Full Judgment Text
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PETITIONER:
MAHARASHTRA STATE ELECTRICITY BOARD
Vs.
RESPONDENT:
KALYAN BOROUGH MUNICIPALITY & ANR.
DATE OF JUDGMENT:
08/02/1968
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
WANCHOO, K.N. (CJ)
SIKRI, S.M.
SHELAT, J.M.
BHARGAVA, VISHISHTHA
CITATION:
1968 AIR 991 1968 SCR (3) 137
CITATOR INFO :
R 1975 SC1967 (18)
R 1984 SC 657 (7)
R 1985 SC 883 (9)
RF 1986 SC1126 (23,25,29)
RF 1988 SC 985 (8)
ACT:
Electricity (Supply) Act 54 of 1948; s. 49 as amended by the
Electricity (Supply) Amendment Act 30 of 1966, s. 24--Power
of Electricity Board to levy uniform tariffs for different
consumers--Validity of s. 49--Whether colourable exercise of
taxing power--Whether gives unguided power to Board--Effect
of s. 24 of Amendment Act.
HEADNOTE:
The appellant the Maharashtra State Electricity Board which
took over the supply of electrical energy from the original
lincensee, increased the tariff and fixed a uniform tariff
for all its consumers. The respondents consumers filed
petitions under Art. 226 of the Constitution, contending
that (a) s. 49 of the Electricity (supply) Act 1948 did not
permit the Board to frame uniform tariffs for consumers in
compact areas as well as consumers in sparse areas, so as to
require the former to pay a part of the cost involved in the
supply of electricity to the latter; and (b) if s. 49 gave
such power to the Board it; was ultra vires and void, as it
offended the provisions of the Constitution. The High Court
allowed the writ petitions. The Board filed appeals to this
Court and during its pendency s. 49 was amended
retrospectively by the Electricity (Supply) Amendment Act
1966 and by s. 24 of the Amendment Act the imposition and
collection of charges under s. 49 was validated.
HELD: The appeals must be allowed.
(i) The appellate-Board had ample powers to frame uniform
tariffs and the levy was valid.
In the old s. 49 there was no such policy or direction
indicated by the Legislature that the Board is to frame
uniform tariffs. Under that section, the Board had the
power to supply electricity on such terms and conditions as
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it may from time to time fix, having regard to the matters
referred to in the said section. The only restriction upon
the Board’s power was that it shall not show undue
preference to any person in fixing any such terms and
conditions. In s. 49 as it now stands the Legislature has
empowered the Board to frame uniform tariffs and it has also
indicated the factors to be taken into account in fixing
uniform tariffs. These two aspects are contained in ’sub-
ss. (1) and (2). The Legislature has also made it clear in
sub-s. (3) that the Board in the special circumstances
mentioned therein, has got power to fix different tariffs
for the supply of electricity. Sub-section (4) directs the
Board not to show undue preference to any person for fixing
the tariffs and the terms and conditions for the supply of
electricity. Though prima facie it would appear that sub-s.
(4) will govern sub-ss. (1) to (3) in s. 49 the proper way
to interpret sub-s. (4) will be to read it along with sub-s.
(7). When the entire tariff is uniform for every consumer,
there is no question of any undue preference as every
customer will pay the same amount for the same benefit
received by him. [153 CE]
South of Scotland Electricity Board & Ors. v. British Oxygen
Co. Ltd. [1959] 2 All E.R. 225 and Attorney-General for
Victoria v. Mayor, Aldermen, Councillors and Citizens of
Melbourne, [1907] A.C. 469, referred to.
Sup.CI./68-10
138
(ii) In the counter-affidavit filed on behalf of the Board,
it has been stated that ever since its constitution, it has
been carrying on its operations at a loss and there has been
no occassion when any part of its revenues has been passed
to the consolidated fund of the State, as provided by the
proviso to sub-cl. (b) of cl. 10 of s. 67. Even otherwise,
before the proviso can come into operation, there are
several other items in respect of which adjustments will
have to be made, and there will be no occasion at all for
the proviso to come into effect. There is no force in the
contention of the respondents that with a view to give
effect to the proviso the Board will so fix the tariffs as
to enable them to have huge surplus, after meeting the
various adjustments. In case such a thing happens in
future. the proviso, which is clearly severable, may have to
be struck down. Therefore, this ground of attack, that
there is a colourable exercise of taxing power, cannot be
accepted. [154 H-155 C]
(iii) Section 49 is not, in any way, bad on the ground that
it gives an unguided and arbitrary power to the Board to fix
its tariffs as it likes. The provisions of the Act have the
effect of properly guiding the activities of the Board, in
its dealings with the consumers including the levy of
tariffs. Section 49 itself is hedged in by various
restrictions and directions which the Board will have lo
comply in the matter of framing uniform tariffs or in the
matter of fixing different tariffs, and that section also
provides a proper guide-line for framing uniform tariffs and
different tariffs. Therefore, in particular, it may be
noted that the extension and cheapening of supplies of
electricity to sparsely developed areas under cl. (d) of s.
49(2) of the Act can only be complied With by keeping the
uniform rate at a minimum, consistently with the requirement
of s. 59, of not running at a loss. [156 B-D]
(iv) The contention, that while restrictions have been
placed on the licensees no such restriction has been placed
on the Board in as much as that the licensee shall so adjust
his charges for the sale of electricity, whether by
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enhancing or reducing them that his clear profit in any year
of account shall not, as far as possible, exceed an amount
of reasonable return, has no substance. The licensees are
persons who must have invested considerable capital in the
matter of their business. and obviously, the Legislature
thought that some directions will have to be given so as to
enable them to have a reasonable return. [156 E-G]
(v) Section 24 of the Amendment Act, deals with all rates,
as a matter of fact fixed under s. 49 of the Act. In this
case, the Board has fixed tariffs under s. 49 of the Act.
Therefore, s. 24 of the Amendment Act has full effect and
force. [157 B]
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 3 3 5 and
336 of 1967.
