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Smart Summary

Structured Summary of the Opinion (K.N. Seth, J.)

Factual and Procedural Background

The petitioners entered into separate but identical agreements with the U.P. State Electricity Board for supply of electrical energy for industrial purposes. At the time of contracting the Board's 1972 rate schedule, specifically Rate Schedule HV-28, was in force. On October 12, 1974 the Board issued a revised tariff under Section 49 of the Electricity (Supply) Act, 1948, which introduced, among other changes, a new "minimum consumption guarantee charge" for large and heavy consumers (the category to which the petitioners belong). The petitioners challenged the validity of the revised rates and the imposition of the minimum consumption guarantee charge, but during hearing conceded that disputes regarding other charges were governed by an arbitration clause in their agreements; accordingly only the validity of the minimum consumption guarantee charge was pressed for consideration.

The Board's 1974 tariff fixed the minimum consumption guarantee charge at Rs. 360 per KVA per annum of contracted demand (Rs. 30 per KVA per month), and provided that demand charge and charges for excess demand would not be taken into account towards the guaranteed amount. The petitioners contended that the minimum guarantee charge was not warranted by the agreement, that it was unjustified when the Board could not supply power in accordance with the agreement (due to restrictions and alleged non-supply), and that the Board's exercise of power under Section 49 was arbitrary and violative of Article 14 of the Constitution.

The Board responded in pleadings that (a) the notification of October 12, 1974 superseded the 1972 tariff and, by operation of the agreement's clauses (including clauses providing that agreements conform to the Electricity Acts and that rates could be revised under the Act), the new tariff formed part of the agreement; (b) relief had been granted by the Board in certain periods when supply was curtailed; (c) the minimum charge was correlated with demand and energy charges and subject to annual adjustment; and (d) disputes of this nature fell within the arbitration clause of the agreement.

Legal Issues Presented

  1. Whether the Board could validly impose the minimum consumption guarantee charge included in the 1974 tariff, given the existing agreements between the petitioners and the Board.
  2. Whether the 1974 tariff notification, issued under Section 49 of the Electricity (Supply) Act, 1948, validly superseded the 1972 tariff and became part of the parties' agreements.
  3. Whether imposition of the minimum consumption guarantee charge was arbitrary or violative of Article 14 of the Constitution.
  4. Whether the Board was justified in imposing the minimum consumption guarantee charge in circumstances where, owing to restrictions or shortage of supply, it could not supply electrical energy as per the agreement.
  5. Whether the petitions were maintainable in view of an arbitration clause (clause 18) in the agreements providing an alternative remedy.

Arguments of the Parties

Petitioners' Arguments

  • The minimum consumption guarantee charge was invalid because it was not warranted by the agreements between the parties, which governed the terms and conditions of supply.
  • The Board could not impose such a minimum guarantee charge where it was not in a position to supply electricity in accordance with the agreement (shortages and statutory restrictions were alleged, including notifications restricting use and closures on specified days).
  • The exercise of power under Section 49 in fixing the minimum charge was arbitrary, lacking basis in relevant considerations, and violative of Article 14 of the Constitution.

