G.S Singhvi, J.:— This is a petition for issuance of a writ in the nature of certiorari for quashing the letter dated 27.9.1996 issued by the Senior Executive Engineer/Operation. Focal Point Division (Special), Ludhiana (respondent No. 2) requiring the petitioner to pay Rs. 18,38,587/- in lieu of alleged theft of electricity. The other prayer made in the petition is for quashing the decision taken by the Board Level Dispute Settlement Review Committee vide which the demand created against the petitioner has not only been upheld but a further direction has been given to charge interest at the rate of 18% per annum w.e.f 27.9.1996

2. The facts on which there is no dispute between the parties are that in 1982, the competent authority of the Punjab State Electricity Board (hereinafter described as the Board) released electric connection to the petitioner who is engaged in the manufacture of mild steel wires of different measurements and qualities. Initially, the connected load sanctioned for the petitioner's industry was 155.740 KW. This was enhanced from time to time and at the time of replacement of meter in 1995, the sanctioned load was 523.092 KW. The meter installed at the premises of the petitioner was periodically checked by the staff of the Board and till December, 1995. no defect was found in the instruments. During the course of inspection conducted on 1.12.1995, the Senior Executive Engineer, M.M.T.S (Enforcement) No. 2, Ludhiana found that the meter was running slow by 2%. Therefore, a supplementary bill of Rs. 11,583/- was raised which was paid by the petitioner. Soon thereafter, the petitioner requested to, the Sub Divisional Officer, Focal Point Ludhiana, that the meter installed in its premises may be replaced so that it may not be charged for slow metering. This request of the petitioner was accepted. However, just after 22 days of the installation of new meter, respondent No. 2 issued memo Annexure P. 3 dated 27.9.1996 and called upon the petitioner to deposit Rs. 18,38,587/- by accusing it of having committed theft of energy. In that letter, it was mentioned that all the four M.E seals of the meter, which were affixed in 1991-1992 were found to be fake and two paper seals which were affixed by M.M.T.S, Ludhiana were found to be fixed again. The electric supply to the petitioner's establishment was also disconnected.

3. The petitioner challenged the demand raised by respondent No. 2 by controverting the allegation of theft. On its request, the dispute was referred to the Zonal Level Dispute Settlement Committee. In its meeting held on 31.3.1997, the said committee decide the petitioner's case in the following manner:—

“MINUTES OF THE ZONAL LEVEL DISPUTE SETTLEMENT COMMITTEE MEETING HELD ON 31.3.97 IN THE CHAMBER OF C.E/OP (CENTRAL). PSEB, LUDHIANA.

4. The following present in the meeting:—

1. Er. Kirpal Singh

C.E/OP(C), Ludhiana, Chairman

2. Er. P.S Brar

S.E/OP City Circle, LDH., Convener

3. Er. S.K Anand

Director/Sales, Patiala, Member

4. Er. S.K Seth

Director/Enforcement, LDH., Member

5. Er. L.R Bashamboo

Dv. C.A/Revenue, Patiala, Member

6. Sh. M.S Bhogal

Bhogal Sons (Regd.), Member 732-Indl. Area-A, LDH.

7. Sh. Ajit Singh Kular Kular Cycle Industries

75-R, Indl. Area-B. Ludhiana Member

5. The following cases were discussed in the meeting:

1. M/s Triputi Indl. A/c No. FP-1/122 under Focal Point, Spl. Divn. Ludhiana

(Disputed amount Rs. 18.39 lacs)

The case was discussed and the consumer was also heard. This case was considered earlier in the Spot Review Committee and the decision of the Spot Review Committee was based on the fact that the consumer did not produce any production data. This connection was checked by Xen/MMTS on 4.5.92, 21.12.93 and 4.12.95 who did not report anything regarding fake sales.

However, while going through production data it was observed that electricity consumption is not directly proportional to the production. The consumer gave a reasoning that size of the wire produced is from different sizes of steel round and as such there is variation in consumption. However, committee could not satisfy itself due to non-availability of record of production. Moreover, there has been large increase in connected load of the consumer but consumption pattern and production has not changed much. As such, the case is not beyond suspicion and it was recommended by the Committee that amount of Rs. 4.0 lacs already charged on the report of the Spot Review Committee should be considered as final payment and no further charges be levied.

