1. Assessment order under Section 126 of the Electricity Act for alleged unauthorized use of electricity by a consumer using captive generated power for site construction work. (Para 1 )
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2026 Supreme(Telangana) 791
IN THE HIGH COURT OF JUDICATURE FOR THE STATE OF TELANGANA
Nagesh Bheemapaka, J.
ITC Limited - Petitioner
Versus
Northern Power Distribution Company of Andhra Pradesh Ltd. & others - Respondents
Writ Petition No. 32607 of 2011
Decided On : 05-08-2026
Important Points
Section 126 of the Electricity Act, 2003 applies only to electricity supplied by a licensee. It cannot be invoked for electricity generated by a consumer via a captive plant and used for the consumer's own purposes within their premises, even if utilized by an EPC contractor.
Subject
Energy Law - Electricity Act
Act Referred
Headnote
(A) Electricity Act, 2003 - Sections 2(70), 9, 42, 126 and 135 - Unauthorised use of electricity - Use of electricity generated from a captive generating plant for the construction of the owner's own additional facilities within its premises - Whether providing such electricity free of cost to an EPC contractor amounts to "supply" or "unauthorised use" under Section 126 - Section 126 applies to electricity supplied or arranged to be supplied by the licensee. It has no application to electricity generated by the consumer in its own captive generating plants and utilised for its own purposes within its own premises (Paras 6, 9 and 10).
(B) Writ Jurisdiction - Maintainability - Where the challenge is directed against the very assumption of jurisdiction of the Assessing Officer to invoke Section 126, the existence of an alternative statutory remedy is not an absolute bar to the exercise of jurisdiction under Article 226 of the Constitution of India (Para 14).
(C) Captive Generation - Mere execution of construction work by a contractor for a project belonging to the owner does not, by itself, conclusively establish transfer or sale of electricity, especially when provided free of cost under the construction contract. Corporate personality of a contractor cannot automatically convert such utilisation into unauthorised use (Paras 11 and 12).
Facts of the case:
A company operating captive generating plants entered into a contract with an EPC contractor for the expansion of its manufacturing and power facilities. The company provided electricity generated from its own plants to the contractor free of cost for the construction work. The distribution licensee conducted an inspection and issued a provisional assessment order under Section 126 of the Electricity Act, 2003, alleging unauthorised use of electricity and re-sale of energy to the contractor, treating the action as a violation of sanctioned purpose.
Findings of Court:
The court found that the electricity used was generated by the petitioner from its own captive plant and not supplied by the licensee. The respondents failed to specify any provision requiring prior permission for the utilisation of self-generated energy within the premises for a project belonging to the generator. There was no evidence that the contractor independently consumed electricity as a separate consumer or that electricity was commercially sold.
Issues: Whether proceedings initiated under Section 126 of the Electricity Act, 2003 are legally sustainable in respect of electricity generated from a captive generating plant and utilised within the owner's premises for its own expansion project, and whether the writ petition is maintainable given the availability of an alternative remedy.
Ratio Decidendi: Section 126 of the Electricity Act, 2003 empowers the Assessing Officer to assess charges for "unauthorised use of electricity," which inherently relates to electricity supplied by the licensee. This jurisdiction cannot be enlarged by importing alleged violations of other regulatory provisions, such as open access regulations under Sections 9 and 42. Since the electricity was self-generated and used for the owner's own project, the jurisdictional foundation for invoking Section 126 was absent.
Result: Writ Petition allowed, setting aside the proceedings dated 29.11.2011.
(B) Writ Jurisdiction - Maintainability - Where the challenge is directed against the very assumption of jurisdiction of the Assessing Officer to invoke Section 126, the existence of an alternative statutory remedy is not an absolute bar to the exercise of jurisdiction under Article 226 of the Constitution of India (Para 14).
(C) Captive Generation - Mere execution of construction work by a contractor for a project belonging to the owner does not, by itself, conclusively establish transfer or sale of electricity, especially when provided free of cost under the construction contract. Corporate personality of a contractor cannot automatically convert such utilisation into unauthorised use (Paras 11 and 12).
Facts of the case:
A company operating captive generating plants entered into a contract with an EPC contractor for the expansion of its manufacturing and power facilities. The company provided electricity generated from its own plants to the contractor free of cost for the construction work. The distribution licensee conducted an inspection and issued a provisional assessment order under Section 126 of the Electricity Act, 2003, alleging unauthorised use of electricity and re-sale of energy to the contractor, treating the action as a violation of sanctioned purpose.
Findings of Court:
The court found that the electricity used was generated by the petitioner from its own captive plant and not supplied by the licensee. The respondents failed to specify any provision requiring prior permission for the utilisation of self-generated energy within the premises for a project belonging to the generator. There was no evidence that the contractor independently consumed electricity as a separate consumer or that electricity was commercially sold.
Issues: Whether proceedings initiated under Section 126 of the Electricity Act, 2003 are legally sustainable in respect of electricity generated from a captive generating plant and utilised within the owner's premises for its own expansion project, and whether the writ petition is maintainable given the availability of an alternative remedy.
Ratio Decidendi: Section 126 of the Electricity Act, 2003 empowers the Assessing Officer to assess charges for "unauthorised use of electricity," which inherently relates to electricity supplied by the licensee. This jurisdiction cannot be enlarged by importing alleged violations of other regulatory provisions, such as open access regulations under Sections 9 and 42. Since the electricity was self-generated and used for the owner's own project, the jurisdictional foundation for invoking Section 126 was absent.
