P.N Bhagwati, J.— This appeal, by special leave, is directed against the order of the High Court of Orissa allowing a writ petition filed by the first respondent for quashing a press note dated February 1, 1971 levying a coal surcharge at 0.62 p. per unit of electricity supplied by the Orissa State Electricity Board to the first respondent. The writ petition came to be filed by the first respondent in the following circumstances.
2. The first respondent is a limited liability company carrying on business of manufacturing aluminium. It has several factories at different places in the country where it carries on one or the other processes involved in the manufacture of aluminium. It was desirous of setting up another factory and for that purpose it was looking for a place where it would be able to secure at reasonable rates electrical energy which is a primary raw material in the method of electrolysis employed for the purpose of converting alumina into aluminium. The State of Orissa had, about this time, commissioned hydroelectric station at the site of Hirakud Dam with a view to step up the production of electricity and making it available for industrial purposes. It offered to supply electricity to the first respondent at reasonable rates if the first respondent set up its factory at Hirakud a the district of Sambhalpur within the territories of the State. A contract dated June 3, 1957 was accordingly entered into between the first respondent and the State of Orissa for supply of electricity at certair mutually agreed rates for a period of 25 years with an option of renewal in favour of the first respondent for a further period of 25 years. In view of this contract, the first respondent established a factory at Hirakud for the manufacture of aluminium and the State of Orissa supplied electricity to the first respondent from the Hirakud hydro-power station at the rates stipulated in the contract. Some time after the factory of the first respondent had been in production, it was found that additional electric power was necessary for expansion of its operations. Another contract dated February 11, 1960 was, therefore, entered into between the first respondent and the State of Orissa whereby the State agreed to supply to the first respondent additional electric power at the rates and on the terms and conditions set out in this contract. The duration of this contract was also co-extensive with that of the earlier contract. Thus there were two contracts between the first respondent and the State of Orissa under which the State supplied electricity to the first respondent.
3. In or about 1962, the State Government, by a notification issued under Section 5, sub-section (1) of the Electricity (Supply) Act, 1948 (hereinafter referred to as the Supply Act) constituted Orissa State Electricity Board (for shortness called the Board). Section 60 of the Supply Act provides inter alia that
“all contracts entered into by, with ... the State Government for any of the purposes of this Act before the first constitution of the Board shall be deemed to have been . . . entered into ... by, with ... the Board”.
Therefore, as soon as the Board was constituted, the two contracts, dated June 3, 1957 and February 11, 1960 were deemed to have been entered into by the first respondent with the Board and for all the purposes of the Supply Act, they were to be treated as contracts entered into with the Board. The Board in its turn supplied electricity to the first respondent from the Hirakud hydro-power station at the rates and in accordance with the terms and conditions set out in these contracts.
4. In 1968, the State Government set up a thermal power station at Talcher and the transmission lines from the Hirakud hydro-power station were integrated with those from the Talcher thermal power station. The thermal project was thereafter in June 1970, transferred from the State Government to the Board. Both the Hirakud hydel project and the thermal project were then operated by the Board. Now, in a thermal project, coal is an essential raw material as it constitutes the fuel necessary for generation of electricity and the cost of generation of electricity is therefore, directly linked with the price of coal. The Board, after it had taken over the Talcher thermal project, found that, owing to steep rise in price of coal. the cost of generation of electricity at Talcher thermal power station had gone up considerably and in order to offset this rise in the cost of generation, it was necessary to levy a coal surcharge on consumers receiving electricity from the Talcher-Hirakud grid. The Board accordingly, after obtaining the approval of the Government, decided to levy a coal surcharge at the rate of 0.62 p. per unit of the electricity supplied from the Talcher-Hirakud grid and notified its decision in a press note issued on February 1, 1971. The relevant part of press note was in the following terms:
“Owing to steep rise in the price of coal which is necessary for generation of thermal power at Talcher, the cost of generation has gone up considerably and the Board felt that the additional cost could be met only by the levy of a coal surcharge on consumers receiving power supply from Talcher-Hirakud grid, as is levied by other Electricity Boards who have thermal generation. As per the provisions of Sections 49 and 59 and the Sixth Schedule of the Indian Electricity (Supply) Act, 1948, the levy of coal surcharge is permissible under the aforesaid circumstances.
The quantum of coal surcharge is, however, dependent on the rise or fall in the cost of coal delivered at the Talcher thermal power station and on the basis of the present cost of coal supplied to the power station the Board proposes to levy coal surcharge at 0.62 paise per unit provisionally. This coal surcharge will be in addition to the present tariff at which the power is being supplied to the consumer fed from the Talcher-Hirakud grid and is also exclusive of the electricity duty and other charges, if any, levied by Government from time to time. The coal surcharge will, however, not apply to the consumers getting supply of power from diesel power stations run by the Board.
The coal surcharge at the above mentioned rate of 0.62 paise per unit will be levied on all supplies of energy from the Talcher-Hirakud grid with effect from February 1, 1971. As the Machkund power system is not integrated with the Hirakud-Talcher grid, consumers receiving power from Machkund power system are exempted from the above levy for the present.”
It would be seen that the press note excluded from the coal surcharge consumers of electricity supplied from diesel power stations as also Machkund power station. The only consumers subjected to the coal surcharge were those receiving electricity from the Talcher-Hirakud grid. Relying on the press note, the Board claimed to recover the coal surcharge from the first respondent, but the first respondent disputed this liability and filed Writ Petition No. 357 of 1971 in the High Court of Orissa challenging the validity of the press note and praying for quashing the demand for coal surcharge. The High Court allowed the writ petition and quashed the decision of the Board to levy the coal surcharge so far as the first respondent is concerned. The Board thereupon brought the present appeal with special leave obtained from this Court.
