TORRENT POWER LIMITED versus U.P. ELECTRICITY REGULATORY COMMISSION & ORS (14/07/2025) — Supreme Court headnote

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Summary

An individual petitioned the U.P. Electricity Regulatory Commission under Section 128 of the Electricity Act, 2003 to investigate a distribution licensee and its Agra franchisee, alleging transfer of the utility without approval under Section 17, impermissible urban franchising and breach of tariff orders through low input rates; the Commission held the petition maintainable in public interest and appointed an expert committee, and APTEL affirmed. The Court held that commissions, as creatures of statute, cannot entertain a matter on the sole ground of public interest, though a Section 128 petition by an affected person is maintainable; that none of the grounds met the statutory 'satisfaction' for an investigation; and that the Act gives no direct oversight of franchisees, who are agents regulated only through the licensee. APTEL's order was set aside.

Issues

Whether an individual can invoke the jurisdiction of a State Electricity Regulatory Commission on the plea of public interest, and whether the Commission has jurisdiction to consider matters purely in public interest.
Whether the petition seeking an investigation under Section 128 of the Electricity Act, 2003 into the distribution licensee and its franchisee was maintainable, and whether the grounds raised met the satisfaction required by that section.
Whether the decision in Maharashtra ERC v. Reliance Energy, confining individual consumer grievances to the forum under Section 42(5), barred the Commission from entertaining the petition.
Whether Electricity Regulatory Commissions have jurisdiction to review the functioning of a distribution franchisee or the efficacy of a distribution franchisee agreement.

Provisions considered

Section 128, Electricity Act, 2003The Appropriate Commission may direct an investigation into the affairs of a licensee or generating company only on being satisfied that the licensee has failed to comply with conditions of licence or with the Act, rules or regulations. The onus of initiating the investigation lies on the Commission; a request for it cannot be made before the consumer forum. The three grounds urged did not furnish the required satisfaction, and an investigation can in any event be ordered only against a licensee, not its franchisee. (¶¶ 31, 50, 53, 54, 57, 58, 59, 68, 75, 77)
Section 2(27) and seventh proviso to Section 14, with Sections 12, 13 and 2(49), Electricity Act, 2003A franchisee is a person authorised by a distribution licensee to distribute electricity on its behalf in a particular area within its area of supply; under the seventh proviso it needs no separate licence and the licensee remains responsible for distribution. A franchisee is therefore not a licensee, may be appointed for urban as well as rural areas, and stands in a relationship of agency with the licensee. (¶¶ 22, 23, 24, 58, 59, 70, 73, 75)
Section 17, Electricity Act, 2003Prior approval of the Commission is required for a licensee's transactions with other licensees, not with a franchisee; transfer of assets to a franchisee falls outside Section 17 and cannot ground an investigation under Section 128. (¶¶ 57, 58)
Section 5, Electricity Act, 2003The national policy on rural electrification identifies franchisees as stakeholders but does not restrict franchisees to rural areas; read with Sections 2(27), 2(49), 13 and the seventh proviso to Section 14, the Act places no limitation on a franchisee's area of operation. (¶ 59)
Sections 61, 62 and 63, Electricity Act, 2003Commissions must specify tariff terms safeguarding consumers' interests alongside commercial principles, and consumer interest in tariff is intertwined with public interest; but the precedents on this concern tariff adoption and procurement from generators, not the relationship between licensees and franchisees. A low input rate between licensee and franchisee, challenged only as cross-subsidisation, is not a violation of tariff orders absent evidence of misrepresentation of required investment. (¶¶ 25, 35, 39, 41, 42, 48, 60, 61, 62, 66, 67)
Section 86(1)(f) and Section 79(1)(f), Electricity Act, 2003The adjudicatory jurisdiction of State Commissions extends to disputes between licensees and generating companies and does not include disputes involving consumers or their grievances, whether or not raised in public interest; Section 86 had no application since the petition sought an investigation under Section 128. (¶¶ 27, 49, 50, 51)
Section 42(5), Electricity Act, 2003Individual consumer grievances lie before the grievance redressal forum established by the distribution licensee (Reliance Energy); but in Uttar Pradesh, Regulation 5.1 of the UPERC Consumer Grievance Redressal Forum and Electricity Ombudsman Regulations, 2007 excludes matters under Section 128 from the forum's jurisdiction, so Reliance Energy did not bar the Commission here. (¶¶ 51, 52, 54)
Sections 16, 18, 19, 20, 107, 108 and 181, Electricity Act, 2003Commissions may amend or revoke licences and direct sale of a utility in public interest, are guided by Government policy directions involving public interest, and frame regulations including conditions of licence; through these regulatory functions a Commission can stipulate and review the terms on which a licensee delegates distribution to a franchisee, but Part IV regulates only the licensee and contains nothing regulating the licensee-franchisee relationship. (¶¶ 28, 29, 34, 36, 37, 70, 71, 72)
Regulation 14, Uttar Pradesh Electricity Regulatory Commission (Conduct of Business) Regulations, 2004The Commission may initiate any proceeding suo motu or on a petition filed by any affected person; this gave UPERC jurisdiction to entertain a petition praying for investigation under Section 128. (¶¶ 55, 56)
Regulations 4, 5.8, 5.10, 5.11 and 7.2, Uttar Pradesh Electricity Regulatory Commission (General Conditions of Distribution License) Regulations, 2004A licensee may distribute through a franchisee without the franchisee needing a licence, the franchisee operating under the licensee's supervision and the licensee remaining responsible for its acts; transfer of licence functions otherwise than under Regulation 5.8 requires Commission approval; and only the licensee is obliged to furnish information to the Commission. These confirm that franchisees are regulated indirectly through the licensee. (¶¶ 58, 70, 74)

