The Supreme Court has ruled that Indian Railways cannot claim the status of a deemed distribution licensee (DDL) under the Electricity Act, holding that its electricity infrastructure is intended solely for its own operational requirements and does not involve supplying electricity to consumers.

It held that Railways is a ‘consumer’ of electricity and is therefore liable to pay cross-subsidy surcharge and additional surcharge while procuring power through open access.

The judgment, which upheld a 2024 order of the Appellate Tribunal for Electricity (APTEL), brings the curtain down on a legal dispute that spanned more than a decade before the Central Electricity Regulatory Commission (CERC), multiple state electricity regulatory commissions, and APTEL.

Dismissing a batch of appeals filed by Indian Railways against APTEL’s February 2024 order, the Supreme Court directed distribution companies (DISCOMs) to compute and issue detailed calculations of outstanding cross-subsidy and additional surcharges payable by the Railways, segregated by area of supply and the period during which open access was availed.

The Railways will be given an opportunity to respond to the claims, subject to scrutiny by the appropriate electricity regulatory commissions.

The case centered on whether the Indian Railways qualified as a DDL under Section 14 of the Electricity Act and whether it could procure power through open access without paying the relevant surcharges.

The apex court held that the Railways’ electricity infrastructure, such as traction systems, signaling, and station-related services, does not amount to supplying electricity to consumers under the Electricity Act. It clarified that Section 11 of the Railways Act authorizes Railways only to erect and maintain electrical infrastructure necessary for railway operations and does not confer authority to commercially distribute or supply electricity to consumers.

During proceedings before APTEL, five of the eight state electricity regulatory commissions had already held that the Railways could not be considered a DDL.

Background

The dispute dates back to 2015, when the Indian Railways sought approval from the Maharashtra State Electricity Transmission Company (MSETCL) for connectivity to procure 100 MW of electricity from Gujarat Urja Vikas Nigam for 16 traction substations via interstate open access. MSETCL refused connectivity and directed the Railways to obtain an appropriate order regarding its status as a DDL.

The Railways subsequently approached the CERC, which ruled in 2015 that the Railways was entitled to open access and qualified as a DDL under Section 14 of the Electricity Act. The West Bengal State Electricity Distribution Company, other DISCOMs, and a few state regulators challenged the ruling before APTEL.

In 2024, APTEL overturned the CERC order and held that Railways was liable to pay the surcharges like any other consumer, since it cannot be considered a DDL.

Supreme Court’s Analysis

Upholding the APTEL ruling, the Supreme Court observed that the Railways’ DDL claim lacked any substantial basis because the Electricity Act governs the commercial supply of electricity through licensed distribution networks. It noted that Railways operates a closed, self-contained electricity network exclusively for its own operations.

“It is only when electricity is sold or provided to consumers outside the operational domain of the Railways that the activities undertaken by the appellant (Railways) could intersect with the obligation of a distribution licensee,” the court observed.

The Supreme Court further held that the Railways’ arguments reinforced apprehensions that its claim to DDL status was aimed at avoiding payment obligations associated with cross-subsidy and additional surcharges, and at evading statutory obligations applicable to other consumers.

The judgment also emphasized that these surcharges are essential for maintaining the financial viability of the power distribution sector, enabling DISCOMs to recover stranded costs, support subsidized consumer categories, and continue investing in network infrastructure and reliable electricity supply.

The court took note of the respondents’ submissions regarding the government’s Draft Electricity Amendment Bill, 2025, which, among other things, seeks to eliminate the cross-subsidy surcharge for the Railways. It is contended that the legislative proposal itself denotes that no such provision or privilege exists under the current statute that absolves the Railways from payment of the surcharge applicable to any consumer.

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