/2022 INSC 0933/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 4324 OF 2015
BSES RAJDHANI POWER LTD.  …APPELLANT(S) 
VERSUS
DELHI ELECTRICITY 
REGULATORY COMMISSION …RESPONDENT(S)
WITH
CIVIL APPEAL NO(S). 4323 OF 2015
BSES YAMUNA POWER LTD.  …APPELLANT(S) 
VERSUS
DELHI ELECTRICITY 
REGULATORY COMMISSION …RESPONDENT(S)
J U D G M E N T
S. ABDUL NAZEER, J.
1. These   two   appeals   have   been   filed   by   BSES   Rajdhani   Power
Ltd.   (C.A.   No.4324   of   2015)   and   BSES   Yamuna   Power   Ltd.   (C.A.
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No.4323 of 2015) (hereinafter referred to as ‘Appellants’) challenging
certain findings of the Appellate Tribunal for  Electricity, New Delhi
(‘APTEL’)   in   the   common   judgment   and   order   dated   28.11.2014
(‘Impugned Order’) passed in Appeal Nos.61 and 62 of 2012 (‘Tariff
Appeals’).  The Tariff Appeals were filed by the appellants before the
APTEL   challenging   certain   findings   of   the   Delhi   Electricity
Regulatory   Commission   (‘DERC’)   in   the   Tariff   Order   dated
26.08.2012   for   Truing   Up   of   financials   for   FY   2008­09   and   FY
2009­10   and   Aggregate   Revenue   Requirement   (‘ARR’)   for   FY   2011­
12.     DERC   has   also   filed   appeals   (C.A.   Nos.8660­61   of   2015)
challenging certain findings in the common impugned order and the
said appeals will be heard and decided separately.
2. The Appellants are Distribution Licensees (“Discoms”) in terms
of Section 2(17) of the Electricity Act, 2003 (‘2003 Act’). The primary
function   of   a   Discom   is   to   give   supply   to   any   premises   upon   an
application   being   made   by   a   consumer   in   compliance   with   the
applicable   laws,   including   paying   requisite   charges,   except   where
prevented by force majeure conditions like cyclones or floods.
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3. The   Appellants   purchase   90%   to   95%   of   the   power   from
Central   and   State   Generating   Companies.   Tariff   of   Central
Generating   Stations   is   determined   by   the   Central   Electricity
Regulatory Commission (‘CERC’) and, therefore, the Appellants have
no   control   over   the   tariff   to   be   paid   to   the   Central   Generating
Stations.   Simultaneously,   the   tariff   for   the   State   Generating
Companies is determined by the State Regulator i.e. DERC.
4. It   is   the   case   of   the   Appellants   that   since   privatization,   the
ARR   determined   by   the   DERC   was   not   even   sufficient   to   meet   the
actual   power   purchase   cost   which   has   led   to   creation   of   a   huge
revenue   gap.   It   is   also   contended   that   the   DERC   in   repeated
disregard   to   its   statutory   regulations   and   its   own   statutory   advice
has refused to make periodic increase in the tariff rate. The actions
of the DERC  have resulted in  a situation  where the Appellants are
deeply indebted and have been forced to borrow/take loans to fund
their   day­to­day   operations   which,   in   turn,   have   also   dried   up
leaving   the   Appellants   without   adequate   monies   to   pay   their
suppliers.
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5. The Appellants have challenged the finding of the APTEL in the
Impugned Order on the following issues:
A.  Change in methodology in computation of Aggregate
Technical   and   Commercial   (AT&C)   losses   [Issue   14
in Impugned Order]
B.  Change   in   methodology   for   computation   of
Depreciation [Issue 15 in Impugned Order]
C.  Disallowance   of   salary   for   Fundamental   Rules   and
Supplementary Rules (FR/SR) structure [Issue 23 in
Impugned order]
D.  Disallowance   of   interest   accrued   on   Consumer
Security   Deposit   retained   by   Delhi   Power
Corporation   Limited   (DPCL)   [Issue   29   in   Impugned
Order]
E.  Disallowance   of   Fringe   Benefit   Tax   [Issue   34   in
Impugned Order]
F.  Reduction   in   Million   Units   (MUs)   in   relation   to
Enforcement   sale   for   the   purpose   of   calculation   of
AT&C Loss [Issue 14 in Impugned Order] 
6. It is to be noticed that the above­mentioned Issue ‘C’ has been
challenged   only   by   BSES   Rajdhani   Power   Ltd.   in   C.A.   No.4324   of
2015   while   the   remaining   issues   have   been   challenged   by   both
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BSES   Rajdhani   Power   Ltd.   and   BSES   Yamuna   Power   Ltd.   and   are
subject­matter of C.A. No.4324 of 2015 and C.A.No.4323 of 2015.  
7. The Tariff Appeals were filed by the Appellants challenging the
disallowances   in   their   respective   Tariff   Orders   dated   26.08.2012
passed by the DERC for: 
(a) Determination   of   ARR   and   Tariff   for   FY   2011­12;
and
(b) Truing   up   of   financials   for   FY   2008­09   and   FY   2009­
10.
8. According to the appellants, the present Civil Appeals give rise
to   substantial   questions   of   law   under   Section   125   of   the   2003   Act
on six issues. It is contended that the said substantial questions of
law   have   arisen   primarily   because   the   DERC   has,   inter   alia,
deliberately refused to follow statutory regulations while truing up.
Further, it is contended that APTEL’s Impugned Order has failed to
note   the   illegal   manner   of   truing   up   followed   by   DERC   and,   more
importantly, APTEL has  failed  to  follow  its own rulings in  previous
cases. 
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9. However, the respondents have contended that the appellants
have   entirely   failed   to   establish   the   existence   of   any   substantial
question of law as required under Section 125 of the 2003 Act, read
with Section 100 of the Code of Civil Procedure, 1908 (‘CPC’) on any
of the above issues.  
10. Before   considering   the   detailed   submissions   on   each   of   the
above   issues,   it   is   necessary   to   provide   an   overview   of   the   current
and historical legal framework of electricity laws in India, including
the   tariff   determination   process,   and   the   role   and   powers   of   the
DERC in the tariff determination process.
11. Prior   to  independence,   the   Indian   Electricity   Act,   1910   (‘1910
Act’) governed the supply and use of electrical energy in India. Part­
II of the 1910 Act was related to supply of electricity and contained
provisions concerning:
(a) Grant of license for supply of electricity by the State
Government   in   consultation   with   the   State   Electricity
Boards (“SEB”) and
(b) Obligation   and   rights   of   licensees,   consumers,   etc.
along with other modalities.
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Part­III of the 1910 Act dealt with Supply, Transmission and Use of
Energy   by   Non­licensees.   Part­IV   of   the   1910   Act   provided   for
constitution,   duties   of   advisory   boards   at   the   State   and   Central
levels along with other authorities such as electrical inspectors and
Central   Electricity   Board   (“CEB”).     CEB,   under   Section   37   of   the
1910 Act, was empowered to make rules to regulate the generation,
transmission, supply, and use of energy.  
12. On 10.09.1948, the Electricity (Supply) Act, 1948 (“Supply Act,
1948”)   was   notified   to   provide   for:   (a)   the   rationalization   of   the
production   and   supply   of   electricity,   (b)   taking   of   measures
conducive to electrical development; and (c) all matters incidental to
the   above.   The   Supply   Act,   1948   was   a   more   detailed   and
comprehensive   code   and   provided   for   establishment   of   SEBs   to
control  generation,   distribution,   and  utilization  of  electricity  within
their   respective   states   and   the   Central   Electricity   Authority   (‘CEA’)
for planning and development of the national power system.  
13. On   02.07.1998,   the   Electricity   Regulatory   Commissions   Act,
1998   (‘Commissions   Act,   1998’)   was   notified   with   effect   from
25.04.1998 as an Act to provide for the establishment of a Central
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Electricity   Regulatory   Commission   (“CERC”)   and   State   Electricity
Regulatory   Commission   (“SERC”),   for   rationalization   of   electricity
tariff,   transparent   policies   regarding   subsidies,   promotion   of
efficient   and   environmentally   benign   policies   and   other   matters
connected   therewith   or   incidental   thereto.     Chapter­VI   of   the
Commissions Act, 1998 was related to energy tariff and provided for
the determination of tariff by Central and State Commissions.
14. Insofar   as   the   National   Capital   Territory   (“NCT”)   of   Delhi   is
concerned,  on   08.03.2001,   the  Delhi  Electricity   Reforms   Act,   2000
(“Reforms Act, 2000”) was notified to:
(a) provide   re­structuring   of   the   electricity   industry
(unbundling   of   generation,   transmission,   and
distribution),
(b) increasing avenues for participation of private sector
in the electricity industry; and 
(c) generally,   for   taking   measures   conducive   to   the
development   and   management   of   the   electricity
industry  in an efficient, commercial, economic, and
competitive   manner   in   the   NCT   of   Delhi   and   for
matters connected therewith or incidental thereto.
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15. With   effect   from   01.07.2002,   pursuant   to   the   unbundling,
restructuring   and   reform   of   the   erstwhile   Delhi   Vidyut   Board
(“DVB”) and privatization of distribution of electricity, the appellants
succeeded   to   the   respective   Distribution   Undertakings   and
Business in their area of supply. The appellants have been granted
Distribution   and   Retail   Supply   License   by   DERC   to   undertake
distribution   (wheeling)   and   retail   supply   of   electricity   in   their
respective areas of supply in the NCT of Delhi. From 01.07.2002 till
31.03.2007,  the  Delhi  Transco  Ltd.  (“DTL”) was  entrusted  with   the
responsibility of bulk procurement and bulk supply of power in the
NCT of Delhi.
16. In   the   year   2003,   the   Parliament   repealed   the   previous   three
laws viz., the 1910 Act, the Supply Act, 1948 and the Commissions
Act, 1998, and enacted a comprehensive consolidated law called the
Electricity Act, 2003.  The objectives of the Act are:­
(a) to consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity,
(b) taking   measures   conducive   to   development   of
electricity   industry,   promoting   competition   therein,
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protecting interest of consumers and supply of electricity
to all areas,
(c) rationalization   of   electricity   tariff,   ensuring
transparent   policies   regarding   subsidies,   promotion   of
efficient and environmentally benign policies, 
(d) constitution   of   the   CEA,   Electricity   Regulatory
Commissions,   and   establishment   of   an   Appellate
Tribunal   and   for   matters   connected   therewith   or
incidental thereto.
17. The scheme of the 2003 Act is predicated on consolidating all
laws   governing   electricity   and   repealing   the   existing   laws.     The
legislative   policy   of   distancing   the   Government   from   the   tariff
determination was carried forward in the 2003 Act.  The intent and
purpose of the 2003 Act is to liberalize the electricity sector and to
ensure   that   the   distribution   and   supply   of   electricity   is   conducted
on   commercial   principles.     The   legislature   intended   to   promote
factors   that   encourage   and   reward   efficiency,   competition,
economical   use   of   resources   and   optimum   investments   and
safeguard the interest of the consumers vis­à­vis recovery of cost of
electricity in a reasonable manner as envisaged under Section 61 of
the 2003 Act.  
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18. Being   regulated   licensees   responsible   for   distribution   and
retail supply of electricity  in their  designated areas within the NCT
of   Delhi   in   terms   of   Section   12   of   2003   Act,   the   annual   revenue
requirement of the Appellants to conduct the licensed business and
consequently   the   tariff   to   be   recovered   from   the   consumers,   is
regulated   by   the   DERC,   being   the   State   Electricity   Regulatory
Commission.   DERC   is   vested   with   a   substantial   set   of   divergent
powers   –   legislative,   executive,   adjudicatory   and   advisory   –   each
being   distinctly   defined   and   governed   by   law.     One   of   the   critical
issues arising in these Civil Appeals relates to sanctity of each such
function   and   their   interplay.     In   this   regard,   it   is   noteworthy   that
Section 3 of the 2003 Act provides as under:
“Section 3. National Electricity Policy and Plan. ­
(1)     The   Central   Government   shall,   from   time   to   time,
prepare the National Electricity Policy and tariff policy,
in   consultation   with   the   State   Governments   and   the
Authority   for   development   of   the   power   system   based
on   optimal   utilisation   of   resources   such   as   coal,
natural   gas,   nuclear   substances   or   materials,   hydro
and renewable sources of energy.
(2)   The   Central   Government   shall   publish   National
electricity Policy and tariff policy from time to time.
(3)   The   Central   Government   may,   from   time   to   time   in
consultation   with   the   State   Governments,   and   the
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Authority   review   or   revise   the   National   Electricity
Policy and tariff policy referred to in sub­section (1).
(4) The Authority shall prepare a National Electricity Plan
in   accordance   with   the   National   Electricity   Policy   and
notify such plan once in five years.
Provided xxx xxx xxx
(5) The   Authority   may   review   or   revise   the   National
Electricity   Plan   in   accordance   with   the   National
Electricity Policy.”
19. Section   14   of   the   2003   Act   provides   for   grant   of   licences   on
application   made   under   Section   15   of   the   Act   ­   (a)   to   transmit
electricity  as a  transmission licensee; or  (b)  to  distribute electricity
as   a   distribution   licensee;   or   (c)   to   undertake   trading   in   electricity
as   an   electricity   trader,   in   any   area   which   may   be   specified   in   the
licence.
20. Section   43   of   the   2003   Act   provides   for   the   universal   supply
obligation of the Discoms, which is as under:
“43. Duty to supply on request – 
(1)   Save   as   otherwise   provided   in   this   Act,   every
distribution   licensee,   shall,   on   an   application   by   the
owner   or   occupier   of   any   premises,   give   supply   of
electricity   to   such   premises,   within   one   month   after
receipt of the application requiring such supply.
Provided xxx xxx xxx
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(2) & (3) xxx xxx xxx”
21. Section 61 of the 2003 Act lays down the guiding principles for
tariff which are as under:
“61.   Tariff   regulations.­   The   Appropriate   Commission
shall,   subject   to   the   provisions   of   this   Act,   specify   the
terms and  conditions  for   the determination  of  tariff,  and
in doing so, shall be guided by the following, namely:­ 
(a) the   principles   and   methodologies   specified   by   the
Central   Commission   for   determination   of   the   tariff
applicable to generating companies and transmission
licensees; 
(b) the generation, transmission, distribution and supply
of electricity are conducted on commercial principles;
(c) the   factors   which   would   encourage   competition,
efficiency,   economical   use   of   the   resources,   good
performance and optimum investments;
(d) safeguarding  of  consumers' interest  and  at  the  same
time, recovery of the cost of electricity in a reasonable
manner;
(e) the principles rewarding efficiency in performance;
(f) multi­year tariff principles;
(g) that the tariff progressively reflects the cost of supply
of electricity and also, reduces cross­subsidies in the
manner specified by the Appropriate Commission;
(h) the   promotion   of   co­generation   and   generation   of
electricity from renewable sources of energy;
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for determination
of   tariff   under   the   Electricity   (Supply)   Act,   1948,   the
Electricity   Regulatory   Commission   Act,   1998   and   the
enactments   specified   in   the   Schedule   as   they   stood
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immediately  before the  appointed date, shall continue to
apply   for   a   period   of   one   year   or   until   the   terms   and
conditions   for   tariff   are   specified   under   this   section,
whichever is earlier.”
22. Sections 62 and 64 of the 2003 Act lay down the procedure for
determination   of   tariff   for,   inter   alia,   wheeling   and   retail   sale   of
electricity as under:
“ 62. Determination of tariff. ­
(1)   The   Appropriate   Commission   shall   determine   the   tariff   in
accordance with the provisions of this Act for – 
(a) supply   of   electricity   by   a   generating   company   to   a
distribution licensee: 
Provided that the Appropriate Commission may, in case of
shortage   of   supply   of   electricity,   fix   the   minimum   and
maximum   ceiling   of   tariff   for   sale   or   purchase   of
electricity   in   pursuance   of   an   agreement,   entered   into
between a generating company and a licensee or between
licensees,   for   a   period   not   exceeding   one   year   to   ensure
reasonable prices of electricity; 
(b) transmission of electricity;
(c) wheeling of electricity;
(d) retail sale of electricity: 
Provided that in case of distribution of electricity in the same
area   by   two   or   more   distribution   licensees,   the   Appropriate
Commission   may,   for   promoting   competition   among
distribution   licensees,   fix   only   maximum   ceiling   of   tariff   for
retail sale of electricity. 
(2)   The   Appropriate   Commission   may   require   a   licensee   or   a
generating   company   to   furnish   separate   details,   as   may   be
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specified   in   respect   of   generation,   transmission   and
distribution for determination of tariff. 
(3) The  Appropriate  Commission  shall  not,  while  determining
the   tariff   under   this   Act,   show   undue   preference   to   any
consumer of electricity but may differentiate according to the
consumer's   load   factor,   power   factor,   voltage,   total
consumption   of   electricity   during   any   specified   period   or   the
time   at   which   the   supply   is   required   or   the   geographical
position of any area, the nature of supply and the purpose for
which the supply is required. 
(4)   No   tariff   or   part   of   any   tariff   may   ordinarily   be   amended,
more   frequently   than   once   in   any   financial   year,   except   in
respect of any changes expressly permitted under the terms of
any   fuel   surcharge   formula   as   may   be   specified.   The
Electricity Act, 2003. 
(5)   The   Commission   may   require   a   licensee   or   a   generating
company to comply with such procedures as may be specified
for   calculating   the   expected   revenues   from   the   tariff   and
charges which he or it is permitted to recover. 
(6) If any licensee or a generating company recovers a price or
charge exceeding the tariff determined under this section, the
excess   amount   shall   be   recoverable   by   the   person   who   has
paid such price or charge along with interest equivalent to the
bank rate without prejudice to any other liability incurred by
the licensee.”
“64. Procedure for tariff order.­
 (1) An application for determination of tariff under section 62
shall   be   made   by   a   generating   company   or   licensee   in   such
manner and accompanied by such fee, as may be determined
by regulations. 
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(2)   Every   applicant   shall   publish   the   application,   in   such
abridged   form   and   manner,   as   may   be   specified   by   the
Appropriate Commission. 
(3)   The   Appropriate   Commission   shall,   within   one   hundred
and   twenty   days   from   receipt   of   an   application   under   sub­
section   (1)   and   after   considering   all   suggestions   and
objections received from the public,­ 
(a) issue a tariff order accepting the application with such
modifications   or   such   conditions   as   may   be   specified   in
that order; 
(b)   reject   the   application   for   reasons   to   be   recorded   in
writing   if  such   application   is  not  in   accordance  with   the
provisions of this Act and the rules and regulations made
thereunder or the provisions of any other law for the time
being in force: 
Provided   that   an   applicant   shall   be   given   a   reasonable
opportunity   of   being   heard   before   rejecting   his
application. 
(4)   The   Appropriate   Commission   shall,   within   seven   days   of
making the order, send a copy of the order to the Appropriate
Government,   the   Authority,   and   the   concerned   licensees   and
to the person concerned.
(5) Notwithstanding anything contained in Part X, the tariff for
any inter­State supply, transmission or wheeling of electricity,
as   the   case   may   be,   involving   the   territories   of   two   States
may,  upon  application  made to   it  by  the  parties  intending  to
undertake   such   supply,   transmission   or   wheeling,   be
determined   under   this   section   by   the   State   Commission
having   jurisdiction   in   respect   of   the   licensee   who   intends   to
distribute electricity and make payment therefor. 
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(6)   A   tariff   order   shall,   unless   amended   or   revoked,   continue
to be in force for such period as may be specified in the tariff
order.”
23. ARR   of   the   Appellants,   and   consequently   the   tariff   to   be
recovered   from   the   consumers,   is   regulated   by   the   DERC,   and
determined under Section 62 read with Section 61 of the 2003 Act. 
24. Section   86   of   the   2003   Act   lays   down   the   functions   of   the
State   Commissions   i.e.   DERC   in   this   case,   and   the   rule­making
power of the Central Government is set out in Section 176 thereof.
25. Before   considering   the   other   questions,   let   us   consider   the
preliminary objection raised by learned counsel for the respondent­
DERC as to whether the appeals involve any substantial question of
law   as   required   under   Section   125   of   the   2003   Act   read   with   Sec ­
tion 100 of the CPC? 
26. Section   125   of   the   2003   Act   provides   for   an   appeal   to   this
Court   against   the   decision   or   order   of   the   APTEL   which   reads   as
under:
“ 125. Appeal to Supreme Court. ­
Any   person   aggrieved   by   any   decision   or   order   of   the
Appellate   Tribunal,   may,   file   an   appeal   to   the   Supreme
Court  within   sixty   days   from  the   date  of   communication
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of the decision or order of the Appellate Tribunal, to him,
on   any   one   or   more   of   the   grounds   specified   in   section
100 of the Code of Civil Procedure,1908 (5 of 1908): 
Provided   that   the   Supreme   Court   may,   if   it   is   satisfied
that the appellant was prevented by sufficient cause from
filing the appeal within the said period, allow it to be filed
within a further period not exceeding sixty days.”
27. Thus, a n appeal to this Court under Section 125 could be filed
on the grounds specified in Section 100 of the CPC.  Under Section
100   of   the   CPC,   an   appeal   could   be   filed   only   when   the   case
involves   ‘a   substantial   question   of   law’,   as   may   be   framed   by   the
appellate   court.   Thus,   the   existence   of   a   ‘substantial   question   of
law’   arising   from   the   judgment   of   the   APTEL   is   sine   qua   non   for
exercise of jurisdiction by this Court under Section 125 of the 2003
Act. 
28. The   expression   ‘appeal’   has   not   been   defined   in   the   CPC.
Black’s   Law   Dictionary   (10 th
  Edn.)   defines   an   ‘appeal’   as   “a
proceeding undertaken to have a decision reconsidered by bringing
it   to   a   higher   authority.”     An   appeal   is   judicial   examination   of   a
decision   of   a   subordinate   court   by   a   higher   court   to   rectify   any
possible   error(s)   in   the   order   under   appeal.     The   law   provides   the
18