2 to 13. xxxxxxxx

Sd/- Sd/- Sd/- (Er. Kirpal Singh), (Er. P.S Brar), (Er. S.K Anand) Sd/- Sd/- (Er. S.K Seth), (Sh. L.R Bashamboo) Sd/- Sd/- (Sh. M.S Bhogal), (S. Ajit Singh Kular) Bhogal Sons (Regd.) 732, Indl. Area-A Ludhiana. Kular Cycle Industries 75 Indl. Area-B, Ludhiana.

6. The Board Level Dispute Settlement Review Committee to which the petitioner's case appears to have been referred did not agree with the Zonal Level Dispute Settlement Committee and held that it was a case of theft. This is borne out from the minutes of the meeting of the Board Level Dispute Settlement Review Committee held on 28.4.1998, the relevant extracts of which are reproduced below:—

“MINUTES OF THE BOARD LEVEL DISPUTES SETTLEMENT REVIEW COMMITTEE HELD IN THE CHAMBER OF CHAIRMAN PSEB ON 28.4.98 AT PATIALA.

Present:—

1. Sh. T.S Gujral, M.F& A.

2. Er. K.S Dhillon. M(I)

3. Ex. K.S Gill, M(O)

4. Er. R.L Sharma

5. Er. K.S Gill

6. Er. P.L (sic)

7. Er. V.K Kundra

7. The cases listed as per Agenda notes circulated vide UO No. 800/804.DCG/289.L dated 20.4.98 were discussed and respective consumer's view points were heard. Following decisions were taken during the meeting:

1 to 2 xxx

3. M/s Triputi Industries, A/c No. FPI-122 (LDH) Disputes amount Rs. 18,38,587/-

8. Consumer could not give any satisfactory reply/argument for 4 Nos. fake seals, 2 Nos. paper seals, refixing and absence of any increase in the consumption in spite of extension in load from 155.740 KW to 533.892 KW. The committee considered those facts to be sufficient to establish it a theft case. The full amount of Rs. 18,38,587/- along with interest @ 18% p.a w.e.f 27.9.96 may be charged.

4 to 8 xxxxxx

Chief Engineer/Commercial

9. The petitioner has challenged the impugned demand and the decision mainly on the ground of violation of the principles of natural justice and arbitrariness. In the writ petition, it has been averred that neither any notice was given to the petitioner to remain present at the time of testing of the old meter in the M.E Laboratory nor any opportunity of hearing was given by respondent No. 2 before he decided to charge it with the allegation of having committed theft of energy by tampering with the seals affixed on the meter. The petitioner has further averred that the impugned decisions are violative of the provisions contained in Commercial Circular No. 45 issued by the Board which requires that the testing of the defective meter shall be done in the presence of the consumer or his representative.

10. The respondents have defended the impugned decision by contending that the petitioner has been held guilty of committing theft of electricity. In the written statement filed by them through respondent No. 2, it has been averred that the petitioner had tampered with M.E seals and paper seals affixed on the meter with a view to manipulate the dates about the electricity consumed in its factory and the competent authority has rightly imposed penalty in view of the report of M.E Laboratory which proves the tampering of the seals.

11. Having noticed the admitted facts and the opposing assertions, made by the parties on the legality of the decisions taken by the two Committees, we shall now deal with the question whether the impugned demand and decision are liable to be nullified on the ground of violation of the rule of hearing, i.e, audi alteram partew. Shri M.L Sarin, Senior Counsel appearing for the petitioner argued that his client cannot be held guilty of having committed theft of energy because during the course of inspection conducted by the Senior Executive Engineer, M.M.T.S (Enforcement) No. 2, Ludhiana, the seals affixed on the meter were found intact and there was no sign of tampering. Learned counsel further argued that the decisions taken by the Zonal Level Dispute Settlement Committee and the Board Level Dispute Settlement Review Committee should be declared as void and quashed on the ground of violation of the basic rule of natural justice, i.e no man can be condemned unheard. He submitted that the petitioner was not given intimation about the proposed testing of the meter in M.E Laboratory and, therefore, its representative could not remain present at the time of testing and no notice or opportunity of hearing was given to it by the competent authority of the Board before accepting the report prepared on the basis of test conducted in M.E Laboratory. Shri Sarin lamented that even a copy of the report was not supplied to the petitioner with a view to enable it to submit representation against the findings recorded in the report. Learned counsel pointed out that Clause (c) of Commercial Circular No. 45 also envisages giving of an opportunity to the consumer to remain present at the time of testing of the equipment in the Laboratory but in total disregard to the instructions issued by none else than the Board, the respondents have taken a decision adversely affecting the rights of the petitioner. Another contention urged by Shri Sarin is that the decision taken by the Board Level Dispute Settlement Review Committee is liable to be invalidated being violative of the principles of natural justice because no reason has been assigned by the said Committee for holding the petitioner guilty of committing theft of energy.

