ION Civil Appeal No 2966 of 1986
From the Judgment and Order dated 2691984 of the Allahabad High Court in Writ Petition No 3921 of 1982
RN Trivedi Additional Advocate General Gopal Subramaniam and Mrs Shobha Dikshit for the Appellants
B Sen DP Gupta NA Raja Ram Aggarwal NR Khaitan ED Desai YK Khaitan Jijina Sandeep Aggarwal and TN Sen for the Respondents
The following Judgments of the Court were delivered SABYASACHI MUKHARJI J
This appeal by special leave is directed against the judgment and order of the High Court of Allahabad dated 26th September 1984
The first appellant is the State of Uttar Pradesh impleaded through the Chief Secretary to the Government of Uttar Pradesh Lucknow
The second appellant is the Secretary to the Government of Uttar Pradesh Department of 635 Energy Lucknow
The third appellant is one Shri Yogendra Narain presently acting as Secretary to the Chief Minister State of Uttar Pradesh Lucknow
At a particular point of time Shri Yogendra Narain was the Secretary to the Department of Energy
The fourth appellant is the Assistant Electrical Inspector a functionary under the UP Electricity Duty Act 1952 Mirzapur Zone Rani Patti Mirzapur
The fifth appellant is the Collector of Mirzapur
There are four respondents in this appeal
The first respondent is Renusagar Power Company Ltd The second respondent is Ms Hindustan Aluminium Corporation Ltd Respondent No 3 is Shri DM Mimatramka who resides at Hindalco Administrative Colony Renukut Mirzapur
The fourth respondent is Shri Rajendra Kumar Kasliwal who resides at Hindustan Aluminium Corporation Ltd Renukut District Mirzapur
Respondents 3 and 4 mentioned above are the shareholders of the first respondent and the second respondent that is Renusagar Power Company and Ms Hindustan Aluminium Corporation Ltd respectively
It is stated that Ms Hindustan Aluminium Corporation Ltd established and aluminium factory at Renukut in Mirzapur District UP in 1959
It is the case of the respondents that it was induced to do so on the assurance that cheap electricity and power would be made available at the relevant time
In 1962 a plant of Hindustan Aluminium Corporation Ltd for manufacture of aluminium was commissioned
Ms Renusagar Power Co Ltd a wholly owned subsidiary of Ms Hindustan Aluminium Corporation Ltd was incorporated in 1964
Ms Renusagar Power Company Ltd was incorporated separately and had its own separate Memorandum and Articles of Association
On 9th September 1967 the first generating unit of 675 MW in Renusagar was commissioned by Ms Renusagar Power Company Ltd The second generating unit of the company was commissioned on 5th October 1968
The UP Electricity Duty Act 1952 hereinafter called the Act  came into force from 15th January 1953 and it sought to levy a duty on the consumption of electrical energy in the State of Uttar Pradesh
In the Statement of Objects and Reasons which was published in UP Gazette it was stated that the programmes of development of the State involved enormous expenditure and
thus additional resources had to be raised the bulk of which could only be raised by means of fresh taxation
It was stated that the object of the Bill inter alia provided as follows A tax on the consumption of electrical energy will impose 636 a negligible burden on the consumer and is a fruitful source of additional revenue
The Bill has been so prepared as to ensure that the tax payable by a person will be related to the quantity of electricity consumed by him
The Bill is being introduced with the above object
 By virtue of the provisions of the UP Electricity Duty Amendment ordinance 1959 various amendments were carried out in the said Act
In section 2 of the principal Act a new clause clause hh describing a scheduled industry was inserted
By virtue of the aforesaid newly inserted clause the expression scheduled industry  meant any of the industries specified in the schedule
In the proviso to section 3 of the principal Act after clause d a new clause e was inserted which provided for non levy or exemption from the payment of electricity duty on the energy consumed by a consumer in a scheduled industry
The expression which was added was by a consumer in a scheduled industry
By virtue of section 8 of the Amending Act a schedule was added to the principal Act
In the schedule non ferrous metals and alloys were placed at serial No 1 in Part of the schedule under a broad heading Metallurgical Industries 
It appears therefore that by virtue of the aforesaid provisions electricity duty on the energy consumed by Ms Hindustan Aluminium Corporation Ltd was exempted from 1st April 1959 the date on which the ordinance came into force
It was further stated that the UP Electricity Duty Amendment ordinance 1959 was repealed and the provisions were incorporated into an amending Act viz UP Act No 12 of 1959 and termed as the UP Electricity Duty Amendment Act 1959
By virtue of sub section 2 of section 1 the Amendment Act provided that the Act would be deemed to have come into force with effect from 1st April 1959
The amendment Act repealed the provisions of the UP Electricity Duty Amendment ordinance 1959
In section 2 after clause d the clause which was inserted as a new clause e provided that electricity duty would not be leviable on the consumption of energy by a consumer in any industry engaged in the manufacture production processing or repair of goods
Ordinance No 14 of 1970 was promulgated on 5th August 1970
The provisions contained in the ordinance were subsequently incorporated in UP Act No 2 of 1971
The amended provisions of UP Act No 2 of 1971 came into force from 1st April 1970
The Amendment Act was preceded by UP Ordinance No 14 of 1970
The ordinance was described as the Uttar Pradesh Taxes and Fees Laws Amendment ordinance 1970
By virtue of Chapter III of the said ordinance amendments were sought to be made to the Act
Section 3 of the principal Act was 637 substituted by a new section which provided that there would be levied and paid to the State Government a duty called electricity duty on the energy sold to a consumer by a licenseeBoardthe State Government the Central Government there would be a duty on the consumption of energy by a licensee or the Board in or upon the premises used for commercial or residential purposes or in or upon any other premises except in the construction maintenance or operation of his or its works and there would be a duty upon the consumption of electricity by any other person from his own source of generation
 It was provided that a duty was to be determined at such rate or rates as may from time to time be fixed by the State Government by notification in the official gazette
Sub section 2 of section 3 provided that in respect of certain classes of consumption the electricity duty would not exceed 25 of the rate charged
It may be expedient to refer to the Prefatory Note of the Act which inter alia is as follows Prefatory Note The minimum programme of development which this State must carry out within the next three or four years for the attainment of the objective of a welfare State is set out in the Five Year Plan drawn up by the Planning Commission
This plan provides for an expenditure of 1358 crores of rupees on power development projects
Such a huge expenditure cannot be met from our present resources
It is however essential for the welfare of the people that the expenditure should be incurred and that nothing should be allowed to stand in the way of the progress of the plan
Additional resources have therefore to be found the bulk of which can be raised only by means of fresh taxation
 Section 3 of the Act provides as follows 3
Levy of electricity duty 1 Subject to the provisions hereinafter contained there shall be levied for and paid to the State Government on the energy a sold to a consumer by a licensee the Board the State Government or the Central Government or b consumed by a licensee or the Board in or upon premises used for commercial or residential purposes or in or 638 upon any other premises except in the construction maintenance or operation of his or its works or c consumed by any other person from his own source of generation a duty hereinafter referred to as electricity duty  determined at such rate or rates as may from time to time be fixed by the State Government by notification in the Gazette and such rate may be fixed either as a specified percentage of the rate charged or as a specified sum per unit
Provided that such notification issued after October 1 1984 but not later than March 31 1985 may be made effective on or from a prior date not earlier than October 1 1984
2 In respect of clauses a and b of sub section  1 the electricity duty shall not exceed thirty five per cent of the rate charged
Provided that in the case of one part tariff where the rate charged is based on units of consumption the electricity duty shall not be less than one paisa per unit or more than eight Paisa per unit
Explanation For the purposes of the calculation of electricity duty as aforesaid energy consumed by a licensee or the Board or supplied free of charge or at the concessional rates to his or its partners directors members officers or servants shall be deemed to be energy sold to consumers by the licensee or the Board as the case may be at the rates applicable to other consumers of the same category
3 In respect of clause c of sub section 1 the electricity duty shall not be less than one paisa or more than six paisa per unit
4 The State Government may in the public interest having regard to the prevailing charges for supply of energy in any area the generating capacity of any plant the need to promote industrial production generally or any specified class thereof and other relevant factors either fix 639 different rates of electricity duty in relation to different classes of consumption of energy or allow any exemption from payment thereof
5 No electricity duty shall be levied on a energy consumed by the Central Government or sold to the Central Government for consumption by that Government or b x x x c energy consumed in the construction maintenance or operation of any railway by the Central Government or sold to that Government for consumption in the construction maintenance or operation of any railway d by a cultivator in agricultural operations carried on in or near his fields such as the pumping of water for irrigation crushing milling or treating of the produce of those fields or chaffcutting
e Energy consumed in light upon supplies made under the Janta Service Connection Scheme
Explanation
For the purposes of clause e Janta Service Connection Scheme means a scheme approved by the State Electricity Board for supplying Energy to Harijans landless labourers farmers holding land not exeeeding one acre members of armed forces whether serving or retired war widows and other weaker sections in district notified by the State Government
 Section 4 of the Act read as follows 4
Payment of electricity duty and interest thereon 1 The electricity duty shall be paid in such manner and within such period as may be prescribed to the State Government
a where the energy is supplied or consumed by a licensee by the licensee 640 b where the energy is supplied by the State Government or the Central Government or is supplied or consumed by the Board by the appointed authority and c where the energy is consumed by any other person from his own source of generation by the person generating such energy
2 Where the amount of electricity duty is not paid by the State Government within the prescribed period as aforesaid the licensee the Board or other person mentioned in clause c of sub section 1 as the case may be shall be liable
to pay within such period as may be prescribed interest at the rate of eighteen per cent per annum on the amount of electricity duty remaining unpaid until payment thereof is made
 Section 9 of the Act provides as follows Exemptions
Nothing in this Act shall apply to any energy generated by a person for his own use or consumption or to energy generated by a plant having a capacity not exceeding two and a half killowatts
 Ms Renusagar Power Company Ltd had in the meantime obtained a sanction under section 28 of the to engage in the business of supply of electricity to the second respondent Ms Hindustan Aluminium Corporation Ltd By virtue of section 2f which defines a licensee for the purposes of the Duty Act to mean any person licensed under Part II of the and includes any person who has obtained sanction from the State Government under section 28
Renusagar Power Company Ltd the first respondent herein was deemed to be a licensee for the purposes of the UP Electricity Duty Act
By virtue of section 2d of the Act Ms Hindustan Aluminium Corporation Ltd was a consumer since it was supplied energy by the licensee Ms Renusagar Power Company Ltd the first respondent
Thus the consumption of electricity by Ms Hindustan Aluminium Corporation Ltd under a contract of sale by the licensee was exigible to duty
In other words clause a of sub section 1 of section 3 of the Act as amended came into operation and a levy of duty would take place on the energy sold to a consumer by a licensee
Clause a of sub section 1 of section 4 as newly added provided that where the energy was supplied by a 641 licensee the licensee would be liable to pay electricity duty
Thus by virtue of the amended provisions of the Electricity Duty Act Ms Renusagar Power Co Ltd the first respondent herein was liable to pay electricity duty in respect
Of its supplies to Ms Hindustan Aluminium Corporation Ltd In exercise of the powers conferred by the Amendment Ordinance UP Ordinance No 14 of 1970 the provisions of which were re enacted in UP Act No 2 of 1971 the Governor on or about 25th August 1970 passed an order that with effect from 1st September 1970 the electricity duty on industrial consumption would be levied at one paisa per unit
On 28th August 1970 the Governor ordered in supersession of all the previous orders that with effect from 1st September 1970 electricity duty on the energy consumed by the consumers would be levied at the rates specified therein