Appeals from the judgment and order dated April 26, 27 and
28, 1965 of the Bombay High Court in Special Civil
Applications Nos. 1570 and 1571 of 1962.
L. M. Singhvi, B. Dutta and Ravinder Narain, for the appel-
lant (in both the appeals).
Poras A. Mehta, G. L. Sanghi, R. A. Gagrat and B. R. Agar-
wala, for the respondents (in both the appeals).
V. A. Seyid Muhammad and S. P. Nayar, for intervener No. 1
(in both the appeals).
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A. K. Sen and B. R. Agarwala, for intervener No. 2 (in both
the appeals).
The Judgment of the Court was delivered by
Vaidialingam, J. These two appeals, by certificate, are
directed against the common judgment of the Bombay High
Court, rendered in Special Civil Applications, Nos. 1570 &
157 of 1962.
The circumstances, under which the two writ petitions were
filed, by the respondent, in each of these two appeals, may
be briefly stated. Till January 14, 1959, a company called
the Kalyan Electricity Company (Private) Ltd., held a
licence for supplying electrical energy to the town of
Kalyan and the surrounding areas. The licence of the said
company was revoked by the Government of Maharashtra, and,
on option being given to purchase the undertaking of the
said company, the appellant purchased the same, on January
15, 1959. The appellant, hereinafter to be referred to as
the Board, continued to supply electrical energy to the
residents of according to the rates prescribed by the former
Kalyan licensee, pending notification of its standard rates
of supply. In March 1962, a public notice was given by the
Board, to the effect that in the Western Maharashtra area
(which includes Kalyan) revised tariff would be applicable
from the first day of the month next following the month in
which supply of Koyna power became available. As the
electrical energy from the Koyna Project became available
from the month of June 1962, the Board caused another public
notice to be issued, informing the public that the Board’s
revised tariffs would come into force from July 1962, and
that bills, in respect of the power consumption, during that
month, would be issued at the revised tariffs, in August
1962.
The Kalyan Borough Municipality, which is the respondent,,
in Civil Appeal No. 335 of 1967, was being supplied by the
appellant, electrical energy for street lighting, till June
1962, on the same terms on which the old Kalyan licensee was
supplying. The Board submitted a draft of the new agreement
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to the said Municipality, in respect of the supply of
electrical energy for street lighting, under which the
charge which the Municipality had to pay, per unit of
electricity, was slightly less than before, but the
Municipality was required to pay several fixed charges,with
the result that the total amount payable was greater than
before. The Municipality, however, intimated its desire to
enter into the new agreement, only for a period of one year,
instead of seven years, as suggested by the Board. The
Board was not prepared to accede to this request, of the
Municipality, and, on the latter’s failure to pay bills for
street lighting, according to the
140
draft agreement, an intimation was sent, by the appellant,
on October 12, 1962, that the supply of electricity, for
street lighting, would be cut off, from October 22, 1962.
The Municipality filed a writ petition, under Art. 226,
being Special Civil Application No. 1570 of 1962, in the
High Court, against the Board, seeking a writ of mandamus,
prohibiting the appellant from enforcing the directions,
contained in its notice, dated October 12, 1962.
One Dattatraya Pandurang Pimpale and other consumers of
electricity formed an ’association called ’Kalyan-Dombivali-
Vij Grahak Mandal’, to protest against the steps taken, by
the appellant, to levy increased charges, for the supply of
electrical energy. As the request of the Association, for
not, increasing the charges, was not heeded to, by the
appellant, which threatened to stop supply of electricity to
consumers, if the bins were not paid, according to the
revised tariffs, the said Dattatraya filed, in the High
Court, a writ petition, under Art. 226, being Special Civil
Application No. 1571 of 1962, seeking directions to restrain
the Board from disconnecting supply of electrical energy.
In both these writ petitions, the action of the Board, in
increasing the tariffs, over and above the rate which was
charged by the original Kalyan licensee, and fixing a
uniform tariff, was challenged. Two contentions appear to
have been raised, in the wtit petitions, before the High
Court, viz., (a) that s. 49, of the Electricity (Supply)
Act, 1948 (Act LIV of 1948) (hereinafter referred to as the
Supply Act), did not permit the Board to frame uniform
tariffs for consumers in compact areas as well as consumers
in sparse areas, so as to require the former to pay a part
of the cost involved in the supply of electricity to the
latter; and (b) that, if s. 49 gave such power to the
Board, it was ultra vires and void, as it offended the
provisions of the Constitution.
The Board, by reference to the scheme and the provisions of
the Supply Act, contended that the levy of a uniform tariff
was valid and within its power and that s. 49 did not offend
any provisions of the Constitution. At this stage, it may
be mentioned that the High Court considered the contentions
of the parties, on the basis of s. 49, as it was, prior to
the amendment of the Supply Act in 1966. Before the High
Court, it appears to have been common ground that
distribution costs involved in the supply of electricity,
per unit of consumption, to sparse areas. was higher than
the distribution costs, involved in the supply of
electricity, per unit of consumption, to compact areas. The
High Court has taken the view that one of the factors which
the Board has to take into account, under s. 49, in framing
its tariffs, is the location, where the consumer wants
electrical energy to be sup-
141
plied to, him, and that this implies that, if on a
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consideration of this factor, the Board finds that the cost
of supply of electricity to different areas, are widely
divergent, different tariffs could be framed, in respect of
such areas. On this line of reasoning, the learned Judges
of the High Court, came to the conclusion that, in framing
the impugned tariffs, the Board did not have due regard to
the provisions, contained in s. 49, and therefore, the Board
was not entitled to enforce the demand, made by it. The
learned Judges also seem to have been impressed with the
objections, raised by the respondents, that the Board had
assumed that s. 49 permitted it to frame its tariffs, in
such a way that a part of the higher cost, involved in the
supply of electrical energy, to undeveloped areas, may be
borne, by consumers, in compact areas. As the High Court
accepted the contention of the respondents, that the Board
had no power to fix uniform tariffs, so as to cast a higher
burden, on the consumers, in a compact area, where the cost
of supply was less, it did not express any opinion, regard-
ing the constitutional validity of s. 49, though, there
again, the High Court appears to have been inclined to hold
that unguided and unfettered power had been given, to the
Board, to fix its charges as high as it liked. Ultimately,
the High Court allowed the writ petitions and prohibited the
appellant, from enforcing its claim. to recover the revised
tariff, and disconnecting electric supply. Civil Appeal No.
