Supreme Court of India
DAMODAR VALLEY CORPORATIONversusCENTRAL ELECTRICITY REGULATORY COMMISSION & OTHERS
- Citation
- 2018 INSC 1127
- Decided
- 3 December 2018
- Disposal
- Dismissed
- Bench
- RANJAN GOGOI
Holding
The appellant had already received the benefit of interest on capital through the tariff components and could not claim a further benefit, and the cumulative depreciation issue was finally decided and could not be reopened.
Summary
The Damodar Valley Corporation (DVC), a statutory body under the Damodar Valley Corporation Act, 1948, sought a tariff order from the Central Electricity Regulatory Commission (CERC) and claimed that, under Section 38 of the DVC Act, it was entitled to interest on its entire capital in addition to the return on equity and interest on loan already provided for in the tariff. It also contended that cumulative depreciation should be treated as repayment of loan, thereby reducing the notional loan component. The matter was remanded by the Appellate Tribunal, which fixed a 50:50 debt‑equity ratio for older projects and directed the CERC to ensure capital is serviced either by return on equity or interest on loan. The Supreme Court examined whether DVC had already received the benefit of interest on capital and whether the cumulative depreciation issue could be reopened after a prior final order. The Court held that the interest on capital had effectively been accounted for through the prescribed tariff components and that allowing a further benefit would amount to a double recovery. It also held that the cumulative depreciation issue had been finally decided in the earlier round and could not be relitigated. Consequently, the appeal was dismissed.
Issues considered
- Whether DVC is entitled to an additional benefit of interest on capital under Section 38 of the DVC Act beyond the return on equity and interest on loan already incorporated in the tariff.
- Whether cumulative depreciation can be treated as repayment of loan to reduce the notional loan component, and whether this issue can be reopened after a prior final order.
Legislation cited
Subjects
interest on capitalSection 38tariff determinationdebt‑equity ratiocumulative depreciationdouble benefitfinality of orderselectricity regulation
Judgment
[2018] 14 S.C.R. 433 433
DAMODAR VALLEY CORPORATION A
v.
CENTRAL ELECTRICITY REGULATORY COMMISSION
& OTHERS
(Civil Appeal No. 4881 of 2010) B
DECEMBER 03, 2018
[RANJAN GOGOI, CJI, SANJAY KISHAN KAUL AND
K. M. JOSEPH, JJ.]
Damodar Valley Corporation Act, 1948: s.38 – Computation C
of tariff – Benefit of interest on capital – Claim for benefit under
s.38 on the ground that though interest was given on the loan portion
and the return on equity was also ensured on the normative equity
portion still over and above the same, appellant was entitled to the
benefit of interest on capital on the whole amount as provided in
s.38 – Appellate Tribunal held that DVC Act provided for interest D
on capital which is contributed by the participating Governments
and that under the Act, if there is any deficit in the capital contributed
by the participating Governments, it is to be made good by taking
loan on behalf of the participating Governments and said debt
would attract interest – The average interest rate of the repayment E
payable is to be applied on a 50:50 normative debt capital which
means that out of the aggregate equity including reserves, equity
considering the normative debt ratio of 50:50 would be eligible for
return on equity as specified in the Regulations and the excess of
equity if any over the equity earning ratio of 14% is to be considered
as interest bearing debt – On the basis of remand, the Commission F
worked out the debt equity ratio as directed by the Appellate Tribunal
– Thus, appellant was already given return on equity in terms of
Tariff Regulation in respect of capital on the basis of debt equity
ratio which was fixed by Appellate Tribunal on a ratio which became
final between the parties – Electricity Act, 2003. G
Damodar Valley Corporation Act, 1948: Claim for treating
cumulative depreciation as repayment of loan and thereby reducing
the notional loan component in the capital cost – The said plea was
not taken in the first round of litigation in the appeal before the
H
433
434 SUPREME COURT REPORTS [2018] 14 S.C.R.
A appellate authority – First order of appellate tribunal having become
final, the matter cannot be reopened in the appeal from the order
passed pursuant to remand.
Bhaskar Shrachi Alloys Limited & Ors. v. Damodar
Valley Corporation & Ors (2018) 8 SCC 281 ; Delhi
B Electricity Regulatory Commission v. BSES Yamuna
Power Limited & Others (2007) 3 SCC 33 : [2007] 2
SCR 747 – referred to
Case Law Reference
(2018) 8 SCC 281 referred to Para 4
C
[2007] 2 SCR 747 referred to Para 8
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4881
of 2010.
From the Judgment and Order dated 10.05.2010 of the Appellate
D Tribunal for Electricity in Appeal No. 146 of 2009.
M. G. Ramachandran, K. V. Mohan, Ms. Anushree Bardhan,
Ms. Poorva Saigal, Shubham Arya, Advs. for the Appellant.
