Citation Codes

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Case Number

Civil Misc. Writs Nos. 515 and 662 to 664 etc. of 1976

Attorney(S)

P.C. Srivastava

Judges

K.N Seth
R.S Singh, JJ.

Acts

Indian Electricity Act, 1910 (hereinafter referred to as the 1910 Act)
ELECTRICITY SUPPLY ACT 1948
provisions of the 1948 Act. No specific provision
provisions of the 1910 Act and the 1948 Act
provisions of 1910 Act or 1948 Act
Ss. 49 and 59 of the 1948 Act.

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Smart Summary

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

Factual and Procedural Background

These petitions were filed by consumers of electrical energy supplied by the U.P. State Electricity Board (the Board). The principal question before the Court was whether the Board had the power or authority to demand from the petitioners any additional amount of security pursuant to a Board letter dated 9 December 1975.

The petitioners had entered into separate but identical agreements with the Board for industrial supply. The leading case for factual reference was Civil Misc. Writ Petition No. 515 of 1976 (Modi Industries Ltd., Steel Section). In that case the Board contracted to supply 9,500 KW under Rate Schedule HV-2; the agreement was executed on 31 December 1970. The petitioner had deposited Rs. 3,44,135 as security under the agreement. The Board subsequently demanded over Rs. 9,00,000 as additional security.

The petitioners contended that neither the Indian Electricity Act, 1910 nor the Electricity (Supply) Act, 1948 nor the agreement authorised the Board to demand additional security. The Board's stance was that rates had been enhanced since the agreement, billing practices and billing lags meant charges for approximately three months' consumption remained outstanding at any time, and that the Board, to safeguard its financial interest, was justified in demanding an amount equal to three months' average consumption as further security. The Board relied on Clause VI of the Schedule to the 1910 Act (as made applicable to the Board) as authority.

Legal Issues Presented

Whether the U.P. State Electricity Board had statutory or contractual authority to demand additional security from the petitioners pursuant to its letter dated 9 December 1975.
Whether the petitions were maintainable in writ jurisdiction (Article 226) given contractual arbitration provisions and/or other statutory referral mechanisms (such as reference to the Electrical Inspector) relied upon by the Board.

Arguments of the Parties

Petitioners' Arguments

The Board was not authorised under the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948, or the agreement to demand additional security.
The security initially furnished was fixed by the agreement and the agreement did not provide for revision of the security amount; therefore the Board could not demand more simply because rates changed.
The demand that security be increased to cover three months' average consumption was unjust and unreasonable; billing delays or administrative shortcomings of the Board should not impose an additional burden on consumers.

Board's Arguments

Rates had been enhanced after the agreement; the presently framed Rate Schedule (1974) was in force, and because billing and payment processes resulted in about three months' consumption remaining outstanding at any time, initial security had become insufficient.
Clause VI of the Schedule to the 1910 Act (made applicable to the Board by Section 26 of the 1948 Act and by the agreement's clause 2) empowers the Board to require "sufficient security" from a consumer to safeguard its financial interest.
The Board relied on the second proviso to Clause VI—specifically clause (a) of that proviso—which permits the licensee to discontinue supply if security given by the consumer "has become invalid or insufficient" and the consumer fails to make it sufficient within seven days of notice.
The amount of additional security demanded (three months' average consumption) was just and reasonable in the Board's assessment.
The Board also raised a maintainability objection, contending disputes of this nature were covered by the agreement's arbitration clause (referring to precedent in Titagarh Paper Mills Ltd. v. Orissa State Electricity Board) and thus not cognizable by writ petition.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Titagarh Paper Mills Ltd. v. Orissa State Electricity Board ((1975) 2 SCC 436)	Held that questions arising under the agreement (for example, whether a Board had power under a contractual clause to levy a surcharge) were questions covered by an arbitration clause in the agreement and hence subject to arbitration.	The Court considered the principle but distinguished it: the present dispute concerned the statutory authority of the Board to demand additional security (a statutory question) rather than questions arising under the contract's interpretation; therefore Titagarh did not make the present dispute arbitrable or outside the scope of writ jurisdiction.

