Case: Hindustan Zinc Ltd. Etc. Etc Vs. Andhra Pradesh State Electricity Boards &amp; Ors

The appellant s are all H.T. power consumers of one category or other. The tariffs consist of three parts: Part-A, Part-B and Part-C. Part-A provides for H.T. tariffs; Part-B for L.T. supply; and Part-C provides, inter alia, for miscellaneous and general charges. H.T. consumers in Part-A are broadly classified into three categories: H. T. Category-I (Industrial); H.T. Category-II (Non Industrial); and H.T. Category-III comprising of power intensive consumers and some others. The B oard retained the power to decide in accordance with the guidelines as to which industries were power intensive and which were not. This was the position in the tariffs of 1975. Subsequently, the Board began to deal with the power intensive indus tries by notifying tariffs for them separately from time to time. In effect, there were four classes of consumers availing H.T. supply; (1) H.T. consumers falling under H.T. Category- I (Industrial); (2) H.T. consumers falling under H.T. Category-II (Non-Industrial); (3) H.T. consumers falling under the category power intensive industries; and (4) H.T. consumers availing supply of electricity for irrigation and agricultural purposes included in Part-B. The tariffs for these different categories of H.T. consumers were enhanced from time to time. For H.T. Category-I (Industrial), it was 21 paise in 1975, increased to 30 paise in 1979, 33 paise in 1980, 40 paise in 1981 and 48 paise in 1984. Likewise, there was corresponding increase in the energy rates for H.T. Category-II (Non-Industrial), being 28 paise, 37 paise, 40 paise, 47 paise and 56 paise. The tariffs for power intensive industries were, however, increased by separate notifications issued by the Board from time to time. It was 11 paise prior to 1975, raised to 12.2 paise in 1977, 16 paise in 1978, 18.5 paise in September 1979, 21 paise in November 1979, 25 paise in 1980, 32 paise in 1981 and 45 paise in 1984. The H.T. consumers grouped in Part-B were required to pay 15 paise under the 1975 tariffs and 16 paise thereafter. Besides the energy charges as stated above, the H.T. consumers were also required to pay at different rates effective from 1.9.1982 an additional charge levied as fuel cost adjustment charges. The H.T. consumers were also required to pay some amount as voltage surcharge in accordance with the terms of the agreement entered into by the individual consumers with the Board.The comparison of the aforesaid tariffs shows that the tariffs for power intensive industries to begin with were much less than the tariffs for H.T. Category-I (Industrial) and H.T. Category-II (Non-Industrial). I n course of time, the concession in tariffs for the power intensive industries was progressively withdrawn. The concessions were, however, continued in respect of consumers availing H.T. or L.T. supply for purposes of irrigation and agriculture or L.T. supply for domestic, cottage industries, public lighting and small poultry farming units. It is the admitted position that the power generation in the State of Andhra Pradesh is both hydro and thermal, each source contributing almost equally to the total power generation in the State. The H.T. categories have been consuming more than one-half of the total power generated in the State against the much larger number of individual L.T. consumers availing the remaining power.The main attacks to the upward revision of the tariffs for H.T. consumers in the writ petitions before the High Court were: (1) The Board, as a public utility undertaking, is expected to function in the most efficient and economical manner; (2) It cannot plan its activities with a view to drive any sizeable profits on its undertaking except in accordance with Section 59 of the Electricity (Supply) Act, 1948 (hereinafter referred to as the Supply Act); (3) The Board Could not generate a surplus in excess of that specified under Section 59 of the Supply Act which it had been doing; (4) The Board was preparing its financial statement incorrectly in a manner contray to section 59 of the Supply Act by improperly taking into account expenses chargeable to capital by showing such expenses as charged to revenues; (5) The steep upward revision to tariffs from 1980 made by the Board is invalid, being arbitrary and in contravention of Section 49 and 59 of the Supply Act; and (6) There was no justification for the Board to have revised the tariffs either in 1981 or in 