Respondent (U.P. State Electricity Board) and Government Arguments

  • The October 12, 1974 notification issued under Section 49 superseded the 1972 tariff; the new tariff, including the minimum consumption guarantee charge, replaced the corresponding provisions of the existing schedules and agreements and thus became part of the agreement (relying on clauses in the agreement that require conformity with the Electricity Acts and allow rates to be revised).
  • Under Section 49 the Board had statutory power to frame uniform rate schedules and to revise rates; clause (13) of the agreement expressly contemplated revision of rates by the Board "from time to time" under the Act.
  • The Board had granted relief in periods when supply was not made (orders dated 2-12-1974 and 15-1-1975), including relief with regard to both Demand and Minimum Charge; no bills based on the minimum charge were shown to have been submitted and paid for periods when no supply was made.
  • The minimum consumption guarantee charge is correlated with demand and energy charges and is subject to annual adjustment — the monthly guarantee (Rs.30 per KVA) is reconciled to Rs.360 per KVA per year, allowing consumers to make up shortfalls in other months of the accounting year.
  • Sri S. N. Kacker, Solicitor General for India, contended the petitions were incompetent because clause 18 of the agreement provided an alternative remedy by arbitration for disputes about the levy of charges; reliance was placed upon Indian Aluminium Co. v. Kerala State Electricity Board and Bisra Stone Lime Co. Ltd. v. Orissa State Electricity Board for the principle that arbitration/alternative remedies may preclude maintaining such petitions.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Hari Shankar v. U.P. State Electricity Board (AIR 1974 All 70) “Tariff” includes fixation of rates and the rules and regulations relating to it; where supply is on the footing that a consumer will pay minimum guaranteed charges, that charge is a term/condition of supply. The court relied on this authority to hold that the imposition of the minimum guarantee charge formed part of the terms and conditions of supply and therefore was not outside the agreement once the tariff was lawfully revised.
Indian Aluminium Co. v. Kerala State Electricity Board ((1975) 2 SCC 414 : AIR 1975 SC 1967) Principles regarding fixation of special tariffs under Section 49(3): special tariffs may be unilateral but often result from negotiation; uniform tariffs under Section 49(1) cannot be used to derogate from special tariffs fixed under Section 49(3). The court distinguished this case, holding its principle inapplicable because the present petitions concern fixation of tariffs under Section 49(1) and because the agreements here expressly provided for revision of rates (a feature absent in the Indian Aluminium case).
Bisra Stone Lime Co. Ltd. v. Orissa State Electricity Board ((1976) 2 SCC 167 : AIR 1976 SC 127) Explanation/clarification of the ratio in Indian Aluminium regarding special tariffs and uniform tariffs under Section 49. The court noted that the Supreme Court explained the ratio of Indian Aluminium in Bisra Stone Lime; this was used to support the distinction drawn between special tariffs and the present situation under Section 49(1).
Travancore-Cochin Chemicals Ltd. v. Kerala State Electricity Board (AIR 1978 Ker 144) Kerala High Court exposition drawing similar distinction as in Bisra Stone Lime regarding operation of Section 49 and special tariffs. The court referenced this decision as having brought out the same distinction, reinforcing the view that Indian Aluminium did not govern the present facts.
Northern India Iron and Steel Co. v. State of Haryana ((1976) 2 SCC 877 : AIR 1976 SC 1100) Holders were entitled to proportionate reduction of demand charge due to Board's inability to supply energy because of circumstances beyond its control (in light of clause 4(f) of that tariff). The court held this decision inapplicable to the petitioners because the Board had granted relief under its orders (2-12-1974 and 15-1-1975) in comparable situations.
Rasbihari Panda v. State of Orissa ((1969) 1 SCC 414 : AIR 1969 SC 1081) Rules regarding arbitrariness and the requirement that state action rest on relevant considerations (cited on Article 14 challenge). The court observed the principle but found it inapplicable because the Board had set out the circumstances and factors that justified the minimum charge and those factors were relevant to the object sought (supply at reasonable rates and Board's financial stability).
Maneka Gandhi v. Union of India ((1978) 1 SCC 248 : AIR 1978 SC 597) Broader principles concerning procedural fairness and Article 14 (cited in support of Article 14 argument). The court noted the principle but held it not applicable on the facts because the Board had given reasons and relied on relevant considerations in fixing the minimum charge.

Court's Reasoning and Analysis

The court's analysis proceeded in a stepwise manner:

