Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12
PETITIONER:
ROHTAS INDUSTRIES LTD. & ANR. ETC.
Vs.
RESPONDENT:
THE CHAIRMAN, BIHAR STATE ELECTRICITY BOARD AND OTHERS
DATE OF JUDGMENT02/03/1984
BENCH:
ERADI, V. BALAKRISHNA (J)
BENCH:
ERADI, V. BALAKRISHNA (J)
DESAI, D.A.
CITATION:
1984 AIR 657 1984 SCR (3) 59
1984 SCALE (1)465
CITATOR INFO :
RF 1986 SC1999 (5,7,11)
R 1990 SC1851 (36)
ACT:
Electricity (Supply) Act, 1948-S. 49-Electricity Board
divided consumers into various categories-Consumers of only
those categories already enjoying concession in general
tariff as incentive to establish industries in the State
asked to pay fuel surcharge-Whether classification of
consumers and levy of fuel surcharge on some consumers only
arbitrary and violative of Art. 14 of the Constitution.
HEADNOTE:
Section 49 of the Electricity (Supply) Act, 1948
provided for the sale of electricity by the electricity
Board to any person not being a licensee and to frame
uniform tariffs for the purposes of such supply having
regard, inter alia, to the nature of the supply, the purpose
for which the supply is required and other relevant factors,
In exercise of the powers conferred by s. 49 of the Act, the
respondent Bihar State Electricity Board had classified the
consumers into ten categories and had been, from time to
time, issuing notifications fixing the tariff and the terms
and conditions for the supply of electricity to those
consumers. With a view to encouraging the establishment of
industries in the State, the general tariff rate applicable
in respect of high tension supply to industries and
factories had been fixed at rates which were much lower when
compared to those applicable to other types of consumers. On
6.4.1979 the respondent Board, in supersession of its
earlier notification fixing the tariff, issued a
notification revising the tariff for all categories of
consumers served by it. Para 16.7 of the said Tariff
Notification provided that the consumers of low tension
industrial service, high tension service, extra high tension
service, and railway traction service shall be liable to pay
fuel surcharge’ at a rate to be determined every year in
accordance with the formula set out in sub-para 2 of that
paragraph. The appellants who had entered into agreements
with the respondent Board for the supply of high tension
electric current for their factories and were admittedly not
licensees, filed writ petitions in the High Court
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12
challenging the levy of fuel surcharge on the ground that it
was arbitrary and devoid of legal sanction. A Division Bench
of the High Court dismissed the writ petitions. Hence these
appeals and special leave petitions. The appellants’ charge
of discrimination was based on the ground that only
consumers of low tension industrial service high tension
service, extra high tension service, and railway traction
service had been singled out for being subjected to a levy
of surcharge, while consumers of electricity for domestic,
commercial and irrigation purposes were left unaffected by
any such burden.