1984 or to have levied any fuel surcharge in terms of Section 49 and 59 of the Supply Ac t. It was also contended that the tariffs revision was made without prior consultation with the State Electricity Consultative Council as required by Section 16(5) of the Supply Act which also rendered it invalid.Prior to 30.7.1982, it was usual for the Board to take into account various escalation charges such as pay revisions and increases in the cost of fuel and revise its tariffs from time to time. This was done in 1975 and 1981. Thereafter, the Board took the view that t o avoid making frequent tariff revisions necessitated by frequent escalations in the cost of fuels like coal and diesel oil, the formula known as "fuel cost adjustment" be evolved. Accordingly, the Board in its proceedings contained in B.P. Ms. No. 589 dated 30.7.1982, set out the formula known as "fuel cost adjustment". This formula was introduced as condition No. 11 in H.T. tariffs Part-A. Ever since September 1982, all categories of H.T. consumers in Part-A including the power intensive consumers are subject to this condition. Immediately after 30.7.1982, the fuel cost adjustment was fixed as 2.74 paise per unit, which was increased gradually to 2.95 paise, 3.79 paise and 11.68 paise. Thereafter , 3.79 paise was absorbed as part of the tariffs applicable to these H.T. consumers and the remaining increase of 7.89 paise alone was indicated as the fuel cost adjustment charges. The grievance made by all H.T. consumers before the High Court was that: (1) the fuel cost adjustment could not be recovered as part of the tariffs; (2) there is discrimination in recovering the entire fuel cost adjustment from H.T. consumers alone; (3) fairness demands that a reasonable proportion of the burden should be shared also by Part-B consumers; and (4) that fuel cost adjustment charge is excessively computed.The High Court rejected all these contentions. It held that this was a matter of policy which could be changed from time to time and it was permissible to gradually withdraw the pre-existing concessional tariffs given to the power intensive industries for which the tariffs earlier were much lower as compared to the other consumers and even after the increase , they were not excessive. It was held that electricity was a raw material for power intensive industries and no grievance could be made against the increase of its cost just as such a grievance was untenable against increase in the cost of any other raw material. The challenge on the ground of discrimination was rejected on the ground that H.T. consumers including power intensive industries formed a separate class and the reason which justified grant of concession to them earlier al so justified the gradual withdrawal of that concession. It held that prior consultation with the State Electricity Consultative Council according to Section 16(5) of the Supply Act was not obligatory before revising the tariffs. The High Court held that the Board was justified in adjusting its tariffs to ensure progressive minimizing of losses and the failure of the State Government to specify the surplus it could generate in accordance with Section 59 of the Supply Act, did not detract from the Boards power to adjust its tariffs and generate a surplus on principles of commercial expediency applicable to a public utility undertaking. Fixation of tariffs was held to be a matter of major policy in respect of which the Government can effectively issue directions under Section 78-A of the Act.It was held that the H.T. consumers including power intensive industries were bound to pay according to the revise d higher tariffs fixed from time to time under the agreement as contemplated by Section 49 of the Supply Act. The condition of fuel cost adjustment, introduced as condition No. 11 in H.T. tariffs Part-A, was held applicable to power intensive consumers also. An additional argument that this added burden became unbearable for the power intensive consumers was rejected on the ground that such inability of the industry to survive is not a compelling consideration for deciding the Boards power in adjusting it tariffs. Accordingly, the High Court dismissed the writ petitions and upheld the revision of tariffs made by the Board by the impugned B.P. Ms. No. 1014 (Commercial) dated 13.12.1983 w.e.f. 15.1.1984. The High Court having refused to grant a certificate of fitness to appeal to this Court, the appellants have preferred these appeals by special leave.

