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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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CASE TITLE- The Employees State Insurance Corporation Ltd. Vs Nagar Nigam Allahabad and Anr.

CASE NUMBER- Civil Appeal No(S). 1833 Of 2024

DATED ON- 17.05.2024

QUORUM- Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice Sandeep Mehta

FACTS OF THE CASE

The Appellant-Corporation preferred the instant appeal with a pertinent plea that the Respondent-Nagar Nigam operates a Central Workshop, where activities of repairing and maintaining different types of vehicles are carried out, the workshop is covered by the definition of a ‘factory’ within the meaning of the Act of 1948. In the year 1964, Respondent was allotted Code under the Act of 1948. Recovery certificates were issued from time to time by the appellant Corporation to the respondent on account of nonpayment of mandatory contributions under Section 40 of the Act of 1948, where under the principal employer is obligated to pay both employer’s and employee’s contribution in respect of every employee working in the factory. The respondent- continued to make statutory contributions under the Act of 1948 till the year 1978, where after it stopped paying without any reason. Owing to the non-payment by the employer, the Authorized Officer of the Appellant-Corporation issued a notice to respondent directing it to pay Rs. 4,72,186/-, assessed on ad hoc basis pertaining to the contributions for the period commencing from June, 2002 to September, 2003 and called upon the respondent to appear before it. The respondent- neither appeared before the Authorized Officer nor did it file any response to the notice, whereupon the Authorized Officer of the Appellant-Corporation directed the Recovery Officer to recover the amount of contribution along with interest to the tune of Rs. 5,88,227/- from the respondent. This amount subsequently came to be deducted from the bank account of respondent. As the respondent failed to make timely, a show cause notice was issued to the respondent calling upon it to explain as to why damages, should not be levied upon it. The respondent did not appear before the Authorized Officer and rather sought time to respond. The Recovery Officer issued recovery notice to the respondent for payment of the amount due. Being aggrieved by the recovery notice, the respondent filed the captioned Writ petition before the Allahabad High Court challenging the said recovery notice and seeking a direction to restrain the appellant from realising the amount. The Allahabad High Court proceeded to allow the writ petition holding that the writ petitioner was not covered under the Act of 1948 and as a consequence, recovery notice was quashed and the amount already realized by the appellant Corporation was directed to be refunded within three months.

ISSUES RAISED

• Whether the workshop of Respondent-Nagar Nigam was indulged in manufacturing process while carrying out repairs and maintenance of the tractors, trailers, loaders belonging to the Respondent-Nagar Nigam by employing more than 20 workmen?
• Whether the workshop of Respondent-Nagar Nigam was covered under the definition of ‘factory’ within the meaning of Act of 1948?

LEGAL PROVISIONS

Section 40 of The Factories Act, 1948

Section 75 of The Factories Act, 1948

Section 1(4) of The Factories Act, 1948

CONTENTIONS OF THE APPELLANT

The appellant contented that, if at all, respondent was desirous of getting the exemption from the operation of the Act of 1948, then it had to apply to the appropriate Government and procure an order of exemption and only thereafter, could it seek exemption from making payment of the employer’s contribution under Section 40 of the Act of 1948. The respondent did not appear to defend the proceedings wherein it was called upon to pay the remaining contributions. It also failed to participate in proceedings for determination of damages. The damages were determined by the appellant vide recovery certificate, however, only the consequential recovery notice was assailed in the writ petition. Since, the recovery certificate determining the damages not having been questioned, the respondent was not entitled to challenge the subsequent recovery notice which is consequential to the determination of the damages. Though a ground was taken in the writ petition that the Act of 1948 is not applicable to the respondent because the workshop of the Respondent is not covered under the definition of ‘factory’ but the fact remains that in the proceedings for recovery of contribution, no such plea was taken that the workshop of the Respondent is not covered by the definition of ‘factory’ or that no manufacturing process is carried out in the workshop. It contented that, if at all the respondent contesting the recovery notice on the ground that it was not covered under the provisions of the Act, the remedy of filing an appeal to the Employees’ Insurance Court was available to it. Rather than availing the said statutory remedy, the respondent invoked the writ jurisdiction of the High Court without any justification. He thus, implored the Court to accept the appeal and set aside the impugned order of the High Court.

CONTENTIONS OF THE RESPONDENT

The respondent contented that, there is no material on record to show that any manufacturing activity was being undertaken in the Workshop of the respondent. The employees of the respondent were being occasionally assigned the task of in-house repairs of the equipment and machinery of the respondent and thus, by no stretch of imagination, can it be concluded that the workshop was a ‘factory’ within the meaning of the Act of 1948 where any manufacturing process was being undertaken. The learned Single Judge of the High Court was justified in exercising the writ jurisdiction and quashing the impugned recovery notice He contended that the impugned order does not suffer from any infirmity warranting interference of this Court and the appeal should be dismissed.

COURT’S ANALYSIS AND JUDGEMENT

The Hon’ble court held that, neither in the pleadings of the writ petition nor in the counter affidavit filed on behalf of the respondent in this Court, is there any indication that the respondent ever sought for or was granted exemption by the appropriate Government. The appellant had issued notices to respondent to show cause, however, no response was given by the respondent to such notices. There is also no dispute that for the earlier periods, between 1964 to 1978, the respondent made regular contributions under the Act of 1948 thereby conceding to the position that its workshop was covered under the definition of ‘factory’ where manufacturing process was being carried on. If, at all, this situation had changed in the period subsequent to 1978 and before issuance of the notice, the respondent would be required to demonstrate the same by providing appropriate evidence to the Authorized Officer in response to the said notice and establish that it was not covered under the definition of ‘factory’ and that no ‘manufacturing process’ was being undertaken in its premises. Examining such an issue would require the collection of evidence and the appreciation thereof. Hence, only the Insurance Court would be in a position to examine such disputed questions of facts. Rather than exercising the writ jurisdiction, the respondent should have been approached the Insurance Court. The court held that the learned Single Judge of the High Court erred in entertaining the writ petition and interfering with the recovery notice while exercising the extraordinary writ jurisdiction conferred under Article 226 of the Constitution of India. Therefore, the appeal was allowed, and the impugned order got quashed and set aside.

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Judgement Reviewed By- Shreyasi Ghatak

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