5. There were in the main three grounds on which the High Court declared the levy of the coal surcharge invalid. Firstly, the High Court held that since electricity to be supplied to the first respondent under the two contracts was to be from the Hirakud hydro-power station, rise in the price of coal, which is not an essential raw material in the generation of hydroelectric power, was irrelevant and that could not furnish any valid or legitimate reason for applying coal surcharge to the first respondent. Secondly, the High Court said that the levy of the coal surcharge could not be justified under Section 49, as it was imposed only on consumers of electricity from Talcher-Hirakud grid and consumers of electricity from diesel power stations and Machkund hydro-power station were not touched and it did not form part, of a measure to fix uniform tariffs. Section 59 also, according to the High Court, did not help the Board. In the first place, no positive material was placed before the High Court by the Board which would show that the Board was running at a loss and the coal surcharge had been levied for the purpose of avoiding such loss and secondly, to quote the words of the High Court, if the coal surcharge were imposed to meet the purposes of Section 59, there could have been no “justification to exempt the consumers of energy from diesel stations and Machkund hydro project” for “Section 59 makes provision for a comprehensive view of the matter and not with reference to a particular undertaking of the Board”. Lastly, the High Court felt that no regulations having been made under Section 79(j) conferring power on the Board to unilaterally revise the charges, it was not competent to the Board to ignore the stipulation contained in the two contracts and enhance the charges in violation of such contractual stipulation. The High Court observed that if regulations made under Section 79(j) conferred “unilateral power on the Board of revising the tariffs, the position would be very different”: in such a case,
“since regulations are law and such law would provide for unilateral exercise of power, agreements cannot stand in the way and deter the authority of the law enabling unilateral exercise of power from being so exercised”.
The High Court accordingly quashed the decision to levy the coal surcharge contained in the press note and declared that the first respondent shall not be subject to the coal surcharge on the basis of the press note. The question is whether the view taken by the High Court is correct.
6. We will take up the second and the third grounds together for consideration. We do not think that the High Court was right in saying that by making regulations under Section 79(j) the Board could confer upon itself power to unilaterally revise the rates for supply of electricity. Section 79(j) empowers the Board to make regulations not inconsistent with the Supply Act to provide for “principles governing the supply of electricity by the Board to persons other than the licensees under Section 49”. This power to make regulations must obviously be exercised consistently with the provisions of the Supply Act and the regulations made in exercise of this power cannot go beyond the Supply Act. If the power to enhance the rates unilaterally in derogation of the contractual stipulation does not reside in any provision of the Supply Act, it cannot be created by regulations made under the Supply Act. Either this power can be found in some provision of the Supply Act or it is not there at all. Regulations in the nature of subordinate legislation cannot confer authority on the Board to interfere with the contractual rights and obligations, unless specified power to make such regulations is vested in the Board by some provision in the statute, expressly or by necessary implication. No such power is to be found in Section 79(j) or in any other provision of the Supply Act. It does not, therefore, make any difference whether regulations under Section 79(j) were made or not, at the date when the coal surcharge was levied. Even if they were made, they could not have conferred authority on the Board to unilaterally exonerate itself from the stipulation contained in the two contracts and enhance the rates, notwithstanding such contractual stipulation. The only question could be whether the Board had any such authority under Sections 49 and 59, these being the only two sections relied on for the purpose of the spelling out such authority in the Board. This question stands concluded against the Board by the decision given by us this morning in Indian Aluminium Company v. Kerala State Electricity Board (1975) 2 SCC 414. We have analysed the provisions of Sections 49 and 59 and held that, on a true interpretation, neither of these two sections confers any authority on the Board to override a contractual stipulation as to rates and to enhance the rates in derogation of such contractual stipulation, even if it finds that the rates stipulated in the contract are not sufficient to meet the cost of production and supply of electricity and it is incurring operational loss. This decision clearly negatives the claim of the Board to enhance the rates by the levy of coal surcharge under Section 49 or Section 59. The Board must be held bound by the stipulation as to rates contained in the two contracts solemnly entered into by the State of Orissa with the first respondent. On this view, it becomes unnecessary to consider whether the levy of the coal surcharge could not be justified under Section 49 because it was imposed only on consumers of electricity from Talcher-Hirakud grid and not on the other consumers, and it did not form part of a measure to fix uniform tariffs, or whether there was any material before the High Court showing that the Board was running its operations at a loss so as to justify readjustment of the charges under Section 59. It is immaterial to consider these questions because, whatever view be taken in regard to them, it is clear from our decision that neither under Section 49 nor under Section 59 can the Board, even if it is running at a loss, interfere with a contractual stipulation as to rates solemnly agreed upon with the consumer. It may readjust the rates in order to avoid the operational loss, where it is not fettered by a contractual stipulation from doing so. The High Court was, therefore, right in taking the view that the Board was not entitled to levy coal surcharge on the first respondent in enhancement of the rates for supply of electricity stipulated in the two contracts between the parties. We need not, on this view, consider the first ground on which also the High Court held the levy of coal surcharge to be invalid, namely, that electricity to be supplied to the first respondent under the two contracts was to be from Hirakud hydro-power station and, therefore, rise in the price of coal was irrelevant and it could not furnish any justification for imposing coal surcharge on the first respondent. We do not express any opinion on this point as it is unnecessary to do so.
7. There is, in the circumstances, no reason to interfere with the decision of the High Court. We accordingly dismiss the appeal with costs.