W.P. (C) 8136/2017 Tagged with W.P. (C) 8401/2017
Petition on Over-Invoicing by Private Firms

Common  Cause filed a petition in the Delhi High Court seeking a thorough investigation by an SIT into the over-invoicing carried out by various private power generating companies as reported by Directorate of Revenue Intelligence (DRI) in its various investigation reports. The said scam unearthed by DRI discloses that several private companies have siphoned away several thousand crores of rupees abroad.

The petition says that most of these over-invoicing instances have been reported from the power sector, the impact of which is felt by the millions of electricity consumes in the form of higher tariff. The petition further mentions that ever since the government has opened up the power sector to the private companies, many private companies had started setting up power plants from the year 2006 / 2007 onwards.

Barring nuclear power plants, the private companies are allowed to set up thermal power plants based on any fuel (coal, gas, lignite, etc) or power plants based on renewable energy (solar, wind, hydro, bio-gas, etc). The transmission of power through transmission lines was also simultaneously opened for the private sector. To encourage participation of private companies in the power sector, the government had given multiple options to all the companies to recover their costs and make profits based on their business models.

Also, in the case of thermal power projects, about 20 per cent equity is brought in by the promoters of the project and the balance is funded through loans. The government had also put in place Electricity Regulators in every state and also at the Central level (Central Electricity Regulatory Commission or CERC). As per the government’s policy guidelines, CERC issues escalation / de-escalation index twice in a year for different parameters such as foreign exchange fluctuation, change in fuel price, change in labour cost, which become the basis for increase / decrease in tariff of the companies if they have quoted flexible tariff during the bidding stage when the distribution companies in the state invite bids to meet the power requirement of their respective states. In case the bidder has quoted Capacity Charges as flexible in its bid, it can get the advantage of foreign exchange fluctuation. In such a situation, the exchange rate at the time of bid-closing or any milestone stated in the tender becomes the reference rate. Since the rollout of the project takes about 3 to 4 years, and by that time if the currency escalates (which generally is the past trend), the bidders get the advantage by CERC indexing.

 In other words, charging for the correct price of the equipment is the key for determining tariff. The same is the case for fuel. If it is imported, and the bidder has quoted a flexible tariff, the coal import price becomes pass-through for determination of tariff to the end-consumers. Even in the case of domestic coal, this is the practice. Therefore, any inflated invoice for import has direct impact on the consumers of electricity. Similarly, the cost of laying transmission lines for transmission of power is also important for correct determination of tariff as the same is a pass-through charge and  recovered from the consumers. If there is any over-invoicing, it has direct impact on tariff. Besides this, the siphoning of money amounts to cheating the shareholders and the tax authorities, in addition to cheating the consumers. The same may also be in violation of various laws like Customs Act, Foreign Exchange Management Act, Prevention of Money Laundering Act, etc.

Common Cause is concerned about this increasing trend of overinvoicing by the private companies in the power sector with huge public interest ramifications. The petition requests the Court to direct a thorough SIT investigation into the over-invoicing committed by companies/entities engaged in power sector in order to cheat the consumers, the share-holders, the tax authorities and also committed in violation of various laws.

The matter was listed before the Delhi High Court on 11 December 2017 in which notices were issued to the Union of India and Directorate of Revenue Intelligence and were accepted by representatives of both. In the hearing on 7 February 2018, the Court gave two weeks' time to the respondent for filing an affidavit. 

The matter was listed for hearing on 4 April 2018 and the bench headed by Justice S Ravindra Bhat directed the CBI to file an affidavit on the steps and progress with respect to investigations in regard to the DRI alert. It also asked the CBI to outline the progress made in the regular case against power companies in the affidavit. 

The DRI submitted an affidavit stating that show-cause notices had been issued to the companies and the adjudication of cases are at different stages. It urged the court to dismiss the petition stating that the investigation is extremely time consuming and complicated, and that it was taking all necessary steps for expeditious completion of the investigations.

In the hearing on May 1, 2018, the CBI told the Court that no progress was made in the preliminary enquiries involving Adani Enetrprises and its group companies and the PE was closed on 15 July 2015 because of jurisdictional issue as the project came under the Maharasthra government. 

The matter was taken up for hearing on July 4, 2018 wherein the application by the respondent for the Union of India to be represented by the Secretary, Ministry of Power, was allowed by the Court. The Court directed the respondents to file the necessary replies, rejoinders and up-to-date status reports in the form of affidavits.

On October 11, 2018, Status report has been filed by the Directorate of Revenue Intelligence (DRI) & the petitioners are supposed to file a response to this within three weeks. In addition to this, the DRI has expressed that they would like to respond to the additional affidavit filed by the petitioner in W.P. (C) No.8136/2017 because fresh assertions and statements have been made & an affidavit would be filed within three weeks in this regard. 

The Status Report filed by DRI shall be furnished for the petitioner in WP (C) No. 8401/2017 & the copy of the response filed by the Ministry of Power in W.P. (C) No.8401/2017 will be furnished for W.P. (C) No.8136/2017. 

Central Bureau of Investigation (CBI) will be filing a status report within two days & a copy of the same would be furnished to all the petitioners.

The matter was taken up by the Court on 4 December 2018, and the Court directed CBI to bring the original records and investigation files related to the Preliminary Enquiry and cases registered against various power companies for artificial over-pricing of coal imports. 

On January 31, 2019, the counsel for DRI was directed to produce the four adjudicating orders concerning various entities and the counsel for CBI was directed to file the status report and produce the relevant records duly flagged together with comprehensive note vis-a-vis each one of them.

On November 4, 2019, CBI's counsel submited that there was no necessity of filing another status report as the enquiry stood closed and submitted that the records are available with him. The Court has ordered the records to be produced on the next date of hearing.

The counsel appearing for DRI submitted that in three cases and in respect of five matters, show cause notices have been issued and adjudication is still pending and the rest of the matters pertaining to other industries are under investigation. Mr. Prashant Bhushan that DRI is dragging this matter and the investigation/adjudication cannot go on endlessly. 

The bench consisting Justices GS Sistani and Jyoti Singh has directed to file a specific affidavit with respect to the present status of all investigations/adjudications within four weeks with advance copy to the counsel for petitioners.

The matter has been ordered to be listed on November 4, 2019.

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W.P. (C) 8136/2017
Order 11 Dec 2017
Order 04 July 2018
Order 11 Oct 2018
Order 31 Jan 2019
Order 08 Aug 2019