Full Judgment Text
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PETITIONER:
BIHAR STATE ELECTRICITY BOARD, PATNA AND ORS
Vs.
RESPONDENT:
GREEN RUBBER INDUSTRIES AND ORS.
DATE OF JUDGMENT24/11/1989
BENCH:
SINGH, K.N. (J)
BENCH:
SINGH, K.N. (J)
FATHIMA BEEVI, M. (J)
CITATION:
1990 AIR 699 1989 SCR Supl. (2) 275
1990 SCC (1) 731 JT 1989 (4) 421
1989 SCALE (2)1196
CITATOR INFO :
F 1990 SC 706 (4,5)
ACT:
Electricity Supply Act 1948--Sections 5:7, 23 and
49’Consumer-Liability to pay minimum guaranteed
charges--Agreement-Validity of.
HEADNOTE:
The Respondent firm made an application to the appel-
lantElectricity Board for the supply of 60 KVA electricity
and the Board entered into an agreement with the
Respondent-firm in that behalf and gave electricity connec-
tion on 13.4.1981. Thereafter the Respondent-firm applied
for reduction of electricity from 60 KVA to 45 KVA and a
fresh agreement was executed on May 2, 1981 and fresh con-
nection of 45 KVA was given on 29.5.1981. It is respondent’s
case that it had requested the Electricity Board on
19.6.1981 to cut off the Electricity. The firm received
Bills for minimum guaranteed charges for four months i.e.
from June to September 1981. The firm refuted its liability
to pay the bill on the ground that it consumed no electrici-
ty during the aforesaid period of 4 months. Consequent upon
the firm’s failure to pay the Bill, the Board disconnected
the electricity connection on 28.9.1981. The firm ultimately
received a bill for Rs.22,951.50p for the period commencing
from June to August 1981. On the firm’s failure to pay the
Bill, the Board sent a requisition to the Certificate Offi-
cer who sent a notice to the firm on 6.7.1981. The Certifi-
cate Officer rejected the plea of the firm that it was not
liable to pay the Bill and proceeded to attach the property
of the firm. Being dissatisfied with the action, the re-
spondent firm filed a Writ Petition in the High Court for
quashing the bills as also the certificate proceedings.
The High Court took the view that the Board itself
having disconnected the connection, it was not entitled to
any charges for the period after September 1981 and it was
not open to the Board to contend that under clause 9 of the
agreement it was not open to either party to terminate the
agreement of minimum guaranteed charges before the expiry of
two years from the date of the agreement. The High Court
accordingly quashed, the bills as well as the certificate
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proceedings but allowed the charges for July, August and
September 1981 to be adjusted against the security money.
276
The Electricity Board has therefore filed this appeal
after obtaining Special Leave.
Allowing the appeal, this Court,
HELD: A supply.agreement to a consumer makes his rela-
tion with the Board mainly contractual, where the basis of
supply is held to be statutory rather than contractual. In
cases where such agreements are made, the terms are supposed
to have been negotiated between the consumer and the Board,
and unless specifically assigned, the agreement normally
would have affected the consumer with whom it is made.
[286D-E]
The agreement was reasonable and valid and it was not
determined with the disconnection of supply to the respond-
ent-firm. The liability to pay the minimum guaranteed
charges, therefore, continued till the determination of the
contract. The Board was therefore entitled to submit the
bills and make the demand on that account and recover the
same according to law. [285F-G]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 220 of
1987.
From the Judgment and Order dated 22.5.1986 of the Patna
High Court in Civil Writ Jurisdiction Case No. 19 15 of
1986.
Soli J. Sorabjee and Ranjit Kumar for the Appellants.
B .D. Sharma and S.K. Jain for the Respondents.
The Judgment of the Court was delivered by
K.N. SAIKIA, J. This appeal by special leave is from the
Judgment of the High Court of Judicature at Patna dated May
22, 1986 in Civil Writ Jurisdiction Case No. 19 15 of 1986
quashig the bills issued by the appellants demanding minimum
guaranteed charges from the respondents.
