Bombay High Court
Citizen Forum Through Its Secretary ... vs State Of Maharashtra Through Its ... on 12 February, 2008
Equivalent citations: 2008(110)BOM.L.R.598
Author: D.D. Sinha
Bench: D.D. Sinha, Vasanti A. Naik
JUDGMENT D.D. Sinha, J.
Page 0602
1. Rule returnable forthwith. Heard finally with consent of Shri Kilor, learned Counsel for the petitioners in Writ Petition No. 3701/2007, Shri Shinde, learned Counsel for the petitioner in Writ Petition No. 5100/2007, Shri Gordey, learned Counsel for the petitioners in Writ Petition No. 5855/2007, Mrs. Dangre, learned Additional Government Pleader for the respondent No. 1 State, Shri Vikas Singh, learned Additional Solicitor General of India with Shri Deshpande, learned Counsel for the respondent Nos. 2 and 3 in Writ Petition Nos. 3701/2007 and 5855/2007 and respondent Nos. 2 to 4 in Writ Petition No. 5100/2007, and Shri Arun Agrawal, learned Counsel for the respondent M/s. Crompton Greaves Ltd. Shri Kilor, learned Counsel for the petitioners in Writ Petition No. 3701/2007, states that petitioners do not want to press prayer Clauses (2) and (3) in the writ petition. In view of the said statement of learned Counsel Shri Kilor, Shri Parchure, learned Counsel for the interveners, states that interveners do not want to press the intervention application.
2. Shri Vikas Singh, learned Additional Solicitor General of India, on 6/12/2007, informed this Court that pursuant to the tender Page 0603 notice issued by the respondent No. 2, tenders were invited and respondent M/s. Crompton Greaves Ltd. was the highest bidder, hence, its tender was accepted and agreement dated 26.10.2007 has already been executed between respondent No. 2 and respondent M/s. Crompton Greaves Ltd. Therefore, the petitioners sought permission to challenge validity of the said agreement by amending the petitions. The request for amendment was opposed by Shri Vikas Singh, learned Additional Solicitor General of India on the ground that proposed amendment changes the nature of basic cause of action. However, this Court vide order dated 19.12.2007 passed in Writ Petition No. 3701/2007 rejected the stand of Shri Vikas Singh, learned Additional Solicitor General of India by observing that in the petitions, the petitioners have challenged very issuance of tender notice by the respondent No. 2 in the month of July 2007 on the ground that whole process is not in the public interest, same is also not consistent with the object of The Electricity Act, 2003 (for short, hereafter referred to as the Act of 2003.) and the petitioners in prayer Clause (1) of the petition, are seeking quashing of tender notice. Since respondent No. 2 during pendency of the petition has accepted tender of respondent M/s. Crompton Greaves Ltd. and executed agreement with the said Company, this Court permitted the petitioners to raise challenge to the said agreement by holding that proposed amendment, if permitted, would not change the basic cause of action involved in the main petition. The petitioners in all these petitions have, therefore, raised common grievance by way of the amendment that agreement dated 26.10.2007 entered into between respondent No. 2 and respondent M/s. Crompton Greaves Ltd. is void being against the public interest and policy. The petitioners have, therefore, prayed for setting aside the tender notice dated 12.7.2007 issued by the respondent No. 2 as well as decision to allot distribution franchisee in three Divisions, namely, Civil Lines, Mahal and Gandhibagh, Nagpur Urban Circle to respondent M/s. Crompton Greaves Ltd. The petitioners are also praying for a direction to respondent Nos. 1 and 2 not to appoint any franchisee for distribution of electric supply in the city of Nagpur and to take necessary steps so as to reduce transmission and distribution losses in the Nagpur Urban Circle.
3. Shri Kilor, learned Counsel for the petitioners in Writ Petition No. 3701/2007, submitted that petitioner No. 1 is a voluntary Organization of vigilant citizens espousing the cause of public interest. The petitioner No. 1 is a registered body of public spirited citizens having faith in rule of law and renders social and legal services by espousing the cause of public nature. The petitioner No. 1 is raising several issues of contemporary importance to society in various forums from time to time. The petitioner No. 2 is a Journalist by profession and at present working as Chief Reporter of the Hitavada, Central India's most sought after newspaper and is the General Secretary of Nagpur Union of Working Journalists. The petitioner No. 3 is a well known social worker and in the past, had brought to the notice of this Court the corrupt practices committed by the officials of the Nagpur Improvement Trust and Nagpur Municipal Corporation and, therefore, is a public spirited person.
Page 0604
4. Learned Counsel Shri Kilor contended that respondents are 'State' under Article 12 of the Constitution and, therefore, are amenable to the writ jurisdiction of this Court. It was submitted that electricity supply industry in India was governed by three enactments, namely, the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity Regulatory Commission Act, 1998. The Indian Electricity Act, 1910 had created the basic framework for electricity supply industry in India, which was then in its infancy. The said Act had envisaged growth of electricity industry through private licensees and accordingly it was provided for licensees, who could supply electricity in a specified area. It created the legal framework for laying down of wires and other works relating to supply of electricity. It was argued that the Electricity (Supply) Act, 1948 had created the State Electricity Board, which had the responsibility of arranging supply of electricity in the State. It was felt that electrification needed to be extended rapidly and therefore, the State should take effective steps in this regard. Accordingly, the State Electricity Board evolved five years plans for rapid growth and expansion by utilizing plan funds. However, over a period of time, the performance of State Electricity Board deteriorated substantially on account of various factors. For instance, though power to fix tariff vests with Electricity Board, they had generally been unable to take decisions and tariff determination in practice was done by the State Government. To address this issue and to provide for distancing of Government from determination of tariffs, the Electricity Regulatory Commissions Act was enacted in 1998. It created the Central Electricity Regulatory Commission and had an enabling provision through which the State Government could create a State Electricity Regulatory Commission.
5. Learned Counsel Shri Kilor further argued that not only petitioners, but also residents of Nagpur were surprised to learn that respondent No. 2 was going to privatize distribution network of electricity of Nagpur Urban Circle through the back-door by appointing distribution franchisee. It was contended that respondent No. 2 in the name of appointing distribution franchisee, grossly violated statutory norms and totally ignored the interest of consumers and entire process has been carried out in an utmost secrecy. It was submitted that information gathered by the petitioners revealed that the respondent No. 2 had decided to allot distribution franchisee for three divisions of Nagpur Urban Circle, namely, Gandhibagh, Mahal and Civil Lines, which is spread over approximately 400 sq. kms. and this decision was taken because respondent No. 2 and its predecessor M.S.E.B. were not able to reduce transmission and distribution losses to the desired level and, therefore, for the purpose of reducing transmission and distribution losses, respondent No. 2 invited bids from prospective parties without granting any opportunity to the consumers to raise objection or make any valuable suggestions.
6. Learned Counsel Shri Kilor further contended that it is ironical that respondent No. 2 has decided virtually to hand over its precious assets to the private party (M/s. Crompton Greaves Ltd.) after completion of Accelerated Power Development and Reforms Programme (APDRP) for which Central Government has spent amount of Rs. 170 crores for the purpose of Page 0605 improving and augmenting power distribution infrastructure. Under the said project, 12 out of 13 new 33 KV Sub-Stations were erected at various places in the city of Nagpur and four Sub-Stations were upgraded by respondent No. 2. It was, therefore, contended that respondent No. 2 has been greatly benefited from APDRP, which has resulted in reduction of transmission and distribution losses and percentage of power theft has also gone down and overall performance of respondent No. 2 has gone up besides special Police Stations and Special Courts have been set up in Nagpur to enhance the recovery mechanism and to penalise persons indulging in power theft. It was argued that according to latest T&D loss figures for Nagpur city, the respondent No. 2 officials and Union leaders have claimed that barring Civil Lines Division, the remaining three Divisions of the city, namely, Mahal, Gandhibagh and Congress Nagar have achieved significant reduction in distribution losses, if figures of first quarter of 2006-07 and 2007-08 are compared. The Congress Nagar Division of city has achieved loss reduction of 7.81% followed by Mahal 5.02%, Gandhibagh 3.56% and Civil Lines 1.67%.
7. Learned Counsel Shri Kilor submitted that loss reduction in all the Divisions is because of the infrastructural developments carried out under APDRP. The money spent under the said programme is public money and if the base unit to assess the loss deductions by the private company is taken as 2005-06, the Company to whom distribution franchisee is alloted, would be immensely benefited since distribution losses are already reduced because of completion of work under APDRP. For example, the present loss reduction is due to replacement of meters, underground cabling and erection of new sub-stations. Secondly, the said Company to whom distribution franchisee is allotted would unnecessarily get the credit because the benefit of loss reduction after completion of work under APDRP would be considered to be a factor responsible for loss reduction achieved by the said private company. It was contended that for the purpose of assessing performance of private company, the base unit should be taken as the figures achieved in loss reduction in six months after completion of work under APDRP and those figures should be given to the private company for further reduction in T&D losses.
8. It was further submitted by learned Counsel Shri Kilor that on the basis of information collected by the petitioners, as per the original tender floated by the respondent No. 2, the franchisee was to bring down the distribution loss in three Divisions of Nagpur to 8% in ten years. As per the revised tender, the franchisee has to reduce the losses to 12% in fifteen years. This is in spite of the fact that the losses in three Divisions have already gone down by over 5% in 2006-07. It was contended that as per information received by the petitioners, in the original tender, the losses were to be reduced by 30% in ten years. In the revised tender, the losses will have to be reduced by 30.5% in ten years and 0.5% in remaining five years, which means that the franchisee will not require to do anything to reduce loss reduction in the last five years.
9. Learned Counsel Shri Kilor submitted that distribution franchisee has to reduce the T&D losses by 31% in fifteen years, which Page 0606 means 2.66% per year, which is a concrete evidence of malafide intention of respondent No. 2 and its Authorities. According to the policy adopted by the respondent No. 2, staff of Divisions that have achieved reduction in losses are given monetary incentives proportionate to loss reduction. Due to incentive scheme, the staff members are working with great enthusiasm to eliminate power theft. It was contended that handing over the improved infrastructure under the veil of secrecy to a private player without bothering about interests of consumers will be a travesty of justice. It was submitted that the employees of MSEDCL have promised to improve functioning and reduce T&D losses if the politicians and top officials do not interfere in their work. The Congress Nagar Division will achieve the target of 9% distribution loss in coming two years while remaining three divisions, i.e. Mahal, Gandhibagh and Civil Lines will achieve the same by 2012. The power supply is a monopoly business and the consumer has no choice but to avail the service of power distribution company whether it is in public sector or private sector and hence, there is a greater need for ensuring transparency and accountability in the entire process.