A. N. S. Nadkarni, ASG, Basava Prabhu Patil, Sr. Adv.,
Pukhrambam Ramesh Kumar, K. Amrit Kumar Sharma, Rajiv Yadav,
E Rajiv Shankar Dvivedi, Ms. Arti Dvivedi, S. K. Sarkar, Nikhil Nayyar,
N. Sai Vinod, Dhananjay Baijal, Divyanshu Rai, Naveen Hegde, Hiren
Dasan, Harish Dasan, Chand Qureshi, Mrs. Sarla Chandra, Mohan
Prasad Gupta, Liz Mathew, Sachin Sharma, A. K. Verma, G. S. Makker,
Anil K. Jha, Ms. Sharmila Upadhyay, Partha Sil, Arvind Kumar Sharma,
F Saurabh Mishra, Abhishek Singh, Sunil Kumar Jain, Devashish Bharuka,
Abhijit Sengupta, Advs. for the Respondents.
The Judgment of the Court was delivered by
K. M. JOSEPH, J.
G 1. By this appeal maintained under Section 125 of the Electricity
Act 2003 (hereinafter referred to as ‘the Act of 2003), the appellant
seeks to challenge the order passed by the Appellate Tribunal dismissing
the appeal filed by the appellant against the order of the Central Electricity
Regulatory Commission (hereinafter referred to as ‘the Commission’).
H
DVC v. CENTRAL ELECTRICITY REGULATORY 435
COMMISSION [K. M. JOSEPH, J.]
BACKGROUND FACTS A
2. The appellant is a statutory body constituted under the Damodar
Valley Corporation Act, 1948 (hereinafter referred to as ‘the DVC Act’).
It was entrusted with multifarious functions. One of the functions it was
entrusted was that it was duty bound to carry out generation, transmission
and distribution of electrical energy both hydro electrical and thermal. It B
was also called upon to, operate schemes for irrigation, water supply
and drainage besides flood control in the Damodar river and its tributaries.
Acting under Section 20 of the DVC Act, the appellant was fixing the
tariff for the electricity which it was generating and transmitting to its
consumers. With the enactment of the Electricity Act in 2003, a suo
motu proceeding was taken by the Commission with respect to the C
determination of the tariff of the appellant. Pursuant to the order dated
29.3.2005, the appellant filed Petition No. 66/2005 seeking determination
of its tariff for the period from 2004 to 2009. By order dated 3.10.2006,
the Commission proceeded to determine the tariff. The Commission
proceeded to take note of the multifarious functions with which the D
appellant was entrusted. Its case that it was following a cost plus policy
for fixation of its tariff as also the difficulties that would be posed by
imposing the tariff under the Act of 2003 with effect from 1.4.2004 was
noticed. It was ordered that the tariff fixed by the Commission would
apply from 2005-2006 and it was to operate from 1.4.2006. The
Commission had also appointed one-man Commission. Besides the same E
it appreciated the scope of the Fourth proviso to Section 14 of the DVC
Act and found that the provisions of the DVC Act which were not
inconsistent with the 2003 Act would continue to hold good even after
the enactment of the 2003 Act. Even if there was inconsistency between
the DVC Act and the regulation made under the 2003 Act, the DVC Act F
would continue to operate. After settling the legal position, in this regard,
the Commission proceeded to decide upon the various contentions relating
to elements which were to constitute the tariff.
3. This order came to be challenged by the appellant before the
Appellate Tribunal for Electricity. There were also appeals filed by the G
consumers. By order dated 23.11.2007 the Appellate Tribunal allowed
the appeal filed by the appellant and ordered as follows:
“In view of the above the subject Appeal No.273 of 2006 against
the impugned order of Central Commission passed on October 3,
2006 is allowed to the extent described in this judgment and we H
436 SUPREME COURT REPORTS [2018] 14 S.C.R.
A remand the matter to Central Commission for de novo
consideration of the tariff order dated October 3, 2006 in terms of
our findings and observations made hereinabove and according to
the law. Appeal No.271, 272 and 275 of 2006 and No.08 of 2007
are also disposed of, accordingly.”
B 4. Pursuant to the said order of the Appellate Tribunal remanding
the matter back for consideration, a revised tariff order came to be
passed on 6.8.2009 by the Commission. The order dated 6.8.2009 came
to be impugned by the appellant before the Appellate Tribunal and said
appeal came to be dismissed. It is said order by the Appellate Tribunal
which is challenged in the present appeal. It may be noted at this juncture
C itself that the first order of the Appellate Tribunal dated 23.11.2007 came
to be challenged before this Court by certain consumers of the appellant.
Those appeals were taken up earlier and they came to be dismissed by
this Court and the said decision is reported in the judgment of this Court
in the case of Bhaskar Shrachi Alloys Limited & Ors. Vs. Damodar
D Valley Corporation & Ors 2018 (8) SCC 281. This Court agreed with
the Appellate Tribunal that the effect of the Fourth proviso to Section 14
of the Act of 2003 was to countenance the continued application of the
certain provisions contained in the DVC Act which were not inconsistent
with the 2003 Act. This Court also took the view that having regard to
the fact that the appellant in addition to generation, transmission and
E distribution of electricity is under the Act obliged to undertake certain
social security/ beneficial matters like flood control, control of soil erosion,
afforestation, navigation, promotion of public health etc, the grant of the
transitory period could not be interfered with. It was reiterated that the
provisions of the DVC Act would also have an overriding effect over
F the inconsistent provisions of the tariff regulations.