335 of 1967 is against the order in Special Civil
Application No. 1570 of 1962, in which the respondent is the
Kalyan Borough Municipality; and, Civil Appeal No. 336 of
1967 is against the order-in Special Civil Application No.
1571 of 1962, in which the respondent is Dattatraya
Pandurang Pimpale.
During the pendency of the above appeals, Parliament enacted
the Electricity (Supply) Amendment Act, 1966 (Act XXX of
1966) (hereinafter called the Amendment Act), by which the
Supply Act was amended, in various particulars. It is only
necessary to refer to two sections of the Amendment Act,
viz., ss. 11 and 24. Section 11, substituted, with
retrospective effect new s. 49, in the place of old s. 49.
The new s. 49, runs as follows
"49. Provision for the sale of electricity by
the Board to persons other than licensees.-
(1) Subject to the provisions of this Act and
of 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 purposes of such supply frame uniform
tariffs.
142
(2) In fixing the uniform tariffs, the Board
shall have regard to all or any of the
following factors, namely : -
(a) the nature of the supply and the purposes
for which it is required;
(b) the coordinated development of the supply
and distribution of electricity within the
State in the most efficient and e
conomical
manner, with particular reference to such
development in areas not for the time ,being
served or adequately served by the licensee;
(c) the simplification and standardisation of
methods and rates of charges for such sup-
plies;
(d) the extension and cheapening of supplies
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of electricity to sparsely developed areas.
(3) Nothing in the foregoing provisions of
this section 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 geographical
position of any area, the nature of the supply
and purpose for which supply is required and
any other relevant factors.
(4) In fixing the tariff and terms and
conditions for the supply of electricity, the
Board shall not show undue preference to any
person."
Section 24, of the Amendment Act, validating the imposition
and, collection of charges for the supply of electricity,
under s. 49, is, as follows
"(1) Notwithstanding any judgment, decree or order of any
Court, all rates fixed under section 49 of the Electricity
(Supply) Act, 1948, for the sale of electricity to any
person, other than a licensee before the commencement of
this Act shall be deemed to have been validly fixed as if
the provisions of the said section, as amended by this Act,
had been in force at all material times when such rates were
fixed and accordingly,-
(a) no suit or other proceeding shall be maintained or
continued in any Court for the refund of any
143
amount collected from any person on the basis
of such rates;
(b) no Court shall enforce a decree or order
directing the refund of any amount collected
from such person on the basis of such rates.,
(c) any amount due from any person on the
basis of such rates before the commencement of
this Act but not recovered before such
commencement may be recovered in the manner
provided under the Electricity (Supply) Act,
1948.
(2) For the removal of doubts, it is hereby
declared that nothing contained in sub-section
(1) shall be construed as preventing any
person from claiming refund of any amount paid
by him in excess of the amount due
from him
under the said Act, as amended by this Act and
the rules or regulations made thereunder."
In view of the Amendment Act, this Court permitted the
parties to file affidavits, stating their case, with respect
to the amended section 49, and gave an opportunity to them,
to raise their respective contentions. The respondents have
raised the contention that s. 24, of the Amendment Act, on a
proper interpretation, does not validate the impugned rates
of electricity supply, imposed on them, by the appellant.
According to them, on a proper interpretation of s. 49, as
amended, the Board is not empowered to fix uniform tariffs,
in such a way that a great part of the higher costs involved
in the supply of electricity to sparse areas, is to be borne
by consumers in developed or compact areas. It is their
further contention that, under the amended section, uniform
tariffs can, if at all, be levied by the Board, with parti-
cular reference to the development in areas which are not,
for the time being served at all, or adequately served, and
it does not authorise the appellant to secure development of
electricity in the sparse areas, at the cost of the
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consumers in areas which are already developed and
adequately served, and hence the levy of the tariffs at the
amended rate, is unauthorised and illegal. The respondents
further contend that levy of uniform tariffs, as con-
templated by s. 49(2), as amended, can be done only when the
Board fixes uniform tariffs, for the whole State of
Maharashtra. In this connection. they point out, that the
appellant has not fixed uniform tariffs for the entire State
of Maharashtra, but, on the other hand, has fixed different
tariffs, for different areas, for supply of electricity. As
an instance of the Board itself levying different rates in
different areas, the respondents have referred to the case
of Poona City, which was formerly served by the
144
Poona Electricity Supply Company Ltd. In Poona City, the
respondents point out, the Board has fixed a lower rate of
tariff., viz., 13 paise per unit of electricity, whereas it
has fixed 31 paisa per unit in’ other areas, including the
Kalyan Municipality area. It is the claim of the
respondents that the appellant should have fixed tariffs for
the Kalyan Municipality area also, in the same manner as it
has done for the Poona City area. The Board according to
them, is not entitled to charge higher rate from consumers
in the Kalyan Municipality area, in order to give cheaper
supplies to other areas, in the western region. It is their
further contention, that, under s. 49(2), as amended, the
appellant may charge lesser rate, than the cost of supply
for the sparsely developed areas, but, in no case is it
entitled to charge the compact areas, rates higher than
warranted by the cost of supply to such areas. They point
out that by charging consumers in compact areas more than
the cost of supply, the Board has shown undue preference.
The consumers, in the compact areas, are being made to pay
more than what is due by them, i.e., more than the cost of
supply, in order to charge less from consumers in
undeveloped areas, i.e., less than what is due by them, and
this offends sub-s. (4) of S. 49.
