POWERGRID CORPORATION OF INDIA LIMITEDversusCENTRAL ELECTRICITY REGULATORY COMMISSION & ORS.

                  [2025] 6 S.C.R. 123 : 2025 INSC 626

                Powergrid Corporation of India Limited
                                   v.
           Central Electricity Regulatory Commission & Ors.
                  (Civil Appeal No(s). 5857-5858 of 2011)
                                  05 May 2025
                [Abhay S. Oka and Ujjal Bhuyan,* JJ.]


                            Issue for Consideration
       The questions arose for consideration whether the appellate tribunal
       and Central Electricity Regulatory Commission justified in rejecting
       the appellant’s claim of additional capitalization due to replacement
       of the damaged Inter-connecting Transformers-ICTs; whether the
       self-insurance policy of the appellant covered the cost of replacement
       of the damaged ICTs; and whether the Member Secretary of NRPC
       should have been directed by the appellate tribunal to issue revised
       availability certificate for the transmission assets.

                                   Headnotes†
       Central Electricity Regulatory Commission (Terms and
       Conditions of Tariff) Regulations, 2004 – Reg. 53 – Additional
       capitalisation – Claim of – Appellant owned and operated
       transmission systems in the northern region-R I and R II –
       Inter-connecting transformers in the R I transmission system
       got burnt and damaged due to internal faults – Transformers
       from R II temporarily taken out and diverted to R I – Appellant
       restored the transformers at R-1 and ICTs taken out from
       R II were restored by new/repaired transformers – Petition
       by the appellant before the respondent-CERC claiming de-
       capitalization for the transformers taken out from R II and
       additional capitalization for the new/repaired transformer
       installed at R I – Claim not allowed by CERC holding that the
       net cost for such replacement has to be met out from the
       insurance fund reserve maintained by the appellant under
       the internal insurance policy; and also did not accede to the
       prayer of the appellant for giving directions to the Northern
       Regional Power Committee for issuance of revised availability
       certificate – Appeal thereagainst, dismissed by the appellate
       tribunal – Interference:

* Author
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       Held: Not called for – Appellate tribunal and CERC justified in rejecting
       the appellant’s claim of additional capitalization due to replacement
       of the damaged ICTs – Reg. 53 provides that additional capital
       expenditure incurred after the commercial operation date and upto
       the cut-off-date may be admitted by the CERC if such expenditure
       relates to deferred liabilities, deferred works, procurement of initial
       spares, etc. – Reg. 53 does not include within its scope replacement
       of transformers due to damage or failure – As per Reg. 53(2)(iv)
       any additional work/services which becomes necessary for the
       efficient and successful operation of the project but not included in
       the original project cost may be admitted by CERC as additional
       capital expenditure – All that the appellant had done was diversion
       and replacement of transformers which cannot be construed as
       doing any additional work/services u/Reg.53(2)(iv) – Nothing on
       record to show that prior to the breakdown of transformers the
       transmission systems were in bad shape or had started wearing
       out – As regards the self-insurance policy, the loss caused to the
       appellant by fire would be covered by the policy as it covered all fires
       which caused loss without any exception and as all the ICTs were
       operating until those got burnt – Proximate cause for the damage
       to the transformers is the implosion/explosion in the internal/external
       machinery of the transformers which caused fire – Self-insurance
       policy of the appellant covered the cost of replacement of the
       damaged ICTs – Appellate tribunal justified in directing the appellant
       to finance the net cost from the self-insurance fund reserve as part
       of the operation and maintenance charges – As decapitalization and
       additional capitalization of the replaced ICTs have not been allowed,
       issuance of direction to NRPC for revised availability certificate for
       the transmission assets does not arise. [Paras 28-35, 37-39]

                                  Case Law Cited
       New India Assurance Company Limited v. Zuari Industries Limited
       [2009] 13 SCR 1101 : (2009) 9 SCC 70 – relied on.
       Gujarat Urja Vikas Nigam Limited v. Renew Wind Energy (Rajkot)
       Private Limited [2023] 7 SCR 670 : 2023 SCC OnLine SC 411 –
       held inapplicable.