CONTENTIONS IN THE PRESENT APPEAL
5. Mr. M.G. Ramachandran, learned counsel for the appellant has
narrowed down the scope of the appeal by limiting his submissions to
two in number. The first complaint which is raised is that both the
G Commission and the Appellate Tribunal have not given the benefit of
Section 38 of the DVC Act to the appellant in the computation on tariff.
The second contention relates to the question of treating cumulative
depreciation as on 31.3.2006 as repayment of loan and thereby reducing
the notional loan component in the capital cost after applying the debt
H equity ratio. The substantial question of law apparently relating to the
same are as follows:-
DVC v. CENTRAL ELECTRICITY REGULATORY 437
COMMISSION [K. M. JOSEPH, J.]
“Whether the Appellate Tribunal has correctly interpreted and A
applied the provisions of Section 38 of the DVC Act in regard to
the claim of the Appellant on interest on capital despite the same
had been considered and directed to be allowed in the earlier Order
dated 23.11.2007 passed in Appeal No.273 of 2006?
Whether the decision of the Appellate Tribunal in approving the B
Order of the Central Commission equating cumulative depreciation
recovered as adjustment towards loan repayment during the period
till 31.3.2006 is not contrary to the decision of this Hon’ble Court
in the case of Delhi Electricity Regulatory Commission v. BYPL
Limited, (2007) 3 SCC 33 and also the decision of the Appellate
Tribunal itself in the case of judgment and orders dated 16.3.2009 C
passed in Appeals No. 133/08, 135/08, 136/08 & 148/08 and order
dated 13.6.2007 passed in Appeals No.139 to 142 etc. of 2006?”
6. Section 38 of the DVC Act reads as follows:
“38. Payment of interest – The Corporation shall pay interest D
on the amount of capital provided by each participating Government
at such rate as may, from time to time, be fixed, by the Central
Government and such interest shall be deemed to be part of the
expenditure of the Corporation.”
7. It is the case of the appellant that this Court in the judgment in E
Bhaskar Shrachi Alloys Limited & Ors. Vs. Damodar Valley
Corporation & Ors 2018 (8) SCC 281 has approved of Section 38
being available to the appellant despite passing of Act of 2003 and the
regulations. Appellant is entitled to interest on the capital. It is the case
of the appellant that interest on capital under Section 38 is to be allowed
to the appellant in addition to the other tariff elements including the interest F
on loan, return on equity etc. permissible under the tariff regulation.
Appellant would point out that interest on capital is not to be mixed up
with interest on loan including interest on normative loan. Interest on
capital, it is contended is a distinct element from interest on loan or
return on equity. The contention of the respondents that interest on capital G
has also being considered by the Commission, is described as patently
wrong as it is pointed out that this aspect was the subject matter of the
appeal by the Central Commission in the appeal leading to the decision
of this Court and this Court affirmed the availability of the element of
interest under Section 38. In the second order passed by the Commission
H
438 SUPREME COURT REPORTS [2018] 14 S.C.R.
A in pursuance to remand, it is contended that there is no reference to any
interest on capital as contemplated under Section 38 which has not been
given and the appellant must be held entitled to the same.
8. Regarding the second contention namely, reducing the
cumulative depreciation from the notional loan, it is the case of the
B appellant that what is serviced under the tariff is the interest on loan and
not the repayment of loan. The interest being computed on the outstanding
during the financial year when the loan gets repaid in a progressive
manner, the loan gets reduced and therefore the amount of interest to be
allowed in the tariff towards the loan is lessened. Till the enactment of
the Act of 2003 and the transition period allowed till 1.4.2006, the entire
C capital cost has to be treated as equity alone. There cannot be a loan
and therefore there cannot be repayment of loan or progressive reduction
of loan reducing the outstanding loan to be serviced through interest on
loan among other things. It is contended that these implications would be
from 1.4.2006. Reference is made to Section 30 and 32 of the DVC
D Act. It is contended that the entire capital of the DVC was to be treated
as equity. The capital cost as on 1.4.2006 should have been considered
to be the total amount of gross fixed asset. This cost was to be totally
divided to debt and equity for generating project at the rate of 50:50
established prior to 30.3.1992 and at the rate of 70:30 for generation
project established after 30.03.1992. The Tribunal had gone wrong in
E holding that there was deemed repayment of the above loan in the past
years prior to 1.4.2006 on the basis of cumulative depreciation of the
assets in the past. The tariff regulation of 2004 for the period 1.4.2004 to
31.3.2009 though relevant, does not provide for any such adjustment of
cumulative depreciation towards repayment of loan. In this regard,
F appellant relies on orders passed by the Appellate Tribunal in the case of
NTPC which took the view that cumulative depreciation cannot be treated
as deemed repayment of loan. Reference is also placed on the judgment
of this Court in the case of Delhi Electricity Regulatory Commission
Vs. BSES Yamuna Power Limited & Others 2007 (3) SCC 33 for the
proposition that depreciation is not repayment of loan and therefore, by
G the cumulative depreciation, the quantum of loan cannot be reduced. Yet
it is pointed out that the Commission has applied the concept of cumulative
depreciation as resulting in deemed repayment for the period prior to
31.3.2006, which is impermissible.