  1. Statutory power and effect of notification: The court observed that Section 49 of the Electricity (Supply) Act empowers the Board to lay down tariffs (uniform or special) and to frame rate schedules from time to time. The October 12, 1974 notification issued under Section 49 superseded the 1972 tariff and replaced corresponding provisions in existing schedules and agreements with effect from that date. Consequently, the 1974 tariff became part of the agreements between the parties, replacing the 1972 tariff.
  2. Agreement terms permitting revision: The court relied on clauses in the agreements — clause (2) (conformity with the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948), clause (8) (consumer pays in accordance with the attached rate schedule), and clause (13) (rates in the agreement subject to revision by the State Electricity Board under the Act) — to conclude that revision of rate schedules by statutory notification was contemplated and legally effective.
  3. Precedent supporting inclusion of tariff terms: Citing Hari Shankar, the court held that "tariff" includes not only rates but the rules and regulations relating to them and that a minimum guaranteed charge, when supply is made on that footing, is a term or condition of supply; therefore it could be part of the agreement as incorporated by the statutory tariff.
  4. Distinction from Indian Aluminium principle: The court considered Indian Aluminium (which dealt with special tariffs under Section 49(3)) and explained that its principle — that uniform tariffs under Section 49(1) cannot derogate from special tariffs under Section 49(3) — did not apply here because the present matter concerned tariffs framed under Section 49(1) and the agreements expressly contemplated revision. The court also relied on subsequent explanations (Bisra Stone Lime) and a High Court decision to support this distinction.
  5. Shortage of supply and relief given: The petitioners' contention that the Board could not impose the minimum charge because it had not been able to supply power was addressed by noting (a) the Board's concessions and assertions that energy was made available generally for periods (6–9 hours daily in many cases) and that consumers could meet minimum charges by running contracted loads for several hours; (b) Board orders dated 2-12-1974 and 15-1-1975 granted relief as regards Demand and Minimum Charge when supply was not made; and (c) no evidence was shown that bills based on the minimum charge were submitted and paid for periods when no supply was made.
  6. Nature of the minimum charge: The court explained the operation of the minimum consumption guarantee charge as correlated with demand and energy charges and subject to annual adjustment — the monthly minimum is reconciled to an annual guarantee so shortfalls in one month can be made up in other months, and final adjustments are made in the last bill of the accounting year. The court held the petitioners' grievance on this ground unfounded.
  7. Article 14 challenge: The court rejected the claim that the minimum charge was arbitrarily fixed in violation of Article 14. It noted that the Board had set out the circumstances and factors that justified imposing and fixing the minimum charge and that those factors were related to the objectives of supplying energy at reasonable rates while ensuring the Board's financial stability.
  8. Availability of alternative remedy (arbitration): The court examined clause 18 of the agreement, which provides for arbitration of disputes "as to the interpretation or construction of any of the provisions of this agreement or the rights and obligations" arising out of it. The court concluded that disputes relating to levy of the minimum consumption guarantee charge could be referred to arbitration under clause 18. In light of this alternative remedy, and in view of the principles in the cited authorities (reinforced after the Forty-second Amendment to Article 226), the petitions seeking judicial relief were not maintainable.

Holding and Implications

Holding:

DISMISSED

The court dismissed the petitions. The direct consequences were that the petitioners' challenge to the validity and imposition of the minimum consumption guarantee charge failed in the present proceedings and the petitions were not entertained. The court ordered that parties shall bear their own costs.

The opinion does not purport to announce any broader new precedent beyond applying existing statutory interpretation and the authorities cited; its dispositive basis was that the tariff revision was lawfully incorporated and that an alternative remedy by arbitration was available under the agreement.

    M/S. Bhagwan Industries (P) Ltd., Lucknow v. U.P State Electricity Board, Lucknow .

    K.N Seth, J.:— The petitioners entered into separate but identical agreements with the U.P State Electricity Board for supply of electrical energy for industrial purposes. At that time the rate schedule of 1972 framed by the Board under Section 49 of the Electricity (Supply) Act, 1948 (hereinafter referred to as the Act) was in force. The relevant rate schedule applicable to the petitioners was Rate Schedule HV-28. By a notification dated Oct. 12, 1974 the Board, in exercise of powers under Section 49 of the Act, issued revised rate schedules for supply of electricity. Besides revising the rates for demand charge, energy charge etc., a charge called minimum consumption guarantee charge was introduced for large and heavy consumers, the category to which the petitioners belong. In these petitions validity of the revised rates in the tariff as also imposition of the minimum consumption guarantee charge has been challenged. During the course of hearing it was conceded that the dispute regarding charges other than minimum consumption guarantee charge was covered by the arbitration clause of the agreement and only the validity of the minimum consumption guarantee charge was pressed for consideration.

