SUPREME COURT QUASHES CENTRAL ELECTRICITY REGULATORY COMMISSION (CERC) PROVISION DENYING TRADING LICENCE

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THE Supreme Court has struck down a Central Electricity Regulatory Commission (CERC) provision disqualifying a company from getting a trading licence if there were any pending legal issues against any member on its board that "may adversely affect the interest of the electricity sector or of the consumers".

The court quashed the provision of the CERC (Procedure, Terms and Conditions for Grant of Trading Licences and other related matters) (Amendment) Regulations 2006, saying it "perpetuates injustice in the award of licences for power companies dealing in inter-state trading and brings uncertainty and arbitrariness in awarding such licences". Accordingly, the court asked the commission to reconsider within three months the applications of Global Energy and others seeking inter-state power trading licences. The regulator had amended the Trading Licence Regulations 2004 as it was of the view that the amendment was necessary to protect the "interest of the electricity sector or its consumers". It said the trading licensee should be a "fit and proper person" and the regulator may take any of these qualifying factors-financial integrity, competence, reputation, and character and honesty-into consideration while granting a licence. These provisions, which were contained in Regulation 6A, were retrospectively made applicable to Global Energy's application, even though it had been found fit by CERC. Based on the disqualifications, CERC had rejected GEL on the grounds that the pending legal cases involving the company and its promoters rendered it unfit for grant of licence. Significantly, CERC did not find any fault with GEL's technical and financial capabilities. The court said the clauses in Regulation 6A are declared ultra vires of the Constitution as also the Electricity Act 2003. It said: "The power of the regulatory commission to impose qualification/restrictions should be read in line with the larger object of the Act. The consumer tariff is to be laid down by the commission. How licensees would operate their business to the extent permissible under law should be subject to regulation, which ordinarily should not be resorted to discourage private participation in the power sector." It further said a trader of electricity does not deal with consumers but is merely an intermediary between a generating company and distribution licensee. The tariff that a distribution licensee will charge from its consumers is regulated. Even the margin that a trader can make is regulated. The court turned down the plea of the central electricity authority, which had said Regulation 6A was inserted in consumer interest.

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