Indian Railways is not a deemed distribution licensee under the Electricity Act merely because it is a Central Government entity; its internal electricity network for self-consumption does not amount to “distribution” to consumers.

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Facts

Indian Railways sought open access connectivity for procurement of electricity through the Inter-State Transmission System for railway traction substations. The dispute arose when transmission utilities and various State Electricity Regulatory Commissions questioned whether Railways qualified as a “deemed distribution licensee” (DDL) under the third proviso to s. 14 Electricity Act, 2003.

The Central Electricity Regulatory Commission (CERC) had held that Railways was a DDL because it operated “power supply and distribution installations” under s. 11 Railways Act, 1989. However, multiple State Commissions reached contrary findings. The Appellate Tribunal for Electricity (APTEL), by common judgment dated 12.02.2024, held that Railways was not a DDL and remained liable to pay Cross-Subsidy Surcharge (CSS) and Additional Surcharge while availing open access.

Indian Railways challenged the APTEL judgment before the Supreme Court.

Issues Framed

(a) Whether activities under s. 11(g) and (h) Railways Act amount to “distribution” of electricity.
(b) Whether Indian Railways falls within the ambit of “Appropriate Government” under s. 2(5) Electricity Act.
(c) Whether Railways is exempt from payment of Cross-Subsidy Surcharge and Additional Surcharge under s. 42 Electricity Act.
(d) Whether proposed legislation can guide statutory interpretation. (Para 14)

Court’s Reasoning

(a) Railways Does Not Perform “Distribution” Under the Electricity Act

The Court held that a distribution licensee under ss. 2(17), 2(19), and 42 Electricity Act must satisfy two essential conditions:
(i) operate and maintain a distribution system; and
(ii) supply electricity to consumers within its area of supply. (Paras 16–17)

The Court observed that the Railways’ electricity infrastructure merely conveyed electricity internally for traction systems, signalling, stations, and operational use. It did not supply electricity to independent consumers against consideration. Therefore, its “distribution installation” under s. 11 Railways Act could not be equated with a “distribution system” under the Electricity Act. (Paras 20–21)

The Court emphasized:

“The Appellant operates a closed and self-contained electricity network which is for the purposes of meeting the operational requirements of the railway system.” (Para 31)

(b) Scope of Section 11 Railways Act

The Court rejected the contention that the non-obstante clause in s. 11 Railways Act overrides the Electricity Act. It held that no irreconcilable conflict existed between the two statutes and both could operate harmoniously. (Paras 26–27)

The Court clarified that General Manager, Northern Railways v. UPSEB only recognised Railways’ power to construct transmission infrastructure and did not confer authority to commercially distribute electricity to consumers. (Para 29)

(c) Railways as “Appropriate Government”

The Court held that Railways, being under pervasive fiscal and administrative control of the Central Government, falls within the ambit of “Appropriate Government” under s. 2(5)(a) Electricity Act. (Paras 42–45)

However, the Court clarified that this status alone does not automatically confer DDL status because the substantive statutory functions of a distribution licensee were absent. (Paras 46–50)

(d) Liability to Pay CSS and Additional Surcharge

The Court upheld the rationale of Cross-Subsidy Surcharge and Additional Surcharge under s. 42 Electricity Act, reiterating the principles in Sesa Sterlite Ltd. v. Orissa Electricity Regulatory Commission. It held that open-access consumers such as Railways remain liable to compensate distribution licensees for cross-subsidy and stranded costs. (Paras 51–56)

Held

The Supreme Court upheld the APTEL judgment and held that Indian Railways is not a deemed distribution licensee under the Electricity Act. Its electricity network is solely for self-consumption and operational use, not for supply to consumers. Consequently, Railways remains liable to pay Cross-Subsidy Surcharge and Additional Surcharge while availing open access under s. 42 Electricity Act.


Ratio

An entity operating an internal electricity network solely for captive operational consumption, without supplying electricity to consumers within an area of supply, does not qualify as a distribution licensee or deemed distribution licensee under the Electricity Act, notwithstanding statutory authority to maintain electrical infrastructure under another enactment. 


Case Details

Citation: 2026 INSC 464
Decided on: 2026
Case Title: Indian Railways v. West Bengal State Electricity Distribution Company Limited & Ors.
Court: Supreme Court of India
Bench: Justice Satish Chandra Sharma