The appellants Bihar State Electricity Board, Patna,
hereinafter referred to .as ’the Board’, entered into an
agreement with the respondent--M/s. Green Rubber Industries,
a partnership firm, hereinafter referred to as ’the firm’,
on the latter’s application dated 26th July, 1978, for
supplying the electricity of 60 KVA and on 13.4. 1981 gave
electricity connection. The firm later applied that it
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may be given 45 KVA instead of 60 KVA and it deposited the
requisite sum of Rs.2700 and a fresh agreement was executed
on May 2, 1981. On May 29, 1981 the firm was given fresh
connection of 45KVA. According to the firm it requested the
Board on 19.6. 1981 to cut off the connection. The firm
received the bills for minimum guaranteed charges for the
months of June, July, August and September, 1981, though
according to it no electricity was consumed by it during
that period. According to the Board on failure to pay the
bills, the supply was disconnected on 28th September, 1981.
The firm ultimately received a demand notice in October,
1981 for the minimum guaranteed charges from June, 1981 to
August, 1981 amounting to Rs.22,95 1.50p. The firm having
not paid the amount, the Board sent a requisition to the
Certificate Officer who sent a notice to the firm on July 6,
1984. Rejecting the contention of the firm that it was not
liable to pay, the Certificate Officer proceeded to pass an
order for attachment of the firm’s property wherefore the
firm filed a writ petition in the High Court of Judicature
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at Patna under Article 226 and 227 of the Constitution of
India for quashing the bills as well as the certificate
proceedings.
Before the High Court the Board contended that the firm
was liable to pay the minimum guaranteed charges in terms of
the agreement, the disconnection itself having been in terms
thereof.
The High Court took the view that the Board itself
having effected the disconnection it was not entitled to any
charges for the period after September, 1981 and it was not
open to the Board to contend that under clause 9 of the
agreement it was not open to either party to terminate the
agreement of minimum guaranteed charges before the expiry of
two years from the date of the agreement. In that view of
the matter, the High Court quashed the bills as well as the
certificate proceedings, but allowed the charges for the
months of July, August and September, 1981 to be adjusted
against the security money.
Mr. Soli J. Sorabjee, the learned counsel for the appel-
lants, submits, inter alia, that the firm under the agree-
ment was liable to pay the minimum guaranteed charges irre-
spective of whether energy was consumed or not during the
period of the agreement and that disconnection of the supply
on failure of the firm to pay the energy bills would not
affect the obligation; and that the High Court fell into
error in holding that the Board itself having disconnected
the energy supply line it could not claim minimum guaranteed
charges thereafter.
278
None appears for the respondents despite notice in the
regular as well as substituted manner of service.
The question to be decided is whether despite the fact
that the supply line was disconnected on September 28, 1981,
the firm was still liable to pay the minimum guaranteed
charges under the agreement. The answer depends on the
agreement itself and the relevant provi- sions of law.
Clause 4 of the agreement says:
"The Consumer shall pay to the Board for
the energy so
supplied and registered or taken to have
been supplied as
aforesaid at the appropriate rates
applicable to the Con-
sumer according to the tariffs framed by
the Board and
enforced from time to time, the present-
ly enforced tariffs
being indicated in the Schedule to this
agreement for easy
reference. Such reference is subject to
provisions of clause 15 appearing here-
inafter.
Provided that notwithstanding any-
thing said above but subject to the provisions
of clause 13 hereinafter, the Consumer shall
have to pay minimum charges as specified in
the above said tariffs framed by the Board and
enforced from time to time irrespective of
whether energy to that extent has been con-
sumed or not. (Such minimum charges are re-
ferred to as "the minimum guaranteed charges"
in other places in this agreement.)
That part of minimum guaranteed
charges as is not billed monthly, the assess-
ment for the same will be generally made at
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the end of the year commencing from the 1st
April, and ending with the 31st March of the
following year which is the financial year of
the Board. In case any agreement is entered
into in between this period the above said
part of the minimum guaranteed charges will be
proportionate to the period for which the
Consumer is connected. Any bill on account of
the minimum guaranteed consumption for the
year or part thereof will be submitted by the
end of June in each year."
