Petition No.6 of 2007
Date of hearing: 14.08.2008
Date of Order: 17-09-2008

1. M/s Global Energy Limited (GEL) has filed this application under Section 15(1) of the Electricity Act 2003 (Act) seeking grant of a license for Intra-State Trading in electricity in the State of Punjab. The petitioner has stated that it has been undertaking electricity trading in volumes exceeding 300 MUs in several states even before the Act came into force. It is further mentioned that the petitioner has been granted an Intra-State Trading License in the State of UP and permission for Intra-State Trading of Electricity in Arunachal Pradesh. The maximum trading volume proposed to be undertaken by the petitioner on an annual basis in the first three years will be upto 500 MUs. GEL claims to have a fully functional Trading Desk and the necessary organizational capabilities to efficiently carry out activities relating to the trading of power with adequate office infrastructure, computer systems and support personnel. The petitioner has also indicated that funding will be from their own resources without resort to external borrowing.

2. After preliminary scrutiny of the application the Commission in its letter dated April 26, 2007 directed the petitioner to submit the following information:
   
   
   
   1. Copies of complete balance sheets (audited) for the years 2003-04, 2004-05 and 2005-06 alongwith 2006-07, if available.
   2. Status and detail of CBI case pending in the court as referred in clause 12 of the Intra-State Trading License issued by Uttar Pradesh Electricity Regulatory Commission.
   3. Copy of Order passed by the Uttar Pradesh Electricity Regulatory Commission dated March 6, 2007.
   4. Details of arrangements for purchase of energy.
   5. Whether the company’s application for an Inter-State Trading License has been finally disposed of by CERC? If so, a copy of CERC’s order be furnished.
   6. Copy of the order granting permission for intra-state trading in Arunachal Pradesh.
   7. Annexure containing a brief description of generation projects developed by the petitioner.
   
   
3. The requisite information was made available on May 29, 2007. In respect of information as sought at Sr.No.2 above, the petitioner submitted that Shri Harry Dhaul and Smt. Laxmi Dhaul against whom a CBI charge sheet had been filed are no longer on the Board of Directors of GEL. As the information furnished was incomplete, the Commission in letter of July 10, 2007 sought further details of shares held by Shri Harry Dhaul and Smt Laxmi Dhaul as well as information on how the technical requirements will be met by the petitioner and sources from which the company intended to purchase electricity. In response, the petitioner intimated on October 10, 2007 that GEL has engaged the services on a permanent basis of an engineer having about 50 years experience in the operation of thermal power plants and transmission systems. It was further submitted that GEL has also employed a full time chartered accountant with over 25 years experience in finance and accounting in conformity with clause 3(2)(a) (ii) of the Punjab State Electricity Regulatory Commission (Intra State Trading) Regulations 2006 (PSERC Regulations). Regarding the sourcing of power, it was mentioned that it was only after GEL is granted an Intra-State Trading License that it would be legally entitled to enter into negotiations with potential buyers and sellers of electricity within the State. Dwelling upon the role of Sh. Harry Dhaul, it was indicated that GEL is a professionally run company managed by independent Directors and Shri Harry Dhaul is only a shareholder without any role in day-to-day operations. The petition was taken up for hearing on December 4, 2007 but the petitioner requested for time to file additional information. In further submissions dated December 17, 2007, the petitioner undertook to engage the services of an additional technical personnel possessing qualification(s) to the satisfaction of the Commission.
   
   After taking into account the position brought out above and considering compliance with Reg.30 of the PSERC (Conduct of Business) Regulations, the Commission on January 25, 2008 asked the petitioner to publish a public notice inviting objections as required under Section 15(2) of the Electricity Act 2003. The petitioner was also asked to intimate the latest status of the application pending before the CERC for the grant of an Inter-State Trading license in electricity and of all cases/disputes referred to in CERC Order dated August 28, 2006. The petitioner filed the required additional information on February 12, 2008 wherein details of some cases referred to in the CERC order dated 28.08.06 were furnished. News paper cuttings of the notice under Section 15(2) published in the Hindustan Times, The Tribune, Punjabi Tribune, Punjab Kesri and Times of India were also furnished. In response to the notice published, only PSEB filed objections within the stipulated period of 30 days wherein the following issues were raised:-
   
   
   1. that the petitioner had applied for an Inter-State Trading License, but CERC did not consider it fit and proper to grant a license to the applicant. The petitioner had thereafter filed an appeal before the Appellate Tribunal (ATE) which remitted the case back to CERC to consider afresh the question whether the grant of license to the applicant is likely to adversely affect the interests of electricity sector or the consumers in view of the involvement of the applicant in several legal proceedings. In this background, PSEB contends that the application for an Intra-State Trading license needs to be kept pending till CERC finally decides the matter.
   2. that the petitioner purchased power from Tripura and supplied it to the Haryana Vidyut Prasaran Nigam Limited (HVPNL) which resulted in a dispute wherein HVPNL had to file a civil suit for a stay order on the encashing of L.C. issued by HVPNL in favour of GEL.
   3. that CERC order dated August 28, 2006 indicates that the petitioner is involved in litigation with Karnataka Power Transmission Corporation Limited (KPTCL) .
   4. that CERC order dated August 28, 2006 also refers to a charge sheet filed by CBI against GEL.
   