There was further notification dated 30th September 1970 issued in the name of the Governor modifying the terms of the notifications dated 25th August 1970 and 28th August 1970
On or about 4th December 1952 after the inauguration of the First Five Year Plan electricity duty was imposed to gather additional revenue for attaining the objectives set out in the plan
The UP Electricity Duty Act 1952 was enacted on 4th December 1952
On 1st April 1959 in order to mitigate the hardship which might be caused to certain industries in the State the UP Electricity Duty Amendment Ordinance 1959 UP Ordinance No 3 of 1959 was promulgated by the Governor of UP
By the aforesaid ordinance it was provided in the first proviso to section 3 of the principal Act that no duty shall be leviable on the energy consumed by a consumer in a Scheduled Industry including Non ferrous Industries manufacturing Aluminium like that of respondent No 2 Hindalco
The aforesaid ordinance was substituted by the UP Electricity Duty Amendment Act 1959 UP Act No 12 of 1959
It substituted sub clause e in the first proviso of section 3 which reads as follows e by a consumer in any Industry engaged in the manufacture production processing or repairs of goods
In the year 1959 respondent No 2 looking to the profitability of establishing a factory for manufacture of aluminium set up a plant at Renukut District Mirzapur in the State of UP
On or about 29th October 1959 an agreement was arrived at with the State Government and the Hindustan Aluminium Corporation Ltd Hindalco for supply 642 of 55 MW electrical power at the rate of 1997717 paise per unit inclusive of all charges
duties and taxes of whatever nature on electricity for 25 years
In the year 1962 Hindalco respondent No 2 started production of aluminium
On 14th October 1964 respondent No 2 requested the State Government to grant sanction to the Renusagar Power Company Ltd to supply electricity to respondent No 2
On 12th November 1964 respondent No 1 Renusagar Power Company Ltd was granted sanction under section 28 of the  to engage in the business of supply of electricity to respondent No 2 Hindalco
There was an agreement on 29th December 1967 with Hindalco and UP State Electricity Board to supply 55 MW and 75 MW Of power
The rate of charges along with levy of sales tax etc were to be paid by the consumer
On 1st July 1970 there was an agreement between Hindalco and State Electricity Board to supply 75 MW Of power
The rate of charges including levy such as Sales Tax etc
were to be paid by the consumer
On 5th August 1970 the UP Ordinance No 14 of 1970 was promulgated further to amend the UP Electricity Duty Act 1952 which came into force from 1st September 1970
By the aforesaid amendment provisions of sections 3 4 and 7 were substituted by new sections sections 3A and 9 were omitted and there were several amendments in various sections of the original Act
As a result of the promulgation of the ordinance electricity duty became leviable on the industrial consumption as well as on the energy consumed by any person from his own source of generation
The provisions of section 3 have been set out before
Thereafter notification was issued on 25th August 1970 under which rate of electricity duty on the energy consumed for industrial purposes was prescribed at one paisa per unit on consumption of electricity with effect from 1st September 1970
On 1st September 1970 the provisions of the ordinance amending UP Electricity Duty Act 1952 came into force
Electricity duty became leviable on the respondent No 1 on the energy supplied to Hindalco respondent No 2 for the industrial purposes
On 28th September 1970 respondent No 2 Hindalco made an application under sub section 4 of section 3 of the Act to the State Government to grant exemption on the energy supplied by respondent No 1 to respondent No 2 for industrial purposes
On 17th January 1971 ordinance No 14 of 1970 was substituted by the UP Electricity Duty Amendment Act 1970
On 26th February 1971 report was made by the Three Men Committee appointed to examine the request of Hindalco for grant of exemption from payment of electricity duty on the energy supplied by Renusagar Power Company Ltd According to 643 the Committee the burden as a result of the imposition of electricity duty did not result in substantial or insufferable increase of the rate of duty for Hindalco
On 27th August 1971 a demand for payment of electricity duty amounting to Rs591389180 was raised on respondent No 1
On 29th March 1972 application of respondent No 2 for grant of exemption was rejected by the State Government on the following reasons a That the intention of the legislation was clear to withdraw the exemption from payment of electricity duty on the industrial consumers with effect from 191970 the facility of which was being availed for a period of more than 11 years
b That the applicant was never given any assurance that he will be exempted from electricity duty nor the applicant is entitled for any exemption as a matter of right under the provisions of the amended Act
c That it was not in public interest to grant them exemption from electricity duty
d That the electricity duty is also being levied on the Aluminium Industries in other States also
e That the additional resources are taken into account to give the final shape of the State Development Plans and with a view to fulfil the requirement of these Development Plans the Electricity Duty Act was amended in 1970
The expected income from this duty is essential for the execution of State Government plans
f It cannot be inferred that the imposition of electricity duty will be an unbearable burden on Hindalco
 Aggrieved by the aforesaid rejection the respondents filed Writ Petition No 4521 of 1972 before the High Court of Allahabad
On 17th March 1973 the State Government granted exemption from payment of electricity duty on the energy consumed by any person from his own source of generation
Exemption was also granted on the energy sold to a consumer establishing a factory having capital investment upto Rs25 laks in the backward district for five years
644 The High Court by its judgment on 17th May 1974 in the Writ Petition No 4521 of 1972 quashed the order of the State Government and directed the State Government to reconsider the application of the respondents for exemption in the light of the observations made in that judgment
On 6th September 1975 Hindalco submitted an application again to the State Government for reconsideration of their previous application for exemption from payment of electricity duty
In the meanwhile the State Government filed a special leave petition to this Court against the judgment and order of the High Court of Allahabad dated 17th May 1974 in Writ Petition No 4521 of 1972
In the meantime of 13th November 1976 an agreement was entered into between the State Electricity Board and Hindalco for supply of 85 MW main supply
The rate fixed was 11 paise per unit inclusive of all taxes of whatever nature on electricity
Special leave petition was however dismissed on 28th March 1977
In compliance with the High Court s judgment dated 17th May 1974 on 5th April 1977 respondents were given an opportunity of hearing by the State Government
For the purpose of considering the representation and to verify the correctness of the data and the profit and loss accounts furnished by Hindalco in their printed Balance Sheets the matter was got examined by Shri BB Jindal Controller of Banking operations UP State Electricity Board who submitted his report in 1977
The State Government however was not satisfied with the report of Shri BB Jindal
On 6th September 1978 the matter was got re examined by the Chief Electrical Inspector to Government Uttar Pradesh
He submitted his report
The Chief Electrical Inspector in his report compared the cost of power of Hindalco with similar industries in other States
On 5th December 1978 Secretary of Power discussed the matter with Dr R Rajagopalan Chief Advisor Costs Government of India
Then a note was prepared by the Secretary Power Government of UP in which reference was made to the above report of Chief Electrical Inspector to the Government of UP
Thereafter the Chief Secretary to the Government of UP
On 26th December 1978 wrote a letter to the Secretary Ministry of Finance Government of India requesting him that the matter may be got examined by the Chief Advisor Costs Government of India expeditiously
After examination on 29th January 1979 Dr R Rajagopalan Chief Advisor Costs Government of India submitted his report that the effect of imposition of electricity duty on the margin of profit available to Hindalco has been very insignificant
It did not have any adverse effect on the profitability of Hindalco since such a levy has been included in the cost in fixing the selling prices of Hindalco s products by the Government of India
Imposition of electricity duty did not result in reducing the 645 normal profits of Hindalco to either an absolute loss or such a small margin of profit that Hindalco was turned into an uneconomic unit
According to him the claim of Hindalco for exemption from levy of electricity duty is not based on justifiable grounds of either low profitability or incapacity of resources with which to pay
Personal hearing was given to the respondents in view of the directions given by the High Court
Report of Dr Rajagopalan was made available to the respondents
On 28th January 1980 rate of electricity duty on the energy consumed for industrial purposes was revised from one paisa to two paise per unit applicable from the date of notification that is from 16th February 1980
There was an agreement on 24th April 1980 between the State Electricity Board and the Hindalco regarding 85 MW main supply and 60 MW stand by Emergency Supply
Rate of 2842 paise per unit was fixed
A personal hearing was given to the respondents in compliance with the directions issued by the High Court
Respondents were allowed to inspect the report of the Chief Electrical Inspector and other reports available with the State Government were shown to them and they submitted their comments on the report of Dr Rajagopalan which were duly considered by the State Government
A personal hearing was again given to the respondents to submit their submissions in support of their application for exemption
Respondents were represented by counsel during the course of hearing
After giving full consideration to the submissions made in the original and additional representations and the comments dated 23rd August 1980 on the report of Dr Rajagopalan and to the entire material placed before the State Government the State Government came to the conclusion that the claim for exemption from levy of electricity duty was not at all justified on any ground whatsoever
Accordingly the request for exemption was disallowed
On 3rd March 1982 respondent No 1 was asked to pay Rs11968315380 as the amount of electricity duty on the energy supplied by it to respondent No 2 for industrial purposes
Respondent No 1
however failed to pay the aforesaid amount within the stipulated time
On 22nd March 1982 the District Magistrate Mirzapur was requested to recover the said amount as arrears of land revenue
Being aggrieved by the decision of the State Government the respondent filed a Writ Petition No 3921 of 1982 in the High Court of Allahabad and the High Court issued stay order directing the petitioners not to take any proceedings for the recovery of the impugned electricity duty
On 26th September 1984 the High Court allowed the Writ Petition No 3921 of 1982 and held that the impugned order of the State Government was not maintainable in law and hence quashed the order of the State Government as well as the notice of demand dated 3rd March 1982
The State 646 Government was also directed to consider the request of the respondents for exemption in accordance with the directions issued by the Division Bench in Writ Petition No 4521 of 1972 and also in the light of the observations made in the judgment after affording an opportunity of personal hearing to the respondents
Being aggrieved thereby the appellants have come up in appeal to this Court
In the background of the facts and the circumstances set out
hereinbefore we have now to examine the correctness of the judgment and order of the High Court which is under appeal
There are two different aspects
One is whether the Renusagar Power Co Ltd was own  source of generation of electricity for the Hindalco in the facts and circumstances of the case
The second aspect is whether the order passed by the State Government having regard to the nature of the order passed was in accordance with the principles of natural justice in so far as the same were applicable to the facts of this case
As it is apparent on the state of law mentioned hereinbefore from 1952 to 1970 no duty was payable if electricity was generated from own source of energy
From 1970 to 1973 duty of one paisa was payable in respect of electricity supplied from own source of generation
However after 1973 no duty was payable in respect of electricity supplied from own source of generation Own source of generation is an expression connected with the question of lifting or piercing the corporate veil
It is well settled that in interpreting items in statutes whose primary object is to raise revenue and for which purpose they classify diverse products articles and substances resort should be had not to the scientific and technical meaning of the terms or expressions used but to the meaning attached to them by those dealing in them
See the observations of this Court in Chiranjit Lal Anand vs State of Assam  Anr 1985 Suppl 2 SCR 385
As mentioned hereinbefore the application for exemption was made after disposal of the first writ petition No 452172 by the High Court on 17th May 1974
Thereafter the respondent made another application for exemption under section 34 of the Act
