Login
  • Bookmark
  • PDF
  • Share
  • CaseIQ

M/S. Laxmi Business ... v. Jharkhand State Elec...

Jharkhand High Court
Sep 17, 2010
Smart Summary (Beta)

Factual and Procedural Background

Two writ petitions raising similar questions were heard and disposed of by a single common order. The petitioners sought (i) setting aside energy bills from May 2005 onwards that were raised on the basis of 75% of their contract demand; (ii) adjustment or refund of amounts realized in excess with interest; and (iii) revision of bills in terms of the existing tariff. The petitioners contended that after the Electricity Act, 2003 (effective 10-6-2003) the Jharkhand State Electricity Regulatory Commission (JSERC) alone had authority to frame tariff and that the Tariff Order 2003–04 (applicable w.e.f. 1-1-2004) contained no provision for billing on the basis of a minimum 75% of contract demand. They relied on the judgment dated 17-4-2009 in W.P.(C) No. 5150 of 2007 (Jharkhand State Electricity Board v. Kumardhubi Steels Pvt. Ltd.) and noted that the Special Leave to Appeal (Civil No. 20104 of 2009) was dismissed on 29-9-2009.

The respondent Jharkhand State Electricity Board (the Board) defended the impugned bills as being in accordance with the Tariff Order 2003–04, argued that provisions such as Clause 15.2(a) of the 1993 tariff and Clause 4(c) of the supply agreement (permitting demand charges on the basis of 75% of contract demand or actual recorded consumption, whichever is higher) remained operative in the absence of a contrary provision in the Tariff Order 2003–04, and relied on the Repeal and Saving clause in Section 185(2) of the Electricity Act, 2003. The Board also invoked earlier case law to justify its position.

JSERC (respondent No. 5) maintained that its Tariff Order 2003–04 was duly made, final and binding; that the Board had not appealed the Tariff Order under Section 111 of the Electricity Act, 2003; that Annexure 5.1 of the Tariff Order contains the approved tariff schedule and is binding; and that Supply Code Regulations, 2005 (effective 28-10-2005) govern terms and conditions of supply and do not permit charging demand charges at 75% of contract demand. During pendency of the writ petitions the Board moved JSERC on 19-8-2010 for a general clarification (registered as Case No. 18 of 2010), but the court declined to keep the writ petitions pending on that account and proceeded to decide the matters.

Legal Issues Presented

  1. Whether the impugned bills raised on the basis of 75% of the contract demand are in accordance with the Tariff Order 2003–04, or whether they are illegal, arbitrary and mala fide?

Arguments of the Parties

Petitioners' Arguments

  • After the Electricity Act, 2003, tariff-framing authority shifted to JSERC; the Board no longer had the power to frame tariff.
  • JSERC framed the Tariff Order 2003–04, which contains no provision for billing on the basis of minimum 75% of the contract demand.
  • The Board raised impugned bills in disregard of the Tariff Order 2003–04 despite recorded demand being lower.
  • The matter is covered by the judgment dated 17-4-2009 in W.P.(C) No. 5150 of 2007 (Jharkhand State Electricity Board v. Kumardhubi Steels Pvt. Ltd.), whose SLP was dismissed on 29-9-2009; JSERC orders dated 7-2-2006 and 18-12-2006 were also referred.

Respondent-Board's Arguments

  • The impugned bills conform to the Tariff Order 2003–04.
  • Provisions such as Clause 15.2(a) of the 1993 tariff and Clause 4(c) of the supply agreement (allowing demand charges on the basis of 75% of contract demand or actual consumption, whichever is higher) remain in force in absence of an express contrary provision in Tariff Order 2003–04; reliance was placed on the Repeal and Saving clause in Section 185(2) of the Electricity Act, 2003.
  • The term “etc” in Clause 1.4 of the terms and conditions of supply within the Tariff Order 2003–04 permits the Board's approach; demand charges are fixed charges to meet fixed costs of supply.
  • The Board relied on other state precedents (including Nipha Steels Ltd. v. West Bengal State Electricity Board and Mukund Iron and Steel Works Ltd. v. Maharashtra State Electricity Board) as supportive authority.
  • The Board warned that quashing the demands would disrupt its financial structure since it must procure power from various sources to make supply available.