                                    List of Acts
       Electricity Act, 2003; Electricity Regulatory Commission Act, 1998;
       Central Electricity Regulatory Commission (Terms and Conditions
       of Tariff) Regulations, 2004.
[2025] 6 S.C.R.                                                               125

              Powergrid Corporation of India Limited v.
           Central Electricity Regulatory Commission & Ors.

                              List of Keywords
     Electricity; Central transmission utility; Transmission systems; Inter-
     State Transmission Systems; De-capitalization of transformers;
     Additional capitalization; Replacement for damaged transformers;
     Northern Regional Power Committee; Inter-connecting Transformers;
     Revision tariff; Self-insurance reserve policy; Fire risk; Machinery
     breakdown; Self-insurance reserve; Proximate cause; Revised
     availability certificate; Central Electricity Regulatory Commission;
     Cost of replacement of the damaged ICTs; Certificate for transmission
     assets; New/repaired transformers; Approval of transmission charges;
     Additional capital expenditure.

                             Case Arising From
     CIVIL APPELLATE JURISDICTION: Civil Appeal No(s). 5857-5858
     of 2011
     From the Judgment and Order dated 23.03.2011 of the Appellate
     Tribunal for Electricity in Appeal Nos. 91-92 of 2009

                          Appearances for Parties
     Advs. for the Appellant:
     Ms. Swapna Seshadri, Pramod Dayal, Nikunj Dayal, Utkarsh Singh,
     Ms. Sneha Singh Baghel.
     Advs. for the Respondents:
     Pradeep Misra, Daleep Dhyani, Manoj Kumar Sharma.

                Judgment / Order of the Supreme Court

                                  Judgment

     Ujjal Bhuyan, J.

     This order will dispose of both Civil Appeal Nos. 5857 and 5858 of
     2011.
2.   Since both the civil appeals filed by the appellant under Section
     125 of the Electricity Act, 2003 arise out of the common order dated
     23.03.2011 passed by the Appellate Tribunal for Electricity in Appeal
     Nos. 91-92 of 2009 with the issue being inter-related and between
     the same parties, both the appeals were heard together and are
     being disposed of by this common order.
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3.     Appellant in this case is Powergrid Corporation of India Limited.
4.     In Appeal No. 91 of 2009, the challenge made was to the order
       dated 03.02.2009 passed by the Central Electricity Regulatory
       Commission in Petition No. 68 of 2008. In Appeal No. 92 of 2009,
       challenge made was to the order dated 03.02.2009 passed by the
       Central Electricity Regulatory Commission in Petition No. 80/2008.
       Both Appeal Nos. 91 and 92 of 2009 were dismissed by the Central
       Electricity Regulatory Commission vide the order dated 23.03.2011
       (impugned order).
5.     Hence, the two appeals.
6.     This Court by order dated 01.08.2011 had issued notice.
7.     Relevant facts may be briefly noted.
8.     Appellant Powergrid Corporation of India Limited (for short
       ‘Powergrid’) is a public sector undertaking of the Government
       of India. It is mainly engaged in the business of transmission of
       power through its transmission network. It discharges its statutory
       functions under the Electricity Act, 2003 and transmits electricity
       throughout the country. On the other hand, respondent No. 1 is
       the Central Electricity Regulatory Commission. It is a statutory
       body established under the provisions of the erstwhile Electricity
       Regulatory Commission Act, 1998 (since repealed). After coming into
       force of the Electricity Act, 2003, the Central Electricity Regulatory
       Commission (‘CERC’ for short) began to exercise its functions
       under the said statute.
9.     At the relevant point of time, appellant was a central transmission
       utility responsible for establishing transmission assets of Inter-
       State Transmission Systems (‘ISTS’ for short) dealing with
       planning and transmission of electricity. Amongst others, appellant
       owned and operated two transmission systems in the northern
       region: Rihand I and Rihand II. Rihand I comprises of Mandola
       and Ballabgarh sub-stations whereas Rihand II comprises of
       Kaithal, Mainpuri and Abdullapur sub-stations. Rihand I had three
       Inter-connecting Transformers (‘ICT’ for short): one at Ballabgarh
       and two at Mandola. Rihand II had four ICTs: two at Kaithal and
       two at Mainpuri.
10. Between 28.04.2006 and 09.05.2006, all the three transformers in the
    Rihand I transmission system failed and broke down. In fact, those
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              Powergrid Corporation of India Limited v.
           Central Electricity Regulatory Commission & Ors.