remedy   of   an   appeal   in   recognition   of   the   fact   that   those   manning
the judicial tiers too may commit errors.  
29. The   test   to   determine   whether   a   question   is   a   substantial
question   of   law   or   not   was   laid   down   by   a   Constitution   Bench   of
this Court in   Sir Chunilal  V.  Mehta & Sons  Ltd.  v.  The Century
Spg. & Mfg. Co. Ltd. 1
 as under : (AIR p. 1318, para 6)
“ 6.  … The proper test for determining whether a question
of   law   raised   in   the   case   is   substantial   would,   in   our
opinion, be whether it is of general public importance or
whether  it directly  and substantially  affects the rights of
the parties and if so whether it is either an open question
in the sense that it is not finally settled by this Court or
by the Privy Council or by the Federal Court or is not free
from difficulty or calls for discussion of alternative views.
If   the   question   is   settled   by   the   highest   court   or   the
general   principles   to   be   applied   in   determining   the
question are well settled and there is a mere question of
applying   those   principles   or   that   the   plea   raised   is
palpably absurd the question would not be a substantial
question of law.”
30. Thus,   the   word   ‘substantial’   as   qualifying   ‘question   of   law’
means,   of   having   substance,   essential,   real,   of   sound   worth,
important   or   considerable.   It   is   to   be   understood   as   something   in
contradistinction   with   technical,   of   no   substance   or   consequence,
1   1962 Supp (3) SCR 549 : AIR 1962 SC 1314
19