JSERC's Arguments

  • JSERC, having exercised statutory power, determined the Tariff Order 2003–04 for the Board effective 1-1-2004; that Order is final and binding on the Board and its consumers.
  • After the Electricity Act, 2003, only the regulatory commission is empowered to determine tariff; the Board's contention that it could implement the earlier tariff is misconceived.
  • The Board did not file an appeal under Section 111 against the Tariff Order 2003–04 despite the lapse of more than six years; the Tariff Order thereby attained finality.
  • The Board's tariff petition before JSERC did not propose continuation of charging on 75% of contract demand; Annexure 5.1 contains the approved tariff and is binding; other parts of the Tariff Order are submissions, objections and deliberations and are not themselves the tariff schedule.
  • Supply Code Regulations, 2005 apply to terms and conditions of supply and do not prescribe charging demand charges at 75% of contract demand. Paragraphs 12 and 16 of BSES Ltd. v. Tata Power Co. Ltd. were referred.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Jharkhand State Electricity Board v. Kumardhubi Steels Pvt. Ltd., W.P.(C) No. 5150 of 2007 (AIR 2009 (NOC) 2352) Addressed whether Tariff Order 2003–04 permitted charging demand charges on minimum 75% of contract demand; rejected Board's contention that earlier tariff provisions could be applied. The court held this judgment is fully applicable. It relied on the finality of that judgment (SLP dismissed on 29-9-2009) and treated it as controlling: the Board's similar contentions were rejected there and are rejected here.
Nipha Steels Ltd. v. West Bengal State Electricity Board (2003) 5 SCC 593 (AIR 2003 SC 2206) Case dealing with tariffs of other States made prior to the Electricity Act, 2003. The court noted the Board relied on this judgment but held that such authorities relate to pre-2003 tariffs and are not applicable to the present case arising under the Electricity Act, 2003 and the Tariff Order 2003–04.
Mukund Iron and Steel Works Ltd. v. Maharashtra State Electricity Board (AIR 1982 Bom 580) Case concerning tariffs under an earlier legal regime. The court observed the Board relied on this decision but held it inapplicable because it related to pre-Electricity Act, 2003 tariffs and not to the new statutory framework and Tariff Order 2003–04.
BSES Ltd. v. Tata Power Co. Ltd. ((2004) 1 SCC 195 : AIR 2004 SC 760) Referred (paragraphs 12 and 16) by JSERC in support of its position on regulatory determinations. JSERC relied on paragraphs 12 and 16 to support the finality and binding nature of regulatory tariff determinations; the court recorded this reliance in setting out parties' contentions.

Court's Reasoning and Analysis

The court's reasoning followed discrete analytical steps grounded in the material within the Tariff Order 2003–04 and the statutory framework established by the Electricity Act, 2003:

  1. The court accepted as indisputable that after promulgation of the Electricity Act, 2003 only JSERC is competent to frame tariff and that JSERC had framed the Tariff Order 2003–04 effective 1-1-2004 after following the prescribed statutory process.
  2. The court examined the structure of the Tariff Order 2003–04 (sections and Annexure 5.1) and emphasized that Annexure 5.1 contains the tariff schedule applicable from 1-1-2004. The court stressed that what the tariff permits to be charged is set out in the tariff; what is not mentioned cannot permissibly be charged.
  3. The court reviewed specific portions (Table 5.27 and Table 5.31) reproduced in the record. Table 5.31 showed the approved tariff for HT consumers and specified minimum monthly charges (MMC) for HTS-I and HTS-II at Rs. 250 per KVA per month, applicable irrespective of consumption for those categories.
  4. Because the petitioners are HTS-I consumers, the court held that the MMC at Rs. 250 per KVA per month applies to them and the tariff schedule in Annexure 5.1 does not provide for levying the minimum monthly charge on the basis of 75% of the contract demand.
  5. Although the Board relied on Clause 4(c) of the supply agreement permitting maximum demand charges based on actual monthly maximum demand or 75% of contract demand (whichever is higher), the court found Clause 11 of the agreement crucial: the agreement is subject to the provisions of the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948 and tariffs and terms for the time being in force, which prevail over the agreement in case of conflict. Thus the later statutory/regulatory framework (the Electricity Act, 2003 and JSERC's Tariff Order) prevails over the agreement's inconsistent provisions.
  6. The court noted JSERC's own finding (in Case No. 3 of 2006–07) that the agreement was not in accordance with the Electricity Act, 2003 and JSERC Regulations and needed to be prepared in accordance with law.
  7. The court relied on and applied the earlier Kumardhubi judgment (W.P.(C) No. 5150 of 2007), observing that the Board had raised similar contentions there which were rejected; because the Board's subsequent Special Leave to Appeal was dismissed, that judgment had finality and was applicable to the present disputes.
  8. The court rejected the Board's reliance on judicial authorities concerning pre-2003 tariffs (such as Nipha Steels and Mukund Iron) as inapplicable to disputes governed by the Electricity Act, 2003 and the Tariff Order 2003–04.
  9. The court also addressed procedural conduct: it noted that during pendency of the writ petitions the Board sought a general clarification from JSERC (Case No. 18 of 2010). The court found it inappropriate to keep the writ petitions pending for the outcome of that proceeding and proceeded to decide the petitions, while recording that any order by JSERC would be binding.
  10. On the facts and law as they stood, the court concluded that the impugned demands based on 75% of the contract demand were not authorised by the Tariff Order 2003–04 and were therefore illegal, arbitrary and without bona fide.

Holding and Implications

Core Ruling: IMPUGNED DEMANDS QUASHED

Direct orders and consequences implemented by the court:

  • The impugned demands raised on the basis of 75% of the contract demand are quashed as being illegal and arbitrary.
  • The Board is directed to revise the bills in accordance with the Tariff Order 2003–04.
  • The Board is directed to refund or adjust any amounts realized on account of the impugned bills, along with interest in terms of Clause 11.10.3 of the Supply Code Regulations, 2005.
  • The Board is directed to apply the order to all similarly situated consumers to avoid multiplicity of litigation.
  • The Board is saddled with a token cost of Rs. 5,000 in each writ petition to be deposited with the Secretary, District Legal Services Authority, Ranchi, within four weeks.

Broader implications: The opinion enforces the primacy of the JSERC Tariff Order 2003–04 under the Electricity Act, 2003 and refuses to permit the Board to rely on pre-existing tariff provisions or contractual clauses inconsistent with the regulatory tariff. The opinion does not claim to create a new legal principle beyond applying the existing statutory/regulatory framework and the controlling Kumardhubi judgment; the direct effect is the quashing of the impugned demands and the mandated billing adjustments and refunds.

Show all summary ...

1. Both the writ petitions involving similar questions are being disposed of by this common order.

2. Petitioners have prayed (i) for setting aside the energy bills from May 2005 onwards raised on the basis of 75% of their contract demand; (ii) to adjust/refund the excess amount realized with interest; & (iii) to revise the bills in terms of the existing tariff. The following submissions were made on behalf of the petitioners;

After introduction of the Electricity Act, 2003 w.e.f 10-6-2003, the duty to frame tariff was taken away from the licencee - re-spondent-Jharkhand State Electricity Board (‘the Board’, for short) and only the Jharkhand State Electricity Regulatory Commission (‘JSERC’, in short) is authorized to frame tariff schedule for the Board. JSERC has already framed tariff schedule of the Board after following the procedure provided for the same namely ‘Tariff Order 2003–04’. There is no provision in the Tariff Order 2003–04 for billing on the basis of minimum 75% of the contract demand, but in utter disregard to the tariff, the Board has raised the impugned bills on the basis of 75% of the contract demand though, the demand recorded was less. It was also submitted that the matter is fully covered by the order/judgment dated 17-4-2009 passed in W.P(C) No/5150 of 2007 : (AIR 2009 (NOC) 2352) in the case of Jharkhand State Electricity Board v. Kumardhubi Steels Pvt. Ltd. against which Special Leave to Appeal (Civil No. 20104 of 2009) was also dismissed on 29-9-2009. The orders dated 7-2-2006 and 18-12-2006 passed by JSERC were also referred.

