PETITIONER: ORISSA STATE ELECTRICITY BOARD AND ANOTHER ETC. Vs. RESPONDENT: M/S. IPI STEEL LTD. ETC. DATE OF JUDGMENT21/04/1995 BENCH: JEEVAN REDDY, B.P. (J) BENCH: JEEVAN REDDY, B.P. (J) SEN, S.C. (J) CITATION: 1995 AIR 1553 1995 SCC (4) 320 JT 1995 (4) 102 1995 SCALE (2)919 ACT: HEADNOTE: JUDGMENT:
B.P. JEEVAN REDDY, J.:
1. Leave granted. Heard counsel for the parties.
2. The Orissa State Electricity Board is questioning in
this appeal the correctness of the judgment of the Orissa
High Court declaring the proviso to Regulation 46 of the
Orissa State Electricity Board (General Conditions of
Supply) Regula-
107
tions, 1981, (hereinafter referred to as “Regulations”) as
unreasonable, arbitrary and illegal. Having struck down the
proviso – i.e., the proviso as substituted by Notification
dated June 25, 1987 – the High Court has directed the Board
to revise the bills issued to the respondent-writ petitioner
“on the basis of proportionate reduction taking into account
the actual consumption of energy”.
3. The respondent-writ petitioner (NV S.IPI Steel Limited)
has a mini steel plant in Orissa. On August 16, 1984, it
had entered into an agreement with the appellant-Board
whereunder the Board undertook to supply power “upto but not
exceeding a maximum demand of 7778 KVA/ 7000 KW”. The
agreement contains the following stipulations among others:
(1) “The consumer has perused a copy of the Orissa State
Electricity Board (General Conditions of supply)
Regulations, 1981, understood its contents and undertakes to
observe and abide by all the terms and conditions stipulated
therein including all future modifications thereto, to the
extent they are applicable to him. The Orissa State
Electricity Board (General Conditions of Supply)
Regulations, 1981 as modified from time to time shall be
deemed to form part of this Agreement” [Vide clause (2)]
(Emphasis added).
(2) “The consumer shall pay to the Engineer for the power
demand and electrical energy supplied under this Agreement
in accordance with the tariff as mentioned below, subject to
any revision that may be made by the Board from time to
time.
Large Industries
(a) The monthly charges shall be:-
Demand charges at Rs.35.00 per KVA of maximum demand plus
energy charges at the following rate on units metered less
units billed separately under (c) and (d) below:
Paise 36.00 for each unit without prejudice to payment of
monthly minimum charges indicated below:
(b) The monthly minimum charges shall be calculated at the
above rates, on a demand of 80 percent contract demand and
on units calculated at an average power factor of 0.9 and an
average load factor of 15 per cent on the said contract
demand. [Vide clause (7)]”. (The remaining portion of clause
(7) is omitted as unnecessary.)
4. The respondent complains that notwithstanding the
agreement, the Board was in no position to supply the full
quantity of energy stipulated in the agreement. It is,
however, not necessary to consider the said plea, since we
are concerned herein with the period January, 1989 to
August, 1990 alone. During this period, an order under
Section 22-B of the Indian Electricity Act, 1910 read with
Section 78(A) of the Electricity (Supply) Act, 1948 issued
by the Government of Orissa on February 14, 1990 was in
force. It would be appropriate to notice the relevant
contents of the Order. The Order recited that since the
total availability of power from the generating stations in
Orissa will fall short of the total requirement of power in
the State substantially, the State Government is of the
opinion that for maintaining the supply and securing
equitable distribution of energy, it is expedient to
regulate the supply, distribution, consumption and use of
energy from the Orissa grid. The Order
108
directed “the Orissa State Electricity Board to reduce the
supply of energy so as to allow the consumer to avail to the
extent as specified in the Annexure anything in any contract
agreement or requisition for supply or increase in the
supply of energy notwithstanding”. Contravention of the
provisions of the Order rendered the consumer liable for
disconnection of service line without notice and for payment
of energy charges at double the highest rate of energy
charges for any category in addition to the penalties. In
the Annexure to the said order, the respondent, M/s.IPI
Steel occurs at Sl.No. 13 under the Heading “Large
Industries”. It would be appropriate to extract the
schedule insofar as it concerns the respondent:
————————————————————-
Sl. Name of the Allowable drawal Provisional
No. Industry Period Quantity allotment for
of water in Million the water 90-
yr. 1989- KWH. 91 (1/7/90 to (1/7/89 30.6.91) to 30.6.90)
————————————————————
1. 2. 3. 4. 5.
