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Case Title – M/S Sundew Properties Limited vs. Telangana State Electricity Regulatory

Commission & Anr.

Case No. – CIVIL APPEAL NO. 8978/2019

Dated on – 17th May, 2024

Quorum – Hon’ble Mr. Justice Sanjeev Khanna and Hon’ble Mr. Justice Dipankar Datta

Facts of the Case –

In this case, the appellant was designated by the Ministry of Commerce & Industry as a ‘Developer’ under the Special Economic Zones Act, 2005, tasked with establishing a Special Economic Zone unit for IT/ITES in Madhapur, Hyderabad. Later, a Ministry notification added a proviso to the Electricity Act’s section 14(b), granting SEZ developers deemed distribution licensee status. The appellant applied to the Andhra Pradesh Electricity Regulatory Commission, which transferred the matter to the Telangana State Electricity Regulatory Commission after state reorganization. The TSERC, in a February 2016 decision, granted deemed licensee status but required the appellant to infuse Rs. 26.90 crore in additional equity capital by March 31, 2016, under specified rules. APTEL upheld this decision, prompting the appellant to appeal to this Court under section 125 of the Electricity Act, disputing the equity requirement’s imposition.

Issues –

• Whether the designation of an entity as a SEZ developer by the MoCI ipso facto qualifies the entity to be a deemed distribution licensee, obviating the need for an application under section 14 of the Electricity Act?
• Whether regulation 12 of the 2013 Regulations, and by implication rule 3(2) of the 2005 Rules, are applicable to a SEZ developer recognised as a deemed distribution licensee under the proviso to section 14(b) of the Electricity Act read with regulation 13 of the 2013 Regulations?

 

Legal Provisions –

• Section 14(b) of the Electricity Act, 2003
• Regulation 12 and 13 of the Andhra Pradesh Electricity Regulatory Commission (Distribution Licence) Regulations, 2013

 

Contentions of the Appellant –

In this appeal, the appellant challenged the TSERC and APTEL orders on multiple grounds. Firstly, it was argued that under section 14(b) of the Electricity Act, a developer of an SEZ automatically becomes a distribution licensee upon meeting SEZ Act conditions, negating the need for a separate license application. The appellant’s status as a deemed licensee, conferred by the 2010 Notification, was asserted to require no further procedural hurdles under Rule 3(2) of the 2005 Rules or Regulation 12 of the 2013 Regulations. Secondly, the counsel emphasized that both tribunals had already recognized the appellant’s deemed licensee status, rendering additional regulatory compliance unnecessary beyond SEZ Act and notification stipulations. Thirdly, the distinction in the 2013 Regulations between distribution license applicants and recognized deemed licensees, categorized under Regulation 13, was underscored to argue against applying the stricter requirements of Regulation 12 meant for general applicants. Critically, it was contended that TSERC and APTEL erred in implying that the 2005 Rules apply to deemed licensees, contrary to the clear legislative intent of the Electricity Act and the regulatory framework. Lastly, APTEL’s validation of TSERC’s requirement for the appellant to inject Rs. 26.90 crore in equity under Section 16 of the Electricity Act was contested, citing Section 2(62)’s mandate that such conditions must be expressly specified through regulations, which were not adhered to in this instance. In conclusion, the appellant urged the Court to uphold the appeal and revoke TSERC and APTEL’s orders mandating compliance with Rule 3 of the 2005 Rules and additional capital infusion as conditions for obtaining deemed licensee status.

 

Contentions of the Respondent –

The learned senior counsel for the second respondent, supported by counsel for the first respondent TSERC, defended the challenged judgment and order. They cited the Supreme Court’s ruling in Sesa Sterlite Limited v. Orissa Electricity Regulatory Commission and others to emphasize that despite being granted deemed licensee status, the appellant, as a SEZ developer, must comply with the regulatory framework of the 2005 Rules and the 2013 Regulations. They argued this ensures consistent application of regulatory standards in the electricity distribution sector. They contended that the appellant cannot automatically assume the role of a distribution licensee without following the application process outlined in Regulation 13 of the 2013 Regulations. This procedural requirement, they asserted, is crucial for maintaining clarity and enforceability in regulatory matters. Further advocating for a harmonious interpretation of the SEZ Act and the Electricity Act, they asserted that SEZ developers are not exempt from regulatory obligations and must adhere to established legal frameworks. They justified TSERC’s imposition of additional capital requirements under the 2005 Rules as necessary to evaluate the appellant’s financial stability, citing significant financial losses and erosion of net worth as disclosed in statutory reports. They urged the Court to dismiss the appeal, asserting that TSERC acted within its authority to enforce regulatory compliance and ensure financial soundness in the electricity distribution sector.

 

Court Analysis and Judgement –

The Hon’ble Supreme court considered arguments on two pivotal issues. Firstly, it affirmed that the appellant, a Special Economic Zone (SEZ) developer, gains deemed licensee status under the Electricity Act, Section 14(b) proviso, by fulfilling conditions set forth in the 2010 Notification. Emphasizing the statutory fiction principle, the court clarified that while SEZ status confers benefits, compliance with regulatory norms, including application requirements under Regulation 13 of the 2013 Regulations, remains mandatory. Secondly, the court ruled on the applicability of Rule 3(2) of the 2005 Rules, concluding that it does not extend to deemed licensees as defined under Regulation 2(h). It critiqued the Tribunal’s interpretation, reflecting that such requirements were not applicable to the appellant. Accordingly, the court set aside directives mandating additional capital infusion, affirming the appellant’s deemed licensee status without extraneous conditions beyond those explicitly mandated by law. Hence, the Appeal was party allowed in the mentioned terms.

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Judgement Reviewed By- Anurag Das

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