Himachal Pradesh High Court
Jsw Hydro Energy Ltd & Anr vs State Of Himachal Pradesh & Ors on 28 May, 2024
Bench: Mamidanna Satya Ratna Sri Ramachandra Rao, Jyotsna Rewal Dua
HON'BLE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA .
CWP No. 7667/2023
Reserved on: 02.05.2024
Decided on: 28.05.2024
JSW Hydro Energy Ltd & Anr. ....Petitioners
Versus
State of Himachal Pradesh & Ors.
Coram
r to ....Respondents
The Hon'ble Mr. Justice M.S. Ramachandra Rao,Chief Justice. The Hon'ble Ms. Justice Jyotsna Rewal Dua, Judge. Whether approved for reporting?1 yes For the petitioners : Mr. P. Chidambaram, Sr. Advocate with Mr. Aman Anand (through V.C.) and Mr. Janesh Gupta, Advocate.
For the respondents : Mr. Anup Rattan, Advocate General with Mr. Rakesh Dhaulta, Mr. Pranay Pratap Singh, Mr. Sushant Keprate & Mr. Gobind Korla, Additional Advocates General and Mr. Arsh Rattan & Mr. Sidharth Jalta, Deputy Advocates General, for respondents No.1 & 2.
Ms. Sunita Sharma, Sr. Advocate with Mr.
Dhananjay Sharma, Advocate, for
respondent No.3.
1
Whether reporters of the local papers may be allowed to see the judgment? yes
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2
Mr. Anand Sharma, Sr. Advocate with Mr.
Karan Sharma, Advocate, for respondent
.
No.10.
Mr. Balram Sharma, Deputy Solicitor
General of India, for respondents No.11 &
12.
Jyotsna Rewal Dua, Judge
Sr. No. Particular
1 The case
r to Pages
2-4
2 Facts 4-18
3 Submission 18-22
4 Consideration 22-52
5 A. Conclusion 52-60
B. Result 60
The case
Petitioner is a hydro power generating company. It is running 1045 MW (4 units X 261.25 MW) Karcham Wangtoo Hydroelectric Power Project (KW-HEP) in the State of Himachal Pradesh. Some percentage of its generated power is supplied free of cost to the State of Himachal Pradesh (respondent No.1), which is further sold in power exchange by respondent No.1 through its agent.
Remaining power is sold by the petitioner through PTC India ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 3 Limited (respondent No.4)-an Inter-State trading licensee. Power Purchase Agreement (PPA) has been entered into between the two .
for the purpose. To sell the power purchased from the petitioner, the PTC India Limited has executed Power Sale Agreements (PSAs) with distribution licensees/nodal agencies (respondents No.5-10) for procurement of power in the States of Punjab, Haryana, Uttar Pradesh and Rajasthan.
a) The issue raised in this petition revolves around the quantum of free power to be supplied by the petitioner to respondent No.1-State. Petitioner's case is that it is being compelled by the State to supply 18% power w.e.f. 13.09.2023, whereas Central Electricity Regulatory Commission (CERC-respondent No.11) in its decision dated 17.03.2022 on a petition filed by the petitioner has held that in view of CERC (Terms and Conditions of Tariff) Regulations 2019 framed in exercise of power under Section 178 of the Electricity Act 2003, maximum free energy supply to home State has to be taken as 13%. The CERC has also ordered that provisions in the previously executed PPA & PSAs in respect of free power supply shall stand overridden by the ones in the Tariff Regulations 2019. Petitioner ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 4 seeks aligning of its agreements executed with State with the Tariff Regulations 2019 on the subject of free power supply.
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b) Neither the Central Electricity Regulatory Commission (respondent No.11) nor the Central Power Ministry (respondent No.12) has opposed the writ petition. Respondents No.5-9 have also not contested the writ petition. Respondent No.10 in its reply filed to the writ petition has not opposed grant of reliefs prayed by the petitioner. The State of Himachal Pradesh (respondents No.1 to 3) has defended its action in taking 18% free power from the petitioner primarily on the basis of agreements executed by it with the petitioner. Applicability of Tariff Regulations 2019 for determining the quantum of free power supply has also been disputed.
Maintainability of the writ petition in view of an Arbitration clause existing in the Implementation Agreement, has also been questioned.
2. Following facts are not in dispute 2(i) Pertaining to MoU & Implementation Agreement for execution of KW-HEP.
2(i)(a) On 28.08.1993, a Memorandum of Understanding (MOU) was entered into between Jaiprakash Industries Limited (JIL),-the original project proponent and respondent No.1 ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 5 authorizing investigation and implementation of KW-HEP 900 MW in District-Kinnaur. As per MOU, JIL had agreed to surrender 12% .
of the generated power free of cost to the State.
2(i)(b) On 18.11.1999, an Implementation Agreement (IA) was executed between JIL and the State for 1000 MW KW-HEP. Clause 3.2 of the IA put the life of the agreement to 40 years from the Commercial Operation Date (COD) of the project. Clause 5.1 of the IA set down petitioner's liability to supply 12% of the net generation free of cost to the home State for first 12 years from COD of the project and 18% for the next 28 years. Clause 5.1 reads as under:-
"5.1 Government Supply
(a) The Company shall supply to the Government or its Agent, during the Agreement Period at the interconnection Point, without any cost or charges to the Government, the quantum of electrical generated as specified below (Government Supply):-
i) Commencing from the date of Twelve (12) percent of synchronization of the first unit net generation.
and for the first twelve (12) years from Commercial Operation Date (COD) of the project.
ii) For the next twenty eight (28) Eighteen (18) percent years after expiry of the period of Net Generation specified in (i) above ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 6 Remaining energy as per Clause 4.8 of the IA could be sold by the petitioner to any other party/consumer outside the State and could .
also be utilized for its captive use in the State.
2(ii) Pertaining to execution of Addendum/SIAs to the IA & Commencement of Commercial Operations.
2(ii)(a) On 28.05.2001 by an addendum to the IA dated 18.11.1999, the time period for starting construction of the project was extended. r 2(ii)(b) On 29.04.2002, in accordance with provisions of the IA, Jaypee Karcham Hydro Corporation Limited (JKHCL) was incorporated for implementing KW-HEP. Under a tripartite agreement executed on 30.12.2002 between respondent No.1, JIL and JKHCL, all rights, liabilities and assets of JIL in KW-HEP were transferred to JKHCL.
2(ii)(c) On 20.12.2007, a 2nd Supplementary Implementation Agreement (2nd SIA) was executed between JKHCL and respondent No.1 for amending the definition of Scheduled Commercial Operation Date of the project.
2(ii)(d) On 25.07.2011, JKHCL amalgamated with Jaiprakash Power Ventures Limited (JPVL) in accordance with law. On ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 7 25.06.2015 pursuant to another amalgamation scheme, all rights, liabilities, assets and privileges etc. of JPVL over KW-HEP were .
transferred to Himachal Baspa Power Company Ltd (HBPCL) w.e.f.
01.09.2015.
On 11.09.2018, name of HBPCL was changed to JSW Hydro Energy Limited (petitioner). On 21.10.2019, 3rd SIA was executed between respondent No.1 and the petitioner for effecting change in company's name from HBPCL to JSW Hydro Energy Ltd.
2(ii)(e) On 29.04.2021, the Central Electricity Authority (CEA) approved enhancing the installed capacity of the project from 1000 MW to 1091 MW in two stages.
2(ii)(f) On 08.07.2021, 4th SIA was executed between the petitioner and respondent No.1 for enhancing the capacity of the project. This SIA also had a provision for petitioner's supplying 3% additional free power on increased capacity to the State.
2(ii)(g) The KW-HEP became commercially operative and was synchronized on 12.09.2011.
2(iii) Supply of Free Power under the PPA & PSAs.
2(iii)(a) Under a Power Purchase Agreement (PPA) executed on 21.03.2006 and supplemented on 01.12.2017, the PTC India Limited ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 8 (respondent No.4) was to purchase 704 MW gross capacity and corresponding energy from the petitioner at KW-HEP for onward .
sale of power on long term basis for a period of 35 years from COD.
In the PPA, free power has been defined as under:-
"Free Power means the quantum of power (in kW or multiples thereof) supplied free of cost by the Company at or before the Delivery Point to the Project State Government . This shall be equal to 12% (twelve percent) of net generation (gross generation at generator terminals less Auxiliary Consumption), for the first 12 (twelve) Tariff years from the COD and 18% (eighteen percent) of such net generation from the start of the 13th (thirteenth) Tariff Year till the end of the term of this Agreement."
2(iii)(b) Respondent No.4 in turn executed Power Sale Agreements (PSAs) with distribution licensees (respondents No.5-
10) of States of Punjab, Haryana, Uttar Pradesh and Rajasthan.
2(iii)(c) In all the PSAs, definition of free power is the same as in the PPA, which in turn matches with the terms of free power supply stipulated in the IA.
2(iv) Supply of Free Power by the Petitioner & the CERC order dated 30.03.2017 on the issue.