3. The contentions of the respondent-Board is as follows:

The impugned bills are completely in accordance with the Tariff Order 2003–04 issued by JSERC. The provisions contained in Clause 15.2 (a) of 1993 tariff, and clause 4(c) of the supply agreement whereunder the Board could charge demand charges on the basis of 75% of the contract demand or the actual consumption recorded, whichever is higher; is still in vogue, in absence of any contrary provision in the Tariff Order 2003–04 (The Repeal and Saving Clause contained in Section 185(2) of the Electricity Act, 2003 was referred). The Tariff Order 2003–04 does not say that the demand charge will be on the basis of actual demand recorded in the meter. The terms and conditions of supply are integral part of the tariff and in view of the word ‘etc’ occurring in Clause 1.4 of the terms and conditions of supply of Tariff Order 2003–04, the Board is justified in raising the impugned bills. The demand charge being a fixed charge is levied to meet, the fixed cost incurred by the Board in making supply of electricity to its consumers. (Different portions of the Tariff Order 2003–04 were referred to justify the impugned bills). The judgment of J.S.E.B v. Kumardhubi Steels Pvt. Ltd. (supra) is not applicable in this case. If the demands in question are quashed the financial structure of Board will collapse as it has to make the electricity available for supply by purchasing it for different sources also. The judgments reported in 2003 (3) JLJR 38 (SC) Page: 510: (2003) 5 SCC 593 : (AIR 2003 SC 2206) in the case of Nipha Steels Ltd. v. West Bengal State Electricity Board and AIR 1982 Bom 580 in the case of Mukund Iron and Steel Works Ltd. v. Maharashtra State Electricity Board, were relied.

4. The submissions on behalf of the JSERC-respondent No. 5 is as follows:

In exercise of its statutory powers, JSERC has determined the Tariff Order 2003–04 for the Board w.e.f 1-1-2004 after following a well laid statutory process; which is final and binding on the Board as well as its consumers. After enactment of the Electricity Act, 2003, none else than the regulatory commission is authorized and empowered to determine the tariff, and therefore, the contention of the Board that they can implement the earlier tariff issued by the Bihar/Jharkhand State Electricity Board, is misconceived, misleading and contrary to the provisions of the Electricity Act, 2003. An appeal under Section 111 of the Electricity Act, 2003 could be filed by the Board, but even after lapse of more than six years no such appeal has been filed. The Tariff Order 2003–04 became final and binding. The impugned bills are raised against the Tariff Order 2003–04.

Further, the respondent - Board itself, in its tariff petition filed before JSERC did not propose to continue the said provisions of charging on 75% of contract demand. The tariff approved by JSERC is contained in Annexure 5.1 of the Tariff Order 2003–04 which is self explanatory and is binding on the parties and save and except Annexure 5.1. other part of the Tariff Order 2003–04 are submissions, objections, considerations, deliberations, comments etc. with regard to Annual Revenue Requirements and tariff petition filed by the Board. The Board cannot be allowed to implement its own tariff on one or other pretext. The earlier tariffs became inoperational after the Tariff Order 2003–04 was made applicable since 1-1-2004. The Electricity Supply Code Regulations, 2005 were also made applicable w.e.f 28-10-2005 and the terms and conditions of the Supply of electricity is governed under the provisions of the said regulations which also does not prescribe for charging of demand charges at 75% of the contract demand. Paragraph 12 and 16 of the judgment reported in (2004) 1 SCC 195 : (AIR 2004 SC 760) BSES Ltd. v. Tata Power Co. Ltd., was referred.

5. The only question is whether the impugned bills raised on the basis of 75% of the contract demand are as per Tariff Order 2003–04, or they are illegal, arbitrary and mala fide?

6. The Tariff Order 2003–04 is divided in different sections. Section 1 is ‘Introduction’, Section 2 is ‘ARR (Annual Revenue Requirement) and tariff proposal submitted by J.S.E.B, Section 3 is ‘Objections’, Section 4 is ‘Commission's Analysis on the Revenue Requirement of J.S.E.B, Section 5 contains the Design of Tariff Structure and Analysis of Tariff’, Section 6 contains the ‘Directions to the L.S.E.B and Annexure 5.1 contains the “Tariff schedule of the Jharkhand State Electricity; Board applicable w.e.f January 1, 2004”.