Dismissing the appeals and special leave petitions,
^
HELD; It is well-established that where a corporation
is an instrumentality or an agency of Government it would,
in the exercise of its powers and function,
60
be subject to the same Constitutional or public law
limitations as apply to the Government and the principle of
law inhibiting arbitrary action by Government would apply
equally where such a corporation is dealing with the public,
whether by way of giving jobs or entering into relationship
with any person in any manner it likes according to its
sweet will. The acts of such a corporation must be in
conformity with some principle which meets the test of
reasonableness and relevance. [71 F-H]
The contention that the imposition of fuel surcharge
under paragraph 16.7 of the 1979 tariff notification is
arbitrary and violative of Art. 14 of the Constitution has
no force. The Board was perfectly within its rights in
deciding to restrict the levy of fuel surcharge to those
categories of consumers who were enjoying the benefit of a
concession in the general rate and in sparing smaller type
of consumers such as the agricultural irrigation and
commercial consumers from being subjected to that burden, in
view of the fact that they were already being subjected to a
basic levy at substantially higher rates. The true
consequence of the action taken by the Board is only to
effect a reduction in the quantum of concession that was
being enjoyed by the consumers belonging to the industrial
and railway traction categories. The appellants had no case
that any illegality was involved in treating the industrial
consumers, as a separate class and granting them the benefit
of a preferential treatment for the purpose of fixing the
basic rate of levy for supply of electricity. A
classification which is legally valid and permissible for
the grant of a concession in the basic rates will equally
hold good for the purpose of a subsequent scheme of
distribution of the burden in the form of fuel surcharge. A
classification of these bulk consumers has a rational nexus
with the object and purposes of the levy of surcharge. [65
G, 67 B-D, 66-G, 67 D-F]
The argument that levy of fuel surcharge can only be
for the purpose of recouping the amounts actually paid by
the Board by way of ’fuel surcharge’ to the D.V.C. and the
U.P. State Electricity Board for the quantities of energy
purchased by the Board from these sources and the extra cost
that the Board had actually to incur on fuel consumed in
those two generating stations at Patratu and Barauni has no
force. From the counter affidavit filed on behalf of the
Board, it is seen that in respect of the increase in the
cost of production of electricity in the two generating
stations of the Board, the fuel surcharge has taken into
account only that part of the increase in cost which is
relatable to the increased price of the coal and oil i.e.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12
fuel alone. In respect of the energies purchased by the
Board from outside sources, namely, the Damodar Valley
Corporation and the U.P. State Electricity Board, the
increase in cost per unit incurred by the Board has been
included in the computation of the fuel surcharge. Though
the nomenclature given to the levy is "fuel surcharge" it is
really a surcharge levied to meet the increased cost of
generation and purchase of electricity and this is made
absolutely clearly in the formula given in para 16.7.2. [67
H, 68 A-F]
There is no force in the contention that the words
"increase in the average unit rate of purchase of energy"
used in C1 below paragraph 16.7.2 should be interpreted as
taking their colour from the contents of paragraph 16.7.3.
From a reading of these provisions it is abundantly clear
that the entire increase in costs incurred in the purchase
of energy from the D.V.C. and the U.P. State
61
Electricity Board has to go into the computation of the
surcharge leviable under paragraph 16.7. There is no
ambiguity whatever in the words used in Cl so as to require
the court to take light from paragraph 16.7.3 for the
purpose of understanding their scope and meaning. [69 B-D]
The contention that the financial capacity of
individual industrial consumers had not been taken into
account while fixing the revised tariff is devoid of force.
It is not contemplated by section 49 or any of the other
provisions of the Act. that as amongst consumers tailing
within a specified category different rates are to be
charged depending upon the financial capacity of the
particular consumer to pay. On the other hand, the very core
of the scheme of section 49 is that the tariff should be
uniform in respect of each class or category. [70 H, 71 A-B]
It is found that notwithstanding the mandatory
provision contained in s.59 of the Act obliging the Board to
carry its operations and adjust its tariffs in such a way as
to ensure that the total revenues earned in any year of
amount shall, after meeting all expenses properly chargeable
to revenue leave, such surplus as the State Government may,
from time to time, specify, the Board has been selling
energy at rates which are lower than the actual post insured
by it per unit of production. Such being the factual
situation, there is absolutely no basis for the contention
that the tariff fixation effected by the Board suffers from
the vice of arbitrariness and is liable to be interfered
with by the Court on that ground. [73 B, 72 A-C, 73 C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2855-
56 of 1982.
Appeals by special leave from the Judgment and Order
dated the 9th April, 1982 of the Patna High Court in
C.W.J.C. No. 3503/ 81 & 504 of 1982.
WITH
Civil Appeals Nos. 2857-58 & 2859-60 of 1982
Appeals by Special leave from the Judgment and Order
dated the 9th/10th February, 1982 of the Patna High Court in
C.W.J.C. Nos. 1026/82,1855/81,1516/81(R), 1355/81(R).,
AND
Special Leave Petition (Civil) No. 2904 of 1982.
