NSL Nagapatnam Infrastructure Private Limited v. Central Electricity Regulatory Commission & Ors.

1. The petitioner has filed the present petition, inter alia, impugning the order dated 07.09.2016 (hereafter referred to as ‘the impugned order’) passed by respondent no.1 – Central Electricity Regulatory Commission (hereafter referred to as ‘CERC’) – rejecting the petitioner’s petition under Section 79(1)(c) and (f) of the Electricity Act, 2003 read with Regulation 32 of the Central Electricity Regulatory Commission (Grant of Connectivity, Long Term Access and Medium Term Open Access in the inter-State transmission and related matters) Regulations, 2009 (hereafter referred to as the ‘Connectivity Regulations’).

2. The petitioner is essentially aggrieved by the action of respondent no.2 – “Central Transmission Utility” (hereafter referred to as ‘CTU’) – encashing the Bank Guarantee in the sum of ₹1.24 crores (hereafter ‘the BG’), furnished in favour of Power Grid Corporation of India Ltd, the predecessor-in-interest of CTU. The petitioner had furnished the BG along with its application for Long Term Access (hereafter ‘LTA’) in terms of regulation 12(3) of the Connectivity Regulations. The same was invoked as the petitioner could not proceed with the application for want of the necessary approvals. The CTU had thus encashed the BG in terms of Regulation 12(5) of the Connectivity Regulations. The petitioner had challenged encashment of the BG on several grounds before the CERC but the same was rejected.

3. Mr. Anand Ganesan, learned counsel appearing for the petitioner, has confined the challenge in the present petition to the vires of Regulation 12 of the Connectivity Regulations. The said Regulation reads as under:

4. Mr. Ganesan submits that the application filed under Regulation 12(1) of the Connectivity Regulations for LTA is required to be accompanied with an unconditional bank guarantee for a sum of ₹10,000/- per MW of the total power to be transmitted. He submits that, in terms of Regulation 12(5) of the Connectivity Regulations, the bank guarantee may be encashed by the nodal agency, if the application is withdrawn by the applicant or the LTA rights are relinquished prior to the operationalization of such rights. He submitted that the CTU has the discretion to encash the bank guarantees where the CTU has incurred any loss or expense on account of withdrawal of the application of LTA; it is not mandatory to do so in all cases.

5. The CERC erred in proceeding on the basis that the Connectivity Regulations make it mandatory for the BG to be encashed. He submits that since no loss has been caused to the respondents, therefore, the encashment of the bank guarantee is not a compensatory measure. He also points out that it is the CTU’s case that the bank guarantee is to serve as a deterrence and to discourage premature applications and is in the nature of a penalty.

6. According to the petitioner, a levy in the nature of penalty is not permissible. Mr Ganeshan submits that the power of CERC to make regulations is confined to the purposes as set out in Section 79 of the Electricity Act, 2003; CERC has no power to levy penalty. He Submitted that the Electricity Act, 2003 (hereafter ‘the Act’) contains several provisions for levy of penalty and Section 142 of the Act serves as a residual clause fixing penalty for violations of provisions where no specific penalty is provided. He contends that in the circumstances, any regulation levying additional penalty would be ultra vires the Act. He contended that levy of a compensatory fee may be permissible but not any penalty. He submits that in terms of Regulation 12(6) of the Connectivity Regulations, the bank guarantee furnished in terms of Regulation 12(3) of the Connectivity Regulations is required to be discharged on the applicant signing a definite agreement with the CTU for the construction phase for the LTA where augmentation of the transmission system is required. He submits that once the application progresses to a stage where construction is required, the CTU is duly protected by a bank guarantee equivalent to ₹5,00,000/- per MW. He states that it is at that stage that the CTU commits its resources and is required to be secured. However, at the stage of application for LTA, the CTU has not committed any resources and therefore, encashment of the BG cannot be considered as a compensatory measure.

7. The learned counsels for the respondents seriously disputes that encashment of the BG is penal and not a compensatory measure. They contend that furnishing of the bank guarantee along with the application for LTA is not only meant to serve as a deterrent for non-serious applicants but also to compensate the CTU for the involvement in the processes that are triggered on the application being filed.

8. It is also pointed that the petitioner has not challenged Regulation 12(3) of the Connectivity Regulations, which requires an applicant to furnish a bank guarantee of ₹10,000/- per MW. Thus, clearly the requirement of providing a security is not in dispute.

9. The short issue that boils down for consideration is whether the encashment of the bank guarantee is mandatory as held in the impugned order or is at the discretion of the CTU. The language of Regulation 12(5) of the Connectivity Regulations does not indicate that it is necessary in all cases for the CTU to encash the bank guarantee. The use of the word “may” also supports the view that in certain cases, where the CTU has committed its resources pursuant to the application for LTA and the applicant does not seriously pursue the same, the bank guarantee may require to be encashed as a measure of compensation. Concededly, the CTU is not required to quantify the compensation but merely to indicate that the bank guarantee is a measure of such compensation and is due and liable to be invoked in that case.

10. Mr T.V.S. Raghvendra Sreyas, learned counsel appearing for CERC, submits that present petition is not maintainable. He also submits that the word “may” is used in Regulation 12(5) of the Connectivity Regulations as encashment of the bank guarantees furnished along with the application for LTA is at the discretion of CTU. He submits that Regulation 12(5) of the Connectivity Regulations cannot be read as mandatory and necessarily requiring the CTU to encash the bank guarantee in all cases where the application does not proceed to the construction phase or result in grant of LTA.

11. He referred to the Statement of Reasons for framing the Connectivity Regulations and drew the attention of this Court to paragraph 68 of the said Statement of Reasons, which reads as under: “68. We are of the view that furnishing of Bank Guarantee is required to bring seriousness to the applications made by applicants. However, a provision has been made requiring the bank guarantee to stand discharged with the submission of bank guarantee required to be given by the applicant to the Central Transmission Utility during construction phase when augmentation of transmission system is required, in accordance with the provisions in the detailed procedure. Furthermore, the amount of Bank Guarantee has been reduced from the originally proposed Rs. 1 lakh per MW to Rs. 10,000 per MW.”

12. He contended that it was never the intention of CERC that the Regulation 12(5) of the Connectivity Regulations be read as necessarily requiring encashment of bank guarantee in all cases. He emphasized that the purpose was to ensure that only serious applicants apply for LTA and do not move the application at a premature stage.

13. Mr. Sitesh Mukherjee, learned counsel for the CTU, submitted that filing of an application, triggers a course of events where CTU would necessarily have to take the applications into account while considering its further plans of augmenting the facilities. He submits that the procedure evolved is that all applications are bunched up and are taken up twice a year: once on 30th June and next on 31st December.