The, respondents also contend that if S. 49, as amended, em-
powers the Board to levy and collect, at the rate of the
revised tariff, s. 49 is unconstitutional and void. They
point out that by the Board charging consumers in compact
areas more than what is due by them, i.e., more than the
cost of supply, it was, in effect, taxing a class of
consumers, which it had no power or authority to do, under
the Supply Act, as amended. No maximum limit has been
fixed, under the Supply Act, beyond which the Board cannot
charge, for electricity supplied by it. They also point out
that the consumers, to whom electricity is supplied by the
Board, are treated differentially from the consumers who are
supplied electricity, by licensees. In respect of the
latter class, they point out, that the Supply Art has placed
several restrictions, regarding the manner in which the rate
has to be fixed, whereas there is no such restriction,
placed on the powers of the Board. This amounts to
discrimination, resulting in Art. 14, of the Constitution,
being violated. On these grounds, both the respondents urge
that the levy of uniform tariff, by the Board, is illegal
and void.
The appellant Board has controverted the stand, taken by the
respondents. According to it, the levy and collection at
the revised uniform tariff, is perfectly legal and valid,
and s. 24, of the Amendment Act, in any event, has validated
such. levy. The appellant points out that the fixing of
uniform tariff
145
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is authorised by s. 49, as amended; and such uniform rates
are fixed, not with the intention of making the developed
areas bear the incidence of higher costs of supply_to
undeveloped areas, but really with a view to achieve the co
ordinated development of generation, distribution and supply
of electrical energy, in the most efficient and economical
manner, as required by the Supply Act. According to the
Board, it is not necessary to fix one single uniform tariff
for the, whole State of Maharashtra, and that, on the other
hand, it is empowered to fix region-wise uniform tariffs,
having due regard to the provisions, contained in s. 49(2).
In this connection, the Board also points out that both the
respondents are consumers of electricity, at low tension,
and that they are concerned only with tariffs for supply of
electricity at low tension. The Board further avers that
since April 1962, it has prescribed and applied, uniform
tariffs for supply of electricity at low tension, in all the
areas in the State of Maharashtra, which are served by it,
except Poona area. With reference to Poona area, the Board
has referred to the circumstances, under which a lower rate
of tariff is levied. Even in respect of Poona area, it is
stated by the Board that it has introduced uniform tariffs
for low tension electricity, with effect from January 1,
1966 except in regard to consumers of electricity for lights
and fans and small power in residential buildings.
Regarding the attack, on the constitutional validity of s.
49, as amended, the Board points out that there is no
question of any taxing power being entrusted to it, under
the said section. The Board points out that in view of the
special circumstances under. which a licensee is operating,
certain provisions have been made in the Supply Act; but the
special position occupied by the Board, which has been
entrusted with various duties and functions has been
recognised by the Supply Act. But no discrimination as
alleged by the respondents has been made by the statute
between consumers who are supplied by the licensee and the,
consumers who are supplied by the Board. The Board further.
states that the Supply Act does not cast any duty on to the
Board to fix the tariff, in accordance with the cost of
supply; and it points out that what is necessary, under s.
49, is the taking into account of the over-all economy of
the Board’s system of generation, and supply of electricity.
The Board seeks to sustain the levy of uniform tariff, on
the basis of the various provisions of the Supply Act, with
particular reference to s. 49, as amended.
In view of the Amendment Act, it has become really unneces-
sary to consider the correctness or otherwise of the views,
expressed by the High Court, regarding s. 49, as it stood
prior to its amendment; and these appeals will have to be
disposed of, on a consideration of the Supply Act, as
amended in 1966, with’ special reference to s. 49, as it now
stands.
146
Two questions arise for consideration, in these appeals,
viz.(i) the proper interpretation to be placed, on s. 49,
as amended,and the power of the Board to levy a uniform
tariff, as in this case; and (ii) the validity of S. 49, as
amended.
It is necessary to state at this stage that both the
respondents are consumers of electricity at low tension and
that the Board has fixed uniform tariff for the whole of the
State of Maharashtra for supply of electricity at low
tension, except in Poona city in respect of certain types of
consumers. Even in respect of such consumers, the Board has
stated that it is taking steps to levy a uniform tariff. It
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is on this basis that the contentions of the parties are
being considered and dealt with in these appeals.
It is necessary now to refer to some of the relevant
provisions of the Supply Act as that will indicate the
scheme underlying the Act. The Supply Act, as the preamble
shows, is an Act to provide for the rationalisation of the
production and supply of electricity, for taking measures
conducive to electrical development. Chapter 11 deals with
the Central Electricity Authority. Section 3(1) provides
for the constitution by the Central ’Government of a body
called the Central Electricity Authority to exercise such
functions and perform such duties under the Supply Act and
in such manner as the Central Government may prescribe and
direct. Chapter III deals with the constitution and
composition of the State Electricity Board and certain other
incidental matters. Section 5 provides for the State
Government constituting a State Electricity Board,
hereinafter referred to as the Board. Section 16 deals with
the constitution by the State Government of a State
Electricity Consultative Council for the State. Sub-sec.
(2) deals with the composition of the State Electricity
Consultative Council. It provides for inclusion, in the
said Council of representatives of consumers of electricity
also. Sub-section (6) casts a duty on the State Electricity
Board to place before the State Electricity Consultatitve
Council the annual financial statement and supplementary
statement if any. A duty is also cast upon the Board to
take into consideration any comments made on such statement
by the said Council before it is submitted to the State
Government under s. 16(1).
Chapter IV deals with the powers and duties of State Elec-
tricity Boards. Section 18 changes the Board with the
general duty of promoting the coordinated development of the
generation, supply and distribution of electricity within
the State in the most efficient and economical manner, with
particular reference to such development in, areas not for
the time being served or adequately served by any licensee.
