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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1197 OF 2010
WITH
NOTICE OF MOTION NO. 100 OF 2010
Multi Commodity Exchange of India Limited )
a Company incorporated under the Companies Act, 1956 )
having its registered office at Exchange Square, CTS No. )
255, Suren Road, Andheri (East), Mumbai-400 093 )...Petitioner
versus
1. Central Electricity Regulatory Commission )
having its office at 3rd and 4th floors, )
Chanderlok Building 36, Janpath, New Delhi-110 001 )
2. Forward Markets Commission, having its office at )
"Everest", 3rd Floor, 100 Marine Drive, )
Mumbai-400 002 )
3. Power Exchange of India Limited )
having its offices at Exchange Plaza, Bandra-Kurla )
Complex, Bandra (East), Mumbai-400 051 )
4. Indian Energy Exchange Limited, )
having its offices at 10th floor, B-Wing, )
Statement House, Barakhamba Road, )
Connaught Place, New Delhi-110 001 )
5. Union of India, through Cabinet Secretary, )
Rashtrapati Bhavan, New Delhi-110 004 )
6. Ministry of Law and Justice,through its Secretary, )
4th Floor, A Wing, Shastri Bhavan, )
New Delhi-110 001 )..Respondents
Mr. N.H. Seervai, Senior Advocate, with Mr. Chirag S. Balsara, Ms. Gulnar
Mistry, Mr. Amit Vyas, Mr. Melvyn Fernandes and Mr. Varun Mamnia, instructed
by M/s. Rajani Associates, for the petitioner.
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Mr. Aspi Chinoy, Senior Advocate, with Mr. J.J. Bhatt, Senior Advocate and Mr.
Arijit Maitra, instructed by Mr. Ratnakar Singh, for respondent No.1.
Mr. Janak Dwarkadas, Senior Advocate, with Dr. Poornima Advani, Mr.
Himanshu Kode and Mr. Omprakash Jha, instructed by M/s. The Law Point, for
respondent No.2.
Mr. Vikas Singh, Senior Advocate, with Mr. V.K. Ramabhadran, Ms. Amnita
Narayan and Ms. Jyoti Maheshwari, instructed by M/s. Hemant Sahai
Associates, for respondent No.3.
Ms. Cynthia Fernandes, instructed by M/s. RMG Law Associates, for respondent
No.4.
Dr. G.R. Sharma with Mr. G. Hariharan, instructed by Dr. T.C. Kaushik, for
respondent Nos. 5 and 6.
WITH
WRIT PETITION NO. 1604 OF 2009
WITH
NOTICE OF MOTION NO. 71 OF 2010
Forward Markets Commission, having its office at )
"Everest", 3rd Floor, 100 Marine Drive, )
Mumbai-400 002 ).. Petitioner
versus
1. Central Electricity Regulatory Commission )
having its office at 3rd and 4th floors, )
Chanderlok Building 36, Janpath, New Delhi-110 001 )
2. Multi Commodity Exchange of India Limited )
a Company incorporated under the Companies Act,1956)
having its registered office at Exchange Square, CTS No.)
255, Suren Road, Andheri (East), Mumbai-400 093 )
3. Power Exchange of India Limited )
having its offices at Exchange Plaza, Bandra-Kurla )
Complex, Bandra (East), Mumbai-400 051 )
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4. Indian Energy Exchange Limited, )
having its offices at Barakhamba Road, )
Connaught Place, New Delhi-110 001 )
5. Union of India, through Cabinet Secretary, )
Rashtrapati Bhavan, New Delhi-110 004 )
6. Ministry of Law and Justice,through its Secretary, )
4th Floor, A Wing, Shastri Bhavan, )
New Delhi-110 001 )..Respondents
Mr. Janak Dwarkadas, Senior Advocate, with Dr. Poornima Advani, Mr.
Himanshu Kode and Mr. Omprakash Jha, instructed by M/s. The Law Point, for
the petitioner.
Mr. Aspi Chinoy, Senior Advocate, with Mr. J.J. Bhatt, Senior Advocate and Mr.
Arijit Maitra, instructed by Mr. Ratnakar Singh, for respondent No.1.
Mr. N.H. Seervai, Senior Advocate, with Mr. Chirag S. Balsara, Ms. Gulnar
Mistry, Mr. Amit Vyas, Mr. Melvyn Fernandes and Mr. Varun Mamnia, instructed
by M/s. Rajani Associates, for respondent No.2.
Mr.Vikas Singh, Senior Advocate, with Mr. V.K. Ramabhadran, Ms.Amnita
Narayan and Ms. Jyoti Maheshwari, instructed by M/s. Hemant Sahai
Associates, for respondent No.3.
Ms. Cynthia Fernandes, instructed by M/s. RMG Law Associates, for respondent
No.4.
Dr. G.R. Sharma with Mr. G. Hariharan, instructed by Dr. T.C. Kaushik, for
respondent Nos. 5 and 6.
CORAM: P.B. MAJMUDAR &
ANOOP V. MOHTA, JJ.
Judgment reserved on : 7th January, 2011
Judgment pronounced on : 7th February, 2011
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JUDGMENT: (Per P.B. Majmudar, J.)
Two regulatory authorities functioning under two different
enactments are locked horns and fighting tooth and nail against each other. The
regulatory authority functioning under the Consumer Protection Act i.e.
Forward Market Commission (FMC) claims sole right in the matter of forward
contract whereas the authority functioning under the Electricity Act, 2003 i.e.
Central Electricity Regulatory Commission (CERC) claims exclusive right in the
matter of dealing with the trading activities in connection with the electricity
including dealing in forward contract. In order to comprehend the controversy
raised in these two writ petitions, a brief synoptical view of the facts in Writ
Petition No.1197 of 2010 may be noticed:
2. Multi Commodity Exchange of India (MCX), petitioner herein and
Respondent No.2 in Writ Petition No. 1604 of 2009, is a company incorporated
under the provisions of the Companies Act, 1956 and a Commodity Exchange
duly recognised by the Central Government/Forward Market Commission under
the provisions of the Forward Contracts (Regulation) Act, 1952 (hereinafter
referred to as “FCRA”). The MCX has been formed and/or constituted for
facilitating the on-line trading, clearing and settlement operations for
commodity futures contracts across the country. The MCX started operations in
November, 2003 with the object of establishing, operating, regulating,
maintaining and managing facilities to enable the members of the exchange,
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their authorized agents and constituents and other participants to transact, clear
and settle the trade of future contracts in more than 103 commodities/goods
including Electricity and Natural gas as notified by the Ministry of Consumer
Affairs, Food and Public Distribution vide Gazette of India Notification dated 9th
January, 2006 and as permitted by Forward Markets Commission.
3. The first respondent in both these petitions, Central Electricity
Regulatory Commission (“CERC”), is established by the Central Government
under sub-section (1) of Section 3 of the Electricity Regulatory Commissions
Act, 1998 and functioning as such before the date of coming into force of the
Electricity Act, 2003. Section 79 of the said 2003 Act specifies some of the
specific functions to be discharged by the Central Commission.
4. The second respondent, Forward Market Commission (FMC) herein
and the petitioner in Writ Petition No. 1604 of 2009, was established in 1953 for
the purpose of exercising such functions and discharging such duties as may be
assigned to the Commission by or under the provisions of the FCRA. It is a
regulatory authority which is overseen by the Ministry of Consumer Affairs,
Food and Public Distribution, Govt. of India.
5. Then third and fourth respondents are Power Exchanges recognised
by the CERC.
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6. The challenge in both these writ petitions is to the two orders dated
28th April, 2009 and 11th January, 2010 passed by the CERC as well as the
Central Electricity Regulatory Commission (Power Market) Regulations, 2010
(hereinafter referred to as “the Regulations”) notified by the CERC on 20th
January, 2010 under Section 66 read with Section 178 (2) (y) of the Electricity
Act, 2003 purporting to exercise jurisdiction over forward contracts and futures
in electricity.
7. On 19th March, 2005, MCX applied to the FMC seeking approval for
launching electricity futures contracts. The FMC granted its approval on January
07, 2009 to the petitioner to commence trading in electricity futures at its
exchange. MCX accordingly launched forward trading in electricity with effect
from 8th January, 2009. The third respondent, Power Exchange of India Limited
(PXIL) challenged the electricity futures contracts formulated by the petitioner
by its application dated 18th December, 2008, before the CERC on the ground
that (i) the CERC has the exclusive jurisdiction over regularising electricity
including all forward contracts, futures, etc. (ii) after the enactment of the
Electricity Act, 2003, the MCX and the FMC have been denuded of jurisdiction
over electricity and (iii) the MCX had commenced launch of trading in
electricity futures contracts without any approval of CERC and mere approval
FMC had no efficacy in the eyes of law. MCX has raised an objection about the
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maintainability of such an application on the ground that CERC has no
jurisdiction to entertain such application as the FMC is a statutory regulatory
authority functioning under the Forward Market Act and the same is not
subjected to the jurisdiction of CERC. The Commission vide order dated 28 th
April, 2009, disposed of the said application by giving certain directions which
read thus:
(a) FMC exercises jurisdiction over the forward contracts in
accordance with the p0rovisions of the 1952 Act as they cannot
be said to be inconsistent with those of the 2003 Act and the twostatutes operate in independent fields.
(b) Regulatory oversight to promote development of market
in power is vested in this Commission as mandated underSection 66 of the 2003 Act and, therefore, the orders, guidelines
issued by this Commission and the regulations framed shall be
binding on all concerned.
(c) Power Exchanges approved by this Commission need not
approach FMC for any approval for the reasons that the
contracts traded or to be traded outside the scope of Section 15of the 1952 Act.
(d) MCX and other commodity exchanges permitted trading
of forward contracts by FMC at their platform shall be governedby the orders, guidelines, regulations and other prescriptions of
this Commission since they are not inconsistent with the
provisions of the 1952 Act.”
8. Being aggrieved by the aforesaid order, MCX preferred a Review
Petition being Review Petition No. 115 of 2009 seeking re-consideration and/or
review and/or modification of certain observations and findings of the said order
dated 28th April, 2009. The review petition has been decided by the Commission
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on 11th January, 2010 by which the CERC suo motu reversed the original order
and deleted crucial observations which expressly stated that there was no
conflict between the provisions of the FCRA and the Electricity Act. The CERC
held that the ground of review as stated in para 5 (c) stood rejected as not
maintainable. By the said order, CERC also held that there was a conflict
between the FCRA and the Electricity Act and in view of Sections 174 and 175 of
the Electricity Act, the Electricity Act would have an overriding effect. Further,
the Electricity Act was also a later central statute hence the provisions thereof
would prevail. It also held that as there was a conflict between the provisions of
the FCRA and the Electricity Act, the provisions of the Electricity Act would
prevail. In the said order, CERC modified the last sentence of paragraph 54 and
held thus : “However, we make it clear that MCX cannot launch such products
without the prior approval of this Commission in accordance with this
Commission’s guidelines or the statutory regulations”.
9. Pursuant to the above order, FMC filed the above petition being Writ
Petition No. 1604 of 2009 challenging the validity of the order dated 28th April,
2009 as also the review order dated 11th January, 2010 passed by CERC . During
the pendency of the petition, CERC issued a public notice dated 22 nd September,
2009, enclosing draft power market regulations seeking
comments/suggestions/objections on the said draft regulations. The petitioner
recorded its comments/objections to the said draft regulations. The CERC
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thereafter framed regulations viz. Central Electricity Regulatory Commission
(Power Market) Regulations, 2010. The said Regulations are also subject matter
of challenge in these writ petitions. The said Regulations were also tendered in
the Court. Thereafter the matter has not been listed on the Board. Again, CERC
came up with a press release dated 20 th January, 2010 notifying the said
regulations. The petitioners herein challenge the Regulations on the ground that
the action of the first respondent being wrongful exercise of jurisdiction,
arbitrary, capricious, mala fide as well as being discriminatory in nature and
violative of the principles of Article 14 of the Constitution. The said Regulations
also seek to deprive the petitioner from entering into forward contracts inspite of
being authorised by the second respondent and notified by the Govt. of India as
a recognized association.
10. According to MCX, so far as forward market in electricity is
concerned, it is the regulatory authority under the Forward Market Act which
alone is competent to deal with the same and CERC has no right to frame any
regulation in this behalf. The Regulations as notified by CERC provides for
forward and futures contracts relating to electricity to come under the purview
of CERC, whereas prior to the notification of the Regulations, the forward and
future contracts relating to electricity were under the purview of FMC pursuant
to the notification dated 9th January, 2006 by the Union of India. The
Regulations framed by CERC are also challenged on the said ground.
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11. Initially after hearing the learned counsel appearing for the parties
this Court reserved the matter for judgment. However, by an order dated 26th
November, 2010, this Court subsequently issued notice to the added respondents
by passing the following order.
” The matters were heard and judgment was reserved.
Subsequently, this Court while going through the papers came
across the minutes of the meeting of Committee of Secretaries ofvarious departments wherein the Cabinet Secretariat has
ultimately given the following directions.
(i) There will be no trading in electricity futures for the time
being. The decision to introduce electricity futures will be taken
by the Central Government at an appropriate time with
concurrence of FMC/DoCA and CERC/MoP.
(ii) In view of the decision at (i) above, CERC would omit the
provisions relating to electricity derivatives from its Power Market
Regulations.
(iii) In view of the devision at (i) above, DoCA will de-notify the
electricity under Section 15 of the FCRA.
