M/S. INDSIL HYDRO POWER AND MANGANESE LIMITED v. STATE OF KERALA & Ors.

From the Judgment and Order dated 03.04.2014 of the High Court of Kerala at Ernakulam in W.A. No. 1345 of 2013 & W.A. No.18 of 2014. With Civil Appeal Nos. 9847-9850 of 2016 C.A. Sundaram, V. Giri, Joseph Kodiantara, Sr. Advs., Anand Sukumar, Bhupesh Kr. Pathak, S. Sukumaran, Ms. Rohini Musa, Arjun Singh, Zaffer Inayak, Ms. Meera Mathur, Amit Krishnan, R. Gopalakrishnan, Advs. for the Appellant. P.V. Surendranath, Jaideep Gupta, Sr. Advs., C. K. Sasi, Ms. Lekha Sudhakaran, Ms. Nayantara Roy, Abdulla Naseeh V.T., P. V. Dinesh, Ms. Sindhu T.P., Mukund P. Unny, Advs. for the Respondents. The Judgment of the Court was delivered by UDAY UMESH LALIT, J.

Civil Appeal Nos.9845-9846 of 2016 preferred by M/s Indsil Hydro Power and Manganese Limited (hereinafter referred to as “INDSIL”) and Civil Appeal Nos.9847-9850 of 2016 preferred by Carborundum Universal Limited (hereinafter referred to as “CUMI”) are directed against the common judgement and order dated 03.04.2014 passed by the Division Bench of the High Court1 allowing Writ Appeal Nos.1345 and 1355 of 2013 preferred by State of Kerala against INDSIL and CUMI respectively.

On 07.12.1990, the Government2 framed a policy vide G.O.(MS)No.23/90/PD (the Policy, for short) allowing private agencies and public undertakings to set up hydel schemes for generation of electricity at their own cost. As per the Policy, the matters concerning the construction, operation and maintenance of the hydel scheme were to be 1 The High Court of Kerala at Ernakulam. 2 The Government of Kerala managed as per the stipulations made by the Government/Board3. Clauses 2, 14 and 15 of the Policy were as under: - A “2. Private agencies/ public undertakings shall be allowed the setting up of sanctioned hydel schemes of the category small/ mini/ micro at their own cost, the construction, operation and maintenance being managed by them as per the stipulations insisted upon by Government/ Board. (The stipulated conditions as per Indian Electricity Act, 1910. Electricity (Supply) Act, 1948, other related rules and orders from Central and State Governments).

14. Royalty for the use of water together with the tax and duties on generation of power as fixed by Government/Board from time to time have to be paid by the agency. Normally generation of power from schemes of the category small/ mini/micro utilizing the storage benefits of existing reservoirs and tailrace benefit of existing power stations will not be entrusted with private agencies. But, Government may under special circumstances allow such schemes to be set up by private parties. In such cases, in order to account for the additional advantage gained by the agency by way of getting the Controlled releases, the agency will have to pay to Government or the Board, as the case may be, in tariff equivalent to the cost component for the controlled release utilized by the agency for the energy generated from the scheme. This will be in addition to the royalty of water if any, to be paid. The tariff storage/controlled release as above are to be worked out in respect of each scheme separately taking into account the above factors.

15. For assessment of water quantity used, the application of the formula BH-Power in KW where Q is in NI/Sec and H is the net head in meter for which the machines are designed by the manufacturers, will be made use of.”

CUMI has three factories in State of Kerala and is in the business of manufacturing electro minerals using electric arc furnaces, which process requires continuous supply of electricity. CUMI filed an application with the State for allotment of “Maniyar Hydel Scheme” in the River Kakkad Basin. After the Scheme was allotted vide order dated 18.01.1991, CUMI undertook to establish the Maniyar Hydro Electric 3 Kerala State Electricity Board Project with 12 MW capacity on River Kakkad, as a Captive Generating Station for its industrial units. An Agreement was entered into between CUMI and the Board on 18.05.1991 (CUMI Agreement for short), which specifically referred to the Policy and stated that the terms and conditions of the Policy “shall form part of this agreement as if incorporated herein”. Clauses 8 and 14 of CUMI Agreement were as under:- “8. The energy from Maniyar Hydro Electric Project fed into the K.S.E.B. Grid will be metered at a location as detailed above (using meter duly calibrated by K.S.E.B.) and this quantum of energy less twelve percent towards wheeling charges and T & D Lesses will be delivered free of cost to CUMI at their E.B.T. Terminate at the point of supply in their installations. In the case of supply or receipt made in LT Lines the allowance for lessee and wheeling charges will be more and will be as stipulated by the KSEB. In case energy in excess of the requirement of CUMI is generated from the projects during one accounting year such excess energy shall be fed into the KSEB grid itself at rates to mutually agreed upon. Under no circumstances shall CUMI be entitled for the sale or transfer of any excess energy or any energy produced from the project to any party other than the KSEB. The accounting of the energy fed into the grid and supplied by KESB to CUMI or operating their factories in Kerala at Palakkad, Koratty and Kalamaooery will be settled on an annual basis, the year being reckoned from lot of July to 30th June. … … …

14. Royalty for the use of water together with the tax and duties on generation of power as fixed by govt/KESB from time to time have to be paid by CUMI, to K.S.E.B. Maniyar Hydro Electric Projects will utilize the existing head works benefit of the Maniyar Irrigation Dam of P.W.D. which is fed mainly by the controlled release of water from existing Moozhiar Power House of KSEB. In order to account for the additional advantage gained by way of getting such controlled released, CUMI will have to pay to KSEB the cost components for the energy generated from the scheme. This will be in addition to the royalty on water to be paid. The charges for controlled release as above as well as royalty on water, will be reckoned on the quantum of energy generated and shall be ten percent of energy tariff rate for E.H.T. consumer current from time to time for every unit of energy generated and shall be paid to the K.S.E.B.”