     were burnt and damaged due to internal faults. Considering that it
     was peak summer season with high anticipated load demand in the
     National Capital Territory of Delhi, the transformers were required to
     be replaced immediately. According to the appellant, procurement of
     new transformers would have taken a long time. Therefore, it was
     decided to temporarily take out one transformer each from Mainpuri
     and Kaithal sub-stations and to divert the same to Ballabgarh and
     Mandola. It was also decided to divert one transformer which was
     procured for Bahadurgarh sub-station to Mandola as commissioning
     at Bahadurgarh was scheduled later.
11. Accordingly, appellant restored the transformers at Ballabgarh and
    Mandola during the period from 29.05.2006 to 19.06.2006. The ICTs
    that were taken out from Mainpuri and Kaithal were restored by
    January and February, 2007 by new/repaired transformers.
12. Thereafter, appellant filed a petition before the CERC for approval
    of the transmission charges for the three replaced ICTs in Rihand I
    based on the Central Electricity Regulatory Commission (Terms and
    Conditions of Tariff) Regulations, 2004 (referred to hereinafter as ‘the
    Tariff Regulations’). The said petition was registered as Petition No.
    68 of 2008. Appellant claimed de-capitalization for the transformers
    taken out from Mainpuri and Kaithal and additional capitalization for
    the new/repaired transformer originally procured for Bahadurgarh
    sub-station and installed at the two sub-stations of Mandola and
    Ballabgarh.
13. By order dated 03.02.2009, CERC did not allow the claim of the
    appellant and dismissed Petition No. 68 of 2008.
14. Aggrieved thereby, appellant preferred Appeal No. 91 of 2009
    before the Appellate Tribunal for Electricity (‘Appellate Tribunal’
    for short).
15. On 09.05.2006, the tariff for the Rihand transmission systems
    were determined by the CERC for the period from 01.04.2004 to
    02.04.2009. On 04.09.2008, appellant filed a petition before the
    CERC for revision of tariff in respect of the Rihand transmission
    system for the period upto 02.04.2009 considering the net additional
    capitalization on account of replacement of the three burnt ICTs at
    Mandola and Ballabgarh. Appellant also sought for a direction to
    the Northern Regional Power Committee for issuance of revised
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       availability certificate excluding the period when the three ICTs were
       decapitalized and not in use. According to the appellant, an availability
       certificate was required for claiming full transmission charges and
       incentives. It was registered as Petition No. 80 of 2008.
16. CERC vide the order dated 03.02.2009 disallowed the claim of the
    appellant for decapitalization of the damaged transformers and
    recapitalization of the installed transformers as replacement for the
    damaged transformers. CERC further held that the net cost for such
    replacement has to be met out from the insurance fund reserve
    maintained by the appellant under the internal insurance policy for
    which contribution was being paid by the beneficiaries in the form
    of operations and maintenance expenses. Further, CERC also did
    not accede to the prayer of the appellant for giving directions to
    the Northern Regional Power Committee for issuance of revised
    availability certificate. Accordingly, vide the aforesaid order dated
    03.02.2009, Petition No. 80 of 2008 filed by the appellant was
    dismissed.
17. This led to filing of Appeal No. 92 of 2009 by the appellant before
    the Appellate Tribunal. Both the appeals were heard together
    by the Appellate Tribunal; and vide the impugned order dated
    23.03.2011 dismissed the two appeals as being devoid of merit.
18. Learned counsel for the appellant submits that Appellate Tribunal
    had virtually rubber stamped the findings arrived at by the
    CERC. That apart it had interpreted Regulation 53(2)(iv) and
    Note 2 of the Tariff Regulations in a most illogical manner. If
    this is the interpretation, then no transmission licensee will ever
    get additional capitalization on restoration and replacement of
    the ICTs. He also submits that interpretation of the Appellate
    Tribunal viz-a-viz the self-insurance policy is wholly illogical
    without appreciating that the fire had occurred as a result of
    the machinery breakdown and hence it is not covered under the
    self-insurance policy.
       18.1. Because of such erroneous decision, appellant has been
             denied Rs. 15.63 crores on account of capitalization and Rs.
             4.58 crores on account of tariff qua Rihand I transmission
             system and Rs. 3.54 crores on account of capitalization qua
             Rihand II transmission system.
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              Powergrid Corporation of India Limited v.
           Central Electricity Regulatory Commission & Ors.