(iv) DoLA will obtain the opinion of Attorney General on the
question of regulatory jurisdiction on electricity derivatives in
view of the provisions of the Electricity Act and FCRA. CERC/MoP
and DoCA/FMC have already sent the relevant material
representing their viewpoints to DoLA in this regard withreference to the meeting held on 25.5.10 in the Cabinet
Secretariat.
2. Learned Senior Counsel Mr. Dwarkadas and Mr.
Seervai state that the minutes dated 16th July, 2010 were not
properly recorded to some extent. Mr. Chinoy, learned senior
counsel appearing for CERC states that CERC is willing to abide
by the decision taken in the meeting before the Cabinet
Secretariat. Since the dispute is in connection with two
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departments of the Union of India, we are of the opinion that the
Union of India is required to be added as party respondents in
these matters and their say is also required to be taken into
consideration while deciding the issue involved in these matters.
For the aforesaid purpose, we deem it proper to join (i) Union of
India through Cabinet Secretariat, having its office at Rashtrapati
Bhavan, New Delhi and (ii) Secretary, Ministry of Law and
Justice, Govt. of India, Shastri Bhavan, New Delhi-110 001, as
party respondent Nos. 5 and 6 respectively. Leave to amend the
petition is granted. Amendment to be carried out forthwith.
3. Issue notice to the added respondents returnable on
10 December, 2010 at 3.00 p.m. before this Bench. We make it
th
clear that since the petitioners and respondents have already
addressed this Court and concluded their arguments, the Court is
now required to hear only the added respondents in respect of
the issue involved in the matter and regarding minutes dated 16th
July, 2010 and decision taken during such meeting before the
Cabinet Secretariat. As the matter is pending since long, the
added respondents may point out their views on the next date of
hearing.
4. Mr. Janak Dwarkadas, learned senior counsel
appearing for FMC, states that a subsequent letter dated 13th
September, 2010 has been issued to the Cabinet Secretary
pointing out that the aforesaid minutes are not properly
recorded.
5. The petitioner to take steps to serve the added
respondents so that matters may not be required to be adjourned
on the ground that they are not served”.
12. Mr. M.K. Sharma, Joint Secretary and Legal Adviser in the
Department of Legal Affairs, Ministry of Law and Justice, New Delhi, for and on
behalf of Law Secretary, Ministry of Law and Justice and also on behalf of
Cabinet Secretary, Cabinet Secretariat, Rashtrapati Bhawan, New Delhi, initially
filed an affidavit on 13th December, 2010 raising preliminary objections about
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the maintainability of the petitions. The preliminary objections raised in paras
(i) to (v) of the said affidavit read thus:
“(i) The Respondent Nos. 5 and 6 strongly object to the
maintainability of the present petition because the petitioners in
Petition No. 1640 of 2009 have already pursued remedy (ies)
with the Competent Body consisting of Secretaries to the
Government of India from different Ministries.
(ii) I say that in the said constituted Committee, the
petitioners hailing from the Ministry of Consumer Affairs and
the other side from the Ministry of Power through theirSecretaries not only participated in the proceedings on
16.07.2010 conducted by the said Committee but alsodeliberated in the said proceedings on the subject matter (s), in
question, which proceedings ultimately culminated into certain
decision(s) taken by the said High Power Committee. I say that
the said Committee constituted and consisting of Secretaries ofdifferent Departments/Ministries have given their say and for
their Department’s views, which were duly considered with
consensus opinion and accordingly, the said decisions. In such
an event, I strongly object to the maintainability of the presentpetition on the ground that the petitioner cannot simply choose
two different forums for the same cause of action or the cause of
action touching the present subject matter(s). Accordingly thepresent petition deserves to be dismissed in limine.
(iii) I strongly object to the present petition on the ground (s)
that the Forward Market Commission is born out of statuteknown as Forward Contracting (Regulation) Act, 1952 (FCRA)
and likewise, CERC is born out of Electricity Act 2002. In other
words, I say that both the statutory bodies have their
birth/establishment out of the said statutes enacted by the
Parliament and therefore, they are the Government of Indiastatutory bodies. Being so, any of their issues in dispute need to
be adjudicated upon by the said Committee meant for the
purpose.
(iv) I say that the Hon’ble Supreme Court of India in case of
ONGC vs. Collector of Central Excise reported as (2004) Vol. 6
SCC 437 and earlier reported as (1992) 104 CTR (SC) 31 has
categorically laid down the law to the extent that dispute (s)
between Department to Department of the Government or
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Government of India Undertakings or Enterprises etc. need to be
referred or such other matters which are the bone of contention,
need to be resolved by said such Committee. I say that most of
the Government of India Undertakings or Government of India
Enterprises are born out of various statutes enacted by the Act of
Parliament. As the present aforesaid two statutes are enacted by
the Parliament and the dispute(s) are between two statutory
bodies established under the said two Statutes, the same
disputes between the such two statutory bodies are the disputes
which need to be referred to for the purpose of adjudication
or/conciliation to the said Committee consisting of the
Secretaries of the various Departments/Ministries and headed
by the Cabinet Secretary, Union of India.
(v) I say that the said two statutory bodies are within the
scope of Government of India Undertaking or Government of
India Enterprises as they are equally born/established out of the
said two Statutes, as referred to hereinabove. In such an event
and in view of the said ruling of the Supreme Court of India, the
petition(s), in question, need to be dismissed with costs.”
13. On the next date of hearing i.e. 20th December, 2010, learned
counsel appearing for respondent Nos. 5 and 6 pointed out that the Cabinet
Secretary could not go through the affidavit filed by Mr. M.K. Sharma, Joint
Secretary and Legal Advisor in the Department of Legal Affairs, Ministry of Law
and Justice and that the Cabinet Secretary would like to file a detailed affidavit
in this regard. This Court passed the following order on December 20, 2010.
“A bitter dispute is going on between two Regulatory
Authorities functioning under the Union of India, in so far as
one of the writ petition is concerned. Since we have issued
notices to the respondent Nos. 5 and 6, today learned counsel
appearing for respondent Nos. 5 and 6 states that because of
the pre-occupation, the Cabinet Secretary could not go
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Affairs, Ministry of Law and Justice and therefore, he would
like to file detailed affidavit in this regard. It is very
unfortunate that between the two Departments of Union ofIndia, there is a lack of communication and in our view, such
happening is really disturbing. Learned counsel for
respondent Nos. 5 and 6 states that Cabinet Secretary has
called meeting of all the Secretaries to sort out the problem.
However, since the arguments are already heard and with aview to see that the matter is not further delayed and since in
view of the submission that the Cabinet Secretary has not
gone through the reply filed by Mr. M.K. Sharma, we give last
chance to respondent No. 5 to file appropriate reply if anybefore 04-01-2011, with an advance copy to the learned
counsel for the petitioners and the respective respondents. Nofurther adjournment will be given in this behalf. The
petitioners or the other contesting respondents may file their
respective rejoinder, if any, before the next date. Pleadings
should be completed by both the sides before the next date.
2. Stand over to 07-01-2011. On the aforesaid date, the
Court may consider to proceed with the judgment.”
14. A subsequent affidavit has been filed on behalf of respondent No.5
on 4th January, 2011. Before we proceed further, it is necessary to incorporate
the averments made in the said affidavit and the same read as under:
” I, V.P. Arora, working as Under Secretary in the Cabinet
Secretariat, Rashtrapati Bhavan, New Delhi, aged about 57
years, do hereby state and submit on solemn affirmation asunder:-
1. I say that I have perused relevant records. I say that I crave
leave of this Hon’ble Court to further add, amend, alter or delete
any of the contents of this affidavit. I say that I have been
authorised to file this affidavit.
2. That this Hon’ble High Court had impleaded the Cabinet
Secretary as Respondent No.5 in both the petitions.
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3. That on the last date of hearing, Special Counsel for
Union of India – Dr. G.R. Sharma had informed this Hon’ble
High Court that the Cabinet Secretary will be calling a meeting
of Secretaries of respective Departments/Ministries to amicably
settle the issue at large in the present writ petitions and
accordingly an attempt was made on 29.12.2010 by the Cabinet
Secretary through the Secretary (Co-ordination) of the Cabinet
Secretariat, New Delhi and had deliberations relating to the
present issues.
4. That in the said meeting held on 29.12.2010, an attempt
was made to settle and reconcile the issues which was not
successful.
5. That apart from the two statutory bodies i.e. The Central
Electricity Regulatory Commission and the Forward Markets
Commission, other private bodies are also parties in the writ
petition.
6. That I submit that as the attempt at the level of the
Cabinet Secretariat has not been successful, it is respectfully
prayed that this Hon’ble High Court may be pleased to decide
the matter as may be deemed fit and proper in the facts and
circumstances of the case.
7. I say that the contents contained in para 2 to 6 are true to
my knowledge and belief”
15. On 7th January, 2011, this Court passed further order which reads
thus:
” Initially these matters were heard at length and adjourned
for pronouncing the judgment. However, subsequently, this
Court felt that considering the important issue involved in the
matter, it would be desirable to hear Union of India through
Cabinet Secretary as well as Ministry of Law and Justice. On
the last date, Counsel for Union of India appeared and
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meanwhile, a further affidavit is filed by respondent No.5. To
the affidavit filed by respondent No.5, replies have also been
filed by the petitioners and respondent No.3.
2. It is submitted on behalf of the Union of India by
the learned counsel Dr. Sharma that the Cabinet Secretary
tried to settle the dispute but in spite of his best efforts he
could not convince the concerned Secretaries for settling thesame. It is requested that in view of the same, the matters
may now be decided by this Court on merits. He also
submitted that this matter cannot be sent to the High Power
Committee as the issue involved in the matter can only bedecided by the Court especially when there is a private party
who has also filed the petition. It is the submission of all thelearned counsel appearing in the matter that the issue referred
to in the petitions cannot be sent to High Power Committee as
per the judgment of the Supreme Court in the case of ONGC
and the matter may be decided by this Court one way or theother on merits. The submissions of the learned counsel are
accordingly recorded. Dr. Sharma further submits that he does
not want to say anything further and it is for the Court to
decide the rival claims in the matter between the petitionersand the concerned respondents. Now the arguments stand
concluded. Judgment reserved”.
16. In the case of Oil and Natural Gas Commission vs. CCE1 the Supreme
Court held that in every case where a dispute is between government
departments and/or between a Government department and a public sector
undertaking, the matter should be referred to the High Power Committee
established by the Government pursuant to an order of the Supreme Court dated
11th September, 1991 and that it is the duty of every court or tribunal to demand
clearance from the Committee and that in the absence of clearance, the
proceedings must not be proceeded with. In the case of Chief Conservator of
1 1995 Supp (4) SCC 541
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Forest vs. Collector1 it has been held by the Supreme Court as under:
“Various departments of the Government are its limbs and,
therefore, they must act in coordination and not inconfrontation. Filing of a writ petition by one department
against the other by invoking the extraordinary jurisdiction of
the High Court is not only against the propriety and polity as it
smacks of indiscipline but is also contrary to the basic concept
of law which requires that for suing or being sued, there mustbe either a natural or a juristic person. The States/Union of
India must evolve a mechanism to set at rest all inter-
departmental controversies at the level of the Government and
such matters should not be carried to a court of law forresolution of the controversy. In the case of disputes between
public sector undertakings and Union of India, this Court in Oiland Natural Gas Commission vs. Collector of Central Excise
(1992 Suppl. (2) SCC 432) called upon the Cabinet Secretary
to handle such matters.
17. It is pointed out by the learned counsel appearing for the Union of India
that the attempts made by the Cabinet Secretary to solve the dispute have been
failed and in view of the argument of the learned counsel for the Union of India
as well as learned counsel appearing for the parties in the matter, the issue in
question is required to be decided only by this Court as the Regulations framed
by CERC is under challenge at the instance of private party, this dispute cannot
be sent to High Power Committee. In view of the said submission, this Court is
now required to decide the controversy raised in these petitions on its own
merits.
1 2003 (3) SCC 742
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18. We have heard the learned counsel appearing for the parties, examined
the matter on merits and also considered the written submissions of the
petitioners, CERC and PXIL.
19. Mr. Seervai, the learned counsel for the petitioner in Writ Petition
No. 1197 of 2010, submits that the provisions of the FCRA and the Electricity
Act deal with two separate and distinct subjects. The FCRA deals with futures
markets and forward contracts in electricity being, in essence, financial contracts
which provide for delivery but which may be and, in fact, are often settled by
inter alia the payment of differences. The Electricity Act deals with the physical
trading and delivery of electricity as a commodity for actual physical use and
according to the learned counsel, the spheres of the two enactments are separate
and distinct and there is no scope for overlap or conflict. The Electricity Act and
the authorities established thereunder have been empowered to govern the
various aspects of electricity, including generation, transmission, distribution
and trading. Mr. Seervai submits that FCRA conceives of a specialized financial
market, rather than a conventional physical one, which operates in the realm of
price discovery and price risk management. The option of delivery is available
only in respect of residual contracts which remain outstanding on the date of
expiry of contract period, but most participants offset their contracts before the
date of expiry by entering into opposite contract, thus obviating the need for any
delivery. On the other hand, the Electricity Act deals with the actual physical
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delivery and utilization of electricity. Mr. Seervai further submits that “trading”
under the Electricity Act is limited to the physical market which is clear from the
definition under sub-section 71 of Section 2 viz. Purchase of electricity for resale
thereof. The Electricity Act provides for and facilitates physical trading in
electricity between States i.e. Inter-State as well as within a given State i.e.
intra-State. The FCRA deals with all future and forward contracts including
electricity futures contracts. Mr. Seervai submits that FCRA has been enacted
under Entry 48, List I of the Constitution whereas the Electricity Act is a statute
enacted under Entry 38, List III. The FCRA creates a single statutory authority
which regulates and controls all forward contracts, including futures, in all
commodities notified by the Central Government across the territory of India.
