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SH View of the Commission regarding purchases made by BSES Rajdhani Power Ltd. and BSES Yamuna Power Ltd. from group company Reliance Energy Ltd. (REL):

38) So far as the disallowance of related party transactions are concerned, the Chairperson and the Member has taken two divergent views:
39) We find that most comprehensive way of giving the view of the Commission which is in fact the view of the Chairperson (dissented by other Member) is to reproduce the relevant part of the Commission's findings.
"1. BSES Rajdhani Power Ltd. (BRPL) and BSES Yamuna Power Ltd. (BYPL) are engaged in Distribution of Electricity at Delhi. These are group companies of Reliance Energy Ltd. (REL) formerly BSES Ltd. During the years 04-05 and 05-06, both BRPL & BYPL made extensive purchases of capital goods from REL at rates considered exorbitant by the Commission, resulting in transfer of substantial funds from these companies to REL by way of profit on sale of the capital goods. The purchases of these materials made by the two companies from REL during 2004-05, as per the trading account of REL, SH EPC Division (copy already furnished to the two companies), were as under:

4. Both the BSES companies submitted similar replies through letters dated 27.07.2006 stating inter alia:

"The Company had taken due care in awarding the contracts on basis of competitive pricing, services, extended warrants etc. therefore, we do not feel that the sister/group companies would have earned anything but a small reasonable margin like any other vendor. However, we are not in a position to provide their profitability figures in this connection as these are not available to us."

13. ...

14. ...

15. ...

16. It is obvious that substantial funds of the two distribution companies have been passed on to REL through purchase of the capital goods at exorbitant prices, giving REL a mark up of about 68% over their purchase price. REL cannot, therefore, be said to SH have earned 'a small reasonable margin like any other vendor' as claimed by the two BSES Companies in their letters dated 27.7.2006, extract from which has been reproduced at Para 4 above.