Sagus Legal represented the distribution companies in the state of Odisha in a landmark Judgment before the Appellate Tribunal for Electricity (“APTEL”), wherein APTEL through its Order dated 12.02.2024,in the matter of Indian Railways v. Odisha Power Transmission Corporation Limited & Ors. [Appeal No. 114 of 2020] and other batch matters (“Judgment”) held that Indian Railways is not a deemed distribution licensee in accordance with the third proviso to Section 14 of the Electricity Act, 2003 (“Electricity Act”).

The primary issue involved in the Judgment was whether Indian Railways is a deemed distribution licensee under the third proviso to Section 14 of the Electricity Act; and whether it can, even if it is held to be a deemed distribution licensee, avoid payment of cross-subsidy surcharge and additional surcharge, under Section 42(2) & (4) of the Electricity Act, while availing open access.

APTEL dealt with various aspects of the Electricity Act and analysed the scope of functions of Indian Railways under the Railways Act, 1989 (“Railways Act”) to determine whether Indian Railways fulfil the pre-requisites to be a deemed distribution licensee. APTEL also dealt with numerous issues and intricacies relating to status and entitlements of Indian Railways under the Electricity Act which are inter alia summarised below:

  1. Activities of Indian Railways as provided under the Railways Act do not qualify as ‘distribution of electricity’ as contemplated under Electricity Act:
    1. APTEL held that the activities envisaged under Section 11(g) read with Section 2(31) of the Railways Act are enacted to facilitate the internal operations of the Indian Railways. It distinguished the expressions ‘power supply’ and ‘distribution installation’ and held that operation, maintenance, and repair of the power supply and distribution installation can only be in connection with the working of the railway and consequently, such activities would be confined for the use of the railways alone, and not for any other purpose.
    2. Electricity is only internally routed within the railway’s operating network to power trains and locomotives and support railway infrastructure. Electricity is being transported from its traction and non-traction sub-stations/ switchyards to various consumption points, such as locomotives and station premises.
    3. On the issue of ‘supply’ of electricity by Indian Railways as per Section 2(70) of the Electricity Act, to entities having jural relationship in its area, the APTEL held electricity provided by Indian Railways within its area, to vendors, contractors, agencies and other entities, is not ‘supply’ of electricity but is only use of electricity by or on behalf of the Railway Administration; and supply of electricity by Indian Railways to parties in jural relationships neither constitutes ‘distribution’ of electricity nor does it qualify as ‘distribution’ for the purposes of the deeming provision in the third proviso to Section 14 of the Electricity Act. Further, there is no sale of electricity to consumers or any third party by Indian Railways. Therefore, conveyance of electricity to various points within the area of Indian Railways, cannot be said to be distribution of electricity as contemplated under Electricity Act.
  1. Sale of electricity is the sine qua non for distribution of electricity by a distribution licensee:
      1. APTEL dealt with the expressions ‘to distribute electricity’ and ‘as a distribution licensee’ used in Section 14(b) of the Electricity Act. The license granted under Section 14(b) not only makes the grantee a distribution licensee, but also authorizes it, by way of a license, to distribute electricity. It also observed that under the third proviso to Section 14 of the Electricity Act, in case an Appropriate Government distributes electricity, whether before or after the commencement of the Electricity Act, such Government shall be deemed to be a licensee under the Electricity Act but shall not be required to obtain a license.
      2. The APTEL held that distribution which is a licensed activity under Section 12 read with Section 14 of the Electricity Act is not confined to just the operation and maintenance of a distribution installation but also includes supply of electricity to the consumers. Without supply (i.e., sale) of electricity to the consumers, no entity can qualify as a deemed distribution licensee under the provisos of Section 14 of the Electricity Act. Thus, the APTEL held that sale of electricity is the sine qua non for distribution of electricity by a distribution licensee, deemed or otherwise under the Electricity Act.
      3. According to APTEL, the actions carried out by Indian Railways under the Railways Act do not, by definition, fall under ‘distribution of electricity’ as required under the Electricity Act. This is especially true in light of the absence of a commercial component involving the sale of electricity to third-party consumers.
      4. APTEL also emphasized that Indian Railways neither carries on any activity of sale of electricity to third party consumers, nor discharges the obligations of a distribution licensee under Part VI of the Electricity Act. Indian Railways also had no universal supply obligation under Section 43 of the Electricity Act.
      5. APTEL also relied on Sesa Sterlite Limited v. Orissa Electricity Regulatory Commission & Others[1], and held that an entity cannot claim a Deemed Distribution Licensee status without engaging in the sale of electricity to consumers/ end-users. The Judgment emphasises that electricity consumption predominantly by the licensee itself does not fulfil the criteria for distribution.
  1. Indian Railways is entitled to seek open access only as a consumer under the provisions of Electricity Act and is obligated to pay cross subsidy surcharge/ additional surcharge:
      1. APTEL held that Indian Railways is not entitled to seek open access in terms of Sections 38(2)(d)(i), 39(2)(d)(i), and 40(c)(i) of the Electricity Act as a ‘licensee’. Its entitlement to source electricity under open access is only as a consumer under Sections 38(2)(d)(ii), 39(2)(d)(ii) and 40(c)(ii) of the Electricity Act, 2003.
      2. Regarding the question of whether Indian Railways would have to pay the Cross Subsidy Surcharge or Additional Surcharge, APTEL held that Indian Railways does not meet the requirements to be considered a deemed distribution licensee and is therefore regarded as a typical consumer when it chooses to purchase energy through open access from producers or suppliers other than the distribution companies. Consequently, Indian Railways bears the same financial responsibilities as other open access users, which include covering cross-subsidy surcharges.
      3. Further, as Indian Railways consumes the entire electricity supplied to it (either directly or by entities with which it has a jural relationship), it is obligated to pay cross subsidy surcharge / additional surcharge for the electricity sourced by it through open access.
  1. Analysis and impact of the Judgment
      1. Vide its Judgment, APTEL has outlined the position of Indian Railways as a consumer in detail. This decision is of much importance whereby APTEL has clarified that whilst procuring electricity from DISCOMs, Indian Railways is liable to pay additional or cross-subsidy surcharges under Section 42 of the Electricity Act. Pertinently, had APTEL ruled in favour of Indian Railways, distribution companies nationwide would have incurred a significant impact in their revenue, which would have ultimately been borne by consumer at large, since Indian Railways is categorised as subsiding consumer. To better appreciate the financial implication, the distribution companies operating in the State of Odisha alone would have collectively lost a revenue of approximately INR 1400 Crores per annum, had Indian Railways been held to be a deemed distribution licensee. The losses suffered by distribution licensees all over India would translate into higher retail cost of electricity, the burden of which would fall on individual consumers.
      2. In addition to the financial implications, the Judgment resolves a longstanding issue that has spanned almost a decade before various electricity commissions as well as APTEL. Further APTEL, through the Judgment, has provided a comprehensive interplay of the provisions and w.r.t distribution licensees and their function within the framework of the Electricity Act.


[1] (2014) 8 SCC 444.

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