Under Section 15 of the FCRA, the Central Government is empowered to notify
goods in respect of which forward contracts may be entered into only through
associations recognised by the Central Government. Central Electricity
Regulatory Commission (CERC) is concerned with inter State and not intra
State electricity. He submits that there is no provision in the Electricity Act
which can even remotely be said to refer to and/or deal with forward contracts
and futures. The forward contract is different from ready delivery contract. In
view thereof, therefore, there is no question of conflict between FCRA and
Electricity Act. He submits that CERC and Forward Market Commission (FMC)
are both regulatory authorities, governed by their respective special statutes,
operating within their defined spheres, with distinct statutory functions, powers
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and duties. The impugned Regulations make it clear that the CERC has misused
its power as a regulatory authority in order to bring forward contracts in
electricity within its jurisdiction. Section 178 (2) (y) read with Section 66 gives
CERC the power to issue regulations. He submits that the Regulations notified
by the CERC seek to deprive the petitioner, Multi Commodity Exchange of India
Ltd. (MCX) from entering into forward contracts inspite of being authorised by
FMC and notified by the Government of India as a recognized association. Mr.
Seervai further submits that the CERC under the guise of the impugned
regulations, usurped legislative power not conferred upon it. According to Mr.
Seervai, the Electricity Act does not even remotely contemplate a situation
pertaining to financial contracts and the CERC cannot, by the simple expedient
of notifying subordinate legislation, traverse beyond the provisions of its parent
statute. Mr. Seervai submits that the impugned Regulations are ex facie ultra
vires and void ab initio. Indisputably, a subordinate legislation must be read in
the context of the principal Act. It is well settled that the power exercised by a
delegate must conform to the power granted by its parent statute, there cannot
be any presumption in favour of exercise of power or assumption of such a
power in the absence of specific enabling provision in the Electricity Act itself.
Mr. Seervai further submits that there is not a single provision in the Electricity
Act that allowed CERC to issue the impugned Regulations to regulate and
control a market that it now purporting to do so. CERC is attempting to do so in
the face of a special statute that exclusively bestows that authority on another
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regulatory body. It is submitted that the FCRA is a statute enacted prior in time
as that of the Electricity Act. The petitioner is a recognized Association under
the FCRA and is governed by FMC. Mr. Seervai submits that in the original
order, CERC has acknowledged that FCRA governs forward contracts in which
rights and liabilities are transferable, unless exempted by the Central
Government and that the provisions of the FCRA cover certain specific areas
which are not covered under any of the provisions of the Electricity Act. It is
submitted that in the subsequent review order, CERC suo motu rewrote and
reversed the original order dated 28th April, 2009 and deleted crucial
observations which expressly stated that there was no conflict between the
provisions of the FCRA and the Electricity Act on the ground that these
observations were not relevant or germane to the inquiry. Mr. Seervai submits
that the impugned orders are without jurisdiction inasmuch as the provisions of
Section 79 of the Electricity Act do not give CERC any authority to trespass into
the jurisdiction of another unrelated statutory regulator and interpret the
provisions of the FCRA. In view of the above, the Regulations, in so far as it
pertain to futures contract in electricity, issued by the CERC pending disposal of
the writ petition filed by FMC are liable to be quashed and set aside. Mr.
Seervai submits that while the original order enunciated a harmonious
construction of the two statutes, the review order placed them in a position of
irreconcilable conflict, robbing the FMC entirely of its jurisdiction over forward
contracts vis-a-vis-electricity. He submits that on a comparison of the two orders
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it is abundantly clear that the review order is illegal, improper and bad in law,
being no more than a motivated attempt to re-write the original order and allow
the CERC to usurp power and authority not vested in it or conferred upon it
under the Electricity Act. Mr. Seervai further submits that on perusal of the
Regulations, it is clear that CERC has once again misused its power as a
regulatory authority in order to bring forward contracts in electricity within its
jurisdiction. Mr. Seervai finally submits that the futures contracts cannot be
dealt with under the Electricity Act as it is in the domain of FCRA and that CERC
has no jurisdiction to frame any Regulations in this behalf.
20. Mr. Aspi Chinoy, learned senior counsel appearing for CERC,
submits that the Electricity Act, 2003 was enacted to consolidate the laws
relating to generation, transmission, distribution, trading and use of electricity
and generally for taking measures conducive to development of electricity
industry, promoting competition therein, protecting interest of consumers and
supply of electricity to all areas, rationalisation of electricity tariff, ensuring
transparent policies regarding subsidies, promotion of efficient and
environmentally benign policies, constitution of Central Electricity Authority,
Regulatory Commissions and establishment of Appellate Tribunal and for
matters connected therewith or incidental thereto. The Act makes provisions for
every aspect of the matter concerning electricity including, inter alia, referring
for arbitration disputes involving generating companies or transmission licensees
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or disputes between licensees and generating companies. The learned counsel
further submits that the 2003 Act is a Special Act and is a complete Code with
respect to all matters concerning electricity, including the development of a
market in power. He submits that Section 66 read with Section 178 (2) (y) of
the Act enables CERC to make regulations for the development of the market in
power, including trading. This necessarily covers all aspects of the market and
business/trading in power and would include both spot and forward contracts
for the sale or purchase of electricity. Mr. Chinoy submits that the concept of
trading necessarily covers all forms of business in electricity and includes both
spot and forward contracts for sale and purchase of electricity. He submits that
CERC is the Central Commission established by the Central Government under
sub-section (1) of Section 3 of the Electricity Regulatory Commissions Act, 1998
and functioning as such before the date of coming into force of the Act of 2003
and as such is the Central Commission for the purpose of the Act in terms of
Section 76 thereof. CERC exercises functions and powers as a regulator in the
whole of India in regard to Electricity. Section 79 of the 2003 Act specifies some
of the specific functions to be discharged by the CERC. Sub-section (j) of
Section 79 of the Electricity Act deals with fixing the trading margin in the inter-
State trading of electricity, if considered necessary. In the instant case,
electricity is not a good which can be delivered. It is submitted that the CERC is
empowered to take appropriate measures to regulate to regulate transactions in
power as it thinks fit. Mr. Chinoy submits that the forward contracts in
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electricity/for the delivery of electricity are necessarily matters concerning
electricity and are within the ambit of Section 55 read with Section 178 (2) (y)
of the Electricity Act. Mr. Chinoy further submits that if there is a conflict
between Union and State Lists, the Union list will prevail but when Parliament
has framed two enactments, then the object of the Act is to be seen. Mr. Chinoy
submits that the contention that forward contracts for electricity are not within
the purview of Electricity Act, is based on a misreading of the nature of forward
contracts under the FCRA. The learned counsel submits that the forward
contracts in electricity are necessarily contracts for the delivery of electricity.
He submits that FMC cannot file any proceedings as the writ can only be filed
by Union of India through the Ministry of Consumer Affairs. FMC is a
department of the Ministry of Consumer Affairs and is not a body corporate. He
submits that the Electricity Act, 2003 is an exhaustive code on all matters
concerning electricity. He submits that Sections 173 and 174 of the Act of 2003
stipulate that the provisions of the Act shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time being in
force. He submits that the Electricity Act is a consolidating statute on all matters
concerning electricity. Section 66 read with Section 178 (2) (y) gives CERC the
power to legislate and frame the regulation. He submits that Article 246 of the
Constitution can never apply to the instant case as that Article deals only with a
conflict between entries pertaining to the Union and the States. He submits that
the forward contracts in electricity/for the delivery of electricity are necessarily
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matters concerning electricity and within the ambit of Section 66 read with
Section 178 (2) (y) of the Act of 2003. He submits that all forward contracts are
delivery contracts. It is not a financial contract. He submits that the impugned
Regulations have been made by CERC under Section 66 read with Section 178
(2) (y) of the Act of 2003 which have been published under a public notice
dated 22nd September, 2009. There is nothing unconstitutional in the
regulations so as to consider the prayer of the petitioner for staying the
operation of the regulations. He submits that the Regulations deal with the
creation of a comprehensive market structure and enabling the transaction,
execution and contracting of all types of possible products in the electricity
markets. Section 66 of the Act of 2003 mandates the CERC to promote the
development of a market in power. He submits that in the event of repugnancy
between the regulations/prescriptions made by the FMC and CERC, the CERC’s
guidelines/prescriptions/regulations will prevail. He submits that the principle
of contemporaneo expositio is inapplicable to the instant case as is clear from the
judgments to which we shall refer later on. He submits that the Regulations
have been made by the CERC in exercise of the powers vested in and functions
laid down under the provisions of Section 66 read with Section 178 (2) (y) of
the Act of 2003 and in compliance with the mandate of National Electricity
Policy notified by the Central Government under Section 3 of the Electricity Act
of 2003.
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21. Mr. Dwarkadas, learned senior counsel appearing for the FMC,
submits that the FMC is a Regulatory authority under the Ministry of Consumer
Affairs, Food and Public Distribution, Govt. of India and has been set up in 1953
under the provisions of the FCRA. He submits that FMC has filed the above
petition being Writ Petition No. 1604 of 2009 challenging the order dated 28 th
April, 2009 passed by CERC, modified order dated 11th January, 2010 passed by
CERC and the Regulations notified by CERC on 20th January, 2010.
Mr. Dwarkadas submits that by passing the impugned orders and the
regulations, CERC has tried to usurp jurisdiction over forward and futures
market which fall within the exclusive domain of FMC by virtue of the provisions
contained in FCRA enacted by Parliament in exercise of the power vested in it by
Entry 48 of List-1 in the Seventh Schedule of the Constitution of India which
gives power to the Parliament to legislate on the subject of Stock Exchanges and
Futures markets. Mr. Dwarkadas further submits that FMC vide its letter dated
7th January, 2009 explained to the CERC that under the FCRA and the
notification issued by the Central Government, through the Ministry of
Consumer Affairs, Food and Public Distribution on 9th January, 2006 under
Section 15 of FCRA, the FMC alone has jurisdiction to regulate forward contracts
in electricity. Spot market and Forward markets in goods can be regulated by
two different regulators. Forward trading in electricity comes under the purview
of FCRA and this does not take away the jurisdiction of CERC in respect of
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regulating spot trading in electricity. He submits that the provisions of FCRA
were analysed in great detail by the Supreme Court in the case of Raghubir
Dayal Jai Prakash and others vs. Union of India and another1 wherein the
Supreme Court quoted the Expert Committee’s report regarding functioning of
forward trading. He submits that the impugned orders of the CERC and the
regulations in so far as they relate to forward trading in electricity, therefore,
deserve to be quashed. He submits that FMC had granted approval in January,
2009 to MCX, a national level Multi Commodity Exchange, for providing a
platform to trade in electricity forward contracts, following the notification
issued by the Central Government applying provisions of Section 15 of the FCRA
whereby forward contracts in electricity could be traded only through the
members of Associations/Exchange which have been granted recognition by the
Central Government under Section 6 of the FCRA. MCX had been recognised by
the Central Government vide notification dated 26-09-2003. He submits that in
view of the provisions of FCRA and the notification issued by the Central
Government, FMC alone has jurisdiction to regulate forward contracts in
electricity. He submits that spot market and forward markets are two separate
and distinct economic realms, the former is concerned with transactions
involving payment and delivery within the period specified for ready delivery
contracts whereas the latter is concerned with financial contracts mostly settled
by payment of differences between the contract rate and the settlement rate. He
submits that the futures market is included in List I of Schedule VII of the
1 (1962) 3 SCR 547
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Constitution at Entry No. 48 whereas the electricity is included in List III at entry
38. Spot markets in various commodities, agricultural or mineral are governed
by the relevant statutes of the Central or State Lists. He submits that as per the
allocation of Business Rules, the Ministry of Power has been allocated the
administration of the Electricity Act as well as matters relating to CERC,
whereas the Ministry of Consumer Affairs, Food and Public Distribution has the
control of future trading and FMC. Forward Trading in Electricity comes under
the purview of FCRA and this does not take away the jurisdiction of the CERC in
respect of regulating spot trading in electricity. He submits that during the
pendency of the petition, the CERC gave permission on 31st August, 2009 to
PXIL and IEXL which are power exchanges set up under the Electricity Act, 2003
to facilitate spot trading in electricity, to organise month ahead contracts in
electricity which are essentially forward contracts in the nature of Non
Transferable Specific Delivery Contracts. Neither PXIL nor IEXL have been
granted certificate of registration by the FMC under Section 14A nor recognition
has been granted by the Central Government under Section 6 of the FCRA. Mr.