or   academic.    For   determining   whether   a   case   involves   substantial
question   of   law,   the   test   is   not   merely   the   importance   of   the
question,   but   its   importance   to   the   case   itself   necessitating   the
decision   of   the   question.     The   appropriate   test   for   determining
whether the question of law raised in the case is substantial would
be   to   see   whether   it   directly   and   substantially   affects   the   rights   of
the parties. If it is established that the decision is contrary to law or
the decision has failed to determine some material issue of law or if
there   is   substantial   error   or   defect   in   the   decision   of   the   case   on
merits,   the   court   can   interfere   with   the   conclusion   of   the   lower
court or tribunal.  The stakes involved in the case are immaterial as
long as the impact or effect of the question of law has a bearing on
the  lis  between the parties.
31. Thus, in a second appeal, the appellant is entitled to point out
that   the   order   impugned   is   bad   in   law   because   it   is   de   hors   the
pleadings,   or   it   was   based   on   no   evidence   or   it   was   based   on
misreading   of   material   documentary   evidence   or   it   was   recorded
against the provision  of  law  or  the decision  is one which  no Judge
acting judicially could reasonably have reached.  Once the appellate
20

court is satisfied, after hearing the appeal, that the appeal involves
a substantial question of law, it has to formulate the question and
direct issuance of notice to the respondent/s.
32. Now, let us consider as to whether the present appeals involve
any substantial question(s) of law.  
33. The   APTEL   has   recorded   findings   on   35   issues   raised   by   the
appellants.     According   to   the   appellants,   six   issues   decided   by   the
APTEL give rise to substantial question of law which are as follows:
1. Change   in   methodology   in   computation   of   AT&C
Losses.
2. Change   in   methodology   for   computation   of
Depreciation.
3. Disallowance of salary for FR/SR Structure.
4. Disallowance   of   interest   incurred   on   Consumer
Security Deposit retained by DPCL.
5. Disallowance of Fringe Benefit Tax.
6. Reduction   in   MUs   in   relation   to   Enforcement   sale
for  the   purpose   of   calculation   of   AT&C   Losses   (this
issue   deals   with   theft/unauthorized   use   of
electricity).
21

