PETITIONER: ASHOK SOAP FACTORY AND ANR. Vs. RESPONDENT: MUNICIPAL CORPORATION OF DELHI AND ORS. DATE OF JUDGMENT12/01/1993 BENCH: YOGESHWAR DAYAL (J) BENCH: YOGESHWAR DAYAL (J) VERMA, JAGDISH SARAN (J) VENKATACHALA N. (J) CITATION: 1993 SCR (1) 124 1993 SCC (2) 37 JT 1993 (1) 128 1993 SCALE (1)98 ACT: Delhi Municipal Corporation Act, 1957: Section 283--Levy of charges for supply of electricity--Minimum consumption guarantee charges for 'large industrial powers' consumers--Increase in rate in respect of Arc/induction furnaces--Validity of. Electricity Act, 1910: Section 21--Applicability to local authorities--Delhi Municipal Corporation, being a licensee by virtue of provisions of the Delhi Municipal Corporation Act, and not one licensed under Part II to supply energy, Section not applicable. Section 22, proviso--Proviso does not deal with the minimum consumption charges. Constitution of India, 1950: Article 14--Price fixation--Fixation of tariff, a legislative function--Hence, fixation of higher rate not open to challenge on ground of non-disclosure of reasons in the absence of any unreasonableness or arbitrariness--Since arc/induction furnaces constitute a class by themselves, question of discrimination does not arise. HEADNOTE: Section 283 of the Delhi Municipal Corporation Act, 1957 em- powered respondent No.1 Delhi Municipal Corporation to levy charges for the supply of electricity on such rates as may be fixed from time to time by it. For the purpose of charging the consumers, the Corporation had divided the consumers into different categories/classes providing for different tariffs for each category. One of the categories was 'large industrial powers' (LIP) consumers. The consumers who had a sanctioned load of 100 KWs fell in the category of large industrial powers. 125 For the levy of charges for the supply of electricity there were two systems of tariff, namely, the flat rate system and the other two-part tariff system. Under the former a flat rate was charged on the units of energy consumed while the latter system was meant for big consumers of electricity i.e. industrial power, and it was comprised of two charges (1) minimum consumption guarantee charges (called demand charges) and (2) energy charges for the actual amount of energy consumed. Under the two-part system an LIP consumer would pay minimum guarantee consumption charges at the rate fixed by the respondents. If the LIP consumer did not consume the specified minimum quantity of electricity or no energy at all even then he had to pay the minimum guarantee charges. But in case the consumer consumed more electricity then what was prescribed by the minimum guarantee charges, then the consumer paid the minimum guarantee charges and also paid the electricity charges for the actual consumption of electricity, beyond the minimum guarantee charges, in such a manner that the minimum guarantee charges were merged in the total bill of electricity consumed and a rebate was given to the consumer. In other words, if a consumer consumed more than the specified minimum quantity of electricity then, in effect, he would pay for electricity which was actually consumed by him. For the period from 1985-86 to 1988-89, the respondents had fixed rates of minimum consumption guarantee charges at the rate of Rs. 40 per KVA for 1000 KVA and Rs38 per KVA above 1000 KVA. However, pursuant to a Resolution passed by the respondent Corporation approving the resolution passed by the D.E.S.C., there was an upward revision of rates of minimum consumption guarantee charges in respect of arc/induction furnaces. As a result, for demand charges for the first 1000 K-VA of billing demand for the month, instead of tariff being Rs. 40 per or part thereof, it was enhanced to Rs. 340 per KVA- or part thereof. The appellants had set up/installed arc/induction furnaces for the manufacture of castings in their factories. Electricity was one of the important raw materials for the appellants and had obtained electricity from the respondents. The sanctioned load was more than 100 KWS and, therefore, they fell into the LIP category and the two-part tariff was applicable to them. 