*THE HONOURABLE SRI JUSTICE C.V.NAGARJUNA REDDY +W.P. NO.6463 OF 2007 %18.01.2008 #G.Kishan Reddy and five others ..Petitioners Vs. $The Hyderabad Metropolitan Water Supply & Sewerage Board, Hyderabad. And another. . Respondents. !Counsel for the Petitioners : Sri P.V.Sanjay Kumar ^Counsel for Respondent No.1 : Smt.M.Venkateshwari Counsel for Respondent No.2: G.P. for MA & GAD <Gist : >Head Note: ?Cases Referred: 1. (1986) 4 SCC 566 2. (1994) 2 SCC 691 3. (2000) 8 SCC 606 4. (2005) 1 SCC 625 5. (2005) 2 SCC 227 6. (2007) 4 SCC 737 7. AIR 1978 SC 1296 8. AIR 1984 SC 657 9. AIR 1986 Sc 1999 10. AIR 1975 SC 2235 11. AIR 1990 SC 699 12. AIR 1976 SC 2414 13. AIR 1961 SC 552 THE HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WRIT PETITION No.6463 of 2007 Date: 18.01.2008 Between: G.Kishan Reddy And five others. … Petitioners AND The Hyderabad Metropolitan Water Supply and Sewerage Board, Khairatabad, Hyderabad. & another. … Respondents Counsel for the petitioners: Sri P.V.Sanjay Kumar Counsel for respondent No.1: Smt.M.Venkateshwari Counsel for Respondent No.2: G.P. for MA & GAD HON’BLE MR. JUSTICE C.V.NAGARJUNA REDDY WRIT PETITION No.6463 of 2007 ORDER:- INTRODUCTION: Petitioner No.1, a member of Legislative Assembly and a resident of 5th Floor, Moti Apartments, Barkatpura, Hyderabad and petitioners 2 to 6, registered flat owners’ welfare societies of Hyderabad are seeking to espouse the cause of the residents of the flats of their respective welfare societies. In this writ petition they have called in question proceedings of respondent No.1 issued vide B.P.No.121, Administrative (A) Wing, dated 14.12.2006 to the extent that it has imposed minimum charges for water supply and sewerage facilities upon multi-storied residential building complexes with effect from 1.1.2007, as illegal, arbitrary and unsustainable. THE FACTS: Hyderabad Metropolitan Water Supply and Sewerage Board – respondent No.1 (for short “the Board”) was constituted under the Hyderabad Metropolitan Water Supply and Sewerage Act, 1989 (for short “the Act”). Its general duties as envisaged by Section 7 of the Act are two fold, namely, to provide for supply of potable water including planning, design, construction, maintenance, operation and management of water supply system and sewage treatment works including planning, design, construction, maintenance, operation and management in Hyderabad metropolitan area. In order to provide sufficient revenues to recover operating expenses, taxes, capital works, repayment of loans etc., the Board is empowered under Section 8 of the Act to levy rates, fees, tariffs, rentals, deposits, contributions and other charges and vary such rates, fees, tariffs, rentals, deposits, contributions and other charges from time to time. In exercise of this power the Board has been notifying water tariff, sewage cess, water supply and sewerage connection charges from time to time. Illustrative of such notifications are notifications dated 29.3.1993, 25.1.1997, 29.5.2002, 28.9.2004 and 28.1.2005. The last of these notifications, which is the subject matter of challenge in this writ petition, is B.P.No.121 dated 14.12.2006, notified in Andhra Pradesh Gazette No.429 dated 29.12.2006. By this notification the Board revised water rates, tariff, fees, deposits and other charges. The petitioners in this writ petition question the method of levy of minimum charges and calculation of sewerage charges on the individual flats comprised in multi-storied building complexes (‘MSBs’ for short) as discriminatory, unreasonable and irrational. THE PLEADINGS: The main plea of the petitioners is that the method of imposition of minimum water supply and sewerage charges upon individual flats in multi-storied residential apartment complexes is palpably arbitrary, unreasonable, illogical and unsustainable. It is averred in their affidavit that treating the individual flats in MSBs on par with the individual domestic houses amounts to treating un-equals as equals. It is specifically averred that single water connection is provided to each of the MSBs comprising several flats and individual domestic houses, that Board supplies water to both these categories’ consumers during the same specified and limited timings, but while the domestic individual house consumer pays a minimum charge of Rs.90/-, a consumer of each flat comprised in MSBs is required to pay Rs.90/- towards minimum charges, though the quantity of water supplied to both these categories is more or less the same. They further averred that as per the procedure envisaged in the impugned notification, in case of MSBs the deemed agreed quantity for each apartment is 15 KL per month and the tariff applicable at that level of consumption is Rs.6 per KL, that the notification provides for the flat owners entering into agreement in cases where consumption exceeds 500 KLs per month and