34. Mr.   Arvind   P.   Dattar   and   Mr.   Dhruv   Mehta,   learned   senior
counsel   appearing   for   the   appellants,   would   submit   that   the
findings of the APTEL on Issue Nos.1, 2, 3 and 5 are contrary to the
binding   DERC   Tariff   Regulations.     It   is   argued   that   the   Regulator
cannot   ‘change   the   rules   of   the   game   after   it   has   begun’   in   the
‘truing up exercise’.  In this regard, they have taken us through the
findings of the DERC in the Tariff Order and also the findings of the
DERC after the truing up stage.   It is further argued that the tariff
order is in the nature of a quasi­judicial determination and that in
the guise of truing up, the DERC cannot amend a tariff order.  
35. On the other hand, Mr. Nikhil Nayyar, learned senior counsel
appearing for the respondent­DERC, submits that one of the facets
of   the   tariff   determination   exercise   is   the   process   of   ‘truing   up’.
Since the initial tariff order is prepared by the DERC, based on the
projections   submitted   by   the   Discoms   as   its   ARR   petition,   the
subsequent tariff order is issued after the financial year pursuant to
the ‘truing  up’ exercise.   It is also pointed out that the findings on
the aforesaid six  issues are neither  contrary  to  law  nor  opposed to
any regulations.
22

36. Having considered the submissions of the learned counsels for
the   parties   and   after   perusing   the   Impugned   Order,   we   are   of   the
view   that   these   appeals   involve  the   following   substantial   questions
of law:
“ On Issue No.1
(a) Whether   the   impugned   findings   on   Issue   No.1   are
contrary to the mandate of Sections 3, 61(b), (c), (d) and
(e),   62,   64   (read   with   the   Tariff   Policy)   and   86(3)   of   the
2003 Act in terms of which:
(i) Tariff   must   ensure   recovery   of   all   costs   of
undertaking   distribution   of   electricity   with
reasonable   return,   rewarding   efficiency   in
performance?
(ii) Regulator   cannot   “change   the   rules   of   the   game
after it has begun” in the ‘truing up exercise’?
(b) Whether the impugned findings violate the principles and
methodology   for   tariff   determination   specified   in   the
binding DERC’s Tariff Regulations?
On Issue No.2
(a)           Whether   the   impugned   Findings   on   Issue   No.2   are
contrary   to   the   mandate   of   Sections   3,   61(b),   (c),   (d)   and   (e),
62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in
terms of which:
(i) Tariff   must   ensure   recovery   of   all   costs   of
undertaking   distribution   of   electricity   with
reasonable   return,   rewarding   efficiency   in
performance?
23

(ii) Regulator   cannot   “change   the   rules   of   the   game
after it has begun” in the ‘truing up exercise’?
(b) Whether the impugned findings violate the principles and
methodology   for   tariff   determination   specified   in   the
binding DERC’s Tariff Regulations?
On Issue No.3
(a)           Whether   the   impugned   Findings   on   Issue   No.3   are
contrary   to   the   mandate   of   Sections   3,   61(b),   (c),   (d)   and   (e),
62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in
terms of which:
(i) Tariff   must   ensure   recovery   of   all   costs   of
undertaking   distribution   of   electricity   with
reasonable   return,   rewarding   efficiency   in
performance?
(ii) Regulator   cannot   “change   the   rules   of   the   game
after it has begun” in the ‘truing up exercise’?
(b) Whether   the   impugned   findings   violate   the   binding
statutory   Transfer   Scheme   and   the   Tri­Partite   Agreements
between   the   GONCTD,   the   DVB   and   the   Employees’   Unions,
which form the basis of the privatization of Discoms?
On Issue No.4  
(a) Whether   the   impugned   findings   on   Issue   No.4   are
contrary   to   the   mandate   of   Sections   3,   61(b),   (c),   (d)   and   (e),
62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in
terms   of   which   tariff   must   ensure   recovery   of   all   costs   of
undertaking   distribution   of   electricity   with   reasonable   return,
rewarding efficiency in performance?
On Issue No.5
(a)           Whether   the   impugned   Findings   on   Issue   No.5   are
contrary   to   the   mandate   of   Sections   3,   61(b),   (c),   (d)   and   (e),
24

62, 64 (read with the Tariff Policy) and 86(3) of the 2003 Act in
terms of which:
(i) Tariff   must   ensure   recovery   of   all   costs   of
undertaking   distribution   of   electricity   with
reasonable   return,   rewarding   efficiency   in
performance?
(ii) Regulator   cannot   “change   the   rules   of   the   game
after it has begun” in the ‘truing up exercise’?
(b) Whether the impugned findings violate the principles and
methodology   for   tariff   determination   specified   in   the
binding DERC’s Tariff Regulations?
On Issue No.6
(a) Whether   the   impugned   Findings   on   Issue   No.6   are
contrary  to  the   mandate   of  Sections  3,  61(b),  (c),  (d)  and
(e),   62,   64   (read   with   the   Tariff   Policy)   and   86(3)   of   the
2003 Act in terms of which Tariff must ensure recovery of
all   costs   of   undertaking   distribution   of   electricity   with
reasonable return, rewarding efficiency in performance?
(b) Whether   the   impugned   findings   are   against   settled   law
that   when   a   statute   creates   a   legal   fiction   i.e.   energy
assessed is “deemed” to be consumed, the same has to be
given   effect   to   with   all   its   consequences   i.e.   same
quantum of energy is to be accounted for as supplied?
37. One   of   the   substantial   questions   of   law   raised   on   four   issues
(Issue Nos.1, 2, 3 and 5) is whether it is permissible to amend the
tariff   order   made   under   Section   64   of   the   2003   Act   during   the
‘truing   up’   exercise   which   needs   to   be   answered   before   answering
each of the aforesaid issues.
25

38. Section   82   of   the   2003   Act   envisages   the   constitution   of   a
State Electricity Regulatory Commission. By virtue of Section 84 of
the   Act,   such   State   Commission   comprises   of   a   Chairperson   and
Members,   being   persons   possessing   “ ability,   integrity   and   standing
who   have   adequate   knowledge   of,   and   have   shown   capacity   in,
dealing   with   problems   relating   to   engineering,   finance,   commerce,
economics,   law   or   management”,   with   the   Chairperson   being   a
person who is, or has been, a Judge of a High Court.
39. DERC,   constituted   under   Section   82   of   the   2003   Act,   is   an
expert   body   vested   with   wide   powers   and   functions   under   the   Act.
This   includes   the   power   to   frame   regulations   and   the   power   to
determine tariff. 
40.  Under   Section   86   of   the   2003   Act,   the   State   Commission
carries   out   various   functions   including   determination   of   “ the   tariff
for   generation,   supply,   transmission   and   wheeling   of   electricity,
wholesale, bulk or retail, as the case may be, within the State”.   The
process of determination of tariff in the present case, as part of the
broader   regulatory   power   of   the   Commission,   is   to   be   done   in
accordance with Section 62 and 64 of the 2003 Act. As per Section
26

62,   the   Appropriate   Commission   (the   State   Commission   in   the
present   case)   shall   determine   the   tariff   in   accordance   with   the
provisions of the Act for  inter alia  retail supply of electricity.
41. In   addition   to   the   above   functions,   the   State   Commission   is
also vested with the power to make regulations, under Section 181
of  the   2003   Act,  ­  dealing   with   inter  alia   “the   terms   and   conditions
for determination of tariff under Section 61”  and “ issue of tariff order
with modifications or conditions under sub­section (3) of Section 64”.
42. It is pertinent  to  note  that  while  framing  the  Regulations,  the
State   Commission   is   required   to   be   guided   by   the   principles
specified in Section 61 of the 2003 Act.
43. In   framing   such   regulations,   the   Commission,   as   an   expert
policy making body, is entrusted with the duty of striking a balance
between   the   various   competing   concerns   and   interests.   This
balance   is   expressed   in   the   DERC   (Terms   and   Conditions   for
Determination   of   Wheeling   Tariff   and   Retail   Supply   Tariff)
Regulations, 2007 (“2007 MYT Regulations”) which are the relevant
regulations governing the issues in the present case.  
27