————————————————————
Large Industries 13. IPI STEEL 1.7.89 16.863 16.863 Gundichapada to 30.6.90
————————————————————
5. It is agreed by the parties that the effect of the
above order is to reduce the supply by fifty per cent. The
Electricity Board has explained how the said fifty per cent
reduction is being implemented and operated, by producing
before us a statement relating to the water year 1988-89.
It would be appropriate to extract the said statement:
M/S.IPI STEEL LTD: DHENKANAL
1. Contract Demand (C.D.) – 7778 KVA
(Kilo-Volt-Amperes)
2. 80% of C.D. – 0.8 x 7778 KVA – 6222.4 KVA
3. 100% requirement of energy – 37.467 MU
for the water year 1988-89 (Million Units)
4. % of level of allocation for- 50% of the full
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the water year 1988-89requirement
5. Energy allocation for the – 18.737 MU
year 1988-89
————————————————————
Sl. Maximum Month Rate per Charges Energy enti-
No. demand KVA tlement per month (in MU) of 80% of C.D
————————————————————
1. 7778 X 6 Rs.35/- Rs.16,33,380/- 3.122
(no charges for
(18.737/6) six
months)
2. 3889 X12 Rs.35/- Rs.16,33,380/- 1.561
3. 5185 X 9 Rs.35/- Rs.16,33,275/- 2.081
(no charge for
(18.737/3) 3
months)
————————————————————
cont.-
————————————————————
Liability of consumer Relief Total consumption
for payment
————————————————————
Rs. 29,40,084 Rs.13,00,704 Rs. 18,737 MU
Rs. 26,13,408 Rs. 9,80,100 Rs. 18,737 MU
Rs. 19,60,056 Rs. 3,26,781 Rs. 18,737 MU
————————————————————
6.Sri Santosh Hegde, learned counsel for the Orissa
Electricity Board explains the contents of the above table
thus: the maximum demand allowed under the Agreement to the
respondent is 7778 KVA; the cut is fifty per cent, i.e., to
the extent of half, the consumer, however, has been given an
option in the matter of utilisation of the fifty per cent
allowed to him. It is open to him to avail of the maximum
demand every month but in such a case he can run his factory
only for six months as mentioned under Sl.No. 1 in the Table
contained in the above statement, if, however, the consumer
wants to operate his plant for twelve months in the year, he
has to reduce his maximum demand to half of 7778 KVA, i.e.,
to 3889 KVA as mentioned under Sl.No.2 of the Table; it is
equally open to the consumer to distribute the maximum
demand permitted to him in such a manner that his plant
works for nine months in the year availing 5185 KVA as
mentioned under Sl.No.3 of the Table – or for that matter,
in any other manner convenient to him. But all this is
subject to the overall ceiling prescribed during such
period. Sri Hegde submits that the energy was made
available to all the bulk consumers on the above basis,
which fact, he says, is not disputed by the respondent nor
any complaint is made by him that energy was not made
available in the manner stated in the said tabular
Statement.
7.At this stage, it would be appropriate to explain certain
concepts relevant herein. The expression “contract demand”
is defined in clause (viii) of Regulation 3 of the
Regulations. The definition reads thus:
“(viii) Contract demand, means the maximum
kilowatt (KW) or kilo-volt-ampere (KVA) as the
case may be agreed to be supplied by the Board
and contracted by the consumer.”
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(In the case of the respondent the contract demand, as
stated hereinabove, is 7778 KVA.)