'The appellants filed writ petitions before the High 126 Court challenging the enhancement of the minimum guarantee charges. It was contended that the provisions of Section 21 of the Indian Electricity Act, 1910 applied and the decision to increase minimum charges was contrary to Section 21(2) of the Act, that changing the rates at which minimum charges were to be realised amounted to altering or amending the conditions of supply and this could not be done without the previous sanction of the State Government, and therefore, the proposed increase was in violation of Section 21(2) of the 1910 Act, that the minimum guarantee charges could only be levied under the proviso to Section 22 of the 1910 Act, that under the proviso to Section 22 the licensee could only charge that amount which would give it a reasonable return on the capital expenditure and cover standing charges incurred by it in order to meet the possible maximum demand, that the respondents had to satisfy the Court that the minimum demand charges had been raised to Rs. 340 from Rs. 40 and that the additional capital expenditure had been incurred, which would justify Rs. 340 being charged as a reasonable return on the said capital expenditure, and that the tariff vis-a-vis a consumer owning are furnaces was violative of Article 14 of the Constitution inasmuch as the other bulk consumers in the category of LIP consumers had not been so treated. The High Court dismissed the writ petitions holding that in case the local authority was the licensee, no prior approval of the State Government was required in law for changing the rates, and that apart from proviso to Section 22, the agreement between the parties justified the claim of the respondent- Corporation for minimum consumption guarantee charges. Dismissing the appeals preferred by the consumers- appellants, this Court HELD:1.1. Section 21(2) of the Act was applicable to the licensees other than the local authorities. 'Licensee' as defined in the 1910 Act in Section 2(h) means any person licensed under Part 11 to supply energy'. The D.M.C., which is the licensee in the present case is not a licensee licensed under Part 11 to supply energy. D.M.C. is licensee by virtue of the provisions contained in the Delhi Municipal Corporation Act, 1957. [136G-H, 137A] 1.2.The proviso to Section 22, talks about a separate supply unless 127 he had agreed with the licensee to pay him such minimum annual sum'. In the present case, there is no question of any separate supply or any agreement in relation to minimum annual sum. Section 22 deals with totally different situation and has nothing to do with the minimum consumption guarantee charges provided as part of the tariff which in turn was part of the agreement between the parties. [137E-F] 1.3.The reasons for the revision of minimum consumption charges, in respect of arc/induction furnaces, were that in many instances it was noticed that the meters where bulk supply was made were found to be defective and the consumption recorded was found to be extremely low causing loss of huge revenue. The arc/induction furnaces normally run continuously and, therefore, the D.E.S.C. was justified to increase the rate of minimum consumption guarantee charges. The variation in the electricity consumed by different consumers indicated that the charge of pilferage of electricity and gross under-utilisation or consumption of electricity compared to the sanctioned load was not without foundation. The tabulated statement of the consumers using induction furnaces placed on record by the respondents deals with 52 consumers including most of the appellants. This statement shows large variation of the electricity consumed. It is surprising that the units are still surviving by working for a short period. On the assumption that the electricity consumed is as per the sanctioned load, the approximate number of hours for which the induction furnaces have been worked in a month has been stated in the said statement. There was thus a reasonable basis to assume theft by substantial number of arc/induction furnaces consumers. The consumer contracts for a minimum supply of electricity of certain dimensions and the D.M.C. which is licensee in the present case, has to buy energy by way of bulk supply from outside sources and has to keep it readily available for the consumer for the whole year round. Surely the consumer, who contracts for such high quantity of energy, does so because of its need and not for keeping it as stand by, without paying for, it. No licensee can possibly keep such enormous quantity of electricity in reserve for a consumer, month after month, without its consumption. That is why in the tariff, which was part of the agreement, for LIP consumers there was two part tariff system partly minimum consumption guarantee charges and partly for actual energy consumed. [138F-H, 139A-B-D] 1.4.It was also stipulated that the minimum consumption guarantee 128 charges would not be payable if a consumer utilises or consumes 60% of the sanctioned load. The rate per unit had not been changed. It was only the minimum guarantee charges