44. DERC,   for   a   given   Multi­Year   period   (also   called   the   Control
Period),   frames   regulations   for   determination   of   tariff.   DERC   then
determines   the   ARR   for   the   said   Control   Period   in   a   Tariff   Order
known as the Multi­Year Tariff Order based on the data available. 
45. It is also necessary to note that sub­section (6) of Section 62 of
the 2003 Act mandates that the Tariff Order shall continue to be in
force for such period as may be specified in the Tariff Order unless
amended   or   revoked.   Therefore,   if   any   of   the   parties   are   aggrieved
by any of the clauses in the Tariff Order, they are at liberty to seek
its   amendment   or   revocation   under   this   provision.   Secondly,   the
said   order   is   also   appealable   under   Section   111   of   the   2003   Act
before the Appellate Tribunal and thereafter before this Court under
Section   125.     The   Tariff   Order   made   under   Section   64   is   quasi­
judicial in nature and it is binding  as­it­is  on the parties unless it is
amended or modified in a process known to law. 
46. Mr. Arvind Datar and Mr. Dhruv Mehta, learned senior coun ­
sel   appearing   for   the   appellants   have   submitted   that   ‘truing   up’
cannot be used to upset the methodology used for determination of
ARR.     According   to   them,   such   a   conduct   essentially   amounts   to
28

‘changing   the   rules   of   the   game   after   the   game   has   started’   or
‘changing the goal post’ with the sole intention to deny legitimate al ­
lowances to the appellants.   It is also argued that ‘truing up’ stage
is not an opportunity for the DERC to re­think  de novo  on the basic
principles, premises and issues involved in the initial projections of
revenue requirement of the licensee.  It was also argued that DERC
has no unfettered power to control the tariff determination process
as well as ‘truing up’ exercise.  
47. On the other hand, Mr. Nikhil Nayyar, learned senior counsel
appearing for the respondent­DERC, has submitted that one of the
facets   of   tariff   determination   exercise   is   the   process   of   ‘truing   up’.
Since the initial tariff order is prepared by the DERC based on pro ­
jections submitted by the Discoms with its ARR petition, the subse ­
quent tariff order  is issued after  the financial year  pursuant to the
‘truing up’ exercise.     The process of ‘truing up’ requires the DERC
to carry out a prudence check.  A prudence check is not a mere ac ­
counting   or   mathematical   exercise.     A   prudence   check   requires   a
scrutiny of reasonableness of the expenditure incurred or proposed
to be incurred by the Discoms and also such other factors that the
29

DERC considers appropriate for determination of tariff. DERC being
an   expert   body,   due   deference   ought   to   be   given   to   their   under ­
standing   as   recorded   in   various   regulations.     It   is   argued   that   the
controlling   factor   throughout   the   entire   ‘truing   up’   exercise   is   the
MYT Regulations itself. It is further argued that the tariff determina ­
tion exercise carried out by the DERC is a continuous process.  The
tariff determination exercise includes the initial tariff order ­ in the
instant  case it  is 23.02.2008   ­ a  ‘truing   up’   inter alia   the  ARR  and
Multi­Year  Tariff Order for the years, F.Y. 2007­08 to F.Y.2010­11,
as well as the subsequent Tariff Order dated 26.08.2011,  inter alia,
‘true up’ for F.Y. 2008­09 and F.Y. 2009­10. Mr. Nayyar has placed
reliance on the judgment of this Court in  Gujarat Urja Vikas Nigam
Limited v. Tarini Infrastructure Limited & Others 2
  in support of
his submissions. 
48. We   have   carefully   considered   the   submissions   of   the   learned
senior   counsel   for   the   parties.     We   have   already   noticed   that   the
State Electricity Regulatory Commissions constituted under Section
82 of the 2003 Act are a multi­member body comprising a Chairper ­
2   (2016) 8 SCC 743
30

son   and   members   being   persons   having   adequate   knowledge,   of
ability,   integrity   and   standing   who   have   adequate   knowledge,   and
have shown capacity, in dealing with problems relating to engineer ­
ing,   finance,   commerce,   economics,   law   or   management,   with   the
Chairperson   being   a   person   who   is   or   has   been   Judge   of   a   High
Court.     Under   Section   86   of   the   2003   Act,   the   State   Commission
carries   out   various   functions   including   determination   of   tariff   for
generation,   supply,   transmission   and   wheeling   of   electricity   in
wholesale, bulk or retail as the case may be within the State.   The
process of determination of tariff has to be done in accordance with
Sections 62 and 64 of the 2003 Act.  It is well settled that the Com ­
mission (in this case, the DERC) performs a quasi­judicial function
while determining tariff.  This has been expressly recognized by the
Constitution Bench of this Court in   PTC India Limited v. Central
Electricity   Regulatory   Commission,   Through   Secretary 3
  as   un ­
der:
“50.  Applying the above test, price fixation exercise is re ­
ally legislative in character, unless by the terms of a par ­
ticular statute it is made quasi­judicial as in the case of
3   (2010) 4 SCC 603
31

tariff   fixation   under   Section   62   made   appealable   under
Section 111 of the 2003 Act, though Section 61 is an en ­
abling  provision  for  the framing  of regulations by  CERC.
If   one   takes   “tariff”   as   a   subject­matter,   one   finds   that
under Part VII of the 2003 Act actual determination/fixa ­
tion  of  tariff  is  done  by  the  appropriate  Commission  un ­
der Section 62 whereas Section 61 is the enabling provi ­
sion for framing  of regulations containing generic propo ­
sitions   in   accordance   with   which   the   appropriate   Com ­
mission   has   to   fix   the   tariff.   This   basic   scheme   equally
applies to the subject­matter “trading margin” in a differ ­
ent statutory  context as will be demonstrated by discus ­
sion hereinbelow.”
49. The   DERC   determines   the   tariff   of   the   licensee   under   Section
62 in such a manner as determined by the 2007 MYT Regulations.
This function is governed,  inter alia,  by safeguarding all consumers’
interest and at the same time recovering the cost of electricity in a
reasonable manner, such that ‘distribution and supply of electricity
are   conducted   on   commercial   principles’   which   encourage   and   re ­
ward   competition,   efficiency,   economic   use   of   resources,   good   per ­
formance and optimum investments.
50. DERC determines ARR of the licensee i.e. costs of undertaking
the   licensed   business   which   are   permitted   in   accordance   with   the
requirement   specified   by   DERC   which   is   to   be   recovered   from   the
tariff in the year end.  ARR determined by DERC is based on projec ­
32

tions.  Since the tariff and the ARR are regulated, the Discoms can ­
not recover anything more than from its consumers than what is al ­
lowed by the DERC.  
51. As   noticed   above,   a   tariff   order   is   quasi­judicial   in   nature
which   becomes   final   and   binding   on   the   parties   unless   it   is
amended or revoked under Section 64(6) or set aside by the Appel ­
late   Authority.   Apart   from   this,   we   are  also   of   the   view   that  at   the
stage   of   ‘truing   up’,   the   DERC   cannot   change   the   rules/methodol ­
ogy   used   in   the   initial   tariff   determination   by   changing   the   basic
principles,   premises   and   issues  involved  in   the   initial  projection   of
ARR.
52. ‘Truing   up’   has   been   held   by   APTEL   in   SLDC   v.   GERC 4
  to
mean   the   adjustment   of   actual   amounts   incurred   by   the   Licensee
against   the   estimated/projected   amounts   determined   under   the
ARR.  Concept  of  ‘truing  up’  has  been   dealt  with  in  much  detail  by
the  APTEL  in  its  judgment  in   NDPL   v.   DERC 5
  wherein  it  was  held
as under:­
4  2015 SCC Online APTEL 50 [Para. 17] 
5  2007 ELR (APTEL) 193
33

