DAMODAR VALLEY CORPORATION Vs. CENTRAL ELEC. REGULATORY COMM. AND ORS
found to be in two forms, namely, either as return on equity in respect of the equity portion and as interest on the loan component. 23. There remains only one area of doubt. In paragraph A-15, the Appellate Tribunal noted that the interest due from DVC on the capital employed by the participating Governments have been allowed to be retained by the appellant and it has been ploughed back into the capital. To this portion also, the Appellate Tribunal directed to apply under Section 38 of the DVC Act. However, firstly, it is after so providing that the Appellate Tribunal has later in paragraph E-13 given its direction under Section 38 of the DVC Act. Secondly, even in the written submission made this aspect has not been taken up as such and at any rate, the particulars are not given. Also in paragraph 73 of the impugned order which refers to the complaint of the appellant relating to cumulative depreciation being employed to reduce the loan component being illegal and reference is made to the retained interest being ploughed back as capital to the creation of capital assets resulting in the appellant enjoying perpetual moratorium as it has never repaid the loan and the question of adjustment of the depreciation for the loan did not arise. There is no complaint raised about interest under Section 38 of the Act not being given in respect of interest which is ploughed back as capital. 24. The next question relates to the legality of taking into consideration the cumulative depreciation for reducing the loan component. The complaint of the appellant is that both the Commission and the Tribunal have calculated interest on the basis that cumulative depreciation will result in a reduction of loan which is unsustainable. The answer to the same which is raised by the respondents is that it is not open to the appellant to raise this contention as this contention was not raised before the appellate Tribunal in the first round of litigation which culminated in the order dated 23.11.2007 being passed by the Appellate Tribunal. The appellant no doubt seeks support from the order of the Appellate Tribunal passed in the case of NTPC. It is no doubt true that in the order of the Appellate Tribunal in the case of NTPC, the Tribunal discountenanced adjusting cumulative depreciation reducing the loan. As far as the judgment of this Court in 2007 (3) SCC 33 , there the question which really arose was related to the rate of depreciation. This Court took the view for power companies keeping in view the need to replace the assets, a higher rate of depreciation was necessary as it would reduce the number of years required for replacing the assets. The observation made therein incidentally may not have the effect which the appellant seeks to persuade us to accept. But the question would be whether the appellant would be entitled to raise the complaint in this appeal. In the original order passed on 3.10.2006 by the Central Commission, the Commission held as follows:- 57. Majority of the loans raised by the petitioner Corporation are not project specific. The normative loan outstanding for individual station, as on 31.3.2004, has been computed by applying the normative debt-equity structure of 70:30 (as mentioned above) to the capital cost with weighted average rate of interest of the loan for the petitioner Corporation as a whole. The cumulative depreciation as on 31.3.2004 or notional loan amount, whichever is lower, has been deemed as loan repayment and balance amount, if any, has been allowed to be serviced till it is fully repaid. Annual depreciation amount has been treated as normative loan repayment. The weighted average rate of interest as claimed by the petitioner Corporation and as adopted for the tariff calculations is as follows: chart 25. Being dissatisfied by the same, the appellant approached the Appellate Tribunal. Apparently, 10 issues were agitated by the Appellate Tribunal at the instance of the appellant. Since the matter has attained finality by the decision of this Court in 2018 (8) SCC 281, it is but apposite that we have set out paragraph 11 of the said judgment. Paragraph 11 of the said judgment is extracted below: 11. Accordingly, the learned Appellate Tribunal while rejecting the following five claims and upholding the order of CERC on the aforesaid counts thought it proper to remand the matter, for a de novo consideration of the remaining five issues by CERC in the light of the findings recorded by it. The tabular chart, extracted below, would indicate the five issues that have been finalised by the learned Appellate Tribunal by upholding the order of CERC dated 3-10-2006 and the other five issues which have been remanded for redetermination by CERC: Issues finalised by the learned Appellate Tribunal by upholding the order of CERC dated 3-10-2006 Issues remanded for redetermination by CERC (i) Higher return on equity; chart 26. A perusal of the same would appear to suggest the substantive question of law sought to be raised as part of the second contention, does not remain open for adjudication. 27. When the matter went back pursuant to the remand order in the first round of litigation which has become final in view of the dismissal of appeal by this Court, the Central Commission has only reiterated the procedure in the matter of calculating interest on loan by reducing the loan amount by the cumulative depreciation. This is a procedure to which exception was not taken in the first round when the appellant could have taken exception to the same. This is also for the period prior to 31.3.2006. Having regard to what is stated in paragraph 57 in the earlier round of litigation, therefore, on a point which has become final in the earlier round, we are not persuaded to hold that it will be open for the appellant to raise the same issue in the second round in respect of a matter which has attained finality.