Result: Writ Petition allowed, setting aside the proceedings dated 29.11.2011.
Legal Category Hierarchy
Table of Contents
2. Respondents allege unauthorized use of captive power by contractors constitutes supply, while the petitioner asserts captive power for own construction work is outside Section 126 jurisdiction. (Para 2 , 3 )
3. The jurisdiction under Section 126 requires the consumption of electricity to fall within the statutory definition of unauthorized use, which cannot be assumed merely due to contractual work execution. (Para 7 , 8 , 9 , 10 , 11 , 12 )
4. Section 126 proceedings for unauthorized use of electricity cannot be invoked against captive energy consumption conducted solely for internal project development where no actual supply or sale occurs. (Para 9 , 10 , 15 )
5. The High Court allowed the writ petition, setting aside the provisional assessment order initiated under Section 126 of the Electricity Act. (Para 16 , 17 )
6. Does the use of captive power by a contractor for a consumer's own construction work constitute unauthorized use under Section 126 of the Electricity Act?
No. The use of captive generation for internal construction within one's own premises does not constitute unauthorized use of electricity or supply under Section 126, provided there is no commercial sale or supply of electricity to the contractor. (Para 9 , 10 , 11 , 12 )
7. Can an alternative remedy under Section 127 of the Electricity Act bar a writ petition challenging a Section 126 assessment?
No. Where the challenge is directed towards the fundamental lack of jurisdiction by the Assessing Officer to invoke Section 126, the existence of an alternative statutory remedy does not preclude the High Court from exercising its writ jurisdiction under Article 226. (Para 14 )
8. What is the scope of 'unauthorized use of electricity' under Section 126 of the Electricity Act?
The scope of Section 126 is limited to specific instances of unauthorized use as defined in the Act. The authority must establish the foundational fact of unauthorized use before initiating assessment; it cannot be triggered arbitrarily by alleging regulatory breaches or unrelated statutory violations. (Para 9 , 10 )
ORDER :
Nagesh Bheemapaka, J.
Petitioner is a company incorporated under the Companies Act and is engaged, inter alia, in the manufacture of paper and paperboards at its factory situated at Sarapaka, Burgampahad Mandal, Khammam District. It established and operates a 7.5 MW co-generation plant, two 21 MW co- generation/condensing plants, one 18.5 MW co-generation plant and one 14.8 MW co-generation power plant at its factory for generation of electricity along with process steam required for continuous manufacturing operations and other electricity needs. It also has three Diesel Generating Sets with an aggregate capacity of 3.416 MW as standby units. According to petitioner, these captive generating plants are sufficient to meet all its electricity requirements, while surplus electricity, whenever generated, is exported for sale through the grid. Petitioner has also contracted for a CMD of 5 MVA with the 1st respondent distribution licensee as an additional standby facility, and normally draws only the minimum consumption billing quantity, with substantial drawl beyond the minimum being infrequent.
1.1. Petitioner states that it is expanding its manufacturing facility by establishing an additional paper machine and a new 25 MW co-generation facility. For execution of the civil, structural and allied works relating to the new paper machine plant and the generating plant under construction, it entered into a contract with M/s Shapoorji Pallonji & Co. Ltd., under which they agreed to provide electricity free of cost to the contractor. The electricity used for construction activity was entirely generated from its own captive generating plants. It is further stated, during the course of construction work, the Divisional Engineer/DPE/Khammam of the 1st respondent conducted inspection at Petitioner's factory premises on 05.11.2011. Thereafter, they received Letter dated 29.11.2011 on 03.12.2011, purporting to be a provisional assessment order under Section 126 of the Electricity Act, 2003 (for short, ‘the Act’), assessing Rs. 81,18,300/- for a period of six months on the allegation of ‘usage of electricity for purpose other than sanctioned purpose’.
1.2. The impugned order alleges: (i) replacement of the failed R-phase CT; (ii) extension of supply from the Petitioner's captive generating plants to the paper machine plant and generating plant under construction; (iii) utilisation of electricity for a purpose other than the paper machine under the HT-I category for which the service connection had been sanctioned; (iv) re-sale of electricity to the outsourcing contractor, M/s Shapoorji Pallonji & Co. Ltd.; and (v) failure to obtain prior permission or consent from DISCOM or APPCC for the construction of the extension project, which was treated as amounting to theft of energy. On these allegations, respondents treated petitioner's actions as constituting unauthorised use of electricity under Section 126 of the Act and provisionally assessed electricity charges of Rs.81,18,300/- by applying the assessment rules contained in Appendix-XII read with Clause 9.3 of the General Terms and Conditions of Supply (GTCS). The amount was described as the ‘cost of energy under un- authorised usage of supply’. According to petitioner, although the assessment appears to relate to the period from May to November 2011, the specific months are not expressly mentioned in the provisional assessment order.
2. In the counter filed on behalf of respondents, a preliminary objection was raised that Writ Petition is not maintainable as an effective alternative remedy is available under the 2003 Act. Reliance in this regard, is placed on the judgment of the Hon'ble Supreme Court in Executive Engineer v. Sri Seetharama Rice Mill , (2012) 2 SCC 108, wherein it was held that the High Court should ordinarily decline to exercise jurisdiction under Article 226 against orders passed under Section 126 (3) of the Act. According to respondents, petitioner ought to have submi