“60. Before parting with the judgment we are constrained
to   remark   that   the   Commission   has   not   properly
understood   the   concept   of   truing   up.   While   considering
the   Tariff   Petition   of   the   utility   the   Commission   has   to
reasonably   anticipate   the   Revenue   required   by   a
particular   utility   and   such   assessment   should   be   based
on   practical   considerations.   …   The   truing   up   exercise   is
meant (sic) to fill the gap between the actual expenses at
the   end   of   the   year   and   anticipated   expenses   in   the
beginning   of   the   year.   When   the   utility   gives   its   own
statement   of   anticipated   expenditure,   the   Commission
has to accept the same except where the Commission has
reasons   to   differ   with   the   statement   of   the   utility   and
records reasons thereof or where the Commission is able
to   suggest   some   method   of   reducing   the   anticipated
expenditure.   This   process   of   restricting   the   claim   of   the
utility   by   not   allowing   the   reasonably   anticipated
expenditure   and   offering   to   do   the   needful   in   the   truing
up exercise is not prudence.”
53.     This   view   has   been   consistently   followed   by   the   APTEL   in   its
subsequent judgments and  we are in complete agreement with  the
above view of the APTEL.   In our opinion, ‘truing up’ stage is not an
opportunity   for   the   DERC   to   rethink   de   novo   on   the   basic   princi ­
ples,   premises   and   issues   involved   in   the   initial   projections   of   the
revenue requirement of the licensee.  ‘Truing up’ exercise cannot be
done   to   retrospectively   change   the   methodology/principles   of   tariff
34

determination and re­opening the original tariff determination order
thereby setting the tariff determination process to a naught at ‘true­
up’ stage.  
54. In   Gujarat   Urja   Vikas   Nigam   Ltd.   (supra) ,   this   Court   was
considering   a   case   where   tariff   was   incorporated   in   the   power
purchase   agreement   between   a   generating   company   and   a
distribution licensee. This Court held that it is not possible to hold
that the tariff agreed by  and between the parties, though finding a
mention in a contractual context, is the result of an act of volition of
the   parties   which   can,   in   no   case,   be   altered   except   by   mutual
consent. We are of the view that this judgment is not applicable to
the facts of the present case.
55. Revision   or   re­determination   of   the   tariff   already   determined
by   DERC   on   the   pretext   of   prudence   check   and   truing   up   would
amount to amendment of the tariff order, which can be done only as
per  the  provisions  of  sub­Section  (6)  of  Section   64  of  the  2003  Act
within the period for which the Tariff Order was applicable.   In our
view, DERC cannot amend the tariff order for the period 01.04.2008
to   31.03.2010   in   the   guise   of   ‘true­up’   after   the   relevant   financial
35

year is over and the same is replaced by a subsequent tariff Order.
This   would   amount   to   a   retrospective   revision   of   tariff   when   the
relevant   period   for   such   tariff   order   is   already   over.   Therefore,   we
hold that it is not permissible to amend the tariff order made under
Section 64 of the 2003 Act during the ‘truing up’ exercise.
56. Issue Nos.  1,  2, 3,  and 5 :   We have already  noticed that one
of the substantial questions of law involved in Issue Nos.1, 2, 3 and
5 is whether the Regulator can ‘change the rules of the game after
it has begun’ in the ‘truing up exercise’.  
57. Issue No. 1 :   In the original MYT determination (Tariff Order
dated   28.05.2009),   the   DERC   took   into   account   the   full   late   pay ­
ment   surcharge   (‘LPSC’)   revenue   as   also   the   DVB   arrears   while
computing the targets of Collection Efficiency as under:­
“3.10.  An   analysis   of  the   components   of   AT&C  loss   level
indicates that the revenue collection on account of sale of
energy  was  Rs.2810.3 Crs.   However, this amount  could
not   be   verified   from   the   audited   accounts   of   the   peti ­
tioner.  The petitioner has, instead, submitted a daily col ­
lection   sheet   to   substantiate   its   collection   of   Rs.2810.3
Crs.
36

3.11 The Commission is not receptive to the methodology
of verifying the collection from the Daily Collection Sheet
as proposed by the petitioner.  Accordingly, the petitioner
was   directed   during   the   validation   session   to   reconcile
the amount of cash collected bases on the opening levels
of debtors, sales made during the year, DVB arrears col ­
lected and the closing level of debtors, with the total col ­
lections shown for FY 07­08.  However, the petitioner ex ­
pressed   inability   to   reconcile   the   figures   using   this
methodology.
3.12. The petitioner  was, thereafter, directed to provide a
copy   of   the   daily   collection   sheet   duly   audited   by   its
Statutory Auditors.  The petitioner was also directed that
the Statutory Auditors should establish that the amount
mentioned   in   the   Daily   Collection   Sheet   does   not   in ­
cluded any collections on account of other sources of rev ­
enue like sale of power through bilateral, intra­state, UI,
etc. and revenue from operations (non­energy).
3.13.   In response to the above, the petitioner submitted
a   copy   of   its   Statutory   Auditor’s   certificate   certifying   the
Day­wise Collection Statement for FY 07­08 vide its letter
no.RCM/08­09/245 dated 16 th
 February, 2009.  The Cer ­
tificate   clarified   the   exclusion   of   collections   made   on   ac ­
count   of   trading   of   energy,   non­energy   charges,   subsidy
37

received from GoNCTD, etc. and inclusion of LPSC, elec ­
tricity duty, amount collected by BYPL on behalf of BRPL,
etc.
3.14.  Accordingly, based on the clarifications provided in
the   statutory   auditor’s   certificate   and   the   audited   finan ­
cial statements, the amount mentioned in the Daily Col ­
lection Sheet submitted by the petitioner has been taken
into account.
…
3.24.     In   the   light   of   the   above   background,   the   revised
AT&C loss levels of the petitioner for the first year of the
Control   Period   i.e.   FY   07­08   is   as   summarized   in   the
Table 6 below:
Table 6: Trued­up AT&C loss for FY 07­08 (Rs.crs.)
Particulars Amount
Add:
Theft Collection  60.4
Subsidy 48.4
Rebate 47.8
DVB   Arrears  collected  from
Government   Bodies   by
DPCL 64.5
Total   Other   Collections
during FY 07­08 221.0
(A)   Total   Collections   in   FY
07­08 3031.27
(B)   Billed   Revenue   consid ­
ered for AT&C 2889.99
38

(C) Collection Efficiency (A/B) 104.89%
Distribution Loss Level FY 07­08 30.89%
AT&C Loss for FY 07­08 27.51%”
58. However,   while   truing   up   for   the   year   in   question,   the   DERC
has retrospectively sought to take away part of the LPSC revenue by
deducting the Financing Cost on LPSC in comparing the actual Col ­
lection   Efficiency   with   the   projected   Collection   Efficiency.     Hence,
allowing the Financing Costs on LPSC revenue and then deducting
it from the LPSC revenue would tantamount to giving by one hand
and taking it away by the other.  This order of the DERC is contrary
to the original MYT determination.
59. Issue   No.2 :   In   the   Original   Determination   Order   dated
28.05.2009   (F.Y.   2008­09),   DERC   has   allowed   depreciation   on   the
assets funded by consumer contributions. However, DERC changed
the methodology of computation of ARR at the stage of true up. Ac ­
cording to the learned counsel for the respondent, DERC had inad ­
vertently   made   an   error   and   adopted   an   approach   contrary   to   the
mandate   of   2007   MYT   Regulations   while   computing   the   deprecia ­
tion   when   originally   issuing   the   tariff   order,   which   was   rectified   in
39

the   true   up   exercise.   However,   learned   counsel   for   the   appellants
submit that no error has been committed by the DERC in the tariff
order dated 28.05.2009 and it is only after considering the relevant
MYT   Regulations   that   depreciation   to   the   appellants   on   the   assets
that were funded by consumer contributions was allowed.
60. Perusal of the Tariff Order dated 28.05.2009 would clearly in ­
dicate   that   after   considering   the   contentions   of   the   parties   the
aforesaid depreciation has been allowed. We have already held that
it is not permissible to amend the tariff order  during true up exer ­
cise. On the pretext of prudence check and truing up, DERC could
not have amended the tariff order. 
61. Issue No.3   : During projection of expenses for the entire con ­
trol   period,   the   Tariff   Order   dated   23.02.2008   had   projected   em ­
ployee expenses considering   inter alia   the impact of the anticipated
Sixth Central Pay  Commission  Report.   The relevant portion of the
said Tariff Order is as under:
“ 4.99 The Petitioner has submitted the employee expenses
for FY07 as Rs 137.60 Cr and has considered the same as
the   base   for   the   Control   Period.   The   Petitioner   has
considered   the   following   factors   while   projecting   the
40

escalation factor for the employee expenses for the Control
Period:
(a) Anticipated 6th Pay Commission report
(c) Research of lead HR consultants on salary trends in
the country
(c) Initiatives   undertaken   to   retain   quality   manpower
and demand for employees in the power industry.
(d) Inflation   during   last   12   months  €	  increase   in
employees to cater to growth of consumers.
4.100   The   Petitioner   has   projected   its   total   employee
expenses   for   the   Control   Period   considering   different
escalation   rates   for   different   components   of   the   employee
expenses.   The   annual   growth   rates   for   various
components   of   employee   expenses   as   proposed   by   the
Petitioner are given below:
(a) Basic   Salary:   The   year   on   year   increase   in   basic
salary for all the employees during the Control Period has
been   estimated   at   23.2%,   11.1%,   11.3%,   and   11.5%   for
FY08, FY09, FY10 and FY11 respectively.
(b) Dearness Allowance (DA): Annual estimated increase
in   DA   is   considered   as   9%,   6%,   6%,   and   6%   for   FY08,
FY09, FY10 and FY11 respectively.
(c) Terminal   Benefits:   Contribution   to   terminal
benefits/liability fund is considered at 26% of basic salary
and   dearness   allowance   for   each   year   of   the   Control
Period.
41