From a perusal of the above clause it would be clear that
the minimum guaranteed charges would be payable by the
consumer irrespective of whether energy to that extent has
been consumed or not. Indeed, there would be no need for
such a provision if the charges were to
279
depend only on the energy actually consumed.
Clause 5 of the agreement is to the following
effect:
"(a) Readings of meter shall be taken by the
Board once in each month or such other inter-
vals or times as the Board shall deem expedi-
ent and the Board’s meter reader shall have
access to the consumer’s premises at all
reasonable time for the purpose of taking such
readings. The Board shall within reasonable
time deliver to the Consumer the bill for
energy consumed during the month in accordance
with the readings of the meters and subject to
the minimum guaranteed charges. The consumer
shall pay the amount under the bill so deliv-
ered within the due date specified therein as
per terms of the tariffs framed by the Board
and enforced from time to time.
(b) If the consumer fails to pay the amount of
any bill due under this agreement within the
due date specified in the bill referred to in
clause 5(a) above, he shall pay a surcharge at
the rate given in the tariffs framed by the
Board and enforced from time to time. If the
amount of such a bill remains unpaid after the
due date specified in the bill, the Board may
discontinue the supply after giving the Con-
sumer not less than 7 clear days’ notice. The
service will be reconnected only on receipt of
full payment for all obligations outstanding
up to the date of reconnection and charges for
the work of disconnection and reconnection of
service. ’ ’
On a perusal of this clause there arises no doubt that if
the amount of a bill submitted according to law remains
unpaid after the due date specified in the bill, the Board
may discontinue the supply after giving the consumer not
less than 7 clear days’ notice. There is no dispute about
notice in this case.
Clauses 8 and 9 of the agreement deal with its duration
and termination. Clause 8 of the agreement says:
"The agreement shall be ordinarily enforced
for a period of not less than two years in the
first instance (except in exceptional cases in
which written consent of the Board will
280
be taken) from the date of commencement of
supply, i.e. .......... and thereafter shall
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continue from year to year until the agreement
is determined as hereinafter provided.
Note: In case where the date of commence-
ment of supply is a date subsequent to that of
the execution of this agreement, the Board is
given power to fill in the date in the blank
space. provided for the same in this clause
with prior intimation to the Consumer. The
Consumer can produce his copy of the agreement
to have such date filled in by the Board."
Clause 9 Provides:
"(a) The consumers shall not be at liberty to
determine this agreement before the expiration
of two years from the date of commencement of
supply of energy. The consumer may determine
this agreement with effect from any date after
the said period of giving to the Board not
less than one calendar month’s previous notice
in writing in that behalf and upon the expira-
tion of the period of such notice this agree-
ment shall cease and determine without preju-
dice to any right which may then have accrued
to the Board hereunder, provided always that
the consumer may at any time with the previous
consent of the Board transfer or assign this
agreement to any other person and upon sub-
scription of such transfer this agreement
shall be binding on the transferee and the
Board and take effect in all respects as if
the transferee had originally been a party
hereto in place of the consumer who shall
henceforth be discharged from all liability
under or in respect thereof.
(b) In case the consumer’s supply is discon-
nected by the Board in exercise of its powers
under this agreement and/ or law and consumer
does not apply for reconnection in accordance
with law within the remainder period of the
above given compulsorily availing of supply or
that of notice whichever be longer, he will be
deemed to have given a notice on the date of
disconnection in terms of the aforesaid clause
9(a) for the determination of the agreement
and on expiry of the above said remainder
period of compulsorily availing of supply or
notice whichever is longer, this agreement
shall cease and determine in the same way as
above."
281
Thus it is seen that the consumer cannot determine the
agreement before expiry of two years and there is nothing to
show in this case that he did so after expiry thereof with
previous notice. In fact the supply was disconnected by the
Board for default. What would be its effect on the agree-
ment?