which has been revised. If a consumer consumes more than 60% of the sanctioned load, then he is not adversely affected by the revision of the minimum demand charges from Rs. 40 per KVA per month to Rs. 340 per KVA per month. It is difficult to appreciate or understand how the manufacturers using arc/induction furnaces could have such variation in the consumption of electricity, as indicated in the tabulated statement, except to suggest that there was large scale pilferage of electricity. It is not easy to accept that induction furnaces having sanctioned loads of more than 1000 KW consuming electricity, if converted into approximate number of hours worked in a month at the maximum load, being as little as 18.1 hours especially when there were instances of other induction furnaces consuming far more number of units per month. The respondents had to keep in readiness the supply of energy as per the sanctioned load of various consumers and were incurring expenditure for the generation, supply or purchase of the same. When the consumers were not paying for it, the respondents obviously had no option but to revise the minimum demand charges so as to cover up and make good the generating and supply costs. [139E-H, 140A] 1.5.In the present case, the respondents themselves have placed figures to demonstrate the formula on the basis of which the rate of Rs. 340 per KVA has been fixed. Ile formula shows that if 60% of the load sanctioned is utillsed then there is no unreasonableness or excessiveness in the tariff. [140D] 1.6.The recommendations of the D.E.S.C. were justified on facts and were rightly accepted by the D.M.C. in raising the minimum consumption guarantee charges to Rs. 340 per K-VA per month for the first 1000 K-VA which are neither unreasonable nor arbitrary. [140F] 1.7.The tariff was fixed by D.E.S.C. with the approval of the D.M.C. in view of the power conferred under Section 283 of the Corporation Act [140H,141A] 2.1.The fixation of tariff is a legislative function and the only challenge to the fixation of such levy can be on the ground of unreasonableness or arbitrariness and not on demonstrative grounds in the sense that the reasons for the levy of charge must be disclosed in the order 129 imposing the levy or disclosed to the court, so long as it is based on objective criteria. [140B] 2.2.As bulk consumers belonging to LIP category, the consumers of arc/induction furnaces are a class by themselves and, in any case, the revision is as per the agreement between the licensee and the consumers which is neither unreasonable nor arbitrary and therefore, there Is no discrimination. All the appellants had entered into agreements with the respondent-Corporation and clause 15(a) thereof provided that the consumer shall be liable to pay for whatever surcharge or increase in these rates as may from time to time be levied or made by the Undertaking. Any other method of charging decided by the Undertaking shall also be applicable. [140G, 134G, 135B] JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1478 of
1990.
From the Judgment and Order dated 1.3.90 of the Delhi High
Court in Civil Writ Petition No. 1744 of 1989.
WITH
CA. Nos. 1474-1476, 1473, 1479-1483, 1477, 1484-1511, 1518,
1543 of 1990 and 4206 of 1991.
R.K Jain, Harish N. Salve, P.P. Tripathi, Tripurari Ray,
Mukul Mudgal Vineet Kumar, Ms. Kamini Jaiswal, Ashok Mathur
and Ranjit Kumar for the appearing parties.
The Judgment of the Court was delivered by
YOGESHWAR DAYAL, J. These are batch of appeals against the
judgment of Delhi High Court dated 1st March, 1990 whereby
the High Court by a common judgment disposed of a bunch of
writ petitions, inter alia, filed by Gulab Rai against the
Municipal Corporation of Delhi and others.
The challenge in the writ petitions was to the Resolution of
the Municipal Corporation of Delhi (hereinafter referred to
as M.C.D.) whereby it approved the proposal of the Delhi
Electricity Supply Committee (in short D.E.S.C.) to enhance
minimum consumption guarantee charges from Rs. 40 per KVA to
Rs. 340 per KVA in respect of arc/induction
130
furnaces.
The petitioners in the writ petitions had set up/installed
arc/induction furnaces for the manufacture of castings and
have their factories in Delhi.
One of the important raw-materials for the writ petitioners
is electricity. Each of the petitioners had obtained
electricity from the respondents and the sanctioned load is
more than 100 KWS. The exact sanctioned load, among the
various writ petitioners, varies, depending upon the size
and capacity of the furnaces set up by them but each one of
them has a sanctioned load of more than 100 KWS.
