The case pertained to an application submitted by the appellant, a developer in terms of the Special Economic Zones (SEZ) Act, 2005 (SEZ Act) before the Andhra Pradesh Electricity Regulatory Commission for recognition as a ‘deemed distribution licensee’ as per the proviso to section 14(b) of the Electricity Act. In 2016, after the formation of Telangana, the matter was transferred to the Telangana State Electricity Regulatory Commission (TSERC) which granted the status of a ‘deemed distribution licensee’ on the condition that it would satisfy the requirements of rule 3 of Distribution of Electricity License (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005. Accordingly, the appellant was directed to infuse additional capital of INR 269 million as equity share capital into its power distribution business.
On dealing with the first issue concerning the designation of an entity as a SEZ Developer by Ministry of Commerce and Industry (MoCI) and an aberration from the requirement for an application under section 14 of the Electricity Act, the Hon’ble Supreme Court of India (Supreme Court) opined that the deeming fiction in the proviso to section 14(b) of the Electricity Act confers upon the appellant the status of a ‘deemed distribution licensee’. However, such conferment does not exclude the requirement of obtaining a license and instead, they are obliged to make an application in terms of regulation 13 for the same. The TSERC is empowered to scrutinize these applications but only in terms of requirements applicable to deemed licensees.
On the second issue whether regulation 12 of the 2013 Regulations applicable to SEZ developer, the Supreme Court held that as an SEZ developer, the appellant is not bound by the 2005 Rules to infuse additional capital since the same has not been made applicable to ‘deemed distribution licensees. The scheme of the regulations clearly shows that being a ‘deemed distribution licensee’, the appellant is not bound to comply with the requirements enforced on regular applicants. Otherwise, the entire scheme of creating the separate persona of a ‘deemed distribution licensee’ would be rendered infructuous.
Therefore, while a ‘deemed distribution licensee’ would be required to apply for a license, it is not bound as a regular applicant to infuse additional capital as per the 2005 regulations. Thus, the Supreme Court held that the state electricity regulatory commissions cannot impose additional conditions to meet capital adequacy or creditworthiness for such recognition.