It is seen that in case of disconnection of the supply
by the Board in exercise of its powers under the agreement
it would be open for the consumer to apply for reconnection
in accordance with the law within the remainder period of
the above given compulsorily availing of supply or that of
notice whichever is longer, he will be deemed to have given
a notice on the date of disconnection in terms of aforesaid
clause 9(a) for determination of the agreement and on expiry
of the remainder period of compulsorily availing of supply
or notice, whichever is longer, the agreement shall cease
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and determine. It is therefore clear that in the instant
case the disconnection on the default of the cosumer having’
been effected on 28.9.1981 and the consumer having not
applied for reconnection, it would be deemed to have given a
notice on the date of disconnection in terms of clause 9(a)
for the determination of the agreement and the agreement
must be taken to have ceased and determined either at the
end of the notice or at the end of the period of compulsori-
ly availing of supply i.e. two years of the agreement which-
ever was longer. The (fresh) agreement having been executed
on May 4, 1981 it would expire on May 1, 1983. The discon-
nection having been effected on September 28, 1981 the
period of deemed notice of seven days expired before the
period of compulsorily availing of supply under the agree-
ment expired and hence the agreement must be deemed to have
determined only on May 1, 1983. During this period the
consumer’s liability to pay the minimum guaranteed charges
must be held to have continued.
Mr. Soli J. Sorabjee submits, and we think rightly, that
the High Court overlooked this important stipulation in the
agreement which was binding on both the parties. However, as
the respondents are not before us, it is necessary to con-
sider the reasonability of the stipulation as to minimum
guaranteed charges as argued by the learned counsel for the
appellant Board. Was there any power of the Board to enter
into the agreement? If so, to what extent?
The Indian Electricity Act, 1910, hereinafter called
’the Act’. provides the law relating to the supply and use
of electrical energy. As defined in s. 2(11) of the Act
"State Electricity Board" in relation to any State means the
State Electricity Board, if any consituted for the
282
State under section 5 of the Electricity (Supply) Act, 1948
(54 of 1948) and includes any Board which functions in that
State under sections 6 and 7 of the said Act. The
appellant--the Bihar State Electricity Board is a Board. As
defined in section 2(h) "licensee" means any person licensed
under Part II to supply energy. The appellant Board is such
a licensee under this provision. As defined in section 2(c)
"consumer" means any person who is supplied with energy by a
licensee or the Government or by any other person engaged in
the business of supplying energy to the public under this
Act or any other law for the time being in force, and in-
cludes any person whose premises are for the time being
connected for the purpose of receiving energy with the works
of a licensee, the Government or such other person, as the
case may be. There is no doubt that the respondent was
consumer.
The Electricity (Supply) Act, 1948, hereinafter called
the ’Supply Act’, is an Act to provide for the realisation
of the production and supply of electricity, and generally
for taking measures conducive to electrical development and
for all matters incidental thereto.
Under sub-section (1) of section 23 of the Act, a licen-
see shall not, in making any agreement for the supply of
energy, show any undue preference to any person. Thus, this
section envisages making of an agreement by the licensee
with the consumer for the supply of energy. The instant
agreement has, therefore, to be held as one envisaged by
this provision. Was the stipulation to pay minimum guaran-
teed charges, irrespective of whether energy was consumed or
not, reasonable and valid? What is the consideration when
less or no energy is consumed?
Section 49 of the Supply Act makes provision for the
sale of electricity by the Board to persons other than
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licensees. Under subsection (1), subject to the provisions
of the Supply Act and the Regulations, if any, made in this
behalf, the Board may supply electricity to any person not
being a licensee upon such terms and conditions as the Board
thinks fit and may for the purpose of such supply frame
uniform tariff. Under sub-section (2) thereof nothing m
sub-sections (1) and (2) shall derogate from the power of
the Board if it considers it necessary or expedient to fix
different tariffs for the supply of electricity to any
person not being a licensee, having regard to the geographi-
cal position of any area, the nature of the supply and
purpose for which supply is required and any other relevant
factors. Sub-section (2) enumerates the factors to be consi-
derd by the Board in fixing the uniform tariffs.