H
DVC v. CENTRAL ELECTRICITY REGULATORY 439
COMMISSION [K. M. JOSEPH, J.]
CONTENTIONS OF THE RESPONDENTS A
9. As far as the respondents are concerned, they would support
the order passed by the Tribunal. In regard to the complaint of the appellant
that interest on capital under Section 38 was not applied though this
court also held that Section 38 would continue to operate, it is contended
that as a matter of fact appellant has been given the benefit of interest B
on capital. It is the case of the respondent that what the appellant is
seeking is the grant of a double benefit. On the basis of debt equity ratio
of 50:50, it is pointed out that authorities have already calculated return
to the appellant by way of interest on the loan component of 50% and
also vouchsafed for the appellant return on equity on the equity part.
What the appellant is asking is over and above the same further interest C
on the entire capital on the basis of Section 38 which is impermissible.
10. As far as the point relating to non-availability of cumulative
depreciation for reduction of the loan, the contention taken is that the
appellant did not take this contention in the first round of litigation in the
appeal before the appellate Tribunal. 10 contentions were taken before D
the Appellate Tribunal in the first round. In regard to 5 contentions, the
Appellate Tribunal agreed with the complaint of the appellant and
remanded the matter back for de novo consideration in accordance with
the observations which were contained in the order. In regard to 5 other
issues, the matter was decided against the appellant. There is no appeal E
carried further by the appellant. Therefore, the first order of the Appellate
Tribunal has become final, particularly, after the dismissal of the appeal
which was carried out not by appellant but by the respondents which is
reported in the case of Bhaskar Shrachi Alloys Limited & Ors. Vs.
Damodar Valley Corporation & Ors. 2018 (8) SCC 281. They also
have taken the contention that the orders passed by the Appellate Tribunal F
in the case of NTPC does not bear out the contentions of the appellant.
It is their further contention that even in the order dated 3.10.2006 which
is the first order passed by the Commission, the Commission had made
use of the cumulative depreciation for reducing the loan and consequently
reducing the interest on loan. The appellant had not complained against G
the methodology employed by the Commission. Matters which have
become final cannot be allowed to be reopened in the appeal from the
order passed pursuant to remand.
H
440 SUPREME COURT REPORTS [2018] 14 S.C.R.
A DISCUSSION AND FINDINGS
11. An appeal under Section 125 of the Act of 2003 is permitted
only if there are substantial questions of law. We may also bear in mind
the view taken by this Court in the order in earlier batch of appeals
between the parties reported in Bhaskar Shrachi Alloys Limited &
B Ors. Vs. Damodar Valley Corporation & Ors. 2018 (8) SCC 281,
namely, “Having considered the matter in the conspectus of aforesaid
declaration of law we must proceed to examine the complaint of the
appellant, whether the approach of the appellate Tribunal is fundamentally
flawed and therefore there is merit in the appellant’s case.”
C 12. We have already referred to Section 38 of the DVC Act.
There can be no dispute that Section 38 of the DVC Act will survive
despite the enactment of the Act of 2003. In other words, it cannot be in
the region of dispute that appellant would be entitled to interest on capital
under Section 38, in the computation of the tariff which the appellant is
allowed to charge from its consumers. The question, however, is whether
D the appellant has been actually given the benefit of interest on capital
under Section 38 of the DVC Act.
In order to consider the question, it is necessary for us to consider
the orders which have been passed by the Commission and also the
Appellate Tribunal. The order dated 3.10.2006 passed by the Commission
E which was the first order passed by it referred to the recommendations
of the one Member Bench regarding the capital cost in a total sum of
Rs.3146.01 crores and decided to accept the same insofar as generating
assets were concerned. The Commission also accepted the 70:30 debt
equity ratio which was recommended by the one Member Commission.
F It referred to the return on equity in terms of 2004 Regulations and
adopted a rate of return on equity at 14% which is allowed on 30% of
the capital cost in terms of the debt equity ratio. Thereafter, the
Commission dealt with interest on loan. The matter was dealt with
under the 2004 Regulations. After extracting the relevant regulation, the
Commission proceeded to take the view that the normative loan
G outstanding for individual station as on 31.03.2004 was to be computed
by applying normative debt-equity ratio of 70:30 to the capital cost with
weighted average rate of interest of the loan on appellant’s Corporation
as a whole. The Commission thereafter, in fact, refers to the cumulative
depreciation as on 30.03.2004 or notional loan amount whichever is lower
H being taken as loan repayment and has been allowed to be serviced till it
DVC v. CENTRAL ELECTRICITY REGULATORY 441
COMMISSION [K. M. JOSEPH, J.]
is fully repaid. The weighted average rate of interest thereafter arrived A
as shown in the table at paragraph 57 of its order and the loan for various
projects were given.
13. This order was appealed against by the appellant. The appeal
culminated in the order dated 23.11.2007. Let us examine what the
appellate Tribunal said about the complaint of the appellant based on B
Section 38 of the DVC Act. The main order was written by the Technical
Member with whom the Chairman agreed with the separate concurring
judgment.