    2. In the revised tariff of 1974 the minimum consumption guarantee charge was fixed at Rs. 360/- per KVA per annum of the contracted demand (including fuel cost variation adjustment) chargeable at the rate of Rs. 30/- per KVA per month of the contracted demand. It also provided that the demand charge and the additional charge on excess demand drawn over and above the contracted demand shall not be taken into account towards the aforesaid amount guaranteed. It was urged that this imposition was invalid as it was not warranted by the agreement between the parties which alone governed the terms and conditions of supply of electrical energy to the petitioners. It was further urged that since the Board was not in a position to supply electricity in accordance with the terms of the agreement the imposition of a minimum guarantee charge was unjustified. It was last contended that the exercise of power under Section 49 of the Act in fixing a minimum charge was an arbitrary exercise of power and wholly untenable. The agreement between the parties, by cl. (2), provided that the agreement shall be read and construed in all respects in conformity with all provisions of the Indian Electricity Act, 1910 and the Electricity (Supply) Act, 1948 or any subsequent amendments thereof and the rules and regulations made thereunder from time to time. By cl. (8) it was provided that the consumer shall pay for the supply of electrical energy in accordance with rate schedule attached to the agreement. In cl. (13) it was provided that the rates stipulated in the agreement were subject to revision by the State Electricity Board from time to time under the provisions of the Act. As noted earlier, the agreement was entered into when the rate schedule of 1972 was in force. By notification dated October 12, 1974 the rate schedule of 1974 framed in exercise of powers under Section 49 of the Act was brought into force. It was issued in supersession of all previous notifications, orders and instructions on the subject. Paragraph 2 of the notification provided that the rates of charges, conditions of supply and other, matters specified in the schedules shall replace the existing rates of charges and the corresponding provisions in the existing schedules and in the existing agreements, if any, with effect from Oct. 12, 1974.

    3. Section 49 of the Act empowers the Board to lay down terms and conditions, popularly known as tariffs, for supply of electricity to persons other than licensees. Under S. 49(1)(2) uniform tariffs are framed covering various categories of consumers. Sub-Sec. (3) provides for framing different and special tariffs for a consumer or a class of consumers. Under the aforesaid provision the Board, is empowered to lay down rate schedules from time to time. The notification of 12th Oct., 1974 issued in exercise of this power superseded the 1972 tariff and replaced the existing rates of charges and the corresponding provisions in the existing schedules and in the existing agreements between the parties. The rate schedule of 1972, which was a part and parcel of the agreement between the parties, stood replaced by the new tariff enforced under the aforesaid notification. In place of 1972 tariff the new tariff became a part and parcel of the agreement between the parties. As laid down by this Court in Hari Shankar v. U.P State Electricity Board (AIR 1974 All 70) “…….the term ‘tariff’ includes within its ambit not only the fixation of rates but also the rules and regulations relating to it. When the electrical supply is being made on the footing that the consumer will pay the minimum guaranteed charges, this charge is one of the terms or conditions for the supply.” It is, therefore, idle to contend that the imposition of the minimum guarantee charges was not warranted by the agreement between the parties.

    4. The question may be considered from another angle. As noted above, cl. (13) of the agreement provided that the rates stipulated in the agreement were subject to the revision by the State Electricity Board from time to time under the provisions of the Act. In view of Section 14 of the General Clauses Act all statutory power is exercisable from time to time. The power exercised by the Board under Section 49 of the Act was with the positive intention of replacing the 1972 tariff with the tariff dated 12th Oct. 1974. Apart from the condition incorporated in cl. (13) of the agreement that the rate shall be subject to the revision by the Board from time to time under the provisions of the Act, the new tariff enforced in exercise of the statutory power under Section 49 of the Act would be legally valid and enforceable.