The said application was ultimately rejected which rejection was subsequently challenged
The High Court in the judgment under appeal on 26th September 1984 has set aside me order of rejection passed by the State Government
Was the High Court right is the question involved in this appeal
647 Examination of this question involves two aspects namely what is the rate of duty under which various notifications were applicable to the energy consumed by Hindalco from Renusagar
Is Renusagar own source of generation of Hindalco within the meaning of section 31c of the Electricity Duty Act 1952 and the various notifications issued thereunder
The question whether Renusagar was own source of generation of Hindalco is a mixed question of law and facts as correctly contended by Shri Palkhiwala as well as by Shri Sen appearing on behalf of the respondents
Shri Palkhiwala appearing for the respondents submitted before us the historical background of the setting up of Renusagar Power Plant
It was urged that for producing aluminium by Hindalco electricity is a raw material
The Hindalco was set up with a capacity of 20000 tons per annum on the basis of sole assurance according to the respondent given by the State of UP that adequate power would be given at a very cheap and economical rate
The Government of UP in 1959 agreed to give 55 mw
Of power 199 paise per unit
This according to the respondents was in accordance with the policy of Central Government and on the basis of the report of the various Committees set up by the Government
Our attention was drawn to certain facts appearing in Vol
A pages 8 9 which set out the averments made in the writ petition filed in the instant case
It was stated therein that aluminium is an essential raw material in a large number of industries of strategic national importance and its production is of vital public interest
60 of the production of Renusagar goes to the electric industries and an extra 16 of the production goes to the utensils manufacturing unit and all the remaining production goes to defence ordnance mint transportation and packaging industry
Aluminium is therefore a commodity of national importance and as such is mentioned in Schedule 1 of the Industries Development and Regulation Act 1951 which contains only such industries which have been declared by the Parliament to be of public interest
The Union Government was anxious to set up new units in private sector as for want of sufficient foreign exchange such units could not be set up in the public sector
In this connection reliance was placed on the report of the Industrial Licensing Enquiry Committee known as Data Committee 
In this background Shri GD Birla who eventually floated the Corporation was prevailed upon to explore the possibility of setting up of aluminium plant
The Government of India appointed a Committee of Experts headed by Shri Nagarajarao in the year 1956 for recommending the location of a new Aluminium Plant
In that report Shri Nagarajarao recommended Rihand as one of 648 the places for setting up the Aluminium Plant
The UP Government was also keen to have the industry located in the State and persuaded Shri GD Birla to set up the plant with the assurance that sufficient electricity at constant and concessional rate would be available
Here it was reiterated that the agreement dated 29th October 1959 was entered into called the parallel agreement so that at any time any one of the Thermal Power Stations could be maintained independently
Hindalco was allowed to expand its aluminium production capacity from time to time on the condition that it would instal its own power plant subject to the further condition that this power plant could be taken over by the State at a later date
To avoid take over complications Hindalco decided to set up captive power house through the instrumentality of Renusagar Power Co a 100 subsidiary of Hindalco fully controlled by Hindalco in all respects to supply power to Hindalco only
Reference may be made to page 28 of Vol
XVI which is a letter dated 13th February 1963 written by the Deputy Secretary Govt
Of India Ministry of Commerce  Industry to Shri DP Mandelia of Hindustan Aluminium Corporation New Delhi where on the question of power plant it was suggested that as stated by Shri Mandelia a separate Company may be formed with the power plant project and the major portion of the capital subscribed by Hindalco
It was highlighted that setting up of a power plant project was part of the scheme for meeting the needs of Hindalco for electricity
All planning designing engineering purchase of equipments financing was done by Hindalco exclusively for Renusagar
See Vol
XVI Pages 20 33 49 58  62 of the paper book
The only object and purpose of power plant was to supply power and suit the requirements of Hindalco
Reference may be made to pages 36  37 of Vol
XVI of the Paper Book
According to Shri Palkhiwala and Shri B Sen from the aforesaid background the following facts emerge a 19671968 Unit 1  2 of Renusagar went into operation
b Renuagar was set up as part and parcel of Aluminium Expansion Scheme
c All steps to set up Renusagar including expansion were taken by Hindalco
649 d Agency of Renusagar was set up by Hindalco because of Take over option by the State
e Renusagar is 100 subsidiary of Hindalco
f Borrowings of Renusagar arranged and guaranteed by Hindalco
g Renusagar supplies power to Hindalco only
h There is only one transmission line from Renusagar to Hindalco
i Renusagar generates power only to the extent required by Hindalco
j Hindalco has complete control over Renusagar
Hindalco has undertaken various obligations for the running of Renusagar
k The agreement between Renusagar and Hindalco is not a normal sale purchase agreement
This agreement shows complete control of Hindalco over Renusagar
THE CONDITIONS UNDER THE APPLICABLE To NORMAL SANCTION HOLDERS AND LICENSEES WERE NOT APPLIED To RENUSAGAR BECAUSE IT WAS HINDALCO S CAPTIVE SOURCE OF GENERATION
For Instance a After the incorporation in 1964 Renusagar was granted sanction us 28 of the Electricity Supply Act 1910 to supply power to Hindalco only
See Vol
XVI page 64 of the Paper Book
b Since Renusagar was not public utility but a captive plant of Hindalco certain conditions applicable to normal sanction holders in the nature of public utilities but inapplicable to Renusagar were deleted from the sanction
See Vol
XVI page 74 of the Paper Book
FOR THE PURPOSE OF EXPANSION OF HINDALCO AS WELL AS RENUSAGAR THE GOVT
OF INDIA AND THE 650 STATE OF UP SPECIFICALLY PROCEEDED ON THE FOOTING THAT HlNDALCO HAD ITS OWN SOURCE OF GENERATION IN RENUSAGAR SINCE RENUSAGAR WAS THE CAPTIVE POWER PLANT OF HINDALCO
a Hence for all practical purposes Renusagar was treated as part and parcel of the Hindalco s expansion programme
In 1962 Hindalco decided to expand capacity to 60000 tons per annum
This meant need of extra power
The UP Government and the UPSEB expressed inability to give the extra power
The UP Govt
had no objection if Hindalco set up its own power house with an option to the UP Govt
to take over the power plant later
On this important basis Hindalco was granted permission to set up captive power plant
Reliance was placed in this connection on Vol
XVI pages 4 6 7 15 and 16 of the Paper Book
Also see sections 34 36 37  44 of the Electricity Supply Act 1910
b Thus Hindalco was allowed to expand its aluminium production on the condition of its setting up its own power plant which was part and parcel of the expansion scheme
See in this connection Vol
XVI pages 22  25 of the Paper Book
c When Hindalco decided to expand its aluminium plant again from 60000 to 120000 tons per annum the expansion of the powerhouse was a condition precedent to aluminium expansion
All negotiations requests for permission correspondence with authorities intimation from Government were done and received by Hindalco
In this connection reference may be made to Vol
XVI pages 129 to 134 15 1 157  180 of the Paper Book
d Renusagar was allowed expansion limited to power requirement of Hindalco for captive use of Hindalco
See Vol
XVI pages 145 159 161 185 187 and 189 of the Paper Book
e All Government authorities including Central Govt
 State of UP and UP State Electricity Board have always treated Renusagar to be Captive Plant as either Self Generation or own generation or own Plant or own Source of generation or Generation for self use or own use etc
Of Hindalco
In this connection reference may be made to Vol
XVI pages 81 90 91 112 135A 139 140 146 150 152 160 163 167 169 172 183A  184 of the Paper Book
It further appears that 100 power cuts stoppage of electricity from the State grid were imposed on those who had 651 50 or more of their own source of generation
Hindalco suffered 100 power cuts precisely on this account
It was submitted on behalf of the respondents and in our opinion rightly that the words own source of generation could not have one meaning for power cuts and another meaning for concessionexemptions under the same law
It further appears that the Secretary Power UP Govt submitted a note to the Advisory Council for recommending 100 powercuts on Hindalco as Hindalco had more than 50 power supply from its own source of generation ie Renusagar
See Vol
XVI page 163 of the Paper Book
Notification under section 22B of the Act as appearing in Vol
XIII of the Paper Book was accordingly issued
The UPSEB served notice on Hindalco to reduce drawal to zero
See Vol
XVI page 167 of the Paper Book
The UP Government refused exemption from power cut to Hindalco on the ground that it had its own source of generation
See Vol
XVI page 172
In Court proceedings Hindalco challenged power cut
The Government filed affidavits always asserting Renusagar to be own source of generation of Hindalco
See Vol
XXIV pages 68 to 75 of the Paper Book
Indeed it appears from the observations of this Court in State of UP vs Hindustan Aluminium Corpn
Ltd  that this Court proceeded on the basis that Renusagar had its own source of generation
It is further said that the appellants have also admitted in the present proceedings the position that Hindalco had in Renusagar its own source of generation
Reliance has been placed on a Section 9 of the Duty Act as it existed upto 1970
See Vol
XVIII page 5 of the Paper Book
b Three men Committee Report on exemption treated Renusagar as own generation
See Vol
A page 158 at 163 of the Paper Book
652 c The Government of UP rejected exemption application
A page 3 of the Paper Book
d Counter affidavit in the first petition
X pages 26 27  32 of the Paper Book
e Counter affidavit in second petition
XI pages 93  130 of the Paper Book
f See the Judgment of the Allahabad High Court
A pages 7 10 11 13  19
g Petition of the UP Government under Article 138
XI page 134
h It is also significant to note the special leave petition filed by the UP Government
Reference may be made to Vol
XI pages 139 to 141
i Reference may be made to Rajagopalan Report Vol
A pages 237  265 of the Paper Book
j See the affidavit of State of UP in Allahabad High Court in present proceedings
A pages 71 72 76  84
k The High Court s Judgment dated 26984 in the present proceedings
B pages 391 397
All these factors have to be borne in mind in considering whether Renusagar was Hindalco s own source of generation
Counsel for the respondents drew our attention to the fact that in the manufacture of aluminium electrical energy is raw material and between 16000 to 20000 units of energy are required for the production of 1 ton of aluminium
The impact of the imposition of duty on energy 1 paise per unit would be an increase in the cost of production of aluminium by Rs160 to Rs200 per ton
The impact of the imposition of duty on energy  6 paise per unit will be an increase in the cost of aluminium by Rs960 to Rs1200 per tan
Hindalco was incorporated in 1959 and its aluminium plant commenced production in 1962 with a capacity of 20000 tons of aluminium ingots pa Hindalco obtained electrical energy required for the manufacture of aluminium to the extent of 55 MW from the State 653 Board Hydle power under an agreement dated 291059 1997717 paise per unit inclusive of all charges duties and taxes of whatever nature on electricity
Hindalco s plant was located at Renukut because of their assurances for power supply at economical rates
The first expansion of Hindalco from 20000 to 60000 tons pa required further electricity
According to the respondent the basic planning of the power plant at Renusagar the arrangement for its design engineering purchase and for importing the plant and for financing the whole project were done by Hindalco
Renusagar which is a 100 subsidiary of Hindalco wholly owned and controlled by Hindalco was incorporated in March 1964
Hindalco established the power plant through the agency of Renusagar in order to avoid complications in the case of a take over of the power plant by the StateBoard of which there could be a possibility as power generation is generally not permitted in normal conditions in private sector In this background what was highlighted on behalf of the respondent was that the sanction under section 28 of the 1910 Act given to Renusagar and its amendment established that Renusagar was not a normal type of sanction under section 23 of the 1910 Act as the holder could supply power only to Hindalco
The first generating unit in Renusagar commenced on 9967 and the second one commenced on 510 68
All steps for the expansion of the power in Renusagar so as to match the power requirement of Hindalco s expansion were taken by Hindalco even though Renusagar had been incorporated
Applications for all the necessary sanctions and permissions were made by Hindalco
Permissions and sanctions were first intimated to Hindalco even though Renusagar was in existence
See Vol
XVI pages 129 134  149 of the Paper Book
Changes in the sanctions andor permissions granted were obtained by Hindalco and not by Renusagar
See Vol
XVI pages 157 180 of the Paper Book