From the Judgment and Order dated the 8th December,
1981 of the Patna High Court in Civil Writ Jurisdiction Case
No. 1237 of 1981.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12
Dr. Shankar Ghosh, Parveen Kumar, Padam Khaitan, C.A.
Vaidyanathan N.R. Khaitan for the Appellants in C.A. 2855-
56/82.
62
A.K. Sen, Padam Khaitan, Parveen Kumar and N.R. Khaitan
for the Appellants in C.A. Nos. 2857-58/82.
C.S. Vaidyanathan, Anil Kumar Sharma, and Mr. Parveen
Kumar for the Appellants in CA. Nos. 2859-60/82.
K.K. Venugopal, C.S. Vaidyanathan for the Petitioner in
SLP Nos. 2904/82.
L.N. Sinha, Att. General, Ram Balak Mehto, Pramod Swaru
and P.P. Singh for the Respondents in all the appeals & SLP.
The Judgment of the Court was delivered by
BALAKRISHNA ERADI, J. These appeals (by special leave)
and the Special Leave Petition involve common questions
concerning the validity of the supplementary bills issued to
the appellants by the 1st respondent-Bihar State Electricity
Board-for "fuel surcharge" as per the revised tariff dated
1st April, 1979, and hence they were heard together. Having
regard to the fact that by reason of interlocutory orders
passed by this Court, the realisation of large amounts
demanded from the appellants by the respondent by way of
charges for electric energy supplied by it stood stayed and
the consequent urgency in passing final orders in these
cases, as soon as the hearing was completed we passed the
following order announcing the conclusion reached by us:
"All these Civil Appeals and Special Leave
Petition are dismissed with costs in each case. All
interim orders made in each of these matters at various
stages are vacated. Reasons will follow".
We now proceed to state the reasons in support of the said
conclusion.
The Bihar State Electricity Board hereinafter called
’the Board’) is incorporated under Section 12 of the
Electricity (Supply) Act 1948 (hereinafter referred to as
’the Act’). The general powers and duties of the Board are
set out in Section 18. Thereunder the Board has the duty,
inter alia, to arrange for the supply of electricity that
may be required within the State and for the transmission
and distribution of the same in the most efficient and
economic manner, with particular reference to those areas
which are not, for the time being, supplied or adequately
supplied with electricity. Section 49 of the Act makes
provision for the sale of electricity by the Board to
persons other than the licensees and to frame uniform
63
triffs for the purposes of such supply. That section is in
the following a terms:
"49. (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.
(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 economical manner, with
particular reference to such development in areas
not for the time being served or adequately served
by the licensee;
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12
(c) the simplification and standardisation of methods
and rates of charges for such supplies;
(d) the extension and cheapening of supplies 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 such 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."
In exercise of the power conferred by the above
section, the Board has been, from time to time, issuing
notifications fixing the
64
tariff and the terms and conditions for the supply of
electricity to the various classes of consumers. In
supersession of the, tariff rates till then obtaining under
an earlier notification, the Board by its "tariff
notification 1979" published in the Bihar Gazette
Extraordinary No.355 dated 6.4.1979, issued a revised tariff
for all categories of consumers served by it. The said
tariff was to take effect from 1st April, 1979.
The appellants are companies having factories in
different parts of the State to Bihar and they have entered
into agreements with the Board for supply of high tension
electric current. The agreements so executed are in a
standard form containing substantially identical terms.
Annexure I in the Writ Petition C.W.J.C. No. 1855/81 out of
which C.A. 28 58/82 arises in a copy of the agreement
entered into by M/s Usha Martin Black (Wire Rods) Ltd. with
the Board on 18.8.1961. In clause 4 of the agreement, it is
stipulated that the consumers shall pay to the supplier
(Board for) the energy supplied and registered by the meters
"at the rates from time to time in force and paid by similar
consumers". It has been further provided in clause 11 that
the agreement should be read and construed as subject in all
respects to the provisions of the Indian Electricity Act
1910 and the rules for the time being in force there under.
After the introduction of the revised tariffs, 1979, all the
appellants continued to draw and consume high tension
electric energy in their factories.