10. Learned Counsel Shri Kilor further argued that as per tender conditions, there is no mechanism wherein contract of the franchisee will be terminated, if it fails to provide satisfactory service to the consumers. The respondent MSEDCL has put in some conditions like Supply Code as non-critical events of default. The consumers, therefore, do not have any protection if the franchisee provides worst service than the existing service provided by the respondent No. 2. The Maharashtra Electricity Regulatory Commission (MERC) had ordered respondent No. 2 to form Committees in its order dated 20.2.2007 to monitor load- shedding. The respondent No. 2 formed a Committee comprising of only Government officials, who normally do not give their free and frank opinion due to oblique motive. It was contended that it is apparent from the tender documents that no importance has been given to the important factors like what improvements in service these private contractors would propose for the consumers and what is the mechanism for termination of contract in case of failure to provide necessary, satisfactory and better services to the consumers. Thus, it is crystal clear that while issuing tender, the respondent MSEDCL has totally ignored the interest of consumers. In the circumstances, this is a fit case where this Court should show indulgence and quash the very process of floating tender by MSEDCL on the ground of lack of transparency and against the public duty.
11. Learned Counsel Shri Kilor further submitted that there is no necessity to appoint distribution franchisee in the three Divisions of Nagpur Urban Circle, namely, Gandhibagh, Civil Lines and Mahal as the need for appointing franchisee was to reduce distribution losses, improvement in collection efficiency, improvement in quality of service to the consumers, etc. It was contended that record of respondent Nos. 2 and 3 and facts and figures submitted by them before MERC are sufficient to show that due to infrastructural development done under the Accelerated Power Development Page 0607 and Reforms Programme, T&D losses have been reduced in the city of Nagpur. Collection efficiency is improved and because of improvement in infrastructure, the consumers are getting quality services. It was, therefore, vehemently argued by learned Counsel Shri Kilor that there was no necessity for respondent Nos. 2 and 3 to appoint distribution franchisee in three Divisions of Nagpur. On the contrary, as per policy of respondent Nos. 2 and 3, they should have appointed distribution franchisees at places where T&D losses are higher in the State of Maharashtra. It was submitted that since under the APDRP amount of Rs. 170 crores has already been spent for infrastructural development in the city of Nagpur, the respondent Nos. 2 and 3 cannot justify their action of appointing distribution franchisee merely on the ground that it is their prerogative by ignoring the common good of people at large.
12. Learned Counsel Shri Kilor further submitted that respondent No. 2 is handing over three Divisions of Nagpur Urban Circle to the franchisee since necessary infrastructural development has already been done under APDRP to reduce T&D losses. Similarly, there is no effective and fair Consumer Dispute Redressal mechanism or forum provided while appointing distribution franchisee. It was contended that agreement between respondent Nos. 2 and 4 dated 26.10.2007 is in blatant violation of the Act of 2003 and, therefore, same is totally invalid.
13. Learned Counsel Shri Kilor contended that the petitioners are challenging decision of the respondent No. 2 to appoint respondent No. 4 as distribution franchisee for distribution of electricity in three divisions of Nagpur on the following grounds:
(A) Looking to the objective of policy of appointment of distribution franchisee, respondent No. 2 ought to have appointed distribution franchisee at the places where T&D losses are much higher than aforesaid three Divisions of Nagpur.
(B) There are 39 places where T&D losses are higher than Nagpur. However, no distribution franchisees are appointed at those places.
(C) In Nagpur, already Rs. 170 crores have been spent under APDRP in the said three Divisions in the last two years and, therefore, respondent No. 2, on its own, was in a position to further bring down the T&D losses in view of improvement in infrastructural facilities, erection of new sub-stations, upgradation of sub-stations, replacement of meters, etc. (D) So far as Nagpur city is concerned, respondent No. 2 is greatly benefited from APDRP, which resulted in
(i) reduction in power theft,
(ii) reduction in T&D losses (T&D loss 41.3% from April 2006 to September 2006).
(iii) improvement in collection efficiency (Rs. 233 crores in 2005-06 and Rs. 304 crores in 2006-07 increased by 71 crores).
(iv) special Police Stations and special Courts have been set up.
(E) The fact that distribution of electricity through Franchisee does not serve the public purpose is demonstrated as follows:
Page 0608 Chart I 2005-06 MSEDCL generated revenue 2006-07 MSEDCL generated revenue Increase in revenue collection by MSEDCL without appointing distribution franchisee during 200506 and 200607 Amount MSEDCL will get in 1st year of contract from distribution franchisee Whether MSEDCL will receive more or less revenue by appointing distribution franchisee Rs.233 crores (Rs.215 crores after deducting operating charges) Rs.304 crores (Rs.280 crores after deducting operating charges) Rs.65 crores (After deducting operating charges) 42 crores MSEDCL will get less amount to the tune of Rs.23 crores or more in comparison to Rs.65 crores in 2005-06 and 2006-07.
(i) Since respondent No. 2 will get less amount by Rs. 23 crores or more by appointing distribution franchisee at Nagpur, the amount of revenue required will result in hike in tariff throughout Maharashtra and, therefore, appointment of distribution franchisee at Nagpur is against public interest.
(ii) To reduce the load on expenditure out of revenue, if it is necessary to appoint distribution franchisee, it should have been at the places where the losses are higher and respondent No. 2 has failed to control T&D losses or improve collection efficiency. It will help to reduce the tariff which will benefit public at large and serve public interest and purpose.
(iii) It is not binding on the distribution franchisee to absorb the existing employees of the respondent No. 2 in the said three Divisions. The respondent No. 2 has to absorb those employees somewhere else, which would be additional financial burden on the respondent No. 2. It will further result in increase in losses of respondent No. 2 and, therefore, whole exercise of appointment of franchisee is against the public interest.
(F) The changes and alterations were made in original RFP/tender document, such as
(i) the requirement of investing minimum capital expenditure of Rs. 450/-crores during the term of agreement has been done away with a view to favour some of the bidders.
(ii) The respondent No. 2 has given base year 2005-06 to benefit the distribution franchisee.
(G) MERC's policy advice on the issue of distribution franchisee is as under:
Page 0609
(i) The State Commission's job is to advise the State Government on the matters of promotion of competition, efficiency and economy in activities of the electricity industry, promotion of investment in electricity industry, re-organization and restructuring of electricity industry in the State. Similarly in respect of matters concerning generation, transmission, distribution and trading of electricity or any other matters referred to the State Commission by the Government, the State Commission has strongly recommended for entire State of Maharashtra for appointment of Distributed Generated Based Electricity Distribution Franchisee and not allotment of franchise for distribution of electricity only.
(H) The figures in the revenue projection chart are contrary to record in the following manner:
(i) The original tender for appointment of distribution franchisee for Gandhibagh, Mahal and Civil Lines of Nagpur was floated in April 2007. In the said tender, the base year for calculations was taken as 2006-07. However, when the revised tender was issued two months later, the base year was taken as 2005-06.
(ii) The respondent No. 2 has claimed that this was done as audited figures for 2006-07 were not available. This claim of respondent No. 2 is frivolous and, therefore, cannot be accepted. In fact, this has been done to favour the franchisee.
(iii) The net revenue earned by respondent No. 2 in Gandhibagh, Mahal and Civil Lines in the year 2005-06 was Rs. 233 crores, which in 2006-07 was increased to Rs. 304 crores, i.e. by 30.5% and, therefore, the base year was changed from 2006-07 to 2005-06 only to favour the franchisee.
(iv) The respondent No. 2 has claimed that in the second year, if the franchisee is not appointed, the gross revenue would have been reduced from Rs. 199.37 crores to Rs. 196.95 crores. This revenue would have further reduced in the third year to Rs. 193.29 crores. These figures are inconsistent with the figures, which are given by respondent No. 2 itself. As per respondent No. 2, its net revenue is increased by 30% in 2006-07 as compared to 2005-06 and, therefore, it is beyond comprehension of the petitioners as to how the gross revenue can reduce in the second and third year without appointing franchisee. On the other hand, respondent No. 2 has artificially lowered the projected revenue figures to justify appointment of distribution franchisee.
(v) The T&D losses in 2006-07 were lower than 2005-06 due to APDRP and hence, revenue collection went up other than increase in sale of energy and higher power tariff. The collection efficiency in 2006-07 was also improved as compared to 2005-06.
(I) There is absence of effective Consumer Disputes Redressal Mechanism:
(i) The respondent No. 2 has not taken adequate care to consumer service and grievance redressal mechanism while executing the said agreement with respondent No. 4. The respondent No. 4 Page 0610 acting as an agent or sub-contractor for respondent No. 2 must also be brought within the ambit of Right to Information Act.
(ii) MERC has asked respondent No. 2 to constitute feeder level Committees comprising of prominent local citizens to ensure the effective implementation of its load-shedding protocal. However, MSEDCL Committees comprise only of Government officials. It is nowhere mentioned in the agreement or tender document as to what will be the structure of the redressal forum once franchisee takes over. The only change that should be made is to replace Executive Engineer of respondent No. 2 by the officer of respondent No. 4 Company. If the forum members are all employees of franchisee, then grievance of the consumers will not be redressed.
14. Learned Counsel Shri Kilor contended that in view of above referred factors, it is crystal clear that appointment of distribution franchisees for the three Divisions of Nagpur Urban Circle is neither in the public interest nor consumers of the electricity in those three Divisions. Thus, whole process of appointment of distribution franchisee is liable to be quashed and set aside.
15. Shri Gordey, learned Counsel for the petitioners in Writ Petition No. 5855/2007, submitted that the impugned action of respondent No. 2 to enter into an agreement with respondent No. 4 as well as decision to appoint respondent No. 4 as distribution franchisee is not legal, proper and in accordance with law since there is no power under the Act of 2003, which enables respondent Nos. 1 to 3 to appoint distribution franchisee in urban area. It was contended that objects and reasons mentioned in the statement in the Act of 2003 provide for specific contingency in which appointment of distribution franchisee is possible. It was further contended that need for electrification, which was earlier limited to cities, is required to be extended to the rural area of the State and, therefore, Electricity Bill, 2001, which forms the basis of the Act of 2003, contains Feature No. viii , which reads thus:
(viii) For rural areas, decentralised management of distribution through Panchayats, Users Associations, Cooperatives or Franchisees would be permitted.