283
It is seen that the rule of charging minimum guaranteed
charges has been in vogue since long. In the London Electric
Supply Corporation (Limited) v. Priddis, 18 TLR 64, the
agreement between the appellant company and the consumer to
supply electricity in clause 4 provided that the "consumer
shall have the option at or after the expiration of five
years from the date of installation" of purchasing the
installation at a price. CI. 7 said: "The consumer shall
until purchase as aforesaid pay quarterly to the supply
company for the use of the installation 3/4d. per Board of
Trade Unit for every unit of electrical energy supplied to
the said premises and the minimum payment in any year shall
be Is. for each eight-candle power lamp or its equivalent
installed." During the period from Mid-summer to Michaelmas,
1900, the defendant did not use any electricity supplied by
the plaintiff, and the question was whether under the agree-
ment the defendant was bound to pay the minimum payment
provided for by cl. 7, even though in fact he had used none
of the plaintiff’s electricity during the quarter. The Lord
Chief Justice in giving judgment said that "it was suffi-
ciently clear that the installation was put in on the terms
that the customer should have the right to purchase the
installation after five years, and during that five years
the customer should be liable to pay minimum rent whether
the current was de facto used or not. The minimum rent had
no reference to the amount of current used, and it was,
therefore, clear that the mere fact that the defendant had
not taken any current or a small current did not affect the
case." Channel. J. concurring said that the "meaning of the
clause was that the minimum rent did not merely cover the
actual use but the right to use the current. The customer
had to pay for the right to use the current, although he did
not in fact use it."
In Saila Bala v. Darjeeling Municipality, AIR 1936
Calcutta 265, it was held by a learned single Judge that the
minimum charge was not really a charge which had for its
basis the consumption of electric energy. It was really
based on the principle that every consumer’s installation
involved the licensee in certain amount of capital expendi-
ture in plant and mains on which he was to have a reasonable
return. He could get a return when the energy was actually
consumed, in the shape of payments of energy consumed. When
no such energy was consumed by the consumer, or a very small
amount was consumed in a longer period, the licensee was
allowed to charge minimum charges by his licence, but those
minimum charges were really interest on his capital outlay
incurred for the particular consumer.
Natesan, J. in Natesa Chettiar v. The Madras State Electric-
ity
284
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Board, [1969] 1 Madras L.J. 69, answering the question
whether the provision for the minimum guarantee was just a
stipulation by way of penalty or pre-determined damages for
breach on the part of the consumer or something else, held
the view that the minimum fixed was only consideration for
keeping the energy available to the consumer at his end; it
was not a penalty for not consuming a stated quantity of
energy but was a concession shown up to the amount fixed,
energy at a specified rates could be consumed free, consump-
tion beyond only had to be paid for. The statutory basis for
the terms in the agreement providing for minimum annual
charge was found in section 22 of the Act and section 48 of
the Supply Act. Section 22 deals with obligation on licensee
to supply energy. The proviso to the section says:
"No person shall be entitled to demand, or to
continue to receive, from a licensee a supply
of energy for any premises having a separate
supply unless he has agreed with the licensee
to pay to him such minimum annual sum as will
give him a reasonable return on the capital
expenditure, and will cover other standing
charges incurred by him in order to meet the
possible maximum demand for those premises,
the sum payable to be determined in case of
difference or dispute by arbitration."
Section 48 of the Supply Act empowers the licensee to carry
out arrangement under that Act.
In Watkins Mayor & Co. v. Jullundhur Electric Supply
Co., AIR 1955 Punj. 133 (136), it was observed that the
whole scheme of the Act seems to show that the provision
made in any contract for a minimum charge was really to
provide for a fair return on the outlay of the licensee, and
it was for this reason that the law allowed the contract of
this kind to be entered into. Clause XI A of the schedule to
the Act, as it then stood, provided:
"A licensee may charge a consumer a minimum
charge for energy of such amount and determine
in such manner as may be specified by his
licence, and such minimum charge shall be
payable notwithstanding that no energy has
been used by the consumer during the period
for which such minimum charge is made."
The Court accordingly held that there was nothing illegal in
the insertion of the term for payment of a minimum charge in
the agreement for
285
supply of energy and held that it had not been made out that
it was an unreasonable levy.
