Indian Railways Is A "Consumer" Under Electricity Act; Cannot Evade Surcharges By Claiming "Deemed Licensee" Status: Supreme Court
The Bench noted that Electricity Act obligations apply to Indian Railways as a consumer despite its unique status under the Railways Act.
Justice Dipankar Datta, Justice Satish Chandra Sharma, Supreme Court
The Supreme Court has affirmed that the Indian Railways, while a department of the Central Government, remains liable for Cross-Subsidy Surcharge (CSS) and Additional Surcharge when procuring electricity through open access for its own consumption. The Court held that the mere authority to maintain distribution installations under the Railways Act does not translate into the functional role of a distribution licensee under the Electricity Act, 2003.
The Court clarified that "distribution" involves the twin requirements of operating a distribution system and supplying electricity to third-party consumers within a specific area. Since the Railways consumes the electricity it procures for its own operations, such as locomotives and stations, it functions as an end-user or consumer rather than a distributor. Consequently, it must fulfil the same statutory financial obligations as any other consumer availing open access to the transmission grid.
Justice Dipankar Datta and Justice Satish Chandra Sharma while delivering the judgment in a batch of statutory appeals, observed, “The Appellant cannot escape this conclusion by inverting the argument and contending that as a deemed distribution licensee, it is free from any payment obligations applicable to any consumer. In this respect, the Appellant is claiming a privileged treatment as compared to other consumers, which is impermissible in law”.
“…the Appellant is a consumer within the meaning and scope of section 2(15) of the Electricity Act. It purchases electricity exclusively for its own use and supplies it to no one but its own constituents. Thus, like any other consumer, Cross-Subsidy Surcharge and Additional Surcharge are applicable to the Appellant”, the Bench noted.
Senior Advocate M.G. Ramachandran appeared for the appellant and Senior Advocates C.A. Sundaram, Vaidyanathan, Maninder Singh, S. Poovayya, and Parag Tripathi appeared for the respondents.
The dispute originated when Indian Railways sought to procure 100 MW of power via inter-state open access for its traction substations in Maharashtra. The Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) refused connectivity, prompting Railways to seek a declaration from the Central Electricity Regulatory Commission (CERC) that it is a "Deemed Distribution Licensee" (DDL) exempt from surcharges.
While the CERC initially ruled in favor of the Railways in 2015, several State Electricity Regulatory Commissions (SERCs) and Distribution Companies (DISCOMs) challenged this view. The Appellate Tribunal for Electricity (APTEL), in its final judgment dated February 12, 2024, set aside the CERC order, holding that Railways is a consumer and not a DDL.
The Court framed four primary issues, determining that the activities under Section 11 of the Railways Act do not constitute "distribution" as the internal network merely conveys power for the Railways' own consumption. While acknowledging that Railways operates as a functionary of the Central Government, the Court held this status does not exempt it from surcharges because it is functionally a consumer under Section 2(15) of the Electricity Act.
“…a distribution installation which merely conveys electricity within the integrated railway system, from the overhead equipment to the power locomotives, communication systems, signals and station facilities, for its own consumption and use, and does not translate into sale or supply of electricity to a consumer against consideration, cannot be held to be within the meaning and scope of a distribution system under the Electricity Act”, it noted.
Furthermore, the Court rejected the reliance on proposed legislation, such as the Draft Electricity (Amendment) Bill, 2025, noting that an unpassed bill cannot be used to interpret existing statutory gaps or grant privileges not currently provided by law.
“Be that as it may, this provision of the 2014 Amendment Bill was rejected and not passed by the Parliament, showing the legislative intent that the Railways does not constitute a licensee in terms of Section 14 of the Electricity Act”, it noted.
Consequentially, the Court dismissed the appeals and directed the Respondents to compute the outstanding Cross-Subsidy and Additional Surcharge amounts. The Railways was granted a reasonable opportunity to respond to these calculations before payment.
Cause Title: Indian Railways v. West Bengal State Electricity Distribution Company Limited & Ors. (Neutral Citation: 2026 INSC 464)
Appearances:
Appellant: M.G. Ramachandran, Senior Advocate.
Respondents: Aishwarya Bhati, ASG, for Union of India, C.A. Sundaram, Vaidyanathan, Maninder Singh, S. Poovayya, and Parag Tripathi, Senior Advocates.