The expansion of the power plant in Renusagar was to exactly match the requirements of Hindalco for the production of aluminium
The expansion of the power plant in Renusagar was part and parcel of the expansion of the aluminium plant of Hindalco
See Vol
XVI pages 145 159 161 185 187  189 of the Paper Book
654 The third generation unit in Renusagar commenced in November 1981 and the fourth generating unit in April 1983
Hindalco consumes about 255 MW power out of which 250 MW comes from Renusagar and 5 MW by way of main supply and 15 MW by way of emergency supply is made by the Board
It was emphasised on behalf of Hindalco that the power plants at Renusagar were set up as part and parcel of the aluminium expansion scheme of Hindalco and the only object and purpose of the power plants in Renusagar was to supply power to suit the needs of Hindalco
All steps to set up the power plant in Renusagar and its further expansion were taken by Hindalco
The power plant was set up by Hindalco through the agency of Renusagar 100 subsidiary and wholly owned and controlled by Hindalco to avoid complications in the event of take over by the StateBoard
All the borrowings of Renusagar were arranged and guaranteed by Hindalco
Further there is only one transmission line going out of Renusagar and the same goes to Hindalco
Renusagar can supply power only to Hindalco
Renusagar generates power only to the extent required by Hindalco
Hindalco has complete control over Renusagar including its day to day operations
This will be evident from the applications with regard to running of Renusagar Power Plant Station undertaken by Hindalco to the Board
See Vol
XV pages 104 118 124 of the Paper Book
The agreement between Renusagar and Hindalco indicates this was not a normal sale purchase agreement between two independent persons at arms length
The price of electricity is determined according to the cash needs of Renusagar
This covenant also shows complete control of Hindalco over Renusagar
It was submitted before us that if looked at properly Renusagar was Hindalco s own source of generation and according to the respondent an analysis of the different provisions of the Amendment Act makes the position clear
Submissions were made on the construction of section 3 of the Act and also that the difference in language of section 2gc and old section 9 is significant
Ambit of section 31c is wider than the old section in view of the addition of the words source of generation  which must be given their full meaning
We have set out hereinbefore the provisions of sections 31c and 9 of the Act
Rule 2g referred to in the order shows that the expression any 655 person  in section 31c would mean a person other than licensee or a Board who consumes energy from his own source of generation
Hindalco fixes in the expression any other person  under section 31c and it consumes energy from its own source of generation
Generation being done by Renusagar it was pointed out that Rule 2g of the UP Electricity Duty Rules 1952 supports this plea of the respondents
It should be borne in mind that the expression own source of generation  which has not been defined in the Duty Act or 1910 Act cannot be regarded as a term of article The various documents and letters placed before the Court and referred to hereinbefore indicate that all persons and authorities dealing and conversant with this matter had consistently treated Renusagar as own source of generation of Hindalco
In the power cuts matter under section 22B of cut was imposed on Hindalco on the footing that it has its own source of generation
All the authorities including the State and the Board have all along treated Renusagar as own source of generation of Hindalco
The High Court as well as this Court had proceeded on that basis
In a note with the Advisory Counsel dated 31577 the Secretary Power Deptt
Of the State Govt
treated Renusagar as own source of generation of Hindalco
In the proceedings under the Electricity Duty Act itself it was the case of the State that Renusagar generation was by Hindalco for its own use within the meaning of section 9 of the Duty Act
It was also the case of the State that Renusagar was own source of generation of Hindalco and since by its amendment in 1952 the Legislature had shown an intention to levy duty on own source of generation Hindalco was not entitled to exemption
It was therefore submitted that Renusagar must be regarded as alter ego of Hindalco ie own source of generation of Hindalco within the meaning of section 31c of the Duty Act
The word own is a generic term embracing within itself several gradations of title dependent on the circumstances and it does not necessarily mean ownership in fee simple it means to possess to have or hold as property
See Black s Law Dictionary 5th Edn
p 996
It was further submitted that by the 1970 Amendment Act the Legislature intended to cover a wide area under section 31c than under the old section 9
If Renusagar is the own source of generation of Hindalco then the consumption clearly falls within section 31c
The three clauses of section 31 it was submitted had to be read together by way of harmonious construction
Section 31a should 656 not be so construed as to defeat the aim of section 31c
In the case of harmonious construction what needs to be looked at is the dominant or the primary element in the provisions
Thus section 31c should not be interpreted to cover all the cases of own generation notwithstanding the fact that a sale may be involved and to that extent the transaction should be excluded from the operation of section 31a
Alternatively it was submitted that if the three clauses were to be treated as independent of each other then the result of construction that each provision would yield to special provisions applied should be applied as a part and parcel of harmonious construction of this section
In this approach clause c of section 31 ought to be regarded as dealing with the special situation namely a person consuming from its own source of generation while provisions of clause a of section 31 should be regarded as general provisions dealing with the cases of sale and consumption generally
The aforesaid construction would be in harmony it was urged with the object and purpose of the legislation
Reliance was placed on the observations of this Court in JK Cotton Spinning  Weaving Mills Co Ltd vs State of UP  Ors   where at page 193 this Court insisted on harmonious construction and not on literal construction
Also see Ms Girdhari Lal  Sons vs Balbir Nath Mathur  Ors  at 241  246 State of Tamil Nadu vs Kodaikanal Motor Union P Ltd at 100 and D Sanjeevayya vs Election Tribunal AP  ors  at 492
On behalf of the respondents and in support of their contention it was urged that the harmonious construction would advance purpose and object of the legislation inasmuch as it was clearly one of the purposes of the legislation to treat captive generation or self generation as a separate category and to confer benefits on the same in public interest
Our attention was drawn to the notification dated 17th March 1973 which appears at Vol
XVIII page 34
It was further contended on behalf of the respondents that interpretation of section 31c of the Act would not depend on the manner in which a person might choose to organise his affairs
Further that there was no rational distinction having a nexus with the object of the Duty Act where a person generating electrical energy himself was consuming the same and a person who engaged another person to generate electrical energy exclusively for and on behalf of his complete control and who consumes all the electrical energy so generated
Accordingly it was urged that such a distinction being arbitrary and irrational it would be 657 violative of Article 14 of the Constitution
Hence it was contended that a construction of the Duty Act which would make such a distinction must be avoided
This naturally brings us to the question of lifting the corporate veil or piercing the corporate veil as we often call it
On behalf of the appellants however it was very strongly urged that in this case there was no ground for lifting the corporate veil and Shri Trivedi learned Additional Advocate General State of UP who was assisted by Shri Gopal Subramaniam submitted before us elaborate arguments and made available to us all the relevant documents urged that there was no warrant either in law or in fact to lift the corporate veil and to treat Renusagar s plant as Hindalcos own source of generation
Shri Trivedi urged that facts in this case do not justify such a construction and the law does not warrant such an approach
We may say that Shri Trivedi mainly relied on the proposition that normally the Court has disregarded the separate legal entity of a Company only where the Company was formed or used to facilitate evasion of legal obligations
He referred us to the observations of this Court in Western Coalfields Ltd vs Special Area Development Authority Korba  Anr  at 17
The facts of that case were however entirely different and it is useless to refer to them but at page 17 of the report Chandrachud CJ speaking for the Court quoted the observations in Andhra Pradesh State Road Transport Corpn
vs The ITO  Anr   where this Court had held that though the Transport Corporation was wholly controlled by the State Government it had a separate entity and its income was not the income of the State Government
While delivering the Judgment in that case Gajendragadkar CJ referred to the observations of Lord Denning in Tamlin vs Hannaford where Lord Denning had observed that the Crown and the corporation were different and the servants of the corporation were not civil servants
Chandrachud CJ relied on the aforesaid observations and referred to Pennington s Company Law 4th Edn pages 50 51 where it was stated that there were only two cases where the Court had disregarded the separate legal entity of a Company and that was done because the company was formed or used to facilitate the evasion of legal obligations
The learned editor of Pennington s Company Law 5th Edn at page 49 has recognised that this principle has been relaxed in subsequent cases
He states that the principle of company s separate legal 658 entity has on the whole been fully applied by the Courts since Salomon s case
Corporate veil has been lifted where the principal question before the court was one of company law and in some situations where the corporate personality of the company involved was really of secondary importance and the application of the old principle has worked hardship and injustice
In England there have been only a few cases where the court had disregarded the company s corporate entity and paid attention to where the real control and beneficial ownership of the company s undertaking lay
When it had done this the court had relied either on a principle of public policy or on the principle that devices used to perpetrate frauds or evade obligations will be treated as nullities or on a presumption of agency or trusteeship which at first sight Salomon s case seems to prohibit
Again at page 36 of the same Book the learned author notes a few cases where the courts have disregarded separate legal entity of a company and investigated the personal qualities of the shareholders or the persons in control of it because there were overriding
public interests to be served by doing so
Indubitably in this case there was no question of evasion of taxes but the manner of treatment of the power plant of Renusagar as the power plant of Hindalco and the Government taking full advantage of the same in the case of power cuts and denial of supply of 100 power to Hindalco in our opinion underline the facts and as such imply acceptance and waiver of the position that Renusagar was a power plant owned by Hindalco
Shri Trivedi natually relied on several decisions which we shall briefly note in aid of the submission that Renusagar s power plant could not be treated as Hindalco s power plant
He referred us to the well known case of Aron Salomon vs A Salomon  Co Ltd  at 27 30 31 43 56 to emphasise the distinction between the shareholders and the company
This point of view was emphasised by this Court also in which Chandrachud CJ relied on Western Coalfields Ltd in Rustom Cavasjee Cooper vs Union of India  at 555 where this Court held that a Company registered under the Companies Act was a legal person separate and distinct from its individual members
Property of the Company was not the property of the shareholders
These propositions in our opinion do not have any application to the facts of the instant case
Shri Trivedi also drew out attention to the Bank Voor Handel En Scheepvaart N V vs Stalford  where in the context of the international law property belonging to or held on behalf of a Hungarian national came up for consideration and the distinction between a shareholder and a company was emphasised and highlighted
659 In Kodak Ltd vs Clark  the Court of Appeal in England while dealing with an English company carrying on business in the UK Owned 98 of the shares in a foreign company which gave it a preponderating influence in the control election of directors etc of the foreign company
The remaining shares in the foreign company were however held by independent persons and there was no evidence that the English company had ever attempted to control or interfere with the management of
the foreign company or had any power to do so otherwise than by voting as shareholders
It was held that the foreign company was not carried on by the English company nor was it the agent of the English company and that the English company was not therefore assessable to income tax
Renusagar was not the alter ego of Hindalco it was submitted
On the other hand these English cases have often pierced the veil to serve the real aim of the parties and for public purposes
See in this connection the observations of the Court of Appeal in DHN Food Distributors Ltd  Ors vs London Borough of Tower Hamlets It is not necessary to take into account the facts of that case