7. It cannot be disputed that after promulgation of Electricity Act, 2003, only JSERC is competent to frame tariff and that it has framed Tariff Order 2003–04 w.e.f 1-1-2004 after considering the tariff petition of the Board, and the procedures prescribed, in accordance with law. Learned counsel for the Board referring some of the Clauses contained in ‘Section 5’ relating to the ‘Design of Tariff Structure and Analysis of Tariff’ contended that even as per this tariff, the Board can raise the impugned demands. The contention is wholly devoid of any merit, unacceptable and misleading. The JSERC has analysed and designed the tariff structure. The Board cannot be allowed to interpret/mis-interpret the Tariff Order 2003–04 in its own way as it suits it and on its own whims. Even from table 5.27 which is reproduced below, it will appear that the Board itself did not propose to continue with the then existing provisions of charging the monthly mini-mum demand charge based on actual maximum demand of that month or 75% of the contract demand whichever is higher.

Table 5.27: Tariff for HTS - I consumers (Existing/Proposed)

DESCRIPTION TARIFF* DEMAND CHARGE Existing Proposed Rs./KVA/month 125 200 ENERGY CHARGE Rs./KWh/month Existing Proposed All consumption 1.78 4.40 FUEL SURCHARG ERs./KWh/month 2.44 Annual minimum guarantee (AMG) charge -subject to minimum contract demand for this category, monthly minimum demand charge as per appropriate tariff based on actual maximum demand of that month or 75% of the contract demand whichever is higher -Energy charges based on load factor of 25% and power factor 0.85 on contracted demand payable at the rate of Rs. 1.78.KWh The following AMG charge shall be realized from the consumer as per appropriate tariff AMG charge based on load factor of 25% and power factor 0.9 on contract demand payable at the rate of energy charge applicable to HTS - I category

8. Further, table 5.31 - the approved tariff for HT consumers is reproduced below:

Table 5.31: Approved tariff for HT consumers

DESCRIPTION TARIFF* Rs./KVA/month DEMAND CHARGE HTS-I 140 HTS-II 140 HTS-III 140 ENERGY CHARGE Rs./KWh/month HTS-I 4.00 HTS-II 4.00 HTS-II 4.00 Minimum Monthly Charge (MMC) HTS-I and HTS-II Rs. 250.KVA/month EHTS Rs. 400.KVA/month

9. In this case, the petitioners are HTS-I category consumers. The minimum monthly charge (MMC) at the rate of Rs. 250 per KVA per month is applicable to them irrespective of their consumption. The tariff schedule contained in Annexure 5.1 in relation to the High Tention Service (HTS) category does not provide for levying minimum monthly charge on the basis of 75% of the contract demand. What can be charged is mentioned in the tariff, and what is not mentioned, cannot be charged saying that it is not mentioned. Trying to justify the impugned demands, on the basis of word ‘etc’ occurring in Clause 1.4 of the terms and conditions of supply, and the Repeal and Saving Clause contained in Section 185(2) of the Electricity Act, 2003 is simply misleading and mischievous.

10. The Board has also tried to justify the impugned demands on the basis of Clause 4(c) of the agreement which provided as follows:

“Maximum demand charges for supply in any month will be based on the maximum KVA demand for the month or 75 percent of the contract demand whichever is higher, subject to provision of clause 13. For the first twelve months' service the maximum demand charges for any month, will however, be based on the actual monthly maximum demand for that month.”

11. But how the Board can ignore Clause 11 which clearly stipulates that:

“This agreement shall be read and construed as subject in all respects to the provisions of the Indian Electricity Act, 1910, rules framed thereunder and the Electricity (Supply) Act, 1948 together with rules, regulations (if any), tariffs and terms and conditions for supply of electricity framed and issued thereunder and for the time being in force as far as the same may respectively be applicable and all such provisions shall prevail in case of any conflict or inconsistency between them and the terms and conditions of this agreement.”