8. The expression “minimum charges” is referred to and
explained in clause 7(b) of the Agreement between the
parties. The clause, extracted hereinabove, says that “the
monthly minimum charges shall be calculated at the above
rates on a demand eighty per cent of contract demand and on
units calculated at an average power factor of 0.9 and an
average load factor of fifteen per cent on the said contract
demand.” (The reason for prescribing the minimum charges is
that the Board generates and keeps in readiness, energy for
the respondent to the extent of contract demand. Even if
the respondent does not avail of it, the energy cannot be
stored or preserved. The respondent is, therefore, made to
pay for the energy generated for his use even though he does
not avail of it at the contracted level; even so, the mini-
mum charges arc pegged at eighty per cent.)
9. The expression “maximum demand” is defined in clause
(xx) of Regulation 3. It reads:
“(xx) Maximum demand, means the average amount
of kilowatts or kilovolt-amperes, as the case
may be, delivered to the point of supply of
the consumer and recorded during a thirty
minutes’ period of maximum use in the month or
it shall mean twice the largest number of
kilowatt-hours (KWH) or kilovolt-amperehours
(KVAH) delivered to the point of supply by the
consumer during any consecutive 30 minutes’
period. The Board, however, reserves the
right to shorten this period in special cases,
if necessary.”
10. The above definition has to be read in the light of and
in continuation of the definition of the said expression in
clause (8) of Section 2 of the Electricity (Supply) Act,
1948, which runs thus:
“(8). “Maximum demand” in relation of any
period shall, unless otherwise provided in any
general or special order of the State
Government, mean twice the largest number of
kilowatt-hours or kilovolt- ampere-hours
supplied and taken during any consecutive
thirty minutes in that period.”
11. It is necessary to elaborate what does the expression
“maximum demand” mean and signify? In the case of bulk
consumers and large scale consumers, the Electricity Boards
all over the country generally adopt a two-part levy system.
One part is called ‘the maximum demand charges’ and the
other part ‘consumption charges’. Every such consumer is
provided with two meters. One is called the ‘trivector
meter’ and the other is the normal meter which records the
total quantity of energy consumed over a given period which
is ordinarily- a month. The meter which records the total
consumption requires no explanation or elaboration since we
are all aware of it. It is the other meter which requires
some explanation. Now every large scale consumer knows the
amount of energy required by him and requests for it from
the Board. If the Board agrees to supply that or any other
particular amount of energy, it makes necessary arrangements
therefor by laying the lines to the extent necessary and
installing other requisite equipment. It is obvious that if
a factory uses energy at a particular level/ load and for a
particular period, it consumes a particular quantity of
energy. The trivector meter records the highest level/
111
load at which the energy is drawn over any thirty- minute
period in a month while the other meter records the total
consumption of energy in units in the month. Let us take
the case of the respondent to illustrate the point. The
maximum demand in his case is upto but not exceeding 7778
KVA. That is his requirement. In the normal times, he is
entitled to draw energy at that level/load. That is his
maximum demand under the agreement. But he may not always
do so. Say, in a given month, he draws energy at 6000 KVA
level only, even then he has to pay the minimum charges as
stipulated in the agreement. But if he draws and consumes
energy exceeding eight per cent of the energy, he pays
demand and energy charges for what he utilises. Now, let us
notice how the trivector meter, i.e., the meter which
records the maximum demand works; the meter is so designed
that it only records the maximum load/ level at which energy
is drawn over any thirty-minute period in a month. It only
goes forward but never goes back until it is put back manu-
ally. To be more precise, suppose the respondent has drawn
energy at 7770 KVA for a thirty-minute period on the first
day of the month, the meter will record that figure and will
stay there even if the respondent consumes at 7000 or lesser
KVA level during the rest of the month. From this
circumstances however, one cannot jump to the conclusion
that it is an arbitrary way of levying consumption charges.
Normally speaking, a factory utilises energy at a broadly
constant level. May be, on certain occasions, whether on
account of breakdowns, strikes or shutdowns or for other
reasons, the factory may not utilise energy at the requisite
level over certain periods, but these are exceptions. Every
factory expects to work normally.
So does the Electricity Board expect – and accordingly
produces energy required by the factory and keeps it in
readiness for that factory – keeping it ready on tap, so to
speak. As already emphasised, electricity once generated
cannot be stored for future use. This is the reason and the
justification for the demand charges and the manner of
charging for it. There is yet another justification for
this type of levy and it is this: demand charges and
consumption charges are intended to defray different items.