Court's reasoning:
This Court also held that the prescribing of different tariffs for high and low tension consumers and for different classes of consumers, such as industrial, commercial, agricultural and domestic, appears to be reasonable and far from arbitrary and is based on an intelligent and intelligible differentia. Accordingly, the judgment of the Kerala High Court upholding challenge to the validity of the upward revision of tariffs was setfirst argument is that the requirement of consultation with the State Electricity Consultative Council before the revision of tariffs in accordance with Section 16 of the Electricity (Supply) Act, 1948, not having been made, the upward revision of tariffs is invalid on account of non-compliance of Section 16 of the Supply Act. It was urged that revision of tariffs being a major question of policy as envisaged by clause (i) of Sub-section (5) of Section 16, it is one of the functions of the Consultative Council to advise the Board on this question and without such advice of the Consultative Council, t he revision in tariffs could not be made. It was argued that the consumers interest is also represented on the Consultative Council as indicated by Sub-section (2) of Section 16 providing for its constitution, and therefore, it was necessary to know the viewpoint of the consumers through their representative in the Consultative Council before deciding upon an upward revision of the tariffs for H.T. consumers. Though the Board may not be bound by the advice of the Consultative Council, yet it was urged, such consultation with the Council was a condition precedent. It was suggested that Section 16 must be read with Section 61 of the Supply Act which requires the Board to submit to the State Government the annual financial statement in February eachthere is ample provision for discussion on the revised tariffs in the State Legislature with the Board being bound to take into consideration any comments made thereon.Shri Shanti Bhushan sought to make a distinction between the provisions of sub-section (5) of section 16 pertaining to the functions of the `Consultative Council empowering or enabling the Council to advice the Board on `major questions of policy and the provision in sub-section (6) as to the obligation of the Board to place certain matters before the `Council to emphasise his point that sub-section (6) does not envisage any obligation on the part of the `Board to place before the Council the proposal for revision of tariffs. He sought to distinguish between the functions of the `Council to tender advice and the obligation of the Board to specifically seek and invite such advice. Shri Shanti Bhushan said that the very concept of consultation does imply mandatory obligation or duty attaching the pain of nullity to theof the arguments addressed at length before us relates to Section 78-A of the Supply Act. It was urged on behalf of the appellant that any direction of the State Government relating to tariffs was on a question of policy within the meaning of Sub-section (1), and, therefore, the Board is bound by such direction subject only to the adjudication, if any, in accordance with Sub-section (2), if any dispute is raised by the Board in that behalf. It was urged that in the present case the Board was, therefore, bound by the directions of the State Government granting the concession to the power intensive consumers since no dispute was raised by the Board in accordance with Sub-section (2), of Section 78-A. Learned counsel for the Board did not for the purpose of this case, dispute this position, but contended that all directions of the Stat e Government were obeyed by the Board and, therefore, the question does not really arise. The Boards contention is that it has acted according to the directions of the State Government and, therefore, the question of non-compliance with any such directions giving rise to the argument based on Section 78-A does not arise.For consideration of the main controversy, it is advisable at this stage to deal with Sections 49 and 59 of the Supply Act. Section 49 makes provision for the sale of electricity by the Board to persons other than licensees. Sub-section (1) starts with the words `Subject to the provisions of this Act and of regulations, if any, made in this behalf. This means that the provision made therein is subject to other provisions of the Supply Act and the regulations. It then proceeds to say that the Board may supply electricity to any person not being a licensee upon `such terms and conditions as the Board thinks fit and may for the purposes of such supply frame `uniform tariffs. Sub-section (2) then enumerates several factors which the Board is required to `have regard to in fixing the uniform tariffs. The meaning of the expression `have regard to is well-settled. It means that the factors specifically enumerated shall be taken into account while performing the exercise which in this case is the fixation of uniform tariffs. Ordinarily, therefore, uniform tariffs are required to be framed by the Board for making such supply. Sub-section (3) then proceeds to say that nothing in the earlier enacted provisions shall derogate from the power of the Board, `if it considers it necessary or expedient to fix different tariffs for the supply of electricity to any person, having regard to the geographical position of any area, the nature of the supply and purpose for which supply is required and `any other relevant factors. Sub-sect ion (4) then says that in fixing the tariffs and terms and conditions for the supply of electricity, `the Board shall not show undue preference to any person. In other words, Sub-section (4) provides against any unreasonable discrimination in fixing the tariffs and terms and conditions for supply of electricity. The power of fixation of tariffs in the Board is provided in this manner by Section 49 of the Supply Act which requires the fixation of uniform tariffs ordinarily having regard particularly to the specified factors and enables fixation of such tariffs for any person having regard to the factors expressly stated and any other relevant factors, providing further that no unreasonable or undue preference shall be shown to any person by the Board in exercise of its powers of fixing the tariffs.The next important provision is Section 59 of the Supply Act. For appreciating the argument based on Section 59, it is necessary to bear in mind the distinction in Section 59 as it stood prior to 1978, as amended by Act No. 23 of 1978 and finally as amended by Act No. 16 of 1983, quotedeffect of 1983 amendment, which came into force from 1.4. 