Para 16.7 of the Tariff Notification, 1979, provides
that the consumers of low tension industrial service, high
tension service, extra high tension service, and railway
traction service shall be liable to pay ’fuel surcharge’ at
a rate to be determined every year In accordance with the
formula set out in sub-para (2) of the said paragraph
(16.7.2). This levy of fuel surcharge was in addition to the
other charges specified in the tariff schedule. During the
course of the year 1979, fuel surcharge a provisional rate
of one paise per unit was initially levied and that was
subsequently increased to three paise per unit, again on a
provisional basis. In the final bills issued for the
financial year 1979-80 the fuel surcharge was levied at
6.242 paise per unit. Along with the final bill of fuel
surcharge for the year 1979-80, a provisional bill of fuel
surcharge for the year 1980-81 was also issued to the
appellant companies demanding payment of surcharge at the
rate of eight paise per unit
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12
65
Thereupon the appellants filed Writ Petitions in the
High Court of Patna contending that the provision contained
in Paragraph 16.7 in the Tariff Notification of 1979 for the
levy fuel surcharge is devoid of legal sanction and is
arbitrary and void. The charge of arbitrariness levelled
against the imposition of fuel surcharge was based on the
ground that only consumers of low tension industrial
service, high tension service, extra high tension service,
and railway traction service had been singled out for being
subjected to a levy of surcharge, while consumers of
electricity for domestic, commercial and irrigation purposes
were left unaffected by any such burden. A further
contention was also raised that the bills issued to the
petitioners were not even in accordance with the provisions
of the tariff notification and the demands made against the
appellants were in excess of what was warranted even by the
impugned notification. Eight writ petitions, of which
C.W.J.C. 1237 of 1981, filed by M/s Shriram Bearings Ltd.,
Ranchi (Petitioner in SLP No. 2904/1982) was apparently
treated by common consent as the main case, and were heard
together as one single batch by a Division Bench of the High
Court. By a detailed and well-considered judgment, the
Division Bench rejected all the contentions raised by the
petitioners and dismissed the Writ Petitions after recording
an undertaking given by the Board that certain small amounts
which were found to have been charged in the bills in excess
of what was payable by the appellants on a correct
computation of the surcharge would be adjusted in the next
bills to be issued to them. Writ Petitions subsequently
filed in the High Court by the appellants in the other
appeals were later dismissed in limine by separate short
judgments, following the decision of the Divisional Bench in
C.W.J.C. 1237 of 1981. Hence these appeals and special leave
petitions by the appellant companies.
At the outset, we may dispose of the contention urged
on behalf of some of the appellants that the levy of fuel
surcharge under the impugned tariff notification (paragraph
16.7) is discriminatory and hence violative of Article 14 of
the Constitution. Sub-section 3 of Section 49 expressly
authorises the Board to fix different tariffs for the supply
of electricity to any person not being a licensee, having
regard, inter alia, to the nature of the supply, the purpose
for which the supply is required and other relevant factors.
The power to classify the consumers into different into
categories and to fix differen-
66
tial tariffs has thus been conferred on the Board by the
Section itself. The Constitutional validity of this Section
has been upheld by this Court in Maharashtra State
Electricity Board v. Kalyan Borough Municipality &
Another(’).
The expression "licensee" means a person licensed under
Part II of the Indian Electricity Act, 1910, to supply
energy or a person who has obtained licence under Section 28
of that Act to engage in the business of supplying energy
through definition in Section 2 (6). Admittedly, the
appellants before us are not licensees. They are consumers
receiving high tension supply to their factories. For the
purpose of tariff fixation, the Board has classified the
consumers into 10 categories, viz.. "domestic", "commercial
(i)", commercial (ii)", "street light", "irrigation", "light
tension industrial" (small scale industrial upto 100
h.p.),"11 k.v. h.t.s.", "33 k.v.h.t.s.", "132 k.v. h.t.s."