Learned Counsel Shri Gordey submitted that seventh proviso of Section 14 of the Act of 2003 does not authorise respondent Nos. 1 to 3 to appoint distribution franchisee. It was contended that Maharashtra Electricity Regulatory Commission has also recommended generation based distribution franchisee due to acute shortage of electricity in the State of Maharashtra in the recent years. It was argued that Part II of the Act of 2003 deals with National Electricity Policy and plan and Section 3 creates a statutory obligation on the part of the Central Government to prepare National Electricity Policy and tariff policy from time to time, in consultation with the State Governments and the Authority for development of power system based on optimal utilisation of resources such as coal, natural gas, unclear substances or materials, hydro and renewable sources of energy. Other provisions of Section 3 deal with procedure to be followed by the Page 0611 Central Government in publishing such policy and reviewing the same from time to time as well as stipulate that national electricity plan should be in accordance with National Electricity Policy and the Authority is required to notify such plan once in five years. It was contended that Section 5 of the Act of 2003 contemplates that the Central Government shall also formulate a national policy in consultation with the State Governments and the State Commissions, for rural electrification and for bulk purchase of power and management of local distribution in rural areas through Panchayat Institutions, users' associations, co-operative societies, non-governmental organizations or franchisees. It was pointed out by the learned Counsel that provisions of Section 5 are the only provisions under the Act of 2003, which give power to the Central Government to allot management of local electricity distribution through various modes including franchisees, but in the rural areas only and it does not give any power to the Central Government to allot management of local electricity distribution in the urban area. It was contended that decision to allot distribution franchisee in three divisions of Nagpur urban circle to respondent No. 4 is without jurisdiction and power and, therefore, same is illegal and unsustainable in law.
16. Learned Counsel Shri Gordey also argued that respondent No. 1 being a welfare State is under obligation to act in accordance with provisions contained in Part III and IV of the Constitution of India. The respondent MSEDCL being an agency of respondent No. 1 is subjected to same limitations in the field of public law and, therefore, is required to abide by Part III and IV of the Constitution of India. It was contended that electricity generated and distributed in the State of Maharashtra is the material resource of the community and as per provisions contained in Article 39(b) of the Constitution of India, the respondent No. 1 is under obligation to secure that ownership and control of electricity, which is resource of community, is distributed in such a manner as it will serve common good. It was argued that with globalisation, pattern of life has undergone a tremendous change and electricity has become a basic necessity for all the persons along with food, clothing and shelter. It was submitted that the citizens of this country have a fundamental right under Article 21 of the Constitution to receive electricity and, therefore, there is a corresponding duty cast upon the State to do so in a manner which will promote common good and it should be free from arbitrariness and unreasonableness. It was further contended that in the backdrop of these aspects, generation, transmission and supply of electricity being essential services within the meaning of Clause (2) of Section 2 of of the Maharashtra Essential Services Maintenance Act, 2005, strikes on the establishment of respondent No. 2 are also prohibited. In order to substantiate these contentions, reliance is placed on the judgment of the Supreme Court in The State of Karnataka and Anr. v. Shri Ranganatha Reddy and Anr. .
17. Learned Counsel Shri Gordey further argued that following factors would demonstrate that decision of respondent Nos. 2 and 3 to appoint respondent No. 4 Company as distribution franchisee is against the public policy and does not serve the common good:
Page 0612
(i) At present, the average cost of transmission of electricity at Nagpur is approximately 25 paise to 35 paise per unit and transmission company thereafter sells this electricity to distribution company approximately at the cost of Rs. 2.10 to Rs. 2.35 per unit. The distribution company thereafter supplies electricity to its consumers at the rate of Rs. 3/-per unit for residential and industrial purposes and at the rate of Rs. 6.60 per unit for commercial purposes.
(ii) As per information supplied by the respondent No. 2 Company itself, the loss percentage of Gandhibagh Division is 40.34% and, therefore, it stands at serial No.40. The Civil Lines Division has suffered 32.83% of loss and, therefore, stands at serial No. 53 and Mahal Division has 34.13% loss and, therefore, stands at serial No. 48 in order of loss of percentage in the chart showing loss in Divisions all over the Maharashtra.
(iii) Learned Counsel Shri Gordey submitted that the petitioners do not want to repeat contentions canvassed by learned Counsel Shri Kilor regarding incentives provided for the officials, who are instrumental in reducing T&D losses in their respective Divisions and the effect thereof.
(iv) The respondent No. 2 appointed distribution franchisee in three Divisions of Nagpur for the purpose of achieving following objects:
(a) for improving the operating efficiency of distribution business by reducing T&D losses,
(b) improving collection efficiency, and
(c) improving the levels of consumer services. Lot of progress and improvement has been done in regard to infrastructural facilities in view of APRDP.
18. Learned Counsel Shri Gordey submitted that following chart would show percentage of T&D losses for the years 2005-06 and 2006-07:
Chart II Sr. No. Division 2005-06 2006-07
1) Civil Lines 42.07 38.57
2) Gandhibagh 47.81 44.35
3) Mahal 42.85 39.29 It was contended that respondent No. 2, however, has considered percentage of T&D loss of 2005-06 in the tender document as the base year instead of 2006-07 only with a view to do favour to respondent No. 4. The learned Counsel submitted that following are the details of division-wise collections for the years 2005-06 and 2006-07:
Chart III Sr. No. Division 2005-06 2006-07
1) Civil Lines 9,443 lacs 11,689 lacs
2) Gandhibagh 5,504 lacs 6,829 lacs
3) Mahal 8,603 lacs 10,419 lacs Page 0613
19. Learned Counsel Shri Gordey argued that above mentioned T&D losses were showing downward trend and respondent No. 2 alone would have achieved further reduction in T&D losses in coming years in view of infrastructural improvements already done vide APDRP scheme. The position of loss in the year 2005-06 indicated in the revised article of the tender notice of July 2007 and the Annual Revenue Requirement Report of the respondent No. 2 for the year 2006-07 demonstrate the following facts and figures:
Chart IV Division Losses for 2005-06 RRFP Proposal ARR 2006-07 Proposal HT LT HT LT Gandhibagh 3.00% 51.11% 3.00% 48.0% Civil Lines 3.00% 52.90% 3.00% 42.1% Mahal 3.00% 44.35% 3.00% 42.8% Average 3.00% 49.21% 3.00% 44.3% It was contended that average billing rate (Rs. /Kwh) and the average realization of each division is more than input rate given to franchisee which can be seen from the following comparison:
Chart V Year Division Average billing rate (Rs.) Av. Revenue Realization (Rs.) Input Rates HT LT HT LT HT LT April to Dec. 06 (Table 7, page 17) Gandhibag 4.94 4.50 4.78 2.30 3.18 1.70 April to Dec. 06 (Table 8, Page 16) Civil Lines 4.64 4.32 4.38 2.30 3.18 1.70 April to Dec. 06 (Table 9, Page 18) Mahal 4.42 4.39 4.56 2.58 3.18 1.70 Average 4.66 4.40 4.57 2.39 3.18 1.70 Learned Counsel Shri Gordey submitted that aforesaid details are taken from Annexure VII (page 173) of the agreement between respondent Nos. 2 and 4. It was contended that in view of above referred facts and figures, there will be loss of revenue to respondent No. 2 MSEDCL as the HT input rates and LT input rates are lower than the average billing rate.
20. It was further argued by learned Counsel Shri Gordey that definition of franchisee stipulated at page 72 of the agreement is not coherent with the definition of franchisee under the Act of 2003. Additional sentence is used in the definition of franchisee in the agreement, viz., 90% of the HT and LT input rates are deemed to be compensation for the sale of power and balance 10% for the services component of the transaction. Page 0614 It was submitted that in view of above referred stipulations in the agreement, the respondent No. 2 will get only 90% input rate and 10% will be kept by franchisee as services component of the transaction, which shall be loss to the respondent No. 2. The table at page 175 of the agreement indicates the payment of HT and LT input rates taken for the year 2007-08, which is Rs. 293.98 crores. However, respondent No. 2 will get only 90% of it, i.e. Rs. 264.58 crores. Thus, Rs. 29.39 crores shall be the loss to the respondent No. 2 for that particular year.
21. Learned Counsel Shri Gordey further argued that franchisee distributes electricity in a specified area on behalf of the Distribution Licensee (respondent No. 2). However, it is not at all accountable to its consumers and, therefore, consumers will not be in a position to enforce their rights against the franchisee in the event occasion arises. It was further submitted that on the basis of input energy per year, which is variable factor, payment has to be made to the respondent No. 2 by the franchisee and there is no significance of discounting factor. However, application of discounting factor in making payment to the respondent No. 2 will result in causing loss to respondent No. 2 and adversely affect the tariff rate and, therefore, same will not be in the public interest. The consumers may have to face the tariff hike. The equation in this regard is total input energy payment minus discounted payment = loss, i.e. Rs. 291.04 Rs. 261.96 = Rs. 29.08 crores loss in the first year and this process of loss shall be continued for fifteen years, which will result in causing very heavy loss to the respondent No. 2 and adversely affect the public interest. If there would not have been discounting factor, the payment to the respondent No. 2 for fifteen years licence period (from 2007-08 to 2021-22 would have been Rs. 6,676.03 crores. However, by virtue of applying discounting factor, the same will be Rs. 2,793.23 crores and thus, loss to the respondent No. 2 will be of Rs. 3,882.8 crores in a span of fifteen years and, therefore, the agreement in question is against public policy and cannot be sustained in law.
22. Learned Counsel Shri Gordey lastly contended that the impugned decision of the respondent No. 2 to allot distribution franchisee to the respondent No. 4 is hit by provisions of Section 23 of Indian Contract Act, 1872, which reads as under:
Section 23 -What considerations and objects are lawful and what not -The consideration or object of an agreement is lawful, unless it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent, or involves or implies injury to the person or property of another, or the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.
It was, therefore, contended that as per provisions of Section 23 of the Indian Contract Act, 1872, any contract which defeats the provisions of law or is opposed to public policy is void. It was submitted that in view of above referred facts and circumstances, it is evident that the impugned decision of Page 0615 respondent No. 2 in appointing respondent No. 4 Company as distribution franchisee of electricity in three Divisions of Nagpur Urban Circle is opposed to public policy, in patent breach of aims and objects of Act of 2003 and in violation of Articles 39(b), 21 and 14 of the Constitution of India.
23. Shri Vikas Singh, learned Additional Solicitor General of India, appearing on behalf of respondent Nos. 2 and 3, submitted at the outset that jurisdiction of this Court in the matter of policy decision is very limited and this Court can interfere only if
(a) the petitioners are able to establish that the MSEDCL does not have the power to appoint the distribution franchisee,
(b) if the petitioners are able to establish that a transparent process has not been adopted for appointment of such franchisee, and
(c) If the decision was unreasonable, so as to satisfy the test of Wednesbury unreasonableness.
24. The learned Additional Solicitor General of India further contended that so far as power of respondent No. 2 to appoint distribution franchisee is concerned, onus is upon the petitioners to establish that there is a statutory or other bar upon MSEDCL in appointment of franchisee and if such onus is discharged, respondent No. 2 cannot be asked to justify such appointment. It was argued that petitioners have not been able to make out any case suggesting that respondent No. 2 does not have power to appoint franchisee. Normally respondent No. 2 should not have been called upon to establish any such proceedings that it has power to appoint distribution franchisee. However, in order to place on record true and correct position in law in this regard, it will be appropriate to consider relevant provisions of the Act of 2003.