By 1994 the Project was commissioned by CUMI at a cost of Rs.22 crores and since then CUMI has been generating electricity which is used for self consumption in terms of CUMI Agreement.

INDSIL has a factory in the State for the manufacture of Ferro Alloys and was availing supply of electric energy from the Board.

INDSIL having expressed interest in setting up a small hydel scheme, due negotiations and meetings were held. In a meeting held with the Board on 08.04.1994, one of the decisions was :- “i) Royalty to be charged on water – It was decided that Irrigation Dept. will be requested not to charge the cess or royalty especially where water is being retained in the same basin and there is no consumptive use.”

An Agreement (INDSIL Agreement, for short) was thereafter entered into between INDSIL and the Board on 30.12.1994 for setting up “Kuthungal Phase I and II Project” in Idukki district of the State with 21 MW installed capacity for generation of electricity. INDSIL Agreement referred inter alia to the terms and conditions set out in the Policy and stated that said terms and conditions “shall form part of this Agreement as if incorporated herein.” Clauses 10 and 19 of INDSIL Agreement were to the following effect: - “10. The energy from KUTHUNGAL PHASE I AND PHASE II project fed into the KSEB grid will be metered, at a location as detailed above (using meter duly calibrated by KSEB) and this quantum of energy less 12% (Twelve percent) towards wheeling charges and T & D losses will be delivered free of cost to the company and their associate M/s. Sun Metals & Alloys Pvt. Ltd., Kanjikode, Palaghat at the EHT Terminals at the point of supply in their installations if any, or it will be banked by the KSEB if the company so desires. The KSEB will collect 1% (One percent) of the energy so banked as its commission. This will be in addition to wheeling and loss towards transmission and distribution charges. … … …

19. Cess/ Royalties for use of water, if decided by the Government together with tax/ duties as fixed by the Government from time to time shall be paid by the company to Government.”

Since the setting up of the project by June, 2001 at a cost of Rs.50 crores, INDSIL has been generating electricity which is essentially used by it and its associates as stated in Clause 10 of INDSIL Agreement.

The respective projects were thus set up by CUMI and INDSIL for Captive Power Consumption and such producers of electricity for own consumption are called Captive Power Producers (CPP) as against Independent Power Producers (IPP) who generate electricity not for self consumption but for supply in its entirety to the Board.

On 11.10.2002, Guidelines were issued by the Government after noting the Policy and the recommendations of the Empowered Committee set up vide G.O. dated 5.9.2002. These Guidelines dealt with transmission and distribution losses in wheeling the energy to CPPs but did not deal with royalty for the use of water. The relevant portion of these Guidelines was: - “The Empowered Committee constituted as per the GO read as 3rd paper above, to oversee the implementation of the reforms of the KSEB and to examine the details for the erection of Small and Mini Hydel Projects, in its meeting held on 5.9.02 and 12.09.02 considered the scope for taking small hydel projects and recommended to Government that the small hydel projects excluding dam toe and tail race projects should be opened up for captive consumers and Independent Power Producers including public sector undertakings and also made the following recommendations:-

1. The Public Sector undertakings and the power intensive industries within the State may be given preference in allotment of the small hydro projects.

2. The allowance to KSEB to compensate the T & D loss in wheeling the energy from generating station to the consumption point of Captive Power Producers (CPPs) which has been fixed at 10% as per clause (9) of the G.O. (MS) No.23/90/PD dt.7.12.90 may continue to be allowed to KSEB.

3. Wheeling charges to KSEB which has been fixed at 2% as per clause (9) of G.O. (MS No.23/90/PD. dt. 7.12.90 may be increased to 5%.”

The Guidelines were revised vide G.O. dated 16.1.2003 which dealt with CPPs and IPPs. As regards CPPs the revised Guidelines stated: -

…… As per G.O. (MS) 23/90/PD dt.7.12.1990, Government laid down terms and conditions for allotment of small hydel projects. Since the Government proposes to invite more private participation in this sector, it has become necessary to prescribe revised guidelines for allotment. Power schemes utilizing controlled releases form the existing reservoirs and tailrace are reserved for KSE Board.

Nothing was specified with regard to the royalty for the use of water by CPPs but while dealing with IPPs, it was stipulated: - “…15. Water Cess: Water Cess not required since, it will reflect on tariff and hence not investor friendly.”

Both CUMI and INDSIL have been paying wheeling charges for consumption of electricity. Right from 1994 till April 2003, CUMI had also paid charges for the use of controlled supply of water at the rate specified in Clause 14 of the CUMI Agreement. In May 2003, CUMI however made a representation that it be exempted, like other projects from payment of such charges. Attempts on part of the Board to charge royalty/cost component for controlled release of water from CUMI and INDSIL in terms of clause 14 of the Policy has led to the disputes in the instant matters which are subject matter of these appeals. Before we set out the pleadings pertaining to such disputes, the locations of the respective Projects and what kind of flow of water is used, must be noted:- CUMI: The water flowing down from Moozhiyar Power House of the Board is diverted to the Kakkad Power House (50 MW) of the Board for generation of electricity using “tail race” benefit of Moozhiyar Power House. After power generation at the Kakkad Power House, the water is allowed to flow back into the river and is then utilized for irrigation and for the Maniyar Hydro Electric Project of CUMI. INDSIL: Anayirankal Dam, one of the largest earthen dams in State of Kerala was built in the 1960s and soon thereafter, the Paniyar Power House having capacity of generating 32 MW electricity was built by the Board. Kuthungal is situated in between Anayirankal Dam (at the higher altitude) and Paniyar Power Station of the Board (at the lower level). Thus the water released from Anayirankal Dam for generation of electricity at Paniyar Power Station passes through the area where the project of INDSIL is situated.