12. Shri Sukhbir Singh controverted the submissions made by Shri Sarin and argued that there is no rhyme or reason to doubt the correctness and authenticity of the report prepared on the basis of test conducted in M.E Laboratory because no allegation of mala fide has been level led by the petitioner. He relied on the instructions contained in the Sales Manual of the Board and Clause 33 of the Abridged Conditions of Supply of Electricity and submitted that the demand has been rightly raised against the petitioner in view of the clear findings recorded in the test checking report.

13. We have thoughtfully considered the respective submission in the background of the facts brought on the record of the petition. In our opinion, the impugned demand and the decisions of the Zonal Level Dispute Settlement Committee and the Board Level Disputes Settlement Committee are liable to be declared as nullity because the respondents have not only violated the fundamental rules of justice but they have also acted in a most arbitrary and casual manner while imposing penalty upon the petitioner. A careful reading of the documents filed by the parties shows that in the report dated 4.12.1995 prepared by the Senior Executive Engineer, M.M.T.S (Enforcement) No. 2, Ludhiana, who had inspected the meter installed in the premises of the petitioner, there is no mention of tampering of M.E seals and paper seals affixed on the body of the meter. The only thing which the officer concerned found was that the meter was running slow by 2% for which additional demand was created by the competent authority and paid by the petitioner. In our opinion, slow running of the meter could not have warranted a conclusion that the petitioner had committed theft of angry. However, as the respondents have tried to defend and justify their decision by contending that the petitioner had tampered with the seals-affixed on the meter, we consider it appropriate to examine the issue whether the finding and conclusion recorded by them in respect of the allegation of theft of engery by the petitioner are legally sustainable. The petitioner has categorically averred that no notice and opportunity of hearing were given to it. In the written statement filed on their behalf, the respondents have not controverted that:

(i) the defective meter was replaced in pursuance of the request made by the petitioner;

(ii) no notice was given to it about he proposed testing of the defective meter in M.E Loaratory;

(iii) no notice or opportunity of hearing was given by the competent authority before accepting the report received from M.E Laboratory;

(iv) copy of the test report was not given to it : and

(v) reasons which weighed with the Board Level Dispute Settlement Review Committee not to accept the report of the Zonal Level Dispute Settlement Committee were not communicated to it.

14. In our opinion, failure of the concerned authorities and the Committees to supply a copy of the report sent by M.E Laboratory and to give an action-oriented notice and opportunity of hearing to the petitioner will have to be construed as a denial of effective opportunity of hearing and, therefore, the finding recorded by the Senior Executive Engineer, M.M.T.S (Enforcement). Ludhiana and the two Committees that the petitioner is guilty of committing theft is legally unsustainable. We are further of the opinion that the action taken by the respondents is liable to be voided due to non-compliance of Clause (c) of Commercial Circular No. 45 issued by the Board. The said clause reads as under:—

“c) In future all the meters removed against any meter change order (MCO) shall be sent to M.E Laboratory in the sealed Card Board Box duly signed by the concerned PSEB officer/official and the consumer or his representative. The testing of such meters shall be done in the presence of consumer or his representative. In case, the consumer refuses to sign the meter test results/report, such meter shall be kept in the sealed box by the Operation S/Divn. till the final disposal of the case. If the consumer deposits the compensation amount without going to the Dispute Settlement Committees or Civil Courts such sealed meter shall be returned to the ME Labs. Similar procedure shall be adopted in case of meter sealed by the Enforcement Agency/Operation Organisation in theft cases.”