     18.2. He submits that in April-May, 2006, the three ICTs at Mandola
           and Ballabhgarh were damaged due to internal faults i.e.
           machinery breakdown which resulted in the burning of the ICTs.
19. Learned counsel again referred to Regulation 53(2) of the Tariff
    Regulations and submits that any work that may be required to
    be done by a transmission licensee for successfully operating the
    transmission system is permissible expenditure for capitalization,
    whether it is a new work or a replacement. Any other interpretation
    would render the aforesaid provision particularly Note 2 meaningless.
    Contrary to this Appellate Tribunal has returned a finding that
    replacement of ICTs/transformers is neither an additional work
    necessary for efficient and successful operation nor an old asset
    requiring replacement. Such a finding is unsustainable.
     19.1. It is further submitted that Appellate Tribunal was not justified
           in denying decapitalization and additional capitalization
           of the ICTs on the ground that it was the responsibility of
           the appellant for maintenance of the transmission system.
           Appellant’s decapitalization and capitalization were under the
           terms of accepted accounting practice. By not factoring in the
           said expenditure as additional capitalization for the value of
           the ICTs has led to a non-cost reflective tariff being paid to
           the appellant. Finding rendered by the Appellate Tribunal that
           provisions of Regulation 53 of the Tariff Regulations does not
           cover replacement of damaged ICTs/transformers is incorrect
           for the reason that any additional expenditure is contemplated
           to be an additional capitalization if it relates to the efficient and
           successful operation of the project. Regulation 53 cannot be
           interpreted in a narrow and pedantic manner.
     19.2. Referring to the self-insurance policy of the appellant,
           learned counsel submits that the same covers losses from
           fire, whether it is internal or external or even if it is due to
           machinery breakdown. Fire was not the direct cause of the
           damage to the ICTs/transformers; rather it was machinery
           failure that possibly led to the fire. Learned counsel submits
           that if the fire had caused the machinery breakdown, the
           coverage will be available under the self-insurance policy
           as the proximate cause in such a case would be the fire.
           In this connection he has placed reliance on a decision of
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              this Court in New India Assurance Company Limited Vs.
              Zuari Industries Limited1. He has also placed reliance on
              another decision of this Court in Gujarat Urja Vikas Nigam
              Limited Vs. Renew Wind Energy (Rajkot) Private Limited 2to
              contend that Appellate Tribunal virtually rubber stamped
              the decision of CERC.
20. On the other hand, learned counsel for some of the respondents i.e.
    respondent Nos.2 to 5 and 10, who are the beneficiaries, supported
    the order of CERC as well as that of the Appellate Tribunal.
       20.1. It is submitted that appellant under the statute is under an
             obligation to maintain a healthy transmission system. For
             maintenance of the transmission system, the beneficiaries
             are not required to pay additional amount. The very concept
             of additional capitalization is based on the premise that in
             case any additional benefit is given to the beneficiaries, the
             amount can be capitalized. It is contended that by replacement
             of the failed transformers no additional benefit is given to the
             beneficiaries. Hence, the amount claimed for replacement of
             the transformers cannot be capitalized.
       20.2. Appellant had also shown a huge figure as cost of the installed
             transformers though such transformers were not new ones.
             Actual cost of the transformers would be much less. The
             differential amount cannot be capitalized.
       20.3. Adverting to Regulation 53 of the Tariff Regulations, it is
             submitted that additional capitalization can be claimed only in
             respect of the works in the original scope of the project. That
             apart, additional capitalization can be claimed due to change
             in law or on account of any award passed in arbitration, decree
             of court, etc. Replacement of transformers does not fall in any
             of such categories. Hence, the amounts claimed in both the
             appeals cannot be capitalized.
       20.4. The self-insurance reserve policy of the appellant covers
             unsecured risks. The policy does not say that it will not cover
             the risk regarding failure of transformers. If the appellant had


