An authority that ignores a statutory exemption and binding precedent has a defective process
A Division Bench led by Chief Justice Aparesh Kumar Singh dismissed the discom's appeal and barred any cross subsidy surcharge for a decade of captive power.
A Telangana distribution company that demanded cross subsidy surcharge in 2025 for power a cement maker had drawn between 2005-06 and 2014-15 has lost its appeal, and been barred from levying, collecting or enforcing that demand at all. A Division Bench of Chief Justice Aparesh Kumar Singh and Justice Vakiti Ramakrishna Reddy held that the authority was required to examine the statutory exemption and the binding precedent before fastening liability, and that its failure to do so constitutes a material infirmity in the decision-making process.
A demand reaching back ten financial years
The appeal was preferred under Clause 15 of the Letters Patent by the Southern Power Distribution Company of Telangana Limited and its Superintending Engineer, Operation Circle, Suryapet. It assailed an order of 3 March 2026 by which a Single Judge had allowed W.P. No. 25527 of 2025 filed by Rain Cements Limited, the erstwhile Priyadarshini Cements Limited, and set aside two documents: a demand notice dated 6 February 2025 and a speaking order dated 23 August 2025, both seeking to recover cross subsidy surcharge.
The sum at stake was Rs 11,81,93,501, claimed as cross subsidy surcharge for the financial years 2005-06 to 2014-15. The Single Judge had not merely quashed the demand but declared that the Electricity (Removal of Difficulties) Second Order, 2005 applies to the company in respect of power drawn from its generator, Rain CII Carbon (Vizag) Limited, formerly Rain Calcining Limited.
Mr. N. Sreedhar Reddy, Standing Counsel, appeared for the distribution company; Mr. P. Chidambaram, senior counsel, with Mr. Harshavardhan Abburi for Rain Cements; and Ms. N. Divya, Assistant Government Pleader for Energy, for the second respondent. The appeal was reserved on 21 September 2026, pronounced on 1 October 2026 and uploaded on 3 October 2026.
Thirty years of wheeled power
The arrangement the surcharge was aimed at is an old one. Rain Cements is a high-tension consumer of the distribution company under HT service connection No. SPT 105, formerly NLG 105, with a contracted maximum demand presently of 12.5 MVA. To secure uninterrupted supply for its cement unit at Ramapuram village, Mallacheruvu Mandal, Suryapet district, it has since the 1990s sourced open access power from its group company, Rain CII Carbon.
That generator was granted consent by the then Government of Andhra Pradesh under Section 43-A(1)(c) of the Electricity (Supply) Act, 1948 to sell electricity to specified consumers, and entered into a Modified Power Wheeling and Purchase Agreement dated 4 November 1994 with the then Andhra Pradesh State Electricity Board. That agreement runs for thirty years from a commercial operation date of 29 June 1998, until 28 June 2028.
What the distribution company argued
The appellants' case was that the Single Judge's order rests on an erroneous appreciation of both the statutory scheme and the material on record, and that he had extended the benefit of the 2005 Order merely because the generating company held consent under Section 43-A(1)(c) of the 1948 Act.
That consent, they contended, does not by itself confer on a generating company a licence or statutory authority to supply electricity directly to third-party consumers. They relied on the Supreme Court's judgment in A.P. Gas Power Corporation Limited v. A.P. Electricity Regulatory Commission, (2004) 10 SCC 511, for the proposition that a generating company holding such consent cannot be equated with a licensed supplier, and said the Single Judge had failed to appreciate its ratio. They also argued that the 2005 Order cannot be read as validating, perpetuating or conferring statutory recognition on an arrangement that was otherwise impermissible under the regime then prevailing.
What the authority failed to do
The Bench's reasoning is about process rather than arithmetic. A decision-maker fastening a liability of this kind had two things in front of it that it was required to examine: the statutory exemption that was said to apply, and the binding precedent on the point. The speaking order of 23 August 2025 did neither.
Applying that principle, the Bench found the Single Judge was justified in holding that the order of 23 August 2025 could not be sustained. The failure to examine the exemption and the precedent, it held, constitutes a material infirmity in the decision-making process — which is the ground on which judicial review operates, rather than any view of its own on how much surcharge might have been payable.
Order
The writ appeal was dismissed and the order of 3 March 2026 affirmed.
The Bench went further and declared the position for the period in dispute: the Electricity (Removal of Difficulties) Second Order, 2005 applies to Rain Cements in respect of power availed from Rain CII Carbon (Vizag) Limited during the financial years 2005-06 to 2014-15. The appellants are not entitled to levy, collect or enforce any demand of cross subsidy surcharge for that period in respect of such power, nor to take any coercive steps, including disconnection of the high tension service connection in question.
There was no order as to costs, and pending miscellaneous applications stand closed.