CUMI filed O.P. No.6880 of 2003 praying, inter alia, that the Board had no authority to levy, demand or collect any charges for controlled release of water or royalty from CUMI in respect of electricity generated by it at its Maniyar Hydel Project. The necessary pleadings from the writ petition were: “2. … … The 2nd respondent Board had set up its 2nd largest Hydro-Electric project of Sabirigiri on River Pamba. The waters of the said river were utilized by the 2nd respondent Board for generating electricity at Moozhiyar Generating Station and part of the water flowing down from Moozhiyar Generating Station after generation of electricity was being utilized for irrigation purpose and rest of it is flown down to Arabian Sea. Part of the water flowing from the Generating Station at Moozhiyar is utilized also for generating electricity at Maniyar Hydro Electric Project which was taken up by the petitioner as a captive generating station for the petitioner’s industrial units at Kalamassery and Koratti to meet part of its requirements. …… Petitioner had no option but to sign the agreement stipulated by the respondents and was compelled to sign the same.

3. … … Apart from unconstitutional impost the method of imposition and rate of royalty and alleged controlled release of water is totally irrational, arbitrary and unfair. The royalty can only be based on the quantity of material or benefit consumed by a person from the facility.

4. … … It is submitted that water required for generating electricity at the Mooziyar Power House is a fixed quantity based on the capacity of the turbine and whatever water is required for such generation has to flow down from the turbine. There is absolutely no controlled release of such water to the petitioner’s Hydro- Electric Project at Maniyar in Kakkad river. The water flowing down from Moozhiyar Power House supplemented by water from the catchman area of river banks below the Moozhiyar Power Station was partly utilized for irrigation purpose and the remaining water flows down earlier, it was only part of such water from Moozhiyar Power Station and from catchman areas that is utilized for generation of electricity by the petitioner at its Maniyar Hydel Project. However, from the year 1998 the water flowing down from Moozhiyar Power House was diverted to the Kakkad Power House of the 2nd respondent and after generation of electricity at Kakkad Power House the water flowing down flows back to the same river at a lower stage and utilized for irrigation and partly for the petitioner’s Maniyar Project. It is submitted that the water released from Moozhiyar Power House is thus diverted to Kakkad Power House and utilized for power generation there. The alleged controlled release of water from Moozhiyar Power House to the petitioner’s hydel project at Maniyar is no longer there and has ceased to be available to the petitioner after commissioning of the Kakkad Power Station by the 2nd respondent. It is therefore submitted that the 2nd respondent cannot in any manner charge or collect the so-called cost component for controlled release of water from Moozhiyar Power House since there is no such release, much less controlled release of water from Moozhiyar Power House to the petitioner after 1998. Petitioner submits that in any event the charge and collection of cost component from the petitioner after 1998 is totally without authority of law, arbitrary, illegal and unfair.

5. … … There is no provision in the Electricity Supply Act conferring any power on the 2nd respondent to impose royalty or any charges on generating company which have the same powers, duties and functions for the flow of water in river Pamba or its tributaries.

6. Petitioner submits that the respondents have granted permission and rights to several other generating companies like the petitioner to set up small hydel projects. Thus private industrial generating companies like INDSIL Limited, Silcal Metallurgic Limited TECIL Hydro Power Limited had all set up private hydro-electric stations in which the respondents have not subjected them to any royalty or alleged cost component of released water form the Hydro- electric projects upstream on the respective rivers. Petitioner submits that the respondents have singled out the petitioner and subjected the petitioner to discriminatory charges.” A

In the counter affidavit filed on behalf of the Board, the assertions made by CUMI in the writ petition were denied. It was submitted: “2…… In the Ext.P1 Government Order dated 07.12.1990, it is clearly stated in Clause 21 that before implementation of the scheme, an agreement setting forth all the aspects in the Government Order and such conditions as found necessary will be entered into between the agency on the one part and the KSE Board/Government on the other. Hence the allegation of the petitioner that the 2nd respondent has no authority of law or competency to stipulate or impose any conditions or agreement is not true. Moreover, the respondents have not compelled the petitioner to sign the agreement and hence the allegation in this regard are not true and hence denied. The petitioner has applied for the captive generation station in pursuance of the Ext.P1 Government Order dated 07.12.1990 and the Government have granted permission strictly in accordance with stipulation in the above said Government Order.

5. It is submitted that from the year 1998, the water flowing down from Moozhiyar Power House is collected in the reservoir of Kakkad Power House of the 2nd respondent and after generation of electricity at Kakkad Power House the water flowing down to the same river and to the reservoir of the petitioner’s Maniyar Project. Thus, the water released from the Moozhiyar Power is further controlled at Kakkad Power House. Maniyar Project thus runs with the controlled release of water from the Kakkad Power House which was commissioned after setting up of the Maniyar Hydro Electric Project. Water utilized for generation in their project is from absolute controlled release if it was either from Moozhiyar Power House or later on form Kakkad Power House and hence the allegation that charge and collection of cost compound from the petitioner after 1998 is totally without authority of law, arbitrary, illegal and unfair is baseless and untenable.”