    5. In support of the contention that the Board could not impose the minimum consumption guarantee charge which was a new imposition as it was not covered by the agreement entered into between the parties, reliance was placed on Indian Aluminium Co. v. Kerala State Electricity Board ((1975) 2 SCC 414 : AIR 1975 SC 1967). That was a case of special tariff for supply of electricity in exercise of power conferred under Sub-S. (3) of S. 49. As observed by the Supreme Court the fixation of special tariffs can be a unilateral act on the part of the Board, but more often than not, it would be result of negotiations between the Board and the consumer and hence a matter of agreement between them. Unilaterally revising the charge would mean that the stipulations had no binding effect, or in other words, the Board had no power to enter into such stipulations The Supreme Court further observed that the Board was also not competent to enhance the charges under the guise of fixing uniform tariffs under Sub-S. (1) of S. 49, because Sub-S. (1) is, on its plain language, subject to Sub-S. (3) of S. 49 and once special tariffs were fixed under Sub-S. (3) of S. 49, there could be no question of fixing uniform tariffs under Sub-S. (1) of S. 49. The power to fix uniform tariffs under Sub-S. (1) of S. 49 could not be exercised in derogation of the stipulations fixing special tariffs made under Sub-S. (3) of S. 49. The principle laid down in the above noted case could not be pressed into service in the present cases which related to fixation of tariff in exercise of power under Section 49(1) of the Act. Moreover, as noted above, the terms of agreement between the parties provided for revision of the rate schedules applicable to the petitioners, a feature which was absent in the agreement in the Indian Aluminium Company's case. The Supreme Court itself explained the ratio of the decision in the case of Indian Aluminium Co. in Bisra Stone Lime Co. Limited v. Orissa State Electricity Board, (1976) 2 SCC 167 : AIR 1976 SC 127). The same distinction as been brought out by the Kerala High Court in Travancore-Cochin Chemicals Ltd. v. Kerala State Electricity Board (AIR 1978 Ker 144).

    6. The stand taken by the petitioners that since the Board was not in a position to supply energy in accordance with the terms of the agreement because of shortage of supply, it was not justified in imposing a minimum consumption guarantee charge which is attracted even if no supply is made. According to the petitioners on 19th January, 1974 a notification was issued imposing restriction on all the industries which have non continuous process of manufacture to utilize electrical energy only from 9 P.M to 6 A.M the next day and by a further notification dated 17th September, 1974 factories were required to remain closed on two days in a week besides Sunday. It has further been alleged that the petitioners have not been supplied with any power since September, 1974. It is not disputed that certain restrictions have been imposed for use of electrical energy but it has been specifically asserted in paragraph ‘18’ of the second counter-affidavit sworn by Deoraj Prasad that when supply was not made available on certain days, relief has been granted under Board's orders dated 2nd December, 1974 and 15th January, 1975 which have been annexed to the first counter-affidavit as C.A 1 and C.A 2. This relief has been granted both with regard to the Demand as well as the Minimum Charge. It is significant that the petitioners while asserting that they have not been supplied with any power since Sept. 1975 (paragraph 14 of the petition) nowhere alleged that bills on the basis of Minimum Charge were submitted and paid for during the period when no supply was made. At the time of hearing it was not disputed that no bills were submitted to the petitioners for the period when no supply was made. It is not in dispute that cuts and restrictions were imposed by the Board in pursuance of Government orders issues from time to time. The first proviso to cl. (1) of the agreement gave immunity to the Board for interruption of supply or stoppage or deficiency of energy caused by any order or direction issued by the Government of Uttar Pradesh.

    7. It appears from the agreements made in the counter-affidavit that energy was made available by the Board to the consumers generally at least for about 6 to 9 hours a day, except on days when they were not permitted to consume energy under statutory orders passed by the Government, and the supply given was always more than sufficient to cover the amount of minimum charge. According to the respondents the consumers of the category to which the petitioners belong can consume sufficient electricity to meet the minimum charges if he runs his contracted load for 4 to 6 hours a day and even if he runs the contracted load at 60%, he can consume sufficient electricity to meet the minimum charges by using energy for 7.7 hours a day. The assertion has not been shown to be incorrect or without basis.

