Reconfirming regulator's legitimacy

Of all the court decisions on infrastructure regulation, perhaps the most significant one in setting at rest the jurisdictional controversy between regulators and the judiciary, is the Supreme Court judgement of October 3, 2002 which has laid down important principles for regulatory governance. The instant case arose due to an appeal preferred by the West Bengal electricity regulator against the Calcutta High Court's May order on CESC's tariff. Unlike the 1948 Electricity Supply Act, the ERC 1998 Act recognises the need to protect the consumer's interest. In contrast, the Calcutta High Court noted that the consumer has no legal right to be heard in proceedings during tariff fixation, as permitting a large number of consumers would amount to "indiscriminate representation", and secondly, a rate payer is not normally, heard before such rate is fixed on the basis of "public policy" by the government in its own wisdom. Holding that price fixation is in the nature of legislative action, and that no rule of natural justice is applicable, the apex court observed that such principle cannot be applied where the statute (e.g., ERC Act 1998) itself has given the right of representation to the consumer. However, the manner of exercising such right can be regulated by the regulator. In the instant case, the high court while exercising its "appeal power" rejected regulations framed by the regulator, although the regulations were framed under "the authority of subordinate legislation" conferred on regulator by the Act. But, as held by the Supreme Court, the high court while exercising its appellate power, cannot go into the validity of regulations which are part of the statute itself. On the other hand, it has 'review powers' under Articles 226 and 227 of the Constitution of India, but, in the instant case, no writ petition against the vires of the regulations had been filed. The Calcutta High Court observed that CESC is mandated to determine the tariff under 1948 Electricity Supply Act, which should be subsequently scrutinised and approved by the regulator. The apex court, however, held that the 1948 Act is only a general law as regards tariff determination, while sections 22 and 29 relating to power and functions of regulator and tariff setting norms respectively under the 1998 Act are special laws, thus prevailing over the general law, thereby confirming the regulator's authority in the matter of electricity tariff fixation. The high court further argued that while determining the tariff under the 1998 Act, only the principles enshrined in Schedule VI to the 1948 Electricity Supply Act should be applied, and no other requirements, such as reduction of cross subsidy, efficiency and economy, etc., as enshrined under the 1998 ERC Act would apply. The apex court held it otherwise, and observed that if the regulator commits an error contrary to rule of law or established facts in applying these principles under the 1948 Act, the issues can then be challenged in appeal. Can an appeal against the regulatory decision be preferred on facts? The extant regulatory legislation is silent on this. While agreeing that the high court has unrestricted power under appeal, the apex court held that the high court should not interfere with the 'considered order' of the regulator, and can only do so if it finds that the order is based on misleading evidence or is perverse. The Supreme Court observed that the high court being not an expert body, should also be careful while interfering with the expert body's findings on facts. While going into details on tariff determination in the CESC case, the apex court observed that the regulator should take into account the "collateral findings" during such process. The cost, as determined by an expert body, say, CEA (Central Electricity Authority), need not be the same as arrived at by the regulator. The latter is mandated to examine costs on grounds of efficiency and protecting consumer interests. In sum, the lessons are many. First, the regulator must appear before the appeal court to present its views. Second, the regulatory decisions should be reasoned, else, they could not be substantiated on appeal. Regulators should also observe the rules of natural justice, due process of law, both in the procedural as also substantive sense. Third, while an expert appellate forum is the need of the hour, should it also examine the case on facts? This is unclear from the current judgement. One view is that the regulator should be the last fact-finding authority and that from the appellate court onwards, only points of law can be dealt with. Finally, and most important, the apex court appears to uphold the principle of "Chevron Deference", whereby due weightage is given by courts to the expertise of regulators.