in such an event the minimum charges payable would be 60% of the agreed quantity. The petitioners pointed out the anomaly that if consumption in an apartment comprising 33 flats is only 495 KL, they would be liable to pay Rs.2,970/- and if the consumption exceeds 500 KL, by application of rule of 60%, their liability would be only Rs.1,782/-. According to the petitioners this is a retrograde step and would result in encouraging the flat owners to waste water to achieve the minimum consumption target of 500 KL per month in order to pay the reduced water tariff. In their affidavit the petitioners also demonstrated that introduction of minimum charges at Rs.90/- per flat resulted in multi-fold increase in their liability to pay the water charges for the month of January, 2007 under the revised policy when compared to the pre-revised policy. The steepness in the increase in the case of different apartments is mentioned hereunder: Name of the apartment Dec-2006 Jan-2007 (pre-revised) (post-revised) 1. Manohar Apartments Water Cess Rs.474/- Rs.4,680 (Rs.190x52 flats) Sewer Cess Rs.166/- Rs.1,638/- (35% of water cess) (35% of Rs.4,690/-) 2. Mathrusree Apartment Water Cess Rs.1,092/- Rs.12,660/- Sewer Cess Rs. 382.25ps Rs. 4,431/- 3. Shantiniketan Apartment Water Cess & Rs.700/- Sewer Cess Rs.881/- Rs.945/- together 4. Thirumala Enclave Dec-06 Feb-07 Water Cess Rs.150/- Rs.2,160/- Sewer Cess Rs.52.50 ps. Rs.756/- 5. Siddhardh Palace Residential Apartment Water Cess Rs.564/- Rs.2,340/- Sewer Cess Rs.197.50 ps. Rs. 890/- 6. Paragon Venkatadri Apartments Nov-2006 Jan-2007 Water Cess Rs.2,596/- Rs.13,320/- Sewer Cess Rs.907.25 Rs. 4,662/- Dr.K.S.Jawahar Reddy, Managing Director of the Board filed a counter affidavit. He pleaded that the steep increase in the charges which is demonstrated by the petitioners is on account of comparison between the old rates and the revised rates and that by making such a comparison the revised rates cannot be termed as exorbitant. It is averred that the Board is entrusted with the responsibility to supply potable water to the residents of twin cities for drinking and as well as discharging the function to transmit and treat the sewerage water from the city to the Sewerage Treatment Plant located at the outskirts of the city to curb pollution, that for the said purpose the Board needs to spend huge amounts for land acquisition, laying of sewerage pipelines, water supply lines, construction and maintenance of treatment plant etc. It is also pleaded that the Board is made to incur huge expenditure towards salaries and wages to staff, power bills to pump water from long distances from reservoirs such as Singur, Manjeera and Krishna river, payment of interest on the loans and that the rates charged and the amount demanded by the Board still remained heavily subsidized for multi-storied buildings as compared to the costs incurred by the Board. It is also averred that the Board is supplying water free of cost to the poor people living in slums through the Public Stand Posts (PSP’s) and water tankers incurring huge expenditure which needs to be met from the water cess levied on different categories of customers including multi-storied buildings to balance the revenue generation with the costs incurred from time to time. It is also stated that the cost of treatment and transmitting the water to city as on date works out to Rs.18/- per KL, whereas the Board is charging at a heavily subsidized rate of Rs.6/- per KL. It is also stated that under previous tariff notification dated 29.5.2002 where agreements were not entered into by the multi-storied residential complexes, the agreed quantity is deemed to be 30 KL multiplied by residential apartments in the complexes and the monthly minimum charges for them at 60% of the agreed quantity works out to Rs.108/- per flat @ Rs.6 per KL, but the said charges were not collected and that under the present notification the minimum charges are worked out to only Rs.90/- per flat taking 15 KL as the agreed quantity. While the deponent to the counter has not delved into the allegation of the equal treatment between the un-equals, he however mentioned that the minimum water charges even for an individual domestic household in a slum is Rs.90/- per month in addition to sewerage cess. It is sought to be explained that the realization of the tariff was done by the Board to rectify the disparity in levying the minimum charges between the individual domestic customers and the multi-storied buildings. He also further sought to justify this by comparing the same with the minimum charges being collected by utilities like electricity and telephone departments in the country. In the reply affidavit filed on behalf of the petitioners it is pleaded that sewer cess is payable at 35% of the water ‘supply’ charges and not on the minimum charges. The petitioners also pointed out that the respondents failed to refer and reply to the specific as well as hypothetical examples given in the affidavit filed in support of the writ petition. THE SUBMISSIONS: Sri P.V.Sanjay Kumar, learned counsel for the petitioners made the following submissions: 1. The impugned Board proceeding is violative of Article 14 inasmuch as it equated individual flats with individual houses in fixing minimum charges and thereby un-equals are treated as equals. 