Dwarkadas further submits that the Regulations notified by the CERC also suffer
from other fatal flaws. It speak of derivatives which include options which are
specifically prohibited by the FCRA. Mr. Dwarkadas further submits that the
inclusion of associations and exchanges recognized or registered by FMC in the
list of market participants covered by the Regulations is misconceived because
their operations cannot be classified into interstate or intrastate. Mr. Dwarkadas
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submits that the Regulations cannot be allowed to undo the notification under
Section 15 of FCRA issued in January, 2006 introducing forward trading in
electricity through recognized exchanges since the law vests no authority in
CERC to countermand orders issued by the Government under a statutory
provision of FCRA. Mr. Dwarkadas further submits that CERC cannot be said to
be an expert body in the field of regulation of forward trading and risk
management. He submits that the regulations have sought to define terms like
“derivative contracts”, “exchange” which means a power exchange and other
exchanges, “option position”, “other exchange” for the first time. According to
Mr. Dwarkadas, these definitions do not find their place in the parent Act which
is basically structured to cater to the physical aspect of the market like
generation of electricity, licensing, transmission, distribution of electricity, tariff,
etc. Mr. Dwarkadas submits that since there is no concept of exchange trading
in the Electricity Act, the regulations cannot provide such a structure along with
fees. Mr. Dwarkadas submits that the Regulation in so far as they relate to
forward contracts deserve to be struck down because (i) they seek to restrict the
forward market only to inter-state which is neither feasible nor permissible
because there has to be one national market in which all traders need to have
access to the trading platform; (ii) they extend the scope of the CERC
jurisdiction beyond the power exchanges to embrace “other exchanges” already
recognised by the Govt. under the statutory provisions of FCRA; (iii) they
encroach on the Central Government’s role in deciding when forward trading is
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to be introduced in a particular commodity. The regulations provide for
deferment of introduction of power trading to a future date to be decided by the
CERC; (iv) they bring options within the ambit of CERC when they have been
specifically prohibited under Section 19 of FCRA and (v) the regulations lack
the necessary vires because they seem to derive their authority from an
unsustainable broad interpretation of Section 66 of the Electricity Act which
provides for the “development of a market (including trading) in power’ by the
appropriate Commissions. Mr. Dwarkadas submits that the interpretation of the
Section and the word “trading” is not supported by either the text or the context
contained in the Electricity Act. Sub-section 71 of Section 2 defines trading
which means purchase of electricity for resale. This definition has no relevance
for forward trading in which “short” and “long” positions are taken by traders
based on their perceptions of future trends of prices and these are not connected
with a prior purchase or a necessary resale. In view of the aforesaid, Mr.
Dwarkadas submits that the two orders of the CERC and the Regulations in so
far as they relate to forward trading in electricity deserve to be quashed.
22. Mr. Vikas Singh, the learned counsel appearing for respondent No. 3
in Writ Petition No. 1197 of 2010, has submitted that the petitions are not
maintainable. The learned counsel has raised preliminary objection to the
maintainability of the writ petitions. He submits that under Section 179 of the
Electricity Act, a regulation framed by the CERC is supposed to be laid before the
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Parliament and after the passage of 30 days of such laying, the regulation is
deemed to be approved by the Parliament and as per the Constitution Bench
judgment of the Supreme Court in the case of PTC India Ltd. vs. Central
Electricity Regulatory Commission, through Secretary1 the Regulations framed by
the CERC are subordinate legislation and are thus law under Article 13 of the
Constitution of India wherein law has been defined to include any ordinance,
order, bye-law, rules and regulation etc. He submits that the FCRA in its
preamble states that the same only deals with certain types of forward contracts
whereas the Electricity Act which is also by the same legislature i.e. The Union
Parliament in the preamble states that it is an “act to consolidate the laws
relating to generation, transmission, distribution, trading and use of electricity
and generally for taking measures conducive to development of electricity
industry permitting competition therein protecting interest of consumers and
supply of electricity to all areas, rationalization of electricity, tariff” etc. He,
therefore, submits that the Electricity Act deals with the entire subject of
electricity and hence after the passing of the said Act any other Central Act
which could have been dealing with the subject of electricity is denuded of its
power to deal with the same. He submits that Section 3 of the Electricity Act
which finds mention in Section 66 of the Electricity Act provides that the Central
Government shall from time to time prepare the national electricity policy. The
learned counsel further submits that the notification issued by the Ministry of
Consumer Affairs in January, 2006 was contrary to the express provisions of the
1 AIR 2010 SC 1338
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Electricity Act which Act was an Act to consolidate the laws relating to
electricity. The learned Counsel further submits that on a plain reading of
Article 246 of the Constitution of India, it is clear that the Constitution does not
create any primacy of Acts of the Union Parliament under List-1 vis-a-vis other
Acts of the Union Parliament under List-III. The said Article is only dealing with
a conflict between the legislation by the Union Parliament as against the
legislation by the State Legislature. The learned counsel further submits that
after the enactment of the Electricity Act, the Central Government was denuded
of its power to issue a notification under Section 15 of the FCRA as the entire
subject of electricity was taken over in the Electricity Act including trading in
electricity and development of the market of power in electricity including
trading. It is the further submission of the learned counsel that the sale and
purchase of electricity in power exchanges is a relatively new development all
over the world and hence the Union Parliament in its wisdom thought it
appropriate to confer the power on the various appropriate commissions to
decide as to when the market of electricity becomes right for being traded on
power exchanges. Lastly he submits that futures in electricity, whether to be
permitted or not and if to be permitted under what conditions is to be
determined by the appropriate commission as a part of its mandate to develop
the market of power including trading of electricity as specified that is by
regulations as per the National Electricity Policy formulated by the Central
Government under Section 3 of the Electricity Act. He submits that the writ
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petitions, being devoid of any merits, be rejected with costs.
23. It may be noted that against the interim order dated 15th February,
2010, passed in Writ Petition No. 1197 of 2010 and order dated 23 rd March,
2010 in Notice of Motion No. 100 of 2010, by which a Division Bench of this
Court refused to grant reliefs, the MCX preferred a Special Leave Petitions in the
Supreme Court of India wherein MCX raised the following principal questions
viz. (i) whether forward contract in electricity would be governed by the FCRA
in view of the notification dated 9th January, 2006 expressly notifying electricity
as a commodity under the FCRA?, (ii) whether the CERC would have jurisdiction
for framing regulations in respect of forward contracts in electricity despite no
specific power having been given to the CERC under the Electricity Act, 2003?
(iii) whether the CERC, which is a statutory commission, can interfere with or
regulate the working of another statutory commission i.e. FMC ? and (iv)
whether in view of the fact that the provisions of the FCRA can he harmonized
with the provisions of the Central Electricity Regulation Act, CERC is justified in
giving direction in respect of members of the FMC. The said Special Leave
Petitions came to be dismissed on 5th April, 2010. The order of the Supreme
Court of India reads thus:
“Heard learned counsel for the parties. Since the High Court
is seized of the main case as well as interim matter, we do not
find any justification to entertain the petitioner’s prayer. The
Special Leave petition is dismissed.
We have no doubt that the High Court will take note of
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the urgency involved in the matter and pass appropriate
order at an early date in accordance with law.”
24. This Court is, therefore, now required to consider as to whether the
forward contract is exclusively within the jurisdiction of FMC in view of the
notification dated 9th January, 2006 and whether CERC can deal with futures
contract in the matter of electricity in view of the Regulations framed by it. At
this stage, the decision of the Supreme Court in the case of Sarwan Singh v.
Kasturi Lal1 is required to be taken into consideration. The Supreme Court in
para of the said judgment held as under.
“When two or more laws operate in the same field and each
contains a non-obstante clause stating that its provisions will
override those of any other law, stimulating and incisive
problems of interpretation arise. Since statutoryinterpretation has no conventional protocol, cases of such
conflict have to be decided in reference to the object andpurpose of the laws under consideration”
25. It is required to be noted that both the regulatory authorities are
functioning under different statutes and, therefore, neither of them can be said
to be subject to the jurisdiction of other. In our view, CERC has no jurisdiction
to give any direction in connection with the decision taken by FMC under the
FCRA. As long as the statutory enactment prevails today, the subject matter of
forward contract is regulated under the provisions of FCRA in connection with
the delivery of goods and the payment of a price therefor.
1 (1977) 1 SCC 750
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26. Before we delve into the matter, it is necessary to have the factual
matrix in connection with the enactment of the FCRA and Electricity Act, 2003.
The FCRA was enacted on 26th December, 1952, providing for regulation of
certain matters relating to forward contracts, the prohibition of options in goods
and for matters connected therewith. Sub-section (b) of Section 2 defines
“Commission” means the Forward Markets Commission established under
Section 3. The forward contract means a contract for the delivery of goods and
which is not a ready delivery contract. Section 2 (i) deals with “ready delivery
contract” and the same reads as under:
” (i) “ready delivery contract” means a contract which
provides for the delivery of goods and the payment of a price
therefor, either immediately or within such period notexceeding eleven days after the date of the contract and
subject to such conditions as the Central Government may, by
notification in the official Gazette, specify in respect of anygoods, the period under such contract not being capable of
extension by the mutual consent of the parties thereto or
otherwise.”
Chapter II of FCRA deals with Forward Market Commission. Insofar as
spot/physical market is concerned, the seller delivers the good immediately and
the buyer pays for it on the spot. No conditions are attached to the delivery. The
main characteristic of spot market is that there is immediate delivery of the
electricity. In the case of forward markets, considering the volatility of the
prices of the spot market, buyers and sellers often agree to the price, quality and
quantity of goods in advance of actual delivery and the goods are delivered on a
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future date. These contracts will have a mode and timing of payments as also
penalties, if any, for failure to deliver goods or failure to make payment. Instead
of having one to one relationship, many buyers and sellers may develop a
market for trading in advance of the delivery. In the electricity sector, long term
power purchase agreements are examples of forward contracts between
generators and distribution companies. The forward contracts can be traded in
a secondary market. The traders, including those neither producing nor
consuming the good, can participate in this market. Parties not willing to take
physical delivery can also participate in this market by selling their forward
contracts. Such markets where contracts are not backed by physical delivery are
futures markets. On the face of it, this market consists of speculators. However,
the market benefits from the presence of these speculators as they increase
depth and liquidity. It is required to be stated that the future prices for
electricity traded on the exchanges make the demand and supply to adjust
themselves to the signals they provide and converge onto the spot market
prices. In addition thereto, futures markets consist of stakeholders who are
beyond the physical market stakeholders and also participate in the price
discovery process making it a highly participative process for providing a better
future indication on electricity prices allowing all users of electricity to hedge the
risks in electricity prices through the financial instrument called ‘electricity
futures’ without fear of providing or taking delivery.
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27. By virtue of Section 15 of the FCRA, forward contracts can be entered
into only in respect of goods notified by the Central Government in the Official
Gazette and the said contracts in respect of the goods so notified are
mandatorily required to be entered into only by and between the members of a
recognised association or with any such member, failing which a forward
contract even in respect of notified goods would be illegal. On a notification
being issued in respect of any of the goods by the Central Government, the
forward contracts in respect thereof would be regulated under the provisions of
FCRA by the regulatory authority being the FCA constituted under Section 3 of
the FCRA. Under Section 15 of the FCRA, the Central Government issued a
notification dated 9th January, 2006, whereby electricity was specified as goods
in respect of which forward contracts could be entered into. Pursuant thereto,
forward contracts relating to electricity came to be traded on the platform of
MCX. Under Section 4 of the FCRA, FMC is required, inter alia, to keep forward
markets under observation and to take such action as necessary in relation to
forward markets, collect and publish information regarding trading conditions
and to undertake inspection of the accounts and other documents of a
recognized association viz. Associations recognized by the Central Government
under Section 6, which associations may enter into contracts with respect to
specified goods or classes of goods. The FCRA is a complete code which provides
for setting up the FMC which advises the Central Government in the matter of
forward trading in commodities, registers every association which organizes
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forward trading and approves Rules and Bye laws of Associations organizing
forward trading. FCRA provides for recognition of associations by the Central
Government (Ministry of Consumer Affairs, Food and Public Distribution) which
may provide for trading in futures in notified commodities. FMC is also
responsible for keeping forward market under observation, inspection of
associations or their members and working for improving the organization of
markets. FCRA provides emergency powers to the FMC and the Central
Government to suspend trading, suspend members of Association and even to
supersede the governing body of the Exchange. FCRA also provides for
penalties for contravention of provisions contained in the Act.
28. The Electricity Act, 2003 came to be enacted on 26 th May, 2003 and the
same provided for the establishment of CERC to regulate, inter alia, the price of
electricity. The Electricity Act also provides for intra-state transactions in
contracts relating to electricity by State Electricity Regulatory Commissions.
Under the ambit of the Electricity Act, the regulatory authorities are the CERC
and the State Electricity Regulatory Commissions. Pursuant to Section 14 (c),
each of these authorities has the power to grant a license to any person to
undertake trading in electricity as an electricity trader. Part V of the Electricity
Act provides for both inter-state and intra-state transmission of electricity; the
CERC governs inter-state transmission, while a State Regulatory Commission
would govern intra-state transmission within a given time. Section 66
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conceives of a developmental role for the appropriate commission and provides
that it shall endeavour to promote the development of a market (including
trading) in power in such manner as may be specified. The mandate of the
Central Commission under Section 79 is to, inter alia, regulate inter state
transmission of electricity, determine tariff and issue licenses to electricity
traders with respect to inter-State transmission and to fix trading margins in
inter-State trading. Under Section 86, the State Commissions are required to,
inter alia, facilitate intra-State transmission of electricity, issue licenses to
electricity traders with respect to their operations in the State and fix the trading
margin in the intra-State trading of electricity.
29. On a conjoint reading of the provisions of FCRA and the Electricity
Act, it is axiomatic that the Electricity Act and the authorities established
thereunder have been empowered to govern the various aspects of electricity
including generation, transmission, distribution and trading. It is also clear that
the FMC established under the provisions of FCRA is empowered to govern all
futures and forward contracts including electricity futures contracts (being a
notified good under FCRA). To put it pithily, FMC and the CERC have been
established under separate special statutes.