0[ds]19. It is in the light of these orders that we must consider the contention of the appellant that despite appellant being entitled to the benefit of interest on capital it was not given the benefit despite the final pronouncement of this Court in 2018(8) SCC 281 upholding the view of the Appellate Tribunal itself that Section 38 of the DVC Act will continue to apply for the benefit of the. On the other hand, the contention of the contesting respondents is that the benefit under Section 38 of the DVC Act as claimed by the appellant would result in appellant getting a benefit which would be a duplication of claims insofar as on the total capital, applying the normative debt equity ratio, appellant has been given the benefit of return on capital on the normative equity portion and it has also been allowed interest on the loan portion. The case of the appellant on the other hand, is that even after interest has been given on the loan portion and the return on equity has also been ensured on the normative equity portion by the impugned order, over and above the same, the appellant is entitled to the benefit of interest on capital on the whole amount as that is so provided under Section 38 of the DVC Act20. In the order of the Appellate Tribunal dated 23.11.2007 the matter came to be dealt with under the heading debt equity ratio. The Tribunal went on to accept the case of the appellant in respect of all old projects of DVC and normative debt equity of 50:50 was assigned, commissioned prior to 1992. In respect of recent projects such as Mejina, it was assigned debt equity ratio of 70:30 on capital structure as specified in the Regulations. This finding has become final. It was contended on behalf of the appellant that equity has been the primary source of capital. Thereafter, in paragraph, it was found by the Appellate Tribunal that owners take upon themselves business related risk and are entitled to interest on capital investment, but the return is to be governed by the scheme of determination of tariff for the supply of electricity as mandated by the law in place. The Appellate Tribunal further proceeds to hold that the scheme provides for assured Return on Equity (ROE) which is at the rate of 14% on the equity employed for the purpose of supplying electricity. The scheme does not permit return on investment made on projects other than for supply of electricity to be recovered from supply of electricity. The Tribunal went on to hold that the DVC Act does not recognise capital as borrowings and there is no reference about repayment of such capital to the participating Governments. The Appellate Tribunal proceeds to hold that the capital infused by participating Governments is in the nature of equity capital and for the determination of tariff, the same would be eligible for return on equity but the Appellate Tribunal does not end there. It clearly provides that the return on equity is as may be permitted by the tariff Regulation of 2004. It is thereafter that the Appellate Tribunal in para 15 proceeded to hold that the DVC Act provides for interest on capital which is contributed by the participating Governments. The accrued interest due to the Governments apparently has been allowed to be retained by the appellant. The same however came to be ploughed back into the capital with the tacit consent of the participating Governments. Thereafter, it is stated that this has to be provided to the DVC as per the provisions of Section 38 of the DVC Act. It is thereafter paragraph6 which we have already extracted, the Tribunal proceeded to observe that under the DVC Act if there is any deficit in the capital contributed by the participating Governments, it is to be made good by taking loan on behalf of the participating Governments. The said debt would attract interest. The average interest rate of the repayment payable is to be applied on a 50:50 normative debt capital. This means that out of the aggregate equity including reserves, equity considering the normative debt ratio of 50:50 would be eligible for return on equity as specified in the Regulations and the excess of equity, if any, over the equity earning ratio of 14% is to be considered as interest bearing debt. In the example which