Broadly speaking, while demand charges are meant to defray
the capital costs, consumption charges are supposed to meet
the running charges. Every Electricity Board requires
machinery, plant, equipment, sub- stations, transmission
lines and so on, all of which require a huge capital outlay.
The Board like any other corporation has to raise funds for
the purpose which means it has to obtain loans. The loans
have to be repaid, and with interest. Provision has to be
made for depreciation of machinery equipment and buildings.
Plants, machines, stations and transmission lines have to be
maintained, all of which requires a huge staff. It is to
meet the capital outlay that demand charges are levied and
collected whereas the consumption charges are levied and
collected to meet the running charges.
12. Pausing here for a moment, we may explain the importance
and significance of maximum demand. The maximum demand of a
given plant/factory determines the type of lines to be laid
and the power of transformers and other equipment to be
installed for the purpose. A factory having a maximum
demand of say 1000 KVA and a factory having a maximum demand
of 10,000 KVA require different type of lines and other
equipment for providing
112
supply to them. In the case of latter, lines have to be of
a more load-bearing variety. Transformers have to be
installed and of more capacity. Sometimes in the case of
bulk consumers even a sub-station may have to be established
exclusively for such factory/plant. Very often these
industries are situated away from power stations and main
transmission lines which means laying special power lines
over considerable distances to give the supply connection.
As a matter of fact, the significance of the maximum demand
would be evident from the fact that the agreement between
the Board and consumer (like the respondent) specifies only
the maximum demand and not the total units allowed to be
consumed. The agreement concerned herein prescribes the
maximum demand at 7778 KVA but does not prescribe the total
number of units of energy allowed to be consumed. This is
for the reason, explains Sri Hegde, that the total number of
units of energy consumed is determined by the load/level at
which power is drawn. The formula, taking the case of the
respondent is stated to be – 100% unrestricted energy
requirement of the respondent = contract demand in KVA x
power factor x load factor x total number of hours in a
year. In concrete terms, it means – 7778 KVA x 0.90 x 0.61
1 x 8760 = 37,467,590 KWH (Units) = 37.46759 MU (Million
Units). This formula, as it states expressly, is premised
on unrestricted supply. Problems arise only when
restrictions are placed on consumption on account of fall in
production of electricity by the Board, as would be ex-
plained hereinafter.
13. Even during normal times, the Electricity Boards are not
able to generate energy commensurate with their installed
capacity, though it is true, they do try to achieve it. But
situations arise – situations beyond their control – when
they are not able to produce even that much energy as they
generally do. They are obliged to cut down their production
substantially – at times, as much as by half or more. We
are told that the power generated by Hydro-electric stations
in Orissa forms a substantial chunk of the total energy
produced by the Board. If in a given year, the rains fail
and more particularly, if the rains fail during two or three
years consecutively, the production of energy by Hydro-
electric units goes down substantially. Even in the case of
thermal stations, problems of supply of coal and oil,
quality of coal supplied and other problems result in the
Board producing electricity at a level far lower than what
it normally does. During periods of such reduced
generation/supply, problems of distribution arise. There
are several categories of consumers; industrial (including
bulk consumers), commercial, agricultural and domestic
besides some other categories. Naturally, everybody cannot
be supplied the full quantity of energy required; it has to
be rationed and may be, supply staggered. It is precisely
to provide for such situations that Section 22-B of the
Indian Electricity Act, 1910 empowers the Government to make
an order regulating the distribution and consumption of
energy. We may now read he section:
“22-B. Power to control the distribution and
consumption of energy.– (1) If the State
Government is of opinion that it is necessary
or expedient so to do, for maintaining the
supply and securing the equitable distribution
of energy it may by order provide for
regulating the supply, distribution,
consumption or use thereof.