1   (2009) 9 SCC 70
2   2023 SCC OnLine SC 411
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              Powergrid Corporation of India Limited v.
           Central Electricity Regulatory Commission & Ors.

            not secured that risk in the policy, it cannot be allowed to
            penalise the beneficiaries.
     20.5. Learned counsel has also justified the decision of the Appellate
           Tribunal declining to issue directions to Northern Regional
           Power Committee (NRPC).
     20.6. It is therefore submitted that there is no merit in the appeals
           which should be dismissed.
21. Submissions made by learned counsel for the parties have received
    the due consideration of the Court.
22. Upon perusal of the materials on record and after hearing learned
    counsel for the parties, we are of the view that the following questions
    arise for our consideration in this case:
     1.    Whether the Appellate Tribunal and respondent No.1 were
           justified in rejecting the claim made by the appellant of additional
           capitalization due to replacement of the damaged ICTs?
     2.    Whether the self-insurance policy of the appellant covered the
           cost of replacement of the damaged ICTs?
     3.    Whether the Member Secretary of NRPC should have been
           directed by the Appellate Tribunal to issue revised availability
           certificate for the transmission assets?
23. To consolidate all the laws relating to generation, transmission,
    distribution, trading and use of electricity and generally for taking
    measures conducive to development of the electricity industry,
    promoting competition therein, protecting the interest of consumers
    and supply of electricity to all areas, rationalization of electricity
    tariff, ensuring transparent policies regarding subsidies, promotion of
    efficient and environmentally benign policies, constitution of Central
    Electricity Authority, Regulatory Commissions and establishment
    of Appellate Tribunal and for such related matters, the Electricity
    Act has been enacted. Whether it is Appellate Tribunal traceable
    to Section 110 or the Central Electricity Regulatory Commission
    (CERC) referred to in Section 76(1) or Central Transmission Utility
    meaning any government company which the Central Government
    may notify under sub-section (1) of Section 38, such as the appellant,
    all are covered by provisions of the Electricity Act. It also provides
    for appeal to the Supreme Court, as in the present case, under
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       Section 125 against any decision or order of the Appellate Tribunal
       on a substantial question of law.
24. In exercise of the powers conferred under Section 178 of the Electricity
    Act and all other powers enabling in this behalf and after previous
    publication, CERC has made the Tariff Regulations which came into
    force on 01.04.2004.
25. The scope and extent of application of the Tariff Regulations is
    provided in Regulation 2. As per clause (1), where tariff is determined
    through a transparent process of bidding in accordance with the
    guidelines issued by the Central Government, CERC shall adopt
    such tariff in accordance with the provisions of the Electricity Act.
    Clause (2) says that the Tariff Regulations shall apply in all such
    cases where tariff is to be determined by the CERC based on capital
    cost. Ofcourse, the CERC has the authority to prescribe relaxed
    norms of application for determination of tariff.
26. Chapter - 2 of the Tariff Regulations deals with thermal power
    generating stations. Regulations 14 and 18 are included in Chapter - 2.
       26.1. Regulation 14(xviii) defines ‘Operation and Maintenance
             Expenses’ or O&M expenses to mean the expenditure
             incurred on operation and maintenance of the generating
             station including part thereof and includes the expenditure
             on manpower, repairs, spares, consumables, insurance and
             overhead.
       26.2. Regulation 18 deals with additional capitalization. Regulation
             18 is extracted hereunder:
                 18. Additional capitalisation: (1) The following
                 capital expenditure within the original scope of
                 work actually incurred after the date of commercial
                 operation and up to the cut off date may be admitted
                 by the Commission, subject to prudence check:
                      (i) Deferred liabilities;
                      (ii) Works deferred for execution;
                      (iii) Procurement of initial capital spares in
                      the original scope of work, subject to ceiling
                      specified in regulation 17;
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              Powergrid Corporation of India Limited v.
           Central Electricity Regulatory Commission & Ors.