We may however note that in that case the corporate veil was lifted to confer benefit upon a group of companies under the provisions of the Land Compensation Act 1961 of England
Lord Denning at page 467 of the report has made certain interesting observations which are worth repeating in the context of the instant case
The Master of the Rolls said at page 467 as follows Third lifting the corporate veil
A further very interesting point was raised by counsel for the claimants on company law
We all know that in many respects a group of companies is treated together for the purpose of general accounts balance sheet and profit and loss account
They are treated as one concern
Professor Gower in his book on company law says there is evidence of a general tendency to ignore the separate legal entities of various companies within a group and to look instead at the economic entity of the whole group 
This is especially the case when a parent company owns all the shares of the subsidiaries so much so that it can control every movement of the subsidiaries
These subsidiaries are bound hand and foot to the parent company and must do just what the parent company says
A striking instance is the decision of the House of Lords in Harold Holdworth  Co Wakefield Ltd vs Caddies
So here
This group is virtually the same as a partnership in which all the three companies are partners
They 660 should not be treated separately so as to be defeated on a technical point
They should not be deprived of the compensation which should justly be payable for disturbance
The three companies should for present purposes be treated as one and the parent company DHN should be treated as that one
So that DHN are entitled to claim compensation accordingly
It was not necessary for them to go through a conveyancing device to get it
I realise that the President of the Lands Tribunal in view of previous cases felt it necessary to decide as he did
But now that the matter has been fully discussed in this court we must decide differently from him
These companies as a group are entitled to compensation not only for the value of the land but also compensation for disturbance
I would allow the appeal accordingly Lord Justice Goff proceeded with caution and observed as follows at pages 468  469 of the report Secondly on the footing that that is not in itself sufficient still in my judgment this is a case in which one is entitled to look at the realities of the situation and to pierce the corporate veil
I wish to safeguard myself by saying that so far as this ground is concerned I am relying on the facts of this particular case
I would not at this juncture accept that in every case where one has a group of companies one is entitled to pierce the veil but in this case the two subsidiaries were both wholly owned further they had no separate business operations whatsoever thirdly in my judgment the nature of the question involved is highly relevant namely whether the owners of this business have been disturbed in their possession and enjoyment of it
I find support for this view in a number of cases from which I would make a few brief citations first from Harold Holdworth  Co Wakefield Ltd vs Caddies where Lord Reid said It was argued that the subsidiary companies were separate legal entities each under the control of its own board of directors that in law the board of the appellant company could not assign any duties to anyone in relation to the management of the subsidiary companies and that there 661 fore the agreement cannot be construed as entitling them to assign any such duties to the respondent
My Lords in my judgment this is too technical an argument
This is an agreement in re mercatoria and it must be construed in the light of the facts and realities of the situation
The appellant company owned the whole share capital of British Textile Mfg Co and under the agreement of 1947 the directors of this company were to be the nominees of the appellant company
So in fact the appellant company could control the internal management of their subsidiary companies and in the unlikely event of there being any difficulty it was only necessary to go through formal procedure in order to make the decision of the appellant company s board fully effective
That particular passage is I think especially cogent having regard to the fact that counsel for the local authority was constrained to admit that in this case if they had thought of it soon enough DHN could as it were by moving the pieces on their chess board have put themselves in a position in which the question would have been wholly unarguable
l also refer to Scottish Co operative Wholesale society Ltd vs Meyer
That was a case under section 210 of the Companies Act 1948 and Viscount Simonds said I do not think that my own views could be stated better than in the late Lord President Cooper s words on the first hearing of this case
He said In my view the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow 1egalistic view My third citation is from the judgment of Danckwerts LJ in Merchandise Transport Ltd vs British Transport Commission where he said that the cases Show that where the character of a company or the nature of the persons who control it is a relevant feature the court will go behind the mere status of the company as a legal entity and will consider who are the persons as share sholders or even as agents who direct and control the 662 activities of a company which is incapable of doing anything without human assistance  The third ground which I place last because it is longest but perhaps ought to come first is that in my judgment in truth DHN were the equitable owners of the property
In order to resolve this matter it will be necessary for me to refer in some detail to the facts Shaw LJ also observed at page 473 as follows Even if this were not right there is the further argument advanced on behalf of the claimants that there was so complete an identity of the different companies comprised in the so called group that they ought to be regared for this purpose as a single entity
The completeness of that identity manifested itself in various ways
The directors of DHN were the same as the directors of Bronze the shareholders of Bronze were the same as in DHN
the parent company and they had a common interest in maintaining on the property concerned the business of the group
If anything were necessary to reinforce the complete identity of commercial interest and personality cl 6 to which I have referred already demonstrates it for DHN undertook the obligation to procure their subsidiary company to make the payment which the bank required to be made
If each member of the group is regarded as a company in isolation nobody at all could have claimed compensation in a case which plainly calls for it
Bronze would have had the land but no business to disturb DHN would have had the business but no interest in the land
 In this connection it would be useful to refer to Harold Holdsworth  Co Wakefield Ltd vs Caddies  where Lord Morton of Henryton in England at page 734 of the report observed as follows My Lords this clause refers to a group of companies consisting of the appellant company and their existing subsidiary companies
I cannot read the clause as compelling the board to assign duties to the respondent in relation to the business of every company in the group
Nor can I read it as 663 compelling the board to assign him duties in relation to the business of the appellant company
That business is not treated as being on a different footing from the business of British Textile or of another subsidiary of the appellant company Whalley  Appleyard Ltd which is mentioned in the respondent s condescendence 3
As I read the clause it leaves the board of the appellant company free to assign to the respondent duties in relation to the business of one only or two only or all of the companies in the group and to vary the assignment and the duties from time to time
Further I think the clause leaves the board free to appoint another person to be a managing director and to divide the duties and powers referred to in the clause between the respondent and the other managing director in such manner as they think fit
It is true that each company in the group is in law a separate entity the business whereof is to be carried on by its own directors and managing director if any but there is no doubt that the appellant company by taking any necessary formal steps could make any arrangements they pleased in regard to the management of the business of for instance British Textile
They owned all the issued capital and the directors were their nominees Lord Reid at pages 737 738 observed as follows It was argued that the subsidiary companies were separate legal entities each under the control of its own board of directors that in law the board of the appellant company could not assign any duties to any one in relation to the management of the subsidiary companies and that therefore the agreement cannot be construed as entitling them to assign any such duties to the respondent
My Lords in my judgment this is too technical an argument
This is an agreement in re mercatoria and it must be construed in the light of the facts and realities of the situation
The appellant company owned the whole share capital of British Textile Manufacturing Co and under the agreement of 1947 the directors of this company were to be the nominees of the appellant company
So in fact the appellant company could control the internal management of their subsidiary companies and in the unlikely 664 event of there being any difficulty it was only necessary to go through formal procedure in order to make the decision of the appellant company s board fully effective
 our attention was drawn by Shri Sen to Scottish Co operative Wholesale Society Ltd vs Meyer and Anr  where Viscount Simonds of House of Lords observed at pages 71 72 as follows My Lords it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the company were bodies wholly independent of each other competitors in the rayon market and using against each other such methods of trade warfare as custom permitted
But this is to pursue a false analogy
It is not possible to separate the transactions of the society from those of the company
Every step taken by the latter was determined by the policy of the former
I will give an example of this
I observed that in the course of the argument before the House it was suggested that the company had only itself to blame if through its neglect to get a contract with the society it failed in a crisis to obtain from the Falkland Mill the supply of cloth that is needed
The short answer is that it was the policy of the society that the affairs of the company should be so conducted and the minority shareholders were con tent that it should be so
They relied how unwisely the event proved on the good faith of the society and in any case they were impotent to impose their own views
It is just because the society could not only use the ordinary and legitimate weapons on commercial warfare but could also control from within the operations of the company that it is illegitimate to regard the conduct of the company s affairs as a matter for which it had no responsibility
After much consideration of this question I do not think that my own views could be stated better than in the late Lord President Lord Cooper s words on the first hearing of this case 
He said 1954 SC at p391 In my view the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view
The truth is tnat whenever a subsidiary is formed as in this case with an 665 independent minority of shareholders the parent company must if it is engaged in the same class of business accept as a result of having formed such a subsidiary an obligation so to conduct what are in a sense its own affairs as to deal fairly with its subsidiary
 At the opposite pole to this standard may be put the conduct of a parent company which says our subsidiary company has served its purpose which is our purpose
Therefore let it die and having thus pronounced sentence is able to enforce it and does enforce it not only by attack from without but also by support from within
If this section is inept to cover such a case it will be a dead letter indeed
I have expressed myself strongly in this case because it appears to me to be a glaring example of precisely the evil which Parliament intended to remedy
 Similarly at page 84 of the report Lord Keith s observations are also relevant to the facts of this case
My Lords if the society could be regarded as an organisation independent of the company and in competition with it no legal objection could be taken to the actions and policy of the society
Lord Carmont pointed this out in the Court of Session
But that is not the position
In law the society and the company were it is true separate legal entities
But they were in the relation of parent and subsidiary companies the company being formed to run a business for the society which the society could not at the outset have done for itself unless it could have persuaded the respondents to become servants of the society
This the respondents were not prepared to do
The company through the knowledge the experience the connexions the business ability and the energies of the respondents had built up a valuable goodwill in which the society shared and which there is no reason to think would not have been maintained if not increased with the co operation of the society
The company was in substance though not in law a partnership consisting of the society and the respondents
Whatever may be the other different legal consequences following on one or other of these forms of combination one result in my opinion followed in the present case from the method adopted which is common to partnership that 666 there should be the utmost good faith between the constitutent members
In partnership the position is clear
