Case: Maharashtra State Electricity Board Vs. Kalyan Borough Municipality &amp; Another

2. The circumstances, under which the two writ petitions were filed, by the respondent, in each of these two appeals may be briefly stated. Till January 14, 1959, a company called the Kalyan Electricity Company (Private) Ltd., held a licence for supplying electrical energy to the town of Kalyan and the surrounding areas. The licence of the said company was revoked by the Government of Maharashtra, and, on option being given to purchase the undertaking of the said company, the appellant purchased the same, on January 15, 1959. The appellant, hereinafter to be referred to as the Board, continued to supply electrical energy to the residents of Kalyan, according to the rates prescribed by the former Kalyan licensee, pending notification of its standard rates of supply. In March 1962, a public notice was given by the Board, to effect that in the Western Maharashtra area (which includes Kalyan) revised tariff would be applicable from the first day of the month next following the month in which supply of Koyna power became available. As the electrical energy from the Koyna Project became available from the month of June 1962, the Board caused another public notice to be issued, informing the public that the Boards revised tariffs would come into force from July 1962, and that bills, in respect of the power consumption, during that month, would be issued at the revised tariffs, in August 1962.The Kalyan Borough Municipality, which is the respondent, in Civil Appeal No. 335 of 1967, was being supplied by the appellant, electrical energy for street lighting, till June 1962, on the same terms on which the old Kalyan licensee was supplying. The Board submitted a draft of the new agreement to the said Municipality, in respect of the supply of electrical energy for street lighting, under which the charge which the Municipality had to pay, per unit of electricity, was slightly less than before, but the Municipality was required to pay several fixed charges, with the result that the total amount payable was greater than before. The Municipality, however, intimated its desire to enter into the new agreement only for a period of one year instead of seven years, as suggested by the Board. The Board was not prepared to accede to this request of the Municipality and, on the latters failure to pay bills for street lighting according to the draft agreement, an intimation was sent, by the appellant, on October 12, 1962 that the supply of electricity, for street lighting would be cut off from October 22, 1962. The Municipality filed a writ petition under Article 226, being Special Civil Application No. 1570 of 1962, in the High Court, against the Board, seeking a writ of mandamus, prohibiting the appellant from enforcing the directions, contained in its notice, dated October 12, 1962.One Dattatraya Pandurang Pimpale and other consumers of electricity, formed an association, called Kalyan-DombivaliVij-Grahak Mandal, to protest against the steps taken, by the appellant, to levy increased charges, for the supply of electrical energy. As the request of the Association, for not increasing the charges, was not heeded to, by the appellant, which threatened to stop supply of electricity to consumers, if the bills were not paid, according to the revised tariffs, the said Dattatraya filed, in the High Court, a writ petition, under Art. 226 being Special Civil Application No. 1571 of 1962, seeking directions to restrain the Board from dis-connecting supply of electrical energy.In both these writ petitions, the action of the Board in increasing the tariffs over and above the rate which was charged by the original Kalyan licensee, and fixing a uniform tariff, was challenged. Two contentions appear to have been raised. in the writ petitions, before the High Court, viz.. (a) that Section 49, of the Electricity (Supply) Act. 1948 (Act LIV of 1948) (hereinafter) referred to as the Supply Act), did not permit the Board to frame uniform tariffs for consumers in compact areas as well as consumers in sparse areas, so as to require the former to pay a part of the cost involved in the supply of electricity to the latter: and (b) that, if Section 49 gave such power to the Board, it was ultra vires and void, as it offended the provisions of the Constitution.