(d) Other   Allowances   and   expenses   including   HRA:
Considered in proportion to the basic salary.”
62. The   DERC,   while   projecting   employee   expenses   for   the   entire
control   period   in   its   MYT   Tariff   Order   dated   23.02.2008,   had
categorically   acknowledged   the   uncontrollable   nature   of   the   Sixth
Central  Pay   Commission   Report   as   well  as   the   impact   of   the   same
on the salaries of FR&SR employees and held that since the salary
of FR&SR employees was an uncontrollable item  and that it would
be trued up on actuals as under:
“4.108   During   the   privatization   process,   part   of   the
employees of the erstwhile DVB were transferred to BRPL.
As   per   the   Transfer   Scheme,   the   terms   and   conditions   of
service applicable to the erstwhile Board employees in the
Transferee   Company   shall   in   no   way   be   less   favourable
than   or   inferior   to   that   applicable   to   them   immediately
before   the   Transfer.   Further,   their   services   shall   continue
to   be   governed   by   various   rules   and   laws   applicable   to
them prior to privatization. Thus the salary/compensation
and   promotion   of   the   erstwhile   DVB   employees   in   BRPL
are still governed by the rules and pay scales as specified
by the GoNCTD.
4.109   In consideration of the above, the Commission has
recognized   the   uncontrollable   nature   of   the   6 th
  Pay
Commission   recommendations   in   determination   of
employee   expenses   during   the   Control   Period.   The
Commission has assumed that the revision in pay, if any,
shall   be   applicable   from   January   1,   2006.     The
42

Commission   has   considered   an   increase   of   10%   in   total
employee expenses for the values in FY06 (3 months) and
FY07 due to the same.
…
4.112   Similarly,   the   increase   in   salaries   has   been
considered  for each year, but the impact of such increase
has   only   been   taken   from   FY09   onwards.     The
Commission shall true­up the impact on account of 6 th
 Pay
Commission recommendations based on the actual impact
of the same.
4.113     The summary of the revised employees expenses
considering   the   effect   of   6 th
  Pay   Commission
recommendations is given below:
Table 72: Revised Employee Expenses for FY06 and FY07
(Rs Cr)
Particulars FY06 FY07
Employee   Cost   Approved   in
True up 167.5
4 184.0
5
Less:   SVRS   Amortization
approved (46.41
) (46.45
)
Net Employee Expenses 121.1
3 137.6
0
Employee   expenses   pertaining
to DVB employees 75.64 85.92
Employee   expenses   pertaining
to Non­DVB employees 45.50 51.68
10%   escalation   due   to   Pay
Commission recommendations 1.89 8.60
Revised Employee Expenses 123.0
2 146.1
9
   
43

4.114  For the calculation of the employee expenses for the
Control     Period,   the   Commission   has   considered   the
following:
(a) Revised   employee   expenses   for   the   base   year   have
been escalated as per the escalation factors mentioned in
Table   67   to   arrive   at   the   employee   expenses   for   the
Control Period.
(b) All   arrears   due   to   the   impact   of   the   6 th
  Pay
Commission recommendations would be payable in FY09.
For   the   purpose   of   projecting   the   arrears   arising   due   to
recommendation   of   the   6 th
  Pay   Commission   for   FY08,   the
Commission   has   considered   the   difference   between   the
employee   expenses   for   FY08   arrived   by   escalating   the
revised   employees   expenses   for   FY07   (i.e.   Rs   146.19   Cr)
and   the   employees   expenses   for   FY08   arrived   by
escalating   the   trued   up   employee   expenses   (net   of   SVRS
amortization) for FY07 (i.e. Rs 137.60 Cr).”
    
63. However, contrary to its own undertaking, the DERC in Tariff
Order   dated   26.08.2011   has   erroneously   changed   its   own
methodology   at   the   stage   of   truing   up,   by   not   allowing   employee
expenses   of   FR/SR   employees   as   per   actuals.     The   DERC,   at   the
stage of truing up, has changed the methodology and disallowed the
actual   salary   of   FR&SR   employees,   which   is   impermissible.     The
DERC in the Tariff Order dated 26.08.2011 has acted contrary to its
own   undertaking  of   truing  up  the  impact  of  employee  expenses  on
account of the Sixth Central Pay Commission Report.
44

64. Issue No.5   : This issue is in relation to disallowance of fringe
benefit   tax.     The   DERC   has   allowed   fringe   benefit   tax   in   the   MYT
Order  dated 23.02.2008.   Relevant extract of the MYT Order  dated
23.02.2008 is as under:
“Commission’s Analysis
4.242 The Commission is of the opinion that projecting the
actual   tax   liability   for   the   Control   Period   is   difficult   and
complex. Thus for simplicity, the Commission provisionally
approves   Rs   5.00   Cr   each   year   towards   income   tax   and
fringe benefit expenses.   The Commission would, however,
true­up  the  tax  expenses   based  on  the   actual  tax  liability
at   the   end   of   each   year   of   the   Control   Period.   The
Commission has allocated the tax expenses into Wheeling
and Retail Supply in the ratio of 20:80, respectively.”
65. The DERC, at the stage of truing up for the F.Y. 2008­09, has
changed   the   methodology   and   disallowed   the   fringe   benefit   tax
incurred by the appellants.
66.     We   have   already   taken   a   view   that   DERC   cannot   re­open   the
basis of determination of tariff at the stage of ‘truing up’.   Revision
or redetermination of the tariff already determined by the DERC on
the   pretext   of   prudence   check   and   truing   up   would   amount   to
amendment of tariff order, which is not permissible in law.   Truing
45

up   stage   is   not   an   opportunity   for   DERC   to   re­think   de   novo   the
basic   principles,   premises   and   issues   involved   in   the   initial
projection of the revenue requirements of the licensee. 
67. Therefore,   the   findings   of   the   DERC,   as   confirmed   by   the
APTEL   in   the   impugned   order,   on   issue   nos.   1,   2,   3   and   5   are
contrary   to   the   order   of   the   original   MYT   determination   (Tariff
Order(s)   dated   23.02.2008   and   28.05.2009)   which   are   accordingly
set aside.  In view of the above, it is unnecessary for us to consider
the other substantial questions of law on the aforesaid four issues.
68.  Issue No.4 :   This   issue   relates   to   disallowance   of   interest
incurred   on   Consumers   Security   Deposit   retained   by   Delhi   Power
Company   Limited   (‘DPCL’).   The   DERC   in   the   tariff   order   dated
26.08.2011   has   disallowed   the   interest   on   Consumers   Security
Deposit paid for  pre­privatization period received by  DVB, which is
yet   to   be   transferred   to   the   appellants.     The   APTEL   has   confirmed
this order  of the DERC.   It is to be stated here that, at the time of
unbundling   of   the  erstwhile  DVB  (w.e.f.  01.07.2022),   the  quantum
of   Consumers   Security   Deposit   reflected   in   the   opening   balance­
46

sheet   notified   in   terms   of   statutory   transfer   scheme,   was   not
transferred by the DPCL (the Holding Company wholly owned by the
Government of NCT of Delhi) to the appellants and other successor
private  Discoms.  The  appellants  being   distribution  licensees  under
the   2003 Act   are required to and are continuing to pay interest on
the   said   Consumers   Security   Deposit   in   terms   of   Section   47(4)   of
the   2003 Act   even though the principal sum was never transferred
to them in its entirety by DPCL.
69. The DERC by its order dated 23.04.2007 has held that it does
not have power to issue any directions to DPCL.
70. Learned   counsel   for   the   respondent­DERC   submits   that   the
appellants have sought transfer of deposits along with interest from
DPCL   and   the   issue   of   DPCL   to   make   this   payment   is   pending
before   the   Delhi   High   Court   in   W.P.   (Civil)   No.2396/2008.     It   is
further submitted that, should the appellants succeed in their claim
against   DPCL   and   receive   the   deposit   amount   along   with   interest,
the   amount   would   be   made   over   to   the   appellants   along   with
interest. As such, if the expenses were to be presently allowed in the
47

