverse financial impact that its direction had caused on a generating company and this is to be determined by the Regulator i.e., the appropriate commission set up under

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NC: 2024:KHC:28822 WP No. 1509 of 2024

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the Act. Thus, essentially, for the loss suffered by the generating company as a result of the directions issued by the State, the law mandates that the Regulatory Commission determine the loss and set-off the financial impact in a manner it deems appropriate.

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To put in simple terms, Section 11 enables the State Government to issue a direction to a generating company in relation to the way its generating station should function and, as a consequence of this direction, if any adverse financial impact is caused on the generating company, the same is to be determined by the regulator and made good by the Government. In essence, this is akin to the power the State possesses for requisition of resources which belong to a citizen in public interest and compensate the citizen who has lost the benefit of his resource. This proposition of law, by itself, does not create any legal difficulty either in its understanding or in its implementation.

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The question that, however, arises for consideration in this case is as to whether the State, while requisitioning a resource in public interest, can also grant a rebate/discount to the entity for whose benefit the resource was requisitioned temporarily, while compensating the person who has lost the resource.

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The answer to this question would necessarily have to be — in the negative .

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Article 300A of the Constitution declares that no

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person shall be deprived of his property except in accordance with law. The law, in this case, does provide for deprivation of the property of a generating company and also for reimbursement of the financial loss caused to it, but in the matter of granting compensation, the State has decided to grant a discount to the entity in the form a rebate for prompt payment. It is the legality of this discount granted in the form of rebate which will have to be examined in the present petition.

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Firstly, the generating company is bound to compensate the loss that it has suffered, and given the fact that the appropriation of electricity that it had generated was forcible and compulsory, there can be no question of granting a discount in the form of rebate while compensating the loss. In fact, in the case of compulsory acquisition, the statutory norm is that a person deprived of his property is not only granted compensation but is also granted a solace in the form of a solatium. A person who is deprived of his property should not be made to suffer twice over i.e., more than the loss that he has suffered, by adding to that loss a discount in the form of a rebate, especially when he has lost his property in public interest. In fact, the person so deprived should be compensated in excess of his loss, given that it was in public interest.

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Secondly, the State while issuing a direction in public interest to a generating company cannot be permitted to confer on itself a benefit which is detrimental to the interests of the person suffering the loss.

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Thirdly, it is to be noticed that the provisions of the Act do not confer any statutory right, to any distribution licensee, for a discount in the form of a rebate for prompt payment. It is to be borne in mind that a distribution licensee is garnering a benefit for itself in acquiring power which it has not generated and which, in fact, entitles the generating company to profit from by selling it in the open market.

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It is therefore clear that the grant of a rebate in the form of a discount cannot be legally sustained and the question framed above is thus answered in the negative and against the State Government as well as the distribution licensee.

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An argument is, however, advanced by the distribution licensee that the discount granted in the form a rebate for prompt payment is the standard norm in the electricity industry in all PPAs and tariff orders, and there was thus no illegality in the grant of a rebate.

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It is to be stated here that a PPA is essentially a contract entered into by two parties after they have arrived at a mutual agreement and this mutually agreed term in a PPA cannot be the yardstick to automatically extend the rebate when it comes to compulsory acquisition of power generated by a generating company. It is to be borne in mind that a generating company is not conferred with the right to oppose the direction and, therefore, it cannot be put to a greater disadvantage when it has already suffered a disadvantage by the compulsory acquisition of the power that it has generated.

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The Regulatory Commission has also not framed a regulation to the effect that any power supplied to a distribution licensee by any generating company attracts a discount to the licensee in the form of a rebate for prompt payment. In fact, it is the duty of the person who purchases power from a generating company to pay for such power and no purchaser can demand a rebate as a matter of right, let alone as a statutory right.

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Another argument is also advanced that this discount

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in the form of a rebate is also a component of the adverse financial impact which could be determined by the Commission before whom a proceeding for determining the adverse financial impact is pending. This argument cannot be accepted for the simple reason that the State fundamentally had no power to grant a rebate and this question, being one related to its statutory exercise of power, cannot really be determined by the Regulatory Commission.

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I am thus of the view that Clause 1(d) of the order dated 16.10.2023, under which a direction was issued under Section 11 of the Act, is illegal and is accordingly struck down.

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In the present case, the petitioner has also filed a memo detailing the rebate that was availed by the distribution licensee in terms of the direction issued under Section 11 of the Act and this rebate availed is also not in dispute. The distribution licensee is therefore directed to

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refund the sum of Rs.15,66,280.87/- that it had availed as

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rebate from the generating company.

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The present writ petition is accordingly allowed and the impugned order, insofar as it relates to the condition in

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Clause 1(d) of said order alone, is quashed .

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Sd/(N S SANJAY GOWDA) JUDGE

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PKS/P List No.: 1 Sl No.: 81

M/S Shree Renuka Sugars Limited v. State of Karnataka

Case brief

What is this about?

What did the court decide?

M/S Shree Renuka Sugars Limited v. State of Karnataka

Case brief

What is this about?

What did the court decide?

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