The Telangana High Court has ruled that proceedings under Section 126 of the Electricity Act, 2003 cannot be initiated merely because the use of electricity allegedly violates other provisions of the Act or applicable regulations. Justice Nagesh Bheemapaka made this observation while setting aside the finding against ITC Limited. The decision clarifies that a distribution licensee must independently establish that the alleged conduct falls within the statutory expression “unauthorised use of electricity.”
The dispute centered on ITC Limited’s operations at a paper and paperboard manufacturing facility in Sarapaka, Khammam District. The company operates several captive co-generation plants to meet its electricity needs, exporting surplus power through the grid. During an expansion phase involving a new paper machine and a 25 MW co-generation facility, ITC engaged Shapoorji Pallonji & Co. Ltd. for civil and structural works. It claimed it provided electricity generated from its own plants to the contractor at no cost.
Following an inspection in November 2011, the power distribution company issued the assessment under Section 126. They alleged that ITC used electricity for a purpose other than the sanctioned one and effectively resold it. The authorities argued that the contractor, being a separate company, changed the nature of the consumption. However, the High Court found that the distribution company failed to establish a specific jurisdictional foundation to invoke Section 126 in this manner.
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According to the respondents, their allegation essentially is that the petitioner failed to comply with the statutory mechanism governing open access and supply of electricity to another entity. The Court observed that such alleged non-compliance may attract consequences under those specific statutory provisions. Yet, the bench noted that respondents have not demonstrated how every alleged breach of Sections 9 or 42 automatically becomes ‘unauthorised use of electricity’ under Section 126. The jurisdiction under Section 126 cannot be enlarged by importing alleged violations of other provisions of the Act.
The authorities did not dispute either the existence of ITC’s captive generating plants or that the electricity in question had been generated by ITC itself. This is a factual detail that often gets lost in complex regulatory battles. The Court said that Section 126 jurisdiction “cannot be assumed merely because electricity is used in a manner which, according to the Distribution Licensee, violates certain regulatory provisions.” The authority must first establish that the alleged facts constitute unauthorised use within the meaning of the provision.
The ruling highlights how utilities often rely on broad language to collect fines, but courts are pushing back. Traditionally, regulatory bodies have attempted to bundle various infractions into single enforcement actions to maximize revenue recovery, yet this decision suggests that statutory language must be interpreted narrowly to protect corporate entities from procedural overreach. In this case, the Court rejected the argument that the contractor’s status as a separate company was sufficient to attract Section 126.
Corporate personality alone cannot determine the applicability of Section 126. The real question is the nature and purpose of the consumption, not just the company structure. The justices noted that Shapoorji Pallonji was an Engineering, Procurement and Construction contractor engaged in constructing ITC’s own generating station within its premises. The electricity was provided free of cost under the construction contract. The authorities had not produced material to establish that the contractor independently consumed electricity as a separate consumer or that electricity was commercially sold to it.
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“Mere execution of construction work by a contractor does not, by itself, conclusively establish transfer or sale of electricity,” the Court said. Since the electricity was used for construction of ITC’s own additional paper machine and co-generation plant, the mere fact that the physical work was executed by a contractor could not automatically convert the utilisation into unauthorised use under Section 126.
The provisional assessment proceeded on the assumption that ITC had committed “theft of energy,” although the proceedings were initiated under Section 126. This is technically a category error in administrative enforcement. The court pointed out that theft of electricity is separately dealt with under Section 135 and that the authorities had not initiated proceedings under that specific section for the alleged theft. Consequently, the demand was deemed legally unfounded.
The finding was set aside. This decision reinforces the necessity for utility companies to strictly adhere to statutory definitions before demanding payment from industrial consumers.