In its rejoinder to the aforestated counter affidavit, CUMI submitted:

6. … … Whatever quality of water used at the Kakkad Power House can only flow down and cannot be prevented by the 2nd respondent from flowing down. There is no question of controlling the water that has to flow down from the power house to the river. In addition to the water flowing down that Kakkad Power Station large quantity of water flows into the river from the river banks flooding the river during heavy rains and there is no control on the flow of water to the petitioner’s Maniyar generating station, which is about 6 kms. downstream from Kakkad generating station.”

On 03.07.2004 an order was issued by the Government that in terms of Clause 19 of INDSIL Agreement, INDSIL would be liable to pay royalty and cost of controlled release of water. The order stated:

The Kuthungal HEP (21 MW) is a CPP implemented by M/s INDSIL. The project utilizes the water available from the free catchment between Anayirankal Dam and Kuthungal weir as well as the controlled releases from Anayirankal Dam. The Maniyar HEP (12 MW) the first CPP owned by M/s. Carbourandum Universal utilizes the controlled releases from Sabarigiri and Kakkad Hydro Electric Project of KSEB. The royalty for this project is being charged at the rate of 10% of the energy tariff rate for EHT Consumers and is paid to KSEB. Government after detailed examination hereby order that the royalty and cost of controlled release of water to the Kuthungal HEP shall be reckoned on the quantum of energy generated and shall be 10% of the energy tariff rate for EHT Consumers current from time to time for every unit of energy generated and in addition, the Company is liable to pay 1.2 paise per unit as electricity duty for each unit of electricity generated in accordance with the provision of the Kerala Electricity Duty Act. The Chief Electrical Inspector shall collect the royalty from the company and remit it to the State revenue.

INDSIL challenged the order dated 03.07.2004 by filing Writ Petition (C) No.22187 of 2004 in the High Court. The Writ Petition was however withdrawn with liberty to make an appropriate representation to the Government. This led to some correspondence and representations from INDSIL. The Government, however, refused to recall its decision to recover royalty and cost of controlled release of water, which was communicated vide order dated 23.01.2008. The action on part of the Government was challenged by INDSIL by filing Writ Petition (C) No.4596 of 2008 in the High Court.

With regard to the use of controlled water INDSIL submitted:- “11. Kuthungal is situated between Anayriankal at the higher end and Ponmudi at the lower end. Paniyar power station at Vellathooval has a capacity to generate 30 MW of power. The said power station funcitons on water flowing across Paniyar river. There are two storages maintained by the KSEB for its Paniyar Power Station. One is at Ponmudi and other is at Anayirankal which is situated at a height of 1850 Meters above the sea level. As submitted above, there is a reservoir at Anayirankal where the water is stored. Water stored in the Anayirankal reservoir is released by the KSEB during the peak summer months between January and April for the generation of power at Paniyar Power Station. This is done normally for a period of about 45 days out of the afore mentioned three/four months from January to April such release of water by the KSEB from Anayirankal is dictated by the requirement in Paniyar Power Station at Vellathooval; commencement of the releases is decided by the KSEB; quantum of water is controlled by the KSEB and determined by the rquirements in Paniyar Power Station.

The reply given on behalf of the Government to the petition by INDSIL was:- “9. … … In fact, the scheme envisages utilization of controlled release from Anayirankal reservoir in addition to water from 114 sq.km., free catchment downstream of the dam as per the detailed project report prepared by KSEB in August, 1991. The petitioner had also made their own assessment as per the techno economic feasibility report submitted by them. As already mentioned, the scheme envisages utilization of water from 114 sq.km. of free catchment downstream of existing Anayirankal reservoir drained from a catchment of 65 sq. Km for power generation as per the detailed report mentioned above. The averment and allegations in paragraphs 10 and 11 of the writ petition are not fully correct and hence denied. The description of the project of the petitioner given in the said paragraph explaining that is designed as a “run of the river” scheme does not deny the fact that it is using the water released from Anayirankal reservoir for the months from January to April. It is true that the release of water from Anayirankal reservoir is mainly decided based on the generation requirements at the Panniyar Power Station. However, this water when released is being utilized at Kuthunnal for power generation. The entire water after power generation flows down to Ponmudi reservoir without any depletion of quantity of water which is the case in every hydro electric project. The petitioner’s contention that the release of water from Anayirankal reservoir is not done in order to suit the requirement of the petitioner but in accordance with the requirement of Panniyar Power Station is in correct. In fact, the petitioner Company is getting the full advantage of power generation from the release of water from Anayirankal reservoir in the peak summer months. … … …

12. … … Even though the controlled release of water from Anayirankal reservoir is made to suit the requirement of power generation at Panniyar, it is also utilized for power generation at Kuthungal Hydro Electric Project. It is to be noted that the power generation from the Kuthungal Project was comparatively high when there is water releases from the Anayirankal reservoir, which would otherwise have been negligible if water from Anayirankal reservoir is not released. During this period a total generation was 266.69 MU and generation from controlled released is 60.12 MU, which is about 22.54% of the total generation. During the drought year of 2002-03, 50% of the total generation from the project was during summer months utilizing water release from Anayirankal. The above facts clearly establishes that the petitioner is a beneficiary of the controlled release of water from Anayirankal.”

Writ Petition (C) No. 4596 of 2008 preferred by INDSIL was allowed by the Single Judge of the High Court by his judgment and order dated 15.02.2013. It was observed that the action on the part of the Government was discriminatory, as all CPPs with the exception of CUMI were not subjected to such royalty. The explanation offered that CPPs and IPPs stood on different footings was not accepted. It was concluded that there was no jurisdiction to recover any royalty or cess and accordingly the order dated 03.07.2004 was quashed.