2. With a single water connection, the MSB comprising ten flats (five flats are minimum number to constitute a MSB) is required to pay Rs.900/- while an individual residential house is liable to pay only Rs.90/- per month towards minimum charges which is highly unreasonable and arbitrary. 3. The policy of allowing payment of 60% of guaranteed quantity in case of consumption of 500 KL and above is a retrograde step inasmuch as it drives the consumers to indulge in wastage of water to pay lesser water bill and is therefore irrational. 4. Treating an individual domestic house irrespective of the number of portions it contains, as one unit and charging Rs.90/- per month as minimum is irrational and unreasonable, and 5. The Board’s impugned policy seriously affects the interests of middle and lower strata of the society who comprise the majority of the occupants of the flats in the MSBs. The learned counsel relied on the following judgments. State of M.P., and Others Vs. Nandlal Jaiswal and Others[1], Premium Granites and Another Vs. State of T.N. and Others[2], Centre for Public Interest Litigation and Another Vs. Union of India and Others[3], Bannari Amman Sugars Ltd., Vs., Commercial Tax Officer and Others[4], Pallavi Refractories and Others Vs. Singareni Collieries Co.Ltd., and Others[5] and Directorate of Film Festivals and Others Vs. Gaurav Ashwin Jain and Others[6] Smt.M.Venkateswari, learned Standing Counsel for respondent No.1 however submitted that the Board is empowered to formulate its own policies regarding tariff fixation under Section 8 of the Act and the courts ordinarily do not interfere with such policies. She denied the allegation that fixation of minimum charges under the impugned notification is either irrational or arbitrary or unreasonable and contended that the impugned notification is not liable to be interfered with. SCOPE OF JUDICIAL REVIEW: The courts are loath to interfere with the policy matters of the State and its functionaries and in particular when they relate to price fixation. The Apex Court repeatedly held that price fixation is neither the forte nor the function of the Courts. In Prag Ice & Oil Mills and Another Vs. Union of India[7] the Supreme Court held as under: “In the ultimate analysis, the mechanism 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 to the generality of cases as valid.” In M/s.Rohtas Industries Ltd., and Another Vs., The Chairman, Bihar State Electricity Board and Others[8] the Supreme Court re- iterated the above mentioned dicta. In Kerala State Electricity Board Vs. M/s.S.N.Govinda Prabhu and Brothers[9] while dealing with the challenge to revision of electricity tariffs made by the Kerala Electricity Board the Supreme Court re-stated the above legal principle and held that the court will not strike down the tariffs unless it is satisfied that the revision is plainly arbitrary. I n Nandlal Jaiswal (1 supra) the Supreme Court held that the court must while adjudging the constitutional validity of an executive decision relating to economic matters grant a certain measure of freedom or “play in the joints” to the executive and the court can interfere only if the policy decision is patently arbitrary, discriminatory or malafide. These principles are re-iterated by the Supreme Court in various subsequent judgments in Premium Granites (2 supra), Centre for Public Interest Litigation (3 supra), Bannari Amman Sugars Ltd., (4 supra), Pallavi Refractories (5 supra) and Directorate of Film Festivals (6 supra). THE CONCEPT OF MINIMUM CHARGES: Levy of minimum charges is an age-old concept and it is being upheld by the Courts all over the world. In order to ensure supplies, an utility or a company is required to provide for infrastructure such as erecting the sub-stations and electricity lines in the case of supply of electricity, laying down of pipe lines in the case of water supply etc. For these purposes the supplier is required to invest on capital works, pay salaries to its employees and incur expenditure on maintenance of the lines and other overheads. Expenditure on these various counts does not vary with the variation in the consumption. Even if the consumers do not consume any electricity or water, the supplier is bound to incur expenditure on the above mentioned and other necessary heads which are called fixed overheads. Therefore, whenever there are challenges to the levy and collection