25. Learned Additional Solicitor General of India Shri Vikas Singh contended that franchisee is defined under Section 2(27) of the Act of 2003 wherein it is clearly stipulated that franchisee. means a person authorised by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply. It was pointed out that person has been defined under Section 2(49) of the Act of 2003 as 'person' shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person. It was submitted that under Section 14 of the Act of 2003, a licensee, who has a licence to distribute electricity under seventh proviso of Section 14 is permitted to appoint another person to undertake distribution of electricity on its behalf and it is further provided in the same proviso that such other person shall not be required to obtain a separate licence from the concerned State Commission for such distribution on behalf of the licensee. It was, therefore, contended that from a conjoint reading of Section 2(27), 2(49) and seventh proviso to Section 14 of the Act of 2003, it is clear that the distribution licensee is entitled to appoint a franchisee in an area under its licence, who can undertake such distribution on behalf of such licensee without having to obtain a separate licence.
26. The learned Additional Solicitor General of India further submitted with regard to appointment of franchisee being limited only to rural areas in Page 0616 reference to Section 5 that it would be appropriate to consider the provisions of Section 5 of the Act of 2003. Section 5 is merely a Section relating to formation of policy in rural areas and the said Section is not only dealing with franchisee, but also entire subject of rural electrification with reference to bulk purchase of power and management of local distribution in rural areas through Panchayat Institutions, Users' Associations, Cooperative Societies, non-Governmental Organizations or franchisees. The said Section is to be read with Section 13, which permits appropriate Commission on the recommendation of appropriate Government, in accordance with the national policy formulated under Section 5, to exempt by notification the provisions of Section 12, i.e. of obtaining a licensee for distribution of electricity to such Panchayat Institution, Users' Association, Cooperative Societies, non- Governmental Organizations or franchisees. Hence, Section 5 in no manner controls the power vested by Section 14 to appoint a franchisee in any area under distribution licensee and in fact, Section 5 does not by itself confer any power for appointment, but merely enables the State Government to appoint such franchisee by exempting them from obtaining a licence. The national policy in this behalf has been formulated by the Central Government.
27. Shri Vikas Singh, learned Additional Solicitor General of India, further argued that so far as second question regarding transparency in the appointment of franchisee is concerned, averments made in that behalf in the writ petitions are bald and self contradictory in nature. At one place, the petitioners are saying that appointment of franchisee is done by back door and in the next breath, the petitioners have averred that respondent No. 2 MSEDCL had invited bids from prospective parties for such appointment. It is a matter of record that a writ petition had been filed in this Court being Writ Petition No. 3712/2007 challenging tendering process by one of the interested parties, namely, Bhaskar Industries Ltd. and Ors. v. Maharashtra State Electricity Distribution Co. Ltd. The said writ petition was dismissed by this Court by passing a detailed speaking order on 27.8.2007 wherein this Court held that there was no lack of transparency in the process of appointment of franchisee and it was further held that there is nothing on record to suggest that the interest of Company and public is not safeguarded or it has come in risk. Any conclusion of this fact apart from this is unfounded and premature and is baseless. In this view of the matter, the second condition for invoking the writ jurisdiction is also without any basis.
28. Shri Vikas Singh, learned Additional Solicitor General of India, contended that so far as third ground, i.e. jurisdiction of this Court in regard to public interest litigation is concerned, it is not even the case of the petitioners that appointment of franchisee can be said to be inconsistent with the 'principle of Wednesbury unreasonableness'. In fact, petitioners want this Court to go into merits of the decision rather than decision making process, which according to several decisions of the Supreme Court, is impermissible. It was contended that in view of third ground having not been made out by the petitioners, the petitions are liable to be rejected with costs.
29. Shri Vikas Singh, learned Additional Solicitor General of India, further pointed out that the National Electricity Policy, 2005 has acknowledged Page 0617 that the private sector participation needs to be encouraged in distribution of electricity. The said policy vide para 5.8.9 acknowledges that for future growth of the electricity industry, financing of the Sector would require involvement of the private sector. It was submitted that it was stand of the petitioners that once sum of Rs. 170 has already been invested in three Divisions of Nagpur, which are handed over to the franchisee for distribution of electricity, it was not proper for respondent No. 2 to hand over these divisions to franchisee. It was contended that capital investment in various areas under the respondent No. 2 is a continuing process and if the area had not been handed over to franchisee, the respondent No. 2 was obliged to make further investment of Rs. 228/-in the next three years towards future capital investment, which respondent No. 2 is not required to do after appointment of franchisee. In fact, investment in infrastructure is a continuing process and is a statutory duty of the distribution company in order to improve the service in its area. It was also contended that it is a specific stand of the respondent No. 2 that APDRP investment was factored by MSEDCL while devising the norms of loss reduction in the bid document. The franchisee also has given the benefit of the same while submitting its bid by trying to improve upon it, by increasing its offer making it much higher than the bench-mark input rates. The bench-mark rates had been arrived by taking into account the stiff loss reduction target (a target which MSEDCL has not been able to achieve in the State of Maharashtra). It was submitted that as against the bench-mark of Rs. 4300/-based on the stiff loss reduction target, the franchisee has given an offer of Rs. 6400/-crores approximately, which clearly establishes that MSEDCL and the consumers are gaining by this huge incremental amount in terms of revenue and loss reduction as promised by the franchisee.
30. Shri Vikas Singh, learned Additional Solicitor General of India, further contended that petitioners in their rejoinder- affidavit enclosed the policy advice given to the Government of Maharashtra by the MERC on Distributed Electricity Generation Based Franchisee. It was submitted that it has been clearly stipulated that licensee should ensure that there is a net gain to the licensee in the form of additional net revenue on account of giving out areas to franchisee, which can be used to reduce the tariff for all the consumers of the licensee. It is, therefore, clear that extra revenue being generated by the franchisee arrangement sub-serves the larger public interest, but ultimately the extra revenue under the Annual Revenue Requirement of the distribution licensee would reduce the tariff for all the consumers to the extent of net gain by the said arrangement.
31. Learned Additional Solicitor General of India Shri Vikas Singh pointed out that choice of an area is the executive discretion of the authority of MSEDCL in achieving the objectives in terms of the policy. The choice of the area is not the matter, which is justiciable. It was contended that Court has no jurisdiction to go into this question because amongst the high loss areas, which areas to choose first, are dependent on the several factors. The Court is not expected to question the wisdom of the Authority to select the particular areas against the other loss making areas in the State. It Page 0618 was pointed out that out of total 133 Divisions, only 43 were urban and the rest 90 were rural Divisions. It was submitted that in the rural area, electricity supply is mostly un-metered. It is the aim of the National Electricity Policy to have hundred per cent metering in the area. Due to the typical problems in the State of Maharashtra, the said objective has not been achieved. Because of the un-metered conditions in the rural areas, it was pointed out that franchising rural areas as of now was not feasible at all. It was also submitted that amongst the 43 Urban Divisions, Gandhibagh is at serial No. 3 in terms of distribution loss, Mahal is at serial No. 6 and Civil Lines is at serial No. 8. Serial Nos. 5 and 7, i.e. Bhiwandi-1 and Bhiwandi-2 had already gone for franchising and same is running successfully. The consumers are extremely satisfied with the franchisee. In one year of its operation, the MSEDCL has achieved a net gain of about Rs. 52 crores approximately, which is to be passed on to the consumers in the form of tariff reduction in the ARR of MSEDCL. The place at serial No. 1, i.e. Kalwa is also likely to go for franchising in the near future. Malegaon at serial No. 2 is having the problem of un-metered power looms and hence, franchising in that area at that moment was not feasible. It was contended that franchising is more feasible in an area where energy input is high and areas going for franchising are in geographical proximity or high quantum of input. Thus, taking these factors and other factors into account, it was decided to go in for franchising in the three Divisions of Nagpur. Therefore, such decision being an executive decision of the MSEDCL, is not open to judicial review.
32. Shri Vikas Singh, learned Additional Solicitor General of India, further pointed out that contention of the petitioners regarding inadequate protection to the consumer grievances under the franchise agreement is also unfounded because under Clause 5.6.5 of the agreement, it has been clearly stipulated that the distribution franchisee shall comply with the Electricity Supply Code, which in turn deals with consumer grievances. Under the said clause of the agreement, the distribution franchisee has been obliged to establish the Consumer's Service Centres for consumer's complaint and redressal system. According to Clause 5.6.5 (B)(b) of the agreement, the franchisee shall redress commercial and billing complaints. Vide Clause 5.6.6, the franchisee's obligation to connect consumers has been stipulated. Vide Clause 17.1.3, it is provided that disputes between the consumers in the franchisee area shall be referred to the existing relevant Consumers Grievances Redressal Forum or to appropriate Authority/Forum/Court as per law. Vide Clause 16, the critical and non-critical events of default have been stipulated. Under Clause 16.1.1.1 Sub-clause (d), failure to maintain the minimum service quality has been held to be critical areas of default. Similarly, vide Clause 16.1.1.2 while specifying other critical events of default vide para (h), it is provided that failure to comply with any event of non-critical default within the specified period would also become critical event of default. In non-critical events of default provided under Clause 16.1.1.2 vide Sub-clause (5) the franchisee conforms to electricity supply code provided, which, in turn, provides for consumer's redressal. A critical event of default entitles the MSEDCL to terminate the franchisee agreement under Clause 16.3. It was, therefore, Page 0619 contended that there is a complete safeguard of interest of consumers and apprehension expressed by the petitioners is clearly unfounded and misplaced.
33. The learned Additional Solicitor General of India further submitted that so far as issue about discount for the purpose of evaluation of the bids and deemed apportionment of high tension and low tension rates for sale of power vis-a-vis service component of transaction is concerned, the charts, which are placed on record, clearly demonstrate that even if higher tariff rate is taken for the purpose of making the comparison between the revenue return to the MSEDCL vis-a-vis return from the franchisee, the MSEDCL over a period of 15 years, notionally stands to gain Rs. 2295.11 crores. It was, therefore, contended that the petitions are misconceived and devoid of substance and as such, same are liable to be dismissed with costs. In order to substantiate his contentions, reliance is placed on the judgments of the Supreme Court in Tata Cellular v. Union of India (1994) 6 SCC 651), Chairman and MD, BPL Ltd. v. S.P. Gururaja and Ors. , and Balco Employees' Union (Regd.) v. Union of India and Ors. .