O.P. No.6880 of 2003 preferred by CUMI was allowed by the Single Judge of the High Court by his judgment and order dated 03.04.2013 with following observations:

Even though in W.P.(C) No.4596/2008, I have given some findings against the petitioner, in view of my findings in Paragraphs 36 to 41 and 51 to 53 of the said judgment, I allow this writ petition and set aside the impugned order, Annexure P-3 holding that the Government is devoid of jurisdiction to realize any amount from the petitioner by way of Royalty or other charges on the water used for the Maniyar Hydel Project. In the circumstances, there will be no order as to costs.

The decisions of the Single Judge in the matters of INDSIL and CUMI were called in question by the Board by filing Writ Appeal Nos.1345 of 2013 and 1355 of 2013 respectively before the Division Bench, which appeals were allowed by the Division Bench vide its common judgment and order dated 03.04.2014. The judgment of the Division Bench comprises of two parts: the first part dealt with the case of INDSIL; while the second part considered the case of CUMI.

22.1 After considering some of the decisions of this Court, it was held that after entering into an agreement, a party would be estopped from disputing its liability in terms of the agreement. With regard to the submission based on discrimination, the Division Bench observed:- “24. The first ground on which the learned single Judge has interfered with Ext.P11 is that it violated Article 14 of the Constitution of India which prohibits discrimination. The judgment shows that according to the learned single judge, the distinction between 1st respondent’s Hydro Electric plant and others on the basis that the former is a CPP and the latter is an IPP, is an artificial one and has no object that is sought to be achieved by it. In our view, this conclusion of the learned single Judge has no basis. As we have already seen the Hydro Electric Project of the 1st respondent is a Captive Power Plant, which is meant only to cater to their own requirement of electrical energy at their factory in Palalkkad. Therefore, generation at CPP does not involve any sale either to the Electricity Board or to anybody else. On the other hand, the remaining power plants, except the one established by M/s Carborandum Universal Limited, are Independent Power Plants which have entered into power purchase agreements with the KSB on the basis of which the entire power generated is purchased by the Electricity Board on terms and conditions which are mutually agreed between the parties. In respect of the power thus generated by the IPP’s, if the Board or the State levys royalty, cess or other charges, that will necessarily be added to the price at which the energy generated is sold to the Board. Such increased price paid by the Board to the generating company, necessarily will have to be passed on to the Board’s consumers, who are the end users of the energy generated. This necessarily will lead to a situation where the energy generated and sold to consumers would become costlier. According to the Board and the Government, this was the reason why the IPP’s were relieved of the obligation to pay royalties or cess or other charges on the energy generated by them.

Learned single Judge has held that both IPP and CPP are established for the same purpose of augmenting energy generation. But the learned single Judge has lost sight of the distinguishing factor that the energy generated by the CPP of the 1st respondent is not available for distribution to consumers and that it is only for self consumption unlike the other IPP’s. Therefore, in our view, the justification that if royalty or cess or other charges are levied, the energy generated at IPP’s would be more expensive to the consumer and that it was therefore that the IPP’s were relieved of that obligation, is a valid reason for classification of IPP’s and CPP’s under Article 14 of the Constitution of India.

Secondly, IPP’s that are complained of by the 1st respondent were established to Exts.P8 and P9 orders issued by the Government of Kerala in 2002 and 2003. These orders show that the terms and conditions that are incorporated in these orders are totally different from what are contained in Ext.P1, pursuant to which sanction was accorded, agreement was executed and the project was established by the 1st respondent. Therefore, the obligations undertaken by the 1st respondent in Ext.P3 agreement and the obligations that are fastened on the beneficiaries of Ext.p8 and Ext.P9 are incomparable and different. That itself shows that the 1st respondent and the owners of the independent power plants fall in separate classes and therefore also there cannot be any discrimination to be complained of.

Yet another reason, in our view, a valid one, urged by the Electricity Board was that unlike the case of the 1st respondent, the 59 IPP’s are not beneficiaries of controlled release of water. The pleading show that according to the State, 22.54% of the power generated by the 1st respondent at its CPP is attributable to controlled release of water. On the other hand, IPP’s are not beneficiaries of such controlled release. That also is a sound reason to hold that the CPP’s and IPP’s are not similarly situate.

In sum and substance, we are unable to endorse the conclusion of the learned single Judge that by issuing Ext.P11, the 1st respondent was treated in a discriminatory manner or the Ext.P11 is arbitrary or unreasonable offending Article 14 of the Constitution of India.”

22.2 Considering the nature of obligation undertaken in terms of INDSIL Agreement, the Division Bench observed:- “38. Since royalty in these cases is only a contractual payment reserved by the granter and is not a levy in the nature of tax, the question of the State being legislatively competent or incompetent to levy royalty on the water consumed at the hydel plant of the first respondent does not arise. Even if the words royalty and cess are interchangeably used, that is inconsequential, in so far as the nature of the levy of royalty is concerned. Therefore, this conclusion of the learned single Judge also cannot be sustained.

The learned single Judge also held that even if the levy is payable, such levy cannot have retrospective effect. This view also cannot be endorsed because once the 1st respondent has undertaken the liability to pay royalty as and when levied by the Government, Government is always at liberty to levy royalty from the time the benefit of the agreement was derived by the 1st respondent. Therefore, this contention also cannot be accepted.