The case of the petitioners before the High Court was that
Section 283 of the Delhi Municipal Corporation Act, 1957
(hereinafter referred to as ‘the Corporation Act’) empowers
respondent No.1 (D.M.C.) to levy charges for the supply of
electricity on such rates as may be fixed from time to time
by the D.M.C. in accordance with law. For the purpose of
charging the consumer, the D.M.C. has divided the consumers
in different categories/classes providing for different
tariffs for each category. One of the categories is ‘large
industrial power’ (LIP) consumers. The consumers who have a
sanctioned load of 100 KWS fall in the category of large
industrial powers. The writ petitioners fall under this
category as each one of them has a sanctioned load of more
than 100 KWS. For the levy of charges for the supply of
electricity there are two systems of tariff which are
followed, namely the flat rate system and the other two-
part tariff system. Under the former, a flat rate is
charged on the units of energy consumed while the latter
system is meant for big consumers of electricity i.e.
industrial power, and it is comprised of two charges (1)
minimum consumption guarantee charges (called demand
charges) and (2) energy charges for the actual amount of
energy consumed.
It was the case of the petitioners that two-part tariff
system was applicable to them. Under this system an LIP
consumer pays minimum guarantee consumption charges at the
rate fixed by the respondents. If the LIP consumer does not
consume the specified minimum quantity of electricity or no
energy at all even then he has to pay the minimum guarantee
charges. But in case the consumer consumes more electricity
that what is prescribed by the minimum guarantee charges
then the consumer pays the minimum guarantee charges and
also pays the electricity charges for the actual consumption
of electricity beyond the minimum
131
guarantee charges, in such a manner that the minimum
guarantee charges are merged in the total bill of
electricity consumed and a rebate is given to the consumer.
In other words, if a consumer consumes more than the
specified minimum quantity of electricity then, in effect,
he win pay for electricity which is actually consumed by
him.
For the period from 1985-86 to 1988-89 the respondents had
fixed rates of minimum consumption guarantee charges at the
rate of Rs. 40 per KVA for 1000 KVA and Rs. 38/per KVA above
1000 KVA. The tariff for the LIP consumers in respect of
the aforesaid period, including the minimum guarantee
charges, as fixed by the respondents was as follows
(d) Tariff
Demand charges
First 1000 KVA of billing demand for the month
Rs. 40.00 per KVA or part thereof.
All above 1000 KVA of billing demand for the month.
Rs. 38.00 per KVA or part thereof.
First 5,00,000 units per month at 15 paise per unit.
All above 5,00,000 units per month at 84 paise per unit.
Subject to:
a maximum overall rate of Rs. 1.10 per KVA without prejudice
to the minimum payment as laid down in item (g) below and
adjustment clause at (xvii) above under General Conditions
of applications.
Item (g) of the said tariff prescribes that the minimum bill
would be the amount of the demand charges based upon the KVA
of billing demand. Item (g) reads as under:-
“(g) Minimum Bill
The amount of the demand charges based upon the KVA
of billing demand.’
132
The billing as per the aforesaid tariff had been explained
by the petitioners before the High Court with the following
illustration
‘(a) If a consumer with a sanctioned load of 1000 KVA does
not consume any energy in a given month, he would be liable
to pay the minimum guarantee charge of Rs. 40,000 i.e. 1000
KVA (sanctioned load/contracts demand) x 40 (minimum
guarantee charge) = Rs. 40,000
Even if he consumes electricity, but the value of the units
actually consumed by him works out to less than Rs. 40,000
which is the minimum consumption guarantee charges, even
then he will have to pay the minimum consumption guarantee
charges of Rs. 40,000.
(b)In the event one consumer consumes energy of the value
of more than Rs. 40,000, then the billing would be done in
the following manner :-
Assuming that the consumer consumes 80,000 units of
electricity :-
1000 KVA (sanctioned load)= Rs. 40,000
X 40 (rate of minimum
guarantee charges).
80,000 (units consumed)
0.85 paise (energy charge)= Rs. 68,000
per unit. ------------------------
TotalRs. 1,08,000
----------------------
In terms of the tariff, the maximum charge cannot be more
than the over all rate of Rs. 1.10 per unit consumed.
Therefore, 80,000 units consumed would be chargeable at the
maximum rate of Rs. 1.10 per unit which works out to Rs.
88,000. Since the amount of Rs. 1,08,000 is higher than Rs.