34. In the additional affidavit and sur-rejoinder dated 10/1/2008 filed on behalf of respondent Nos. 2 and 3 by Shri Deshpande, learned Counsel for respondent Nos. 2 and 3, in addition to the contentions canvassed by Shri Vikas Singh, learned Additional Solicitor General of India, the procedure adopted by MERC for fixation of tariff is mentioned. It is stated in the said affidavit that the total expenditure by MSEDCL (respondent No. 2) consists of power purchase expenditure, employees' costs, operation and maintenance expenditure, administrative and general expenses, interest on loan, depreciation, return on equity and other allied expenditure to be carried out by the respondent No. 2 in the next financial year. It is further stated in the said affidavit that on revenue side, expected revenue from energy sold to the consumers and other income (interest, delayed payment charges, penalty levied as per MERC Regulation) is taken into account. The gap between expected expenditure and expected revenue for the next financial year is submitted to the MERC for tariff fixation. The attempt of respondent Nos. 2 and 3 is to narrow down the revenue gap, which results in upward revision of tariff, thereby consumer has to bear the increase in electricity charges. The attempt to narrow down this revenue gap is being tried by loss reduction trajectory, i.e. bringing down the aggregate and commercial losses in the network. In order to achieve this objective, respondent No. 2 in consonance with the National Electricity Policy, the Act of 2003 and MERC Regulations evolved the concept of distribution franchisee and such distribution franchisee is successfully functioning at Bhiwandi Circle, which is about 48 kms. towards North of Page 0620 Mumbai. It is also stated in the said affidavit that interest of consumers in the entire State of Maharashtra will be served better by following these methods by appointing distribution franchisee and this will also ensure better and quality supply of electricity to the consumers apart from reducing the aggregate and technical commercial losses as well as the revenue gap, thereby enhancing the chances of downward revision of tariff, which ultimately would benefit the consumers and also serve the public cause.
35. It is also stated in the said affidavit that distribution franchisee has no power under the contract either to fix the tariff or to raise energy bills as per its choice. The distribution franchisee agreement dated 26.10.2007 provides for specific terms, which are as follows:
The Distribution Franchisee shall perform in the franchise area:
5.7.1 Meter reading and billing to the consumers as per the retail tariffs approved by MERC from time to time. All HT meter reading and billing shall be jointly performed by the Distribution Franchisee and MSEDCL.
The energy bills raised by the distribution franchisee have to be as per the rates approved by the MERC. It is, therefore, stated in the said additional affidavit on behalf of respondent Nos. 2 and 3 that the petitions are misconceived and liable to be dismissed.
36. We have given anxious thought to the various contentions canvassed by the learned respective Counsel for the parties. It would be appropriate to consider at the outset the scope and extent of power of judicial review this Court enjoys in regard to policies evolved and administrative decisions taken by the State. The Supreme Court in para (70) of its judgment in the celebrated case of Tata Cellular (cited supra) observed thus:
70. It cannot be denied that the principles of judicial review would apply to the exercise of contractual powers by Government bodies in order to prevent arbitrariness or favouritism. However, it must be clearly stated that there are inherent limitations in exercise of that power of judicial review. Government is the guardian of the finances of the State. It is expected to protect the financial interest of the State. The right to refuse the lowest or any other tender is always available to the Government. But, the principles laid down in Article 14 of the Constitution have to be kept in view while accepting or refusing a tender. There can be no question of infringement of Article 14 if the Government tries to get the best person or the best quotation. The right to choose cannot be considered to be an arbitrary power. Of course, if the said power is exercised for any collateral purpose, the exercise of that power will be struck down.
The Supreme Court in paras (71) to (74) of the said judgment has observed thus:
71) Judicial quest in administrative matters has been to find the right balance between the administrative discretion to decide matters whether contractual or political in nature or issues of social policy; thus they are not essentially justiciable and the need to remedy any unfairness. Such an unfairness is set right by judicial review.
Page 0621
72) Lord Scarman in Nottinghamshire County Council v. Secretary of State for the Environment proclaimed:
'Judicial review' is a great weapon in the hands of the judges; but the judges must observe the constitutional limits set by our parliamentary system upon the exercise of this beneficial power.
Commenting upon this Michael Supperstone and James Goundie in their work Judicial Review (1992 Edn.) at p. 16 say:
If anyone were prompted to dismiss this sage warning as a mere obiter dictum from the most radical member of the higher judiciary of recent times, and therefore to be treated as an idiosyncratic aberration, it has received the endorsement of the Law Lords generally. The words of Lord Scarman were echoed by Lord Bridge of Harwich, speaking on behalf of the Board when reversing an interventionist decision of the New Zealand Court of Appeal in Butcher v. Petrocorp Exploration Ltd. 18-3-1991.
73. Observance of judicial restraint is currently the mood in England. The judicial power of review is exercised to rein in any unbridled executive functioning. The restraint has two contemporary manifestations. One is the ambit of judicial intervention; the other covers the scope of the court's ability to quash an administrative decision on its merits. These restraints bear the hallmarks of judicial control over administrative action.
74) Judicial review is concerned with reviewing not the merits of the decision in support of which the application for judicial review is made, but the decision-making process itself.
The Supreme Court in para (77) of the said judgment has laid down the principles in respect of the duty of the Court while dealing with such issues, which read thus:
77) The duty of the Court is to confine itself to the question of legality. Its concern should be:
1) Whether a decision making authority exceeded its powers?
2) committed an error of law,
3) committed a breach of the rules of natural justice,
4) reached a decision which no reasonable tribunal would have reached, or,
5) abused its powers.
Therefore, it is not for the court to determine whether a particular policy or particular decision taken in the fulfillment of that policy is fair. It is only concerned with the manner in which those decisions have been taken. The extent of the duty to act fairly will vary from case to case. Shortly put, the grounds upon which an administrative action is subject to control by judicial review can be classified as under:
(i) Illegality: This means the decision-maker must understand correctly the law that regulates his decision-making power and must give effect to it.
(ii) Irrationality, namely, Wednesbury unreasonableness.
Page 0622
(iii) Procedural impropriety.
The above are only the broad grounds, but it does not rule out addition of further grounds in course of time. As a matter of fact, in R. v. Secretary of State for the Home Department, ex Brind, Lord Diplock refers specifically to one development, namely, the possible recognition of the principle of proportionality. In all these cases, the test to be adopted is that the court should, consider whether something has gone wrong of a nature and degree which requires its intervention.
After considering various decisions on the subject, the Supreme Court in para (94) of its said judgment has concluded thus:
94) The principles deducible from the above are:
1) The modern trend points to judicial restraint in administrative action.
2) The court does not sit as a court of appeal but merely reviews the manner in which the decision was made.
3) The court does not have the expertise to correct the administrative decision. If a review of the administrative decision is permitted, it will be substituting its own decision, without the necessary expertise which itself may be fallible.
4) The terms of the invitation to tender cannot be open to judicial scrutiny because the invitation to tender is in the realm of contract. Normally speaking, the decision to accept the tender or award the contract is reached by process of negotiations through several tiers. More often than not, such decisions are made qualitatively by experts.
5) The Government must have freedom of contract. In other words, a fair play in the joints is a necessary concomitant for an administrative body functioning in an administrative sphere or quasi-administrative sphere. However, the decision must not only be tested by the application of Wednesbury principle of reasonableness (including its other facts pointed out above), but must be free from arbitrariness not affected by bias or actuated by mala fides.
6) Quashing decisions may impose heavy administrative burden on the administration and lead to increased and unbudgeted expenditure.
37. Similarly, the Apex Court in para (26) of its judgment in the case of Chairman and Managing Director, BPL Ltd. (cited supra) has mentioned the factors which the Court is required to consider in public interest litigation. The relevant observations of the Apex Court in para (26) of the said judgment read thus:
26. In Raunaq International Ltd. v. I.V.R. Construction Ltd., it was held : (SCC pp. 501-02. paras 11-14):
xxx xxx xxx Page 0623
12. When a petition is filed as a public interest litigation challenging the award of a contract by the State or any public body to a particular tenderer, the court must satisfy itself that the party which has brought the litigation is litigating bona fide for public good. The public interest litigation should not be merely a cloak for attaining private ends of a third party or of the party bringing the petition. The court can examine the previous record of public service rendered by the organisation bringing public interest litigation. Even when a public interest litigation is entertained, the court must be careful to weigh conflicting public interests before intervening. Intervention by the court may ultimately result in delay in the execution of the project. The obvious consequence of such delay is price escalation. If any retendering is prescribed, cost of the project can escalate substantially. What is more important is that ultimately the public would have to pay a much higher price in the form of delay in the commissioning of the project and the consequent delay in the contemplated public service becoming available to the public. If it is a power project which is thus delayed, the public may lose substantially because of shortage in electricity supply and the consequent obstruction in industrial development. If the project is for the construction of a road or an irrigation canal, the delay in transportation facility becoming available or the delay in water supply for agriculture being available, can be a substantial setback to the country's economic development. Where the decision has been taken bona fide and a choice has been exercised on legitimate considerations and not arbitrarily, there is no reason why the court should entertain a petition under Article 226.
The Apex Court in para (34) of the said judgment has reiterated the similar principles of law, which are laid down in the case of Tata Cellular (cited supra). The relevant observations of Supreme Court in para (34) read thus:
34. ...The court, it is trite, is not concerned with the merit of the decision but the decision-making process. In the absence of any finding that any legal malice was committed, the impugned allotment of land could not have been interfered with. What was only necessary to be seen was as to whether there had been fair play in action.
38. The Apex Court in the case of Balco Employees' Union (Regd.) (cited supra) after considering the law laid down in the case of Raunak International Ltd. v. I.V.R. Construction Ltd. has observed in para (86) of its judgment, relevant portion of which reads thus:
86. While dealing with a case where PIL had been filed in relation to an award of contract, the factors which the courts have to consider have Page 0624 been dealt with in the following observations. In Raunaq International Ltd. v. I.V.R. Construction Ltd. -SCC at pp. 502-03 (SCC paras 17-18):
17. Normally before such a project is undertaken, a detailed consideration of the need, viability, financing and cost-effectiveness of the proposed project and offers received takes place at various levels in the Government. If there is a good reason why the project should not be undertaken, then the time to object is at the time when the same is under consideration and before a final decision is taken to undertake the project. If breach of law in the execution of the project is apprehended, then it is at the stage when the viability of the project is being considered that the objection before the appropriate authorities including the court must be raised. We would expect that if such objection or material is placed before the Government, the same would be considered before a final decision is taken. It is common experience that considerable time is spent by the authorities concerned before a final decision is taken regarding the execution of a public project. This is the appropriate time when all aspects and all objections should be considered. It is only when valid objections are not taken into account or ignored that the court may intervene. Even so, the court should be moved at the earliest possible opportunity. Belated petitions should not be entertained.