Learned senior counsel for the 1st respondent argued that the controlled release of water from Anayirankal Dam was made by the Board through Panniyar river depending upon the requirements of the Panniyar Power Project of the Board. According to him, this water is diverted by the weir across Panniyar river at Mukkudi to the Kuthungal Project and made use of these only because of the situs of the Kuthungal Project. This, according to the counsel, is only an incidental benefit and that to make them liable for controlled release, water should be released solely at their instance and for generation at their project and not otherwise. In our view, this argument has no substance. Parties are governed by a mutually agreed contract evidence by Ext.P3. Agreement provides that for the additional advantage of controlled release derived by them, the agency is liable to pay charges as provided in the agreement. Agreement does not state that such controlled release should be at the instance of the 1st respondent and that it should be for their sole benefit. Instead, if the agency is a beneficiary of the controlled release of water, they are liable to pay for it. Admittedly, the 1st respondent is generating energy utilizing the controlled release of water from Anayirankal and so long as it is so, in view of Clause 14 of the Ext.P1, the 1st respondent cannot get itself absolved of that liability. Therefore, this contention is only to be rejected and we do so.”

22.3 The Division Bench thus found that the Single Judge of the High Court had erred in allowing the Writ Petition preferred by INDSIL. It, however, concluded that the demand raised by the Government vide order dated 03.07.2004 was on the quantum of energy generated rather than being linked to the quantity of water used or the utilization of controlled release of water. It, therefore, directed the Government to pass fresh orders after due notice to the appellant as under:- “42. Therefore, royalty under clause 14 of Ext.P1 Government Order should be levied assessing the quantity of water used applying Clause 15 of Ext.P1. However, in Ext. P11 royalty is levied on the quantum of energy generated. This, in our view, is inconsistent with Ext.P1 Government Order and Ext. P3 agreement which permits levy of royalty only for the use of water, which also should be based on the quantity of water as assessed by applying the formula specified in Clause 15 thereof and not on the quantity of energy generated.

Similarly, for the benefit of getting the controlled release of water, Government is free to levy on the agency, in tariff equivalent to the cost component for energy generated from the scheme. For this purpose, as is evident from clause 14 of Ext.P1 Government Order, what is payable by the 1st respondent is tariff equivalent to the cost component for the controlled release utilized by the grantee for the energy generated. Though at one stage, it was contended that 35% of the energy generated was utilizing controlled release, in the counter affidavit filed, it is stated that it was 22.54%. While we agree that this figure cannot be a constant one, it is a fact that entire energy is not generated utilizing controlled release of water. But, since the charges for controlled release as ordered in Ext.P11, and which was confirmed by the Government in Exts.P15 and P28, is on the entire energy generated, the demand is inconsistent with Exts. P1 and P3, we are unable to sustain the orders.”

22.4 With regard to the matter concerning CUMI, it was observed: “57. In our view, the provisions of the Electricity (Supply) Act, 1948 dealt with generation of electricity and the provisions of the Act did not prevent a Government or Board from entering into an agreement, agreeing to provide natural resources of water to a generating company for the generation of energy by setting up a hydel generation station against royalty or other charges payable by the grantee. Therefore, if under the contract, the Government agree to a private party like the 1st respondent that it shall make available water to a Hydro Electric Project for generation of energy and in consideration, royalty is required to be paid to the Government and that contractual right of the Government or the obligation of the generating company to pay are not affected by any of the provisions of the Electricity (Supply) Act, 1948. Therefore, the 1st respondent who has willingly entered into an agreement undertaking to pay royalty and other charges to the Government and after having enjoyed the benefit thereof, cannot now rely on the provisions of the Electricity (Supply) Act and contend that the Government or the Board have no power under the Electricity (Supply) Act to realise the charges that are contractually payable by them. Therefore, this contention of the learned senior counsel is unacceptable and is rejected.

The second contention raised by the learned senior counsel for the 1st respondent was that there was no controlled release to the Maniyar Hydro Electric Project and that therefore the charges levied on them for controlled release of water is unsustainable. We have already rejected such a contention raised by the 1st respondent in WA Nos.1345/13 and 18/14 and the reasons assigned by us should apply to this case also. Morever, we are unable accept this contention of the learned senior counsel for the reason that Clause 14 of Ext.P2 agreement provides for controlled release of water and the 1st respondent shall pay charges to the Board. If there was no controlled release of water, there was no reason why the 1st respondent should have entered into such an agreement taking over the liability to pay charges for the controlled release of water also. That apart, both in Exts. P5 and P6, the representations made by them objecting to the levy, they had no case that there was no controlled release of water. Therefore, by the above agreement and correspondence, the first respondent themselves have admitted that there is controlled release of water and therefore it is too late in the day for them to turn around and contend that there is no controlled release of water absolving them from the contractual obligations in Clause 14 of the agreement.”

22.5 The Writ Appeal preferred against CUMI was thus allowed and the decision of the Single Judge was set aside.

INDSIL being aggrieved, filed Civil Appeals Nos.9845-9846 of 2016 reiterating its submissions advanced in the High Court. In the response filed on behalf of the Government, it was submitted inter alia:- “D. … …the Petitioner is a Captive Power Plant which generates power from the water course along with the controlled release of water from the Anayirankal reservoir to Ponmudi for self- consumptioin and thereby collection of royalty by Government cannot reflect in the tariff, because the energy so generated is not sold to KSEB for distribution. Further, 22.54% of the power generated by the Petitioner at its Captive Power Plant is attributable to controlled release of water. Unlike the case of the Petitioner, the 59 IPP’s are not beneficiaries of such controlled release. Royalty was demanded by Government as consideration for granting the right to usage of water from the natural resource vested in the Government, for generation of electricity, which does not fall within the purview of the powers of the Regulatory Commission constituted between the Petitioner and KSEB is conclusive and is absolutely binding on the Petitioner. … … … I. … … The project utilizes the water from the free catchment between Anayirankal dam and Kuthunkal weir along with the controlled release of water.