As stated in Lindley on Partnership 11th Edn p401 A partner cannot without the consent of his co partners lawfully carry on for his own benefit either openly or secretly
any business in rivalry with the firm to which he belongs
 It may not be possible for the legal remedies that would follow in the case of a partnership to follow here but the principle has I think valuable application to the circumstances of this case
 In Charterbridge Corpn
Ltd vs Lloyds Bank Ltd  Anr
at page 1194 Justice Pennycuick emphasised that the reality of the situation must be looked in
Shri Trivedi drew out attention to the decision in Marshall Richards Machine Co Ltd vs Jewitt HM Inspector of Taxes  where at page 525 of the report Lord Upjohn J Observed that where you have a wholly owned subsidiary and both the parent company and wholly owned subsidiary enter into trading relationships there is of course a dual relation but you cannot for the purposes of tax disregard the fact that there are in fact two entities and two trades that is to say the trade of each company
It is normally a question of fact whether the disbursement in question is laid out wholly and exclusively and for the purposes of the trade
In aid of this proposition and in furtherance Shri Trivedi drew our attention to the profits of the two companies which were separately computed and also referred to Vol
C 641 where the profits of Renusagar were separately indicated and Vol
at page 642 where the profits of Hindalco were separately indicated
We are however of the opinion that these tests are not concIusive tests by themselves
Our attention was also drawn to the decision of the Madras High Court in Ms Spencer  Co Ltd Madras vs The Commissioner of Wealth Tax  where Veeraswami J held that merely because a company purchases almost the entirety of the shares in another company there was no extinction of corporate character for each company was a separate juristic entity for tax purposes
Almost on similar facts are the observations of PB Mukharji J in Turner Morrison  Co Ltd vs Hungerford Investment 667 Trust Ltd where he held that holding company and subsidiaries are incorporated companies and in this context each has a separate legal entity
Each has a separate corporate veil but that does not mean that holding company and the subsidiary company within it all constitute one company
Mr Justice o Chinnappa Reddy speaking for this Court in Life Insurance Corpn of India vs Escorts Ltd  Ors 1985 Suppl 3 SCR 909 had emphasized that the corporate veil should be lifted where the associated companies are inextricably connected as to be in reality part of one concern
It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible since that must necessarily depend on the relevant statutory or other provisions the object sought to be achieved the impugned conduct the involvement of the element of the public interest the effect on parties who may be affected
After referring to several English and Indian cases this Court observed that eversince A Salomon  Co Ltd s case supra a company has a legal independent existence distinct from individual members
It has since been held that the corporate veil may be lifted and corporate personality may be looked in
Reference was made to Pennington and Palmer s Company Laws
It is hightime to reiterate that in the expanding of horizon of modern jurisprudence lifting of corporate veil is permissible
Its frontiers are unlimited
It must however depend primarily on the realities of the situation
The aim of the legislation is to do justice to all the parties
The horizon of the doctrine of lifting of corporate veil is expanding
Here indubitably we are of the opinion that it is correct that Renusagar was brought into existence by Hindalco in order to fulfil the condition of industrial licence of Hindalco through production of aluminium
It is also manifest from the facts that the model of the setting up of power station through the agency of Renusagar was adopted by Hindalco to avoid complications in case of take over of the power station by the State or the Electricity Board
As the facts make it abundantly clear that all the steps for establishing and expanding the power station were taken by Hindalco Renusagar is wholly owned subsidiary of Hindalco and is completely controlled by Hindalco
Even the day to day affairs of Renusagar are controlled by Hindalco
Renusagar has at no point of time indicated any independent volition
Whenever felt necessary the State or the Board have themselves lifted the corporate veil and have treated Renusagar and Hindalco as one concern and the generation in Renusagar as the own source of generation of Hindalco
In the impugned order of the profits of Renusagar 668 have been treated as the profits of Hindalco
In the aforesaid view of the matter we are of the opinion that the corporate veil should be lifted and Hindalco and Renusagar be treated as one concern and Renusagar s power plant must be treated as the own source of generation of Hindalco and should be liable to duty on that basis
In the premises the consumption of such energy by Hindalco will fall under section 31c of the Act
The learned Additional Advocate General for the State relied on several decisions some of which have been noted
The veil on corporate personality even though not lifted sometimes is becoming more and more transparent in modern company jurisprudence
The ghost of Salomon s case still visits frequently the hounds of Company Law but the veil has been pierced in many cases
Some of these have been noted by Justice PB Mukharji in the New Jurisprudence
Tagore Law Lecture 183
It appears to us however that as mentioned the concept of lifting the corporate veil is a changing concept and is of expanding horizons
We think that the appellant was in error in not treating Renusagar s power plant as the power plant of Hindalco and not treating it as the own source of energy
The respondent is liable to duty on the same and on that footing alone this is evident in view of the principles enunciated and the doctrine now established by way of decision of this Court in Life Insurance Corpn of India supra that in the facts of this case sections 31c and 41c of the Act are to be interpreted accordingly
The person generating and consuming energy were the same and the corporate veil should be lifted
In the facts of this case Hindalco and Renusagar were inextricably linked up together
Renusagar had in reality no separate and independent existence apart from and independent of Hindalco
In the aforesaid view of the matter we are of the opinion that consumption of energy by Hindalco is clearly consumption by Hindalco from its own source of generation
Therefore the rates of duty applicable to own source of generation have to be applied to such consumption that is to say
I paisa per unit for the first two generating sets and nil rate in respect of 3rd and 4th generating sets
It is appropriate to refer that having regard to the conduct of the State the power cuts matter and also the present proceedings the State should not be permitted to treat consumption of Renusagar s energy by Hindalco as anything other than different from consumption of energy 669 by Hindalco from its own source of generation
We are therefore of the opinion that in the facts of this case the corporate veil must be lifted and Hindalco and Renusagar should be treated as one concern and if that is taken the consumption of energy by Hindalco must be regarded as consumption by Hindalco from its own source of generation
Inasmuch as the High Court upheld this contention of the respondent we are in respectful agreement of its views and the appeal directed against this finding of the High Court must therefore be rejected
The electricity bill for arrears subject to consideration of other aspects of the matter that is to say the validity of the order of rejection passed by the State on 16th February 1982 rejecting the claim for exemption would be treated hereinafter
In order to appreciate the second aspect of the matter that is to say the challenge to the order which has been quashed by the High Court it is necessary to recapitulate certain facts
Hindalco made an application to the State Government under section 34 of the Act for exemption on 28th September 1970
In spite of repeated requests made by Hindalco the State did not take any decision on the said application of Hindalco and also purported to raise and enforce demands under the Duty Act against Hindalco
Hindalco and Renusagar filed a Writ Petition No 368 of 1972 in the High Court of Allahabad on 21st March 1972
On that very date Hindalco was informed that the application previously made by it had been rejected by the State Government
Hindalco applied for amendment of the writ petition
Reasons for rejection were intimated on 16th June 1972
Thereafter Writ Petition No 368 of 1972 was withdrawn
On 21st July 1972 Hindalco and Renusagar filed another Writ Petition No 4521 of 1972 in the High Court of Allahabad challenging the order of rejection
On 17th May 1974 the High Court delivered judgment quashing the aforesaid rejection and asking the State Government to consider the matter afresh in accordance with law and in accordance with the directions contained in the said judgment
Another Writ Petition being Writ Petition No 3921 of 1982 out of which the present appeal arises was filed by Renusagar and Hindalco on 16th April 1982
The High Court passed an order on 26th September 1984 quashing the order
The High Court was of the view that the Government was under a mandatory duty to consider certain factors
These were 1 How did the cost of power to the Corporation compare with the cost of power to 670 similar industries in other States 2 How the spending of huge sums A by the Government of India in foreign exchange decreased and its keenness to attain self sufficiency in the country by increasing its indigenous production in public interest attained 3 The commitment made by the Government of Uttar Pradesh to the Hindalco to supply power at cheap rate as noticed in the report of Dr Nagarajarao
4 The effect of imposition of duty on the margin of profit available to Hindalco
The provisions of sub section 4 of section 3 have been noticed
As we have read the said provisions it appears to us that the dominance of public interest is significant and we refer to the various factors namely a prevailing charges for supply of energy in any area b the generating capacity of any plant c the need to promote industrial production generally or any specified class therof and other relevant factors and then taking all these factors into consideration in public interest to fix different rates of electricity duty in relation to different classes of consumption of energy or allow any exemption from payment thereof
Various grounds have been made out
Shri Sen for the respondents is right that in view of the ceilings prescribed the power conferred upon the State under section 31 of the Act by itself is valid and does not amount to excessive delegation
See also in this connection the observations of this Court in Devi Das Gopal Krishnan  Ors
vs State of Punjab  Ors 1967 3 SCR 557 and Ram Bachan Lal vs The State of Bihar  Shri Trivedi learned Additional Advocate General State of Uttar Pradesh drew our attention to the case of Panama Canal Company vs Grace Line  2 Lawyers  Edn 788 where at page 793 of the report while dealing with the facts of that case Justice Douglas observed that as it was seen in that case the conflict raged over questions that at heart involved problems of statutory construction and cost accounting whether an operating deficit in the auxiliary or supporting activities was a legitimate cost in maintaining and operating the Canal for purpose of the toll formula
These are matters on which experts might disagree these involve nice issues of judgment and choice which required the exercise of informed discretion
In those circumstances Justice Douglas observed that the case was therefore quite unlike the situation where a statute created a duty to act and an equity court was asked to compel the agency to take the prescribed action
What was emphasised was that the matter should be far less cloudy much more clear for courts to intrude
It is also in this connec 671 tion necessary that if technical considerations are involved the Court feels shy to interfere
Reliance was placed on the observations of this Court in Vincent Panikurlangara vs Union of India and others  There the writ petition involved the claim for withdrawal of 7000 fixed dose combinations and withdrawal of licences of manufacturers engaged in manufacture of about 30 drugs which have been licensed by the Drugs Control Authorities the issues that fell for consideration are not only relating to technical and specialised matters relating to therapeutic value justification and harmful side effects of drugs but also involved examination of the correctness of action taken by respondents 1 and 2 therein on the basis of advice the matter also involved the interest of manufacturers and traders of drugs as also the interest of patients who require drugs for their treatment
This Court reiterated that in view of the magnitude complexity and technical nature of the enquiry involved in the matter as also the far reaching implications of the total ban of certain medicines for which the petitioner had prayed a judicial proceeding of the nature initiated was not an appropriate one for determination of such matters
The technical aspects which arose for consideration in a matter of that type could not be effectively handled by a court
This Court also reiterated that similarly the question of policy which was involved in the matter was also one for the Union Government keeping the best interest of citizens in view to decide
No final say in regard to such aspects came under the purview of the court
The High Court in the instant case reiterated the necessity of cheap electricity and if cheap electricity was not made available the cost of indigenous aluminium would go up
