1. Dispute over additional capitalization and tariff revision for replacement of damaged transformers under the Electricity Act, 2003 and CERC Tariff Regulations. (Para 8 , 9 , 10 , 11 , 12 , 15 , 16 )
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2025 Supreme(SC) 771
SUPREME COURT OF INDIA
ABHAY S. OKA, UJJAL BHUYAN, JJ.
Powergrid Corporation of India Limited – Appellant
Versus
Central Electricity Regulatory Commission and Others – Respondents
Civil Appeal Nos. 5857-5858 of 2011
Decided On : 05-05-2025
Advocates appeared:
For the Appellant(s) : Ms. Swapna Seshadri, Adv. Mr. Pramod Dayal, AOR Mr. Nikunj Dayal, Adv. Mr. Utkarsh Singh, Adv. Ms. Sneha Singh Baghel, Adv.
For the Respondent(s): Mr. Pradeep Misra, AOR Mr. Daleep Dhyani, Adv. Mr. Suraj Singh, Adv.
For the Appellant(s) : Ms. Swapna Seshadri, Adv. Mr. Pramod Dayal, AOR Mr. Nikunj Dayal, Adv. Mr. Utkarsh Singh, Adv. Ms. Sneha Singh Baghel, Adv.
For the Respondent(s): Mr. Pradeep Misra, AOR Mr. Daleep Dhyani, Adv. Mr. Suraj Singh, Adv.
The self-insurance policy covers fire-related damage to equipment, asserting that additional capitalization for maintenance replacements cannot be claimed under the Tariff Regulations.
Headnote:(A) Electricity Act, 2003 - Sections 125 and 178 - Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 - Appeal filed against CERC’s order denying additional capitalization for damaged transformers - Claim for replacement under self-insurance policy upheld - The self-insurance policy covers losses from fire and machinery breakdown. (Paras 19, 29, 33)
(B) Regulatory framework - Appellate Tribunal's dismissal of claims based on the interpretation of Regulations upheld, ruling that maintenance falls under operational obligations of the utility. (Paras 32, 38)
Facts of the case:
The appellants challenged CERC's orders dismissing their claims for additional capitalization due to the damage of ICTs after a fire caused by machinery breakdown, asserting the requirement for replacement and compensation under the Tariff Regulations.
Findings of Court:
The court held that the self-insurance policy applies and that CERC's decision was justified.
Issues: Claim justification for additional capitalization, application of the self-insurance policy, necessity for issuance of revised availability certificate.
Ratio Decidendi: The court emphasized that the loss from fire due to machinery failure is covered under the self-insurance policy; hence, additional capitalization claims were properly denied as mere maintenance.
Result: Appeals dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether replacement of damaged transformers constitutes additional capitalization for efficient operation and whether such losses are covered under a self-insurance reserve policy. (Para 18 , 19 , 20 )
3. Replacement of damaged equipment is an operation and maintenance obligation; fire resulting from machinery breakdown is covered by self-insurance based on the proximate cause doctrine. (Para 28 , 29 , 30 , 33 , 34 , 35 , 36 , 37 )
4. Replacement of damaged assets for system maintenance is an O&M expense, not additional capitalization; fire is the proximate cause of damage regardless of the triggering machinery failure. (Para 29 , 37 )
5. Appeals dismissed. (Para 40 )
6. Does the replacement of damaged transformers constitute additional capitalization under Regulation 53 of the CERC Tariff Regulations?
No. Replacement of damaged equipment is part of the transmission utility's duty to maintain a healthy system and falls under operation and maintenance expenses, rather than being construed as additional work or services necessary for efficient operation. (Para 28 , 29 )
7. When can expenditure on the replacement of assets be considered for additional capitalization under Note 2 of Regulation 53?
Expenditure on the replacement of old assets shall be considered for additional capitalization only after writing off the entire value of the original assets from the original capital cost. (Para 27 , 28 , 30 )
8. How is the proximate cause determined when machinery breakdown leads to fire and subsequent damage?
The proximate cause is the active and efficient cause that sets in motion a chain of events bringing about the ultimate result without intervening independent forces. If fire is the efficient cause of damage, it is the proximate cause regardless of the initial machinery failure. (Para 36 , 37 )
9. Does a self-insurance policy covering fire risks include losses where fire was caused by internal machinery breakdown?