30. The following definitions in the Regulations may also be noticed.
“(f) “Contract” means a contract for or relating to the
purchase or sale of electricity or its related products”
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(k) “Day ahead contract” means contracts where transaction
occurs on day (T) and delivery of power is on the next day (T
+ 1) and which are scheduled by Regional Load Despatch
Centre or National Load Despatch Centre.
(o) “Intraday contract”/contingency contract” means
contracts where transaction occurs on day (T) after the closure
of day ahead transaction window and the delivery of power is
on the same day (T) or next day (T + 1) and which are
scheduled by Regional Load Despatch Centre or National Load
Despatch Centre.
(jj) “Term ahead market” means a market where physical
delivery of electricity occurs on a date more than one day ( T
+ 2) or more) ahead from the date of transaction (T) and the
contracts in such market can be transacted
weekly/monthly/yearly or more in advance and have a defined
delivery period on expiry of contract and is scheduled by
Regional Load Despatch Centre or National Load Despatch
Centre.”
31. At this stage, the authorities cited at the Bar by the learned counsel
appearing for the parties may be noticed succinctly.
32. FCRA is enacted under Entry 48 of List I to the Seventh Schedule of
the Constitution of India i.e. The Union List. Mr. Seervai has relied upon the
judgment of the Supreme Court in the case of Waverly Jute Mills vs. Raymon
and Co. (India) Private Ltd.1 to submit that FCRA has been enacted under Entry
48 is unquestionable. In this case, the Supreme Court was required to resolve a
conflict between Entry 48 of List 1 and Entry 26 of List II. Entry 48 deals with
stock exchanges and futures markets whereas Entry 26 deals with trade and
commerce. The Supreme Court held that trade and commerce would in their
1 1963 (3) SCR 209
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ordinary and accepted sense include forward contracts, but in a case where
there are two entries, one general in its character and the other specific, the
former must be construed as excluding the latter. It is settled that while reading
entries in legislative lists, the widest possible construction according to the
ordinary meaning of the words in the entry must be put upon them. The words
employed in the entry are to be interpreted so as to include all ancillary and
subsidiary matters. Mr. Seervai has also relied upon the judgment of the
Supreme Court in the case of Calcutta Gas Company (Proprietary )Ltd. vs. The
State of West Bengal and others1. In this case the Supreme Court was faced with
interpreting the scope of Entries 24 (Industry) and 25 (Gas and Gas Works) in
List II of Schedule VII. The appellants in the said case contended that Entry 24
was to be given the widest meaning, so as to include the industry aspect of gas
and gas works, leaving other aspects to be covered by Entry 25. The Supreme
Court held that if industry in Entry 24 is interpreted to include gas and gas
works, entry 25 may become redundant thereby depriving of all its contents. He
submits that every attempt should be made to harmonize the apparently
conflicting entries not only of different lists but also of the same lists and to
reject that construction which will rob one of the entries of its entire content and
make it nugatory. Mr. Seervai further submitted that the Entry in the Union List-
I cannot be said to be useless lumber. In the said case the Supreme Court has
held thus:
1 1962 Supp (3) SCR 1
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“..The rule of construction adopted by that decision for the
purpose of harmonizing the two apparently conflicting
entries in the two Lists would equally apply to an apparent
conflict between two entries in the same List. Patanjali
Sastri, J. as he then was, held in State of Bombay v.
Narothamdas Jethabai (1951 S.C.R 51) that the words
“administration of justice” and “Constitution and
organization of all Courts” in item One of List II of the
Seventh Schedule to the Government of India Act, 1935
must be understood in a restricted sense excluding from
their scope “jurisdiction and powers of courts” specifically
dealt with in item 2 of List II. In the words of the learned
Judge, if such a construction was not given “the wider
construction of entry 1 would deprive entry 2 of all its
content and reduce it to useless lumber.” This rule of
construction has not been dissented from in any of the
subsequent decisions of this Court. It may, therefore, be
taken as a well settled rule of construction that every
attempt should be made to harmonize the apparently
conflicting entries not only of different lists but also of the
same list and to reject that construction which will rob one
of the entries of its entire content and make it nugatory.”
33. The legislative entries are useful guides, valuable in ascertaining the
scope and ambit of a given statute and may be used to resolve conflicts, real or
perceived, between the statutes so as to give effect to both. In order to buttress
the submission to the effect that the legislative entries are important guides to
interpretation, Mr. Seervai has relied upon the observation of the Supreme
Court in the case ITC Ltd. vs. Agricultural Produce Market Committee and others1
wherein the Supreme Court has held as under:
“107. The starting point in any controversy dealing with
apparently conflicting legislative jurisdictions is to see whether
the conflict can be fairly reconciled by reading the entries to
which the legislations are referable, together and ‘ by interpreting1 (2002) 9 SCC 232
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KPP -43- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010and, where necessary, modifying the language of the one by that
of the other’. It is only when such resolution is not possible that
the courts should be called upon to decide the question of
legislative competence. This principle has been stressed in anumber of cases by the Privy Council, the Federal Court and
more recently by this Court.”
In view of the above, the learned counsel for the petitioner submits that
considering the scheme of the two statutes and the entries under which they
have been enacted, the contention of the learned counsel for the first
respondent ought not to be countenanced.
34. Mr. Seervai submitted that the well-settled principle of
interpretation of the legislative entries in the three lists of the Seventh Schedule
has been enunciated in the judgment of the Supreme Court in the case of ITC
Ltd. (supra). The relevant observation of the Supreme Court is as under.
” 93. That the legislative power of Parliament in certain
areas is paramount under the Constitution is not indispute. …The supremacy of Parliament has been provided for
by the non obstante clause in Article 246 (1) and the words
“subject to” in Articles 246 (2) and (3). Therefore, under
Article 246 (1) if any of the entries in the three lists overlap,
the entry in List 1 will prevail. Additionally some of theentries in the State List have been made expressly subject to
the power of Parliament to legislate either under List I or
under List III. Entries in the lists of the Seventh Schedule
either under List I or under List III. Entries in the lists of the
Seventh Schedule have been liberally interpreted,
nevertheless courts have been wary of upsetting this balance
by a process of interpretation so as to deprive any entry of its
content and reduce it to useless lumber..”
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35. The Supreme Court in the case of Greater Bombay Co-op. Bank Ltd.
vs. United Yarn Tex (P) Ltd. and others1 has reiterated the aforesaid observations
in the case of ITC Ltd. (supra)
36. Mr. Seervai submitted that the principle of repugnancy applied only
in the case of conflict between legislation enacted by the Union and a State
under entries in List III of the Constitution and cannot be applied to conflicts
between List I and List III at all, simply because Article 254 refers only to the
matters enumerated in the concurrent list. Mr. Seervai has relied upon the
judgment of the Supreme Court in the case of Ashoka Marketing Ltd. And
another vs. Punjab National Bank and others2. In the said case the Supreme Court
was required to decide whether the provisions of the Delhi Rent Control Act,
1958 prevailed over those of the Public Premises (Eviction) Act, 1971. In the
said case the Supreme Court resorted to the general principles of statutory
interpretation for the purpose of resolving the conflict between the statutes only
due to the fact that both enactments fell under the said legislative list. In the
said case the Supreme Court observed as under.
“49. This means that both the statutes, viz. The Public
Premises Act and the Rent Control Act, have been enacted by
the same legislature, Parliament, in exercise of the legislative
powers in respect of the matters enumerated in the1 (2007) 6 SCC 236
2 (1990) 4 SCC 406::: Downloaded on – 09/06/2013 16:49:47 :::
KPP -45- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010Concurrent List. We are, therefore, unable to accept the
contention of the learned Additional Solicitor General that
the Public Premises Act, having been enacted by Parliament
in exercise of legislative powers in respect of mattersenumerated in the Union List would ipso facto override the
provisions of the Rent Control Act enacted in exercise of the
legislative powers in respect of matters enumerated in the
concurrent list”.
Mr. Seervai submits that on the strength of the provisions of Article 246, the
FCRA ought to prevail over the provisions of the Electricity Act.
37.
Mr. Seervai then submitted that contemporaneous documents
throwing light on the construction of a statute are admissible external aids to the
interpretation of such a statute. In support of his submission, the learned
counsel has relied upon the decision of the Supreme Court in the case of Desh
Bandhu Gupta and Co. and others vs. Delhi Stock Exchange Association Ltd.1 In
the said case, certain documents issued by the Government simultaneously with
a notification under the Securities Contracts (Regulation) Act, 1956 were used
as a contemporanea exposition of the notification. In both cases, using executive
documents as a contemporaneous exposition of the Government’s intention, the
Supreme Court referred to Crawford on Statutory Construction and stated that
contemporaneous construction placed by administrative or executive officers
charged with executing a statute should be shown to be clearly wrong before it
is overturned and that while it is not controlling, it is, nevertheless, entitled to
considerable weight and is highly persuasive. The Supreme Court in the case of
1 (1979) 4 SCC 565
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K.P. Varghese vs. Income-tax Officer, Ernakulam and another1 followed the above
dictum and held that this rule of construction by reference to contemporanea
expositio is a well established rule for interpreting a statute by reference to the
exposition it has received from contemporary authority, though it must give
way where the language of the statute is plain and unambiguous.
38. Mr. Seervai submits that there is a clear distinction between physical
markets and forward markets. The forward markets are markets which are, in a
sense, conceptual as they deal with financial aspects of trading in a commodity.
The physical markets are engaged in the actual transmission and distribution of
electricity. The forward markets and futures provide an opportunity for hedging
and stabilising the commodity market against sharp price rises that may occur.
While forward contracts provide for delivery of the commodity at a future date,
less than 1 per cent of trades of futures contracts actually culminate in delivery.
In short, a future contract is not a merchandising contract but a financial
contract entered into for the purpose of hedging price risk, and the sheer volume
transacted in the futures markets makes it evident that the physical commodity
is not, in fact, changing hands. There exists no urgent necessity for the CERC to
exercise jurisdiction over the markets in electricity forward trading. What is
required is, nay, a regulatory body such as the FMC with expertise in forward
contracts to oversee the futures markets in electricity. Mr. Seervai submits that
the two Acts operate in different fields and there is no conflict between the
1 (1981) 4 SCC 173
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KPP -47- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010
provisions thereof. Even if there is any conflict between the provisions of the
two Acts, the FCRA having enacted under Entry 48 of List I of Schedule VII will
prevail over the Electricity Act which has been enacted under Entry 38 of List IIII
i.e. Concurrent List. Mr. Seervai submits that in fact even where the CERC
attempted to impose disqualifications in the context of grant of trading licence,
the Supreme Court found against the legality, propriety and constitutionality of
the delegated legislation. In support of his contention, the learned counsel has
placed reliance on the judgment of the Supreme Court in the case of Global
Energy Ltd. and another vs. Central Electricity Regulatory Commission1
39. Controverting the submissions of Mr. Seervai, Mr. Aspi Chinoy
submits that the Electricity Act is a consolidating Act and repeals the Indian
Electricity Act, 1910, the Electricity (Supply) Act, 1948 and the Electricity
Regulatory Commissions Act, 1998. Mr. Chinoy submitted that the Electricity
Act, 2003 is an exhaustive Code on all matters concerning electricity. The
learned counsel has placed reliance of the Supreme Court in the case of PTC
India Ltd. (supra). The Supreme Court held thus:
” 9. The 2003 Act is enacted as an exhaustive Code on all
matters concerning electricity. It provides for “unbundling” of
SEBs into separate utilities for generation, transmission and
distribution. It repeals the Indian Electricity Act, 1910, the
Electricity (Supply) Act, 1948 and the Electricity Regulatory
Commissions Act, 1998. The 2003 Act, in furtherance of the
policy envisaged under the Electricity Regulatory Commissions
Act, 1998 (“1998 Act”) mandated the establishment of an
independent and transparent regulatory mechanism, and has1 AIR 2009 SC 3194
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KPP -48- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010entrusted wide ranging responsibilities with the Regulatory
Commissions. While the 1998 Act provided for independent
regulation in the area of tariff determination; the 2003 Act has
distanced the Government from all forms of regulation,namely, licensing, tariff regulation, specifying Grid Code,
facilitating competition through open access, etc .
The learned Counsel submits that the Act, therefore, makes provisions for every
aspect of the matter concerning electricity including, inter alia, referring for
arbitration disputes involving generating companies or transmission licenses.
Sections 173 and 174 of the Act of 2003 stipulate that the provisions of the Act
shall have effect notwithstanding anything inconsistent therewith contained in
any other law for the time being in force. Mr. Chinoy has relied upon the
judgment of the Supreme Court in the case of Gujarat Urja Vikas Nigam Limited
vs. Essar Power Ltd.1 wherein the Supreme Court has held thus:
“57. In our opinion, the principle laid down in Section 174 of
the Electricity Act, 2003 is the principal or primary whereas the
principle laid down in Section 175 is the accessory or
subordinate to the principal. Hence, Section 174 will prevail
over Section 175 in matters where there is any conflict (but nofurther).
58. In our opinion, Section 174 and Section 175 of the
Electricity Act, 2003 can be read harmoniously by utilising the
samanjasya, badha and gunapradhana principles of Mimansa.
This can be done by holding that when there is any express or
implied conflict between the provisions of the Electricity Act,
2003 and any other Act, then the provisions of the Electricity
Act, 2003 will prevail, but when there is no conflict, express or
implied, both the Acts are to be read together.”