14. The debt equity ratio which was fixed by the Commission at
70:30 was altered to 50:50 in respect of the old projects commissioned C
prior to 1992 on a normative basis and in respect of recent projects such
as MEJIA, they were to be aligned with 70:30 capital structure specified
in the Regulations. We may also refer to the following findings:
“A-9. The Appellant has contended that DVC having been created
with the functions of deemed state to support the state’s social D
functions of West Bengal and Jharkhand, it serves public interest
at large and, therefore, by statute equity has been primary source
of capital. It has further added that business risks, financials risks,
etc. are largely, therefore, carried by the owner Governments
who, therefore, by fundamental principles of risk and return are
entitled to return on their entire share of capital investment. E
A-10. It is true that the owners take upon themselves business
related risks and are entitled for return on their share of capital
investment. But the return is to be governed by the scheme of
determination of tariff for supply of electricity as mandated by
the law in place. The scheme provides for an assured ROE, as F
permissible under the Tariff Regulations, at the rate of 14%, on
the equity deployed for the purpose of supplying electricity. The
scheme does not permit return on investments made on projects
other than supply of electricity, to be recovered through tariff for
supply of electricity. G
A-13. Some of the Respondents have submitted that “combined
reading of Sections 30, 31 and 38 of the DVC Act clearly
indicates that the entire capital invested on the projects as
per the DVC Act is the loan capital and interest is a part of
the expenditure. There is no provision of any equity capital
H
under the DVC Act.”
442 SUPREME COURT REPORTS [2018] 14 S.C.R.
A A-14. The DVC Act provides for infusion of capital by the
participating Governments and for payment of interest thereon.
The DVC Act does not categorize such capital as borrowings
and there is no reference about repayment of such capital to the
participating Governments. It is difficult to assume a commercial
organization running solely on borrowed funds. Lenders invariably
B
prescribe for a margin money to be invested by the borrower
also. In our opinion the capital infused by the participating
Governments is in the nature of equity capital and for the purpose
of determination of tariff, same would be eligible for return on
equity, as may be permitted by the Tariff Regulations 2004.
C A-15. It is to be noted that DVC provides interest on capital
contributed by the participating Governments. The accrued interest
has been allowed to be retained by DVC and is ploughed back
into capital with the tacit consent of the participating Governments.
This has to be provided to DVC as per the provisions of Section
D 38 of the DVC Act.
A-16. It is observed that the DVC Act envisages the projects to
be built only on capital contributed by the participating Governments
and any deficit in the capital amount is to be made good by taking
loan on behalf of the participating Government. The debt taken
E will obviously attract interest. The average interest rate of
repayment payable during the tariff year is to be applied on 50:50
normative debt capital for tariff purposes. This would mean that
out of aggregate equity including reserves, equity considering a
normative Debt Equity Ratio of 50:50 would be eligible for ROE,
at the rates prescribed in the Tariff Regulations and excess of
F equity if any over the equity earning ROE @14% shall be
considered as interest bearing debt. For example, if the actual
Debt Equity Ratio comes to 40:60, ROE would be available on
50% portion of the equity and interest would be available on 10%
portion of equity and interest would be available on 10% portion
G of equity and 40% loan, as reduced by repayments.”
It is also relevant to notice paragraph E-13 and the same is extracted
below:
“E-13. As regards the liability arising under section 38 of the
DVC Act on account of interest on capital provided by each of
H the participating Governments, we have to keep in mind that the
DVC v. CENTRAL ELECTRICITY REGULATORY 443
COMMISSION [K. M. JOSEPH, J.]
total capital to be serviced has to be equal to the value of operating A
assets when they are first put to commercial use. Subsequently,
the loan component gets reduced on account of repayments while
equity amount remain static. As per the scheme of the
determination of tariff as per Tariff Regulations 2004, the recovery
is in two forms; either by way of ROE or by way of interest on
B
loans. We direct the Central Commission to ensure that capital
deployed in financing operating assets is getting fully serviced
either through Return on Equity or interest on loan (including on
the equity portion not covered as part of equity eligible for Return
of Equity).”
THE ORDER DATED 6.8.2009 PASSED BY THE COMMISSION C
PURSUANT TO THE AFORESAID ORDER OF THE APPELLATE
TRIBUNAL
15. In paragraph 38 of the order dated 6.8.2009, the Commission
worked out the return on capital, interest on loan and depreciation on
common assets and apportioned to each of the productive generating D
stations/ transmission system in terms of the capital cost which is already
allocated as on 31.03.2004. This is purportedly done in terms of what
was stated by the Appellate Tribunal in paragraphs 1.3 and 1.4 of its
order dated 23.11.2007. Paragraph 37 reads as under:
“1.3. With the above process it is true that the cost of operating E
and maintaining the above facilities would be recovered but the
recovery of capital cost in the form of depreciation and return on
corresponding equity, interest on loans, if any, would be missed
out without any justification.
