Electricity Regulatory Commissions Cannot Directly Regulate Franchisees; No Jurisdiction to Entertain Petitions Solely on 'Public Interest': Supreme Court - 2025-07-14

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ERCs Cannot Directly Regulate Franchisees, Lack 'Public Interest' Jurisdiction: Supreme Court

New Delhi: In a significant ruling clarifying the jurisdictional boundaries of Electricity Regulatory Commissions (ERCs), the Supreme Court has held that these bodies cannot directly regulate electricity distribution franchisees and lack the authority to entertain petitions filed solely on the grounds of 'public interest'. The Court emphasized that ERCs, as statutory bodies, can only exercise powers expressly conferred upon them by the Electricity Act, 2003.

The judgment was delivered by a bench led by Justice J.B.Pardiwala in a statutory appeal filed by a distribution franchisee challenging orders from the Uttar Pradesh Electricity Regulatory Commission (UPERC) and the Appellate Tribunal for Electricity (APTEL). The Court set aside the impugned orders, which had allowed an investigation into the franchisee’s functioning based on a petition filed by an individual.

Background of the Case

The case originated from a Distribution Franchisee Agreement (DFA) between Dakshinanchal Vidyut Vitran Nigam Ltd. (DVVNL), a distribution licensee, and Torrent Power Ltd. (the appellant franchisee) for electricity distribution in urban Agra. In 2012, an individual, Rama Shanker Awasthi , filed a petition before the UPERC challenging the legality of the DFA. He alleged that the agreement was a violation of the Electricity Act and detrimental to public interest, particularly concerning the input tariff rate fixed between the licensee and the franchisee.

The UPERC dismissed the franchisee's preliminary objections regarding jurisdiction and, citing "public interest," ordered the formation of an Expert Committee to investigate the franchisee's performance. The APTEL, while disagreeing that ERCs could entertain Public Interest Litigations (PILs), upheld the UPERC's order. It reasoned that the petition was maintainable as the franchisee's activities impacted consumer tariffs, thus falling under the ERC's regulatory oversight of the distribution licensee. This led to the present appeal before the Supreme Court.

Key Arguments

• Appellant (Franchisee): Argued that as a franchisee, it acts as an agent for the distribution licensee and is not a "regulated entity" under the direct jurisdiction of the UPERC. It contended that the ERCs have no power to entertain petitions on the singular ground of public interest and that individual grievances have a separate redressal mechanism.

• Respondent (Original Petitioner): Countered that the petition sought an investigation into the licensee's conduct under Section 128 of the Act. He claimed that the terms of the franchisee agreement, particularly the subsidized input tariff, affected the electricity tariff for all consumers in the state, making it a matter for the ERC to scrutinize.

Supreme Court's Analysis and Ruling

The Supreme Court conducted a detailed analysis of the legal framework under the Electricity Act, 2003, and established several key principles:

1. On 'Public Interest' Jurisdiction: The Court clarified that while ERCs must safeguard consumer interests in functions like tariff determination (Section 61), this does not grant them a blanket "public interest" jurisdiction. Justice Pardiwala noted, "ERCs, being creatures of a statute, derive their jurisdiction and powers from the provisions of that statute... it would not be permissible for them to exercise powers not expressly vested in them." The Court held that a petition cannot be entertained solely on the ground of public interest.

2. On Jurisdiction over Franchisees: The Court decisively held that the Electricity Act does not provide for direct regulatory oversight of franchisees by ERCs. The judgment emphasized the principal-agent relationship between the licensee and the franchisee.

> "The Act, 2003 does not envisage direct regulatory oversight as regards distribution franchisees and by virtue of their relationship of agency, such franchisees can only be indirectly regulated through the distribution licensee. Any action of the franchisee is equivalent to such action having been committed by a distribution licensee. Therefore, only the distribution licensee can be questioned for any action that its agent commits."

The Court concluded that ERCs cannot "micromanage" a franchisee transaction or question its operational aspects like collection efficiency and loss reduction.

3. On Maintainability of the Petition under Section 128: The Court found that the petition filed by the respondent failed to meet the threshold required to initiate an investigation under Section 128 of the Act. The provision allows for an investigation only if a licensee has violated its license conditions or the provisions of the Act. The Court determined that the allegations regarding the transfer of assets and the validity of the input-rate franchisee model did not constitute a valid ground for such an investigation. The respondent had failed to provide substantial evidence of any deliberate violation of tariff orders.

Final Decision

Concluding that both the UPERC and APTEL had erred in their decisions, the Supreme Court allowed the appeal and set aside the impugned orders. The Court stated, "the UPERC fell in serious error in entertaining the petition filed by the respondent no. 4 and passing the order constituting an expert committee. The APTEL also failed to look into the error committed by the UPERC."

This judgment provides critical clarity on the limits of regulatory power, reinforcing the distinction between licensees and their appointed franchisees and curtailing the ability of ERCs to expand their jurisdiction under the broad rubric of "public interest."