(2) Without prejudice to the generality of
113
the powers conferred by subsection (1) an
order made thereunder may direct the licensee
not to comply, except with the permission of
the State Government, with-
(i)the provisions of any contract, agreement
or requisition whether made before or after
the commencement of the Indian Electricity
(Amendment) Act, 1959 (32 of 1959), for the
supply (other than the resumption of a supply)
or an increase in the supply of any energy to
any person, or
(ii)any requisition for the resumption of
supply of energy to a consumer after a period
of six months, from the date of its
discontinuance, or
(iii)any requisition for the resumption of
supply of energy made within six months of its
discontinuance, where the requisitioning
consumer was not himself the consumer of the
supply at the time of its discontinuance. ”
14. It is obvious that an order made under Section 22-B is
binding upon the Electricity Board and over- rides the con-
tracts and agreements which the Board may have entered into
with the consumers. When an order under Section 22-B is is-
sued, the Board is freed from the obligation to supply
energy at the level stipulated in the agreements with the
consumers and its obligation is to supply in accordance with
the order under Section 22-B. On this score, there is no
controversy. The controversy is with respect to the power
of the Board to collect maximum demand charges at the rate
prescribed in the agreement during such periods of
restricted supply. In short, the question is with respect
to the power of the Board to frame Regulation 46 and more
particularly, the reasonableness of the proviso to the said
Regulation.
15. Section 79 of the Electricity (Supply) Act, 1948
empowers the Board to make Regulations to provide for
matters specified therein. Inter alia, the matters
specified include “(j) principles governing the supply of
electricity by the Board to persons other than licensees
under Section 49”. Clause (k) is, of course, of a general
nature. Section 49(1) says that:
“49. Provision for the sale of electricity by
the Board to persons other than licensees.–
(1) Subject to the provisions of this Act and
or regulations, if any, made in this behalf,
the Board may supply electricity to any person
not being a licensee upon such terms and
conditions as the Board thinks fit and may for
the purposes of such supply framed uniform
tariffs.”
16.It would help if we notice sub-sections (2), (3) and (4)
of Section 49 also. They read thus:
“(2) In fixing the uniform tariffs, the Board
shall have regard to all or any or the
following factors, namely–
(a)the nature of the supply and the purposes
for which it is required;
(b)the coordinated development of the supply
and distribution of electricity within the
State in the most efficient and economical
manner, with particular reference to such de-
velopment in areas not for the time being
served or adequately served by the licensee;
(c)the simplification and standardisation of
methods and rates
114
of charges for such supplies;
S.C. (d) the extension and cheapening of
supplies of electricity to sparsely developed
areas.
(3) Nothing in the foregoing provisions of
this section shall derogate from the power of
the Board, if it considers it necessary or
expedient to fix different tariffs for the
supply of electricity to any person not being
a licensee, having regard to the geographical
position of any area, the nature of the supply
and purpose for which supply is required and
any other relevant factors.
(4) In fixing the tariff and terms and
conditions for the supply of electricity, the
Board shall not show undue preference to any
person.”
17. In exercise of the power conferred by Section 79 read
with Section 49 of the Electricity (Supply) Act, the Orissa
Board has framed Regulation 46. Before its amendment by
Notification dated June 25 1987, Regulation 46 read as
follows:
“Right of Board in case of break down in
Board’s supply system —
If at any time during the continuance of any
agreement between the Board and consumer, due
to reason mentioned in clause-40(d) and 43
above, the Board/Engineer shall be under no
obligation to give supply of electrical energy
as contracted during the period of such break
down/ force measure situation continues. Such
period of discontinuance/reduced supply shall
not be added to the initial period of the
agreement.
Provided that during such period of
discontinuance/reduced supply, the consumer
shall not be liable to pay the minimum charges
in accordance with the agreement, but shall
only pay for the actual quantity of demand
and/or energy supplied to the consumer in lieu
of the contracted demand. ”
18.The Regulation was substituted by the Notification dated
June 25, 1987. The substituted Regulation reads as follows:
“If on account of shortage of the generation
of electrical energy, restrictions on power
supply arc imposed by the State Government
under Section 22(B) of the Indian Electricity
Act, 1910 or by the Board under Section 49 of
the Electricity Supply Act, 1948 and all other
power available under law, the Board and the
Engineers shall be under no obligation to
supply energy contracted for except in ac-
cordance with the restriction order and
subject to the other provisions of the
Regulation.