and "railway traction (25 k.v.)". It is seen from the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12
materials on record for us that the industries between
themselves consume nearly 65% of the total quantity of
energy supplied by the Board. Apparently with a view to
encouraging the establishment of industries in the State,
the general tariff rate applicable in respect of high
tension supply to industries and factories has been fixed at
rates which are much lower when compared to those applicable
to other types of consumers. While the general rate
applicable for supply of high tension electric energy for
industries of the class to which the appellants belong was
22 paise per unit, consumers belonging to "commercial"
categories were charged at rates ranging between 48 paise to
58 paise per unit, "agricultural" consumers at 29 paise per
unit, "low tension" consumers at 34 to 38 paise per unit and
"domestic" consumers at rates ranging between 38 to 43 paise
per unit. Thus, in the fixation of the general tariff rate,
a substantial concession has been shown in favour of
industrial low tension and high tension consumers. The
appellants have no case that any illegality was involved in
treating the industrial consumers, as a separate class and
granting them the benefit of a preferential treatment for
the purpose of fixing the basic rate of levy for supply of
electricity. The stand taken by the Board is that it was
found absolutely necessary at the time of the revised tariff
fixation effected in 1979 to augment its revenue by levying
of the additional fuel surcharge in order to offset the
heavy increase in expenditure and after taking into account
all relevant facts and circumstances, it was decided to
distribute that burden amongst the privileged class of
67
consumers, namely those belonging to categories of low
tension industrial service, high tension service, extra high
tension service and railway traction service. Even after
taking into account the fuel surcharge so levied under 1979
tariff, the rates applicable to high tension consumers like
the petitioners range between 40.31 paise and 58.80 paise
per unit only, while the commercial (ii) consumer has to pay
71.33 paise per unit and even the domestic consumer has to
pay 48 paise per unit. The position that obtains under the
1981 tariff which also has been challenged by some of the
appellants is substantially similar. In our opinion, the
Board was perfectly within its rights in deciding to
restrict the levy of fuel surcharge to those categories of
consumers who were enjoying the benefit of a concession in
the general rate and in sparing smaller type of consumers
such as the agricultural, irrigation and commercial
consumers from being subjected to that burden, in view of
the fact that they were already being subjected to a basic
levy at substantially higher rates. The true consequence of
the action so taken by the Board is only to effect a
reduction in the quantum of concession that was being
enjoyed by the consumers belonging to the industrial and
railway traction categories. A classification which is
legally valid and permissible for the grant of a concession
in the basic rates will equally hold good for the purpose of
a subsequent scheme of distribution of the burden in the
form of fuel surcharge. In this context, it is also relevant
to remember that the levy of surcharge was necessitated by
reason of the extra expenditure which the Board had to incur
in the generation of electricity in the two power stations
run by the Board and in the purchase of power from the two
outside sources, namely, the D.V.C. and the U.P. State
Electricity Board and 65% of the total quantity of energy
supplied by the Board is consumed by the industrial and
railway traction consumers. A classification of these bulk
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12
consumers has a rational nexus with the object and purposes
of the levy of surcharge. Having regard to all these facts
and circumstances, we find no substance in the contention
advanced by some of the appellants that the imposition of
fuel surcharge under paragraph 16.7 of the 1979 tariff is
arbitrary and violative of Art. 14 of the Constitution.