2(iv)(a) The petitioner supplied free power to the extent of 12% to respondent No.1 from 12.09.2011 (the COD) till 12.09.2023 i.e. for a period of 12 years. The petitioner was also required to supply ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 9 some additional free power towards Local Area Development Fund (LADF) as insisted by respondent-State.
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2(iv)(b) During the period of supply of 12% free power to the State, the petitioner instituted a petition before the CERC for determining tariff of KW-HEP for the period 2014-19. The claim was inter alia based upon CERC (Terms and Conditions of Tariff) Regulations 2014. Petitioner pointed out that saleable design energy of its project was arrived at after deducting amongst other factors, the 12% free power being supplied to the State at that time.
i) The CERC passed an order on 30.03.2017 taking the design energy of the generating station at 4131.06 million units (MU) corresponding to the installed capacity of 1000 MW. Saleable design energy of the project was ordered to be calculated after deduction of auxiliary energy consumption as specified under Tariff Regulations 2014 i.e. 1.2% & 12% free power supplied to respondent No.1 for the period 2014-19. The saleable design energy was accordingly arrived at 3591.71 MU.
ii) In the above petition before the CERC, the petitioner also raised an issue about the requirement under the IA dated 18.11.1999 to supply 18% free power to the State for 28 years after ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 10 expiry of 12 years from the COD and requested for future determination of tariff accordingly. The CERC observed that:- Under .
the Tariff Regulations 2014, which covered the period 2014-19, the free power to home State was limited to 13% or actual whichever was less; The petitioner had to supply 12% free power under the IA dated 18.11.1999 for 12 years from COD (12.09.2011); The period for supplying 18% free power had not commenced at that time; The Tariff Regulations 2014 covered the period only upto the year 2019;
Therefore, the issue of supply of free power at 18% and Tariff determination on that basis would be considered at an appropriate time as per prevailing Tariff Regulations. Relevant paragraphs from the CERC decision are as under:-
"33. It is noticed that in terms of the IA dated 18.11.1999 entered into between the petitioner and the Govt. of H.P, free power to the Govt. of H.P shall be 18% for the next 28 years from the expiry of the period of first 12 years. It is pertinent to mention that in terms of the 2014 Tariff Regulations, free energy to home state is limited to 13% or actual, whichever is less. However, the respondents in their respective PPAs have agreed to the enhanced free power to home state after 12 years. In this background and considering the fact that this issue of enhanced free power to home state after 12 years is not relevant for the purpose of determination of tariff of the generating station for the period 2014- 19, the same has not been considered. However, the parties are at liberty to claim the relief and the same will be considered at an appropriate time as per the prevailing tariff regulations.::: Downloaded on - 28/05/2024 20:34:30 :::CIS 11
34. The petitioner has submitted that it may be required to supply additional free power towards LADF as insisted by Govt. of H.P. The petitioner has also stated that the same has not been considered for .
determination of tariff for the present but shall be duly considered as and when necessary. We are of the view that in case the petitioner is required to supply additional free power towards LADF, it may approach the Commission by an appropriate application for relief on this count."
2(v) Free Power Supply by the petitioner, Tariff Regulations 2019 & the order passed by CERC on 17.03.2022.
2(v)(a) On 07.03.2019, respondent No.11 notified the CERC (Terms and Conditions of Tariff) Regulations 2019. These regulations were applicable for the period 01.04.2019 to 31.03.2024.
As per regulation No. 55(2) of these regulations, "........payment of capacity charge and energy charge for a hydro generating station shall be shared by the beneficiaries of the generating station in proportion to their shares (inclusive of any allocation out of the un- allocated capacity) in the saleable capacity to be determined after deducting the capacity corresponding to free energy to home State as per Note-3. Note-3 reads as under:-
"FEHS = Free energy for home State, in percent and shall be taken as 13% or actual whichever is less.
Provided that in cases where the site of a hydro project is awarded to a developer, by the State Government by following a two stage transparent process of bidding, the 'free energy' shall be taken as 13%, in addition to energy corresponding to 100 units of electricity to ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 12 be provided free of cost every month to every project affected family for a period of 10 years from the date of commercial operation of the generating station:
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Provided further that the generating company shall submit detailed quantification of energy corresponding to 100 units of electricity to be provided free of cost every month to every project affected family for a period of 10 years from the date of commercial operation."
2(v)(b) The petitioner in accordance with regulation No. 9 of Tariff Regulations 2019 moved petition No.391/GT/2019 before the CERC seeking determination of its tariff for the period 2019-2024.
Petitioner's liability under the IA to supply 18% free power was to commence during this period i.e. w.e.f. 13.09.2023.
i) Before the CERC, petitioner's case was that it had agreed in the IA for supplying 18% free power to the home State from 13.09.2023 but the Tariff Regulations 2019 provide for working of tariff based upon maximum 13% free power; Working of tariff based upon 13% free supply shall result in severe loss of 5% in tariff;
Loss of 5% in tariff working would affect balance life of the project;
It shall have to be borne by the petitioner from Return on Equity (ROE) resulting in an anomalous situation, where the petitioner will not be able to recover ROE of 16.5% as per Tariff Regulations. The petitioner requested the CERC to exercise its powers under the Tariff ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 13 Regulations 2019 and allow the free power as stipulated in the IA, the PPA and PSAs to be accounted for while determining the tariff.
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ii) Respondent No.1 though party before the CERC, did not contest the petition. It did not even file reply to the petition.
Respondent No.4 (PTC India Limited) opposed the changes in tariff regime of KW-HEP based upon enhanced free power supply at 18% after 13.09.2023. One of its contentions was that Tariff Regulations 2019 would override the existing contracts and will apply to even those projects, which were commissioned prior to the coming into force of Tariff Regulations 2019.
iii) Upon considering the rival claims, the CERC in its order dated 17.03.2022, acknowledged the relevancy & significance of issue of free power for the 2019-24 tariff period and held that:-
The provisions of PPA/PSAs executed by the petitioner regarding supply of free power to the home State are inconsistent and shall stand over-ridden by Note-3 under Regulation 55 of the Tariff Regulations 2019; The free power to be supplied by the petitioner to the State shall be considered as 13%. It, therefore, declined petitioner's prayer to determine tariff at 18% of the free power w.e.f.
13.09.2023. Relevant paragraphs from the CERC order are as under:-::: Downloaded on - 28/05/2024 20:34:30 :::CIS 14
"144. We have examined the matter. In terms of the Implementation Agreement dated 18.11.1999 entered into between the Petitioner and the Government of Himachal Pradesh, free power equal to 12% of net .
generation, is to be supplied by the Petitioner to the Government of HP for the first 12 years from COD of the Project and at 18% of the net generation for the next 28 years, after expiry of the period of 12 years, as above. PPA/ Supplementary PPA executed by the Respondents with PTC defines the term 'free power', which is same as the aforesaid provision in the IA. It is, therefore, evident that the issue of 'free power' is significant and relevant for the 2019-24 tariff period (i.e. from 30.9.2023).
145. The main contention of the Petitioner is that since the quantum of free power to be supplied to the home State was based on the agreement between the parties, which were executed prior to coming into force of the Tariff Regulations notified by the Commission, the same may be considered by the Commission in exercise of the power to relax/ power to remove difficulties. The Respondent HPPC has submitted that in terms of the judgment of the Hon'ble Supreme Court in PTC v CERC & ors, Tariff Regulations override existing contracts.
Note 3 under Regulation 55 of the 2019 Tariff Regulations provides as under:
Note 3: FEHS = Free energy for home State, in percent and shall be taken as 13% or actual whichever is less.
146. The Constitution Bench of the Hon'ble Supreme Court in PTC India Ltd Vs CERC & ors (2010 4 SCC 603) has laid down the principle of law, whereby any provision of an agreement, if it falls within the domain of the Regulations of subordinate legislation, has to be aligned with the Regulations. The relevant portion of the judgment is quoted below:
"58. One must understand the reason why a regulation has been made in the matter of capping the trading margin under Section 178 of the Act. Instead of fixing a trading margin (including capping) on a case to case basis, the Central Commission thought it fit to make a regulation which has a general ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 15 application to the entire trading activity which has been recognized, for the first time, under the 2003 Act. Further, it is important to bear in mind that making of a regulation under .
Section 178 became necessary because a regulation made under Section 178 has the effect of interfering and overriding the existing contractual relationship between the regulated entities. A regulation under Section 178 is in the nature of a subordinate Legislation. Such subordinate Legislation can even override the existing contracts including Power Purchase Agreements which have got to be aligned with the regulations under Section 178 and which could not have been done across the board by an Order of the Central Commission under Section 79(1)(j)."
147. Thus, the provisions of the PPA/PSAs executed by the Petitioner in respect of free power to the home State is inconsistent and shall accordingly stand overridden by Note 3 under Regulation 55 of the 2019 Tariff Regulations. We, therefore, find no reason to exercise the power to relax and grant relief, as prayed for by the Petitioner. Accordingly, the free energy to home state is to be considered as 13% in this case."