has been given it is shown that if the debt equity ratio is 40:60, return on equity at 14% will be available on 50% equity whereas interest would be available at 10% portion of equity and 40% loan which were reduced by repayments21. On the basis of the remand, the Commission has worked out the debt equity ratio as directed by the Appellate Tribunal. It has further provided return on equity at the rate of 14% on the equity portion, namely 50%. In respect of the debt portion, interest has been calculated no doubt after deducting depreciation, the legality of which is the subject matter of the other contention which we will deal with separately. It is quite clear to us that appellant has already been given return on equity in terms of the tariff Regulation in respect of capital on the basis of debt equity ratio which has been fixed by the Appellate Tribunal on a ratio which has become final between the parties22. Though a perusal of para9 of order dated 23.11.2007 may appear to show that equity has been found to be the main source of capital, a perusal of paragraph3 would show that capital under Section 38 of the DVC Act has been understood as the value of the operating assets when they were first put to commercial use. Capital is also understood not as equity alone but it has been understood both as loan and equity. The ratio between loan and equity is also fixed in respect of the old projects at 50:50 and under the new projects it is at 70:30. It is further clear from paragraph3 of the order of the Appellate Tribunal dated 23.11.2007 that the appellate Tribunal contemplated that the equity component would remain static and it would earn the rate of return as provided in the tariff Regulation. As far as the loan component is concerned, it would get reduced on account of repayments. Therefore, the recovery as contemplated under the Regulations was found to be in two forms, namely, either as return on equity in respect of the equity portion and as interest on the loan component23. There remains only one area of doubt. In paragraph, the Appellate Tribunal noted that the interest due from DVC on the capital employed by the participating Governments have been allowed to be retained by the appellant and it has been ploughed back into the capital. To this portion also, the Appellate Tribunal directed to apply under Section 38 of the DVC Act. However, firstly, it is after so providing that the Appellate Tribunal has later in paragraph3 given its direction under Section 38 of the DVC Act. Secondly, even in the written submission made this aspect has not been taken up as such and at any rate, the particulars are not given. Also in paragraph 73 of the impugned order which refers to the complaint of the appellant relating to cumulative depreciation being employed to reduce the loan component being illegal and reference is made to the retained interest being ploughed back as capital to the creation of capital assets resulting in the appellant enjoying perpetual moratorium as it has never repaid the loan and the question of adjustment of the depreciation for the loan did not arise. There is no complaint raised about interest under Section 38 of the Act not being given in respect of interest which is ploughed back as capital26. A perusal of the same would appear to suggest the substantive question of law sought to be raised as part of the second contention, does not remain open for adjudication27. When the matter went back pursuant to the remand order in the first round of litigation which has become final in view of the dismissal of appeal by this Court, the Central Commission has only reiterated the procedure in the matter of calculating interest on loan by reducing the loan amount by the cumulative depreciation. This is a procedure to which exception was not taken in the first round when the appellant could have taken exception to the same. This is also for the period prior to 31.3.2006. Having regard to what is stated in paragraph 57 in the earlier round of litigation, therefore, on a point which has become final in the earlier round, we are not persuaded to hold that it will be open for the appellant to raise the same issue in the second round in respect of a matter which has attained finality.