of minimum charges, the courts seldom interfere except on the ground that levy of these charges is in violation of any of the facets of Article 14 of the Constitution of India. I n Amalgamate Electricity Company Limited Vs. Jalagaon Borough Municipality[10] the Supreme Court succinctly explained the doctrine of minimum charges as under: “The High Court seems to have completely overlooked the fact that clause 3 of the agreement embodied what is known in common parlance as the doctrine of minimum guarantee. i.e., the Company was assured of a minimum consumption of electrical energy by the Municipality and for the payment of the same whether it was consumed or not. That was the reason why the Company was prepared to charge a minimum rate of 0.5 ana per unit over and above the first 50 units. The minimum charge of 0.5 ana per unit, therefore, was actually the consideration for the minimum guarantee allowed to the plaintiff under clause 3 of the agreement.” The Supreme Court further explained this doctrine as under: “Moreover it is obvious that if the plaintiff company was to give bulk supply of electricity at a concessional rate of 0. 5 anna per unit it had to lay down lines and to keep the power ready for being supplied as and when required. The consumers could put their switches on whenever they liked and therefore the plaintiff had to keep everything ready so that power is supplied the moment the switch was put on. In these circumstances it was absolutely essential that the plaintiff should have been ensured the payment of the minimum charges for the supply of electrical energy whether consumed or not so that it may be able to meet the bare maintenance expenses. I n Bihar State Electricity Board Vs. M/s.Green Rubber Industries and Others[11] the Supreme Court rejected the contention that the levy of minimum charges was not sustainable and the observations made in that context are apt to be extracted here-under: “ Considered by the test of reasonableness it cannot be said to be unreasonable inasmuch as the supply of electricity to a consumer involves incurring of overhead installation expenses by the Board which do not vary with the quantity of electricity consumed and the installation has to be continued irrespective of whether the energy is consumed or not until the agreement comes to an end. Every contract is to be considered with reference to its object and the whole of its terms and accordingly the whole context must be considered in endeavouring to collect the intention of the parties, even though the immediate object of enquiry is the meaning of an isolated clause. This agreement with the stipulation of minimum guaranteed charges cannot be held to be ultra vires on the ground that it is incompatible with the statutory duty.” THE ANALYSIS: Let me now examine the respective submissions of the learned counsel for the parties, keeping in view the above mentioned settled legal position. Section 8 of the Act empowers the Board, inter alia, to fix tariff for supply of water and to levy sewerage charges. The learned counsel for the petitioners has conceded to this extent. But the question is whether fixation of minimum charges as is done under the impugned notification violates Article 14 of the Constitution of India and is irrational? The principle of equality and non-arbitrariness is enshrined in Article 14 of the Constitution. In a plethora of judgments the Supreme Court held that Article 14 is violated not only when the state treats equals as un-equals, but also in converse cases where persons who are not similarly placed are treated similarly. In Adoni Cotton Mills Vs. Andhra Pradesh State Electricity Board[12] the Supreme Court, while dealing with the issue of classification of industries made by the Andhra Pradesh State Electricity Board for imposition of power cuts observed: “ It is fairly settled that equality before the law does not mean that things which are different shall be treated as though they were the same. The obligation not to discriminate involves both the right and obligation to make reasonable classification on the basis of relevant factors.” To ensure equality the State shall make reasonable classification. The Supreme Court held that the classification must be founded on intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group and that the differentia must have a rational relation to the object sought to be achieved by the statute in question. (See Bhudhan Chowdhary vs. State of Bihar (AIR 1955 SC 191), Mohammed Hanif Qureshi Vs. State of Bihar and Others (AIR 1958 SC 731), Harakchand Ratanchand Banthia vs. Union of India (1969) 2 SCC 166, Pathumma Vs. State of Kerala (AIR 1978 SC 771) and Baburam Vs. State of U.P. (1995) 2 SCC 689) The Constitution Bench of the Supreme Court in Kunnathat Thathunni Moopil Nair Vs. State of Kerala and Another[13] while dealing with a taxing