15. A bare reading of the above reproduced provision of the Commercial Circular shows that the testing of meter removed against any meter change order is to be done in the presence of the consumer or his representative. This necessarily means that a notice should be given to the consumer or his representative about the date, time and place of the testing of meter. Admittedly, that was not done in the petitioner's case. Shri Sukhbir Singh argued that the violation of the instructions contained in Commercial Circular No. 45 should not be made basis for nullifying the decision taken by the Board because these instructions do not have the force of law. We are unable to agree with him because it is a settled proposition of law that the executive authorities of the State and its agencies are bound to act in accordance with the administrative/executive instructions which regulate their actions—Union of India v. K.P Joseph, (1973) 1 SCC 194 : AIR 1973 SC 303, Amarjit Singh Ahluwalia v. State of Punjab, (1975) 3 SCC 503 : AIR 1975 SC 984, Ramana Dayaram Shetty v. International Airport Authority of India, (1979) 3 SCC 489 : AIR 1979 SC 1628.

16. We also do not find any substance in the argument of Shri Sukhbir Singh that in view of the instructions contained in the Sales Manual and the Abridged Conditions of Supply of Electricity, the impugned action and the decisions should be upheld notwithstanding the fact that the same were taken in violation of principles of natural justice. A bare perusal of paragraph 203 of the Manual shows that it empowers the board to take punitive action in the cases of theft of electrical energy, but there is nothing in the Sales Manual and the Abridged Conditions of Supply of Electricity from which it may be inferred that the procedure prescribed under Clause (c) of Commercial Circular No. 45 is not be followed in the cases involving allegation of theft of energy. In fact, Commercial Circular No. 45 and the Sales Manual etc. operate in different fields and, therefore, violation of one cannot be justified by relying upon the other.

17. The rule of hearing and the rule of fairness in State action which form part of the concept of rule of law imposes an obligation on the State and its agencies/instrumentalities to give notice and opportunity of hearing and also to disclose reason for their actions which may adversely affect the rights of a person or which may visit such person with evil consequences. The rule that no man can be condemned unheard has been treated as an integral part of the concept of rule of law which permeates the scheme of our Constitution. The thin line of distinction between purely administrative actions and quasi judicial actions has been completely obliterated by the judicial verdicts. More than 30 years ago, their Lordships of the Supreme Court in State of Orissa v. Dr. (Miss) Binapani Dei, AIR 1967 SC 1269 ruled that even administrative decisions may be invalidated on the ground of violation of the principles of natural justice. Some of the observations made in that action are extracted below:

“An order by the State to the prejudice of a person in derogation of his vested rights may be made only in accordance with the basic rules of justice and fair play. The deciding authority, it is true, is not in the position of a Judge called upon to decide an action between contesting parties, and strict compliance with the forms of judicial procedure may not be insisted upon. He is, however, under a duty to give the person against whom an enquiry is held an opportunity to set up his version or defence and an opportunity to correct or to controvert any evidence in the possession of the authority which is sought to be relied upon to his prejudice. For that purpose the person agasint whom an enquiry is held must be informed of the case he is called upon to meet, and the evidence in support thereof. The rule that a party to whose prejudice an order is intended to be passed is entitled to a hearing applies alike to judicial tribunals and bodies of persons invested with authority to adjudicate upon matters involving civil consequences. It is one of the fundamental rules of our constitutional set-up that every citizen is protected against exercise for arbitrary authority by the State or its officers. Duty to act judicially would, therefore, arise from the very nature of the function intended to be performed; it need not be shown to be super-added. If there is power to decide and determine to the prejudice of a persons, duty to act judicially is implicit in the exercise of such power. If the essentials of justice be ignored and an order to the prejudice of a person is made, the order is a nullity. That is a basic concept of the rule of law and importance thereof transcends the significance of a decision in any particular case…. It is true that the order is administrative in character, but even an administrative order which involves civil consequences, as already stated, must be made consistently with the rules of natural justice after informing the first respondent of the case of the State, the evidence in support thereof and after giving an opportunity to the first respondent of being heard and meeting or explaining the evidence. No such steps were admittedly taken, the High Court was in our judgment, right in setting aside the order of the State.”