The next argument advanced on behalf of the appellants
was that even if the Board is legally entitled to levy the
fuel surcharge, that can only be for the purpose of
recouping the amounts actually paid by the Board by way of
’fuel surcharge’ to the Damodar Valley Corporation and the
U.P. State Electricity Board for the quantities of energy
purchased by the Board from these sources and the extra cost
68
that the Board had actually to incur on fuel consumed in
those two generating stations at Patratu and Barauni. From
the counter affidavit filed on behalf of the Board, it is
seen that in respect of the increase in the cost of
production of electricity in the two generating stations of
the Board, the fuel surcharge has taken into account only
that part of the increase in cost which is relatable to the
increased price of the coal and oil i.e. fuel alone. The
increase in expenditure referable to the enhancement in cost
of the energy generated on other accounts such as wages,
maintenance, etc. has not been taken into account in the
fuel surcharge. Such increase in cost of production on
account of those other factors has been offset by a revision
of the basic general tariff by 16.5 per cent payable not
only by the industries but by all classes except the
agriculturist class. In respect of the energies purchased by
the Board from outside sources, namely, the Damodar Valley
Corporation and the U.P. State Electricity Board, the
increase in cost per unit incurred by the Board has been
included in the computation of the fuel surcharge. We see no
substance whatsoever in the contention advanced by the
appellants that only such amounts, if any, as might have
been paid by the Board to the D.V.C. and the U.P. State
Electricity Board as and by way of fuel surcharge can go
into the computation of the fuel surcharged levied by the
Board under paragraph 16.7 of the 1979 tariff. Though the
nomenclature given to the levy is "fuel surcharge" it is
really a surcharge levied to meet the increased cost of
generation and purchase of electricity and this is made
absolutely clear in the formula given in para 16.7.2.
The formula for determining the fuel surcharge set out
in paragraph 16.7.2 reads:
"S = [A1XA3+B1XB3+C1XC3+D1XD3+E1XE3/
[A2+B2+C2+D2+E2]".
This is followed by detailed explanation as to what the
different alphabets used in the numerator and denominate or
signify. The explanation given in respect of C1 is "Increase
in the average unit rate of purchase of energy from D.V.C.
during the year for which the surcharge is to be calculated.
The said increase to be calculated with respect to the base
year 1977-78." C3 stands for "units purchased from D.V.C.
during the year". Likewise, E1 and E3 have been explained as
"Increase in the average unit rate of
69
purchase of energy from Uttar Pradesh State Electricity
Board during the Year for which surcharge is to be
calculated, the said increase to be calculated with respect
to the base Year 1977-78" and "units purchased from Uttar
Pradesh State Electricity Board" respectively.
We see no force in the contention put forward on behalf
of some of the appellants that the words" increase in the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12
average unit rate of purchase of energy" used in C1 below
paragraph 16.7.2 should be interpreted as taking their
colour from the contents of paragraph 16.7.3. From a reading
of these provisions it is abundantly clear that the entire
increase in cost incurred in the purchase of energy from the
D.V.C. and the U.P. State Electricity Board has to go into
the computation of the surcharge leviable under paragraph
16.7. The contention to the contrary advanced by the
appellants is therefore, only to be rejected. There is no
ambiguity whatever in the words used in C1 so as to require
us to take light from paragraph 16.7.3 for the purpose of
understanding their scope and meaning.
It was strongly urged on behalf of the appellants that
the provision in Cl for increase in the average rate of
price of energy from the D.V.C. to be calculated with
respect to the base year 1977-78 is arbitrary in as much as
in fixing the basic tariff as per the ’impugned
notification’ of 1979, the difference in cost between Year
1977-78 and the current Year 1979-80 has already been taken
into account. From the counter affidavit and the statements
filed in the High Court on behalf of the respondent Board
which form part of the record before us in these appeals, it
is seen that only the fuel surcharge accrued during the Year
1977-78 had been merged while fixing the revised rates for
energy and it was specifically mentioned in paragraph 2.5 of
the resolution of the Board containing the proposals for the
tariff revision, 1979, which the Board forwarded to the
State Government that only the fuel surcharge that had
accrued during 1977-78 was being merged in the revised
tariff rates and that "the subsequent increase or decrease
in the cost of fuel or the cost of imported energy will,
therefore, reflect in the fuel surcharge hereafter". Similar
is the position with respect to the tariff revision effected
in 1981. Hence there is no factual foundation for the
argument that there has been a double neutralisation of the
increase in the fuel surcharge in respect of the energy
purchased by the Board from outside sources.