Court's Reasoning and Analysis

The Court conducted a statutory and contractual analysis focused on Clause VI of the Schedule to the Indian Electricity Act, 1910, the operation of Section 26 of the Electricity (Supply) Act, 1948 (which deems the Board a licensee for certain purposes), and the terms of the parties' agreement.

Key steps in the Court's reasoning were:

Interpretation of Clause VI: The Court examined the text and context of Clause VI and held that it is concerned with a specific stage—when an owner or occupier requisitions supply after distribution mains have been laid. Clause VI requires that the licensee supply within a specified time provided the requisitioner tenders a written contract and furnishes "sufficient security" to bind him to take supply for not less than two years. The Court read the Clause as prescribing security to assure the licensee a specified annual revenue (not exceeding 15% of the cost of the service-line) and concluded that this security is aimed at binding the consumer to take supply, not at securing payment for energy consumed month-to-month.
Limitation on Clause VI's scope: The Court rejected the Board's contention that Clause VI authorises the Board to demand "any or every type of security" necessary to safeguard its general financial interest. The security contemplated by Clause VI relates to obligations arising from a requisition and the cost of providing service-lines; it does not extend to a licensee's right to obtain additional security to cover arrears or anticipated consumption arising under an existing contractual supply relationship.
On the second proviso and clause (a) specifically: The Court held clause (a) of the second proviso is engaged only where a consumer has not already provided the security required under the first proviso or where that specific security has become invalid or insufficient and the consumer then fails to make it sufficient within the specified time after notice. The Court concluded this provision cannot be read as a general empowerment to demand additional security simply because the security originally furnished under an existing contract might have become insufficient due to rate increases or billing lags.
Contractual provisions examined: The Court considered the agreement's clauses. Clause 13 allowed rate revision under the provisions of the 1948 Act but did not provide for revision of the amount of security. Clause 16 fixed a stated sum as security, permitted appropriation of that security for unpaid sums, and required the consumer to restore the security to the stipulated amount in the event of appropriation. The Court read these clauses as showing the parties contemplated a fixed stipulated security, refundable on termination after satisfaction of dues, and not a continuing open power in the Board to demand additional security so long as the stipulated amount remained intact.
On the reasonableness argument: Although the petitioners argued the demand was unjust and unreasonable and that administrative delays should not impose additional burden, the Court did not need to resolve the question of reasonableness because it concluded the Board lacked the legal power to make the demand for the purpose asserted.
Maintainability / arbitration and referral arguments: The Board's maintainability objection—based on the agreement's arbitration clause—was addressed. The Court referred to Titagarh but distinguished it: Titagarh involved questions plainly arising under the agreement and thus subject to an arbitration clause. By contrast, the present petitions raised a question about the Board's statutory authority under applicable Acts; they did not principally raise a contractual construction issue suitable for arbitration. Accordingly, the Court held that challenges to statutory action by the Board are maintainable under Article 226. The Court also rejected the contention that the dispute could legitimately be referred to the Electrical Inspector under sub-clause (3) of Clause VI, finding the dispute was not of the nature specified for such referral.

Holding and Implications

Holding:

The petitions are allowed and the demand for additional security made by the Board pursuant to the D.O. letter dated 9 December 1975 is quashed.

Implications:

Direct effect: The Board's demand for over Rs. 9,00,000 as additional security (in the lead case and similarly situated petitions) was set aside; parties were directed to bear their own costs.
Scope and limits: The decision clarifies, in the context of this dispute, that Clause VI of the Schedule to the 1910 Act (as applied) and the corresponding contractual provisions do not authorise the Board to demand additional security from existing consumers merely because the original contractual security has become insufficient as a result of rate increases or billing practices. Clause VI's security requirement is for a specific requisition context and for assuring a minimum revenue relative to the cost of a service-line, not for securing routine payment of consumption over time.
Writ jurisdiction: The Court confirmed that statutory action by a statutory authority that is challenged as being beyond statutory power is cognizable under Article 226; the existence of an arbitration clause in the contract does not automatically oust writ jurisdiction where the dispute centers on statutory authority rather than contractual interpretation.
Broader precedent: The opinion did not purport to establish a broader novel legal doctrine beyond its statutory and contractual interpretation in the facts before the Court; its direct consequence is the quashing of the specific demand made by the Board and the affirmation of limits on the Board's power to exact additional security in the circumstances described.

