Railways 'Consumer' Under Electricity Act, Not Deemed Distribution Licensee : Supreme Court

The Supreme Court on Friday (May 8) has held Railways to be a 'consumer' within the meaning of the Electricity Act, 2003, thereby disentitling its claim to a status of 'deemed distribution licensee' to avoid payment of cross-subsidy surcharges and additional surcharge to the distribution companies.

The Court observed that Indian Railways operates a closed and self-contained electricity network solely for meeting its internal operational requirements, including traction, signalling, and station facilities, and therefore cannot be treated as a “distribution licensee”, since it does not supply electricity to external consumers outside its network.

“The erection of transmission lines or distribution lines as argued by the Appellant(Railways), cannot bestow upon the Appellant the authorisation to carry out supply of electricity that is procured by it, to third party consumers… It is only when electricity is sold or provided to consumers outside the operational domain of the railway, that the activities undertaken by the Appellant could intersect with the obligation of a distribution licensee.”, observed a bench of Justice Dipankar Datta and Justice Satish Chandra Sharma.

“The Appellant is a consumer within the meaning and scope of section 2(15) of the Electricity Act. It purchases electricity exclusively for its own use and supplies it to no one but its own constituents. Thus, like any other consumer, Cross-Subsidy Surcharge and Additional Surcharge are applicable to the Appellant.”, the court added.

Background

The dispute arose from Indian Railways' claim that it qualified as a deemed distribution licensee (DDL) under the third proviso to Section 14 of the Electricity Act, 2003. Railways argued that its electricity infrastructure for traction systems and railway operations amounted to a “distribution system,” thereby entitling it to procure electricity through open access without paying cross-subsidy and additional surcharges.

The controversy began in 2015 when Railways sought connectivity to procure 100 MW power through inter-State open access for traction substations. After objections were raised regarding its legal status, Railways approached the Central Electricity Regulatory Commission (CERC), which held in its favour and declared it a deemed distribution licensee. However, APTEL later reversed the decision, holding that Railways was not engaged in electricity distribution within the meaning of the Electricity Act, leading to an appeal before the Supreme Court by the Indian Railways.

Decision

Dismissing the appeal, the judgment authored by Justice Sharma explained that for qualifying the status of a deemed distribution licensee under the Electricity Act, the twin conditions need to be followed under Section 14 of the Act, i.e.,

(a) operating and maintaining a distribution system for the supply of electricity to consumers, and

(b) supplying electricity to consumers within their area of supply.

Since the Appellant's internal electricity network is merely for self-consumption, the Court noted it does not amount to supply of electricity to “consumers” within an “area of supply,” which is a mandatory requirement for qualifying as a distribution licensee.

The Court said that if the Indian Railways is allowed to procure the electricity for its internal operation without the payment of cross-subsidy charges and additional charges, then it would lead to a financial restraint on the actual distribution licensees.

“When high-volume, high-revenue consumers such as the Indian Railways choose to procure electricity through open-access, distribution licensees may be left with underutilised infrastructure and power purchase commitments, leading to financial strain.”, the court observed, adding that “the Cross-Subsidy Surcharge and the Additional Surcharge are critical for maintaining the financial health and operational capacity of the distribution sector, enabling it to invest in infrastructure upgrades, ensure reliable service, and continue to meet its obligations to all consumer categories.”

In view of the aforesaid, the court dismissed the appeal, and directed the Respondents to compute and issue a detailed calculation of the Cross-Subsidy Surcharge and Additional Surcharge amounts outstanding qua the Appellant, disaggregated by the area of supply and the period of availing such open access, for which appropriate time be granted to the Appellant furnish and respond to such outstanding amount at the discretion of the respective distribution licensees/companies, subject to the judicial scrutiny of the Appropriate Commission.

Cause Title: INDIAN RAILWAYS VERSUS WEST BENGAL STATE ELECTRICITY DISTRIBUTION COMPANY LIMITED & ORS. (with connected matter)

Citation : 2026 LiveLaw (SC) 476

Click here to download judgment

Appearance:

For Appellant(s) : Mr. Tushar Mehta, Solicitor General Ms. Aishwarya Bhati, A.S.G. Mr. S.D. Sanjay, A.S.G. Mr. M.G. Ramachandran, Sr. Adv. Mr. Pulkit Agarwal, Adv. Ms. Srishti Khindaria, Adv. Ms. Ritika Singhal, Adv. Ms. Poornima Singh, Adv. Mr. Nithin Pavaluri, Adv. Mr. Koney Rama Mohan Rao, Adv. Mr. Gaurang Bhushan, Adv. Mr. Madhav Sinhal, Adv. Mrs. Sansriti Pathak, Adv. Mrs. Bani Dikshit, Adv. Mr. Bhuvan Kapur, Adv. Mr. Siddharth V. Thakur, Adv. Mr. Amrish Kumar, AOR