1 (2008) 4 SCC 755
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40. Mr. Chinoy further submits that Section 66 read with Section 178(2)
(y) of the Act of 2003, clearly enables the CERC to make Regulations for the
development of the market in power (including trading). This necessarily covers
all aspects of the market and business/trading in power and would include both
spot and forward contracts for the sale or purchase of electricity. The concept of
trading necessarily covers all forms of business in electricity and includes both
spot and forward contracts for sale and purchase of electricity. Section 2 (71)
of the Act refers to purchase of electricity for resale thereof. This is wide
enough to cover both spot and forward contracts for electricity. Mr. Chinoy has
referred to the decision of the Supreme Court in the case of Waverly (supra) and
submits that the trade and commerce would in their ordinary and accepted
sense includes forward contracts. He submits that the market is a place where
business in the sale and purchase of goods is carried on/transacted. While
relying on the judgment of the Supreme Court in the case of Chimanlal
Premchand vs. The State of Bombay1, Mr. Chinoy submits that the power under
Section 26 of the Bombay Agricultural Produce Markets Act to make rules for a
market would include the power to make rules for the regulation of business
and conditions of trading in the market area and that included making rules
stipulating that no person could do business in agricultural produce except
under a license granted by the Market Committee.
1 AIR 1960 SC 96
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41. Mr. Chinoy further submits that Article 246 of the Constitution of India
provides for the supremacy of Parliamentary legislation over State legislation
and has no application when considering which of two Parliamentary
Legislations will prevail/override the other. Since both the legislations are
Parliamentary legislations, there is no issue of constitutional competence to
enact the Act of 2003 or any of its provisions can arise. It is well settled that an
enactment can be attributed to more than one entry in the lists. He submits that
a piece of legislation need not necessarily fall within the scope of one entry
alone, more than one entry may overlap to cover the subject matter of a single
piece of legislation. Mr. Chinoy submits that if both Acts were special laws
containing non obstante clauses, the latter Act must prevail. The learned
counsel has placed reliance on the judgment of the Supreme Court in the case of
Solidaire India Limited vs. Fairgrowth Financial Services Limited and others 1
wherein the Supreme Court has held as under:
“Where there are two special statutes, which contain non
obstante clauses the later statute must prevail. This is becauseat the time of enactment of the later statute, the Legislature was
aware of the earlier legislation and its non obstante clause. If
the Legislature still confers the later enactment with a non
obstante clause it means that the Legislature wanted that
enactment to prevail. If the Legislature does not want the laterenactment to prevail then it could and would provide in the
later enactment that the provisions of the earlier enactment
continue to apply”
1 (2001) 3 SC C 71
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Relying on the aforesaid, Mr. Chinoy submits that since both the enactments are
Parliamentary legislations, no question of lack of competence arises nor is there
any need to read down or interpret entry 38 of List III vis a vis Entry 48 of List 1
as has been submitted by the learned counsel for the petitioners. The learned
counsel reiterates that it is well settled that an enactment can be attributed to
more than one entry in the Lists. In view thereof, the provisions of the Act of
2003 in so far as they relate to forward contracts in electricity, could, in
addition to Entry 38 of List III, also be rested on Entry 48 of List I, in so far as
provisions of the Act of 2003 relate to forward contracts. Mr. Chinoy has
submitted that time has not reached where electricity can be effectively dealt
with in futures contract at present though in future the position may change.
42. Mr. Dwarkadas, Senior Counsel, appearing for FMC, submits that the
Supreme Court in the case of Raghubar Dayal Jai Parkash and others vs. Union of
India1 scrutinised in great detail the provisions of FCRA wherein the Supreme
Court quoted the Expert Committee report to which the bill on Forward Contract
Regulation had been referred. The said quotation reads thus:
“Forward trading involves speculation about the future, but not
all forms of forward trading could be considered as either
unnecessary or undesirable for the efficient functioning of
anything but the most primitive economy… To the extent to
which forward trading enables producers, manufacturers and
traders to protect themselves against the uncertainties of the
future, and enables all the relevant factors whether actual or
anticipated, local or international, to exercise their due influence
on prices, it confers a definite boon on the community, because1 AIR 1962 SC 263
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KPP -52- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010to that extent, it minimises the risks of production and
distribution and makes for greater stability of prices and
supplies….It is therefore necessary to eliminate certain forms of
forward trading, and permit others under carefully regulatedconditions, in order to ensure that, while producers,
manufacturers and traders will have the facility they need for the
satisfactory conduct of their business, the wider interest of the
community, and particularly, the interest of consumers, will be
adequately safeguarded against any abuse of such facilities byothers.”
43. The status of the FMC as an expert body to ensure the proper regulation
of forward contracts in the best interest of the society has been reiterated by the
Supreme Court in the cases of (i) Waverly Jute Mills (supra), (ii) Union of India
and another vs. Rajdhani Grains and Jaggery Exchange Ltd. and others 1, and
(iii)The Mahabir Beopar Mandal Ltd. vs. The Forward Markets Commission2.
44. The term “market” has been elaborately defined by the Supreme Court in
the case of Waverly Jute Mills (supra). The relevant observations of the
Supreme Court read thus:
“9. Market no doubt ordinarily means a place where business
is being transacted. That was probably all that it meant at a
time when trade was not developed and when transactions
took place at specified places. But with the development ofcommerce, bargains came to be concluded more often that not
through correspondence and the connotation of the word
‘market’ underwent a corresponding expansion. In modern
parlance the word ‘market’ has come to mean business as well
as the place where business is carried on. Labour Market for
example, is not a place where labourers are recruited but the
conditions of the business of labour. The word ‘market’ being1 AIR 1975 SC 1218,
2 AIR 1977 SC 1562::: Downloaded on – 09/06/2013 16:49:47 :::
KPP -53- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010thus capable of signifying both business and the place where
the business is carried on, the question in what sense it is used
in a particular statute must be decided on a consideration of
the context of that statute. Thus in Public Prosecutor vs.Cheru Kutti (AIR 1925 Mad. 1095) and Commissioner,
Coimbatore Municipality vs. Chettimar Vinayagar Temple
Committee ( 1956 (2) MLJ 563), the question arose with
reference to provisions as to licensing by local authorities, and
for that purpose market was interpreted as meaning a place.
We we must examine that the word market means in Entry 48
“Futures Markets” in List 1. The word ‘futures’ is thus defined
in Encyclopaedia Britannica “contracts which consist of a
promise to deliver specified qualities of some commodity at aspecified future time. The obligation is for a single quantity in
a given month… Futures are thus a form of security, analogousto a bond or promissory note”. In this sense a market can
have reference only to business and not to any location. In our
opinion, a legislation on Forward Contracts would be a
legislation on futures markets.”
45. Referring to the judgment of the Supreme Court in the case of Gujarat
Urja Vikas Nigam Ltd. vs. Essar Power Ltd.1, Mr. Dwarkadas submitted that CERC
has sought to contend only the third test of Mimansa System (Badha). However,
before applying this test, there are two tests to be applied, as observed in the
said case. The principles are as under:
” 1. Where two texts which are apparently conflicting are
capable of being reconciled, then by the principle of harmonious
construction (which is called the Samanjasya Principle inMimansa) they should be reconciled.
2. The second situation is a conflict where it is impossible to
reconcile the two conflicting texts despite all efforts. In this
situation, the vikalpa principle applies, which says that whichever
law is more in consonance with reason and justice should be
preferred. However, conflict should not be readily assumed and
every effort should be made to reconcile conflicting texts. It is
1 (2008) 4 SCC 755
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only when all efforts of reconciliation fail that the vikalpa
principle is to be resorted to.
3. There is a third situation of a conflict and this is where there
are two conflicting irreconcilable texts but one overrides the other
because of its greater force. This is called a badha in the Mimansa
system (similar to doctrine of ultra vires)
46. Mr. Vikas Singh, learned counsel appearing for respondent No.3 submits
that in view of the special enactment under the Electricity Act, it is only the
authority under the Electricity Act can deal with futures contract and FMC
cannot deal with electricity in any manner including the futures contract. The
learned counsel submits that whenever a central regulation is to be challenged,
notice has to go to the Attorney General of India. In order to buttress the
submission of the learned counsel, he has placed reliance of the Supreme Court
of India in the cases of (i) A.C. Sharma vs. Delhi Administration1 and (ii) Basant
Lal vs. State of U.P. And another2. The learned counsel further submits that the
preamble in the FCRA is similarly worded to the preamble in the Specific Relief
Act in which Act also it is stated to be concerning certain kinds of specific relief.
The Supreme Court has held that the Specific Relief Act is not a comprehensive
legislation dealing with all aspects of specific relief. In this connection, the
learned counsel has relied upon the decision of the Supreme Court in the case of
Hungerford Investment Trust Limited (In voluntary Liquidation) vs. Haridas
Mundhra and others3. The learned counsel has also relied upon the decision of
1 (1973) 1 SCC 726
2 (1998) 8 SCC 589
3 (1972) 3 SCC 684
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the Supreme Court in the case of PTC India Ltd. (supra) and submitted that the
Electricity Act was a comprehensive Act dealing with all aspects of electricity
and that development of market of power was an exclusive jurisdiction vested in
the regulatory commissions.
47. In the case of Firm of Patapchand Nopaji vs. Firm of Kotrike Venkata Setty
and sons and others1 , the Supreme Court while dealing with the Bombay
Forward Contract Act, 1947, whose provisions were similar to the FCRA, except
that under Section 9 of the said Act option in goods were banned only if a
notification was issued by the provisional government in the official gazette
whereas under the FCRA all option in goods are banned, held that if a contract
was not for actual delivery and supply to bona fide purchaser, then such
contracts are tainted with unlawfulness of their object and are forbidden by the
law. The learned counsel has also placed reliance on the judgment of the
Supreme Court in the case of Shivnarayan Kabra vs. The State of Madras2
wherein the Supreme Court had noticed the expert committee’s report prior to
the enactment of the FCRA and then had the occasion to consider the arguments
wherein a defence had been taken that the contract being not for delivery of
goods and being speculative in nature was not a forward contract, was pleased
to reject the said argument as according to the Supreme Court the FCRA was
meant to curb the mischief of speculation and hence any person indulging in
1 (1975) 2 SCC 208
2 (1967) 1 SCR 138
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such practice which were not resulting in delivery was held to be violating the
prohibition under the Act. The learned counsel submits, while relying upon the
decision of the Supreme Court in the case of Ashoka Marketing Ltd. vs. Punjab
National Bank1, that since Electricity Act also is dealing with a large number of
subjects which are exclusively in List-I like railways, telegraph under Section 67,
159, 160 and 164, the said Act insofar as they relate to such subjects can easily
be traced to List-I. The learned counsel lastly submits that in case of an express
or implied conflict, the Electricity Act will prevail. To fortify his argument, the
learned counsel has relied upon the decision of Gujarat Urja Vikas Nigam Ltd. vs.
Essar Power Ltd.2.
48. To recapitulate, FCRA was enacted in the year 1952. The object of the
Act as per the preamble is to provide for the regulation of certain matters
relating to forward contracts, the prohibition of options in goods and for matters
connected therewith. It is a complete code providing for setting up of FMC which
advises the Central Government in the matter of forward trading in
commodities, registers every Association which organises forward trading and
approves Rules and Byelaws of Associations organizing forward trading. As per
the provisions of FCRA, contracts/agreements are classified into two categories
i.e. Ready delivery contract and forward contract. Ready delivery contract is one
which deals with delivery of goods and full payment of price thereof is made,
1 1990 (4) SCC 406
2 (2008) 4 SCC 755
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either immediately or within a period of eleven days after the date of the
contract. Forward contract as per the definition under Section 2 (c) is a contract
of delivery of goods and which is not a ready delivery contract. Considering the
provisions of the FCRA, in our view, it can be said that a forward contract is one
in which it is a contract for delivery of goods which can be realised either wholly
or partly by payment of any offsetting contract.
49. The CERC while deciding the matter has observed as under in paragraph
48 of its original order.
” ..When seen in the light of the various provisions of the two
enactments, there does not appear to be any overlapping or
inconsistency between them. The two statutes can operateindependently in the fields assigned to them without any
possibility of collision and without any invasion into the specific
areas covered by the other. For this reason, both the statuteshave to be given effect by harmoniously reading together the
provisions of the 1952 Act and the 2003 Act. Such a conclusion
will be in consonance with the law laid down by the Hon’ble
Supreme Court at para 58 of its judgment in Gujarat Urja VikasNigam Ltd. (supra). In view of this conclusion, approval
accorded by FMC to MCZ for trading of daily electricity
contracts, weekly electricity contracts and monthly electricity
contracts cannot be faulted and we do not propose to interfere
in the matter.”
Thereafter in the review order, substantial changes were made in the original
order passed by CERC.
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50. It is no doubt true, as argued by Mr. Chinoy and Mr. Vikas Singh,
that Section 174 of the Act provides for overriding effect notwithstanding
anything inconsistent therewith contained in any other law for the time being in
force or in any instrument having effect by virtue of any law other than this Act.
In our view, in view of the specific provisions in FCRA, which is a central
legislation enacted earlier in point of time, by which in a notified commodity
forward contract can be undertaken only through the machinery under the said
Act, the futures contract in electricity cannot be exclusively dealt with by the
authority under the FCRA. Similarly, in view of the specific provisions under the
FCRA, CERC also cannot deal with the futures contract on its own and have no
power to deal with the same in the futures contract, unless appropriate
enactment has been made by way of statutory provision regulating the futures
contract giving powers only to one authority out of the aforesaid two
authorities.