Provided that during the period restrictions
are in force, the consumer shall not be liable
to pay the minimum charges in accordance with
the agreement if the restriction on supply in
a month exceeds 150 (One Hundred Fifty) hours
but shall only pay, in case of two part
tariff, on the basis of actual energy
consumption and the “maximum demand” as
provided in the agreement and in all other
cases, on the basis of actual consumption of
energy.
19. We arc concerned in this case with the substituted
Regulation 46 and hence, reference to Regulation 46
hereinafter means the amended Regulation 46 only.
20. Regulation 46, it is evident, is designed to meet the
situation obtaining during the period an order under Section
22B of the Electricity Act, 1910 is in force. It says so
specifically. The Regulation says that when such an order
is in operation, the Board shall be under no obligation to
supply the contracted demand/maximum
115
demand and that it will supply energy only in accordance
with the restrictions placed by such order. To this extent
it states the obvious. The proviso – which is the one in
question – then says that during the period of such
restricted supply if the restriction on supply exceeds 150
hours in a month, (a) the consumer shall not be liable to
pay minimum charges in accordance with the agreement but (b)
he shall pay in case of two-part tariff, on the basis of
actual energy consumption and the maximum demand as provided
in the agreement and (c) in all other cases, (i.e., in case
of consumers to whom two-part tariff does not apply) on the
basis of actual consumption of energy.
21. Now, in the case before us, the restriction on supply
did exceed 150 hours in a month; indeed it was fifty per
cent. In accordance with the said proviso, therefore, the
respondent was obliged to pay (i) the maximum demand charges
as provided in the agreement and (ii) the actual energy
consumption charges though he is relieved of the obligation
to pay minimum charges. The maximum demand contracted by
the respondent is upto but not exceeding 7778 KVA as
mentioned hereinbefore. Now, if the respondent draws energy
at full load, i.e., at 7778 KVA, his consumption of energy
over the year would be twice the quota permitted to him
during the year of restriction. Therefore, the respondent
is obliged to – and should – draw energy at half the
maximum/contracted demand, i.e., at 3889 KVA, if he wants to
run his factory for the whole of the year of restriction.
And since, he is relieved of the obligation to pay the
minimum charges as per the agreement, he pays demand charges
only on the basis of the actual maximum K.VA drawn by him
plus the charges for the energy actually consumed by him.
Secondly, the Board explains, there is an option available
to such consumers. If their unit cannot work at a
level/load less than the maximum demand/contract demand or
if the consumer wishes to do so for his own reasons, he is
free to draw energy at the contract/maximum demand level,
but then he can work only for six months in the year of
restriction since he is bound to observe the cut in
consumption of energy by fifty per cent. In other words, if
he avails power/ energy at the maximum agreed level, he will
exhaust his fifty per cent quota in six months itself. It
is however open to a consumer to draw energy at any other
level so long as he does not exceed the fifty per cent quota
permitted to him during the year of restriction, as
explained in the tabular statement referred to hereinbefore.
The option to draw at the maximum level/load permitted is
probably conceived to provide for those units which cannot
operate except when they draw energy at the maximum demand
level. They can do so but they can operate only for six
months in the year of restriction. So far as the respondent
is concerned, it is admitted that it is not a unit which can
operate only when it draws energy at 7778 KVA or thereabout;
it can operate even if energy is drawn at half the maximum
demand level. May be, such functioning may be less eco-
nomical, but function it can.
22.We shall now deal with the precise grievance of the
respondent-writ petitioner and the grounds on which the High
Court has invalidated the proviso to Regulation 46. The
respondent says that where the cut in the supply Is as much
as half, there is no justification or equity behind the
regulation which entitles the Board to levy full demand
charges. (There is no com-
116
plaint insofar as the levy of actual consumption charges are
concerned, the whole grievance is only about the maximum de-
mand charges or demand charges, as they are called.) The
respondent submits that during the periods of restricted
supply, there are frequent cuts and breakdowns, the supply
is irregular and yet the Board proposes to levy full] demand
charges only because in any thirty-minute period in a given
month, the power is availed at the maximum demand level.