Paragraph 16.7.4 of the tariff notification states that
the fuel surcharge for a financial year shall be calculated
by the Board after
70
the expiry of the financial year and until such calculation
is actually made, fuel surcharge may be levied during each
financial year at a rate provisionally calculated on monthly
or quarterly or half-yearly basis as decided by the Board,
and in case of short or excess realisation, the same is to
be adjusted in the next bill to be served on the consumer.
Based on these provisions, it was faintly argued on behalf
of some of the appellants that the Board was under an
obligation to issue provisional bills in respect of fuel
surcharge during the course of each financial Year and on
account of its failure to do so, the appellants were unable
to include the said element in their price structure in
respect of cement, paper and vanaspati produced in the
factories of some of the appellants. This contention has to
be rejected for two reasons: firstly, the provision
contained in the aforesaid paragraph of the notification is
purely an enabling one and it dose not cast any mandatory
obligation on the Board to issue any provisional bills for
fuel surcharge, monthly, quarterly, or half-yearly during
the course of each financial year; secondly apart from
merely putting forward such a plea in the course of
arguments before us the appellants have not furnished any
factual data as to how and in what manner they had fixed the
price structure for the different products produced in the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12
appellants’ factories.
Yet another point urged on behalf of the appellants was
that under Section 49 of the Act, while exercising the power
of framing uniform tariffs, the Board was under a duty to
apply its mind to all relevant factors but there had been an
omission to discharge the said mandatory duty inasmuch as
the capacity of the concerned industry to pay for the energy
at the rate proposed to be fixed, which is a highly relevant
factor, had not been taken into account at all. Clauses (a)
to (d) of sub-section 2 of Section 49 enumerated the various
matters which the Board shall have regard to in fixing the
uniform tariffs and the capacity of any particular industry
to bear the energy charge at the proposed rate of levy is
not included in the said enumeration. Under the scheme of
the tariff fixation incorporated in the section, the tariff
is to be uniform subject to the classification of consumers
into different categories Under sub-section 3 of the said
section, the classification of the consumers into such
different categories is to be made only with reference to
the nature of the supply, the purpose for which supply is
required the geographical position of any area and other
like relevant factors. It is not contemplated by the said
section or any of the other provisions of the Act that as
amongst
71
consumers falling within a specified category different
rates are to be charged depending upon the financial
capacity of the particular consumer to pay. On the other
hand, the very core of the scheme of Section 49 is that the
tariff should be uniform in respect of each class or
category. Hence the attack levelled against the tariff
fixation on the aforesaid ground, that a relevant factor,
namely, that the financial capacity of individual industrial
consumers had not been taken into account, is devoid of
force.
The appellants in some of the appeals have challenged
the subsequent tariff fixation of 1981 also on grounds that
are substantially the same as those which we have dealt with
above. For the reasons already indicated by us, none of
those grounds can be accepted as correct or tenable.
It was urged on behalf of the appellants that the
supply of electricity being a monopoly service conducted by
an agency of the State, namely, the Board, it must be
carried out reasonably and not arbitrarily, that such
reasonableness should be reflected in the price fixation and
if the prices fixed are arbitrary, they are liable to be
called in question before the Courts on the said ground. In
support of the above contention, reliance was placed by
counsel for the appellants on the decisions of this Court in
Akadasi Padhan v. State of Orissa(1), Rashbihari Panda, etc.
v. State of Orissa,(2) Vrajlal Manilal & Co. & Ors. v. State
of Madhya Pradesh & Ors.,(3) Ramana Dayaram Shetty v. The
international Airport Authority of India and Ors.(4) It is
well established that where a corporation is an
instrumentality or an agency of Government it would, in the
exercise of its powers and function, be subject to the same
Constitutional or Public Law limitations as apply to the
Government and the principle of law inhibiting arbitrary
action by Government would apply equally where such a
corporation is dealing with the public, whether by way of
giving jobs or entering into contracts or otherwise and it
cannot act arbitrarily and enter into relationship with any
person in any manner it likes according to its sweet will.
The acts of such a corporation must be in conformity with
some principle which meets the test of reasonableness and
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12
relevance. In the case before us, the appellants have
totally failed to establish that the rates specified in the
impugned tariff notifications of 1979 and 1981 are arbitrary
and unreasonable.