The above order has been accepted by the litigating parties and has attained finality.
2(vi) Events after the CERC order dated 17.03.2022.
Petitioner's repeated written requests made thereafter to the respondent State to align the provisions of IA relating to supply of free power in accordance with CERC order dated 17.03.2022, remained unsuccessful. A lot of correspondence on the subject was exchanged between the petitioner & respondent State. On 13.09.2023, the State/Directorate of Energy (respondent No.2) issued ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 16 a notice to the petitioner stating that CERC Tariff Regulations 2019 will not have any bearing on provisions of the IA concerning supply .
of free power to the home State. On 16.09.2023, respondent No.2 called upon Northern Regional Load Dispatch Centre (NRLOC) to schedule 18.46% free power supply from petitioner's project.
2(vii) Present petition
2(vii)(a) In the above background, this writ petition has been
instituted seeking direction to respondents No.1 and 2 to align the provisions of free power supply in the Implementation Agreement dated 18.11.1999 & subsequent Supplementary Implementation Agreements with the provisions on free power supply in the CERC Tariff Regulations 2019 also keeping in view the order dated 17.03.2022 passed by the CERC. The substantive relief prayed for by the petitioner runs as under:-
" a) Issue a writ in the nature of mandamus or any other ar appropriate writ, order or direction, directing the Respondent No. 1 & 2 to perform the ministerial act of aligning the provisions of the Implementation Agreement dated 18.11.1999 and the Supplementary Implementation Agreements, on the subject of free power supply with the CERC Tariff Regulations, 2019 and the judgment and order dated 17.03.2022 of the CERC;
b) Declare the policies dated 07.07.2012 & 18.08.2017 to be ultra vires the CERC Tariff Regulations, 2019 made under the Electricity Act, 2003 on the topic of free power, in so far as the same require the ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 17 Petitioner to supply free power beyond the cap prescribed under the CERC Tariff Regulations, 2019 on the enhanced capacity; and
c) As a consequence, quash the impugned notices dated 13.09.2023 & .
16.09.2023, issued by the Respondent No.2."
2(vii)(b) This writ petition was listed on 12.10.2023, when following order was passed in the matter:-
" CWP No.7667/2023 & CMP No.14596/2023 Heard Mr. P. Chidambaram, learned Sr. Advocate for the petitioners and Mr. Anup Rattan, learned Advocate General for respondents no.1 and 2.
2. The issue raised in this Writ petition is "whether the 13% cap of free energy to be supplied to the home State, as specified in Regulation 55 Note 3 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulation Act, 2019 would over-ride the terms of the Implementation Agreement dt. 18.11.1999 entered into between 1st petitioner and 1st respondent." This matter requires consideration.
3. Issue notice. Mr. Rakesh Dhaulta, learned Additional Advocate General, Mr. Dhananjay Sharma, learned Standing Counsel and Mr. Balram Sharma, learned Deputy Solicitor General of India, accept notice on behalf of respondents no.1 & 2, respondent no.3 and respondents no. 11 & 12, respectively. Issue notice to PTC India Ltd- respondent no.4 only, returnable for 06.12.2023, on taking steps within one week.
4. Reply on behalf of the appearing respondents be filed before the next date of hearing.
5. List on 06.12.2023.
6. Status quo as on today be maintained until further orders without prejudice to the rights of both the sides subject to respondents no.1 and 2 maintaining an account of 18% free power being supplied to the respondents by the petitioners, and subject to further orders on the disputed fraction of free power."::: Downloaded on - 28/05/2024 20:34:30 :::CIS 18
3. Submissions:-
3(i) Learned Senior Advocate for the petitioner in support .
of the case has contended that:-
3(i)(a) Present day insistence of respondents No.1 and 2 on performance of obligations regarding the quantum of free power supply in terms of the IA dated 18.11.1999 & subsequent SIAs, is illegal. The agreements require supply of free power at 18% of the net generation for 28 years after 12 years of the COD, whereas subordinate legislation framed by the CERC in exercise of power conferred upon it under the Electricity Act 2003, cap the maximum free supply at 13% of the net generation. On the issue of extent of free power supply, the Tariff Regulations 2019 shall have supremacy over the agreements executed between the petitioner & the State.
3(i)(b) Respondents No.1 and 2's demand of free power at 18% is against the order dated 17.03.2022 passed by the CERC in petition No.391/GT/2019. As per this order, the provisions in the PPA & PSAs on free power supply from KW-HEP shall stand overridden by the provisions in Tariff Regulations 2019 on the subject. Having not assailed the CERC order, the State is bound to implement the same by aligning the provisions of free power supply in the ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 19 Implementation Agreement with Tariff Regulations 2019. There cannot be any mismatch on quantum of supply of free electricity in .
different agreements.
3(i)(c) Demand by the State of free power supply at 18% is not only illegal but unjust as well on the face of Tariff Regulations 2019, which put the cap on supply of free power at 13% maximum. Loss of 5% in tariff would make petitioner's project completely unviable and unsustainable. Once the petitioner's prayer for determination of its tariff by taking into consideration 18% free power supply as obligated under the agreements has been turned down by CERC in view of 13% cap on free power supply in Tariff Regulations 2019, then as resultant corollary the State is also bound to align the free power supply provisions in the agreements with the Tariff Regulations 2019. Otherwise there would be an anomalous position where the petitioner would supply free power at 18%, but 5% of the same would not to be accounted for in its tariff and when the Tariff Regulations cap free power supply maximum only at 13%.
3(i)(d) Neither the provisions in the Implementation Agreement or the Supplementary Implementation Agreements executed by the petitioner with the State nor the Hydro Policies notified by ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 20 respondent No.1 can be enforced against the petitioner to the extent the same contravene the provisions of the Tariff Regulations 2019 on .
supply of free power.
3(i)(e) Submission made by learned Senior Advocate for the petitioner is that every contract is subject to law. Performance of contract must conform to law in force at the time when action is taken. Impugned action of respondent No.1-State in compelling the petitioner to supply free power as per the agreements is against the statutory Tariff Regulations 2019 and the order passed by CERC on 17.03.2022. The petitioner cannot be forced to give free power more than 13%.
3(ii) The State asserts that the agreements executed by it with the petitioner will have supremacy over the Tariff Regulations 2019 and petitioner's liability thereunder is for supplying 18% free power for 28 years after 12 years from the COD. Learned Advocate General submitted that:-
3(ii)(a) In view of Clause 10.1 of the Implementation Agreement dated 18.11.1999, any dispute in relation to, arising out of or in connection with the Implementation Agreement' is referable to arbitration. This writ petition without availing the remedy ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 21 provided in the Implementation Agreement is, therefore, not maintainable.
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3(ii)(b) Petitioner is not only bound by the Implementation Agreement to supply 12% of the net electricity generation for 12 years from the COD date and 18% for 28 years thereafter but it has also executed PPA and PSAs on that basis containing same provisions for free supply of power. Petitioner is bound by the terms of the agreements in particular the IA for supplying 18% free power.
The petitioner has itself acknowledged this liability in the PPA executed by it with respondent No.4. This fact has also been acknowledged in PSAs entered into between respondent No.4 and respondents No.5-10.
3(ii)(c) The CERC Tariff Regulations 2019 cannot override the terms agreed between the parties in the Implementation Agreement.
Petitioner is bound to supply 18% free power under the agreement.
It cannot escape its liability to supply free power in terms of the agreement by taking shelter of CERC order dated 17.03.2022.
3(ii)(d) The CERC order dealt with petitioner's prayer to take quantum of free power at 18% from 13.09.2023 only for the purpose of determining the tariff for the period 2019-2024. Petitioner's prayer ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 22 was declined by the CERC. This order has no effect upon petitioner's liability to supply 18% free power to the State under the agreements .
executed between the parties.
3(ii)(e) The Hydro Power Policy 2008 also recognizes supply of free power beyond 13%. It provides that cost of supply of free power more than 13% would be met by the developer from its own resources and would not be a pass through in tariff. The project developer-the petitioner is thus liable to supply free power at 18% as agreed under the IA. The cost for supplying free power over & above 13% is to be borne by the petitioner. The petitioner was very well aware of its obligations under the agreements willingly executed by it. It cannot be permitted now to step back from the same.
4. Consideration Whether the provisions in the agreements executed between the petitioner and the State, on point of free power to be supplied by the petitioner, are required to be aligned with the CERC Tariff Regulations 2019, is the main issue to be adjudicated in this petition.
4(i) Considering the relief prayed by the petitioner and the controversy involved in the case, the nature of dispute cannot be ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 23 stricto senso said to be within the realm of the arbitration clause in the Implementation Agreement. The lis is whether the CERC Tariff .
Regulations 2019-24 will have supremacy over the Implementation Agreement in respect of supply of free power and whether clauses pertaining to free power supply in the Implementation Agreement shall have to be aligned with the provisions of Tariff Regulations.