12. Thus, the earlier Acts, rules, regulations and the tariff made thereunder were to prevail over the agreement, and now the Tariff Order 2003–04, made under Electricity Act, 2003, prevails over the agreement. The agreement is statutory one and has to be in tune with the Act/Rules/Regulations, made from time to time. It may also be noted here that in Case No. 3 of 2006–07 - JSERC inter alia held that the said agreement is not in accordance with the Electricity Act, 2003 and the Regulations passed by the JSERC, and it is required to be prepared in accordance with law.

13. The judgment of Kumardhubi (AIR 2009 (NOC) 2352) (supra) is fully applicable to the present case. That case related to a HTSS category (Induction Furnace Units), whereas these cases relate to HTS-I category. Similar contentions were raised by the Board in that case that even as per Tariff Order 2003–04, it can raise bills on the basis of earlier tariffs. The Board's contentions were rejected, which were, inter alia, as follows:—

“4. ………….. It is also submitted that in the Tariff Order 2003–04 there are provision for charging demand charges on the basis of minimum of 75% of the contract demand for general HT consumers and 100% of the contract demand for consumers having Induction Furnace……………….. It is further submitted that the rate/schedule of charges of H.T and Induction furnace Consumers were left out to be decided in future, saying that those terms and conditions needed in depth for study and analysis.”

14. It was also, inter alia, observed as follows:—

“15. Be that as it may, even otherwise the Board is bound by the Agreement and the Tariff of 2003–04 and its schedule thereto and in case of any grievance or dispute it could have approached the Appellate Tribunal under Section 111 of the Electricity Act. 2003. The same has not been challenged by the Board even after a lapse of five years.”

15. It may also be noted that the Board's SLA (Civil) No. 20104. filed against the said judgment was also dismissed on 29-9-2009.

16. The judgments relied by the Board are not at all applicable to the facts and circumstances of the present case. They relate to the tariffs of other States made prior to enactment of Electricity Act, 2003, whereas the present case is related with the new Electricity Act, 2003; the Tariff Order 2003–04 made thereunder and the new Regulation.

17. One more aspect is to be noted, before parting with this order. On 17-8-2010 these writ petitions were heard at length as it was felt that counter affidavit was not needed, as both the parties were relying on Tariff Order 2003–04. After the order was dictated in Court allowing the writ petitions, learned counsel appearing for the Board, intensively insisted for adjournment, for filing counter affidavit. The prayer was allowed. In the counter affidavit, then filed by the Board, it is said that Board has moved JSERC on 19-8-2010 (i.e during the pendency of these writ petitions) for a general clarification of charging of the demands in question which has been registered as Case No. 18 of 2010, and therefore, it would be desirable that petitioners should await the outcome of the said proceeding. Counsel for the Regulatory Commission produced a copy of said petition and submitted that surprisingly the Board has suppressed that the present writ petitions involving similar questions are pending in this Court. Counsel for the petitioner submitted that the Tariff Order 2003–04 has attained finality as also observed in Paragraph 15 of the judgment of Kumardhubi (supra) (quoted above), and now after 6 years, and that too during pendency of these writ petitions, the purported clarification has been sought mischievously.

18. Be that as it may, in the facts and circumstances noticed above and in view of the finality of judgment of Kumardhubi (supra), I am not inclined to keep these writ petitions pending on the ground of pendency of the said petition before the JSERC. Needless to say that, any order passed by the JSERC will be binding on all concerned, but in view of the factual and legal position obtaining as on today, the writ petitions have to be allowed.

19. Considering the entire matter from different angles, it has to be held that the impugned demands are absolutely illegal and arbitrary.

20. The actions of the Board lacks bona fide. The Board is also bound by law, but it appears that the Board and it's officers have got no respect and in fact, they are violating the law and generating litigations, whereas they are obliged to implement the law and act fairly.

21. In the result, the impugned demands are quashed. The Board is directed to revise the bills on the basis of the Tariff Order, 2003- 04 and refund/adjust the amounts realized, if any, on account of the impugned bills, along with interest in terms of Clause 11.10.3 of the Supply Code Regulations, 2005.

22. In order to avoid multiplicity of litigations, the Board is further directed to apply this order to all similarly situated consumers.

23. The Board is saddled with a token cost of Rs. 5,000/- (Rs. five thousand only) in each writ petitions to be deposited with the Secretary, District Legal Services Authority, Ranchi, within four weeks from today.

24. Order accordingly.