DISCOMS As State Bodies Duty Bound To Protect Consumers' Interests: Rajasthan High Court

The Rajasthan High Court has recently held that Distribution Companies (DISCOMS), as bodies of the State government, have the duty to protect the interests of consumers.

Justice Pushpendra Singh Bhati thus held that the imposition of the Special Fuel Surcharge beyond the original principal amount is deemed unjustified in the eyes of the law. 

"This Court also observes that the respondent-DISCOMS are the bodies of the State Government and fall under the definition of 'State' as contained in Article 12 of the Constitution of India, and therefore, it is the duty of the State to protect the interests of the consumers; but despite the same, the respondents levied the additional cost in the name of Special Fuel Surcharge. The Special Fuel Surcharge would have been justified had it been only on the aforementioned original principal amount i.e. Rs.3,048.63/- Crores, but the Special Fuel Surcharge as imposed herein is not justified in law."

The Court was dealing with a set of cases challenging the imposition of a Special Fuel Surcharge by distribution licensees (DISCOMS) in response to an increased cost of electricity generation. 

The judgment also referred to a contempt petition filed before the Supreme Court, where the respondents were directed to pay the petitioner a specified amount. An amount of Rs. 5996.44 crores was paid towards the principal amount, interest, and carrying costs.

In the said decision, the Supreme Court had lamented the practice of DISCOMS and power-generating companies pursuing endless litigation challenging the concurrent findings arrived at by the Central Electricity Regulatory Commission (CERC) and the Appellate Tribunal for Electricity (APTEL).

The Apex Court had concluded that all additional charges which are payable on account of orders, directions, notifications, Regulations, etc., issued by State instrumentalities after the cut-off date specified in the PPAs, will have to be considered to be 'Change in Law' events for payment of compensation under the PPAs.

The High Court highlighted that there is no dispute about the DISCOMS' liability, which was settled by the Supreme Court. However, the issue is the shifting of this liability onto consumers through the imposition of a Special Fuel Surcharge.

It noted that the Special Fuel Surcharge was imposed to meet the original liability arising from an uncontrollable factor (change in law). The court questions the justification of imposing the surcharge on consumers for interest/carrying costs, which it views as a controllable factor due to the delay in discharging the liability.

The court cited relevant regulations, including Regulation 9 of the Tariff Regulations, 2019, which outlines gains and losses on account of uncontrollable and controllable factors. It argued that the interest/carrying costs don't qualify as an uncontrollable factor. It denounced the DISCOMS for continuing litigations, leading to increased costs and, ultimately, passing on the burden to consumers.

The court thus quashed the impugned order, along with proceedings related to interest/carrying costs, allowing the recovery of the Special Fuel Surcharge only to the extent of the original principal amount.

It highlighted the need to protect consumers' interests and questioned the arbitrary imposition of the Special Fuel Surcharge on interest/carrying costs.

The court acknowledged the transparency maintained by the State Commission (RERC) but questioned the fairness of recovering additional costs from consumers.

It concluded by allowing the DISCOMS to recover the original principal amounts under the Special Fuel Surcharge, adhering strictly to the judgment. All pending applications were disposed of by the court.

Case Title: Bhansali Dyeing v. State of Rajasthan & Ors and connected matters

Click Here To Read/Download The Order