Effect of order already passed by CERC on 17.03.2022 on the issue is also intrinsically entwined. Given the nature of dispute, arbitration clause in the Implementation Agreement cannot be held to be in the way of petitioner to invoke writ jurisdiction for enforcing statutory regulations and to seek aligning the provisions in the IA on subject of free power with the Tariff Regulations. Reference in this regard can be made to following paras in Union of India & Ors Vs. Tantia Constructions Private Limited2 :-
"33. Apart from the above, even on the question of maintainability of the writ petition on account of the Arbitration Clause included in the agreement between the parties, it is now well-established that an alternative remedy is not an absolute bar to the invocation of the writ jurisdiction of the High Court or the Supreme Court and that without exhausting such alternative remedy, a writ petition would not be maintainable. The various decisions cited by Mr. Chakraborty would clearly indicate that the constitutional powers vested in the High Court or the Supreme Court cannot be fettered by any alternative remedy available to the authorities. Injustice, whenever and wherever it takes 2 (2011) 5 SCC 697 ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 24 place, has to be struck down as an anathema to the rule of law and the provisions of the Constitution.
34. We endorse the view of the High Court that notwithstanding .
the provisions relating to the Arbitration Clause contained in the agreement, the High Court was fully within its competence to entertain and dispose of the Writ Petition filed on behalf of the Respondent Company. We, therefore, see no reason to interfere with the views expressed by the High Court on the maintainability of the Writ Petition and also on its merits."
Uttar Pradesh Power Transmission Corporation Limited and Another Vs. CG Power and Industrial Solutions Limited and Another3 reiterates that existence of an arbitration clause does not debar the court from entertaining a writ petition in an appropriate case. Relevant paragraphs are as under:-
"66. Even though there is an arbitration clause, the Petitioner herein has not opposed the writ petition on the ground of existence of an arbitration clause. There is no whisper of any arbitration agreement in the Counter Affidavit filed by UPPTCL to the writ petition in the High Court. In any case, the existence of an arbitration clause does not debar the court from entertaining a writ petition.
67. It is well settled that availability of an alternative remedy does not prohibit the High Court from entertaining a writ petition in an appropriate case. The High Court may entertain a writ petition, notwithstanding the availability of an alternative remedy, particularly (1) where the writ petition seeks enforcement of a fundamental right;
(ii) where there is failure of principles of natural justice or (iii) where the impugned orders or proceedings are wholly without jurisdiction or
(iv) the vires of an Act is under challenge. Reference may be made to Whirlpool Corporation v Registrar of Trade Marks, Mumbai and Ors.3
(2021) 6 SCC 15 ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 25 reported in AIR 1999 SC 22 and Pimpri Chinchwad Municipal Corporation and Ors. V. Gayatri Construction Company and Ors, reported in (2008) 8 SCC 172, cited on behalf of Respondent No.1.
.
68. In Harbanslal Sahnia and Ors. v. Indian Oil Corporation Ltd.
reported in (2003) 2 SCC 107, this Court allowed the appeal from an order of the High Court dismissing a writ petition and set aside the impugned judgment of the High Court as also the impugned order of the Indian Oil Corporation terminating the dealership of the Appellants, notwithstanding the fact that the dealership agreement contained an arbitration clause.
69. It is now well settled by a plethora of decisions of this Court that relief under Article 226 of the Constitution of India may be granted in a case arising out of contract. However, the writ jurisdiction under Article 226, being discretionary, the High Courts usually refrain from entertaining a writ petition which involves adjudication of disputed questions of fact which may require analysis of evidence of witnesses. Monetary relief can also be granted in a writ petition.
70. In this case, the action of UPPTCL in forcibly extracting building cess from the Respondent No.1 in respect of the first contract, solely on the basis of the CAG report, is in excess of power conferred on UPPTCL by law or in terms of the contract. In other words, UPPTCL has no power and authority and or jurisdiction to realize labour cess under the Cess Act in respect of the first contract by withholding dues in respect of other contracts and/or invoking a performance guarantee. There is no legal infirmity in the finding of the High Court that UPPTCL acted in excess of power by its acts impugned, when there was admittedly no assessment or levy of cess under the Cess Act."
Unitech Limited & Ors Vs. Telangana State Industrial Infrastructure Corporation & Ors4., held 'it is well settled that jurisdiction under Article 226 cannot be ousted only on the basis that 4 2021 (2) SCALE 653 ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 26 the dispute pertains to contractual arena. This is for simple reason that the State and its instrumentalities are not exempt from the duty .
to act fairly merely because in their business dealings they have entered into realm of contract. Presence of an arbitration clause does not oust the jurisdiction under Article 226 in cases though it still needs to be decided from case to case as to whether recourse to a public law remedy can justifiably be invoked.' In the background of above legal position and taking into consideration the dispute involved in the case, we hold that writ petition is maintainable.
4(ii) It is an undisputed fact that in the IA dated 18.11.1999, the petitioner had agreed to supply 12% of its generated power free of cost to the State for 12 years from the COD and at 18% for next 28 years, life of agreement being 40 years.
Supplementary Implementation Agreements have been executed between the petitioner and the State on 28.05.2001 (for extending date of commencement of construction of KW-HEP), 20.12.2007 (for amending definition of Scheduled Commercial Operation Date) and 21.10.2019 (for changing name of project proponent from Himachal Baspa Power Company Ltd to JSW ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 27 Hydro Energy Ltd.). Execution of another Supplementary Implementation Agreement was necessitated on 08.07.2021 .
consequent upon increase of installed capacity from 1000 MW to 1045 MW in first stage and 1091 MW in the second stage, whereunder in view of policy guidelines of the State issued on 07.07.2012, the petitioner agreed to provide additional free power at 3% of deliverable energy on capacity increased beyond the allotted capacity. r 4(iii) The Implementation Agreement dated 18.11.1999 is the basic document obligating the petitioner to supply free power in terms thereof. Article 9 of this agreement states that "the right and obligations of the Parties under or pursuant to this Agreement shall be governed by and construed according to Law. This agreement shall be subject to the jurisdiction of the competent courts of Himachal Pradesh". 'Law' in the Implementation Agreement has been defined to mean 'any act, rule, regulation, notification,order or instruction having the force of Law enacted or issued by any competent legislature, Government or statutory authority in India'. It is evident from the record that no Tariff Regulations were in place at the time of execution of the Implementation Agreement. The ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 28 Electricity Act, 2003 had not been enacted by that time. The Electricity Act (the Act in short) came into force on 10.06.2003.
.
Some relevant provisions of the Act are being referred to hereinafter:-
"Generating company" is defined under
"Section 2(28) of the Act as under:-
"2. Definitions
(28) "generating company" means any company or body corporate or association or body of individuals, whether incorporated or not, or artificial juridical person, which owns or operates or maintains a rgenerating station;
The petitioner is a generating company within the meaning of above section.
Section 2(39) defines "licensee" as a person, who has been granted a licence under Section 14". Section 14 is about grant of transmission, distribution and trading licensees by the Appropriate Commission. Third proviso to this sub section states that in case an appropriate Government transmits or distributes or undertakes trading in electricity, such Government shall be deemed to be a licensee under the Act, but shall not be required ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 29 to obtain a license. Respondent No.1 is a deemed licensee under the Act.
.
Constitution of Central Electricity Regulatory Commission (CERC) is provided under Section 76 for exercising the powers conferred on, and for discharging the functions assigned to it, under the Act. Section 79 enumerates several functions of CERC and reads as under:-
r " Section 79. (Functions of Central Commission): - (1) The Central Commission shall discharge the following functions, namely:-
(a) to regulate the tariff of generating companies owned or controlled by the Central Government;
(b) to regulate the tariff of generating companies other than those owned or controlled by the Central Government specified in clause
(a), if such generating companies enter into or otherwise have a composite scheme for generation and sale of electricity in more than one State;
(c) to regulate the inter-State transmission of electricity ;
(d) to determine tariff for inter-State transmission of electricity;
(e) to issue licenses to persons to function as transmission licensee and electricity trader with respect to their inter-State operations;
(f) to adjudicate upon disputes involving generating companies or transmission licensee in regard to matters connected with clauses (a) to (d) above and to refer any dispute for arbitration;
(g) to levy fees for the purposes of this Act;
(h) to specify Grid Code having regard to Grid Standards;
(i) to specify and enforce the standards with respect to quality, continuity and reliability of service by licensees;
(j) to fix the trading margin in the inter-State trading of electricity, if considered, necessary;::: Downloaded on - 28/05/2024 20:34:30 :::CIS 30
(k) to discharge such other functions as may be assigned under this Act."
(2) The Central Commission shall advise the Central Government on all or any of the following matters, namely:-
.
(i) formulation of National electricity Policy and tariff policy;
(ii) promotion of competition, efficiency and economy in activities of the electricity industry;
(iii) promotion of investment in electricity industry;
(iv) any other matter referred to the Central Commission by that Government.
(3) The Central Commission shall ensure transparency while exercising its powers and discharging its functions.