Court's reasoning:
We have already referred to the material provisions of the Act which will show the nature of the duties cast upon the Board. Section 59 lays down that the Board after taking subventions from the State Government shall not as far as practicable carry on its operations under the Act at a loss and that the Board is to adjust its charges accordingly from time to time. That means that cost has to be taken into account, though that is not the sole or only criterion for fixing the tariff. There is also no indication in the Act that uniform tariffs can be fixed only in respect of particular regions or areas. We are not impressed with the contention of the respondents that by uniform tariffs being levied by the Board it is making more profits in compact areas than in sparse areas nor with the further contention that development of sparse areas is being done at the expense of compact areas.The question of the Board showing undue preference to any person in fixing the tariffs and terms and conditions for supply of electricity will not arise when the Board frames uniform tariffs under sub-ss. (I) and (2). When the entire tariff is uniform for every consumer, there is no question of any undue preference as every customer will pay the same amount for the same benefit received by him. Sub-s. (3) of S. 49 recognises the power of the Board to fix different tariffs for the supply of electricity and it is really here, if at all, that an occasion for any undue preference being shown, may arise. Therefore, in our opinion, sub-s. (4) will control the action of the Board under sub-s. (3) of S. 49. We are not inclined to accept the contention of the respondents that the consumers in compact area cannot be treated as on par with the consumers in sparse area and that uniform tariffs cannot be levied on both. In this case, we have already referred to the fact that both the respondents are consumers of low tension electricity and that uniform tariffs have been levied for the entire State of Maharashtra excepting certain types of consumers in Poona area.To conclude we are of the opinion, that the Board had ample powers to frame uniform tariffs as it has done in the case before us and the levy ishave already rejected the contention of the respondents in this regard and we have held that the cost of supply is only one of the factors to be taken into account in fixing the tariff. If that is so, it follows, that in this case, there is no question of any levy of tax by Parliament through the medium of the Board. By reference to the proviso to sub-cl. (b) of Cl (10) of S. 67, it is further urged by the respondents that the Board may fix tariffs in such a way that large surplus may be found by them from which one-half will be credited to the consolidated fund of the State. This action, according to the respondents, amounts to levy of tax for which there is no power in law. We are not inclined to accept this contention either. Section 67 of the Supply Act which occurs in Chapter VI relating to the Boards finance, accounts and audit, deals with priority of inabilities of the Board. After meeting its operations, maintenance and management expenses and providing for the payment of tax on its income and profits, S. 67 provides for the revenues of the Board, in so far as they are available. to be distributed in the order mentioned in Cls. 1 to IO. After adjustments have been made in respect of Cls. l to 9, Cl. 10 provides for the balance to be appropriated to a fund to be called the development fund. Clause 10 further provides that the development fund is to be utilised for two purposes, (a) purposes beneficial, in the opinion of the Board, to electricity development in the State; (2) repayment of loans advanced to the Board under S. 64 and required to be paid. It is after this that the proviso, on which reliance is placed by the respondents, states that where no such loan is outstanding, one-half of the balance shall be credited to the consolidated fund of the State. In the counter-affidavit filed on behalf of the Board, it has been stated that ever since its constitution, it has been carrying on its operations at a loss and there has been no occasion when any part of its revenues has been passed to the consolidated fund of the State. We have no hesitation to accept this statement made on behalf of the Board.Even otherwise, before the proviso can come into operation, there are several other items in respect of which adjustments will have to be made, and there will be no occasion at all for the proviso to come into effect. We are also not inclined to accept the contention of the respondents that with a view to give effect to the proviso. the Board will so fix the tariffs, as to enable them to have huge surplus, after meeting the various adjustments. In case such a thing happens in future, the proviso, which is clearly severable, may have to be struck down. Therefore, this ground of attack ? that there is a colourable exercise of taxing power, cannot be accepted.After having charged the Board under S. 18 to supply and distribute electricity in the most efficient and economical manner, as already pointed out, S. 59 states that the Board shall not, as far as practicable, carry on its operations under the Act at a loss. Section 63 empowers the State Government to make subventions to the Board. It is entirely within the discretion of the State Government under S. 63 to make subventions to the Board. We are referring to this aspect, because it has been stressed on behalf of the respondents that any development schemes in respect of sparse areas should be done by the Board only with the subventions which the State Government pays and not by charging the consumers in the compact areas and sparse areas at uniform tariff.e question of the Board showing undue preference to any person in fixing the tariffs and terms and conditions for supply of electricity will not arise when the Board frames uniform tariffs under sub-ss. (I) and (2). When the entire tariff is uniform for every consumer, there is no question of any undue preference as every customer will pay the same amount for the same benefit received by him. Sub-s. (3) of S. 49 recognises the power of the Board to fix different tariffs for the supply of electricity and it is really here, if at all, that an occasion for any undue preference being shown, may arise. Therefore, in our opinion, sub-s. (4) will control the action of the Board under sub-s. (3) of S. 49. We are not inclined to accept the contention of the respondents that the consumers in compact area cannot be treated as on par with the consumers in sparse area and that uniform tariffs cannot be levied on both. In this case, we have already referred to the fact that both the respondents are consumers of low tension electricity and that uniform tariffs have been levied for the entire State of Maharashtra excepting certain types of consumers in Poona area.To conclude we are of the opinion, that the Board had ample powers to frame uniform tariffs as it has done in the case before us and the levy ishave already rejected the contention of the respondents in this regard and we have held that the cost of supply is only one of the factors to be taken into account in fixing the tariff. If that is