ARR,   and   interest   burden   was   passed   on   to   the   consumers
presently, the Discoms would, in effect, receive double benefit at the
time of disposal of the writ petition since the consumers would have
already borne the costs of interest which would also be then made
over by DPCL to the appellants.  It is argued that, as a Regulator, it
is incumbent upon the DERC to protect the consumers’ interest.
71. We   are   of   the   view   that   disallowing   interest   paid   by   the
appellants   towards   Consumers   Security   Deposit   held   by   DPCL   in
the   ARR   of   the   appellants   is   wholly   misconstrued.   Interest   on
consumers’   deposit   which   is   being   paid   by   the   appellants   is   a
legitimate   expense.     It   is   not   in   dispute   that   the   security   deposit
was   not   transferred   by   the   DPCL   to   the   appellants.     However,   the
appellants were required to bear the costs of the same.  In case, the
principal   sum   on   Consumers   Security   Deposit   held   by   DPCL   is
transferred   to   the   appellants   with   interest,   the   appellants   would,
subject   to   their   legitimate   expenditures,   retain   such   interest   and
benefit of any balance of excess interest received by the appellants
would be passed on to the consumers in tariff.   Therefore, there is
no merit in the contention of the learned counsel for the respondent
48

that if the interest burden is passed on to the consumers presently,
the appellants would, in effect, receive a double benefit in case they
succeed in the writ petition pending before the High Court.
72. Therefore,   we   hold   that   the   appellants   are   entitled   to   recover
interest   on   Consumers   Security   Deposit   as   held   by   the   DPCL.   We
direct   the   DERC   to   allow   the   interest   on   Consumers   Security
Deposit held by the DPCL and impact thereof to the appellants. The
findings of the DERC and the APTEL in this regard are set aside.
73.  Issue No.6 : This   issue   pertains   to   enforcement   sales   i.e.
sales which are deemed to have been occurred in cases of electricity
theft.   The   question   for   consideration   is   whether   the   impugned
findings   in   the   order   of   the   APTEL   are   against   the   legal   principle
that  when the  statute creates a legal fiction  i.e. energy  assessed is
‘deemed’ to be consumed, the same has to be given effect to with all
its consequences i.e. same quantum of energy is to be accounted for
as supplied?
74. Electricity   transmitted  may   be   stolen   or   used  unauthorizedly.
While   theft/unauthorized   use   was   approximately   60%   before
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privatization,   it   has   now   been   brought   down   to   7   to   8%.
Unauthorized   use   and   theft   are   dealt   with   in   Section   126   of   the
2003 Act , relevant clauses whereof are as under:
“Section   126:   (Assessment):   ­­­   (1)   If   on   an
inspection   of   any   place   or   premises   or   after
inspection   of   the   equipments,   gadgets,   machines,
devices   found   connected   or   used,   or   after
inspection   of   records   maintained   by   any   person,
the   assessing   officer   comes   to   the   conclusion   that
such   person   is   indulging   in   unauthorized   use   of
electricity,   he   shall   provisionally   assess   to   the
best   of   his   judgement   the   electricity   charges
payable   by   such   person   or   by   any   other   person
benefited by such use.
[…]
[(5)   If   the   assessing   officer   reaches   to   the
conclusion that unauthorised use of electricity has
taken   place,  the   assessment   shall   be   made   for  the
entire   period   during   which   such   unauthorized   use
of   electricity   has   taken   place   and   if,   however,   the
period   during   which   such   unauthorised   use   of
electricity   has   taken   place   cannot   be   ascertained,
such   period   shall   be   limited   to   a   period   of   twelve
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months   immediately   preceding   the   date   of
inspection.]
(6)   The   assessment   under   this   section   shall   be
made   at   a   rate   equal   to   twice   the   tariff   rates
applicable   for   the   relevant   category   of   services
specified in sub­section (5).”        
(Emphasis supplied)
75. The   Vigilance/Enforcement   Department   detects
theft/unauthorized   use   of   electricity.   After   giving   due   opportunity,
the   bills   are   generated   for   electricity   stolen/unauthorized   use.
These   are   called   enforcement   sales/assessed   sales.   The   statutory
charge for such theft/unauthorized use is twice the normal rate.
76. While   settling   enforcement   cases   of   small   consumers,   Lok
Adalats   often   provide   discounts   to   errant   consumers   on   the
assessed   equivalent   of   the   rupee   amount   and   not   on   the   assessed
units of energy. The assessment of units of energy as deemed to be
sales   to   the   consumers   is   in   accordance   with   Section   126   of   the
2003 Act  read with provisions for such assessment specified by the
DERC itself.
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77. In   a   particular   case   of   unauthorized   use   of   electricity   under
Section 126, suppose using the ‘LDHF formula’ (specified by DERC
itself), the appellants assess the consumer as having consumed 100
units of electricity.
(a) By virtue of the Supply Code Regulations framed
by   the   DERC   itself,   these   100   units   are   to   be
treated as “sales”.
(b) Upon the assessment of 100 Units, the Appellant
raises a bill on the said consumer. Under Section
126 of the Electricity Act, the bill has to be raised
at   twice   the   normal   billing   rate.   If   the   normal
ABR were Rs. 5 per Unit, the Section 126 Bill will
be raised for Rs 1,000 (i.e. 100×[Rs 5	×2]);
(c) By   virtue   of   a   Settlement   which   is   entered   into
between   the   Appellant   and   the   consumer   before
the Lok Adalat etc., suppose the Appellant agrees
to give up Rs 200, the Appellant then recovers Rs
800/­ rather than Rs 1,000/­.
(d) Now, though the settlement is only for the Rupee
equivalent of the Assessed Bill and not the ‘Units
sold’,   the   DERC   now   takes   Rs   800,   divides   it   by
Rs   10   (i.e.   twice   the   ABR)   and   arrives   at   an
imaginary   ‘sales’   figure   of   electrical   energy   of   80
Units.
(e) This is in complete contrast to the Assessment of
Energy   sold   of   100   Units   in   terms   of   the   LDHF
Formula specified by the DERC itself according to
which the sales are “deemed to be” 100 units.
(f) Therefore,   by   entering   into   a   settlement   before
the   Lok   Adalat   (which   is   in   harmony   with   the
entire Lok  Adalat philosophy), the  Appellant  first
loses   Rs   200   in   monetary   terms   and   then   loses
20   Units   of   electricity   which   the   Appellant   is
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deemed   to   have   sold   such   consumer   in   the   first
place.
78. Learned   counsel   for   the   appellants   submit   that   when   the
statute   creates   a   legal   fiction,   i.e.   energy   assessed   is   deem   to   be
consumed,   the   same   has   to   be   given   effect   to   with   all   its
consequences i.e. same quantum of energy is to be accounted for as
supplied.   However,   learned   counsel   appearing   for   the   respondent
DERC submitted that that concurrent findings of the DERC and the
APTEL   cannot   be   reversed   and   the   methodology   adopted   by   the
Commission has to be maintained.
79. Having   considered   this   question   in   detail,   we   are   not   in
agreement   with   the   stand   taken   by   the   respondent.   We   are   of   the
view that the methodology adopted by the DERC is contrary to the
settled principle of law that when the law deems a certain imaginary
state of affairs as real, DERC would not let its imagination boggle at
treating   the   100   units   as   sales.   We   are   of   the   view   that   such
imaginary   state   of   affairs   must   be   taken   to   its   logical   end   and
commend the treatment of 100 units as ‘sales’. 
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80. We   are   of   the   view   that   the   assessed   energy   has   to   be
considered   as   supply   by   the   appellants   in   enforcement   cases.
Therefore,   we   direct   the   DERC   to   consider   assessed   energy   for
calculation   of   enforcement   sales   and   allow   the   impact   of   the   same
along with carrying costs.  In view of our conclusion as above, we do
not   deem   it   necessary   to   answer   the   other   contentions   on   this
issue.
81. The   substantial   questions   of   law   are   answered   accordingly.
Resultantly,   the   appeals   are   allowed   and   the   order(s)   of   the   DERC
and   the   judgment   of   the   APTEL   impugned   herein,   to   the   extent
mentioned   above.   are   hereby   set   aside.   Parties   to   bear   their
respective costs.        
    
………………………………J.
(S. ABDUL NAZEER)
………………………………J.
(KRISHNA MURARI)
New Delhi;
October 18, 2022.
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