It would necessitate import of aluminium causing drain on the foreign exchange of the country
On the other hand the learned Additional Advocate General for the State of UP contended and in our opinion rightly that primary purpose of the Act as stated in the preamble was to raise the revenue for the development projects
Whether in a particular situation rural electrification and development of agriculture should be given priority or electricity or development of aluminium industry should be given priority or which is in public interest in our opinion are value judgments and the legislature is the best judge
The High Court in its impugned judgment referred to the order of the Government
The said order read as follows The Corporation has also emphasized that the Government of India is spending a huge sum of money in foreign exchange to meet the requirements of aluminium in India 672 with a view to increasing the aluminium production by Hindalco Electricity should be made available at cheap rate and exemption should be granted to the Corporation from payment of electricity duty
In this connection it may again be pointed out that the imposition of electricity duty will not affect the productivity of aluminium by Ms Hindalco as electricity duty is negligible as clearly made out in the earlier paragraphs
Accordingly the electricity duty is not likely to have any adverse effect on foreign exchange of the country
Referring to the aforesaid observations of the State Government the High Court was of the view that the said observations of the State Government clearly showed that the State Government did not address itself to the need of promoting aluminium industry for increasing production of aluminium which would in the long run save foreign exchange
We are unable to agree
What was paramount before introduction of the development programme and how the funds should be allocated and how far the Government considers a negligible increase and rise in the cost of aluminium for the purpose of raising monies for other development activities are matters of policy to be decided by the Government
It is true as the High Court has pointed out that the question regarding public interest and need to promote indigenous industrial production was related with the question of exemption of duty
But what the High Court missed in our opinion with respect was that a matter of policy which should be left to the Government
Reading the order of the Government it appears to us that the Government had adverted itself to all the aspects of sub section 4 of section 3 of the Act
It is true that certain amount of encouragement was given to Hindalco to start the industry in a backward area
After considerable point of time the very low rate of duty was charged
But if we need other sectors of growth and development for example food shelter water rural electrification the need for encouragement to aluminium industry had to be subordinated by little high cost because that is a matter on which the Government as representing the will of the people is the deciding factor
Price fixation in our opinion which is ultimately the basis of rise in cost because of the rise of the electricity duty is not a matter fol investigation of Court
This question was examined by this Court in Union of India and another vs Cynamide India Ltd and another 1987 2 SCC 720 where one of our learned brothers who delivered the judgment of the High Court of Allahabad was a party
There in exercise of the powers under section 32c of the Essential Commodities Act
the Drugs Prices Control order 673 1979 was made
The Central Government thereafter issued notification thereunder
At page 741 of the report Chinnappa Reddy J speaking for the Court referring to a passage of the Administrative Law by Schwartz with approval expressed the view that those powers were more or less legislative in character
Fixation of electricity tariff can also to a certain extent be regarded of this category
Chinnappa Reddy J Observed at page 735 of the report that price fixation is more in the nature of a legislative activity than any other
He referred to the fact that due to the proliferation of delegated legislation there is a tendency for the line between legislation and administration to vanish into an illusion
Administrative quasi judicial decisions tend to merge in legislative activity and conversely legislative activity tends to fade into and present an appearance of an administrative or quasi judicial activity
Any attempt to draw a distinct line between legislative and administrative functions it has been said is difficult in theory and impossible in practice 
Reddy J insisted that it is necessary that the line must sometimes be drawn as different legal rights and consequences may ensue
It appears to us that sub section 4 of section 3 of the Act in the set up is quasi legislative and quasi administrative in so far as it has power to fix different rates having regard to certain factors and in so far as it has power to grant exemption in some cases in our opinion is quasi legislative in character
Such a decision must be arrived at objectively and in consonance with the principles of natural justice
It is correct that with regard to the nature of the power under section 34 of the Act when the power is exercised with reference to any class it would be in the nature of subordinate legislation but when the power is exercised with reference to individual it would be administrative
Reference was made in this connection to the cases of Union of India vs Cynamide India Ltd supra and PJ Irani vs State of Madras  at 179 180 and 181 182
If the exercise of power is in the nature of subordinate legislation the exercise must conform to the provisions of the statute
All the conditions of the statute must be fulfilled
The High Court was right only to the limited extent that all the relevant considerations must be taken into account and the power should not be exercised on irrelevant considerations but singular consideration which the High Court in our opinion seems to have missed in the judgment under appeal is these factors namely the prevailing charges for supply of energy in any area the generating capacity of any plant the need to promote industrial production generally or any specified class thereof and other relevant factors cannot be judged disjointly
These must be judged in adjunct to the public interest and that public interest is as mentioned in the Preamble to raise revenue
674 Reference was also made to the observations of the Judicial Committee in Ryots of Garabandho and others vs Zamindar of Parlakimedi and another AIR 1943 PC 164 where the Judicial Committee had to deal with the proviso to section 30 of the Act
It read as follows In settling rents under this section the Collector shall presume unless the contrary is proved that the existing rent or rate of rent is fair and equitable and shall have regard to the provisions of this Act for determining rates of rent payable by a ryot
 Viscount Simon LC
Observed that the view taken by the majority of the Collective Board of Revenue in making the order which is now complained of is that the requirement to have regard to the provisions in question has no more definite or technical meaning than that of ordinary usage and only requires that these provisions must be taken into consideration
In their view the prime duty of the Revenue officer under Chap
II was to fix a fair and equitable rent and though he must be guided by the principles underlying such provisions as were contained in chap
3 he was not strictly bound by such provisions
The Judicial Committee observed at page 180 of the report as follows Having regard to the long time that had elapsed since the last tentative settlement of rent in 1867 68 to the prodigions rise in prices that had taken place since then and to the general economic improvement of this part of the country the Collective Board considered that an enhancement of 37 12 per cent would not be oppressive and directed the Revenue officer to reduce to that figure the enhancement of 100 per cent which he had made
This view of the effect of the direction to have regard to the provisions of the Act for determining rates of rent payable by a ryot is supported by the decision of the High Court in at 506
It is also confirmed by certain observations of Reilly J in at p 486 where the learned Judge said Where the settling officer has to deal only with such questions as would arise in a suit for commutation for enhancement or reduction of money rent under section 1682 he must be guided by the appropriate principles as set out in the Act but there is no doubt that his settlement may embrace a much wider field of 675 question and whenever he has not merely to adjust the lawful rent but to fix what is fair and equitable in variation from the lawful rent which can be exacted in a suit his settlement is clearly something which no civil Court could do unless specially empowered
Their Lordships find themselves on this matter in agreement with the view taken by the majority of the Collective Board
It is not possible to peruse the proceedings of the Special Revenue officer in this case without seeing that a number of matters besides the rise in prices of staple food crops were considered by him and had to be considered by him if he was to carry out his duty under chap
He observed in para
30 of the final proceedings dated 10th December 1935 I hold that the present settlement is also a fresh and initial settlement wherein everything has to be re classified afresh and new rates of rent have to be fixed
It is not therefore a case of enhancement but of fixing and introducing a new rate of rent based on the principles of equity and fairnes as laid down in Chap
II Estates Land Act
 The High Court in the impugned judgment commented that it was a mandatory duty to separately consider these relevant factors and has committed the error against which the Judicial Committee cautioned
The High Court was of the view at page 10 of the judgment that there was a mandatory duty to consider the factors mentioned hereinbefore
All that the section requires was that these factors should be borne in mind but these must be subordinate to the executive decision of the need for public interest
In Saraswati Industrial Syndicate Ltd etc
vs Union of India  the Sugar Control order 1966 came up for consideration
Clause 72 of the Sugar Control order had been set out at page 958 of the report
It read as follows Such price or maximum price shall be fixed having regard to the estimated cost of production of sugar determined on the basis of the relevant schedule of cost given in the Report of the Sugar Enquiry Commission October 1965 subject to the adjustment of such rise in cost subsequent to the Report aforesaid as in the opinion of the Central 676 Government cannot be absorbed by the provision for contingencies in the relevant schedule to that Report
 Beg J as the learned Chief Justice then was observed that clause 72 set out above required the Government to fix the price having regard to the estimated cost of production of sugar on the basis of the relevant schedule
The expression having regard to only obliges the Government to consider as relevant data material to which it must have regard to
In so far as the High Court held in this judgment that the power conferred on the State Government was of the administrative nature the High Court may not be in error
But the High Court held that it should be in consonance with the principles of natural justice in our opinion it must be in accordance with natural justice to a limited extent and such principles of natural justice are enunciated by this Court in several decisions namely AK Kraipak vs Union of India AIR 1970 SC 150 Ms Travancore Rayons Ltd vs Union of India AIR 1971 SC 862 and Amal Kumar Ghatak vs State of Assam  others AIR 1971 Assam 32
Keeping in view the aforesaid principles the High Court examined the petitioners  grievance
Dr Rajagopalan submitted his report to the State Government in January 1979
Admittedly Dr Rajagopalan placed reliance on the report of Working Group on Aluminium set up by the Government of India in 1970 and various other reports of Bureau of Industrial Cost and Price hereinafter refer red to as BICP  submitted to the Government from time to time
It is based on the balance sheet of the appellants and had been made available to the respondents
We have examined the correspondence that passed between the parties and we are of the opinion that there was no violation of the principles of natural justice because the relevant datas were made available to the appellants
It is true that the principles of natural justice must be adhered to
In this connection reference may be made to SD Hotop Principles of Australian Administrative Law 6th Edition Pages 210 212 Cases and Materials on Review of Administrative Action 2nd Edition by SD Hotop Wade on Administrative Law 5th Edition pages 506507 and Bennion on Statutory Interpretation 1984 Edition pages 140 141
The exercise of power whether legislative or administrative will be set aside if there is manifest error in the exercise of such power or the exercise of the power is manifestly arbitrary
Similarly if the power has been exercised on a non consideration or non application of mind to re 677 levant factors the exercise of power will be regarded as manifestly erroneous
If a power whether legislative or administrative is exercised on the basis of acts which do not exist and which are patently erroneous such exercise of power will stand vitiated
See Commissioner of Income Tax vs Mahindra  Mahindra Ltd Ors  at 786 787
The present case relates to the particular facts and circumstances of an individual namely Hindalco
To the extent its claim for exemption was entitled to the consideration
In our opinion the facts and circumstances of the case were examined in consonance with the principles of natural justice
All relevant factors were given consideration but subject to public interest