(4) In discharge of its functions, the Central Commission shall be guided by the National Electricity Policy, National Electricity Plan and tariff policy published under section 3.
The functions of CERC include regulating tariff of generating companies and adjudicating disputes involving generating companies or transmission licensees in regard to matters connected with Clauses (a) to (d) of Section 79(1).
Section 61 enables the Appropriate Commission (in this case the CERC) to specify the terms and conditions for determining the tariff subject to the provisions of the Act and guiding factors as under:-
"Section 61. (Tariff regulations): The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following, namely:-::: Downloaded on - 28/05/2024 20:34:30 :::CIS 31
(a) the principles and methodologies specified by the Central Commission for determination of the tariff applicable to generating companies and transmission licensees;
(b) the generation, transmission, distribution and supply of electricity .
are conducted on commercial principles;
(c) the factors which would encourage competition, efficiency, economical use of the resources, good performance and optimum investments;
(d) safeguarding of consumers' interest and at the same time, recovery of the cost of electricity in a reasonable manner;
(e) the principles rewarding efficiency in performance;
(f) multi year tariff principles;
(g) that the tariff progressively reflects the cost of supply of electricity and also, reduces cross-subsidies in the manner specified by the Appropriate Commission;
r (h) the promotion of co-generation and generation of electricity from renewable sources of energy;
(i) the National Electricity Policy and tariff policy:
Provided that the terms and conditions for determination of tariff under the Electricity (Supply) Act, 1948, the Electricity Regulatory Commission Act, 1998 and the enactments specified in the Schedule as they stood immediately before the appointed date, shall continue to apply for a period of one year or until the terms and conditions for tariff are specified under this section, whichever is earlier.
Mechanism for determining tariff by Appropriate Commission is given in Section 62. Sub-section 4 thereof states that no tariff or part thereof will ordinarily be amended more frequently than once in any financial year, except in respect of changes expressly permitted under the terms of any specified fuel surcharge formula.
Section 64 lays down the procedure for determining ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 32 tariff on the application of a generating company or licensee as under:-
.
"Section 64. (Procedure for tariff order): --- (1) An application for determination of tariff under section 62 shall be made by a generating company or licensee in such manner and accompanied by such fee, as may be determined by regulations.
(2) Every applicant shall publish the application, in such abridged form and manner, as may be specified by the Appropriate Commission. (3) The Appropriate Commission shall, within one hundred and twenty days from receipt of an application under sub-section (1) and after considering all suggestions and objections received from the public,-
(a) issue a tariff order accepting the application with such modifications or such conditions as may be specified in that order;
(b) reject the application for reasons to be recorded in writing if such application is not in accordance with the provisions of this Act and the rules and regulations made thereunder or the provisions of any other law for the time being in force: Provided that an applicant shall be given a reasonable opportunity of being heard before rejecting his application. (4) The Appropriate Commission shall, within seven days of making the order, send a copy of the order to the Appropriate Government, the Authority, and the concerned licensees and to the person concerned.
(5) Notwithstanding anything contained in Part X, the tariff for any interState supply, transmission or wheeling of electricity, as the case may be, involving the territories of two States may, upon application made to it by the parties intending to undertake such supply, transmission or wheeling, be determined under this section by the State Commission having jurisdiction in respect of the licensee who intends to distribute electricity and make payment therefor. (6) A tariff order shall, unless amended or revoked, continue to be in force for such period as may be specified in the tariff order."::: Downloaded on - 28/05/2024 20:34:30 :::CIS 33
Section 178 empowers the CERC to make regulations & rules consistent with the Act to carry out .
the provisions of the Act and reads as under:-
"Section 178. (Powers of Central Commission to make regulations): ---
(1) The Central Commission may, by notification make regulations consistent with this Act and the rules generally to carry out the provisions of this Act."
Section 179 of the Act mandates that rules and regulations made by the CERC are to be laid before each house of the parliament. If both houses agree in making any modification in the rules or regulations or agree that rules or regulations should not be made, the rules or regulations shall thereafter have effect only in such modified form or be of no effect as the case may be. The Section reads as under:-
" Section 179. (Rules and regulations to be laid before Parliament): Every rule made by the Central Government, every regulation made by the Authority, and every regulation made by the Central Commission shall be laid, as soon as may be after it is made, before each House of the Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or regulation or agree that the rule or regulation should not be made, the rule or regulation ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 34 shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the .
validity of anything previously done under that rule or regulation."
4(iv) The CERC has been framing Tariff Regulations after coming into force of the Electricity Act, 2003. The CERC framed Tariff Regulations 2004 for the period 2004-09. These regulations provided for saleable energy for hydro projects as "the quantum of primary energy available for sale (ex-bus) after allowing 12% free energy to the home State."
In the CERC Tariff Regulations 2009-2014 'free energy' was taken as 13% which was also to include energy corresponding to 100 units of electricity to be provided free of cost.
Under the CERC Tariff Regulations 2014-19, free energy for home Sate was taken as 13% or actual whichever was less.
The CERC Tariff Regulations 2019-24, have retained 'the free energy' provision as it existed in Tariff Regulations 2014-19 i.e. 13% or actual whichever is less [provision extracted in para 2(v)
(a) above].
::: Downloaded on - 28/05/2024 20:34:30 :::CIS 354(v) Petitioner in terms of the Implementation Agreement was to supply 12% free power for 12 years from the COD i.e. till .
13.09.2023. This extent of power to be supplied free of cost as per provision in the Implementation Agreement matched with free power supply provision in the CERC Tariff Regulations as they existed at the relevant time. Petitioner apparently faced no difficulty in supplying 12% free power as the supplied energy was duly credited for and taken into account for determining petitioner's tariff upto 13.09.2023.
4(v)(a) Anticipating that difficulties about the quantum of free supply of power may arise at the end of 12 years period from COD keeping in view the Tariff Regulations 2014-2019, the petitioner in its tariff determination application for the period 2014-2019 requested the CERC to look into this issue as well while determining the tariff for next 5 years i.e. 2014-2019. The CERC in its order dated 30.03.2017 held that though free energy to home State was limited to 13% but the period, when the petitioner was supposed to supply more than 13% free power, would commence beyond the period covered under 2014-2019 Tariff Regulations i.e. after 13.09.2023. Hence the CERC observed that the grievance sought to ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 36 be raised by the petitioner was not necessary to be dealt with at that stage and further that the said issue would be considered as and when .
the situation will arise in future in accordance with prevailing regulations.
4(v)(b) Next Tariff Regulations were framed in 2019 covering the period upto 2023. This time zone included the period, where it was expected of the petitioner under the agreements to supply 18% free power to the home State.
r The petitioner in its fresh tariff determination application under the CERC Tariff Regulations 2019- 2024 again raised the issue that while determining its tariff, 18% free power to be supplied by it in terms of Implementation Agreement executed between it & the State, the PPA entered into between it & PTC India Ltd (respondent No.4) and the PSAs executed between respondent No.4 & distribution licensees (respondent No.5-10) be also accounted for. The CERC in its order dated 17.03.2022 held that:- the Tariff Regulations 2019 will override the existing contracts with respect to supply of free power; The Tariff Regulations 2019 cap the free power to the home State at 13%; Therefore maximum 13% free power as stipulated in Tariff Regulations 2019 can be considered for determining the tariff; Free energy to home State is be ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 37 considered as 13%. The PPA and PSAs executed between the petitioner & respondent No.4, and between respondent No.4 & .
respondents No.5-10 respectively, in respect of free power to the home State @18% after 12 years of COD were held 'inconsistent and overridden by Tariff Regulations 2019'. Meaning thereby that the same were ordered to be aligned with free power provisions in the Tariff Regulations 2019. The operative part of the order is as follows:- r "147. Thus, the provisions of the PPA/PSAs executed by the Petitioner in respect of free power to the home State is inconsistent and shall accordingly stand overridden by Note 3 under Regulation 55 of the 2019 Tariff Regulations. We, therefore, find no reason to exercise the power to relax and grant relief, as prayed for by the Petitioner.
Accordingly, the free energy to home state is to be considered as 13% in this case."
4(vi) State's contention is that in the petition preferred before the CERC, only tariff was required to be determined for the project and it was only towards determining the tariff that free supply power was taken at 13% and, therefore, no inference should be deduced from the order passed by the CERC that free power supply to the State cannot be more than 13%.
The interpretation by the State of the CERC order dated 17.03.2022 is only self serving. Tariff of electricity was to be ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 38 determined by the CERC under the applicable Tariff Regulations.
Petitioner had moved the CERC for determining the tariff under the .
applicable Tariff Regulations 2019-2024. Petitioner's case inter alia was that 12% free power being supplied by it had been accounted for while determining tariff for the previous years but w.e.f. 13.09.2023, it was to supply 18% free power to the home State for next 28 years;
This 18% power should be considered while determining its tariff.