                     (iv) Liabilities to meet award of arbitration or for
                     compliance of the order or decree of a court; and
                     (v) On account of change in law.
                Provided that original scope of work along with
                estimates of expenditure shall be submitted along
                with the application for provisional tariff.
                Provided further that a list of the deferred liabilities
                and works deferred for execution shall be submitted
                along with the application for final tariff after the date
                of commercial operation of the generating station.
                (2) Subject to the provisions of clause (3) of this
                regulation, the capital expenditure of the following
                nature actually incurred after the cut off date may
                be admitted by the Commission, subject to prudence
                check:
                     (i) Deferred liabilities relating to works/services
                     within the original scope of work;
                     (ii) Liabilities to meet award of arbitration or for
                     compliance of the order or decree of a court;
                     (iii) On account of change in law;
                     (iv) Any additional works/services which have
                     become necessary for efficient and successful
                     operation of the generating station, but not
                     included in the original project cost; and
                     (v) Deferred works relating to ash pond or ash
                     handling system in the original scope of work.
                (3) Any expenditure on minor items/assets like normal
                tools and tackles, personal computers, furniture,
                air-conditioners, voltage stabilizers, refrigerators,
                fans, coolers, TV, washing machines, heat-
                convectors, carpets, mattresses etc. brought after
                the cut off date shall not be considered for additional
                capitalisation for determination of tariff with effect
                from 1.4.2004.
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       Note
              The list of items is illustrative and not exhaustive.
              (4) Impact of additional capitalisation in tariff
              revision may be considered by the Commission
              twice in a tariff period, including revision of tariff
              after the cut off date.
       Note 1
              Any expenditure admitted on account of
              committed liabilities within the original scope
              of work and the expenditure deferred on
              techno-economic grounds but falling within
              the original scope of work shall be serviced
              in the normative debt-equity ratio specified in
              regulation 20.
       Note 2
              Any expenditure on replacement of old assets
              shall be considered after writing off the gross
              value of the original assets from the original
              project cost, except such items as are listed in
              clause (3) of this regulation.
       Note 3
              Any expenditure admitted by the Commission
              for determination of tariff on account of new
              works not in the original scope of work shall
              be serviced in the normative debt-equity ratio
              specified in regulation 20.
       Note 4
              Any expenditure admitted by the Commission
              for determination of tariff on renovation and
              modernization and life extension shall be
              serviced on normative debt-equity ratio specified
              in regulation 20 after writing off the original
              amount of the replaced assets from the original
              project cost.
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               Powergrid Corporation of India Limited v.
            Central Electricity Regulatory Commission & Ors.

27. To answer question No.1, it is necessary to advert to Regulation 53
    of the Tariff Regulations which is included in Chapter - 4, the
    heading of which is Inter-State Transmission. Regulation 53 reads
    thus:
           53. Additional capitalisation: (1) The following capital
           expenditure within the original scope of work actually
           incurred after the date of commercial operation and up
           to the cut off date may be admitted by the Commission,
           subject to prudence check:
           (i) Deferred liabilities;
           (ii) Works deferred for execution;
           (iii) Procurement of initial capital spares in the original
           scope of works subject to the ceiling norm specified in
           regulation 52;
           (iv) Liabilities to meet award of arbitration or compliance
           of the order or decree of a court; and
           (v) On account of change in law.
           Provided that original scope of work along with estimates
           of expenditure shall be submitted along with the application
           for provisional tariff.
           Provided further that a list of the deferred liabilities and
           works deferred for execution shall be submitted along with
           the application for final tariff after the date of commercial
           operation of the transmission system.
           (2) Subject to the provisions of clause (3) of this regulation,
           the capital expenditure of the following nature actually
           incurred after the cut off date may be admitted by the
           Commission, subject to prudence check:
           (i) Deferred liabilities relating to works/services within the
           original scope of work;
           (ii) Liabilities to meet award of arbitration or compliance
           of the order or decree of a court;
           (iii) On account of change in law; and
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          (iv) Any additional works/services which have become
          necessary for efficient and successful operation of the
          project, but not included in the original project cost.
          (3) Any expenditure on minor items/assets brought after
          the cut off date like tools and tackles, personal computers,
          furniture, air-conditioners, voltage stabilizers, refrigerators,
          coolers, fans, T.V., washing machine, heat-convectors,
          mattresses, carpets, etc shall not be considered for
          additional capitalisation for determination of tariff with
          effect from 1.4.2004.
          Note
          The list of items is illustrative and not exhaustive.
          (4) Impact of additional capitalisation in tariff revision may
          be considered by the Commission twice in a tariff period,
          including revision of tariff after the cut off date.
          Note 1
          Any expenditure admitted on account of committed liabilities
          within the original scope of work and the expenditure
          deferred on techno-economic grounds but falling within the
          original scope of work shall be serviced in the normative
          debt-equity ratio specified in regulation 54.
          Note 2
          Any expenditure on replacement of old assets shall be
          considered after writing off the entire value of the original
          assets from the original capital cost.
28. From a perusal of the above, it is seen that Regulation 53 provides
    for additional capital expenditure incurred after the commercial
    operation date. It says that additional capital expenditure incurred
    after the commercial operation date and upto the cut-off-date may
    be admitted by the CERC if such expenditure relates to deferred
    liabilities, deferred works, procurement of initial spares (within
    specified norms), compliance with arbitral award or court order or
    change in law subject to submission of necessary documents and
    a prudent check. Post cut-off date, additional capitalization may
    still be allowed for similar liabilities and more importantly essential
    new works or services necessary for efficient project operation but
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               Powergrid Corporation of India Limited v.
            Central Electricity Regulatory Commission & Ors.