so, it follows, that in this case, there is no question of any levy of tax by Parliament through the medium of the Board. By reference to the proviso to sub-cl. (b) of Cl (10) of S. 67, it is further urged by the respondents that the Board may fix tariffs in such a way that large surplus may be found by them from which one-half will be credited to the consolidated fund of the State. This action, according to the respondents, amounts to levy of tax for which there is no power in law. We are not inclined to accept this contention either. Section 67 of the Supply Act which occurs in Chapter VI relating to the Boards finance, accounts and audit, deals with priority of inabilities of the Board. After meeting its operations, maintenance and management expenses and providing for the payment of tax on its income and profits, S. 67 provides for the revenues of the Board, in so far as they are available. to be distributed in the order mentioned in Cls. 1 to IO. After adjustments have been made in respect of Cls. l to 9, Cl. 10 provides for the balance to be appropriated to a fund to be called the development fund. Clause 10 further provides that the development fund is to be utilised for two purposes, (a) purposes beneficial, in the opinion of the Board, to electricity development in the State; (2) repayment of loans advanced to the Board under S. 64 and required to be paid. It is after this that the proviso, on which reliance is placed by the respondents, states that where no such loan is outstanding, one-half of the balance shall be credited to the consolidated fund of the State. In the counter-affidavit filed on behalf of the Board, it has been stated that ever since its constitution, it has been carrying on its operations at a loss and there has been no occasion when any part of its revenues has been passed to the consolidated fund of the State. We have no hesitation to accept this statement made on behalf of the Board.Even otherwise, before the proviso can come into operation, there are several other items in respect of which adjustments will have to be made, and there will be no occasion at all for the proviso to come into effect. We are also not inclined to accept the contention of the respondents that with a view to give effect to the proviso. the Board will so fix the tariffs, as to enable them to have huge surplus, after meeting the various adjustments. In case such a thing happens in future, the proviso, which is clearly severable, may have to be struck down. Therefore, this ground of attack ? that there is a colourable exercise of taxing power, cannot befirst blush, it may appear that this contention has considerable force; but we are satisfied that no such unguided or arbitrary power has been conferred on the Board either in the matter of framing uniform tariffs or in the matter of fixing different tariffs for the supply of electricity to any person, not being a licensee. No doubt, the maximum as such, has not been fixed in the statute. But, in our opinion, there are sufficient restrictions placed upon the power of the Board. In this connection, reference may be made to some of the sections of the Supply Act. Section 16, as we have already indicated, provides for the State Government constituting a State Electricity Consultative Council for the State. That Council consists of the representatives of the various interests including representatives of consumers of electricity. The Board is bound to place before the State Electricity Consultative Council under sub-s. (6) the annual financial statement and supplementary statement and a duty is cast upon the Board to take into consideration any comments made on such statement. This annual financial statement will have then to be submitted to the State Government under S. 01. Under that section, in February of each year, the Board has to submit to the State Government an annual financial statement in the prescribed form, of the estimated capital and revenue receipts and expenditure for the ensuing year. That statement, under sub-s. (3) has to be placed before the State Legislature and it is open to discussion. Again, sub-s. (4) of S. 61 casts a duty on the Board to take into consideration any comments made on the said statement in the State Legislature. Section 75 again provides for the Board submitting to the State Government a report giving an account of its activities during the previous financial year as also an account of its activities which are likely to be undertaken by it in the next financial year. The State Government is to place the said report before the State Legislature.We have already indicated, by reference to R. 57, Cl. (q) of the rules framed by the State of Maharashtra that details of tariff will have to be furnished by the Board in its annual report. Under Cl. (j) of S. 79, the Board has also to make regulations laying down the principles governing the supply of electricity by it to persons other than licensees under S. 49.In our opinion, al] these provisions have the effect of properly guiding the activities of the Board, in its clearings with the consumers including the levy of tariffs. Section 49 itself is hedged in by various restrictions and directions which the Board will have to comply in the matter of framing uniform tariffs or in the matter of fixing different tariffs, and that section, also in our opinion, provides a proper guide-line for framing uniform tariffs and different tariffs. Therefore, in particular, it may be noted that the extension and cheapening of supplies of electricity to sparsely developed areas under Clause (d) of Section 49 (2) of the Act can only be complied with by keeping the uniform rates at a minimum, consistently with the requirement, under Section 59, of not running at a loss. Therefore, we are satisfied, that Section 49 is not, in any way, bad on the ground that it gives an unguided and arbitrary power to the Board to fix its tariffs as itI of the sixth schedule provides that the licensee shall so adjust his charges for the sale of electricity, whether by enhancing or reducing them that his clear profit in any year of account shall not, as far as possible, exceed the amount of reasonable return. It is argued that while restrictions have been placed on the licensees, no such restrictions have been placed on the Board.The distinction sought to be pointed out, in our opinion, has no substance. The licensees are persons who must have invested considerable capital in the matter of their business, and obviously, the Legislature thought that some directions will have to be given so as to enable them to have a reasonable return. But we have already indicated that sufficient guidance has been laid down in the matter of fixing of tariffs by the Board. Therefore this ground of attack also cannot be sustained.Therefore, both the grounds of attack, levelled by the respondents, will have to beare not inclined to accept this contention of the respondents. Section 24 of the Amendment Act, in our opinion, deals with all rates, as a matter of fact fixed under Section 49 of the Act. In this case, the Board has fixed tariffs under Section 49 of the Act. Therefore, Section 24 of the Amendment Act has full effect and force.The result is that all the contentions of the respondents fail.