18. In the subsequent decision—Sayeedur Rehman v. State of Bihar, (1973) 3 SCC 333 : AIR 1973 SC 239; Smt. Menaka Gandhi v. Union of India, (1978) 1 SCC 248 : AIR 1978 SC 597; S.L Kappor v. Jagmohan, (1980) 4 SCC 379 : AIR 1981 SC 136; Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664 : AIR 1981 SC 818; Olga Tellis v. Bombay Municipal Corporation, (1985) 3 SCC 545 : AIR 1986 SC 180 and S.N Mukherjee v. Union Of India., (1990) 4 SCC 594 : AIR 1990 SC 1984, the Apex Court reiterated the same principles with greater emphasis. In Managing Director, ECIL, Hyderabad v. B. Karunakar, J.T 1993 (6) S.C 1, a Constitution Bench of the Supreme Court held that before passing an order of punishment, the disciplinary authority must furnish a copy of the report of enquiry held against the employee and give him/her an opportunity to make representation against the findings recorded in such report. Although that decision turns on the interpretation of Article 311(2) (as amended by 42nd amendment), the proposition of law enunciated therein represents firm recognition of the principle that every piece of adverse material/evidence, which an authority seeks to rely upon for taking an action against a person, must be disclosed or made known to the affected person and he should be given an opportunity to defend himself with reference to such material/evidence.

19. Another facet of the principle of natural justice which has been firmly recognised by the courts is that every State action must be fair and must be free from arbitrariness and it must be supported by discernible reasons in S.G Jaisinghani v. Union of India, AIR 1967 SC 1427, a Constitution Bench of the Supreme Court held as under:—

“In this context it is important to emphasize that the absence of arbitrary power is the first essential of the rule of law upon which our whole constitutional system is based. In a system governed by rule of law, discretion, when conferred upon executive authorities, must be confined within clearly defined limits. The rule of law from this point of view means that decisions should be made by the application of known principles and rules and, in general, such decisions should be predictable and the citizen should know where he is. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance with the rule of law. (See Dicey - “Law of the Constitution” — Tenth Edn., Introduction ex.) “Law has reached its finest moments”, stated Douglas. J. In United States v. Wunderlick, 1951-342 US 98 : 96 Law Ed 113, “When it has freed man from the unlimited discretion of some ruler…. Where discretion is absolute, man has always suffered”. It is in this sense that the rule of law may be said to be sworn enemy of caprice, classic terms in the case of John Wilkes (1770-1798 ER 327), “means sound discretion guided by law. It must be governed by rule, not humour; it must not be arbitrary, vague and fanciful.”

20. Somewhat similar views have been expressed by another Constitution Bench in E.P Royappa v. State of Tamil Nadu, (1974) 4 SCC 3 : AIR 1974 SC 555. Ramana Dayaram Shetty v. The International Airport Authority of India (supra), Kasturi Lal Lakshmi Reddy v. State of Jammu and Kashmir, (1980) 4 SCC 1 : AIR 1980 SC 1992, Dwarkadas Marfatia and Sons v. Board of Trustees of the Port of Bombay, (1989) 3 SCC 293 : AIR 1989 SC 1642, Mahabir Auto Stores v. Indian Oil Corporation, (1990) 3 SCC 752 : AIR 1990 SC 1031 and Kumari Shrilekha Vidyarthi etc. v. State of U.P, (1991) 1 SCC 212 : AIR 1991 SC 537 are the other decisions which can be cited as supporting what was observed in S.G Jaisinghani's case (supra)

21. In Kumari Shrilekha Vidyarthi's case (supra), a two Judges Bench of the Supreme Court, after reviewing many precedents, held as under:—

“The Constitution does not envisage or permit unfairness or unreasonableness in State actions in any sphere of its activity contrary to the professed ideals in the Preamble. Exclusion of Art. 14 in contractual matters is not permissible in constitutional scheme. The scope and permissible grounds of judicial review in such matters and the relief which may be available are different matters but that does not justify the view of its total exclusion”.

22. For the reasons mentioned above, the writ petition is allowed. The impugned demand and the decisions are declared illegal and quashed with a direction that within one month from today, the respondents shall refund the amount of Rs. 4,00,000/- deposited by the petitioner for restoration of electric supply. They are also restrained from disconnecting the supply of electricity to the establishment of the petitioner on the ground of non-payment of impugned demand till the matter is decided afresh by the competent authority after giving reasonable opportunity of hearing to the petitioner. The competent authority shall issue notice to the petitioner and decide the matter afresh after giving reasonable opportunity of hearing to the representative of the petitioner. The concerned authority shall also record reasons in support of its decision and communicate the same to the petitioner. If the petitioner is ultimately held liable to pay any amount to the Board, then it shall also have to pay interest to be determined by the competent authority.

23. The Registry is directed to issue copies of this order Dasti on payment of the fee prescribed for urgent applications.

Petition allowed.