The CERC held that Tariff Regulations 2019-2024 provide for supplying free power maximum at 13%. The contentions of PTC India Ltd. (Respondent No.4) that the petitioner was fully aware about the extent of free power it was to supply under the agreements;
Petitioner had executed agreements in that regard not only with the State but also with respondent No.4; The PPA executed by the petitioner with respondent No.4 and on that basis the PSAs entered into between respondent No.4 for onwards sale with respondents No.5-10 wherein free power was mentioned at 18% after 12 years of COD till next 28 years, were also considered by the CERC. The CERC held that tariff regulations had been framed in exercise of powers under the statute, the Electricity Act; In terms of judicial pronouncements the statutory regulations will encroach upon the ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 39 existing contracts executed between the parties having covenants contrary to the provisions of Tariff Regulations; Such covenants to .
the extent, they are contrary to the Tariff Regulations shall stand overridden in terms of the Regulations. The CERC specifically held that PPA and PSAs executed between the petitioner & respondent No.4, and between respondent No.4 & respondents No.5-10 respectively in respect of free power supply to the home State are inconsistent with Tariff Regulations 2019-24 and shall stand overridden by the Tariff Regulations on the issue of supply of free power.
The order passed by the CERC has direct bearing on supply of free power by the petitioner to the State. The State, a respondent before CERC had not contested the case. Free power to State was held therein capped at 13% maximum. This capping was not just for determining the tariff but is relevant for every other incidental & connected purpose as well. The PPA & PSAs having the same provisions on free power supply as are there in IA & SIAs, have been ordered by the CERC to be overridden/aligned on the aspect of supply of free power with Tariff Regulations 2019-24. The respondent-State has accepted the CERC order dated 17.03.2022.
::: Downloaded on - 28/05/2024 20:34:30 :::CIS 40The petitioner is well within its right to claim aligning of the agreement executed by it with the State on the issue of supply of free .
power on the basis of CERC order, which in turn had made the CERC Tariff Regulations 2019-2024 as the foundation for holding that free power supply to State is capped at 13% maximum and therefore contrary provisions in the PPA & PSAs shall stand overridden by/required to be aligned with the Tariff Regulations 2019. It is a fact that PPA & PSAs have provisions of free power supply as are there in the Implementation Agreement. The CERC has already ordered that provisions of free power supply in PPA & PSAs shall stand overridden by Tariff Regulations 2019. That being so, there cannot be any mismatch in supply of free electricity and sale & purchase of remaining electricity. The consequence of State's acceptance of CERC order is that provisions of free power supply existing in Implementation Agreement executed by it with the petitioner, are required to be aligned with CERC Tariff Regulations 2019.
4(vii) The CERC Tariff Regulations 2019-2024 undoubtedly cap supply of free power at 13% maximum. The CERC has already held that Tariff Regulations 2019-2024 have binding force and will ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 41 make inroads in the agreements executed between the parties. It has also been held that contrary provisions in the PPA & PSAs on supply .
of free power shall stand overridden by the Regulations. The order has not been assailed any further. Next contention of the State is that Tariff Regulations 2019-2024 will not make inroads in existing contracts on the issue of free power. Strong reliance in support of this argument has been placed upon (Haryana Power Purchase Centre vs. Sasan Power Limited & Ors.)5.
4(vii)(a) Before adverting to Sasan Power's case5, it will be in order to first refer to PTC India Ltd. Vs. Central Electricity Regulatory Commission,6. It was a case where the CERC had issued CERC (Fixation of Trading Margin) Regulations 2006 whereunder ceiling of trading margin for inter-state trading of electricity was fixed. The validity of these regulations were challenged inter alia on the ground that CERC could cap trading margin by issuing an order under Section 79(1) (j) of the Electricity Act, 2003, but not by issuing Regulations under Section 178. The appellate-Tribunal rejected the appeal on the ground that it did not have jurisdiction to examine the validity of the regulations. Against this decision, appeal 5 2024(1) SCC 247 6 (2010) 4 SCC 603 ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 42 was preferred before the Hon'ble Apex Court. Dismissing the appeal, the Apex Court held that:-
.
"In the hierarchy of regulatory powers and functions"
under the Act, Section 178 deals with making of regulations by the CERC under authority of subordinate legislation. This power is wider than Section 79(1) of the Act. There was reason as to why the regulations had been made in the matter of capping margin under Section 178 of the Act. Instead of fixing trading margin including capping on case to case basis, the CERC thought it fit to make regulations on general application to the entire trading activity, which had been recognized for the first time under the Act. Making regulations under Section 178 became necessary because such regulations have the affect of interfering and overriding existing contractual relationships between regulated entities. Regulations under Section 178 are in the nature of subordinate legislation. Such subordinate legislation can even override existing contracts including power purchase agreements, which have got to be aligned with regulations under Section 178 and which could not have been done across the board by an order of CERC under Section 79(1)(j). A regulation under Section 178 as part of regulatory frame work ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 43 intervenes and overrides existing contracts inasmuch as it casts a statutory obligation on regulated entities to align their existing & .
future contracts with the said regulation applying the principle of 'generality versus enumeration'. It was also held that CERC is a decision as well as regulation making authority simultaneously.
Section 79 delineates functions of CERC broadly into two categories- mandatory functions and advisory functions. Tariff Regulations, licensing including r inter-state trading licensing, adjudication upon disputes involving generating companies or transmission licensees fall under the head 'mandatory functions', whereas advising Central Government on formulation of National Electricity Policy and Tariff Policy would fall under the head 'advisory functions'. In this sense, the CERC is a decision making authority. Such decision making under Section 79(1) is not dependent upon making of regulations by the CERC under Section
178. The functions of CERC enumerated in Section 79 are separate and distinct from the functions of CERC under Section 178.
Functions under Section 79 are administrative/adjudicatory, whereas those under Section 178 are legislative. Making of a regulation under Section 178 is not a pre-condition to passing of an order under ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 44 Section 79, however, if there is a regulation under Section 178 on a particular subject then the order on that subject under Section 79 has .
to be in consonance with such regulation. Under the Act, applying the test of general application, a regulation stands on a higher pedestal vis-a-vis an order (decision) of CERC, since the order has to be in-conformity with the regulation, however, this does not mean that a regulation is a pre-condition to the passing of order (decision).
Relevant paragraphs from the judgment are extracted hereinafter :-
"53. Applying the abovementioned tests to the scheme of 2003 Act, we find that under the Act, the Central Commission is a decision-making as well as regulation-making authority, simultaneously. Section 79 delineates the functions of the Central Commission broadly into two categories - mandatory functions and advisory functions. Tariff regulation, licensing (including inter-State trading licensing), adjudication upon disputes involving generating companies or transmission licensees fall under the head "mandatory functions"
whereas advising Central Government on formulation of National Electricity Policy and tariff policy would fall under the head "advisory functions". In this sense, the Central Commission is the decision- making authority. Such decision-making under Section 79(1) is not dependant upon making of regulations under Section 178 by the Central Commission. Therefore, functions of Central Commission enumerated in Section 79 are separate and distinct from function of Central Commission under Section 178. The former is administrative/adjudicatory function whereas the latter are legislative.
54. As stated above, the 2003 Act has been enacted in furtherance of the policy envisaged under the Electricity Regulatory Commissions Act, 1998 as it mandates establishment of an independent and transparent Regulatory Commission entrusted with wide ranging ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 45 responsibilities and objectives inter alia including protection of the consumers of electricity. Accordingly, the Central Commission is set up under Section 76(1) to exercise the powers conferred on, and in .
discharge of the functions assigned to, it under the Act. On reading Sections 76(1) and 79(1) one finds that Central Commission is empowered to take measures/steps in discharge of the functions enumerated in Section 79(1) like to regulate the tariff of generating companies, to regulate the inter-State transmission of electricity, to determine tariff for inter-State transmission of electricity, to issue licenses, to adjudicate upon disputes, to levy fees, to specify the Grid Code, to fix the trading margin in inter-State trading of electricity, if considered necessary, etc.. These measures, which the Central Commission is empowered to take, have got to be in conformity with the regulations under Section 178, wherever such regulations are applicable. Measures under Section 79(1), therefore, have got to be in conformity with the regulations under Section 178.
55. To regulate is an exercise which is different from making of the regulations. However, making of a regulation under Section 178 is not a pre-condition to the Central Commission taking any steps/measures under Section 79(1). As stated, if there is a regulation, then the measure under Section 79(1) has to be in conformity with such regulation under Section 178. This principle flows from various judgments of this Court which we have discussed hereinafter. For example, under Section 79(1)(g) the Central Commission is required to levy fees for the purpose of the 2003 Act. An Order imposing regulatory fees could be passed even in the absence of a regulation under Section 178. If the levy is unreasonable, it could be the subject matter of challenge before the Appellate Authority under Section 111 as the levy is imposed by an Order/decision making process. Making of a regulation under Section 178 is not a pre-condition to passing of an Order levying a regulatory fee under Section 79(1)(g). However, if there is a regulation under Section 178 in that regard then the Order levying fees under Section 79(1)(g) has to be in consonance with such regulation.