1.4. We feel that once the Commission has agreed to treat these F
assets as part of the generating and transmission activities of the
Appellate by permitting recovery of their O&M cost, these assets,
after due prudence check, should also be included in the capital
cost and consequential effect be given through determination of
tariff.” G
16. The total capital cost as on 1.4.2004 is shown as Rs.314601
lakhs. The additional capitalisation allowed for 2004-05 and 2005-06 at
paragraph 35 was also reckoned and the total average capital was shown
as Rs.322797 lakhs for the year 2004-05 and Rs.326786 lakhs for 2005-
06. Thereafter, the Commission also referred to the debt equity ratio
H
444 SUPREME COURT REPORTS [2018] 14 S.C.R.
A fixed by the Appellate Tribunal in paragraph A-8 which we have extracted
hereinabove. Thereafter, the commission proceeded to work out return
on equity under the heading ‘Interest on Loan’. This is what the
Commission has stated in paragraph 48.
“48. The petitioner has submitted that it has not availed any loans
B to meet the expenditure towards additional capitalization. Based
on the additional capitalization allowed and the revised debt-equity
ratio and depreciation considered in line with the directions of the
Appellate Tribunal, the interest on loan has been worked out with
the weighted average rate of interest considered as per the
Commission’s order dated 3.10.2006. Depreciation calculated
C for the year has been treated as repayment of loan during that
year.”
17. Now let us see how in the order which was impugned before
us, the Appellate Tribunal has dealt with the issue relating to interest on
capital under Section 38 of the DVC Act. We may note paragraph 70
D where the Appellate Tribunal holds as follows:
70. We have carefully considered the above grounds urged by
the Appellant. On going through records, as indicated above, the
operation of the limited remand order would relate to this issue
also. The operations of the DVC which have to be implemented
E have been clearly spelt out in the following paragraphs of Remand
Order:
“E-13. As regards the liability arising under section 38 of the
DVC Act on account of interest on capital provided by each
of the participating Governments we have to keep in mind that
F the total capital to be serviced has to be equal to the value of
operating assets when they are first put to commercial use.
Subsequently the loan component gets reduced on account of
repayments while equity amount remain static. As per the
scheme of the determination of tariff as per Tariff Regulations
G 2004, the recovery is in two forms, either by way of Return on
Equity or by way of interest on loans. We direct the Central
Commission to ensure that capital deployed in financing
operating assets is getting fully serviced either through Return
on Equity or interest on loan (including on the equity portion
not covered as part of equity eligible for Return of Equity).”
H
DVC v. CENTRAL ELECTRICITY REGULATORY 445
COMMISSION [K. M. JOSEPH, J.]
18. Thereafter, the Appellate Tribunal undoubtedly notes that in A
its remand order dated 23.11.2007, it has directed the Central Commission
to ensure that the capital employed in financing the operating assets is
getting fully serviced either through return on equity or on interest on
loan. The Appellate Tribunal goes on to hold that in compliance of the
said order the Commission allowed debt equity ratio on the total capital
B
employed. It further provided return of 14% on the normative equity
capital in terms of Regulation 21(1)(iii), i.e., return on equity. The
Commission also provided interest on loan of the normative type in
accordance with Regulation 21(1)(i).
19. It is in the light of these orders that we must consider the
contention of the appellant that despite appellant being entitled to the C
benefit of interest on capital it was not given the benefit despite the final
pronouncement of this Court in 2018(8) SCC 281 upholding the view of
the Appellate Tribunal itself that Section 38 of the DVC Act will continue
to apply for the benefit of the appellant-corporation. On the other hand,
the contention of the contesting respondents is that the benefit under D
Section 38 of the DVC Act as claimed by the appellant would result in
appellant getting a benefit which would be a duplication of claims insofar
as on the total capital, applying the normative debt equity ratio, appellant
has been given the benefit of return on capital on the normative equity
portion and it has also been allowed interest on the loan portion. The
case of the appellant on the other hand, is that even after interest has E
been given on the loan portion and the return on equity has also been
ensured on the normative equity portion by the impugned order, over and
above the same, the appellant is entitled to the benefit of interest on
capital on the whole amount as that is so provided under Section 38 of
the DVC Act. F
20. In the order of the Appellate Tribunal dated 23.11.2007 the
matter came to be dealt with under the heading ‘debt equity ratio’. The
Tribunal went on to accept the case of the appellant in respect of all old
projects of DVC and normative debt equity of 50:50 was assigned,
commissioned prior to 1992. In respect of recent projects such as Mejina, G
it was assigned debt equity ratio of 70:30 on capital structure as specified
in the Regulations. This finding has become final. It was contended on
behalf of the appellant that equity has been the primary source of capital.