Section 49 as incorporated by the Amendment Act of 1966
retrospectively, makes provision for the sale of electricity
by the Board to persons other than
147
licensees. As, in these appeals, the proper interpretation
to be placed on that section arises for consideration, that
section will: be dealt with by us more exhaustively, in the
latter part of the, judgment. It is enough to note at this
stage that the said section deals with the framing of
uniforms tariffs and also of fixing different tariffs as the
case may be, in accordance with the principles laid down
therein.
Chapter VI deals with the Board’s finance, accounts and
audit. Section 59, leaving out the proviso, states that the
Board shall not, as far as practicable, and after taking
credit for any subventions from the State Government under
s. 63, carry on its operations under the Supply, Act at a
loss, and that it, shall adjust its charges accordingly from
time to time. Section 61 directs the Board to submit in
February of each year to the State Government a statement in
the prescribed form of the estimated capital and revenue
receipts and expenditure for the ensuing year., Sub-section
(3) thereof makes it obligatory on the State Government to
place the said statement before the House or Houses, as the
case may be, of the State Legislature and it also provides
that the said statement shall be open to discussion by the
Legislature,, but it is not subject to vote. Sub-section
(4) casts a duty on, the Board to take into consideration
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any comments that may be made on the said statement in the
State Legislature. It may be noted that s. 61 really deals
with the Board’s preparing its budget for the succeeding
year and making it available for discussions by the State
Legislature. Section 63 gives power to. the State
Government, with the approval of the State Legislature, to
make subventions from time to time to the Board for the
purposes of the Act on such terms and conditions, as the
State Government may deter mine. Section 67 deals with the
priority and discharge Of liabilities by the Board and how
the balance amount, it any is to be utilised. Section 70(2)
provides that save as otherwise, provided, the provisions of
the Supply Act shall be in addition to, and not in
derogation of , the Indian Electricity Act, 1910 (Central
Act X of 1910). Section 75(1) deals with the preparation
and submission to the State Government by the Board soon
after the end of each financial year a report giving an
account of its activities during the previous financial
year. The, report should also give an account of the
activities, if any, which are likely to be undertaken by the
Board in the next financial year. it also makes it
obligatory on the State Government to place the said report
before the State Legislature. Here again,it may be noted,
that the Board has to give a report of its activities for
the past year. Section 78 gives power to the, State Gov-
ernment to make rules. to give effect to the provisions of
the Act. One of the items in respect of which rules could
be framed is that referred to in cl. (g) of s. 7 8 (2)
namely the form in which, and’
148
the date by which, the annual report of the Board shall be
submitted under s. 75. The State Government in this case
has framed the Maharashtra Electricity (Supply) Rules, 1963.
Rule 57 thereof relates to the submission of annual reports
under s. 75(1) by the Board. Sub-s. (2) indicates the
various matters that are to be included in the annual report
that is sent by the Board. Item (q) of sub-r. (2) relates
to details of the tariffs of the Board during the year.
Therefore, it will be seen, that in the annual report that
is sent under s. 75(1) by the Board to the State Government
and which report, as already referred, is placed before the
State Legislature, the Board, among various other matters,
will have also to give details of the tariffs imposed by it
during the year. Under S. 78A(1), the Board is to be guided
in the. discharge of its functions by such directions on
questions of policy,, as may be given to it by the State
Government. Section 79 enables the Board to make
regulations not inconsistent with the Act and the Rules made
thereunder. One of the matters which may be covered by
regulations made by the Board and to which reference is
necessary to be made, is dealt with under cl. (j) to the
effect, ’principles governing the supply of electricity by
the Board to persons other than licensees under ’Section
49".
Now taking up the. first question arising-for consideration,
namely, the power of the Board to levy uniform tariffs under
s. 49 of the Supply Act as amended, Mr. Poras A. Mehta,
learned counsel for. the respondents, whose contentions have
been also reiterated. by Mr. A. K. Sen, learned’ counsel for
the interveners, urges that in fixing the rate of tariff,
one of the essential matters to be taken into account by the
Board is the cost of supply to particular areas concerned.
That is in other words, according to the respondents, the
tariff must be based upon the cost of supply. It is their
further contention that in fixing the tariffs, the cost
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incurred by the Board for supply of electricity to different
areas must be given due consideration and importance.
Extension of electricity to sparse areas or to areas which
are not adequately supplied, should not be made at the cost
of, and to the detriment of, consumers of electricity in
already developed or compact areas. It. is also their
contention that the Board may have, if at all, power to levy
a lesser uniform rate of tariff in undeveloped or spase
areas, and any loss that may be incurred by the Board in
that regard will have to be compensated by the subventions
that may be received by the Board from the State Government
under s. 63 of the Supply Act. In no case, the counsel
points out, can that burden be shifted to the consumers in
the already well-developed areas. By levying uniform
tariffs in this case on consumers whose area is already well
developed, they are being made to pay for the development.
schemes that are being carried out in sparse areas. That,
accord-
149
ing to them, is violative of sub-s. (4) of s. 49 by the
Board, in as. much as, the consumers of sparse areas to whom
the cost of supply is more, are enabled to pay at the same
rate as those in compact areas. In effect, they point out
that there has been undue preference to the consumers in the
sparse areas in as much as, they pay much less than the cost
of supply.
The further stand taken on behalf of the respondents is that
in this case, the question of imposing different tariffs
should have been considered by the Board under sub-s. (3) of
s. 49 in view of the fact that the compact area is
geographically different from. sparse area. According to
them, the rates should have been fixed more favourably in
favour of the consumers in the compact area. They also urge
that sub-s. (4) of s. 49 which directs the Board not to show
undue preference to any person in fixing the tariffs and
terms and conditions for the supply of electricity, governs
sub-ss. (1) to (3) of s. 49 and-the Board, by fixing the
same tariff in the sparse areas as in the compact areas, has
shown undue preference to the former which is not
permissible in, law.