::: Downloaded on - 28/05/2024 20:34:30 :::CIS 4656. Similarly, while exercising the power to frame the terms and conditions for determination of tariff under Section 178, the Commission has to be guided by the factors specified in Section 61. It .
is open to the Central Commission to specify terms and conditions for determination of tariff even in the absence of the regulations under Section 178. However, if a regulation is made under Section 178, then, in that event, framing of terms and conditions for determination of tariff under Section 61 has to be in consonance with the regulation under Section 178.
57. One must keep in mind the dichotomy between the power to make a regulation under Section 178 on one hand and the various enumerated areas in Section 79(1) in which the Central Commission is mandated to take such measures as it deems fit to fulfil the objects of the 2003 Act. Applying this test to the present controversy, it becomes clear that one such area enumerated in Section 79(1) refers to fixation of trading margin. Making of a regulation in that regard is not a pre- condition to the Central Commission exercising its powers to fix a trading margin under Section 79(1)(j), however, if the Central Commission in an appropriate case, as is the case herein, makes a regulation fixing a cap on the trading margin under Section 178 then whatever measures a Central Commission takes under Section 79(1)(j) has to be in conformity with Section 178.
58. One must understand the reason why a regulation has been made in the matter of capping the trading margin under Section 178 of the Act. Instead of fixing a trading margin (including capping) on a case to case basis, the Central Commission thought it fit to make a regulation which has a general application to the entire trading activity which has been recognized, for the first time, under the 2003 Act. Further, it is important to bear in mind that making of a regulation under Section 178 became necessary because a regulation made under Section 178 has the effect of interfering and overriding the existing contractual relationship between the regulated entities. A regulation under Section 178 is in the nature of a subordinate Legislation. Such ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 47 subordinate Legislation can even override the existing contracts including Power Purchase Agreements which have got to be aligned with the regulations under Section 178 and which could not have been .
done across the board by an Order of the Central Commission under Section 79(1)(j).
59. To elucidate, we may refer to the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004. The said Regulations have been made under Section 178 of the 2003 Act. Regulation 15 deals with various components of tariff. It includes Advance Against Depreciation ("AAD" for short). Regulations 21(1)(ii) and 38(ii) deal with computation of depreciation including AAD.
60. r Recently, this concept of AAD came for consideration before this Court in the case of National Hydroelectric Power Corporation Ltd. v. CIT reported in 2010 (1) SCALE 5. AAD was suggested by the Central Commission as part of the tariff in order to overcome the cash flow problems faced by Central Power Sector Utilities for meeting loan repayment obligations. The important point to be noted is that although under Section 61 of the 2003 Act the Central Commission is empowered to specify AAD as a condition for determination of the tariff, the Central Commission in its wisdom thought it fit to bring in the concept of AAD by enacting a regulation under Section 178 giving the benefit of AAD across the board to all Central Power Sector Utilities. In other words, instead of giving the benefit of AAD on a case to case basis under Section 61, the Central Commission decided to make a specific regulation giving benefit of AAD across the board to all Central Power Sector Utilities.
61 to 91................
92.Summary of Our Findings:
(i) In the hierarchy of regulatory powers and functions under the 2003 Act, Section 178, which deals with making of regulations by the ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 48 Central Commission, under the authority of subordinate legislation, is wider than Section 79(1) of the 2003 Act, which enumerates the regulatory functions of the Central Commission, in specified areas, to .
be discharged by Orders (decisions).
(ii) A regulation under Section 178, as a part of regulatory framework, intervenes and even overrides the existing contracts between the regulated entities inasmuch as it casts a statutory obligation on the regulated entities to align their existing and future contracts with the said regulations.
(iii) A regulation under Section 178 is made under the authority of delegated legislation and consequently its validity can be tested only in judicial review proceedings before the courts and not by way of appeal before the Appellate Tribunal for Electricity under Section 111 of the said Act.
(iv) Section 121 of the 2003 Act does not confer power of judicial review on the Appellate Tribunal. The words "orders", "instructions" or "directions" in Section 121 do not confer power of judicial review in the Appellate Tribunal for Electricity. In this judgment, we do not wish to analyse the English authorities as we find from those authorities that in certain cases in England the power of judicial review is expressly conferred on the Tribunals constituted under the Act.In the present 2003 Act, the power of judicial review of the validity of the Regulations made under Section 178 is not conferred on the Appellate Tribunal for Electricity.
(v) If a dispute arises in adjudication on interpretation of a regulation made under Section 178, an appeal would certainly lie before the Appellate Tribunal under Section 111, however, no appeal to the Appellate Tribunal shall lie on the validity of a regulation made under Section 178.
(vi) Applying the principle of "generality versus enumeration", it would be open to the Central Commission to make a regulation on any residuary item under Section 178(1) read with Section 178(2)(ze). Accordingly, we hold that the CERC was empowered to cap the trading ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 49 margin under the authority of delegated legislation under Section 178 vide the impugned notification dated 23.1.2006.
(vii) Section 121, as amended by Electricity (Amendment) Act 57 of .
2003, came into force with effect from 27.1.2004. Consequently, there is no merit in the contention advanced that the said section is not yet been brought into force."
4(vii)(b) State's contention that Tariff Regulations 2019-24, wherein free power supply is capped at 13% maximum for the period 2019-2024, cannot override existing contracts, has no force in view of the decision in PTC India Limited's case6.
The reliance placed by the State on Sasan's case5 in misplaced. In that case the PPA contemplated a situation, where if seller was affected by the change in law, it could claim for such change. Change of law was sought to be projected by respondent No.1 (therein) under a notification issued by the Joint Secretary Ministry of Power (respondent No.2 therein).
The Hon'ble Apex Court considered the law laid down in PTC India's Limited6 and observed that the said judgment was not applicable to the facts of the case under consideration. It was held that power of CERC to frame regulation indicates that it has legislative functions but no such regulations or legislative functions were involved in that case. The case involved purely adjudicatory ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 50 function of the CERC. The Court said that in exercise of adjudicatory functions in a case where the CERC was governed by .
express terms of contract, it may not be open to the commission even donning the role of regulatory body to go beyond the express terms of contract. The word "regulatory body" used for CERC was in relation to its power to regulate under Section 79 of the Act in contrast to its separate power to frame regulations under Section 179 of the Act. The Court emphasized that a party can be extricated from its contractual obligations by regulations but in the course of adjudicatory power, it was not open for CERC to disregard the terms of the contract. Relevant paragraphs from the judgments read as under:-
"94 Reliance was placed on the judgment of this Court PTC India Limited v. Central Electricity Regulatory Commission (2010) 4 SCC
603. In PTC, the actual question which arose was as to whether the appellate Tribunal under the Act has jurisdiction under Section 111 to examine the validity of regulations framed in exercise of power under Section 178 of the Act. The further question which arose was whether Parliament has conferred power of judicial review on the Tribunal under Section 121 of the Act. In the course of this judgment, the Court inter alia held as follows:
"53.-----------------------------------
95. We are unable to see how the said judgment can advance the case of the first respondent. The question which fell for consideration and the opinion which has been rendered do not in any way detract ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 51 from the view which we have taken. Substantially, it was held that the making of regulation was not a pre condition for levying a regulatory fee under Section 79(1)(g). It is no doubt true that Commission has an .
adjudicatory function. It is also empowered to give opinions. Power to frame regulations indicates that it also has legislative powers. The point is that since in this case we are concerned with the adjudicatory function of the Commission, we are concerned with the trammels to which it is subject in the form of the express terms of the contract. All that we are holding is that in a case where the matter is governed by express terms of the contract, it may not be open to the Commission even donning the garb of a regulatory body to go beyond the express terms of the contract. It is apposite that we notice para 58 reads as follows:
"58. ------------------
96 While it may be open as indicated therein for a regulation to extricate a party from its contractual obligations, in the course of its adjudicatory power it may not be open to the Commission by using the nomenclature regulation to usurp this power to disregard the terms of the contract."
Principle that statutory regulations will have supremacy over the contracts executed between the regulated entities, was reiterated in Sason's case5 as well. Facts in Sason's case5, however, differed from the facts in PTC India Ltd's case6. Statutory regulations under Section 178 of the Act were not involved in Sason's case5.
Only adjudicating functions discharged by the CERC under Section 79 were under consideration. In that background, it was held that in ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 52 exercise of adjudication functions, contractual liabilities cannot be ignored.
.
Sason's case5 has no applicability to the facts of instant case, where the CERC has framed Tariff Regulations 2019-24 in exercise of its legislative power under Section 178 of the Act. The Tariff Regulations 2019-2024 will certainly make their way into the contracts executed between the parties. The provisions in the contracts covered by the Regulations on the subject in question will have to be aligned with the provisions in the Regulations.