The High Court considered whether electricity duty was included in the prices of aluminium fixed by the Central Government
On this aspect our attention was drawn on behalf of the respondents at pages 372 387 of the judgment in Volume B
It was submitted that the assumption that electricity duty was included in the prices of Hindalco fixed by the Central Government formed a basic and a very important consideration in the making of the impugned order
We are unable to agree
It was also submitted that the said assumption was made by the State Government and Dr Rajagopalan on the basis of the reports of BICP and the Working Group
The High Court on a perusal of the reports of the BICP and the Working Group came to the conclusion that the said assumption of the State and Dr Rajagopalan is based on non existent fact andor is patently erroneous
Apparently such examination by the High Court was not warranted
It was pointed out that Dr Rajagopalan had determined the adequacy of the profits of Hindalco by relating the same to the original subscribed capital only and had completely ignored the reserves of Hindalco
The aforesaid basis it was held by the High Court is contrary to the well accepted principles of return on capital employednet worth
It is true that Hindalco has made profits much more than it had before the imposition of the duty
The adequacy of the profits or whether it made much more profits is not a consideration which must prevail over public interest and the Government having taken into consideration this factor in our opinion did not commit any error and the High Court was in error in setting aside the order of the Government
It is true that the cost of power to similar industry in other State was a relevant factor and the State was under a mandatory duty to consider the same
The State has taken note of all those factors and has observed that Ms Hindalco is being supplied with electrical energy at a very nominal rate and taking into consideration the prevailing practice of levy of electricity duty in other States as well as the provisions stated in section 34 the Government have come to the conclusion that there is no justification for allowing 678 exemption from electricity duty to Ms Hindalco
The Government did not commit any error which required interference by the High Court in the manner it did 
The assurance of cheap power factor was there
But the assurance of cheap power factor does not foreclose the public interest of raising public revenue
In July 1975 the Central Government fixed uniform prices of aluminium for all the producers of aluminium
The Central Government also fixed uniform sale prices of aluminium applicable to all producers
The Central Government also fixed individual retention prices based inter alia on the cost of production for each individual producer
All producers of aluminium were to sell aluminium at the uniform sale prices
Any producer whose retention prices were lower than the sale prices had to pay difference into the Aluminium Regulation Account
Any producer whose retention prices were higher than the sale prices was entitled to receive the difference from the Aluminium Regulation Account
Price therefore was no question of the respondent being loser or sufferer
It is true that electricity duty was not included and was also considered in the fixation of the price
That is the only pre dominant factor having regard to the technical nature of the order
The impugned order does not suffer from the vice of non application of mind or non consideration of the relevant factors and the High Court was in error in interfering with the order of the Government
We are clearly of the opinion that the High Court was in error in interfering with the order in the manner it did
The High Court should not have interfered for interference by the High Court the matter should have been far less cloudy and far more clear
Natural justice in the sense that a party must be heard beforehand need not be directly followed in fixing the price
Reference in this connection may be made to the observations of this Court in Prag Ice  oil Mills and another etc
vs Union of India   where at page 325 of the report this Court observed that in the ultimate analysis the mechanics of price fixation has necessarily to be left to the judgment of the executive and unless it is patent that there is hostile discrimination against a class of operators the processual basis of price fixation has to be accepted in the generality of cases as valid
In this connection reference may also be made to Shree Meenakshi Mills Ltd vs Union of India  where this Court dealing with the Cotton Textile Control order 1948 at page 419 of the report observed that if fair price is to be fixed leaving a reasonable margin of profit there is never any question of infringement of fundamental right to carry on business by imposing reasonable restrictions
679 Unreasonableness and natural justice have to be judged in that context
In that view of the matter non supply of the basis of the report of the BICP does not by itself in our opinion in the facts and circumstances of the case make the order of the State Government vulnerable to challenge
In Laxmi Khandsari etc
vs State of U P  Ors  this Court was dealing with the and the Sugarcane Control order 1966 and observed that in determining the reasonableness of restrictions imposed by law in the field of industry trade or commerce the mere fact that some of the persons engaged in a particular trade may incur loss due to the imposition of restrictions will not render them unreasonable because it is manifest that trade and industry pass through periods of prosperity and adversity on account of economic social or political factors
At page 129 of the report rejecting the plea that before fixing a price the rules of natural justice should be adhered to this Court emphasised referring to the observations in the case of Saraswati Industrial Syndicate Ltd vs Union of India  that price fixation is more in the nature of a legislative measure even though it may be based upon objective criteria found in a report or other material
There is scope for trial and error in such sphere
Judged by that standard the impugned order in this case in our opinion is not bad
In support of the proposition that the principles of natural justice had been violated in passing the impugned order five decisions were referred to namely State of Orissa vs Mr Miss Binapani Dei   AK Kraipak vs Union of India AIR  Mohd Rashid vs State of UP   SL Kapoor vs Jagmohan and others  and Maneka Gandhi vs Union of India AIR 1978 SC 597
The principles of these cases will have no application to the facts of this case
There has been no violation of the principles of natural justice to the extent applicable to the order of this nature
Reference was made to the observations in the case of India Sugars  Refineries Ltd vs Amravathi Service Co operative Society Ltd  where at page 746 of the report this Court observed that the power to grant exemption to factories from payment of additional price is intimately connected with the right of sugarcane growers to claim additional price
In granting of such power principles of natural justice should be followed
In such a case a duty to act judicially does arise
680 This Court in Commissioner of Income Tax Bombay and others A vs Mahindra and Mahindra Limited  Ors  at page 786 of the report dealt with the parameters of the Court s power of judicial review of administrative or executive action or decision
Indisputably it is a settled position that if the action or decision is perverse or is such that no reasonable body of persons properly informed could come to or has been arrived at by the authority misdirecting itself by adopting a wrong approach or has been influenced by irrelevant or extraneous matters the Court would be justified in interfering with the same
See also the observations at page 787 of the report
In this case the parameters had been adhered to
All relevant factors had been borne in mind
It is true that each factor had not been independently considered but these had been borne in mind
In our opinion the Government did not act in violation either of the principles of natural justice or arbitrarily or in violation of the previous directions of the High Court
In the premises the High Court was in error in setting aside the order of the State Government in its entirety
The High Court should have allowed the claim of Hindalco for the reduced rate of bill on the basis that Renusagar Power Plant was its own source of generation under section 31c and the bills should have been made by the Board on that basis
But the High Court was in error in upholding the respondents  contention that the State Government acted improperly and not in terms of section 34 of the Act and in violation of the principles of natural justice
We therefore allow the appeal to the extent indicated above and set aside the judgment of the Allahabad High Court to that extent and restore the State Government s impugned order subject to the modification of the bills on the basis of own source of generation
We therefore direct that the electricity bills must be so made as to give Hindalco the benefit of the rate applicable to its own source of generation from Renusagar Plant
The appeal is disposed of in those terms
The electricity bills must be computed as indicated above
After recomputation and presentation of such bills the respondents will pay the same within two months thereof
In view of the facts and circumstances of the case the parties will pay and bear their own costs
RANGANATHAN J I agree
On the second issue I think it is difficult to define the Precise nature of the power conferred on the 681 State Government under Section 34 of the Electricity Duty Act and l A have doubts whether the sub section can at all be interpreted as conferring a right on individual consumers to require that in the light of the material adduced by them the rates applicable to them should have been fixed differently or that they should have been exempted from duty altogether
However it is unnecessary to pursue this aspect further as I agree with the conclusion of my learned brother that in this case the respondent s representations have been fully considered and the requirements of natural justice have been fulfilled and that there is no warrant to interfere with the order of the State Government
SL Appeal disposed of


Summary:
By an unregistered document the husband of the petitioner granted her the right to take and appropriate all kinds of wood from certain forests in his Zamindary
With the passing of the Madhya Pradesh Abolition of Proprietary Rights Estates Mahals Alienated Lands Act 1950 all proprietary rights in land vested in the State under section 3 Of that Act and the petitioner could no longer cut any wood
She applied to the Deputy Commissioner and obtained from him an order under section 62 of the Act permitting her to work the forest and started cutting the trees
The Divisional Forest Officer took action against her and passed an order directing that her name might be cancelled and the cut materials forfeited
She moved the State Government against this order but to no effect
Thereafter she applied to this Court under article 32 of the Constitution and contended that the order of Forest Officer infringed her fundamental rights under articles 19if and 191g  Held per curiam that the order in question did not infringe the fundamental rights of the petitioner under articles 191f and 19ig and the petition must be dismissed
34 266 Ananda Behera vs The State of Orissa 1955 2 SCR gig followed
Chhotabai jethabai Patel and Co vs The State of Madhya Pradesh   not followed
Held per Das C J Venkatarama Aiyar section K Das and A K Sarkar jj that it was not necessary to examine the docu ment minutely and finally determine its real character for the purpose of deciding the matter in controversy for whatever construction might be put on it the petition must fail
If the document purported to transfer any proprietary interest in land it would be ineffective both for non registration under the Registration Act and under section 3 of the Madhya Pradesh Abolition of Proprietary Rights Act which vested such interest in the State
If it was a profits a prendre that was sought to be transferred by it then again the document would be compulsorily registrable as a profits a prendre was by its nature immoveable property
If it was a contract that gave rise to a purely personal right assum ing that a contract was property within the meaning of article 19if and 311 Of the Constitution the petitioner could not complain as the State had not acquired or taken possession of the contract which remained her property and she was free to dispose of it in any way she liked
The State not being a party to that contract would not be bound by it and even if for some reason or other it could be the remedy of the petitioner lay by way of a suit for enforcement of the contract and compensation for any possible breach of it and no question of infringement of any fundamental right could arise
Per Bose J The document conferred a right on the peti tioner to enter on the lands in order to cut down and carry away not merely the standing timber but also other trees that were not in a fit state to be felled at once
The grant was therefore not merely in respect of moveable property but immoveable property as well
Being valued at Rs 26ooo the document was compulsorily registrable under the Registration Act otherwise no title or interest could pass  and in absence of such registration the petitioner had no fundamental rights that could be enforced as held by this court in Ananda Behera s case
Although standing timber is not immoveable property under the Transfer of Property Actor the Registration Act trees attacked to the earth which are immoveable property under section 326 of the General Clauses Act as also section 26 of the Registration Act must be so under the Transfer of Property Act as well