The Supreme Court observed that the conferment of deemed licensee status on SEZ (Special Economic Zone) Developers does not exclude the requirement of obtaining licence under Section 14 of the Electricity Act, 2003.

The Court said that reading up a provision of subordinate legislation in a manner that it militates against the primary legislation is not permissible.

The Court was dealing with an appeal preferred by a company against Telangana State Electricity Regulatory Commission (TSERC) under Section 125 of the Indian Electricity Act, 2003. The challenge was to the judgment and order of the Appellate Tribunal for Electricity by which it dismissed an appeal under Section 111 of 2003 Act and upheld the judgment of TSERC.

The two-Judge Bench comprising Justice Sanjiv Khanna and Justice Dipankar Datta held, "As far as the 2010 Notification is concerned, the proviso to section 14(b) introduced by the said Notification, confers deemed licensee status on SEZ developers. However, such conferment does not explicitly exclude the requirement of obtaining a licence. This lack of specificity, especially when compared with the clear provisions for other entities, suggests that the legislative intent was not to ipso facto grant SEZ developers the status of deemed distribution licensees, thereby obliging them to obtain a licence by making an application in terms of regulation 13. TSERC is, therefore, empowered to scrutinise such applications in accordance with law, however, only limited to the provisions which are applicable to deemed licensees. Verification and acceptance recognise their status as deemed licensees."

“The literal rule of interpreting a statute empowers courts to iron out the creases within legislation but without altering the very fabric of which it is made. The practice of reading up a provision can only be justified when it aligns with legislative intent, maintains the fundamental character of the law, and ensures that the resulting interpretation remains consistent with the original context to which the law applies. This holds especially true for subordinate legislation, which require greater scrutiny in this regard. Reading up a provision of subordinate legislation in a manner that it militates against the primary legislation is not permissible”, it also remarked.

The Bench added that the authority to craft subordinate legislation is derived from the enabling/primary legislation and it is imperative that such legislation harmonizes with the provisions outlined in the enabling/primary legislation.

Senior Advocate Maninder Singh appeared on behalf of the appellant while Senior Advocate C.S. Vaidyanathan and AOR Somanadri Goud Katam appeared on behalf of the respondents.

Brief Facts -

The appellant company was notified by the Ministry of Commerce & Industry (Department of Commerce), Government of India as a ‘Developer’ in terms of Sections 3 and 4 of the Special Economic Zones Act, 2005 to establish a sector-specific SEZ unit for Information Technology/Information Technology Enabled Services sector in Madhapur, Ranga Reddy District, Hyderabad, in the former State of Andhra Pradesh. A proviso to Section 14(b) of the 2003 Act was introduced by MoCI which accords upon the developer of a SEZ, the status of a deemed distribution licensee under the Act. Thereafter, the appellant filed an application before the erstwhile Andhra Pradesh Electricity Regulatory Commission seeking identification as a deemed distribution licensee.

Upon the Andhra Pradesh Reorganisation Act, 2014 coming into force, the application was transferred to the TSERC. By its judgment and order, TSERC identified and accorded the status of a deemed licensee to the appellant. However, this grant of status was made conditional upon the appellant satisfying the requirements stipulated in Rule 3 of the Distribution of Electricity Licence (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005. It was directed to infuse an additional capital of Rs. 26.90 crore as equity share capital, contributed by its promoters, into its power distribution business via account payee cheques. Being aggrieved, the appellant carried an appeal to APTEL but the same was dismissed. Hence, it was before the Apex Court.

The Supreme Court in view of the above facts observed, “The Electricity Act has conferred power on the Central Government to make Rules [see section 175], and on the Central Electricity Authority and the Central Commission to make Regulations [see sections 176 and 177, respectively]. All such rules/regulations are to be made consistent with the Electricity Act. Section 181 of the Electricity Act confers power on the State Commissions to make Regulations but such regulations too must be consistent with the provisions of the primary enactment and the rules framed thereunder generally. Rules and Regulations are enacted to supplement the main provision, not to supplant it. They serve the crucial role of bridging potential gaps within the primary legislation, yet, their function is not to create webs and voids merely to clog and hamper their implementation.”

The Court said that any gaps addressed by Rules and Regulations must be discernible within the framework of the primary legislation. It further said that the 2013 Regulations clearly delineate distinct categories of licensees and Regulation 12 pertains solely to regular distribution licensees as defined under regulation 2(h), not to deemed licensees.

“‘Reading up’ regulation 12 so as to expand its ambit to include within it deemed licensees, especially when the Electricity Act does not stipulate any such inclusion, runs counter to the subsequently inserted proviso to clause (b) of section 14 of the Electricity Act—an exercise which is impermissible and which we cannot approve. Therefore, the recognition of the status of a deemed distribution licensee cannot hinge on compliance with rule 3(2) of the 2005 Rules read with regulation 12 of the 2013 Regulations”, it noted.

The Court held that the appellant, being a deemed licensee, would also be exempt from the concomitant obligation of complying with regulation 12, in view of the language of the provision, which imposes the burden of complying with regulation 12 only on those applicants who come within the purview of regulations 4 to 11 and the appellant falling outside the scope of the latter, would thus necessarily fall outside the scope of the former too.

“TSERC’s reliance on regulation 49 of the 2013 Regulations to enforce the applicability of regulation 12 also appears to be flawed. Regulation 49, situated within Chapter-4 [General Conditions of Distribution Licence] of the 2013 Regulations, specifies that “these general conditions shall apply to distribution licensees and to all deemed distribution licensees”. A straightforward reading reveals that the term ‘general conditions’ in regulation 49 pertains exclusively to the general conditions outlined in Chapter-4. By no stretch of imagination could the scope of this provision be widened so as to include within its ambit regulation 12, which forms part of Chapter-3 [Procedure for Grant of Distribution Licence] of the 2013 Regulations”, it also noted.

The Court, therefore, observed that being a SEZ developer in terms of the 2010 Notification does not ipso facto confer upon the appellant the status of a deemed licensee without any scrutiny and without being under any requirement to apply as it is required to make an application in accordance with the 2013 Regulations. It said that the condition stipulated in rule 3(2) of the 2005 Rules, as imposed by the TSERC with a direction to infuse an additional capital of Rs. 26.90 crore is not justified and contrary to the statutory scheme.

The Court set aside the judgments and orders of TSERC and APTEL to the above extent and modified the order of TSERC granting the status of a deemed licensee to the appellant subject to the condition that its promoters infuse additional capital to the extent of excluding such condition.

Accordingly, the Apex Court partly allowed the appeal.

Cause Title- M/s Sundew Properties Limited v. Telangana State Electricity Regulatory Commission & Anr. (Neutral Citation: 2024 INSC 439)


Appellant: Senior Advocate Maninder Singh, Advocates Mahesh Agarwal, Rishi Agrawala,, S.lakshim Iyer, Anwesha Padhi, Abhishek Munot, Kunal Kaul, Samikrith Rao Puskuri, Ashita Chawla, Amarpal Singh Dua, and AOR E.C. Agrawala.

Respondents: Senior Advocate C.S. Vaidyanathan, AOR Somanadri Goud Katam, Advocate Sirajuddin, AOR Abhinav Rao, Advocates Vinayak Goel, Gunnalan, Nitish Raj, Rahul Jajoo, Devadipta Das, and Prerna Robin.

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