5. Conclusions 5A. In view of above discussion, following conclusions are drawn on facts & law:-
i) Under the Implementation Agreement dated 18.11.1999 & subsequent Supplementary Implementation Agreements executed between the petitioner & respondent No.1-the State, petitioner has agreed to supply 12% free power to the State for 12 years from the Commercial Operation Date (13.9.2011) and 18% for next 28 years, project life being 40 years.
ii) Based upon terms of 'free power' in the Implementation Agreement, the Power Purchase Agreement (PPA) executed between ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 53 the petitioner & respondent No.4 as also the Power Sale Agreements (PSAs) executed between respondent No.4 & distribution licensees .
of States of Punjab, Haryana, Uttar Pradesh & Rajasthan (respondents No.5-10) have engrafted same covenants about power to be supplied by the petitioner including free supply of power as are there in the Implementation Agreement entered into between the petitioner & the State.
iii) Petitioner has already supplied 12% free power to the State from the COD for 12 years in terms of the agreement. Quantum of this free power was within the ambit of the extent of free power mentioned in different Tariff Regulations applicable at the time.
iv) The Electricity Act came into force on 10.06.2003.
Under the Act, the Central Electricity Regulatory Commission (CERC) is the Appropriate Commission in case of petitioner's project.
v) The CERC has jurisdiction under the Act to perform adjudicatory/administrative/advisory functions under Section 79 of the Act. Its function to regulate tariff & other matters specified in Section 79 is different from its power to frame regulations under Section 178 of the Act. The latter is legislative power of the CERC.
::: Downloaded on - 28/05/2024 20:34:30 :::CIS 54Framing of regulations under Section 178 is a generative legislative function as compared to specific action of passing orders in .
individuals cases. The regulations framed by the CERC are in exercise of subordinate legislative power conferred upon it under Section 178 of the Act. The CERC Regulations framed under Section 178 of the Act will override the existing and future contracts on the subject covered by the regulations.
vi) The Tariff Regulations are being framed by the CERC from time to time, inter-alia defining the concept & extent of power that can be supplied free of cost by the generating company and which is to be factored while determining the tariff of the project.
Under the CERC Tariff Regulations 2004 (covering the period 2004- 2009), the quantum of saleable energy was after allowing 12% free energy to the home State. Under the CERC Regulations 2009 (applicable during 2009-2014), the free energy for home State was taken as 12%. Under CERC Tariff Regulations 2014 (for period 2014-2019), the free energy for home State was 13% or actual whichever was less. Under the CERC Tariff Regulations 2019 (covering the period 2019-2024), which are involved in the instant case, the free energy for the home State is 13% or actual which is ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 55 less. The CERC Tariff Regulations 2019-2024 will certainly override the covenants in the Implementation Agreement dated 18.11.1999 & .
the Supplementary Implementation Agreements executed between the petitioner & the State whereunder petitioner is to supply 18% free power to the State w.e.f. 13.09.2023, at least till 31.03.2024 i.e. till the duration of applicability of CERC Tariff Regulations 2019- 2024. The provision of free power in CERC Tariff Regulations 2019- 24 will have supremacy over the contrary covenants agreed inter-se between parties.
vii) The Electricity Act is an exhaustive code on all matters concerning electricity. Supply & sale of generated power has to be as per the Electricity Act. Tariff for the power generated and sold is also governed by the Electricity Act. It is not the case of the State that before coming into force of 2003 Act, there was any restriction on quantum of free power to be considered for determining tariff or in other words at the time of execution of the IA on 18.11.1999, there was no restriction that only 12% free power could be considered for determining tariff and free power supplied over & above 12% was not to be accounted for, in tariff determination. This change in law-
for determining tariff was brought about by Tariff Regulations ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 56 notified under the Act that came in force from 10.06.2003. Petitioner was affected by Tariff Regulations 2019-24, as per which free energy .
to home State was capped @13% maximum though under the IA petitioner is to supply 18% free energy. Tariff Regulations are not under challenge. The CERC in its order dated 17.03.2022 has declined to take into account the free energy supplied over & above 13% by the petitioner towards its tariff determination for the reason that it found provisions in the agreements executed between the parties on supply of free power inconsistent with tariff regulations and therefore ordered that PPA (executed between petitioner & respondent No.4) and PSAs (executed between respondent No.4 & respondents No.5-10) on subject of free power supply shall stand overridden by Tariff Regulations 2019. These agreements have same provisions on quantum of free power supply as are there in the IA. In a composite scheme for generation & sale of electricity in more than one State, which is regulated by CERC, a mismatch in free power cannot exist.
Tariff Regulations do not say that free energy for home State shall be taken as 13% maximum only for purpose of determining tariff. In its order dated 30.03.2017, the CERC did not ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 57 hold that free energy was limited to 13% only for purpose of determining tariff rather it was held that 'free energy to home State is .
limited to 13% or actual whichever is less.' This interpretation was given to the free energy clause existing in Tariff Regulations 2014- 19, which is almost pari-materia to the free power provisions existing in Tariff Regulations 2019-24. The CERC order dated 30.03.2017 did not adjudicate the issue finally as petitioner's liability to supply 18% free energy had not commenced by that time during the applicability of Tariff Regulations 2014-19. It was to start w.e.f.
13.09.2023. In its order dated 30.03.2017, besides observing that free energy to home State was limited to 13% or actual whichever was less, the CERC also observed that the respondents in the respective PPA & PSAs, had agreed to enhance free power to home State after 12 years.
The CERC in its order dated 17.03.2023 took cognizance of provisions of IA executed between petitioner & the State regarding supply of 12% free power for 12 years from COD & 18% for 28 years thereafter and also the corresponding provisions of PPA and PSAs. The CERC again held that free energy for home State is to be taken as 13%. Not just for tariff but the PPA & the PSAs ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 58 were ordered to be overridden by Tariff Regulations. As a corollary, the IA has become unworkable. Its provisions therefore are required .
to be aligned with the provisions of Tariff Regulations 2019 on subject of free power.
viii) The CERC in its order dated 17.03.2022 passed in the petition moved by the petitioner seeking determination of its tariff for the year 2019-2024, has already held that free energy to home State cannot be factored more than 13% in the Tariff for the period 2019-24. This was in view of statutory Tariff Regulations 2019-2024.
The extent of energy to be supplied free of cost, as mentioned in the CERC Tariff Regulations 2019, is relevant not just for determining the Tariff but also on broad overview of free power that can be supplied by the petitioner to the home State. Apart from contending that free energy supply is governed by the terms and conditions of the agreements executed between the parties, learned Advocate General has not pointed out any single reason as to why the maximum extent of free energy supply spelt out in the Tariff Regulations 2019 will not make legal inroads into the agreements more so in a situation where the parties (respondents No.4-10) have already accepted aligning of their PPA & PSAs on aspect of free ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 59 power supply with those of Tariff Regulations 2019 in terms of CERC order dated 17.03.2022.
.
ix) In view of the CERC Tariff Regulations 2019; the order passed by the CERC on 17.03.2022; the consequence of CERC order dated 17.03.2022; acceptance of this order by all the parties before the CERC including the State and the judicial precedents on the subject, the petitioner can seek to align the agreements previously executed by it vis-a-vis the quantum of 'free power' to be supplied by it to the State with the CERC Tariff Regulations 2019. Petitioner's prayer has merits. The CERC in its order dated 17.03.2022 has already held that provisions existing in the PPA and PSAs relating to petitioner's project on supply of 18% free supply of power are contrary to the CERC Tariff Regulations 2019 and that Tariff Regulations 2019 will override contrary provisions existing in the agreements executed on the subject of free power. It has held that the PPA and the PSAs executed in reference to petitioner's power shall stand overridden with the Tariff Regulations 2019. The State has also accepted the verdict. The order has become final. There is no reason as to why the Implementation Agreement dated 18.11.1999 & subsequent SIAs executed by the petitioner with the State be not ::: Downloaded on - 28/05/2024 20:34:30 :::CIS 60 aligned on the quantum of free power with the provisions stipulated in the CERC Tariff Regulations 2019-2024.
.
x) In view of nature of dispute raised in this petition, existence of arbitration clause in the Implementation Agreement will not debar petitioner's invoking jurisdiction under Article 226 of the Constitution of India.
5(B) The Result:
i) The writ petition is allowed. Respondents No.1 to 3 are
directed to align the provisions of the Implementation Agreement dated 18.11.1999 & subsequent Supplementary Implementation Agreements executed by them with the petitioner in respect of quantum of free power to be supplied by the petitioner from KW-
HEP, with the provisions on supply of free power in the CERC (Terms and Conditions of Tariff) Regulations 2019 for the period in question till Tariff Regulations 2019 remain in force.
ii) In view of above, the power, if any, supplied to the home State by the petitioner over & above the maximum ceiling limit put in place under the CERC Tariff Regulations 2019 for the period in question, shall be adjusted accordingly.
::: Downloaded on - 28/05/2024 20:34:30 :::CIS 61The instant writ petition is disposed of as above.
Pending miscellaneous applications, if any, shall also stand disposed .
of.
( M.S. Ramachandra Rao ) Chief Justice (Jyotsna Rewal Dua) Judge May 28, 2024 (rohit) ::: Downloaded on - 28/05/2024 20:34:30 :::CIS