Held

The Act keeps consumer interest at the core of generation, transmission and distribution, and consumer interest in tariff is intertwined with public interest; but the authorities so holding concern tariff adoption and procurement from generating stations, not the relationship between distribution licensees and franchisees. (¶¶ 35, 36, 37, 38, 39, 40, 41, 42)
Electricity Regulatory Commissions are creatures of statute and derive their jurisdiction only from the Act; they cannot exercise powers not expressly vested in them, nor assume powers under the guise of inherent power. Even the broader adjudicatory jurisdiction of State Commissions under Section 86 does not extend to disputes involving consumers or their grievances, irrespective of whether the issue is raised in public interest. (¶¶ 43, 44, 45, 47, 48, 49, 50)
Reliance Energy correctly holds that a State Commission cannot usurp the jurisdiction of the consumer grievance forum under Section 42(5), but it did not apply here: the UPERC's 2007 Consumer Grievance Regulations exclude Section 128 matters from the forum, and a request for investigation under Section 128 cannot be made to a body lacking regulatory powers. Under Regulation 14 of the Conduct of Business Regulations the Commission may act suo motu or on a petition by any affected person, so UPERC had jurisdiction to entertain a petition seeking a Section 128 investigation. As a principle of law, however, Commissions are not competent to entertain a matter on the singular ground of public interest. (¶¶ 51, 52, 53, 54, 55, 56)
The satisfaction required under Section 128 must rest on contravention of licence conditions or of the Act and regulations. The plea of transfer of the licensee's assets without approval under Section 17 fails because Section 17 governs transactions with other licensees, not franchisees, and a franchisee is not a licensee; the plea that urban franchising is impermissible fails because Section 5 does not confine franchisees to rural areas and the Act places no limit on their area of operation. (¶¶ 57, 58, 59)
Under the input-rate model the franchisee buys electricity from the licensee at a bid-determined annualised rate, bills consumers at the Commission's tariff and profits by reducing AT&C losses; the greater the anticipated capital expenditure, the lower the input rate quoted. Cross-subsidisation is not alien to the sector and courts do not question its rationale; cross-subsidisation as a standalone ground cannot sustain a challenge to an input rate lower than the bulk supply rate, and a low rate cannot be treated as deliberately undervalued without substantial evidence of misrepresentation of the required investment. The petitioner gave no reasons or documents showing violation of tariff orders and the expert committee found no illegality; the petition therefore did not meet the parameters of satisfaction under Section 128. (¶¶ 60, 61, 62, 63, 64, 65, 66, 67, 68)
The Act provides no direct regulatory oversight of distribution franchisees: Part IV regulates licensees only, the licensee-franchisee relationship is one of agency with contractual terms private to the parties, and the franchisee is accountable to the licensee, which in turn is accountable to consumers. A Commission may stipulate or review the terms on which a licensee delegates its functions as part of its regulatory oversight of the licensee, and franchisees can be regulated only indirectly through the licensee; an investigation under Section 128 can therefore lie only against the licensee, any act of the franchisee being attributed to it. (¶¶ 69, 70, 71, 72, 73, 74, 75)
While upholding the licensee's right to appoint the franchisee, APTEL sought to review the franchisee's progress without any provision of the Act permitting such review; the Commission and APTEL cannot obliquely micromanage a franchisee transaction or question its collection efficiency and loss reduction. Even as against the licensees, the threshold of satisfaction under Section 128 was not met and the expert committee made no findings on breach of licence or of the Act. (¶¶ 76, 77, 78)

Result

Appeal allowed; APTEL's order dated 28.07.2016 set aside, the UPERC having erred in entertaining the petition and constituting an expert committee, whose report consequently pales into insignificance. Pending applications disposed of; no order as to costs.