On the other hand, , Dr. L. M. Singhvi, learned counsel
appearing for the Board pointed out that there is absolutely
no indication in the Supply Act that the Board should fix
its tariff, having regard to the cost of supply. Counsel
points out that the Board is charged, under s. 1 8 of the
Act, with the duty of promoting the coordinated development
of generation, supply and distribution of electricity Within
the State in almost efficient and’ economical manner.
Normally, the Board which is deemed to be a company, under
s. 80 of the Act, would be entitled to fix, its own tariff
for electricity supplied by it. Under the old s. 49 of the
Act, a general power was conferred on the Board to supply
electricity upon such terms and conditions as it may, from
time to time, fix, having regard, to the matters referred to
in that section. The proviso to the said section directed
the Board not to show undue preference to any person in
fixing the tariffs. Except this limitation in the exercise
of its power, the Board was not placed under any further
restriction. Section 49, as it now stands, has been
incorporated with retrospective effect. Under that section,
the Board has been directed to frame uniform- tariffs. ’The
factors which are to be taken into account by the Board for
fixing uniform tariffs have also been indicated therein. In
particular circumstances indicated therein, the Board has
been given the power to fix different tariffs. What was
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originally the subjectmatter of the proviso in the old s. 49
has now been incorporated in sub-s. (4) of s. 49. Counsel
points out that the question of showing undue preference
cannot arise when the ’Board fixes uniform tariffs.
Therefore, sub-s. (4) can govern only sub-s. (3) in the
matter of fixing different tariffs. Sub-s. (4) cannot
150
cut down the power given to the Board in the matter of
fixing uniform tariffs.
Counsel also points out that going by the phraseology of
sub-ss. (1) and (2) of s. 49, it is open to the Board to
frame uniform tariffs having regard to the matters mentioned
in sub-s. (2) of s. 49. Counsel also points out that there
is no question of any development in sparse area being made
at the expense of the compact area. Under cl. (d) of s. 49
(2), one of the factors to be taken into account for fixing
uniform tariffs relates to the extension and cheapening of
supplies of electricity to sparsely developed areas. If the
Board supplies electricity at cheaper rates to sparsely
developed areas, the compact areas also will stand to
benefit, because the cheap rates applicable to the former
area will be a uniform tariff governing the compact area
consumers also. There is no question of any undue
preference being shown by the Board.
We have already referred to the material provisions of the
Act which will show the nature of the duties cast upon the
Board Section 59 lays down that. the Board, after taking
subventions from the State Government shall not, as far as
practicable, carry on its operations under the Act at a
loss, and that the Board is to adjust its charges
accordingly from time to time. That means that cost has to
be taken into account, though that is not the sole or only
criterion for fixing the tariff. There is also no
indication in the Act that uniform tariffs can be fixed only
in respect of particular regions or areas. We are not
impressed with the contention of the respondent that by
uniform tariffs being levied by the Board, it is making more
profits in compact areas than in sparse areas, nor with the
further contention that development of sparse areas is being
done at the expense of compact areas.
On behalf of the respondents, certain English decisions have
been brought to our notice wherein the expression ’undue
preference’ or ’discrimination’ found in the corresponding
Electricity Act have come up for consideration. One of the
decisions is that of the House of Lords reported as South of
Scotland Electricity Board and others v. British Oxygen Co.
Ltd.(1). Section 37(8) of the Electricity Act, 1947 which
the House of Lords had to construe provided :
"An area board, in fixing tariffs and making
agreements under this section, shall not show
undue preference to any person or class of
persons and shall not exercise any undue
discrimination against any person or class of
persons."
(1) [1959] 2 All E.R. 225.
151
The House of Lords held that in determining whether there
has been discrimination as between high voltage consumers
and low voltage consumers, the lesser cost of supplying high
voltage power should be taken into consideration, and that,
therefore, there might be discrimination against high
voltage consumers notwithstanding that the price charged to
them was a little lower than that charged to low voltage
consumers. But the English statute did not contain any
provision similar to s. 49 (1) and (2) of our Act, regarding
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the fixation of uniform tariffs. It is also seen that in
that case, the question of costs appears to have been relied
on by the Electricity Board. In this connection, it is
pertinent to note the observations of Lord Reid in his
dissenting judgment at p. 244 to the effect :
"What then is the standard by which preference
or discrimination is to be judged ? The
appellants say price charged to the consumer
and the respondents say cost of supply. The
Act uses these words in connexion with the
fixing of tariffs which deal with prices and
not with cost of supply, and one would expect
these words in this context to refer to price.
Moreover, prices are easily ascertained by
inspection of the tariff but costs of supply
are not; their ascertainment probably involves
highly contentious questions of costing and
the like. So if preference is a matter of
cost, it would be impossible to tell whether
there is any preference or discrimination
until an elaborate investigation bad been
made.’
The above observations in the dissenting judgment clearly
bring out the difficulty that will be felt by having to
judge the question of undue preference or discrimination
with reference to the cost of production. But as we have
stated earlier the provisions in the English Act were
entirely different.
We may also refer to another decision of the Privy Council
reported in Attorney-General for Victoria v. Mayor,
Aldermen, Councillors and Citizens of Melbourne(1) in which
the construction of S. 39 of the Victorian Electric Light
and Power Act, 1896 came up for consideration. Section 39
of the said Act was as follows :
"The undertakers shall not in making any
agreements for a supply of electricity show
any preference to any council company or
person and the charge for such supply shall be
uniform throughout such area so that each
council company or person shall be supplied at
the same price and not less than any other
council
(1) [1907] A.C. 469.
152
company or person, but such price shall not
exceed the limits of price imposed by or in
pursuance of the order authorising them to
supply electricity."