     minor assets like furniture, computers or appliances are excluded.
     It also provides that expenditure on replacement of old assets shall
     be considered after the full value of the old asset is written off and
     the impact of additional capitalization on tariff can be considered
     by the CERC twice in a tariff period, including revision of tariff after
     the cut off date.
29. Thus, it is evident that Regulation 53 does not include within its scope
    replacement of ICTs due to damage or failure. Regulation 53(2)(iv)
    says that any additional work/services which have become necessary
    for the efficient and successful operation of the project but not included
    in the original project cost may be admitted by the CERC as additional
    capital expenditure. Contention of the appellant that such a provision
    would apply to it also does not appeal to the Court as all that the
    appellant had done was diversion and replacement of ICTs. This
    cannot be construed as doing any additional work/services. On the
    contrary, we concur with the contention of some of the respondents
    that as a central transmission utility, it was the duty of the appellant
    to maintain a healthy transmission system; replacement of damaged
    equipment(s) is part of operation and maintenance.
30. Insofar Note 2 to Regulation 53 is concerned, it says that any
    expenditure on replacement of old assets shall be considered
    after writing off the entire value of the original assets from the
    original capital cost. In this case, the transmission systems were in
    normal operational condition since those were commissioned. Both
    Rihand I and Rihand II cannot be considered as old assets as these
    were fairly new. There is nothing on record to show that prior to the
    breakdown of ICTs, the transmission systems were in bad shape or
    had started wearing out.
31. That being the position, the answer to question No.1 can only be in
    the affirmative, in favour of the respondents and against the appellant.
32. This brings us to the second question which is as to whether the
    self-insurance policy of the appellant covered the cost of replacement
    of the damaged ICTs.
33. In the fiscal year 1994-1995, appellant opted to adopt a self-insurance
    reserve policy based on its past experience and in alignment with
    industry practices. The decision was taken to allocate estimated
    appropriations in the accounts for future losses potentially arising
138                                                          [2025] 6 S.C.R.