88,000 i.e. by Rs. 20,000 a rebate of Rs. 20,000 would be
given to the consumer and the consumer would be billed only
for Rs. 88,000.
It would be thus evident from the above illustration that
the consumer, in any event, has to pay the minimum guarantee
133
charge even if the value/price of the energy
actually consumed is more than the minimum
consumption guarantee charges, the amount of
the minimum consumption guarantee gets merged
into/with the energy charges.”
It was then submitted on behalf of the writ petitioners that
the General Manager of respondent No.2 wrote a letter dated
24th January, 1989 to DE.S.C. inter alia, proposing revision
of rates of minimum consumption guarantee charges in respect
of arc/ induction furnaces. In this letter the General
Manager gave the figures of the fixed expenditure per KW per
month. It was stated that the rates of minimum consumption
guarantee were fixed in 1985 and the increase in fixed
expenditure per KW per month necessitated the revision of
rates of minimum consumption guarantee charges. It was also
mentioned that the transmission and distribution losses were
quite high and they fell into two categories, namely,
technical losses and commercial losses. The cause for
commercial losses was explained by the General Manager in
the following words :-
“The Commercial losses are also attributed to
pilferage/ fraudulent abstraction of energy
etc. The minimum consumption guarantee being
quite low also attributes to the tendency of
fraudulent abstraction of energy. After
giving a serious thought to reduce the
pilferage/fraudulent abstraction of energy, it
has been felt desirable to revise the rate of
minimum consumption guarantee to a reasonable
level so that consumers are not attracted for
such unfair means and the rates are
commensurate with the fixed expenditure being
measured by the undertaking.”
In the proposal contained in this letter, there was no
suggestion for increase of minimum consumption charge for
domestic category but for other categories increase was
recommended and in respect of aec/induction furnaces the
increase for minimum consumption guarantee charge was to be
Rs. 340 instead of Rs. 40 per KVA.
This proposal contained in the letter dated 24th January,
1989 was discussed by the D.E.S.C. in its metting held on
9th March, 1989 and the case was referred back to the
General Manager to inform the D.E.S.C. whether the
respondent was recovering its dues from the bulk supply
consumers based on their actual consumption. Pursuant
thereto, the
134
General Manager wrote another letter dated 23rd March, 1989
to D.E.S.C. and inter alia, stated that the billing is
normally done on the basis of consumption recorded in the
meters but in many instances it has been noticed that meters
were found to be defective. The consumption recorded was
found to be much less than the consumption which was
recorded in the previous year and when compared to the
connected load, the consumption was found to be extremely
less in many cases causing loss of huge amount to the
Undertaking. It was also stated in this letter that for the
aforesaid reason “the proposal was put up to D.E.S.C. for
levy of higher minimum consumption charges in the case of
arc/induction furnaces on basis of their load. It is worth
mentioning that these furnaces normally run continuously
and, therefore, levy of minimum charges is considered jus-
tified.”
The aforesaid proposal of the General Manager was accepted
by D.E.S.C. by Resolution dated 30th March, 1989 and it
recommended to the D.M.C. that the proposed revised rates of
minimum consumption guarantee charges be approved only in
respect of plastic and arc/induction furnaces in their
respective categories.
Pursuant to the aforesaid Resolution of the D.E.S.C., the
D.M.C. also vide its Resolution dated 1st May, 1989 approved
the enhancement of the minimum consumption guarantee charges
only in respect of arc/induction furnaces to Rs. 340 per KVA
or part thereof instead of Rs. 40/ per KVA.
The writ petitions, out of which the present appeals arise,
were filed by the owners of arc/induction furnaces
challenging the aforesaid enhancement of the minimum
consumption guarantee charges.
The result of the enhancement by the aforesaid Resolution of
the D.M.C. was that for demand charges for the first 1000
KVA of billing demand for the month, instead of tariff being
Rs. 40 per KVA or part thereof it was enhanced to Rs. 340
per KVA or part thereof.
It is common case that all the writ petitioners had entered
into agreements with the D.M.C and clause 15(a) thereof
provided as follows:-
“15(a) The consumer shall pay each month to
the Undertaking for electrical energy supplied
during the preceding month such amount as
shall be calculated and ascertained in
accordance
135
with the Rate-Schedule L.I.P. attached hereto.