The Privy Council, in construing that section, held that the
preference prohibited therein is not as between customers
dealing under two different systems ’but only as between
customers dealing under the same system. Based upon this
decision, counsel for the respondent argued that uniform
tariffs under S. 49 of our Act can only be levied as against
the same type of customers situated in the same area and
that uniform tariff cannot be levied in, respect of same
type of customers situated in a different area. Counsel
further urged that consumers regarding whom supply cost is
more as in sparse areas, cannot be considered to be on par
with consumers in compact areas in respect of whom supply
cost is less. It is further pointed out that if both these
types of consumers are treated as same, that will amount to
showing undue preference, which is prohibited under sub-s.
(4) of S. 49. In view of the wording of s. 39 of the
Australian Act, the reasoning of the Privy Council in
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construing the said section regarding the rule of uniformity
cannot be applied when construing s. 49 of our Act. But it
is significant to note that as early as 1907, a system of
levying uniform rates as indicated in S. 39 has been in
vogue in Australia.
After having charged the Board under, s. 18 to supply and
distribute electricity in the most efficient and economical
manner, as already pointed out, S. 59 states that the Board
shall not, as far as practicable, carry on its operations
under the Act at a loss. Section 63 empowers the State
Government to make subventions to the Board. It is entirely
within the discretion of the State Government under s. 63 to
make subventions to the Board. We ate referring to this
aspect, because it has been stressed on behalf of the
respondents that any development schemes in respect of
sparse areas should be done by the Board only with the
subventions which the State Government pays and not by
charging the consumers in the compact areas and sparse areas
at uniform tariff.
Section 49(1), as it now stands,’ provides that the Board is
to frame uniform tariffs in the matter of supply of
electricity to any person not being a licensee; and sub-s.
(2) lays down the factors which are to be taken into account
by the Board in fixing uniform tariffs. In this connection,
it is necessary to refer to the provisions of s. 49 of the
Act as it originally stood. It was as follows
"Subject to the provisions of this Act and of
any regulations made in this behalf, the Board
may supply
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electricity to any person not being a licensee upon such
terms and conditions as the Board may from time to time fix
having regard to the nature and geographical position of the
supply and the purpose for which it is required
Provided that in fixing any such terms and conditions the
Board shall not show undue preference to any person."
In the old s. 49 extracted above, there is-no such policy or
direction indicated by the Legislature that the Board is to
frame uniform tariffs. Under that section, the Board had
the power to supply electricity on such terms and conditions
as it may from time to time fix, having regard to the
matters referred to in the said section. The only
restriction upon the Board’s power was that it shall not
show undue preference to any person in fixing any such terms
and conditions. In S. 49 as it now stands, the Legislature
has empowered the Board to frame uniform tariffs and it has
also indicated the factors to be taken into account in
fixing uniform tariffs. These two aspects are. contained in
sub-ss. (1) and (2). The Legislature has also made it clear
in sub-s. (3) that the Board, in the special circumstances
mentioned therein, has got power to fix different tariffs
for the supply of electricity’ Sub-s. (4) directs the Board
not to show undue preference to any person for fixing the
tariffs and the, terms and conditions for the supply of
electricity. Though prima facie it would appear that sub-s.
(4) will govern sub-ss. (1) to (3) in s. 49, the proper way
to interpret sub-s. (4) will be to read it along with sub-s.
(3).
The question of the Board showing undue preference to any
person in fixing the tariffs and terms and conditions for
supply of electricity will not arise when the Board frames
uniform tariffs under sub-ss. (1) and (2). When the entire
tariff is uniform for every consumer, there is no question
of any undue preference as every customer will pay the same
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amount for the same benefit received by him. Sub-s. (3) of
S. 49 recognises the power of the Board to fix different
tariffs for the supply of electricity and it is really here,
if at all, that an occasion for any undue preference being
shown, may arise. Therefore, in our opinion, sub-s. (4)
will control the action of the Board under sub-s. (3) of S.
49. We are not inclined to accept the contention of the
respondents that the consumers in a compact area cannot be
treated as on par with the consumers in sparse area and that
uniform tariffs cannot be levied on both. In this case, we
have already referred to the fact that both the respondents
are consumers of low tension electricity and that uniform
tariffs have been levied for the entire State of Maharashtra
excepting certain types of consumers in L4Sup.C.1/68-11
154
Poona area. To conclude we are of the opinion, that the
Board had ample powers to frame uniform tariffs as it has
done in the case before us and the levy is valid.
The second question that arises for consideration, as
indicated earlier, relates to the validity of s. 49, as
amended. The attack on the validity of this section is made
under different heads, as indicated below.
The first ground of attack is that levying of a uniform
tariff on the consumers in sparse areas and consumers, in
compact areas, which is not directly related to the cost of
supply, amounts to a colourable exercise of taxing power by
Parliament. In this connection, it is stated that the power
to levy tax on the consumption or sale of electricity is
conferred under entry 53 List 11 of the 7th schedule on the
State Legislature. This attack is made on the basis that
the tariff levied by the Board must be related to the cost
of supply. We have already rejected the contention of the
respondents in this regard; and we have held that the cost
of supply is only one of the factors to be taken into
account in fixing the tariff. If that is so, it follows,
that in this case,, there is no question of any levy of tax
by Parliament through the medium of the Board. By reference
to the proviso to sub-cl. (b) of cl. (10) of s. 67, it is
further urged by the respondents that the Board may fix
tariffs in such a way that large surplus may be found by
them from which one-half will be credited to the conso-
lidated fund of the State. This action, according to the
respondents, amounts to levy of tax for which there is no
power in law. We are not inclined to accept this contention
either. Section 67 of the Supply Act which occurs in
Chapter VI relating to the Board’s finance, accounts and
audit, deals with priority of liabilities of the Board.
After meeting its operations, maintenance and management
expenses and providing for the payment of tax on its income
and profits, s. 67 provides for the revenues of the Board,
in so far as they are available, to be distributed in the
order mentioned in cls. 1 to 10. After adjustments have
been made in respect of cls. 1 to 9, cl. 10 provides for the
balance to be appropriated to a fund to be called the
’development fund’. Clause 10 further provides that the
development fund is to be utilised for two purposes, (a)
purposes beneficial, in the opinion of the Board, to
electricity development in the State; (2) repayment of loans
advanced to the Board under s. 64 and required to be paid.