23.1 In the affidavit in rejoinder, it was submitted by the INDSIL:- “That Respondent no.1 & 2 have further drawn distinction on the fact that the petitioner’s project is based on controlled release of water from the Anayirankal dam while the other 59 projects are not based on any controlled release. It is submitted that the petitioner’s project is not based on controlled release of water and therefore there is no question of the petitioner utilizing the State’s natural resources with controlled release of water from Anayirankal dam for our exclusive benefits. It is submitted that wherever the State Government has entered into a contract with a party like M/s Carborandum’s project, involving controlled release of water, it has provided a specific clause to this effect since it would involve incurring of cost for providing the services. It is submitted that in the case of the petitioner’s, no such clause is provided and it is for this reason that the State Government specifically agreed in the meeting dated 8th April, 1994 that water cess for the use of water would not be charged. It is thus submitted that the petitioner is being discriminated against by respondent no.1 & 2 in the facts of the instant case in grave violation of its fundamental rights guaranteed under Article 14 of the Constitution of India.

7. it is pertinent to mention here that respondent no.1 & 2 have imposed the same rate of royalty on Carborundum’s project and that of the petitioner’s. It is submitted that it is an admitted fact that Carborundum’s Project is based on controlled release. In the Petitioner’s case, there is no such controlled release. Further, on an average, only 22.54% of the petitioner’s generation comes from the alleged controlled release. It is submitted that on this ground alone, the levy put on the petitioner is unreasonable and arbitrary.”

In Civil Appeal Nos.9847-9850 of 2016, the grounds of appeal raised by CUMI have reiterated its submissions before the High Court. The assertions with respect to the location of the project and use of controlled release of water were:-

The alleged controlled release of water must be directly to the petitioners’ Maniyar Hydroelectric project from the water releasing point at Moozhiyar Power House of KSEB and not to Irrigation Dam of PWD or to its own Hydroelectric project at Moozhiar. After the year 1998, KSEB has set up its own Hydro Electric Project at Kakkad upstream of the river and two more Private Hydel Power Project had been approved and set up on the same river upstream, i.e. in between the Moozhiyar Power House of KSEB and the Petitioner’s Maniyar Power Plant. It is pertinent to note that the alleged controlled release of water being used by the Board’s Hydro Electric Project at Kakkad at the first instance and then flows further down to two other private Hydro Electric Projects at Ullunkal & Karikkayam before it reaches the irrigation dam owned by PWD from where the Petitioner draws water for its Maniyar Hydro Electric Project. It is further to be noticed that when the flow of the controlled release of water further strengthened by two more minor rivers and forms confluence on its way of flowing further down along with the other source of water from the catchment area of 237 square kilometers as evidence by the map on record.

24.1 In the affidavit in reply filed by the Board, it was stated:- “8. … …the Hydro Electric Project are generally classified into two categories based on the storage capacity namely (a) Hydro projects with reservoir of large capacity and (b) Hydro projects having small capacity reservoir /run of river projects. … … …

11. The Sabarigiri Power Project comprises of two dams, one across the river Pamba (Pamba reservoir) and the other across its tributary Kakki (Kakki reservoir) with a flanking dam also at Anathode. These two reservoirs are connected through a interconnecting tunnel of 105241 feet long (3209.82m). The water from the Kakki reservoir is drawn through 18209 ft (5553.73m) long power tunnel and a set of three penstocks leading the waters to the power house with an original installed capacity of 300 MW consisting of 6 units of 50 MW. After Renovation and Modernisation of the station, the installed capacity is increased to 340 MW. The total storage capacity of Kakki and Pamba reservoirs is 477.67 MCM (Million Cubic Metre). In addition to the above, augmentation schemes like Upper Moozhiyar (0.035 MCM, Meenar 1 (0.028 MCM), Meenar – II (0.057 MCM) and Kullar – Gaviar (2.78 MCM) agument the Pamba and Kakki reservoirs. Thus, the total storage capacity of Kakki and Pamba reservoirs is 480.54 MCM.

12. The Maniyar Power House operated by M/s Carborandum Universal Ltd. the petitioner herein belongs to the second category where the gross storage is only 8 MCM (Million Cubic Metre), which is not even sufficient for two days full load operation of the Power House. However, the Maniyar Power Station is operated throughout the year only due to the large storage of the Pamba- Kakki storage reservoir (about 60 times larger than Maniyar storage) and controlled release of water from Sabarigiri Power House. When M/s Carborandum Universal Ltd., executed the agreement with KSEB on 18.05.1991, the construction of Kakkad Power Station on the down stream of Sabarigiri Power Station was going on. It is to be noted that the Kakkad Power Station also has a very small storage capacity. The Moozhiyar reservoir with storage capacity of 1.16 MCM and Veluthodu reservoir with storage capacity of 0.607 MCM are the reservoirs of Kakkad Power Station. Thus, the storage capacities of the three power stations are as shown below: Sabarigiri Power House – 480.54 MCM (Effective) Kakkad Power House – 1.767 MCM (Effective) Maniyar Power House – 8.0 MCM (Gross) …. …. ….