A Division Bench of Allahabad High Court, in Hari Shan-
kar & Ors. v. U.P. State Electricity Board & Anr., AIR 1974
Allahabad 70, held that when the electrical supply was being
made on the footing that the consumer would pay the minimum
guaranteed charges that charge was one of the terms and
conditions for supply and fixation of that would be included
in the fixation rates ;or the supply of electricity. Simi-
larly in M/s. Bhagwan Industries Pvt. Ltd. Lucknow v. U.P.
State Electricity Board, Lucknow, AIR 1979 Allahabad 249, a
Division Bench held that an agreement for supply of elec-
tricity with the Board empowered it to revise the rates and
that imposition of minimum consumption guarantee charge
imposed by new tariff schedule under section 49 of the
Supply Act was valid. A Division Bench of the Andhra Pradesh
High Court in Md. Abdul,Gaffar v. Andhra Pradesh Electricity
Board, [1975] 1 APLJ 119, also held that fixation of monthly
minimum charges based on connected load and revisional rates
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for electrical consumption by non-domestic consumers in
accordance with the factors in section 49(2) was neither
ultra vires nor arbitrary.
The High Court in the case at hand relied on Rajeshwar
Singh v. State of Bihar, AIR 1983 Patna 194, wherein it was
held that when the disconnection of electric energy was
effected by the Board then it could not ask for the minimum
guaranteed charges. That decision must be confined to the
facts of that case only.
It is true that the agreement is in a standard form of
contract. The standard clauses of this contract have been
settled over the years and have been widely adopted because
experience shows that they facilitate the supply of electric
energy. Lord Diplock has observed: "If fairness or reasona-
bleness were relevant to their enforceability the fact that
they are widely used by parties whose bargaining power is
fairly matched would raise a strong presumption that their
terms are fair and reasonable." Schroder Music Co. Ltd. v.
Macaulay, [1974] 3 All ER 6 16 (624). In such contracts a
standard form enables the supplier to say: "If you want
these goods or services at all, these are the only terms on
which they are available. Take it or leave it." It is a type
of contract on which the conditions are fixed by one of the
parties in advance and are open to acceptance by anyone. The
contract, which frequently contains many conditions is
presented for acceptance and is not open to discussion. It
is settled law that a person who signs a
286
document which contains contractual terms is normally bound
by them even though he has not read them, even though he is
ignorant of the precise legal effect. In view of clause 4
having formed one of the stipulations in the contract along
with others it cannot be said to be nudurn pactum and the
maxim nudum pactum ex quo non oritur actio does not apply.
Considered by the test of reasonableness it cannot be said
to be unreasonable inasmuch as the supply of electricity to
a consumer involves incurring of overhead installation
expenses by the Board which do not vary with the quantity of
electricity consumed and the installation has to be contin-
ued irrespective of whether the energy is consumed or not
until the agreement comes to an end. Every contract is to be
considered with reference to its object and the whole of its
terms and accordingly the whole context must be considered
in endeavouring to collect the intention of the parties,
even though the immediate object of enquiry is the meaning
of an isolated clause. This agreement with the stipulation
of minimum guaranteed charges cannot be held to be ultra
vires on the ground that it is incompatible with the statu-
tory duty. Differences between this contractual element and
the statutory duty have to be observed. A supply agreement
to a consumer makes his relation with the Board mainly
contractual, where the basis of supply is held to be statu-
tory rather than contractual. In cases where such agreements
are made the terms are supposed to have been negotiated
between the consumer and the Board, and unless specifically
assigned, the agreement normally would have affected the
consumer with whom it is made, as was held in Northern
Ontario Power Co. Ltd. v. La Roche Mines Ltd., [1938] 3 All
ER 755.
For the foregoing reasons we have no hesitation in
holding that the agreement was reasonable and valid and it
was not determined with the disconnection of supply to the
respondent firm by the Board on 28th September, 1981 but
only accordingly to the stipulations in clause 9(b) of the
agreement as discussed above. The liability to pay the
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minimum guaranteed charges, therefore, continued till the
determination of the contract. The Board was, therefore,
entitled to submit the bills and make the demand on that
account, and recover the same according to law.
In the result, the impugned judgment is set aside and
the appeal is allowed. No order as to costs.
Y. Lal Appeal al-
lowed.
287