The Apex Court in para (87) of the said judgment has observed thus:
87) Lastly, we need only to refer to the following observations in the majority decision in Narmada Bachao Andolan case at p. 763 (SCC paras 232-34):
232. While protecting the rights of the people from being violated in any manner utmost care has to be taken that the court does not transgress its jurisdiction. There is, in our constitutional framework a fairly clear demarcation of powers. The court has come down heavily whenever the executive has ought to impinge upon the court's jurisdiction.
233. At the same time, in exercise of its enormous power the court should not be called upon to or undertake governmental duties or functions. The courts cannot run the Government nor can the administration indulge in abuse or non-use of power and get away with it. The essence of judicial review is a constitutional fundamental. The role of the higher judiciary under the Constitution casts on it a great obligation as the sentinel to defend the values of the Constitution and the rights of Indians. The courts must, therefore, act within their judicially permissible limitations to uphold the rule of law and harness their power in public interest. It is precisely for this reason that it has been consistently held by this Court that in matters of policy the court will not interfere. When there is a valid law requiring the Government to act in a particular manner the court ought not to, without striking down the law, give any direction Page 0625 which is not in accordance with law. In other words, the court itself is not above the law.
234. In respect of public projects and policies which are initiated by the Government, the courts should not become an approval authority. Normally such decisions are taken by the Government after due care and consideration. In a democracy welfare of the people at large and not merely of a small section of the society, has to be the concern of a responsible Government. If a considered policy decision has been taken, which is not in conflict with any law or is not mala fide, it will not be in public interest to require the court to go into and investigate those areas which are the function of the executive. For any project which is approved after due deliberation the court should refrain from being asked to review the decision just because a petitioner in filing a PIL alleges that such a decision should not have been taken because an opposite view against the undertaking of the project, which view may have been considered by the Government, is possible. When two or more options or views are possible and after considering them the Government takes a policy decision, it is then not the function of the court to go into the matter afresh and, in a way, sit in appeal over such a policy decision.
The Apex Court in para (93) of the said judgment has observed thus:
Wisdom and advisability of economic policies are ordinarily not amenable to judicial review unless it can be demonstrated that the policy is contrary to any statutory provision or the Constitution. In other words, it is not for the courts to consider relative merits of different economic policies and consider whether a wiser or better one can be evolved. For testing the correctness of a policy, the appropriate forum is Parliament and not the courts. Here the policy was tested and the motion defeated in the Lok Sabha on 1.3.2001.
The Apex Court finally concluded the issue by observing in para (97) of its judgment as under:
97) Judicial interference by way of PIL is available if there is injury to public because of dereliction of constitutional or statutory obligations on the part of the Government. Here it is not so and in the sphere of economic policy or reform the court is not the appropriate forum. Every matter of public interest or curiosity cannot be the subject matter of PIL. Courts are not intended to and nor should they conduct the administration of the country. Courts will interfere only if there is a clear violation of constitutional or statutory provisions or non-compliance by the State with its constitutional or statutory duties. None of these contingencies arise in this present case.
39. The plain reading of the observations made by the Apex Court in all the above celebrated decisions make it amply clear that principle of judicial review would apply to exercise of contractual powers by the Government Bodies in order to prevent arbitrariness or favouritism. It is well settled that the scope of judicial review is concerned with reviewing not merits of the Page 0626 decision in support of which application for judicial review is made, but the decision making process itself and since power of judicial review cannot be equated with that of the appellate power, the Court is not expected to substitute its own decision in place of one taken by the State, apart from the fact that the Court is also not equipped with the expertise to do so. It is only concerned with the manner in which those decisions have been taken. Similarly, the grounds upon which an administrative action is subject to control of judicial review can be classified as under :
1) The decision maker must understand correctly the law that regulates his decision making power and must give effect to it.
2) irrationality, namely, Wednesbury unreasonableness,
3) procedural impropriety.
40. In the light of the legal principles, which are emerging from the above referred decisions of the Apex Court, we propose to consider and evaluate whether the decision taken by the respondent No. 2 to appoint respondent No. 4 as distribution franchisee for supply of electricity in three Divisions of Nagpur city suffers from lack of power, is inconsistent with the Act of 2003 as well as the National Electricity Policy and serves public purpose. It is no doubt true that electricity industry in India was governed by three enactments, namely, Indian Electricity Act, 1910, Electricity (Supply) Act, 1948 and the Electricity Regulatory Commissions Act, 1998. In order to harmonise the provisions contained in all these enactments, need was felt to evolve a self contained comprehensive legislation in this regard and, therefore, Electricity Act, 2003 was enacted by the Parliament, which has replaced the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and Electricity Regulatory Commissions Act, 1998. Similarly, Government of Maharashtra vide notification dated 4.6.2005 trifurcated the Maharashtra State Electricity Board into separate companies, namely, generation, transmission and distribution companies and the respondent No. 2 was designated as distribution licensee, which has decided to appoint respondent No. 4 as distribution franchisee for three Divisions of Nagpur Urban Circle vide agreement dated 26.10.2007.
41. The first contention of the learned Counsel for the petitioners is that the act of allotment of distribution franchise to respondent No. 4 by respondent No. 2 suffers from lack of power to make such allotment and is also inconsistent with the provisions of Act of 2003 and against the interest of consumers. In order to appreciate the contention, we feel it necessary to consider the relevant provisions of the Act of 2003:
Section 2(27) deals with definition of franchisee and reads thus:
franchisee means a person authorized by distribution licensee to distribute electricity on its behalf in a particular area within his area of supply.
Section 2(49) deals with definition of person and reads thus:
person shall include any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person. Section 3 of the Act of 2003 deals with National Electricity Policy and plan and reads thus:
Page 0627 3(1) The Central Government shall, from time to time, prepare the National Electricity Policy and tariff policy, in consultation with the State Governments and the Authority for development of the power system based on optimal utilisation of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy.
(2) The Central Government shall publish the National Electricity Policy and tariff policy from time to time.
(3) The Central Government may, from time to time, in consultation with the State Governments and the Authority, review or revise the National Electricity Policy and tariff policy referred to in Sub-section (1).
(4) The Authority shall prepare a National Electricity Plan in accordance with the National Electricity Policy and notify such plan once in five years, Provided that the Authority while preparing the National Electricity Plan shall publish the draft National Electricity Plan and invite suggestions and objections thereon from licensees, generating companies and the public within such time as may be prescribed:
Provided further that the Authority shall
(a) notify the plan after obtaining the approval of the Central Government;
(b) revise the plan incorporating therein the directions, if any, given by the Central Government while granting approval under Clause (a).
(5) The Authority may review or revise the National Electricity Plan in accordance with the National Electricity Policy.
Plain reading of Section 3 shows that it is incumbent on the Central Government to prepare a National Electricity Policy and tariff policy from time to time in consultation with the State Government and the Authority for development of the power system. It is also incumbent on the Central Government to publish the National Electricity Policy and tariff policy from time to time. The Central Government is also entitled to review or revise the said National Electricity Policy and tariff policy. Such policy is also required to be notified.
42. In compliance with Section 3 of the Act of 2003, the Central Government notified National Electricity Policy dated 12.2.2005, which aims at achieving the following objectives :
i) Access to electricity : Available for all households in next five years.
ii) Availability of power : Demand to be fully met by 2012. Energy and peaking shortages to be overcome and adequate spinning reserve to be available.
iii) Supply of reliable and quality power of specified standards in an efficient manner and at reasonable rates.
iv) Per capita availability of electricity to be increased to over 1000 units by 2012.
v) Minimum lifeline consumption of 1 unit/household/day as a merit good by 2012.
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vi) Financial turnaround and electricity sector. commercial viability of
vii) Protection of consumers' interests.
The aims and objectives of the National Electricity Policy make it evident that electricity is an essential requirement for all facets of our life. It has been recognised as a basic human need. It is a critical infrastructure on which the socio-economic development of the country depends. Supply of electricity at reasonable rate to rural India is essential for its overall development. Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation.
43. Section 3(4) of the Act of 2003 requires Central Electricity Authority (CEA) to frame a national electricity plan once in five years and revise the same from time to time in accordance with National Electricity Policy. Section 73(a) of the Act of 2003 provides that formulation of short term and perspective plans for development of the electricity system and coordinating the activities of various planning agencies for the optimal utilisation of resources to subserve the interests of the national economy shall be one of the functions of the Central Electricity Authority. The plan prepared by Central Electricity Authority and approved by the Central Government can be used by prospective generating companies, transmission utilities and transmission/distribution licensees as a reference document. Clause 4.0 deals with issues the Policy is required to address. Those are:
i) Rural Electrification,
ii) Generation,
iii) Transmission,
iv) Distribution,
v) Recovery of cost of services and targeted subsidies,
vi) Technology Development and Research and Development (R&D),
vii) Competition aimed at Consumer Benefits,
viii) Financing Power Sector Programmes including Private Sector Participation,
ix) Energy Conservation,
x) Environmental issues,
xi) Training and Human Resource Development,
xii) Cogeneration and Non-Conventional Energy Sources,
xiii) Protection of Consumer Interests and Quality Standards.
44. The second contention of the learned Counsel for the petitioners is that Section 5 of the Act of 2003 gives power only to the Central Government to allot management of local electricity distribution through various modes including franchisees in the rural areas only and it does not give any power to the respondent No. 2 to allot management of local electricity distribution in urban area and, therefore, decision to appoint distribution franchisee for three Divisions of Nagpur Urban Circle is without power, illegal and unsustainable in law. The provisions of Section 5 of the Act of 2003 are reproduced below:
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5. National policy on electrification and local distribution in rural areas -The Central Government shall also formulate a national policy, in consultation with the State Governments and the State Commissions, for rural electrification and for bulk purchase of power and management of local distribution in rural areas through Panchayat Institutions, users' associations, co-operative societies, non-governmental organisations or franchisees.
It is no doubt true that Section 5 deals with national policy on electrification and local distribution in rural area. However, the said provisions cannot be considered in isolation without taking into consideration the provisions of Sections 2(27), 2(49), 3 and 14 of the Act of 2003. Section 3(4) of the Act of 2003 requires Central Electricity Authority to frame a national electricity plan once in five years and Clause 4.0 of the National Electricity Policy deals with issues required to be addressed by the National Electricity Policy. One of the issues is distribution of electricity. Section 5 of the Act of 2003 requires Central Government to formulate a national policy in consultation with the State Government and the State Commission for rural electrification in addition to the National Electricity Policy as contemplated under Section 3(1) of the Act of 2003. However, that does not take away the power of the respondent No. 2 (distribution licensee) to allot franchise in urban area.