Yes. If the policy covers all fires without exception, losses caused by fire resulting from machinery breakdown are covered, as the fire is the proximate cause that renders the equipment unserviceable. (Para 33 , 35 , 37 )
JUDGMENT :
UJJAL BHUYAN, J.
1. This order will dispose of both Civil Appeal Nos. 5857 and 5858 of 2011.
2. Since both the civil appeals filed by the appellant under Section 125 of the ELECTRICITY ACT , 2003 arise out of the common order dated 23.03.2011 passed by the Appellate Tribunal for Electricity in Appeal Nos. 91-92 of 2009 with the issue being inter-related and between the same parties, both the appeals were heard together and are being disposed of by this common order.
3. Appellant in this case is Powergrid Corporation of India Limited.
4. In Appeal No. 91 of 2009, the challenge made was to the order dated 03.02.2009 passed by the Central Electricity Regulatory Commission in Petition No. 68 of 2008. In Appeal No. 92 of 2009, challenge made was to the order dated 03.02.2009 passed by the Central Electricity Regulatory Commission in Petition No. 80/2008. Both Appeal Nos. 91 and 92 of 2009 were dismissed by the Central Electricity Regulatory Commission vide the order dated 23.03.2011 (impugned order).
5. Hence, the two appeals.
6. This Court by order dated 01.08.2011 had issued notice.
7. Relevant facts may be briefly noted.
8. Appellant Powergrid Corporation of India Limited (for short ‘Powergrid’) is a public sector undertaking of the Government of India. It is mainly engaged in the business of transmission of power through its transmission network. It discharges its statutory functions under the ELECTRICITY ACT , 2003 and transmits electricity throughout the country. On the other hand, respondent No. 1 is the Central Electricity Regulatory Commission . It is a statutory body established under the provisions of the erstwhile Electricity Regulatory Commission Act, 1998 (since repealed). After coming into force of the ELECTRICITY ACT , 2003, the Central Electricity Regulatory Commission (‘CERC’ for short) began to exercise its functions under the said statute.
9. At the relevant point of time, appellant was a central transmission utility responsible for establishing transmission assets of Inter-State Transmission Systems (‘ISTS’ for short) dealing with planning and transmission of electricity. Amongst others, appellant owned and operated two transmission systems in the northern region: Rihand I and Rihand II. Rihand I comprises of Mandola and Ballabgarh sub-stations whereas Rihand II comprises of Kaithal, Mainpuri and Abdullapur sub-stations. Rihand I had three Inter-connecting Transformers (‘ICT’ for short): one at Ballabgarh and two at Mandola. Rihand II had four ICTs: two at Kaithal and two at Mainpuri.
10. Between 28.04.2006 and 09.05.2006, all the three transformers in the Rihand I transmission system failed and broke down. In fact, those were burnt and damaged due to internal faults. Considering that it was peak summer season with high anticipated load demand in the National Capital Territory of Delhi, the transformers were required to be replaced immediately. According to the appellant, procurement of new transformers would have taken a long time. Therefore, it was decided to temporarily take out one transformer each from Mainpuri and Kaithal sub-stations and to divert the same to Ballabgarh and Mandola. It was also decided to divert one transformer which was procured for Bahadurgarh sub-station to Mandola as commissioning at Bahadurgarh was scheduled later.
11. Accordingly, appellant restored the transformers at Ballabgarh and Mandola during the period from 29.05.2006 to 19.06.2006. The ICTs that were taken out from Mainpuri and Kaithal were restored by January and February, 2007 by new/repaired transformers.
12. Thereafter, appellant filed a petition before the CERC for approval of the transmission charges for the three replaced ICTs in Rihand I based on the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 (referred to hereinafter as ‘the Tariff Regulations’). The said petition was registered as Petition No. 68 of 2008. Appellant claimed de-capitalization for the transformers take