statute held that so long as there is rational basis for the classification for the purpose of levying taxes, Article 14 will not be in the way of such a classification resulting in un-equal burdens on different classes of properties. But if the same class of properties similarly situated is subjected to an incidence of taxation, which results in inequality, the law may be struck down as creating inequality amongst holders of the same kind of property. It is held that a taxing statute is not wholly immune from attack on the ground that it infringes the equality clause in Article 14 though the courts are not concerned with the policy underlying the statute or whether a particular tax could not have been imposed in a different way or in a way that the court might think more just and equitable. Whether Classification is reasonable? As noted, the main grievance of the petitioners is that the flat owners of multi-storied buildings are treated on par with the individual domestic consumers and that this resulted in equal treatment of un- equals. To appreciate this contention, it is necessary to delve into the various notifications under which the water charges are being levied by the Board from time to time. The earliest of the notifications made available by the petitioners is B.P.No.88 dated 20.1.1997. Multi-storied buildings are included in category-I (c). In order to fall within the category of domestic supply 70% of the plinth area must be in domestic use. There was a sub-classification made in respect of multi-storied buildings. Where 90% or more of the plinth area is in domestic use, the Board fixed Rs.700/- per month as minimum, and aggregated tariff depending upon the quantity of water consumed is prescribed starting from Rs.3.75ps and up to Rs.14 per KL. The minimum charges of Rs.1500/- are prescribed for MSBs where more than 10% but not less than 30% of the plinth area is in non-domestic use and a higher rate of tariff for each KL of water consumed is prescribed. For other domestic supplies minimum charges per month were fixed at Rs.55/-. 35% of water consumption charges is prescribed as sewerage cess. The said proceedings were substituted with B.P.No.91 dated 1.10.1997 on the ground that having considered representations from the consumers the Board felt it desirable to simplify the tariff structure by reducing the number of categories of consumers. By the said amendment the basis of monthly minimum charges for all categories of consumers was changed by fixing the minimum charges with reference to the diameter of water supply connection as indicated in the following table: Monthly minimum charges for all categories of consumers Diameter of water supply Monthly minimum Connection charges. 15 mm (1/2 inch) Rs.55 20 mm (3/4 inch) Rs.110 25 mm (1 inch) Rs.200 40 mm (1 ½ inch) Rs.640 50 mm (2 inch) Rs.1120 100 mm (4 inch) and above Rs.6300 In case of agreements for water supply, charges for 60% of the agreed quantity. Under note-2 it is provided that where water supply is provided through more than one connection to the consumer including multi-storied building in the same premises, the tariff is to be applied for the aggregate supply from all the connections and monthly minimum charges are the aggregate of the minimum charges of each of such connections. The Board vide its proceedings B.P.No.92 dated 12.3.1998 has done away with supply of water through multiple water connections to MSBs and a single water connection of the specified size has been prescribed. The Board through its notification dated 29.5.2002 revised the water tariff, sewerage cess and water supply and sewerage connection charges. In respect of MSBs and non-domestic supplies, it is provided for the first time that where the monthly demand/consumption exceeds 500 KL, the consumers are required to enter into agreements with board for supply of water. It is also provided that 60% of the agreed quantity shall be paid as minimum charges and where such agreements are not entered into the agreed quantity is deemed to be 30KL multiplied by the number of residential apartments in the complex. The sewerage charges are continued to be at 35% of the water supply charges. The tariffs were further revised by the Board through its notification dated 28.9.2004 with effect from 1.10.2004. No changes in respect of water tariff and sewerage cess have been made in this notification. The tariffs were further revised under B.P.No.117 dated 28.1.2005 where under the slabs and the tariffs were varied in respect of the water charges, but the basis of levy of minimum charges remained the same. Under the impugned notification which was issued on 29.12.2006 and brought into effect from 1.1.2007, monthly minimum charges for individual domestic houses and flats in the MSBs have been fixed on par with each other at Rs.90/- per house/flat per month as the case may