Kiran Raj

The Supreme Court Division Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan dismissed appeals challenging the rejection of additional capitalization claims by Powergrid Corporation of India Limited. The Court upheld the Central Electricity Regulatory Commission (CERC) and Appellate Tribunal findings, concluding that replacement of Inter-Connecting Transformers (ICTs) did not fall within the permissible scope for additional capitalization under the Tariff Regulations, 2004. The Court further directed that costs for replacement must be covered through the appellant’s self-insurance reserve.

The appellant, Powergrid Corporation of India Limited, is a public sector undertaking engaged in electricity transmission across India under the Electricity Act, 2003. It operated two northern region transmission systems: Rihand I and Rihand II, each comprising several substations and Inter-Connecting Transformers (ICTs).

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Between April 28 and May 9, 2006, all three ICTs at the Rihand I system failed and were severely damaged. Given the urgent requirement to meet peak summer electricity demand in Delhi, Powergrid diverted transformers from Kaithal, Mainpuri, and Bahadurgarh substations for temporary restoration. By January-February 2007, the originally affected substations were restored with new or repaired ICTs.

Subsequently, Powergrid filed Petition No. 68 of 2008 before CERC seeking approval for transmission charges based on additional capitalization. It also filed Petition No. 80 of 2008 requesting tariff revision and decapitalization adjustments due to the replaced ICTs.

On February 3, 2009, CERC dismissed both petitions, holding that replacement costs must be funded through Powergrid's internal self-insurance reserve rather than through tariff adjustments. Dissatisfied, Powergrid filed Appeal Nos. 91 and 92 of 2009 before the Appellate Tribunal for Electricity.

On March 23, 2011, the Appellate Tribunal dismissed both appeals. Powergrid then approached the Supreme Court under Section 125 of the Electricity Act, 2003.

Before the Supreme Court, Powergrid contended that:

• Regulation 53(2)(iv) of the Tariff Regulations permitted capitalization for necessary works post cut-off date.

• The Appellate Tribunal erred by rigidly applying insurance reserve policies.

• Internal machinery breakdown caused the fire; thus, self-insurance did not cover the damage.

The respondents (beneficiary utilities) argued:

• Maintenance and replacement fall within the normal O&M responsibilities.

• Additional capitalization is permitted only for new, beneficial works, not simple restoration.

• Self-insurance policies indeed covered fire-related losses, including those due to machinery failure.

The appellant sought reliefs including recognition of additional capitalization, revised availability certification for tariff purposes, and exclusion of loss periods from performance assessments.

The Court carefully examined the statutory framework, the factual chronology, and submissions.

On the scope of additional capitalization, the Court observed in italics: “Regulation 53 does not include within its scope replacement of ICTs due to damage or failure. Regulation 53(2)(iv) refers to additional works/services necessary for efficient operation, not replacement of damaged assets.”

Regarding Powergrid’s obligation, the Court recorded: “It was the duty of the appellant to maintain a healthy transmission system; replacement of damaged equipment is part of operation and maintenance.”

Considering the self-insurance fund, the Court stated: “The insurance reserve covered losses caused by events such as fire including lightning, explosion/implosion, bush fires etc., without exclusions for machinery breakdown.”

The Court determined the proximate cause doctrine applied: “The proximate cause for the damage to the ICTs is the implosion/explosion causing fire; the loss was caused due to fire which falls under the insurance reserve.”

On the availability certificate, the Court ruled: “Since decapitalization and additional capitalization of replaced ICTs have not been allowed, the question of issuing direction for revised availability certificate does not arise.”

Dismissing the appellant’s reliance on Gujarat Urja Vikas Nigam Ltd., the Court observed:
“Appellate Tribunal has given cogent and valid reasons while rejecting the appeals; there is no ground to interfere with the impugned order.”

Thus, the Court concluded that both appeals were meritless.

The Supreme Court concluded its judgment with the following directions:

The Court held that Regulation 53 of the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2004 does not permit additional capitalization for mere replacement of ICTs due to damage or failure. It recorded that the responsibility for maintaining a functional transmission system, including equipment replacement, lies with the transmission licensee and is to be covered under O&M expenses.

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The Court directed that the cost of the replacement of the damaged ICTs shall be borne out of the appellant's self-insurance reserve fund maintained for uninsured risks, including fire. It observed that the reserve comprehensively covered losses caused by fire or implosion/explosion.

The Court dismissed the prayer for issuance of revised availability certificates, holding that with the rejection of additional capitalization and decapitalization claims, the request became redundant.

The appeals were dismissed in entirety. No costs were awarded.

Advocates Representing the Parties:

For The Appellants: Ms. Swapna Seshadri, Advocate, Mr. Pramod Dayal, AOR, Mr. Nikunj Dayal, Advocate, Mr. Utkarsh Singh, Advocate, Ms. Sneha Singh Baghel, Advocate

For The Respondents: Mr. Pradeep Misra, AOR, Mr. Daleep Dhyani, Advocate, Mr. Suraj Singh, Advocate

Coram: Justice Abhay S. Oka and Justice Ujjal Bhuyan

Case Title: Powergrid Corporation of India Limited v. Central Electricity Regulatory Commission and Others

Neutral Citation: 2025 INSC 626

Case Number: Civil Appeal Nos. 5857-5858 of 2011

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