14. … … The Pamba Dam across Pamba river, Kakki Dam across Kakki river and a flanking dam at Anathode are the main three dams of Sabarigiri Project. These Dams are at an elevation of about 900 M from the sea level. Water from the Kakki reservoir is brought to Sabarigiri Power House, the water is again stored at Moozhiyar by a concrete Gravity Dam. Water from other small streams like Saippinkuzhy stream also reaches this reservoir. This water is brought to Kakkad Power Station through under ground tunnel and utilized it for power generation. Water from another stream called Veluthode is also brought to Kakkad Power Station by constructing a small Dam across the stream. Before the commissioning of the Kakkad Power Station, the controlled release of water from Sabarigiri Power House directly reached the maniyar barrage (owned by Kerala Irrigation Department) and this was utilized by M/s. Caborandum Universal Ltd., for power generation at maniyar Power House. The only difference after the commissioning of Kakkad Power Station is that the same water is once again utilized for power generation at Kakkad Power Station. There is an added advantage that some more control/ regulation can be done at Kakkad Power House also. It is to be noted that there are no major sources of water (rivers) between Kakkad and Maniyar which can substantially contribute for the supply of water to Maniyar Power House. Now, two more small power stations at Ullumkal (7MW) and karikayam (10.5 MW) are established between Kakkad and Maniyar Power Stations. All these power stations at Kakkad, Ullumkal, Karikayam and Maniyar have small reservoirs and utilize the huge storage and controlled release of water from the Sabarigiri Power Station for power generation throughout the year. Had there been no Sabarigiri Power Project, the water from Pamba and Kakki rivers would have flown though the natural flow path of these rivers and would reached much below the Maniyar Power House as it can be seen from the sketch attached.”

24.2 In its rejoinder to the aforestated reply, it was submitted by CUMI:- “19. That the contents of para (8) of the counter affidavit need no reply as the said contents are not relevant for the adjudication of the instant SLP.

20. That the contents of para (9) to (18) of the counter affidavit are denied as wrong and baseless. It is submitted that the averments contained in the aforesaid paragraphs are new pleas taken by respondent no.2 for the first time before this Hon’ble Court and as such the same cannot be allowed to be raised for the first time at special leave petition state….”

25. Mr. V. Giri, learned Senior Advocate for INDSIL submitted:- a) Clause 14 of CUMI Agreement was distinct and different from Clause 19 of INDSIL Agreement. Further, the matter was required to be seen in the light of the decision dated 08.04.1994 and imposition of royalty on the use of water would be in contravention of the decision dated 08.04.1994. b) No explanation was forthcoming as to why, as against specific inclusion of Clause 14 in CUMI Agreement, no such provision was made in INDSIL Agreement. c ) Being at a lower level than the Anayirankal Reservoir but higher than the Paniyar Power Station, the project of INDSIL was conceived as a “run of the river scheme”. The release of water from Annayirankal Reservoir would be only for 45 days in a year, and the regulation of release of water would be completely at the discretion of the Board and meant to facilitate the generation of power at the Paniyar Power Station. The release of water would be determined by the requirements of the Board at the Paniyar Power Station and that utilization of such controlled release constituted only 22.54% of the generation by the INDSIL. d) The controlled release of water in the case of CUMI would be meant to suit the requirements of its project. On the other hand, such controlled release of water would not be exclusively for the benefit of INDSIL but for the benefit of the Plant at Paniyar. It would therefore be illegal to draw similarity between the case of CUMI and that of INDSIL. e) The imposition of royalty on the use of water would be unconstitutional as INDSIL was discriminated against other similarly situated hydroelectric plants. f) Imposition of royalty in terms of Clause 19 of INDSIL Agreement would partake the nature and character of a “Tax”. Assuming that the royalty imposed on INDSIL had genesis in a contract, no decision was taken by the Government as contemplated under said Clause 19. g) Assuming that the terms of the Policy were incorporated into INDSIL Agreement, the tariff for storage/controlled release was required to be worked out in respect of each scheme separately.

26. Appearing for CUMI, Mr. C.A. Sundaram, learned Senior Advocate submitted:- a) When its Agreement was entered into, CUMI was the only Power Project in private sector and as such, there was no question of any discrimination. However, the discrimination arose when other Power Projects were given the benefit of controlled release of water without any charge. b) There could be no distinction between CPPs and IPPs. Guidelines of 2002 as revised did not make any such distinction. The basis for levy was the advantage gained from controlled release of water. Therefore, the differentia could be between those having the benefit of controlled release of water on one hand and those not having such advantage on the other. Any other distinction such as CPPs as against IPPs would be unnatural and irrational. A c) Even if, the relevant Clause in the Agreement was a negotiated Clause, said Clause being arbitrary or discriminatory was liable to be struck down. Reliance was placed on the decision of this Court in Central Inland Water Transport Corporation vs. Brojo Nath Ganguly4, ICOMM Tele Limited v. Punjab State Water Supply and Sewerage Board and Anr.5 and Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan6. d) The Power Plant of CUMI had been receiving water not just from Sabarigiri and Moozhiyar reservoirs but also from the streams in the catchment area. Thus, the entirety of the supply of water to CUMI could not be treated as controlled water from Moozhiyar Power House of the Board. e) The relevant Clause in CUMI Agreement would, at best, attract levy of charges for controlled release of water on the cost component thereof. Therefore, the stipulation in Clause 14 of CUMI Agreement providing 10% of tariff for the electricity generated was ultra vires the Policy. f) Further, the levy in question had to be commensurate with the service rendered, otherwise, it would cease to be a fee and would be wholly beyond the competence of the Board. Reliance was placed upon the decision of this Court in the State of Maharashtra & Ors. vs. Salvation Army, Western India Territory7. g) Considering the facts of the case, the calculations were required to be revisited where all relevant aspects had to be properly accounted for and the levy had to be linked to the cost of advantage gained from controlled release of water and not from other sources from catchment area.

27. Mr. Jaideep Gupta and Mr. P.V. Surendranath, learned Senior Advocates appearing for the Board and the State respectively, in both the appeals, submitted: -