    8. It is also clear that minimum consumption charge is correlated to energy, charge as also to the demand charge. In paragraph ‘30’ of the first counter-affidavit it has been asserted that even though the minimum charge of Rs. 30/- per KVA per month is payable every month yet it is subject to final adjustment at Rs. 360/- per KVA per year so that if a consumer, for some reason or the other, could not consume energy during a particular month, worth Rs. 30/-. per KVA, he has an opportunity to make good the short-fall in the other months during a year of account. This clearly flows from paragraph ‘5’ of the rate schedule applicable to the petitioners. To take an illustration, if on the basis of rates given in the tariff the total amount of money payable for the demand charge and the energy charge works out to say, Rs. 29,000/- only in a month, and the minimum charge agreed between the parties is Rs. 30,000/-, the bill for that month would be for Rs. 30,000/-. But if in the next month, the demand relating to the demand charge and the energy charge worked out to Rs. 35,000/- what is payable would be Rs. 34,000/- only giving credit for that extra Rs. 1000/- paid in the preceding month. Such adjustments are to be finally made in the last bill of any accounting year, so that over the span of a year the provisions for a minimum charge only remains a guarantee that a minimum amount of money would be paid by the consumer to the Board. The grievance of the petitioners on this score is wholly unfounded. There also does not appear to be any justification for the assumption that there could be no provision for minimum guarantee charge if the tariff provides for demand charge.

    9. The decision of the Supreme Court in Northern India Iron and Steel Co. v. State of Haryana ((1976) 2 SCC 877 : AIR 1976 SC 1100) is of no assistance to the petitioners. In that case the petitioners were held entitled to proportionate reduction of the demand charge, on account of the inability of the Board to supply electric energy due to circumstances beyond its control, in view of cl. 4(f) of the tariff. As noted earlier the petitioners have been granted relief in such situations under Board's orders dated 2-12-1974 and 15-1-1975.

    10. It was next contended that the ate of minimum guarantee charge has been arbitrarily and capriciously fixed in the tariff and is not based on relevant consideration and is consequently in valid being violative of Article 14 of the Constitution. In this connection our attention was invited to rule laid down in Rasbihari Panda etc. v. State of Orissa ((1969) 1 SCC 414 : AIR 1969 SC 1081) and Maneka Gandhi v. Union of India ((1978) 1 SCC 248 : AIR 1978 SC 597). The principle laid down in these cases is not applicable to the facts of the present case. The Board has set out in detail the circumstances and the factors which weighed with it imposing the minimum consumption guarantee charge and fixing the rate in the 1974 tariff. None of the factors which weighed with the Board could be charcterised as irrelevant or unconnected with the object sought to be achieved, that is, supply of energy to the consumer at a reasonable rate and at the same time ensuring the financial stability of the Board.

    11. Sri S.N Kacker, Solicitor General of India, appearing for the Board, contended that the present petitions were incompetent as the petitioners had an alternative remedy. It was urged that the minimum consumption guarantee charge was a part of the tariff and whether it was leviable or not and whether it contravened the agreement or not were all matters squarely covered by cl. 18 of the agreement and consequently the petitioners had an alternative remedy by way of arbitration. Reliance was placed on the rule laid down in Indian Aluminium Co. v. Kerala State Electricity Board ((1975) 2 SCC 414 : AIR 1975 SC 1967) and Bisra Stone Lime Co. Ltd. v. Orissa State Electricity Board ((1976) 2 SCC 167 : AIR 1976 SC 127).

    12. Clause ‘18’ of the agreement provided:

    “All disputes and differences arising between the Board and the consumer (the settlement or adjustment of which is not hereinabove provided for) as to the interpretation or construction of any of the provisions of this agreement or the rights and obligations of the respective parties hereto or as to any other matter or thing concerning or arising out of this agreement, shall be referred to a single arbitrator if the parties agree upon one, otherwise to two arbitrators one to be appointed by the Board and one by the consumer which arbitrators shall appoint an umpire before proceeding with the reference and the decision of the sole arbitrator or the arbitrators or the Umpire as the case may be shall be final and binding on the parties…………”.

    13. In our opinion, the objection is well founded. Under cl. ‘18’ of the agreement even the dispute relating to the levy of minimum consumption guarantee charge could be the subject matter of arbitration. The principle laid down in the above noted cases apply with greater vigour after the amendment of Article 226 of the Constitution by the Constitution Forty-second Amendment Act, 1976.

    14. Since the petitioner has an alternative remedy by resorting to arbitration for redress of their grievance relating to the minimum consumption guarantee charge, the present petitions are not maintainable.

    15. In the result, the petitions are dismissed. Parties shall bear their own costs.

    16. Petitions dismissed.

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    Comments

    M/S. Bhagwan Industries (P) Ltd., Lucknow v. U.P State Electricity Board, Lucknow .
    (Mar 29, 1979)