Thereafter, in paragraph A-10, it was found by the Appellate Tribunal
that owners take upon themselves business related risk and are entitled
H
446 SUPREME COURT REPORTS [2018] 14 S.C.R.
A to interest on capital investment, but the return is to be governed by the
scheme of determination of tariff for the supply of electricity as mandated
by the law in place. The Appellate Tribunal further proceeds to hold that
the scheme provides for assured Return on Equity (ROE) which is at
the rate of 14% on the equity employed for the purpose of supplying
electricity. The scheme does not permit return on investment made on
B
projects other than for supply of electricity to be recovered from supply
of electricity. The Tribunal went on to hold that the DVC Act does not
recognise capital as borrowings and there is no reference about
repayment of such capital to the participating Governments. The
Appellate Tribunal proceeds to hold that the capital infused by participating
C Governments is in the nature of equity capital and for the determination
of tariff, the same would be eligible for return on equity but the Appellate
Tribunal does not end there. It clearly provides that the return on equity
is as may be permitted by the tariff Regulation of 2004. It is thereafter
that the Appellate Tribunal in para 15 proceeded to hold that the DVC
Act provides for interest on capital which is contributed by the
D
participating Governments. The accrued interest due to the Governments
apparently has been allowed to be retained by the appellant. The same
however came to be ploughed back into the capital with the tacit consent
of the participating Governments. Thereafter, it is stated that this has to
be provided to the DVC as per the provisions of Section 38 of the DVC
E Act. It is thereafter paragraph A-16 which we have already extracted,
the Tribunal proceeded to observe that under the DVC Act if there is
any deficit in the capital contributed by the participating Governments, it
is to be made good by taking loan on behalf of the participating
Governments. The said debt would attract interest. The average interest
rate of the repayment payable is to be applied on a 50:50 normative debt
F
capital. This means that out of the aggregate equity including reserves,
equity considering the normative debt ratio of 50:50 would be eligible for
return on equity as specified in the Regulations and the excess of equity,
if any, over the equity earning ratio of 14% is to be considered as interest
bearing debt. In the example which has been given it is shown that if the
G debt equity ratio is 40:60, return on equity at 14% will be available on
50% equity whereas interest would be available at 10% portion of equity
and 40% loan which were reduced by repayments.
21. On the basis of the remand, the Commission has worked out
the debt equity ratio as directed by the Appellate Tribunal. It has further
H
DVC v. CENTRAL ELECTRICITY REGULATORY 447
COMMISSION [K. M. JOSEPH, J.]
provided return on equity at the rate of 14% on the equity portion, namely A
50%. In respect of the debt portion, interest has been calculated no
doubt after deducting depreciation, the legality of which is the subject
matter of the other contention which we will deal with separately. It is
quite clear to us that appellant has already been given return on equity in
terms of the tariff Regulation in respect of capital on the basis of debt
B
equity ratio which has been fixed by the Appellate Tribunal on a ratio
which has become final between the parties.
22. Though a perusal of para A-9 of order dated 23.11.2007 may
appear to show that equity has been found to be the main source of
capital, a perusal of paragraph A-10, A-16 and more importantly E-13
would show that capital under Section 38 of the DVC Act has been C
understood as the value of the operating assets when they were first put
to commercial use. Capital is also understood not as equity alone but it
has been understood both as loan and equity. The ratio between loan
and equity is also fixed in respect of the old projects at 50:50 and under
the new projects it is at 70:30. It is further clear from paragraph E-13 of D
the order of the Appellate Tribunal dated 23.11.2007 that the appellate
Tribunal contemplated that the equity component would remain static
and it would earn the rate of return as provided in the tariff Regulation.
As far as the loan component is concerned, it would get reduced on
account of repayments. Therefore, the recovery as contemplated under
the Regulations was found to be in two forms, namely, either as return E
on equity in respect of the equity portion and as interest on the loan
component.
23. There remains only one area of doubt. In paragraph A-15,
the Appellate Tribunal noted that the interest due from DVC on the
capital employed by the participating Governments have been allowed F
to be retained by the appellant and it has been ploughed back into the
capital. To this portion also, the Appellate Tribunal directed to apply
under Section 38 of the DVC Act. However, firstly, it is after so providing
that the Appellate Tribunal has later in paragraph E-13 given its direction
under Section 38 of the DVC Act. Secondly, even in the written G
submission made this aspect has not been taken up as such and at any
rate, the particulars are not given. Also in paragraph 73 of the impugned
order which refers to the complaint of the appellant relating to cumulative
depreciation being employed to reduce the loan component being illegal
H
448 SUPREME COURT REPORTS [2018] 14 S.C.R.
A and reference is made to the retained interest being ploughed back as
capital to the creation of capital assets resulting in the appellant enjoying
perpetual moratorium as it has never repaid the loan and the question of
adjustment of the depreciation for the loan did not arise. There is no
complaint raised about interest under Section 38 of the Act not being
given in respect of interest which is ploughed back as capital.
B
24. The next question relates to the legality of taking into
consideration the cumulative depreciation for reducing the loan component.
