Telangana High Court Rules Section 126 of Electricity Act Cannot Be Invoked for Every Regulatory Violation

The Telangana High Court has held that proceedings under Section 126 of the Electricity Act, 2003 cannot be initiated merely because the use of electricity allegedly violates other provisions of the Act or applicable regulations. The distribution licensee must independently establish that the alleged conduct falls within the statutory expression “unauthorised use of electricity”, the court said.

Justice Nagesh Bheemapaka made the observation while setting aside a provisional assessment of ₹81.18 lakh against ITC Limited for electricity generated by its captive power plants and used by its contractor for construction of ITC’s own expansion project within its factory premises. The Court found that the power distribution company had failed to establish the jurisdictional foundation necessary to invoke Section 126.

According to respondents, their allegation essentially is that petitioner failed to comply with the statutory mechanism governing open access and supply of electricity to another entity. Such alleged non-compliance may, if otherwise established, attract consequences contemplated under those statutory provisions. However, respondents have not demonstrated how every alleged breach of Sections 9 or 42 automatically becomes ‘unauthorised use of electricity’ under Section 126. The jurisdiction under Section 126 cannot be enlarged by importing alleged violations of other provisions of the Act or Regulations.

ITC operates a paper and paperboard manufacturing facility at Sarapaka in Khammam District. It has several captive co-generation plants which, according to the company, are sufficient to meet its electricity requirements. Surplus electricity, when generated, is exported for sale through the grid. ITC was expanding its manufacturing facility by setting up an additional paper machine and a new 25 MW co-generation facility. It engaged Shapoorji Pallonji & Co. Ltd. for civil, structural and allied works and agreed to provide electricity to the contractor free of cost. ITC’s case was that this electricity was entirely generated from its own captive plants.

Following an inspection in November 2011, the power distribution company issued a provisional assessment under Section 126, demanding ₹81.18 lakh for six months. Among other things, it alleged that ITC had used electricity for a purpose other than the sanctioned purpose and had effectively resold electricity to its contractor.

The High Court noted that the authorities did not dispute either the existence of ITC’s captive generating plants or that the electricity in question had been generated by ITC itself. The Court said that Section 126 jurisdiction “cannot be assumed merely because electricity is used in a manner which, according to the Distribution Licensee, violates certain regulatory provisions”. The authority must first establish that the alleged facts constitute unauthorised use within the meaning of the provision.

It also rejected the argument that the contractor’s status as a separate company was sufficient to attract Section 126. “Corporate personality alone cannot determine the applicability of Section 126. The real question is the nature and purpose of the consumption,” the Court said.

The Court noted that Shapoorji Pallonji was an Engineering, Procurement and Construction contractor engaged in constructing ITC’s own generating station within its premises. The electricity was provided free of cost under the construction contract. The authorities had not produced material to establish that the contractor independently consumed electricity as a separate consumer or that electricity was commercially sold to it.

“Mere execution of construction work by a contractor does not, by itself, conclusively establish transfer or sale of electricity,” the Court said. Since the electricity was used for construction of ITC’s own additional paper machine and co-generation plant, the Court held that the mere fact that the physical work was executed by a contractor could not automatically convert the utilisation into unauthorised use under Section 126.

The Court also noted that the provisional assessment proceeded on the assumption that ITC had committed “theft of energy”, although the proceedings were initiated under Section 126. It pointed out that theft of electricity is separately dealt with under Section 135 and that the authorities had not initiated proceedings under that provision.

The Court further rejected the respondents’ objection that ITC should have pursued the alternative statutory remedy in the matter.