In a landmark Judgment on the interplay of SEZ Act, 2005 and the Electricity Act, 2003, on 17.05.2024, Supreme Court passed its Judgment holding that Distribution of Electricity Licence (Additional Requirements of Capital Adequacy, Creditworthiness and Code of Conduct) Rules, 2005 (Capital Adequacy Rules) issued under the Electricity Act, 2003 do not apply to developers of SEZs who are recognised as deemed distribution licensees under Proviso to Section 14(b) of the Electricity Act. Thereby, Supreme Court reversed two negative rulings by APTEL and TSERC.
The Supreme Court’s Judgment puts to rest a decades old controversy of Electricity Regulatory Commissions applying additional regulatory stipulations while identifying deemed distribution licensees. The Judgment clarifies the role of Regulatory Commissions in identifying such deemed licensees and the scrutiny required while processing such applications.
It provides an impetus to expeditious operationalizing of distribution licensee status by SEZ developers, and therefore providing a choice of supplier to consumers in SEZs. In Telangana and Andhra Pradesh, no SEZ had operationalized their deemed distribution licensee status due to this overhang, which now stands resolved. SEZ developers (and the units in such SEZs) now gain a significant competitive edge since the incumbent non-SEZ distribution licensee’s tariff is typically higher.
Sundew Properties Limited (Sundew) is a developer of a Special Economic Zone under the SEZ Act, 2005. For ensuring consistent and high-quality power supply to these SEZ units, a Notification was issued under the SEZ Act, 2005 deeming an SEZ Developer to be a distribution licensee under the Electricity Act, 2003. Sundew had filed an application before the Telangana Commission seeking identification as a deemed distribution licensee.
Telangana Commission accorded such status to Sundew, however, this was made conditional on Sundew also satisfying requirements of Capital Adequacy Rules. Hence, Sundew was directed to infuse additional equity capital from its promoters by way of account payee cheques. This was challenged before APTEL which upheld Telangana Commission’s Order. Sundew challenged APTEL’s Judgment vide C.A. No. 8978 of 2019 before Supreme Court. Supreme Court vide Judgment dated 17.05.2025 accepted Sundew’s position and held that:
- Although SEZ developers under SEZ Act, 2005 are deemed distribution licensees under the Electricity Act, 2003, they are required to apply to the relevant Electricity Regulatory Commission for verification and acceptance of their deemed licensee status. Further, 6th proviso to Section 14 is not applicable to such deemed licensees.
- Capital Adequacy Rules are not applicable to deemed distribution licensees under the SEZ Act, 2005. Therefore, Sundew is not required to infuse additional capital as directed by Telangana Commission.
Our Litigation Team Comprised Partner – Abhishek Munot, Partner – Kunal Kaul, Principal Associate – Malcolm Desai, and Senior Associate – Samikrith Rao Puskuri.
Abhishek is a part of Disputes group of JSA and anchors the Regulatory Practice of JSA in Western India. Abhishek handles sector specific commercial litigation, arbitration constitutional & administrative law litigation and regulatory proceedings before statutory authorities, tribunals and courts.