45. Section 2(27) of the Act of 2003 stipulates that franchise means a person authorised by a distribution licensee to distribute electricity on its behalf in a particular area within his area of supply. Person as defined under Section 2(49) of the Act of 2003 includes any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person. A licensee, who has licence to distribute electricity under seventh proviso to Section 14 of the Act of 2003, is entitled to appoint another person for the purpose of distribution of electricity on its behalf and such person shall not be required to obtain any separate licence from the concerned State Commission for such distribution of electricity on behalf of the licensee. The contention canvassed by learned Additional Solicitor General of India that conjoint reading of Section 2(27), 2(49) and seventh proviso to Section 14 of the Act of 2003 demonstrates that distribution licensee is entitled to appoint franchisee in an area under its licence for the purpose of distribution of electricity on its behalf without obtaining a separate licence has merit and, therefore, contention canvassed by the learned Counsel for the petitioners that concept of appointment of franchisee is limited to rural area in reference to Section 5 of the Act is misconceived and hence, rejected.
46. Similarly, the provisions of Section 181 of the Act of 2003 deal with powers of the State Commission to make regulations and to issue notification consistent with the Act of 2003 and the rules to carry out the provisions of the Act. In view of provisions of Section 181 of the Act of 2003, the State Commission has framed Maharashtra Electricity Regulatory Commission (General Conditions for Distribution Licensee) Regulations, 2006. Regulation 8.3.7 empowers the distribution licensee to appoint franchisees to distribute and/or supply electricity in a Page 0630 particular area within his area in accordance with the provisions of the Act as well as Rules and Regulations made thereunder or orders issued thereunder. Similarly, policy advice to the Government of Maharashtra under Section 86(2) of the Act of 2003 though on distributed generation based electricity distribution franchisee shows that allotment of franchisee of electricity is done with the primary object of facilitating reduction of distribution losses and improvement in collection efficiency. The different provisions under the Act of 2003 are expected to result in improving efficiency and reliability of electricity supply to all parts of the country. It further stipulates that the franchise agreement will primarily be governed by the terms agreed between licensee and franchisee and the franchisee will be required to supply electricity as per tariff approved by the Commission. Similarly, it also shows that private sector participation in distribution to reduce transmission and distribution losses and improving services to the customers is the object of allotting distribution franchise for distributing electricity, which is consistent with the National Electricity Policy of 2005. In the instant case, the act of respondent No. 2 in appointing respondent No. 4 as distribution franchisee is consistent with the aims and objects of the National Electricity Policy and in view of provisions of Section 2(27), 2(49) read with Section 14 of the Act of 2003 does not suffer from lack of power.
47. We want to express that due to globalisation, the socioeconomic and political scenario of our country have been considerably widened and electricity being an essential requirement for all facets of our life, it has been recognised as a basic need. Supply of electricity at reasonable rate to all parts of the country is, therefore, necessary for overall development. Equally important is availability of reliable and quality power at competitive rates to Indian industry to make it globally competitive and to enable it to exploit the tremendous potential of employment generation. Considering these aspects and as per mandate of Section 3 of the Act of 2003, the Central Government has framed National Electricity Policy of 2005 and in order to achieve aims and objectives of the said Policy, private sector participation in distribution needs to be encouraged for achieving requisite reduction in transmission and distribution losses and improving the quality of service to the consumers. This aspect is enumerated in Clause 5.4.4 of the National Electricity Policy. Clause 5.4.7 of the National Electricity Policy contemplates that one of the key provisions of the Act on competition in distribution is the concept of multiple licensees in the same area of supply through their independent distribution systems. The State Government has full flexibility in carving out distribution zones while restructuring the Government utilities. This clause further stipulates that Government of India would notify the requirements for compliance by applicant for second and subsequent distribution licence as envisaged in Section 14 of the Act of 2003. With a view to provide benefits of competition to all sections of consumers, second and subsequent licensee for distribution in the same area shall have obligation to supply to all consumers in accordance with provisions of Section 43 of the Act of 2003. The State Electricity Regulatory Commissions are required to regulate the tariff including connection charges to be recovered by a distribution Page 0631 licensee under the provisions of the Act, which will ensure that second distribution licensee does not resort to cherry picking by demanding unreasonable connection charges from consumers. It is, therefore, evident that in changing political, economic and social environment, there is an urgent need to improve generation, transmission and distribution of electricity in a manner, which is more cost effective and reliable and, therefore, National Electricity Policy evolved by the Central Government has encouraged and promoted private sector participation in distribution for reducing transmission and distribution losses and improving quality of services to the customers.
48. Similarly, under Section 82 of the Act of 2003, it is mandatory for every State to constitute a Commission to be known as Electricity Regulatory Commission for the purpose of giving advice to the State Government in the matters of promotion of competition, efficiency and economy in the field of electricity industry, promotion of investment in electricity industry and re-organization and re-structuring of electricity industry in the State. Similarly, Commission also needs to give advice to the State in the matters regarding generation, transmission, distribution and trading of electricity as well as any other matters referred to it by the State Government. The State of Maharashtra, therefore, constituted Maharashtra Electricity Regulatory Commission for this purpose. The contention of the learned Counsel for the petitioners that the Maharashtra Electricity Regulatory Commission has strongly recommended for appointment of distributed generation based electricity distribution franchisee for the entire State of Maharashtra and not allotment of franchise for distribution of electricity, in our view, is misconceived. Under Section 86(2) of the Act of 2003, it is the job of the Commission to give advice to the State Government on the above referred matters. One of them is generation of electricity and, therefore, policy advice given on the issue of generation of electricity by the Commission to the Government of Maharashtra is in the form of recommendation in the field of generation and, therefore, it cannot be either construed or interpreted that policy of appointing franchisee for distribution of electricity by the distribution licensee is against the policy advice given by the Commission to the Government of Maharashtra nor there is any material placed on record to show that it is inconsistent with the provisions of the Act of 2003 or National Electricity Policy. On the other hand, on conjoint reading of provisions of Section 2(27), 2(49) and seventh proviso to Section 14 of the Act of 2003, it is implicitly clear that distribution licensee is legally competent to appoint a franchisee in the area under its licence and such franchisee does not have to obtain a separate licence and, therefore, appointment of distribution franchisee by the respondent No. 2 for the three Divisions of Nagpur Urban Circle for distribution of electricity, in our view, is consistent with the provisions of Act of 2003 as well as National Electricity Policy.
49. So far as contention of the learned Counsel for the petitioners that policy of appointing distribution franchisee was evolved for the purpose of reducing transmission and distribution losses and there are other places in the State of Maharashtra where transmission and distribution losses are much more than at Nagpur and, therefore, decision to appoint Page 0632 distribution franchisee at Nagpur is arbitrary and was taken to favour the respondent No. 4 is concerned, the facts and figures placed before us by the learned Additional Solicitor General of India in this regard show that there are total 133 Divisions in the entire State of Maharashtra, out of which only 43 are urban and rest 90 are in the rural Divisions. In the rural area, electricity supply is mostly unmetered and because of that, in rural area, appointing distribution franchisee as on today is not a feasible proposition. However, out of 43 urban divisions, Gandhibag division is at serial No. 3 in terms of distribution losses, Mahal is at serial No. 6 and Civil Lines is at serial No. 8. Bhiwandi-I and Bhiwandi-II were at serial Nos. 5 and 6 where respondent No. 2 has already gone for franchising and same is running successfully. In the backdrop of the above referred facts, we are of the view that decision to appoint distribution franchisee by respondent No. 2 in three Divisions of Nagpur cannot be said to be either arbitrary or malafide and, therefore, contention canvassed by the learned Counsel for the petitioners in this regard is devoid of substance and hence, rejected.
50. The third contention of the learned Counsel for the petitioners is that decision of respondent No. 2 to appoint respondent No. 4 as distribution franchisee for distribution of electricity in three divisions of Nagpur is against the public policy and void in view of the following factors:
i) necessary infrastructural development has already been done under APDRP to reduce transmission and distribution losses (41.3% from April 2006 to September 2006),
ii) improvement in collection efficiency (Rs. 233 crores in 2005-06 and Rs. 304 crores in 2006-07 increase by 71 crores),
iii) special Police Stations and Courts have already been set up due to which there is reduction in power theft.
The learned Counsel for the petitioners submitted that chart (which we have reproduced in Sub-clause (E) of para (14) of this judgment) shows that respondent No. 2 will get less amount by Rs. 23 crores or more by appointing distribution franchisee at Nagpur, which will result in hike in tariff throughout Maharashtra and, therefore, appointment of distribution franchisee at Nagpur is against the public policy. Similarly, Shri Gordey, learned Counsel for the petitioners, contended that considering reduction in percentage of transmission and distribution losses for the years 2005-06 and 2006-07 (chart showing the figures mentioned in para 19), there is a downward trend in transmission and distribution losses and respondent No. 2 alone without appointing distribution franchisee would have achieved further reduction in transmission and distribution losses in coming years in view of infrastructural improvements already done because of APDRP scheme. In para (20) of this judgment, relevant charts are already mentioned. It was submitted by learned Counsel Shri Gordey that in view of details mentioned in the above referred charts, distribution franchise agreement will result in loss of revenue to the respondent No. 2 as HT inputs and LT input rates are lower than the average billing rates and, therefore, appointment of respondent No. 4 as distribution Page 0633 franchisee made by the respondent No. 2 is against the public policy. Similarly, it was contended by learned Counsel Shri Gordey that definition of franchisee given in the agreement is not coherent with the definition of franchisee given under Section 2(27) of the Act of 2003. As per definition of franchisee mentioned in the agreement, 90% of HT and LT input rates are deemed to be compensation for the sale of power and balance 10% for service component of the transaction. It was contended that table at page 175 of the agreement indicates payment of HT and LT input rates taken for the year 2007-08, which is Rs. 293.98 crores. However, respondent No. 2 will get only 90% of it, i.e. Rs. 264.58 crores and, therefore, there will be loss of Rs. 29.30 crores to the respondent No. 2 during that particular year. It was also contended by learned Counsel Shri Gordey that on the basis of input energy per year, which is a variable factor, payment should be made to the respondent No. 2 by franchisee and there is no necessity to introduce the discounting factor in the agreement, which will result in causing loss to the respondent No. 2 and will also adversely affect the tariff rates. It was submitted that if the discounting factor is not applied, respondent No. 2 will receive during the period of 15 years, i.e. from 2007-08 to 2021-22 a sum of Rs. 6,676.03 crores. However, by virtue of applying discounting factor, the same will be Rs. 2,793.23 crores and thus, loss to the respondent will be of Rs. 3,882.8 crores in a span of fifteen years and, therefore, agreement in question is against public policy and cannot be sustained in law.