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found to be in two forms, namely, either as return on equity in respect of the equity portion and as interest on the loan component. 23. There remains only one area of doubt. In paragraph A-15, the Appellate Tribunal noted that the interest due from DVC on the capital employed by the participating Governments have been allowed to be retained by the appellant and it has been ploughed back into the capital. To this portion also, the Appellate Tribunal directed to apply under Section 38 of the DVC Act. However, firstly, it is after so providing that the Appellate Tribunal has later in paragraph E-13 given its direction under Section 38 of the DVC Act. Secondly, even in the written submission made this aspect has not been taken up as such and at any rate, the particulars are not given. Also in paragraph 73 of the impugned order which refers to the complaint of the appellant relating to cumulative depreciation being employed to reduce the loan component being illegal and reference is made to the retained interest being ploughed back as capital to the creation of capital assets resulting in the appellant enjoying perpetual moratorium as it has never repaid the loan and the question of adjustment of the depreciation for the loan did not arise. There is no complaint raised about interest under Section 38 of the Act not being given in respect of interest which is ploughed back as capital. 24. The next question relates to the legality of taking into consideration the cumulative depreciation for reducing the loan component. The complaint of the appellant is that both the Commission and the Tribunal have calculated interest on the basis that cumulative depreciation will result in a reduction of loan which is unsustainable. The answer to the same which is raised by the respondents is that it is not open to the appellant to raise this contention as this contention was not raised before the appellate Tribunal in the first round of litigation which culminated in the order dated 23.11.2007 being passed by the Appellate Tribunal. The appellant no doubt seeks support from the order of the Appellate Tribunal passed in the case of NTPC. It is no doubt true that in the order of the Appellate Tribunal in the case of NTPC, the Tribunal discountenanced adjusting cumulative depreciation reducing the loan. As far as the judgment of this Court in 2007 (3) SCC 33 , there the question which really arose was related to the rate of depreciation. This Court took the view for power companies keeping in view the need to replace the assets, a higher rate of depreciation was necessary as it would reduce the number of years required for replacing the assets. The observation made therein incidentally may not have the effect which the appellant seeks to persuade us to accept. But the question would be whether the appellant would be entitled to raise the complaint in this appeal. In the original order passed on 3.10.2006 by the Central Commission, the Commission held as follows:- 57. Majority of the loans raised by the petitioner Corporation are not project specific. The normative loan outstanding for individual station, as on 31.3.2004, has been computed by applying the normative debt-equity structure of 70:30 (as mentioned above) to the capital cost with weighted average rate of interest of the loan for the petitioner Corporation as a whole. The cumulative depreciation as on 31.3.2004 or notional loan amount, whichever is lower, has been deemed as loan repayment and balance amount, if any, has been allowed to be serviced till it is fully repaid. Annual depreciation amount has been treated as normative loan repayment. The weighted average rate of interest as claimed by the petitioner Corporation and as adopted for the tariff calculations is as follows: chart 25. Being dissatisfied by the same, the appellant approached the Appellate Tribunal. Apparently, 10 issues were agitated by the Appellate Tribunal at the instance of the appellant. Since the matter has attained finality by the decision of this Court in 2018 (8) SCC 281, it is but apposite that we have set out paragraph 11 of the said judgment. Paragraph 11 of the said judgment is extracted below: 11. Accordingly, the learned Appellate Tribunal while rejecting the following five claims and upholding the order of CERC on the aforesaid counts thought it proper to remand the matter, for a de novo consideration of the remaining five issues by CERC in the light of the findings recorded by it. The tabular chart, extracted below, would indicate the five issues that have been finalised by the learned Appellate Tribunal by upholding the order of CERC dated 3-10-2006 and the other five issues which have been remanded for redetermination by CERC: Issues finalised by the learned Appellate Tribunal by upholding the order of CERC dated 3-10-2006 Issues remanded for redetermination by CERC (i) Higher return on equity; chart 26. A perusal of the same would appear to suggest the substantive question of law sought to be raised as part of the second contention, does not remain open for adjudication. 27. When the matter went back pursuant to the remand order in the first round of litigation which has become final in view of the dismissal of appeal by this Court, the Central Commission has only reiterated the procedure in the matter of calculating interest on loan by reducing the loan amount by the cumulative depreciation. This is a procedure to which exception was not taken in the first round when the appellant could have taken exception to the same. This is also for the period prior to 31.3.2006. Having regard to what is stated in paragraph 57 in the earlier round of litigation, therefore, on a point which has become final in the earlier round, we are not persuaded to hold that it will be open for the appellant to raise the same issue in the second round in respect of a matter which has attained finality.