It is after this that the proviso, on which reliance is
placed by the respondents, states that where no such loan is
outstanding, one-half of the balance shall be credited to
the consolidated fund of the State. In the counter-
affidavit filed on behalf of the Board, it has been stated
that ever since its constitution, it has been carrying on
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its operations at a loss and there has been
155
no occasion when any part of its revenues has been passed to
the consolidated fund of the State. We have no hesitation
to accept this statement made on behalf of the Board. Even
otherwise, before the proviso can come into operation, there
are several other items in respect of which adjustments will
have to be made, and there will be no occasion at all for
the proviso to come into effect. We are also not inclined
to accept the contention of the respondents that with a view
to give effect to the proviso,’ the Board will so fix the
tariffs as to enable them to have huge surplus, after
meeting the various adjustments. In case such a thing hap-
pens in future the proviso which is clearly severable, may
have to be struck down. Therefore, this ground of attack,
that there is a colourable exercise of taxing power, cannot
be accepted.
The next ground of attack against s. 49 is that it gives an
unguided and arbitrary power to the Board to fix the tariff
as it likes, and no maximum limit for the tariffs that may
be fixed by the Board, has been stated. On first blush, it
may appear that this contention has considerable force; but
we are satisfied that no such unguided or arbitrary power
has been conferred on the Board either in the matter of
framing uniform tariffs or in the matter of fixing different
tariffs for the supply of electricity to any person, not
being a licensee. No doubt, the maximum as such, has not
been fixed in the statute. But, in our opinion, there are
sufficient restrictions placed upon the power of the Board.
In this connection, reference may be made to some of the
sections of the Supply Act. Section 16, as we have already
indicated, provides for the State Government constituting a
State Electricity Consultative Council for the State. That
Council consists of the representatives of the various
interests including representatives of consumers of
electricity. The Board is bound to place before the State
Electricity Consultative Council under sub-s. (6) the annual
financial statement and supplementary statement and a duty
is cast upon the Board to take into consideration any com-
ments made on such statement. This annual financial
statement will have then to be submitted to the State
Government under s. 61. Under that section, in February of
each year, the Board has to submit to the State Government
an annual financial statement in the prescribed form, of the
estimated capital and revenue receipts and expenditure for
the ensuing year. Thai statement, under sub-s. (3) has to
be placed before the State Legislature and it is open to
discussion. Again, sub-s.. (4) of S. 61 casts a duty on the
Board to take into consideration, any comments made on the
said statement in the State Legislature. Section 75 again
provides for the Board submitting to the State Government a
report giving an account of its activities during the
previous financial year as also an account of its activities
which are likely to be undertaken by it in the next
financial year. The State Government is to place the said
report before the State Legislature. We
156
have already indicated, by reference to r. 57 cl. (q) of the
rules framed by the State of Maharashtra that details of
tariff will have to be furnished by the Board in its annual
report. Under cl. (j) of s.79, tile Board has also to make
regulations laying down the principles governing the supply
of electricity by it to persons other than licensees under
s. 49. In our opinion, all these provisions have the effect
of properly guiding the activities of the Board, in its
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dealings with the consumers including the levy of tariffs.
Section 49 itself is hedged in by various restrictions and
directions which the Board will have to comply in the matter
of framing uniform tariffs or in the matter of fixing
different tariffs, and that section, also in our opinion,
provides a proper guide-line for framing uniform tariffs and
different tariffs. Therefore, in particular, it may be
noted that the extension and cheapening of supplies of
electricity to sparsely developed areas under cl. (d) of s.
49(2) of the Act can only be complied with by keeping the
uniform rates at a minimum, consistently with the
requirement, under s. 59, of not running at a loss.
Therefore, we are satisfied, that s. 49 is not in any way,
bad on the ground that it gives, an unguided and arbitrary
power to the Board to fix its tariffs as it likes.
The next ground of attack is that consumers who are supplied
electricity by the licensees are differently treated from
similar consumers under the Board. In this connection,
reference is made to s. 57 of the Supply Act which provides
for the 6th and 7th schedule to be deemed to be incorporated
in the licence of every licensee. Clause 1 of the sixth
schedule provides that the licensee shall so adjust his
charges for the sale of electricity, whether by enhancing or
reducing them that his clear profit in any year of account
shall not, as far as possible, exceed the amount of reason-
able return. It is argued that while restrictions have been
placed on the licensees, no such restrictions have been
placed on the Board. The distinction sought to be pointed
out, in our opinion has no substance. The licensees are
persons who must have invested considerable capital in the
matter of their business, and obviously, the Legislature
thought that some directions will have to be given so as to
enable them to have a reasonable return. But we have
already indicated that sufficient guidance has been laid
down in the matter of fixing of tariffs by the Board.
Therefore this ground of attack also cannot be sustained.
Therefore, both the grounds of attack, levelled by the
respondents, will have to be rejected.
On behalf of the respondents, a feeble attempt was made to
show that S. 24 of the Amendment Act has not validated the
levy and collection in these cases. According to the
respondents, in this case, there is nothing to show that the
provisions of S. 49, as
157
amended, which is deemed to have been in force at all
material times, have been complied with by the Board before
the levy was made, and therefore, the levy in this case
cannot be sustained. We are not inclined to accept this
contention of the respondents. Section 24 of the Amendment
Act, in our opinion, deals with all rates as a matter of
fact fixed under s. 49 of the Act. In this case, the Board
has fixed tariffs under S. 49 of the Act. Therefore, s. 24
of the Amendment Act has full effect and force.
The result is that all the contentions of the respondents
fail. The order-of the High Court, under attack is set
aside and these two appeals are allowed. As the appellant
succeeds in both these appeals on the basis of the Amendment
Act, parties will bear their own costs throughout.
Y.P. Appeals allowed.
158