End of summary. This document strictly reflects only the content and reasoning contained in the provided opinion and does not add or infer information beyond that text.

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Modi Industries Ltd. v. U.P. State Electricity Board

K.N Seth, J.:— In these petitions filed by the consumers of electrical energy supplied by the U.P State Electricity Board the main question involved is whether the U.P State Electricity Board (hereinafter referred to as the Board) has power or authority to demand from the petitioners any additional amount of security deposit on the basis of its letter dated 9th Dec., 1975.

2. The petitioners entered into separate but identical agreements with the Board for supply of electrical energy for industrial purposes. For sake of convenient reference to facts necessary for the decision of the question involved, Civil Misc. Writ Petition No. 515 of 1976 filed by Modi Industries Ltd., (Steel Section) is made the leading case. The Board contracted with the petitioner company to supply 9,500 KW electrical energy. The Rate Schedule applicable to the petitioner was HV-2. A deed of agreement was executed on 31st Dec., 1970. Under the agreement the petitioner company deposited with the Board a sum of Rs. 3,44,135 as security. The Board has now made a further demand of over Rs. 9,00,000 as additional security. The case set up by the petitioner is that neither under the Indian Electricity Act, 1910 (hereinafter referred to as the 1910 Act) nor under the Electricity (Supply) Act, 1948 (hereinafter referred to as the 1948 Act) nor under the agreement entered into between the parties the Board is authorised to demand additional security.

3. The stand taken by the Board is that after the agreement entered into between the parties the rates for supply of energy have been enhanced from time to time. At present the Rate Schedule framed in 1974 is in force. Normally the meter reading is taken after every thirty days and it takes near about fifteen to twenty days thereafter to prepare the bills and issue them to the consumers. A further period of fifteen days is allowed to the consumer to make the payment. Seven days' disconnection notice after the expiry of the due date is also given to the consumer. Thereafter it takes two-three days to verify the accounts etc., to disconnect the supply for non-payment of a particular Bill. In this way charges for three months energy consumption always remain due from the consumer while the bill for one month consumption is served upon him at a time. In order to safeguard the financial interest of the Board a sum amounting to three months' average consumption of electric energy is being demanded as the security initially furnished by the petitioners has become insufficient. It is asserted that under clause ‘VI’ of the Schedule to the 1910 Act the Board is competent to demand sufficient security from the consumer in order to safeguard its interest. It is further asserted that the amount of additional security demanded on the basis of 3 months' consumption of energy is just and reasonable.

4. Under the 1948 Act the Board is not a licensee as defined in that Act but by virtue of Section 26 the Board is deemed a licensee and has all the powers and obligations of a licensee under Act IX of 1910. The second proviso appended to S. 26 provides that the provisions of Cl. VI of the Schedule to the 1910 Act are made applicable to the Board in respect of that area only where distribution mains have been laid by the Board and the supply of energy through any of them has commenced. Clause ‘2’ of the Agreement entered into between the parties, which provides that the agreement shall be read and construed in all respects in conformity with all provisions of the 1910 Act and the 1948 Act or any subsequent amendments thereof and the Rules and Regulations made thereunder from time to time, has the effect of making Cl. VI of the Schedule applicable to the agreement between the parties. Learned counsel for the Board contended that Cl. VI of the Schedule empowered the Board to demand sufficient security from the consumer in order to safeguard its financial interest. The relevant part of Cl. VI reads as follows:

“VI. Requisition for supply to owner or occupiers in vicinity - (1) where, after distributing mains have been laid down under the provisions of Cl. IV or Cl. V and the supply of energy through those mains or any of them has commenced a requisition is made by the owner or occupier of any premises situate within the area of supply requiring the licensee to supply energy for such premises, the licensee shall, within one month from the making of the requisition or within such longer period as the Electrical Inspector may allow supply, and, save in so far as he is prevented from doing so by cyclones, floods, storms or other occurrences beyond his control, continue to supply, energy in accordance with the requisition:

Provided first, that the licensee shall not be bound to comply with any such requisition unless and until the person making it—

(a) within fourteen days after the service on him by the licensee of a notice in writing in this behalf, tenders to the licensee a written contract, in a form approved by the State Government, duly executed and with sufficient security, binding himself to take a supply of energy for not less than two years to such amount as will assure to the licensee at the current rates charged by him an annual revenue not exceeding fifteen per centum of the cost of the service-line required to comply with the requisition, and

(b) …………

Provided secondly, that the licensee shall be entitled to discontinue such supply—

(a) if the owner or occupier of the property to which the supply is made has not already given security, or if any security given by him has become invalid or insufficient, and such owner or occupier fails to furnish security or to make up the original security to a sufficient amount, as the case may be, within seven days, after the service upon him of notice from the licensee requiring him so to do, or

(b) to (d) ………………”

5. This rule is concerned with the stage when a requisition is made by the owner or occupier of any premises for supply of energy for such premises. It provides that within a month from the making of the requisition or within such extended period as the Electrical Inspector may allow, the Board shall supply energy in accordance with the requisition. The obligation to supply energy requisitioned is subject to the condition that the consumer, within fourteen days after the service on him by the licensee of a notice in writing, tenders to the licensee a written contract in the approved form duly executed and furnishes sufficient security binding himself to take a supply of energy for not less than two years. The amount of security will be such as will assure to the licensee at the current rates charged by him an annual revenue not exceeding fifteen per centum of the cost of the service-line required to comply with the requisition. The security that the consumer is required to furnish at this stage has nothing to do with the security for safeguarding any financial interest of the licensee for the energy consumed by the owner or occupier of any premises. We are unable to accept the contention of the Board that by virtue of this clause the Board is empowered to demand any or every type of security that the Board may consider necessary in order to safeguard its financial interest. The security contemplated under the proviso to Clause VI of the Schedule is for the purpose of binding the consumer to take supply of energy for not less than two years. The extent of security shall be such which will assure to the licensee an annual revenue not exceeding 15 per cent of the cost incurred in laying the service-line in order to comply with the requisition. It has nothing to do with the security that may be taken by the licensee under the agreement entered into with the consumer for payment of the bills for consumption of energy.

6. Cl. (a) of the second proviso also cannot be pressed into service in support of the demand for additional security made by the Board. That provision is attracted only when the owner or occupier of the property to which the supply is made has not already made the security contemplated by cl. (a) of the first proviso or if the security given by him has become invalid or insufficient and such owner or occupier fails to furnish security or to make up the original security to a sufficient amount, as the case may be, within the specified time after service upon him of a notice from the licensee requiring him so to do. We are not prepared to read this provision as empowering or authorising the Board to demand an additional security if the security furnished by the consumer under the agreement with the Board for any reason becomes insufficient to safeguard the financial interest of the Board for supply of energy to the consumer. This provision does not authorise the Board to ask for additional security from the consumer on the ground that the original security furnished by him has become insufficient on account of the fact that the rate for supply of the energy has been enhanced and normally when a bill for a month's consumption of energy is served on the consumer he has already consumed energy for about three months for which the initial security furnished by the consumer is rendered insufficient. Apart from Ch. VI referred to above, no other provisions of 1910 Act or 1948 Act have been brought to our notice which empower the Board to demand additional security from the consumers to safeguard its interest with regard to the value of energy supplied to the consumers during a particular period.