   In the case of (ii), (iii) and (iv) above, PSEB also undertook to furnish details of the issues involved and the present status of each case.
   
   
4. The petitioner replied to the objections raised by PSEB as under:
   
   1. Even though CERC had initially rejected the application of the petitioner for grant of Inter-State Trading License, proceedings are presently pending with CERC following the ATE judgement remanding the matter for reconsideration. Moreover, the issue is to be considered on the touchstone of PSERC Regulations and not on the basis of the decisions of other Regulatory Commissions in different proceedings under a different set of Regulations.
   2. Most of the cases cited by CERC in its order dated 28.08.06 for denial of the license have actually been initiated by GEL, it being the aggrieved party as will be evident from the following:
      1. In the dispute with HVPNL, it was HVPNL that had filed a civil suit against the State Bank of Patiala (SBOP), Tripura Electricity Department and GEL seeking a restraint order against SBOP from making any payment to the Tripura Electricity Department and GEL upon a Letter of Credit and the proceedings do not concern GEL as encashment of LOC has never been sought by it.
      2. The dispute with KPTCL involves purely commercial issues and arbitration was initiated by GEL, being the aggrieved party.
   3. Regarding CBI investigations, the petitioner stated that charges are yet to be framed by the court
   
   
5. The petitioner was heard on April 29, 2008 on the issue of the objections raised by PSEB when the plea was taken that in view of the clarifications given, the objections need to be ignored. The Commission, after consideration of the factual position now brought out, decided that a Public Notice as required under Section 15(5) of the Act be published, which appeared in The Tribune and Times of India on July 12, 2008.
   
   
6. A public hearing was then held on August 14, 2008 when only the petitioner and the representative of the PSEB were present. On behalf of the petitioner, it was urged that an Intra-State Trading License needs to be granted as all the eligibility conditions for the grant of license as mentioned in PSERC Regulations stand met. The representative of the PSEB contended, on the other hand, that in view of the issues raised in objections filed, a license may not be granted to the petitioner.
   
   
7. It is necessary at the outset to take into consideration the present status of the cases finding mention in CERC’s order of 28th August 2006 including those referred to by the objector and determine whether there is any reason to debar the petitioner from obtaining a license on that basis. The petitioner who had been asked to furnish full particulars of these cases has filed an affidavit giving details of civil and criminal matters referred to in CERC’s order of August 28 2006, the status of CBI investigations against Shri Harry Dhaul and Smt. Laxmi Dhaul, arbitration proceedings with KPTCL, Goa Electricity Department, Tripura Electricity Department and the BIFR reference in the case of Belgundi Cement Ltd. The following documents have also been filed:
   
   
   
   1. copy of the order dated 28.08.2006 of CERC on the application of the petitioner for grant of an inter-state trading license.
   2. copy of the ATE’s order dated 07.06.2007 in the appeal filed by GEL against earlier orders of CERC in the matter of grant of an inter-state trading license;
   3. copy of the order dated 10.12.2003 of the Hon’ble High Court of Karnataka in the case filed by the company against KPTCL ; and
   4. copy of the order dated 02.01.2006 of the sole arbitrator, Mr. Justice Shivashankar Bhat in the matter of arbitration of dispute between the company and KPTCL.
   
   
8. The Commission notes that the objector (PSEB) has not furnished any additional information in support of its contentions. The position that emerges from a scrutiny of petitioner’s submissions in this respect is as under:
   
   
   
   1. CERC had rejected the company’s application for an inter-state trading license in its order dated 28.08.2006, on the ground that it did not consider the applicant to be a fit and proper person for grant of such license. The ATE, on appeal, has remitted the matter to the CERC to consider afresh the question whether grant of license to the appellant is likely to affect the interest of the electricity sector or the consumers in view of the involvement of the appellant in the legal proceedings. No order has yet been passed by the CERC so far in the case for the grant of inter-state trading license to the applicant. It is also relevant to bear in mind that the PSERC Regulations do not have a disqualification provision similar to Regulation 6A of CERC Regulations under the provisions of which the company’s application was rejected.
      
      
   2. There are 3 arbitration proceedings pending between GEL and the Goa Electricity Department, Tripura Electricity Department and KPTCL. These cases are of a commercial nature which have been referred for arbitration and final adjudication at the instance of the petitioner.
      