51. It is no doubt true that electricity is a special legislation provided for a
specific purpose wherein the interest of consumer is also required to be taken
into consideration. In our view, both the enactments operate in the respective
fields. If any futures contract in case of a notified commodity under the FMC is
concerned, it can be done only through the machinery provided under the FMC.
Looking to the special nature of the electricity commodity and even considering
the controlling of prices, etc. in our view, the futures contract in electricity
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cannot be exclusively dealt with by FMC. Similarly, the CERC has no jurisdiction
to frame any Regulation in connection with the futures contract in electricity.
With a view to harmonise the provisions of both the Acts, in our view, the
futures contract no doubt is within the domain of FMC. Even if futures contract
is to be taken into consideration in the matter of electricity, the same can be
done only in consultation with the CERC. Each domain is exclusive under the
respective statutes. One cannot transgress into another domain. In our view,
CERC cannot be totally taken out of consideration as the physical delivery of the
electricity and electricity derivative products also form part of various aspects of
the electricity market structure under the Electricity Act.
52. It is also required to be noted that the CERC under the Electricity Act is
required to promote development of market including trading in power, in a
specified manner. The CERC is assigned a duty to promote development of
market in power through the Regulations. The CERC has, therefore, jurisdiction
to regulate development of market in electricity in all forms but in view of the
specific provisions under the FCRA regarding futures contract, at present it is not
possible to hold that the CERC is entitled to even act in the futures contract in
view of the clear provisions in this behalf in the FCRA. In our view, neither of
the regulatory authorities will have exclusive jurisdiction to deal with in the
futures contract so far as electricity is concerned. Since statutory duty is cast
upon the CERC under the Electricity Act regarding market development, the
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Commission, in our view, is entitled to issue appropriate guidelines in
connection with regulating the development of market in electricity. It is also
the duty of the CERC under the Electricity Act to see that the transactions on the
exchanges are conducted in a free and fair manner, while keeping the interest of
the consumer in mind. As on today, the Regulations framed by the CERC also
cannot be given any effect to as the power to deal with futures contract is
specifically dealt with by other statute and in view of the same, it is not
necessary to examine as to whether the CERC was justified in exercising
jurisdiction on the basis of the application filed by Respondent No.3 before the
CERC or not. As stated above, neither the FMC nor the CERC can exclusively
deal with electricity in the matter of futures contract. The CERC cannot act in the
futures contract in the matter of electricity unless appropriate enactment has
been made by the Parliament in this behalf. The Regulations under challenge
cannot be given effect to and it will have no effect so far as futures contract in
electricity is concerned. In so far as the power of CERC to deal with electricity in
the futures contract is concerned, as pointed our earlier, even the Cabinet
Secretary also asked both the Regulatory authorities not to act further and CERC
has been specifically asked not to give effect to the Regulations till the dispute
can be sorted out.
53. So far as Electricity Act is concerned, it is a special Act which deals with
various aspects of electricity including fixation of rates, etc. However, so far as
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futures contract is concerned, the CERC cannot frame any Regulations in
connection with futures contract. Considering the same, the Regulations framed
by CERC cannot be given any effect to unless proper enactment is made in this
behalf. After considering the provisions of the FCRA and Electricity Act and the
Regulations framed thereunder and considering the nature of controversy as well
as considering the case laws cited by the learned counsel appearing for the
parties, in our view, neither of the regulatory authorities will have exclusive
jurisdiction to deal with in the futures contract in electricity independently. In
view of the above, the provision regarding “term ahead market” in the
Regulations providing for futures contract or term ahead contract beyond eleven
days cannot be made applicable, unless proper enactment in this behalf is made
by the Parliament. Till appropriate legislation is enacted by the Parliament, the
Regulations framed by the CERC is held to be not applicable so far as futures
contract in electricity is concerned.
54. In view of the above, the following order:
(a) The Central Electricity Regulatory Commission (Power Market)
Regulations, 2010 are declared inoperative hereinafter, so far as the
futures/forward contracts in electricity is concerned;
(b) The orders dated 28th April, 2009 passed in Petition No. 159 of 2008 and
11th January, 2010 passed in Review Petition No.115 of 2009 are
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quashed and set aside so far as reasoning and directions with regard to
futures/forward contract in electricity;
(c) It is further declared that the Petitioner-FMC and authority/commission
under it have no sole and exclusive jurisdiction to regulate and control
forward trading/futures contract in electricity and also CERC and
authorities/commission under it.
(c) In view of the above, both these Petitions are partly allowed and disposed
of accordingly, with no order as to costs. Rule in each of the petitions is
accordingly partly made absolute to the extent indicated above.
(d) The Notices of Motion are also disposed of in view of disposal of the
petitions. No costs.
P. B. MAJMUDAR, J.
ANOOP V. MOHTA, J.
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 1197 OF 2010
WITH
NOTICE OF MOTION NO. 100 OF 2010
Multi Commodity Exchange of India Ltd. …Petitioner
Vs.
Central Electricity Regulatory Commission & Ors. …Respondents.
WITH
WRIT PETITION NO. 1604 OF 2009
ig WITH
NOTICE OF MOTION NO. 71 OF 2010
Forward Markets Commission ...Petitioner
Vs.
Central Electricity Regulatory Commission & Ors. ...Respondents.
J U D G M E N T
Per- Anoop V. Mohta, J.
I have the advantage of reading the judgment of my esteemed
brother Justice P. B. Majmudar. I am in agreement with the conclusions. As
important issues, having large ramification, are involved, I would like to address
it by additional reasons:-
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2 The Constitution of India, Union List I of Schedule VII provides entry
48, which deals with “stock exchanges and futures markets”. Concurrent List III
Schedule VII provides entry 38 “Electricity”. Both the entries are operating in
their respective fields without any conflicts.
3 “Under the Constitution, the subject of “stock exchanges and future
markets” is included in the Union List. Consequently, the State Legislatures are
no longer competent to enact any fresh legislation with regard to forward
markets, and unless Central legislation on this subject is enacted, the resulting
lacuna may prevent desirable action being taken, when needed”.
“The FCR Act basically take into consideration “forward trading,
which normally plays a useful part in tempering price fluctuations, tends in
certain situations to exaggerate such fluctuations to the detriment of the
interests of producers as well as consumers”.
“The main principle underlying these provisions is that forward
contracts should be allowed to be entered into only in accordance with the rules
and bye-laws of a recognized association. The rules and bye-laws will be subject
to the approval of the Central Government who will also have the power to
make such rules and bye-laws.”
“The regulatory provisions of this Act will be extended by
notification to different classes of goods and to different areas as and when
necessary”. (Statements of objects and reasons- The Forward Contract
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(Regulation) Act, 1952. (The FCR Act).
4 The FCR Act deals with the establishment, operating, regulating,
maintaining and managing facilities to enable the member of exchange, their
authorized agents and constituents and other participants, to transact, clear and
settle the trade of Futures contracts of a commodity exchange, duly recognized
by the Central Government-Forward Markets Commission (FMC). Under the
FCR Act about 103 commodities/goods are covered. FMC is a regulatory
authority, under the FCR Act and MCX (Multi Commodity Exchange of India
Limited) under FMC. The expressions “Forward contract” and “Ready delivery
contract” have been amended to check the misuse of ready delivery contracts.
These authorities/ commissions have exclusive jurisdiction and control over the
trading of futures and forward contracts in all respects, even reconfirmed by the
Supreme Court in the Judgments. ((i) Waverly Jule Mills Co. Ltd. Vs. Raymon
& Co. (India) Pvt. Ltd., (ii) Union of India & Anr. Vs. Rajdhani Grain and
Jaggery Exchange Ltd. & Ors. (iii) The Mahabir Beopar Mandal Ltd. Vs. The
Forward Markets Commission (Supra).
5 The Electricity Act, 2003 (the Electricity Act) is an exhaustive code
in all matters concerning electricity. The objects and reasons speak for itself.
“An Act to consolidate the laws relating to generation, transmission,
distribution, trading and use of electricity and generally for taking
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KPP -66- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010and supply of electricity to all areas, rationalisation of electricity
tariff, ensuring transparent policies regarding subsidies, promotion
of efficient and environmentally benign policies, constitution of
Central Electricity Authority, Regulatory Commissions andestablishment of Appellate Tribunal and for matters connected
therewith or incidental thereto.”
6 It provides for; a National electricity and tariff policy and plan,
generation of electricity, licensee, transmission of electricity (inter-State
transmission, Regional Transmission, Distribution of electricity consumer
protection, tariff regulations and its determination and development of power
market. It also provides for Central Electricity Authority, Regulatory
Commissions, its powers and functions and an Appellate Tribunal. There are
other protective clauses and miscellaneous provisions which empowers
authorities/ commissions to make rules and regulations.
7 The Apex Court in (PTC India Ltd. Vs. Secy. CERC, AIR 2010 SC
1338=(2010) 4 SCC 603) elaborated the same in following words:-
“17. The 2003 Act is enacted as an exhaustive code on all matters
concerning electricity. It provides for “unbundling” of SEBs
into separate utilities for generation, transmission and
distribution. It repeals the Electricity Act, 1910; theElectricity (Supply) Act, 1948 and the Electricity Regulatory
Commissions Act, 1998. The 2003 Act, in furtherence of the
policy envisaged under the Electricity Regulatory Commissions
Act, 1998 (the 1998 Act), mandated the establishment of an
independent and transparent regulatory mechanism, and has
entrusted wide-ranging responsibilities with the Regulatory
Commissions. While the 1998 Act provided for independent
regulation in the area of tariff determination; the 2003 Act
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KPP -67- W.P. NOS. 1197/2010 & 1604/2009 ALONG WITH N.M. NOS. 100 & 71/2010namely, licensing, tariff regulation, specifying Grid Code,
facilitating competition through open access, etc.
18. Section 3 of the 2003 Act requires the Central Government, in
consultation with the State Governments and the Authority,
to prepare the National Electricity Policy as well as tariff
policy for development of the power system based on optimum
utilization of resources. The Central and the StateGovernments are also vested with rule-making powers under
Sections 176 and 180 respectively, while the “Authority” has
been defined under Section 2(6) as regulation-making power
under Section 177. On the other hand, the Regulatory
Commissions are vested with the power to frame policy, in theform of regulations, under various provisions of the 2003 Act.
However, the Regulatory Commissions are empowered toframe policy, in the form of regulations, as guided by the
general policy framed by the Central Government. They are to
be guided by the National Electricity Policy, the tariff policyas well as the National Electricity Plan in terms of Sections
79(4) and 86(4) after the 2003 Act (see also Section 66).
26. The term “tariff” is not defined in the 2003 Act. The term
“tariff” includes within its ambit not only the fixation of ratesbut also the rules and regulations relating to it. If one reads
Section 61 with Section 62 of the 2003 Act, it becomes clearthat the appropriate Commission shall determine the actual
tariff in accordance with the provisions of the Act, including
the terms and conditions which may be specified by the
appropriate Commission under Section 61 of the said Act.
Under the 2003 Act, if one reads Section 62 with Section 64,
it becomes clear that although tariff fixation like price
fixation is legislative in character, the same under the Act is
made appealable vide Section 111. These provisions, namely,
Sections 61, 62 and 64 indicate the dual nature of functions
performed by the Regulatory Commissions, viz, decision-
making and specifying terms and conditions for tariff
determination.
28. The 2003 Act contemplates three kinds of delegated
legislation. Firstly, under Section 176, the Central
Government is empowered to make rules to carry out the
provisions of the Act. Correspondingly, the State Governments
are also given powers under Section 180 to make rules.
Secondly, under Section 177, the Central Authority is also
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empowered to make regulations consistent with the Act and
the rules to carry out the provisions of the Act. Thirdly, under
Section 178, the Central Commission can make regulations
consistent with the Act and the rules to carry out the
provisions of the Act. SERCs have a corresponding power
under Section 181. The rules and regulations have to be
placed before Parliament and the State Legislatures, as the
case may be, under Section 179 and 182. The Parliament has
the power to modify the rules/ regulations. This power is not
conferred upon the State Legislatures. A holistic reading of the
2003 Act leads to the conclusion that regulations can be made
as long as two conditions are satisfied, namely, that they are
consistent with the Act and that they are made for carrying
out the provisions of the Act.”
8 The Central Electricity Regulatory Commission (CERC) is a creation
of Electricity Act. The Power Exchange of India Limited (PXI), recognized by
CERC, has set up under the Electricity Act. Same is the position of Indian
Energy Exchange (IEX).
9 The concept “trading” is defined under Section 2(71) of the
Electricity Act as under:-
“2(70) “trading” means purchase of electricity for resale thereof
and the expression “trade” shall be construed accordingly.”
The meaning of “trading” as per-
BLACK’S LAW DICTIONARY, EIGTH EDITION-
“The business of buying and selling, esp. of commodities and
securities. [Cases: Commodity Futures Trading Regulation; Securities
Regulation, C.J.S. Securities Regulation].
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THE OXFORD ENGLISH DICTIONARY, VOL. XI- T-U
“The action of the verb TRADE in various senses; esp. the carrying
on of trade; buying and selling; commerce, trade, traffic.”
Section 66 provides for development of power market as under:
“66. Development of market.- The Appropriate Commission
shall endeavour to promote the development of a market
(including trading) in power in such manner as may be
specified and shall be guided by the National Electricity
Policy referred to in section 3 in this regard.”