The rates contained in the schedule are those
in force at the time of executing this
agreement. The consumer shall be eligible for
whatever reduction or rebate as may be granted
on the rates and shall be liable to pay for
whatever surcharge or increase in these rates
as may from time to time be levied or made by
the Undertaking. Any other method of charging
decided by the Undertaking shall also be
applicable.’
The rate schedule of the L.I.P. consumers, which was part of
the agreement, for the year 1988-89 has already been
reproduced above.
Various contentions were urged by the appellants before the
High Court. One of the main contentions raised was that the
provisions of section 21 of the Indian Electricity Act, 1910
(hereinafter referred to as ‘the 1910 Act’) apply and the
decision to increase minimum charges is contrary to section
21(2) of the said Act.
it was submitted that changing the rates at which minimum
charges are to be realised amounts to altering or amending
the conditions of supply and this could not be done without
the previous sanction of the State Government. Adraittedly
the State Government had not, in the present case, granted
the approval for the change in the rates and, therefore, the
proposed increase was in violation of section 21(2) of the
1910 Act. The High Court rejected this submission and held
that in case the local authority was the licensee, no prior
approval of the Government for changing the rates is
required in law.
It was next submitted before the High Court that the minimum
guarantee charges can only be levied under the proviso to
section 22 of the 1910 Act. It was submitted that under the
proviso to section 22 the licensee can only charge that
amount which will give it a reasonable return on the capital
expenditure and cover standing charges incurred by it in
order to meet the possible maximum demand. According to the
learned counsel the respondents have to satisfy the Court
that the minimum demand charges have been raised to Rs. 340
from Rs. 40 and that the additional capital expenditure had
been incurred which would justify Rs. 340 being charged as a
reasonable return on the said capital expenditure.
The High Court rejected this submission and took the view
that apart
136
from proviso to section 22, the agreement between the
parties justified the claim of the D.M.C. for minimum
consumption guarantee charges.
The next submission of the appellants was that the tariff
viz-a-viz a consumer owning arc furnace was violative of
Article 14 of the Constitution in as much as the other bulk
consumers in the category of LIP consumers have not been so
treated. The High Court rejected this contention also and
dismissed the writ petitions.
Before us also the arguments have been uged by the various
counsel who appeared during the hearing of the batch of the
appeals on similar lines.
Before considering the first submission based on the
provisions of section 21(2) of the 1910 Act it would be
useful to notice the provisions thereof. Section 21(2)
reads as follows :-
“21(2) A licensee may. with the previous
sanction of the State Government, given after
consulting the State Electricity Board and
also the local authority, where the licensee
is not the local authority, make conditions
not inconsistent with this Act or with his
licence or with any rules made under this Act
to regulate his relations with persons who are
or intend to become consumers, and may, with
the like sanction given after the like
consultation, add to or alter or amend any
such conditions; and any conditions made by a
licensee without such sanction shall be null
and void :
Provided that any such conditions made before
that 23rd day of January, 1922 shall, if
sanctioned by the State Government on
application made by the licensee before such
date; as the State Government may, by general
or special order, fix in this behalf, be
deemed to have been made in accordance with
the provisions of this Sub-section.”
It will be noticed that this provision is applicable to the
licensees other than the local authorities. “Licensee” as
defined in the 1910 Act in section 2(h) means ‘any person
licensed under part II to supply energy’. The D.M.C., which
is the licensee in the present case is not a licensee
licensed under part 11 to supply energy. D.M.C. is licensee
by virtue of the
137
provisions contained in the Delhi Municipal Corporation Act,
1957.
Coming to the second submission urged before the High Court
the provisions of section 22 of the 1910 Act may be noticed
:
“22. Obligation on licensee to supply energy
where energy is supplied by a licensee, every
person within the area of supply shall, except
insofar as is otherwise provided by the terms
and conditions of the licence, be entitled, on
application, to a supply on the same terms as
those on which another person in the same area
is entitled in similar circumstances to a
corresponding supply :
Provided that no person shall be entitled to
demand, or to continue to receive, from a
licensee a supply of energy for any premises
having a separate supply unless he has agreed
with the licensee to pay to him such minimum
annual sum as will give him a reasonable
return on the capital expenditure, and will
cover other standing charges incurred by him
in order to meet the possible maximum demand
for those premises, the sum payable to be
determined in case of difference or dispute by
arbitration.”