      
   3. There is a criminal investigation initiated by the Central Bureau of Investigation (CBI) relating to a loan taken by M/s Belgundi Cement Limited (BCL) a sister concern of GEL, wherein the charge sheet has been filed against Sh. Harry Dhaul and Smt. Laxmi Dhaul. The petitioner has informed that the Board of GEL has since been reconstituted and these two directors have resigned from the Board on 15.3.2007. The petitioner contends that since both Sh. Harry Dhaul and Smt. Laxmi Dhaul are no longer associated with the management of GEL, legal proceedings being contested by them should not have any bearing on the affairs of GEL. In addition, the petitioner has also informed that the said directors had filed a writ against the issue of charge sheet by the CBI before the Karnataka High Court in 2005 and the honourable court in its order of 24.5.2005 had stayed further proceedings against Sh. Harry Dhaul. In so far as the other Director, Smt. Laxmi Dhaul, is concerned, it has been intimated that Karnataka High Court had earlier quashed the charge sheet against her in its order of 4.9.2002 against which an appeal had been preferred before the Supreme Court. The Supreme Court while disposing of the matter on 1.2.2006 allowed the appeal but also observed that in case the Court summoned Smt. Dhaul, then it would be open for her to move the High Court for quashing the proceedings under Section 482 Cr.P.C. The Commission notes that Sh. Harry Dhaul and Smt. Laxmi Dhaul hold 53.66% and 26.22% shares of the company respectively. Given the extent of their share holding, both of them are in a position to influence the management of the company. On the other hand, it must also be observed that the charge sheet against Sh. Harry Dhaul has been stayed by the Karnataka High Court and the matter is pending at that stage. Consequently, the trial court is yet to frame charges against Sh. Harry Dhaul while there is no finality regarding the charge sheet in the case of Smt. Laxmi Dhaul either. Accordingly, it is evident that the matter apparently rests at a preliminary stage with charges not having been framed by the trial court.
      
      
   4. Even though the objector in this case has only referred to the cases discussed in sub paras (a), (b) and (c) above, it is relevant to mention that CERC in its order dated 28.8.2006 referred to as many as 18 cases involving GEL, BCL and some of the Directors of both these companies. The Commission notes, however, that but for the case discussed above, other matters are of a civil nature largely concerning the affairs of BCL. In the circumstances these cases do not have any direct bearing on the matter at hand.
      
      
   5. As regards the other issue pertaining to the approval of the bidding documents, it is noted that the petitioner proposes to await finalization of Case 1 Standard Bidding Documents by the Ministry of Power. The Commission has, therefore, not taken up consideration of the matter at this stage. The petition is disposed of accordingly.
      
   
   
9. The Commission has carefully considered the status of all civil and criminal matters involving GEL, BCL and individual Directors of these companies. It is now clear that arbitration matters are in fact commercial disputes initiated by GEL. In the case of the suit filed by HVPNL, the main issue concerns the Govt. of Tripura and again, the issue at hand is of a civil nature. So far as application for grant of an Inter-State Trading License to the petitioner by CERC is concerned, the issue is still under consideration of the latter. Moreover, PSERC Regulations do not have a disqualification clause on the lines of Regulation 6A of CERC Regulations which can be invoked against the petitioner. The present position of the CBI investigations has already been discussed in detail in para 8(c). The matter is pending at a preliminary and pre trial stage and for that reason no presumption of guilt can be drawn against any person associated with GEL. All other cases concern the affairs of BCL and have no direct relevance in these proceedings. In the light of above, it is difficult to conclude that grant of a license to the petitioner would in any way adversely affect the interests of the electricity sector or of the consumers.
   
   
10. Once it is held that pending civil/criminal matters are no ground to deny an Intra-State Trading License to the petitioner, it is necessary to see whether the eligibility conditions laid down in the PSERC Regulations are being complied with. Regulation 3 of PSERC Regulations which specifies the eligibility conditions for electricity traders reads as under:-
    3. ELIGIBILITY CONDITIONS FOR BEING AN ELECTRICITY TRADER:
    
    3.1 CAPITAL ADEQUACY REQUIREMENT AND CREDIT WORTHINESS:
    
    
    
    1. The applicant shall be categorized depending upon the volume of Intra-State trading proposed to be undertaken and accordingly the net worth of the Applicant shall not be less than the amounts specified hereunder:-
       
       

       S.No.	Category of the Trading License	Volume of Electricity proposed to be traded per year (in KWH)	Net worth (Rs. in crores)
       1	A	Up to 50 MU	1.0
       2	B	51 MU to 100 MU	2.0
       3	C	101 MU to 200 MU	4.0
       4	D	201 MU to 500 MU	10.0
       5	E	Above 500 MU	Rs.10.0 crores plus Rs.2 lacs for each additional MU above 500 MU.