72
Section 59 of the Act as it now stands after the
amendment of 1978 is in the following terms:
"59. (1) The Board shall, after taking credit for
any subvention from the State Government under section
63, carry on its operations under this Act and adjust
its tariffs so as to ensure that the total revenues in
any year of account shall, after meeting all expenses
properly chargeable to revenues including operating,
maintenance and management expenses, taxes (if any) on
income and profits, depreciation and interest payable
on all debentures, bonds and loans, leave such surplus,
as the State Government may, from time to time,
specify.
(2) In specifying the surplus under sub-section
(1), the State Government shall have due regarding to
the availability of amounts accrued by way of
depreciation and the liability for loan amortization
and leave.
(a) reasonable sum to contribute towards the cost
of capital works; and
(b) where in respect of the Board, a notification
has been issued under sub-section (1) of section 12A, a
reasonable sum by way of return on the capital provided
by the State Government under Sub-section (3) of that
section and the amount of the loans (if any) converted
by the State Government into capital under sub-section
(1) of section 66A."
Under the above provision, the Board is under a statutory
obligation to carry on its operations and adjust its tariffs
in such a way as to ensure that the total revenues earned in
any year of account shall, after meeting all expenses
properly chargeable to revenue, leave such surplus as the
State Government may, from time to time, specify. The tariff
fixation has, therefore, to be so made as to raise
sufficient revenue which will not merely avoid any net loss
being incurred during the financial year but will ensure a
profit being earned, the rate of minimum profit to be earned
being such as may be specified by the State Government. The
learned Attorney General appearing on behalf of the Board
has placed before us tabulated statements showing the
working results (financial) of the Board in the years
subsequent to 1977-78. It is found therefrom that the net
73
result of the Board’s working in each of the year 1978-79 to
1981-82 was a substantial deficit or loss. The deficit in
1978-79 was Rs. 15.31 crores, in 1979-80 Rs. 10.21 crores,
in 1980-81 Rs. 32.69 crores and in 1981-82 Rs. 18.60 crores.
The statement also shows that the revenue earned per unit of
electric energy sold was much lower than the actual cost of
production incurred by the Board per unit. The cost of
production per unit in the four years aforementioned was
51.10 p., 65.10 p., 73.86 p., and 87.16 p. respectively,
whereas the revenue per unit was only 3848 p., 47.17 p.,
53.07 p., and 66.39 p. respectively. It is thus found that
notwithstanding has the mandatory provision contained in
Section 69 the Act, the Board been selling energy at rates
which are lower than of the actual cost incurred by it per
unit of production. Such being the factual situation, there
is absolutely no basis for the contention urged on behalf of
the appellants that the tariff fixation effected by the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12
Board suffers from the voice of arbitrariness and is liable
to be interfered with by the Court on the ground. As pointed
out by this Court in Prag Ice & Oil Mills and another v.
Union of India, 1 in the ultimate analysis, the mechanics of
price fixation is necessarily to be left to the judgment of
the executive and unless it is patent that there is hostile
discrimination against a class of persons, the processual
basis of price fixation is to be accepted in the generality
of cases as valid.
Some of the appellants have endeavored to persuade us
to go into the minutest details of the mechanism of the
tariff fixation effected by the Board in an endeavour to
demonstrate in relation thereto that a factor here or a
factor there which ought to have been taken into account has
been ignored. We have declined to go into those factors
which are really in the nature of matters of price fixation
policy and the Court will be exceeding its jurisdiction if
it to embark upon a scrutiny of matters of this kind which
are essentially in the domain of the executive to determine,
subject, of course, to the Constitutional limitations.
The conclusion that emerges from the foregoing
discussion is that the High Court was perfectly right in
upholding the validity of the impugned tariff notifications
of 1979 and 1981, and these appeals and the S.L.P. have only
to be dismissed.
H.S.K. Petitions & Appeals Dismissed.
74