51. It is no doubt true that Shri Vikas Singh, learned Additional Solicitor General of India has not disputed that because sum of Rs. 170 crores has been spent under APDRP scheme, infrastructural development has taken place at Nagpur, which has resulted in reducing transmission and distribution losses as well as improving the collection efficiency. Similarly, it is also not disputed by learned Additional Solicitor General of India Shri Vikas Singh that franchisee was given benefit of the same while submitting its tender by trying to improve upon it, by increasing its offer making it much higher than the bench-mark input rates. It was submitted that bench-mark rates had been arrived at by taking into account the stiff loss reduction target (a target which MSEDCL has not been able to achieve in the State of Maharashtra). It was further contended by Shri Vikas Singh that as against the bench mark of Rs. 4300/-based on the stiff loss reduction target, the franchisee has given offer of Rs. 6400/- crores approximately, which shows that respondent No. 2 and consumers are gaining by this huge incremental amount in terms of revenue and loss reduction as promised by the franchisee.
52. The above referred facts and figures placed before us by the respective Counsel for the parties on the basis of various charts and documents, which are part of tender process as well as subsequent agreement dated 26.10.2007 executed between respondent No. 2 and respondent No. 4 show material inconsistency in relation to amount of revenue, which would be generated by the respondent No. 2 with or without appointing Page 0634 respondent No. 4 as distribution franchisee. The procedures and methodologies evolved by the respondent No. 2 for showing upward trend in revenue generation and reduction in transmission and distribution losses, if respondent No. 4 is appointed as distribution franchisee, do not tally with the figures shown in the charts placed on record by the petitioners as well as respondent Nos. 2 and 3. It is to be noted that the facts and figures mentioned in the said charts and other relevant documents are not disputed by the respondent No. 2 except the procedure adopted by the respondent No. 2 is entirely different than one followed by the petitioners. According to the petitioners, procedures and methodologies evolved by the respondent No. 2 for allowing distribution franchisee to retain 10% as service component of transaction would cause loss of Rs. 29.39 crores to the respondent No. 2 and discounting factor would cause loss to the respondent No. 2 to the tune of Rs. 3882.8 crores in the span of 15 years. In the instant case, so far as aspect of revenue generation with or without distribution franchisee during the period of 15 years is concerned, the stand taken by the petitioners as well as respondent Nos. 2 and 3 is contradictory to each other though based on the same charts and documents placed on record by the respective parties, which are part of the tender process and agreement in question. The respective learned Counsel for the petitioners as well as respondent Nos. 2 and 3 have shown to the Court how the procedures and methodologies adopted by the respondent No. 2 will/will not serve the common good. However, the procedures and methodologies are highly technical in nature and without proper technical know-how as well as expertise, it is difficult for us to express any opinion in this regard. At the same time, we do not want to leave this important procedural aspect unattended in view of the big difference in the amount of revenue, which will be generated with or without appointment of distribution franchisee as projected by the petitioners as well as respondent Nos. 2 and 3. In our view, it will be appropriate for the Maharashtra Electricity Regulatory Commission, which is well equipped with the expertise in this regard and a competent Body, to consider this issue in the light of the following factors:
(i) MERC to consider the facts and figures shown in all the five charts placed on record by the petitioners as well as other charts and documents placed on record by the respondent Nos. 2 and 3 along with their affidavit, counter affidavit and other connected documents.
(ii) MERC to consider the stipulations in the agreement dated 26.10.2007, which contemplate that 90% of HT and LT input rates are compensation for sale of power and 10% for service component of the transaction (to be retained by the distribution franchisee).
iii) MERC also to consider the discounting factor stipulated in the agreement dated 26.10.2007.
iv) Change of base year from 2006-07 to 2005-06. If the MERC after due consideration of the above aspects, comes to the conclusion that the procedures and methodologies evolved and reflected in the terms and conditions of the agreement dated 26.10.2007 result in Page 0635 loss of revenue to respondent No. 2 by appointing respondent No. 4 as distribution franchisee for a period of 15 years, which otherwise could have been generated by the respondent No. 2 without appointing distribution franchisee, in that case, we expect that MERC shall give its opinion along with proper recommendations to the State Government in this regard within three months from the date of communication of this judgment. We expect the State Government to take appropriate steps on the basis thereof within a period of three months from the date of receipt of such opinion/recommendations from the MERC. The MERC is also directed to forward copy of the opinion as well as recommendations, if any, to the Central Government. We expect that the Central Government shall ensure proper implementation by the State the recommendation/s, if any, forwarded by the MERC.
53. As per Article 39 of the Constitution, which is part of the directive principles of the State Policy, it is the duty of the State to have a policy to secure ownership and control of material resources of the community, which need to be distributed in the best possible manner to sub-serve the common good. It is not in dispute that the electricity generated and distributed in the State of Maharashtra is the material resource of the community and, therefore, respondent No. 1 needs to secure ownership and control of electricity and is required to distribute in a manner to the members of the community, which will serve the common good. The purport of Article 39(b) of the Constitution is to ensure that the material resources are distributed by the State in a manner, which must serve the common good. The action of the respondent No. 2 in appointing distribution franchisee to serve the common good cannot be said to be in conflict with Article 39(b) of the Constitution. On the other hand, it is consistent with the provisions of the Act of 2003 as well as National Electricity Policy.
54. Earlier, Bhaskar Industries Limited and two others filed Writ Petition No. 3712/2007 against Maharashtra State Electricity Distribution Company wherein petitioners have raised grievance regarding new Clause 5.3.9 of the tender document. The petitioners in the said petition had purchased the tender document and participated in the tender process. This Court disposed of the said petition vide judgment dated 27.8.2007 by observing in para (22), which reads thus:
The allegation that the public interest has come under peril is a statement made without any details and without providing the details of material on which it is made. It is thus, a speculative averment and has its extremely limited impact for its cognizance and this apprehension is, therefore, rejected being wholly unsupported and premature.
It is, therefore, evident that challenge to the tender process (may be limited to certain clauses of tender document) at the initial stage was rejected by this Court. It is pertinent to note that the petitioners in the present petition have neither challenged validity of any of the provisions of the Act of 2003 nor National Electricity Policy framed under Section 3 by the Central Government on the ground that the said policy is inconsistent with any of the provisions of the Act of 2003 or its aims and objectives. The only ground Page 0636 raised by the learned Counsel for the petitioners whereby validity of appointment of distribution franchisee by respondent No. 2 is challenged is on the basis of provisions of Section 5 of the Act of 2003. Section 5 of the Act of 2003 deals with national policy of electrification and for bulk purchase of power and management of local distribution in rural areas through different modes, one of which is franchisee and looking to the scheme of provisions of Section 5 of the Act of 2003, it is evident that it operates in different area altogether and does not control other provisions of the Act, such as Section 2(27), 2(49) and seventh proviso to Section 14 of the Act of 2003. We have also observed that conjoint reading of these Sections makes it abundantly clear that respondent No. 2 was legally entitled to appoint respondent No. 4 as distribution franchisee and, therefore, challenge raised by the learned Counsel for the petitioners on this count must fail.
55. So far as decision of the Supreme Court in State of Karnataka and another (cited supra) cited by learned Counsel Shri Gordey is concerned, the Apex Court in para (80) of its judgment has observed thus:
80. This takes us to the non-negotiable minimum of nexus between the purpose of the acquisition and Article 39(b). Article 39(c) was feebly mentioned, but Article 39(b) was forcefully pressed by the appellant. Better read Article 39(b) before discussing its full import:
39(b) Certain principles of policy to be followed by the State. The State shall, in particular, direct its policy towards securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.
The key word is `distribute' and the genius of the Article, if we may say so, cannot but be given full play as it fulfills the basic purpose of re-structuring the economic order. Each word in the article has a strategic role and the whole article a social mission. It embraces the entire material resources of the community. Its task is to distribute such resources. Its goal is so to undertake distribution as best to subserve the common good. It re-organizes by such distribution the ownership and control.
The above referred observations of the Apex Court show that directive principles of State policy enumerated in Article 39(b) of the Constitution require State to direct its policy towards securing that ownership and control of material resources of community are so distributed as best to subserve the common good. Its goal is to undertake the distribution as best to subserve the common good. We have already expressed our opinion in this regard in the earlier paragraphs of this judgment and in view of those observations, the said decision of the Apex Court is of little help to the petitioners.
56. So far as grievance of the petitioners that in the franchisee agreement, interest of the consumers is not taken care of is concerned, Shri Vikas Singh, learned Additional Solicitor General of India has pointed out certain clauses of franchisee agreement, such as Clause 5.6.5, 5.6.5(B)(b), 5.6.6, 16.1.1.1 (d), 16.1.1.2(h), 16.3 and 17.1.3. The stipulations in these clauses Page 0637 require distribution franchisee to comply with Electricity Supply Code, to establish Consumers' Service Centres for consumers' complaints and redressal system, to address commercial and billing complaints and reference of dispute to the existing relevant Consumer Grievances Redressal Forum. The above referred Clauses further stipulate critical and non-critical events of default and the relevant Clause in this regard is Clause 16.1.1.1 (d), which stipulates that failure to maintain minimum service quality by the franchisee would be considered to be critical area of default and Clause 16.1.1.2 (h) stipulates that failure to comply with any event of non-critical default within the specified period would also become critical event of default. Similarly, critical events of default entitle respondent No. 2 to terminate franchisee agreement under Clause 16.3. In view of these stipulations mentioned in the above referred different Clauses in the agreement, this is not the case where we can hold that while formulating terms and conditions of the agreement, respondent No. 2 failed to ensure proper consumers' grievance redressal mechanism and, therefore, contention canvassed by the learned Counsel for the petitioners in this regard being devoid of merit, is rejected.
57. For the reasons stated hereinabove, the contention canvassed by the learned Counsel for the petitioners that respondent No. 2 does not have power to appoint distribution franchisee under the provisions of Act of 2003, in our view, is misconceived and hence, rejected. Similarly, argument of the learned Counsel for the petitioners that action of respondent No. 2 in appointing respondent No. 4 as distribution franchisee in the urban area is inconsistent with the provisions of Section 5 of the Act of 2003, which is the only enabling provision in the Act of 2003, which permits appointment of distribution franchisee only in rural area, is also, in our view, devoid of substance and hence, rejected. The contention of the learned Counsel for the petitioners that distribution franchisee agreement dated 26.10.2007 is against the public policy, at this stage, does not hold merit. However, whether the procedures and methodologies evolved and adopted by the respondent No. 2 to achieve the objectives of the policy of privatisation, which are part of the agreement dated 26.10.2007, result in profit or loss in revenue of respondent No. 2 during the period of contract is required to be considered by the MERC as per our above directions and, therefore, though we vacate the interim order of status quo, we expect that the State Government and Central Government shall take appropriate action according to law on the basis of decision/opinion/recommendations given by the MERC to the Government of Maharashtra.
58. All the petitions stand disposed of in the above terms. No order as to costs.