       
       
    2. The Applicant will not be a defaulter of any Bank/Financial institution.
       
       
    3. The Applicant will demonstrate his net worth duly certified by an auditor to the satisfaction of the Commission at the time of making the application.
       
       
    4. The Commission may from a date as may be specified by it, vary requirement of the net worth from time to time for new applicants.
       
    
    3.2 TECHNICAL REQUIREMENT:
    
    
    1. The applicant will engage at least one full time professional having minimum 5 years experience in each of the following disciplines, namely :-
       1. Power System Operations and Commercial aspects of power transfer ; and
          
       2. Finance, commerce and accounts
          
       
       The minimum qualification for (i) above shall be a graduate in Electrical Engineering and for (ii) above shall be CA/ICWA.
       
       
    2. The applicant will furnish to the Commission details of the professional and supporting staff engaged by him on full time basis before undertaking intra-state trading.
       
    
    
11. As per Regulation 3.1 of PSERC Regulations, the net worth in the case of the petitioner shall not be less than Rs.10.00 crores as trading of upto 500 MUs of electricity is proposed to be undertaken. Regulation 2(m) stipulates that net worth of a company at any point of time is the sum total of paid up capital (including share premium) and free reserves minus accumulated losses but shall not include reserves created out of revaluation of assets, write back of depreciation, provisions and amalgamation.
    
    
12. Net worth shown by the firm in the balance sheets for the years 2002-2003 to 2005-2006 is as follows:-
    

    As On	Net worth shown by the firm (Rs.)
    31.03.2006	23,67,83,967
    31.03.2005	24,94,40,332
    31.03.2004	27,30,02,794
    31.03.2003	18,82,89,662

    
    On the basis of information available in the balance sheets filed, the Commission has worked out the net worth of the petitioner for these years in accordance with Regulation 2(m) of the PSERC Regulations as follows:-
    
    

    Financial Year	Paid up Capital	Share Premium	(+) Profit/ (-) Accumulated Losses	Net worth (in Rs.)	As on
    2002-03	4,80,05,010	9,00,00,000	-	13,80,05,010	31.3.03
    2003-04	7,00,05,010	9,00,00,000	51,37,784	16,51,42,794	31.3.04
    2004-05	7,00,05,010	9,00,00,000	(1,13,09,037)	14,86,95,973	31.3.05
    2005-06	14,90,95,010	9,00,00,000	(2,28,65,857)	21,62,29,153	31.3.06

    
    It is evident from the above, that the applicant meets with the capital adequacy requirements specified.
    
    
13. As far as the technical requirement is concerned, the petitioner has stated that GEL has engaged the services of an engineer having about 50 years experience in the technical aspects relating to the operation of thermal power plants and transmission systems. It was pointed out to the petitioner that even though the G.M.(Tech.) of the firm is an electrical engineer, he does not possess the relevant experience mentioned at (a) (i) of Reg.3.2. The petitioner has given an undertaking that the services of an additional technical person possessing any other technical qualification to the satisfaction of the Commission will be engaged in the event of a license being granted. In the light of this assurance, the Commission holds that the technical requirement is also met by the petitioner. It is also noted that GEL has employed a full time Chartered Accountant with over 25 years experience in finance and accounting in accordance with the requirements of Regulation 3.2.
    
    
14. On the basis of the foregoing discussion, the Commission concludes that the petitioner is not unfit in any manner to hold an Intra-State Trading License in electricity. He also fulfils eligibility criteria in accordance with the PSERC Regulations. The Commission, accordingly, decides that a license be granted to GEL for undertaking intra state trading of electricity in Punjab upto 500 MUs per annum subject to conditions to be specified in the license. The license is being granted subject to the further condition that the Licensee will appoint a full time professional having a minimum of 5 years experience in power system operations and commercial aspects of power transfer. The license is liable to be revoked in accordance with PSERC (Conduct of Business) Regulations if:
    
    
    1. the charges framed against either of the two directors of the applicant company (Sh. Harry Dhaul and Smt. Laxmi Dhaul) are proved in any court of law. The onus of informing the Commission about any such order immediately on its issuance will lie with the petitioner;
       
       
    2. it is established to the satisfaction of the Commission that the licensee has become a defaulter on any bank/financial institution or for any other sufficient reason that cast a doubt on the ability of GEL to perform its duties and obligations under the Electricity Act;
       
       
    3. the Commission is satisfied that the licensee has failed to comply with the provisions of the Electricity Act 2003 or the Rules/Regulations framed thereunder by the Govt. of Punjab and PSERC.
       In the event of such revocation, trading activity under the license shall cease immediately but the Licensee will settle existing liabilities arising out of the trading activity, if any, already carried out.
       
    
    
15. In the light of the above discussion, the Commission approves the grant of a license for Intra-State Trading of Electricity to GEL. Secretary is directed to take further action in accordance with Regulation 35 of PSERC(Conduct of Business) Regulations.