The complaint of the appellant is that both the Commission and the Tribunal
have calculated interest on the basis that cumulative depreciation will
result in a reduction of loan which is unsustainable. The answer to the
C same which is raised by the respondents is that it is not open to the
appellant to raise this contention as this contention was not raised before
the appellate Tribunal in the first round of litigation which culminated in
the order dated 23.11.2007 being passed by the Appellate Tribunal. The
appellant no doubt seeks support from the order of the Appellate Tribunal
D passed in the case of NTPC. It is no doubt true that in the order of the
Appellate Tribunal in the case of NTPC, the Tribunal discountenanced
adjusting cumulative depreciation reducing the loan. As far as the
judgment of this Court in 2007 (3) SCC 33, there the question which
really arose was related to the rate of depreciation. This Court took the
view for power companies keeping in view the need to replace the assets,
E a higher rate of depreciation was necessary as it would reduce the number
of years required for replacing the assets. The observation made therein
incidentally may not have the effect which the appellant seeks to persuade
us to accept. But the question would be whether the appellant would be
entitled to raise the complaint in this appeal. In the original order passed
F on 3.10.2006 by the Central Commission, the Commission held as
follows:-
57. Majority of the loans raised by the petitioner Corporation
are not project specific. The normative loan outstanding for
individual station, as on 31.3.2004, has been computed by
G applying the normative debt-equity structure of 70:30 (as
mentioned above) to the capital cost with weighted average
rate of interest of the loan for the petitioner Corporation as a
whole. The cumulative depreciation as on 31.3.2004 or notional
loan amount, whichever is lower, has been deemed as loan
H
DVC v. CENTRAL ELECTRICITY REGULATORY 449
COMMISSION [K. M. JOSEPH, J.]
repayment and balance amount, if any, has been allowed to be A
serviced till it is fully repaid. Annual depreciation amount has
been treated as normative loan repayment. The weighted
average rate of interest as claimed by the petitioner Corporation
and as adopted for the tariff calculations is as follows:
Calculation of weighted average rate of interest B
Total Loan 2004-05 2005-06 2006-07 2007-08 2008-09
Gross Loan opening 77095 77095 77095 77095 77095
Cumulative re-payment 6143 14948 22281 29614 39858
of loan up to previous
year
Net Loan opening 70952 62147 54814 47481 37237
C
Increase/Decrease due 0 0 0 0 0
to FERV
Increase/Decrease due 0 0 0 0 0
to ACE
Total 70952 62147 54814 47481 37237
D
Re-payment of loan 8819 7333 7333 10244 5165
during the year
Net Loan closing 62133 54801 47468 37224 32059
Average Net loan 66543 58467 51134 42346 34641
Rate of Interest on 11.19% 10.67% 10.50% 10.23% 9.56%
loan including E
Guarantee fee
Interest on Loan 7445 6239 5367 4332 3311
25. Being dissatisfied by the same, the appellant approached the
Appellate Tribunal. Apparently, 10 issues were agitated by the Appellate
Tribunal at the instance of the appellant. Since the matter has attained F
finality by the decision of this Court in 2018 (8) SCC 281, it is but apposite
that we have set out paragraph 11 of the said judgment. Paragraph 11
of the said judgment is extracted below:
11. Accordingly, the learned Appellate Tribunal while rejecting
the following five claims and upholding the order of CERC on G
the aforesaid counts thought it proper to remand the matter,
for a de novo consideration of the remaining five issues by
CERC in the light of the findings recorded by it. The tabular
chart, extracted below, would indicate the five issues that have
been finalised by the learned Appellate Tribunal by upholding
H
450 SUPREME COURT REPORTS [2018] 14 S.C.R.
A the order of CERC dated 3-10-2006 and the other five issues
which have been remanded for redetermination by CERC:
Issues finalised by the Issues remanded for
learned Appellate redetermination by CERC
Tribunal by upholding the
order of CERC dated 3-10-
2006
B
(i) Higher return on equity; (i) Additional capitalisation
for the period 2004-2005
and 2005-2006;
(ii) Depreciation rate; (ii) Pension and gratuity
contribution;
(iii) Resetting of operating (iii) Revenue to be allowed to
C norms at variance from the DVC under the DVC
the operating norms Act;
prescribed in the 2004
Regulations;
(iv) Return on capital (iv) Operation and maintenance
investment on Head expenses;
Office, Regional Offices,
D administrative and other
technical centres, etc.;
and
(v) Generation projects (v) Debt-equity ratio
presently not operating.
E
26. A perusal of the same would appear to suggest the substantive
question of law sought to be raised as part of the second contention,
does not remain open for adjudication.
27. When the matter went back pursuant to the remand order in
the first round of litigation which has become final in view of the dismissal
F of appeal by this Court, the Central Commission has only reiterated the
procedure in the matter of calculating interest on loan by reducing the
loan amount by the cumulative depreciation. This is a procedure to which
exception was not taken in the first round when the appellant could have
taken exception to the same. This is also for the period prior to 31.3.2006.
G Having regard to what is stated in paragraph 57 in the earlier round of
litigation, therefore, on a point which has become final in the earlier
round, we are not persuaded to hold that it will be open for the appellant
to raise the same issue in the second round in respect of a matter which
has attained finality. On this ground, we think that the appellant is not
H
DVC v. CENTRAL ELECTRICITY REGULATORY 451
COMMISSION [K. M. JOSEPH, J.]
entitled for consideration of the said point at our hands. Accordingly, we A
refuse to answer the question of law which is raised. The upshot of the
above discussion is that the appellant has not made out a case for
interference. The appeal fails and is dismissed. The parties will bear
their respective costs.
B
Devika Gujral Appeal dismissed.
C
D
E
F
G
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "interest on capital"Sign in to search