For Respondent(s) :Mr. Maninder Singh, Sr. Adv. Mr. Prabhas Bajaj, AOR Mr. Rithvik Mathur, Adv. Mr. Priyanshu Tyagi, Adv. Mr. Harsh Chauhan, Adv. Ms. Priyanka Bhatt, Adv. Mr. Rishabh Yadav, Adv. Mr. Sajan Poovayya, Sr. Adv. Ms. Ishita Jain, AOR Mr. Anand Kumar Shrivastava, Adv. Mr. Shivam Sinha, Adv. Mr. Ravi Nair, Adv. Mr. Mudassir, Adv. Mr. Palash Maheshwari, Adv. Mr. Sindhura N Swamy, Adv. Mr. Parag Tripathi, Sr. Adv. Ms. Suparna Srivastava, Adv. Ms. Surbhi Gupta, Adv. Mr. Hitakshi Jain, Adv. Ms. Bhairavi, Adv. Mr. S. K. Verma, AOR Mr. G Umapathy, Sr. Adv. Mr. Aditya Singh-1, AOR Mr. Gaurav Khanna, Adv. Mr. Siddharth Mittal, AOR Mr. C.s. Vaidyanathan, Sr. Adv. Mr. Aniket Prasoon, Adv. Mr. Ronak Shankar Agarwal, Adv. Ms. Pratiksha Chaturvedi, Adv. Mr. Vinit Kumar, Adv. Mr. Adarsh Kumar Bhardwaj, Adv. Mr. Shubham Singh, Adv. Mr. Gaurav Agrawal, Sr. Adv. Mr. Ashok Kumar Tripathi, Adv. Mr. Sarthak Pathak, Adv. Mr. Umesh Kumar Shukla, Adv. Mr. Gajendra Singh Negi, Adv. Mrs. Srabani Mukherjee, Adv. Mr. Shekhar Banerjee, Adv. Mr. Md Shah Minhajuddin, Adv. Mr. Md Adil Khan, Adv. Mr. Subhro Prokas Mukherjee, AOR Mr. Shri Venkatesh, Adv. Ms. Kanika Chugh, Adv. Mr. Suhael Buttan, Adv. Mr. Shryeshth Ramesh Sharma, Adv. Ms. Priya Dhankhar, Adv. Mr. Vineet Kumar, Adv. Mr. Nikunj Bhatnagar, Adv. Mr. Nitin Saluja, AOR Mr. Anup Kumar, AOR Ms. Gauri Subramanium, Adv. Mrs. Shruti Singh, Adv. Mrs. Neha Jaiswal, Adv. Ms. Achint Priya, Adv. Ms. Arshi, Adv. Mr. Shivam Kumar, Adv. Mr. Jaideep Gupta, Sr. Adv. Mr. Sabarish Subramanian, AOR Mr. S. Vallinayagam, Adv. Mr. Veshal Tyagi, Adv. Mr. Riddhi Bose, Adv. Ms. Racheeta Chawla, Adv. Ms. Rishi Agarwal, Adv. Ms. Sampriti Baksi, Adv. Mr. Vishnu Unnikrishnan, Adv. Mr. Sanjay Sen, Sr. Adv. Mr. Arijit Maitra, Adv. Ms. Mandakini Ghosh, AOR Ms. Neha Dabral, Adv. Mr. Shivansh Baghel, Adv. Mr. Vikas Upadhyay, AOR Ms. Ankita Kashyap, Adv. Mr. Ranveer Singh, Adv. Mr. Shiva Narang, Adv. Ms. Sunieta Ojha, AOR Ms. Gargi Kumar, Adv. Mr. Anand K Ganesan, Adv. Mr. Nikunj Dayal, AOR Mr. Amal Nair, Adv. Ms. Devyani Prasad, Adv. Mr. Sandeep Kumar Mahapatra, Adv. Ms. Mrinmayee Sahu, AOR Mr. Sugam Kumar Jha, Adv. Mr. Sreedas Kp, Adv. Mr. Pitambar Acharya, Advocate General Ms. Sakshi Mittal, Adv. Mr. Srisatya Mohanty, AOR Mr. G. Umapathy, Sr. Adv. Mr. Rutwik Panda, AOR Ms. Nikhar Berry, Adv. Ms. Anshu Malik, Adv. Mr. Dhananjaya Mishra, AOR Mr. Vignesh Adithiya, Adv. Mr. V.M.Eashwar, Adv. Mr. Bharadwaj S., AOR Ms. Pratiti Rungta, Adv. Mr. Sumit Pragal, Adv. Mr. Prashant Singh, Adv. Mr. Shivankur Shukla, Adv. Ms. Amita Singh Kalkal, AOR Mr. Lokesh Sinhal, Sr. A.A.G. Mr. Shekhar Raj Sharma, A.A.G. Mr. Samar Vijay Singh, AOR Mr. Nikunj Gupta, Adv. Ms. Sabarni Som, Adv. Mr. Aman Dev Sharma, Adv. Mr. Sarthak Arya, Adv. Ms. Nidhi Narwal, Adv. Ms. Srishti Jain, Adv. Mr. Rahul Khurana, Adv. Mr. B. Chandra Sekaran, Adv. Mr. Amit Shrivastava, Adv. Mr. Dhruv Raman Singh, Adv. Mr. C.A. Sundaram, Sr. Adv. Mr. Sanjay Sen, Sr. Adv. Mr. Abhishek Kumar, Adv. Mr. Nived Veerapaneni, Adv. Ms. Shubham Mudgil, Adv. Ms. Mandakini Ghosh, Adv. Mr. Zafar Inayat, Adv. Ms. Rohini Musa, Adv. Mr. Abhishek Gupta, Adv. Mr. Rajat Gupta, Adv. M/s Trilegal Advocates on Record, AOR Mr. K. Parameshwar, Adv. Mr. Udit Gupta, Adv. Mr. Vyom Chaturvedi, Adv. Ms. Sneha Singh, Adv. Ms. Pragya Gupta, Adv. Ms. Veda Singh, Adv. Mr. Prasad Hegde, Adv. Mr. N. Sai Kaushal, Adv. M/S. Udit Kishan And Associates, AOR