Section 178 empowers the CERC to make regulations consists with
and for carrying out the purpose of the Electricity Act. Relevant clause is
178(y)-
“178(y) the manner by which development of market in power
including trading specified under Section 66;
The regulation 2010 in question is the offshoot of this Section.
10 In my view, the development of power market nowhere
contemplates speculative business/ market in electricity. The concept
“development of power market” may cover all related and relevant steps
including trading and all types of contracts for the electricity development.
Therefore, CERC through its regulations is not specifically empowered to do
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speculative trading and/or forward trading or future contract, independently, by
overlooking the mandate of FCR Act. The FMC and MCX are also not in a
position to do the same business exclusively, by overlooking the Electricity Act
and its authorities.
11 The Ministry of Consumer Affairs, Food and Public Distribution, vide
Gazette by Notification dated 9th January, 2006 by invoking Sections 15 and 16
of the FCR Act has covered “Electricity” and “Natural Gas”. FMC has by order of
January, 2009 permitted MCX to have trading of electricity in future/forward
market. This was probably in view of national and international developing
market of electricity. Therefore, the conflict so far as the trade of Futures
contract in electricity.
12 The respective entries of the Constitution of India and the Acts based
upon it need to keep in mind, while considering development of power/
electricity market in India and/or for facilitating permission of investment in
electricity sector and for protecting the interest of the consumers. The mandate
of Electricity Act needs to be noted while dealing with the marketing and/or
trading in electricity. When it comes to futures contracts or forward market, the
provisions of Sections 14, 15 and 81 of FCR Act which govern the field by its
rules and regulations and authorities also just cannot be overlooked. The power
market in electricity developing and is at evolving stage which needs clear and
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unqualified rules, regulations and controlling authorities in view of specific
provisions of the Electricity Act, that itself is not sufficient to permit FMC and
MCX to do business of futures contract in electricity exclusively. All
commodities/goods are storable. The electricity is not storable goods, except
produced by Hydro-Projects. There cannot be any comparison of electricity as
goods with the other goods/commodities. This typical characteristic of
electricity as goods, goes to the root of the matter. The Electricity Act deals with
and covers all aspect of electricity rights from an establishment of projects of
electricity, manufacturing, process, production, supply, distribution, tariff, rate
of electricity and its regulations. The CERC controls and deals with such issues in
the respective States. The Electricity Act basically permits/provides the trading
and supply of electricity as goods for actual physical use.
13 The FCR Act deals with futures market and forward contracts in all
goods which in essence are financial contracts for delivery of goods, which may
or may not be physical and/or may settle by the payment of differewnces. Any
market/ trading basically means physical delivery of the goods but the FCR Act
also provides specialized financial market to permit the traders to do business in
the realm of price discovery and price risk management.
14 The futures market is a centralized place for buyers and sellers, who
could be speculators, from around the nation and/or around the World, who
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enters into futures contracts. Such contracts provides for the quality, the
quantity, the fixed price and the date of delivery. The spot/ cash market is
different than future market. The profits and losses of future contracts based on
the daily movements in the market of the commodity. The concepts and
importance of “margin”, “leverage”, “hedging”, “price discovery” and “risk
reduction” are well known in the field. Various factors have a major effect on
supply and demand and price of a commodity. The future markets always quite
risky, complex and volatile. All above elements are essential of any future
contract and need to be governed and controlled by regulatory
authority/commission, which in India at present constituted under FCR Act only.
No such power or authority is available under the Electricity Act and/or
provided in any other such statute to the CERC or other authority at present.
15 Such future trading or future markets of electricity which non-
storable goods, cannot be permitted without expertized body or statute or
regulator under the guise of nation power policy or global market for
development of electricity. The electricity falls within the ambit of “commodity
features”. The maintaining of update index like other commodity is also
important factor. It is only the exchange decides whether the future contract is
cash settled or settlement is delivery based.
16 The Electricity Act nowhere permits the CERC to use and/or suspend
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the control and/or delegate and/or handover the charges/control of electricity
to FMC or to other associations under the FCR Act, considering the speciality of
electricity as a non-storable goods. No other authorities even under the FCR Act
can have exclusive and independent control and authority to trade in the
electricity in futures market/ forward market. No other authority/ commission
is entitled to challenge and control the trading power of CERC by any modes in
any markets, but this can be subject to appropriate rules/regulations as
contemplated under Section 178 (2) of the Electricity Act based upon the
desirable and workable electricity power policy. Mere notification and/or
approval under Sections 15/16 of the FCR Act itself is not sufficient to empower
the authorities/ commission to do the future markets of electricity under its
existing rules and regulations.
17 Any electricity market/ trading covers and means availability of
electricity, electricity producers, Central, State, private projects/sectors,
suppliers, distributors, transmitters and transporters from one place to another,
from one State to other State and/or within a State considering the demand and
supply for the consumers. The demand and supply of electricity, the price
and/or tariff of electricity at all levels/ stages need to be under the strict control
of the CERC and its authorities.
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18 The business of future market in any exchange is always based upon
the national level. The speculations in electricity trading as contemplated and
understood in futures market or forward market may create complications and
problems, because of various market factors. The fixed forward price and fixed
forward quantity and the date of delivery are the basic elements of any such
contract/ trading. The price uncertainty always impact on the certainty of
supply/ price. The interest of the supplier, the manufacturer and the consumers
and traders need to be considered in all respect, at all the stages. Therefore, it is
necessary to have an efficient and a harmonized system in the country for
futures trading in electricity. There is central system in futures market for other
goods under the FCR Act. In contrast to that, there is only State based controlled
systems in electricity under the Electricity Act. The domestic and international
trade business and taxes at various stages also play an important role in futures
market.
19 MCX has been permitted by order of January, 2009 by the FMC to
trade daily electricity contracts, weekly electricity contracts and monthly
electricity contracts also raises doubts. The notification dated 9th January, 2006
is also of no assistance. The transactions/contracts where physical delivery of
goods “spot market” takes place, the same will not fall within the ambit of
forward contract. Such contract falls within the exclusive jurisdiction of CERC.
However, in view of the specialized goods and its requirement of infrastructure,
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technical expertise/tariff/price, fixation in the interest of consumers at large, the
CERC, cannot be permitted to transgress its jurisdiction by venturing into futures
market, forward contracts and/or derivative as contemplated and covered under
the FCR Act, in the guise of trading and developing the market of electricity.
The orders and guidelines therefore, issued by the CERC in questions are in
conflicts with the provisions of FCR Act in so far as the business in futures
contract and forward market. Any such future contract or forward market of
electricity falls within the scope and Sections of 15 and 16 of the FCR Act, the
Power Exchange of India Limited (PXI) and Indian Energy Exchange Limited
(IEX) therefore, also cannot be permitted to the future trading, even though it is
approved by the CERC. Merely because Electricity Act also deals with subjects
like railway, telegraph, telephone that itself is not sufficient to do futures trading
in electricity. Any trading of power on PXI/IEX where delivery and payment is
made beyond 11 days, falls within the ambit of forward contracts. But any
contract having fixed delivery period, fixed parties and certain price stands on
different footing.
20 Furthermore, apart from knowledge of law, engineering, finance,
commerce, economics and management and various factual and technical
details are required even for commission and also to the appropriate appellate
body to deal with the various aspects of tariff and electricity. The availability
and/or non-availability of transmission facility, generation facility at sale point
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and/or availability of demand or electricity at the point of purchase, the
wheeling facilities, all these are important aspects which are necessary while
dealing with the trading in electricity. The notification issued under Section 15
of the FCR Act, itself is not under challenge, but in view of above, it is difficult
and not practicable and feasible for FMC and MCX to deal with the physical
delivery of the electricity. To say that there would not be necessary to have
physical delivery in every matter is not contemplated under FCR Act and
regulations made thereunder. The speculative trading in electricity, in the
circumstances, is impracticable and impermissible.
21 The concept of “trading and development of power or electricity”
nowhere contemplates the speculative trading, but still the provisions of FCR Act
and its regulations with regard to the futures contract or forward contract
cannot be taken away, under the existing provisions of law. CERC also
therefore, cannot be permitted to do the same nature of trading, exclusively by
running parallel exchanges. I am not inclined to accept that for futures contract/
forward contract of electricity is taken out and placed under the jurisdiction of
regulatory commission under the Electricity Act, though inter State trade,
licensee is also permitted to do intra-State trading without permission/ licence
from the State Commission to do intra-State trading. The requirement and
necessity as contemplated under FCR Act and rules and regulations made
thereunder, are again just cannot be overlooked for permitting the CERC for
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trading in futures/ forward contracts. There is no question of which entry
and/or schedule should prevail and/or conflict of two entries, but the point is a
practical and a feasible deal of the electricity in future/forward markets
exclusively under one authority/commission. We need to read and consider
both these Acts together and find out a solution by appropriate rules, regulations
and/or amendment, if market available to permit futures trading in electricity,
though in wider sense, trading covers trade and commerce including spot and
forward contract for sale and purchase of electricity. The point is, who should
control and regulate such contracts/ trading protecting the interest of consumer,
specially when at present in India power markets is not yet fully developed.
22 The CERC cannot be permitted to have regulations under Section 66
and 178(2)(y) by virtue of Section 174 of the Electricity Act, to prevail over the
provisions of Section 14-A and 15 of the forward contracts in such fashion with
regard to the futures contracts/ forward contracts. The Supreme Court
Judgment in Gujarat Urja Vikas Nigam Limited (supra) no way assist the
CERC to prevail over different and distinct provisions of FCR Act. In the present
circumstances, though the Electricity falls within ambit of commodities /goods
in FCR Act, by notification in the year 2006, which was definitely after
Electricity Act of 2003, the conflict therefore, definitely needs to be resolved by
appropriate laws and regulations. In view of the above, the grant of approval in
January, 2002 by the FMC to MCX permitting to trade in Electricity forward
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contracts based upon notification of January, 2006 is by itself not sufficient.
23 The domain and jurisdiction of respective authorities/ commission is
totally different and distinct in every aspect. CERC is a statutory authority being
constituted under the Electricity Act, cannot be provided that the power beyond
the statutes permitting to do futures, forward, derivative contracts which is
admittedly a domain jurisdiction of authorities/commission under the FCR Act.
It is difficult to go beyond for both these authorities to cross and/or interfere
with the powers, functions and duties as provided under their parents statute,
unless relevant provisions including Section 18 and 27 of the FCR Act and also
of Electricity Act are invoked.
24 There is no question of giving any overriding effect in case of
statutory conflicts, as it is impracticable, uncontrollable and it will not be in the
interest of consumers to permit any of the authorities to do forward future and
derivative market in electricity in the present scenario without proper and
effective revised national power policy and/or guidelines and laws under the
supervision of expert bodies. Apart from the conflict, it is difficult to control and
regulate forward market of electricity excluding respective authorities under
both Acts.
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25 In the present case, as it is a question of interpretation of
constitutional entries and the provisions of the central Acts, the authorities or
departments could not have resolved the issues/conflicts.
26 The power and the jurisdiction of these statutory tribunals are quite
limited and normally governed by their own rules and regulations. These
tribunals are not the Court having jurisdiction to decide complicated question of
law and/or the conflict of laws, based upon the constitutional entries and the
related enactments. Therefore, the CERC and/or even the Appellate authority
under the Electricity Act have no jurisdiction to decide the validity of regulations
framed by CERC under Section 178 of the Act. It is subject to challenge by
invoking judicial power under Article 226 of the Constitution of India. (PTC
India Ltd. Vs. Secy. CERC, (Supra).
To conclude:-
(a) The Electricity Act deals with in every respect including trading
in electricity. The electricity is a non-storable goods, except
produced by hydro-projects. The trading of electricity falls
within the concept of commodity trading. Therefore, it may or
may not physically available all the time, unless generated on
the day and/or the date of delivery. This distinguishes
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under the FCR Act, which at present deals exclusively with all
aspect of futures/ forward contracts.
(b) In view of the reasonings earlier recorded, it will not be
possible either for FMC or MCX to control and regulate the
mandatory requirements of electricity, at various stages, which
are well within the exclusive domain and control of the CERC
and/or authorities/commissions. It will create more
complications than solving it, unless an experts body
constituted and specialized rules and regulations are framed.
Both authorities/commissions cannot deal in futures/forward
contract in electricity excluding other and/or independently.
(c) It is not only question of resolving the conflict between two
entries and/or mandates of the respective specialized Act, but
actual and physical workable solution to permit and/or to
allow either authorities/ commissions/ exchanges to deal with
the electricity in the futures/ forward market. Both
authorities/ commissions under the respective Acts may not be
in a position to control and regulate the futures contract in
electricity exclusively, unless those Acts and regulations are
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amended /revised and re-framed. Both cannot have exclusive
jurisdiction as claimed in the present scenario in India.
(d) It is clarified that the Union of India and/or the concerned
commission and/or the regulatory authorities are free to revise
and/or to reframe the rules and the regulations and/or to
amend the concerned statutes to permit the futures/ forward
and derivatives contract in electricity, if so advised.
(e) The regulations of CERC as notified on 20 January, 2010,
which deals with the aspects of futures contracts or forward
contracts, therefore, are inoperative to that extent only. The
impugned order dated 28th April, 2009 and order dated 11th
January, 2010 upholding the regulations are also unsustainable
to the extent of reasoning and direction relates to forward
contracts in electricity.
(Anoop V. Mohta, J.)
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