The reliance before us was placed by the learned counsel for
the appellants on the proviso to section 22. It will be
noticed that the proviso talks about ‘a separate supply
unless he has agreed with the licensee to pay him such
minimum annual sum’. In the present case there is no
question of any separate supply or any agreement in relation
to minimum annual sum. Section 22 deals with totally
different situation and has nothing to do with the minimum
consumption guarantee charges provided as part of the tariff
which intern was part of the agreement between the parties.
In the present case, on facts, the challenge is to the
tariff. As stated above, the tariff is the two part tariff
system. The two part tariff system is comprised of two
charges (i) minimum consumption guarantee charges called
demand charges and (ii) energy charges for the actual amount
of energy consumed. Under this system an LIP consumer pays
a minimum guarantee consumption charges at the rate fixed by
the D.M.C. If the LIP consumer does not consume the
specified minimum quantity of electricity or no energy at
all even then he has to pay minimum consumption guaran-
138
tee charges. But in case the consumer consumes more
electricity than the minimum, then the consumer pays the
electricity charges for the actual consumption of
electricity beyond the minimum consumption guarantee
charges, in such a manner that minimum consumption guarantee
charges are merged in the total bill for electricity
consumed. In other words, if a consumer consumes more than
the specified minimum quantity of electricity then, in
effect, he will pay for electricity which is actually
consumed by him. As stated earlier the appellants have
obtained licenses for the supply of electricity to a
sanctioned load of more than 100 KW and they fall in the
category of LIP and the two part tariff is applicable to
them. For the period 1985-86 to 1988-89 the respondents had
fixed rates of minimum consumption guarantee charges at the
rate of Rs. 40 per KVA for 1000 KVA and Rs. 38 per KVA for
consumption above 1000 KVA.
We had already noticed the reasons which persuaded the
D.E.S.C. to justify & recommend the increase in minimum
consumption guarantee charges to the D.M.C. The commercial
losses mentioned in the letter of the General Manager were
attributed to pilferage/fraudulent abstraction of energy
etc. The minimum consumption guarantee charges being quite
low also attributed to the tendency of fraudulent
abstraction of energy and it was after giving a serious
thought to reduce the pilferage/fraudulent abstraction of
energy, the D.M.C. felt desirable to revise the rate of
minimum consumption guarantee charges to a reasonable level
so that consumers are not tempted to adopt such unfair means
and the rates are commensurate with the fixed expenditure
being measured by the undertaking. The reasons for the
revision of minimum consumption charges, in respect of
arc/induction furnaces, were that in many instances it was
noticed that meters where bulk supply were made were found
to be defective and the consumption recorded was found to be
extremely low causing loss of huge revenue. The
arc/induction furnaces normally run continuously and,
therefore, it was justified to increase the rate of
consumption guarantee charges. The variation in the
electricity consumed by different consumers indicated that
the charge of pilferage of electricity and gross under-
utilisation or consumption of electricity compared to the
sanctioned load was not without foundation. The respondents
had placed on record a tabulated statement of the consumers
using induction furnaces before the High Court. If we look
at the said chart reproduced in the judgment of the High
Court under appeal it deals with 52 consumers including most
of the appellants. This statement shows large variation of
139
the electricity consumed, particularly at serial Nos. 2, 13,
15, 26 & 44. If. we look at consumer at serial No. 14 it
shows that the unit worked only for 29 hours in the whole
month as per the consumption per unit per month. Whereas the
unit at serial No. 26, had a sanctioned load of 1573.11 KWS,
the approximate number of hours worked by it in a month were
106 i.e. little more than 4 days in month. It is surprising
that the units are still surviving by working for a short
period. On the assumption that the electricity consumed is
as per the sanctioned load the approximate number of hours
for which the induction furnaces have been worked in a month
has been stated in the said statement. There was thus a
reasonable basis to assume theft by substantial number of
arc/induction, furnaces consumers It will be noticed that
consumer contracts for a minimum supply of electricity of
certain dimensions and the D.M.C. which is licensee in the
resent case, has to buy energy by way of bulk supply from
outside sources and has to keep it readily available for the
consumer for the whole year round. Surely the consumer, who
contracts for such high quantity of energy, does so, because
of its need and not for keeping it as stand by, without
paying for it. No licensee can possibly keep such enormous
quantity of electricity in reserve for a consumer, month
after month, without its consumption. That is why in the
tariff, which was part of the agreement, for LIP consumers
there was two part tariff system partly minimum consumption
guarantee charges and partly for actual energy consumed.