1985, is that the Board is entitled to adjust its tariffs to ensure generating a surplus of not less than three per cent even without such specification by the State Government and when the State Government specifies a higher surplus, then the Board must ensure generating the higher specified surplus. This is, of course, subject to the accepted norm of the Board acting in consonance with its public utility character and not entirely with a profit motive like that of a private trader.The pre-1978 concept of the Boards functioning to merely avoid any loss is replaced by the shift after 1978 amendment towards the positive approach of requiring a surplus to be generated, the quantum of surplus being specified by the State Government, with a minimum of three per cent surplus in the absence of the specification by the Government of a higher surplus, after the 1983 amendment. This construction made of Section 59, as it stood at different times in Govinda Prabhus case (supra) indicated earlier, cannot be faulted in any manner. In Govinda Prabhus case (supra) the same argument which is advanced before us was expressly rejected. We are of the same view.It is , therefore, obvious that mere generation of surplus by the Board as a result of adjusting its tariffs when the quantum of surplus has not been specified by the State Government after the 1978 amendment of Section 59 of the Supply Act, cannot invite any criticism unless it is further shown that the surplus generated as a result of the adjustment of tariffs by the Board has resulted in the Board acting as a private trader shedding off its public utility character. In other words, if the profit is made not merely for the sake of profit, but for the purpose of better discharge of its obligations by the Board, it cannot be said that the public enterprise has acted beyond it authority. The Board in the present case has shown that the surplus resulting from upward revision of tariffs applicable to the H.T. consumers made in the present case, was for the purpose of better discharge of its other obligations under the Supply Act and in effect, it has merely resulted in a gradual withdrawal of the concessional tariffs provided earlier to the power intensive consumers which do not in its opinion require continuance of the concessional tariffs any longer. In fact, no material has been placed before us to indicate that this assertion of the Board is incorrect or there is any reasonable basis to hold that the upward revision of tariffs applicable to H.T. consumers is merely with a desire to earn more profits like a private trader and not to generate surplus for utilisation of the funds to discharge other obligations of the Board towards more needy consumers, such as agriculturists or to meet the need of expansion of the supply to deserving areas. The argument with reference to statistics that the upward revision of tariffs for the H.T. consumers results in earning amounts in excess of the cost of generation does not, therefore, merit a more detailed consideration.It was also contended on behalf of the appellants that the generation of electricity by the Andhra Pradesh Electricity Board is both thermal as well as hydro, the quantity from each source being nearly equal and the entire electricity generated is fed into a common grid, from which is supplied to all categories of consumers. On this basis, it was argued that the rise in the fuel cost which led to the fuel cost adjustment applicable only to the H.T. consumers was un reasonable and discriminatory since the burden of rise in fuel cost was placed only on the H.T. consumers. In our opinion, this argument has no merit. The H.T. consumers, including the power intensive consumers, are known power guzzlers and in power intensive industries, electricity is really a raw material. This category of consumers, therefore, forms a distinct class separate from other consumers like L.T. consumers who are much smaller consumers. There is also a rational nexus of this classification with the object sought to be achieved. Moreover, the power intensive consumers have been enjoying the benefit of a concessional tariff for quite some time, which too is a relevant factor to justify this classification. Placing the burden of fuel cost adjustment on these power guzzlers, who had the benefit of concessional tariff for quite some time and have also a better capacity to pay, cannot, therefore, be faulted since the consumption in t he power intensive industries accounts for a largeour opinion, any detailed decision on this aspect also is unnecessary on the view taken by us about the Boards power to revise tariffs, no case for striking down the same as arbitrary and discriminatory having been made out. In view of the earlier decision of this Court in Govinda Prabhu, with the conclusion as well as reasoning of which we respectfully concur and reiteration of the Courts limited power of judicial review in Shri Sitaram Sugar Company Limited recently decided by a Constitution Bench, we do not find any reason to accept any of the arguments advanced on behalf of the appellants by their learned counsel. In fact, the decision in Govinda Prabhu concludes the controversy against the appellants and some detailed discussion by us has become necessary only on account of an attempt on behalf of the appellants to distinguish the decision and the emphasis placed on the requirements of Sections 16, 49 and 59 of the Electricity (Supply) Act.