                          Supreme Court Reports


       out of uninsured risks, such as, machinery breakdown and fire risk
       of equipments in operational sub-stations. Consequently, a self-
       insurance account was created. The reserve was created at the
       rate of 0.1 percent of the gross value of the fixed assets at the
       close of each year covering potential future losses from uninsured
       risks with the exception of those related to high voltage direct
       current valve halls and sub-stations. The insurance reserve covered
       losses caused by events such as fire including by way of lightning,
       explosion/implosion, bush fires etc. with such losses being adjusted
       against the insurance reserve as per CERC’s guidelines upon actual
       occurrence. We thus find that there are no inclusions or exclusions
       with regard to loss caused by ‘fire’ nor does it include any exception
       to loss caused by fire.
34. It is the contention of the appellant that it could not take finance
    from the self-insurance reserve as the cause of the loss to the ICTs
    was damage due to machinery breakdown leading to fire. It is not
    the fire itself which damaged the ICTs. We find such contention of
    the appellant to be contradictory.
35. Considering the above we are of the view that the loss caused to
    the appellant by fire, whether by way of implosion or by way of
    explosion, would be covered by the policy as it covered all fires
    which caused loss without any exception and as all the three ICTs
    were operating until those got burnt. Therefore, the loss was caused
    due to fire because of which the ICTs became damaged beyond
    immediate repair.
36. In Zuari Industries Limited (supra), this Court analyzed the expression
    ‘proximate cause’. In that case there was a short-circuit in the main
    switchboard installed in the sub-station receiving electricity from
    the State Electricity Board. This resulted in a flashover producing
    overcurrents. The flashover and overcurrents generated excessive
    heat. The paint on the panel board was charred by the excessive
    heat producing smoke because of which the partition of the adjoining
    feeder developed a hole. The smoke travelled to the generator
    compartment where also there was short-circuit because of which
    the power tripped. As a result, the entire electricity supply to the plant
    stopped. Due to the stoppage of electric supply, supply of water/
    stream to the waste heat boiler by the flue gases at high temperature
    continued to be fed into the boiler which resulted in damage to the
[2025] 6 S.C.R.                                                         139

              Powergrid Corporation of India Limited v.
           Central Electricity Regulatory Commission & Ors.

     boiler. It was in that context that the court considered the question
     as to whether the flashover or the fire was the proximate cause of
     the damage in question. After a thorough analysis of the chain or
     sequence of events, this Court took the view that the proximate
     cause is not the cause which is nearest in point of time or place but
     the active and efficient cause that sets in motion a train or chain of
     event which brings about the ultimate result without the intervention
     of any other force working from an independent source. On that
     basis this Court held that the fire was the efficient and active cause
     of the damage. Had the fire not occurred, the damage also would
     not have occurred. There was no intervening agency which was an
     independent source of the damage. Therefore, this Court did not
     agree with the conclusion of the Surveyor that the fire was not the
     cause of the damage to the machinery of the claimant.
37. Applying the above principle to the facts of the present case, it can
    be seen that the proximate cause for the damage to the ICTs is the
    implosion/explosion in the internal/external machinery of the ICTs
    which caused fire. All the three ICTs became unserviceable due
    to the fire and had to be replaced by the appellant. Appellant has
    admitted that preventive maintenance and checks were done from
    time to time prior to the incident and everything was going fine. It
    was only when the fire broke out and damaged the ICTs did the
    authorities concerned diverted other transformers for replacement
    of the damaged transformers. Thus, our answer to question No.
    2 would be that the self-insurance policy of the appellant covered
    the cost of replacement of the damaged ICTs. Therefore, Appellate
    Tribunal was justified in directing the appellant to finance the net cost
    from the self-insurance fund reserve as part of the operation and
    maintenance charges. Accordingly, question No. 2 stands answered
    in the affirmative and against the appellant.
38. Since we have decided question Nos.1 and 2 against the appellant,
    question No.3 has become redundant as decapitalization and
    additional capitalization of the replaced ICTs have not been
    allowed. Therefore, question of issuing direction to the Member-
    Secretary, NRPC for issuance of revised availability certificate for
    the transmission assets does not arise.
39. Before parting with the record, we may refer to the decision of this
    Court in Gujarat Ujra Vikas Nigam Limited (supra) in which case
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                               Supreme Court Reports


       this Court agreed with the appellant that there was not a shred of
       evidence adduced by the respondent beyond the bare allegation
       of coercion made against the appellant. It was in that context this
       Court expressed surprise as to how such a sweeping allegation of
       coercion was accepted by the Appellate Tribunal de hors adequate
       pleadings. Therefore, this Court opined that Appellate Tribunal had
       virtually rubber stamped the findings of Gujarat Electricity Regulatory
       Commission on coercion. Evidently, the above decision would have
       no application to the facts of the present case. That apart, Appellate
       Tribunal has given cogent and valid reasons while rejecting the
       appeals of the appellant. We, therefore, do not find any ground to
       interfere with the impugned order.
40. That being the position, we are of the considered opinion that the
    two appeals are devoid of any merit. Accordingly, the appeals are
    dismissed. No Cost.

       Result of the case: Appeals dismissed.



       †
           Headnotes prepared by: Nidhi Jain