SC: Substituting determination made by an expert body not a function of the court

Today, i.e. on 21st January 2019, the Hon’ble Supreme Court in the matter of Reliance Infrastructure Limited v. State of Maharashtra and Ors. pronounced that the power to frame regulations is of a legislative nature and it is no part of the function of the Court to substitute its own determination for a determination which was made by an expert body after due consideration of material circumstances. However, the Court, while exercising its power of judicial review, in order to ensure that the statute is not breached can step in where the delegate of the legislature has failed to follow statutory procedures or to take into account factors which it is mandated by the statute to consider.

The Hon’ble Supreme Court observed that:

The Electricity Act 2003 came into force on 10 June 2003. Electricity Regulatory Commissions constituted under Section 82 are empowered to frame regulations under Section 181, including the terms and conditions for determination of tariff under Section 61. (Para 3)

The power to determine tariffs is of a legislative nature. Section 61 is borne in Part VII of the Electricity Act 2003 which deals with tariffs. Section 61 provides that the appropriate commission shall, subject to the provisions of the Act, specify the terms and conditions for the determination of tariff. In doing so, it has to be guided by the considerations which are stipulated in clauses (a) to (i). (Para 22)

Section 181 empowers the state commissions to make regulations consistent with the Act and the rules to carry out the provisions of the Act. Among the matters for which the regulations may provide are “the terms and conditions for the determination of tariff under Section 61 [Section 181 (2)(zd)]. (Para 23)

The national tariff policy 2006 has multi-faceted objectives. Significant among them is the need to ensure to consumers the availability of electricity at reasonable and competitive rates. The policy also seeks to ensure the financial viability of the sector and underlines the need to attract investments. A financially sustainable electricity sector is an important facet of the overall regulatory framework. The objectives of the policy emphasise the need to promote transparency, consistency and predictability in regulatory approaches across jurisdictions. The policy emphasises the need to minimise perceptions of regulatory risk. Finally, the policy recognises the need to promote competition, efficiency in operations and improvements in the quality of supply. In designing and formulating the regulatory framework for tariffs, the delegate of the legislature has to bring about a balance between the competing goals which the tariff policy incorporates. (Para 24)

Tariff fixation is a complex exercise involving a careful balance between numerous considerations. The “shall be guided” prescription under Section 61 requires the appropriate commission to bear those considerations in mind. Deducing past performance on the basis of historical data, balancing diverse policy objectives and evaluating the comparative weight to be ascribed to the interests of stakeholders is a scientific exercise which is carried out by the commission. The nature of judicial review that is exercisable in a given subject area depends in a significant measure on the nature of the area and the body which is entrusted with the task of framing subordinate legislation. (Para 30)

The Court, while exercising its power of judicial review, can step in where a case of manifest unreasonableness or arbitrariness is made out. Similarly, where the delegate of the legislature has failed to follow statutory procedures or to take into account factors which it is mandated by the statute to consider or has founded its determination of tariffs on extraneous considerations, the Court in the exercise of its power of judicial review will ensure that the statute is not breached. However, it is no part of the function of the Court to substitute its own determination for a determination which was made by an expert body after due consideration of material circumstances. (Para 30)

A body which is entrusted with the task of framing subordinate legislation has a range of options including policy options. If on an appraisal of all the guiding principles, it has chosen a particular line of logic or rationale, the Supreme Court ought not to interfere. (Para 31)

Copy of judgement: Judgement 21-Jan-2019

-Tushar Kaushik

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