7. It is significant that by cl. ‘13’ of the agreement it was provided that the rates stipulated in the agreement were subject to revision by the Electricity Board from time to time under the provisions of the 1948 Act. No specific provision was made for revision of the amount of security which the consumer was required to furnish. Under cl. ‘16’ of the agreement a fixed sum of money was stipulated to be furnished as security by the consumer and it was provided that the supplier shall refund the said amount of security to the consumer upon the termination of the agreement and after satisfaction of all dues, payable to the supplier. It was further provided that in the event of non-payment by the consumer of any sum of money which may become due and payable to the supplier, the supplier was entitled to appropriate the security deposited towards payment of such sums due or payable by the consumer. In the event of such appropriation the consumer was required to deposit such sum as to bring the security to the stipulated amount. The parties did not intend that if the stipulated amount of security remained intact, any amount would be demanded as additional security.

8. Learned counsel for the petitioners contended that the demand made by the Board for additional security to safeguard its financial interest to the extent of three months' consumption of energy was unjust and unreasonable. It was open to the Board to submit its bills every month and additional burden could not be fastened on the consumer on account of the incompetence or inefficiency of the Board to submit the bills in time. We do not consider it necessary to deal (with) this aspect of the matter as in our opinion, the Board is not competent to demand any additional security for the purpose for which the Board has made the demand, assuming that the time taken in submitting the bills is not due to incompetence or inefficiency of the Board.

9. Learned counsel for the Board raised an objection regarding the maintainability of the writ petitions. It was asserted that cl. ‘18’ of the agreement provided for a remedy by way of arbitration in respect of a dispute of the nature raised in these petitions. In this connection reference was made to Titagarh Paper Mills Ltd. v. Orissa State Electricity Board ((1975) 2 SCC 436). In that case the dispute related to levy of coal surcharge. The Supreme Court overruled the contention that the coal surcharge could be imposed in exercise of powers under Ss. 49 and 59 of the 1948 Act. Dealing with the claim of the Board that it had power under cl. 13 of the agreement to levy the coal surcharge the Supreme Court observed that all questions such as; whether the Board had power under cl. 13 of the agreement to levy any coal surcharge at all when no such power was conferred on it by the Act, whether the action of the Board in levying the coal surcharge on the appellant under cl. 13 of the agreement was arbitrary and unreasonable or whether it was based on extraneous and irrelevant considerations and whether on the facts and circumstances of the case, the Board was justified under cl. 13 of the agreement to levy the coal surcharge on the appellant, were plainly questions arising under the agreement and were covered by the arbitration provision in cl. 23 of the agreement. The principle laid down in the aforesaid case is not attracted to the nature of dispute raised in the present petitions which relate to the authority of the Board under the statutory provisions to demand additional security. It does not relate to the interpretation or construction of any of the provisions of the agreement or to the rights and obligations of the parties thereto or as to any other matter or thing concerning or arising out of it.

10. The Board is a statutory authority and has to act within the framework of the statutory provisions applicable to it. If the act of the Board is found to be not in consonance with or in breach of some statutory provisions of law, rule or regulation, it is open to challenge in a petition under Article 226 of the Constitution. In these petitions no contractual rights are sought to be enforced which may more suitably be agitated in a competent Civil Court as contended by the learned counsel for the Board.

11. The contention of the Board that the dispute raised in the present petitions could be referred to the Electrical Inspector as provided for in sub-cl. (3) of cl. VI of the schedule has no substance.

12. The dispute raised in these petitions is not of the nature specified in that provision and could not, therefore, legitimately be referred to the Electrical Inspector.

13. In the result, the petitions are allowed. The demand for additional security made by the Board from the petitioners in pursuance of the D.O letter dated December 9, 1975 is quashed. Parties shall bear their own costs.

14. Petition allowed.

Modi Industries Ltd. v. U.P. State Electricity Board

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

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' Arguments

Board's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Modi Industries Ltd. v. U.P. State Electricity Board

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