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same would be eligible for return on equity but the Appellate Tribunal does not end there. It clearly provides that the return on equity is as may be permitted by the tariff Regulation of 2004. It is thereafter that the Appellate Tribunal in para 15 proceeded to hold that the DVC Act provides for interest on capital which is contributed by the participating Governments. The accrued interest due to the Governments apparently has been allowed to be retained by the appellant. The same however came to be ploughed back into the capital with the tacit consent of the participating Governments. Thereafter, it is stated that this has to be provided to the DVC as per the provisions of Section 38 of the DVC Act. It is thereafter paragraph6 which we have already extracted, the Tribunal proceeded to observe that under the DVC Act if there is any deficit in the capital contributed by the participating Governments, it is to be made good by taking loan on behalf of the participating Governments. The said debt would attract interest. The average interest rate of the repayment payable is to be applied on a 50:50 normative debt capital. This means that out of the aggregate equity including reserves, equity considering the normative debt ratio of 50:50 would be eligible for return on equity as specified in the Regulations and the excess of equity, if any, over the equity earning ratio of 14% is to be considered as interest bearing debt. In the example which has been given it is shown that if the debt equity ratio is 40:60, return on equity at 14% will be available on 50% equity whereas interest would be available at 10% portion of equity and 40% loan which were reduced by repayments21. On the basis of the remand, the Commission has worked out the debt equity ratio as directed by the Appellate Tribunal. It has further provided return on equity at the rate of 14% on the equity portion, namely 50%. In respect of the debt portion, interest has been calculated no doubt after deducting depreciation, the legality of which is the subject matter of the other contention which we will deal with separately. It is quite clear to us that appellant has already been given return on equity in terms of the tariff Regulation in respect of capital on the basis of debt equity ratio which has been fixed by the Appellate Tribunal on a ratio which has become final between the parties22. Though a perusal of para9 of order dated 23.11.2007 may appear to show that equity has been found to be the main source of capital, a perusal of paragraph3 would show that capital under Section 38 of the DVC Act has been understood as the value of the operating assets when they were first put to commercial use. Capital is also understood not as equity alone but it has been understood both as loan and equity. The ratio between loan and equity is also fixed in respect of the old projects at 50:50 and under the new projects it is at 70:30. It is further clear from paragraph3 of the order of the Appellate Tribunal dated 23.11.2007 that the appellate Tribunal contemplated that the equity component would remain static and it would earn the rate of return as provided in the tariff Regulation. As far as the loan component is concerned, it would get reduced on account of repayments. Therefore, the recovery as contemplated under the Regulations was found to be in two forms, namely, either as return on equity in respect of the equity portion and as interest on the loan component23. There remains only one area of doubt. In paragraph, the Appellate Tribunal noted that the interest due from DVC on the capital employed by the participating Governments have been allowed to be retained by the appellant and it has been ploughed back into the capital. To this portion also, the Appellate Tribunal directed to apply under Section 38 of the DVC Act. However, firstly, it is after so providing that the Appellate Tribunal has later in paragraph3 given its direction under Section 38 of the DVC Act. Secondly, even in the written submission made this aspect has not been taken up as such and at any rate, the particulars are not given. Also in paragraph 73 of the impugned order which refers to the complaint of the appellant relating to cumulative depreciation being employed to reduce the loan component being illegal and reference is made to the retained interest being ploughed back as capital to the creation of capital assets resulting in the appellant enjoying perpetual moratorium as it has never repaid the loan and the question of adjustment of the depreciation for the loan did not arise. There is no complaint raised about interest under Section 38 of the Act not being given in respect of interest which is ploughed back as capital26. A perusal of the same would appear to suggest the substantive question of law sought to be raised as part of the second contention, does not remain open for adjudication27. When the matter went back pursuant to the remand order in the first round of litigation which has become final in view of the dismissal of appeal by this Court, the Central Commission has only reiterated the procedure in the matter of calculating interest on loan by reducing the loan amount by the cumulative depreciation. This is a procedure to which exception was not taken in the first round when the appellant could have taken exception to the same. This is also for the period prior to 31.3.2006. Having regard to what is stated in paragraph 57 in the earlier round of litigation, therefore, on a point which has become final in the earlier round, we are not persuaded to hold that it will be open for the appellant to raise the same issue in the second round in respect of a matter which has attained finality.