It was also stipulated that the minimum consumption
guarantee charges would not be payable if a consumer
utilises or consumes 60% of the sanctioned load. The rate
per unit had not been changed. It was only the minimum
guarantee charges which has been revised. If a consumer
consumes more than 60% of the sanctioned load, then he is
not adversely affected by the revision of the minimum demand
charges from Rs. 40/- per KVA per month to Rs. 340/- per KVA
per month. it is difficult to appreciate or understand how
the manufacturers using arc/induction furnaces could have
such variation in the consumption of electricity, as
indicated in the tabulated statement, except to suggest that
there was large scale pilferage of electricity. It is not
easy to accept that induction furnaces having sanctioned
loads of more than 1000 KW consuming electricity, if
converted into approximate number of hours worked in a month
at the maximum load, being as little as 18.1 hours
especially when there were instances of other induction
furnaces consuming far more number of units per month. The
respondents had to keep in readiness the supply of energy
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as per the sanctioned load of various consumers and were
incurring expenditure for the generation, supply or purchase
of the same. When the consumers were not paying for it, the
respondents obviously had no option but to revise the
minimum demand charges so as to cover up and make good the
generating and supply costs.
Apart from that the fixation of tariff is a legislative
function and the only challenge to the fixation of such levy
can be on the ground of unreasonableness or arbitrariness
and not on demonstrative grounds in the sense that the
reasons for the levy of charge must be disclosed in the
order imposing the levy or disclosed to the court, so long
as it is based on objective criteria.
In the present case the respondents themselves have placed
figures to demonstrate the formula on the basis of which the
rate of Rs. 340 per KVA has been fixed. The formula shows
that if 60% of the load sanctioned is utilised then there is
no unreasonableness or excessiveness in the tariff. It was
explained that if the furnaces in question work for 24 hours
a day for 25 days in a month at a load factor of 60% the
consumption against 1 KW would be equal to 1 x 24 x 25 x .60
= 360 units. Over all energy consumption rate (demand
charges proportionate to one unit + per unit energy rate) is
Rs. 1.10 per unit. The total amount per KW per month 360 x
1.10 = Rs. 396. Again the consumption per KVA at the rate
of 0.85 (power factor) would come to 306 units and a total
amount per KVA per month at the rate of Rs. 1.10 per unit
would come to Rs. 336.60 ps. i.e. rounded to Rs. 340 for the
purpose of minimum consumption guarantee charges.
We are thus satisfied that the recommendations of the
D.E.S.C. were justified on facts and were rightly accepted
by the D.M.C. in raising the minimum consumption guarantee
charges to Rs. 340 per KVA per month for the first 1000 KVA
which are neither unreasonable nor arbitrary.
Coming to the plea of discrimination it will be noticed that
as bulk consumers belonging to LIP category the consumers of
arc/induction furnaces are of a class by themselves and in
any case the revision is as per the agreement between the
licensee and the consumers which is neither unreasonable nor
arbitrary and thus the plea of discrimination has no merit.
The tariff was fixed by D.E.S.C. with the approval of the
D.M.C. in
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view of the power conferred under section 283 of the
Corporation Act. Again in view the proviso to Section 277
of the Corporation Act no arguments were addressed on
various clauses of the Schedule to the Indian Electricity
Act, 1910.
There is thus no merit in these appeals and the same are
accordingly dismissed with costs.
N.P.V. Appeals dismissed.
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