According to the respondent, during the period of such sup-
ply the demand charges should not be collected at all but
only the consumption charges. This submission has been up-
held by the High Court on the following reasoning which may
better be put in their own words:
“Under the two part tariff system which is
meant for big consumers of electricity, the
consumer is required to pay the demand charges
which charges are levied to cover investment
installation and the standing charges to some
extent and energy charges for the actual
amount of energy consumed. The expression
“Demand charges” would mean that the charge
leviable for the readiness of the supplier to
meet the demand of the consumer. Where,
therefore, the supplier, namely, the State
Electricity Board was not at all in a position
to supply the energy as per the demand of the
consumer it would be an unreasonable burden on
the consumer if the supplier is permitted to
raise the entire demand charges. The
excessiveness of the. burden on the economy of
the industry as well as on the consumer would
be apparent from a small illustration. An
industry needs 7000 KVA for running of its
factory but because of the power restrictions
issued by the State Government in exercise of
power under section 22(b) of the Supply Act it
cannot run the factory through out the month
as that would exceed the quantum of energy
which the industry could utilise. But to run
its machinery if the industry in question on
the first day of the month takes power than in
the demand meter it would show 7000 KVA.
Thereafter even if for next twenty nine days
of the month, the industry does not take any
further energy still by virtue of the proviso
to Regulation 46 in accordance with the
agreement between the parties the consumer
will be required to pay towards “demand
charge” to the extent of Rs.35 x 7000. Levy
of such a charge, in our considered opinion,
cannot but be held to be arbitrary,
unreasonable and confiscatory in nature.”
23.The High Court then referred to the decision of this
Court in M/s. Northern India Iron and Steel Co. v. The State
of Haryana and Anr. (1976 (2) S.C.R.677), Maharashtra State
Electricity Board v. Kalyan Borough Municipality (1968 (3)
S.C.R. 137) and to the unreported decision of the Orissa
High Court in MI s.J.M.Graphite Mining & Manufacturing
Company v. Orissa State Electricity Board & Ors. and
observed:
“The ratio of the aforesaid case as well as
the observations extracted above would apply
while testing the reasonableness of the
proviso to Regulation 46, namely, if the Board
is ready and willing to supply but the
consumer does not consume, then obviously the
liability would arise as the Board remains in
readiness to supply energy and non-utilisation
of the energy by the consumer does not affect
the liability of the Board to keep the energy
set apart for consumption. But where the
Board is not in a position to supply and then
by virtue of Regulations like proviso to Regu-
lation 46, levies demand charges on the basis
of contract demand, it would be an unreal
levy, arbitrary levy, irrational levy and as
such violates the basic mandate
117
enshrined in Article 14 of the Constitution.
In course of arguments, the learned counsel
for the petitioner had produced before us a
calculation sheet showing the unreasonableness
of levy towards demand charge in accordance
with the proviso to Regulation 46 and we think
it appropriate to notice the same at this
stage. The contract demand of the petitioner
is 7778 KVA and if there would have been no
power cut in any month and the petitioner
would have been running the factory through
out, then in a month the petitioner would be
consuming 40,32,115 K.W.H. of units of energy
taking the power factor at 90 and load factor
at 80%. But on account of the power
restriction imposed by the State Government
under Section 22(B) of the Act, the units of
power actually consumed during the month of
January, 1989 as is apparent from the bill
No.705 dated 3.2.1989 is 2,56,200 K.W.H. and
in terms of quantity of demand it is 478.3
K.V.A. but on the basis of maximum demand
recorded in the trivector metre it is 683 KVA
and, therefore, the petitioner has been made
liable to pay the demand charge at the rate of
35 per KVA, thus amounting to Rs.2,51,150/-
,though for 478.3 KVA he could have been
charged on proportionate reduction basis only
to the extent of 17,578. The aforesaid
concrete illustration exhibits the
arbitrariness and irrationality of the
provisions in question. On examining the
proviso to Regulation 46, we have not found
any nexus for the same for which it has been
introduced. If the nexus is the readiness of
the supplier to supply power then how can the
provision be sustained %-hen that readiness is
not there. In the aforesaid facts and circum-
stances, we are of the considered opinion that
the proviso to Regulation 46 is unreasonable,
arbitrary and unreal and the same cannot be
sustained and we accordingly quash the same.”
24. Apart from criticizing the above reasoning, Sri
Hegde, learned counsel for the Board complains that the
decision of the High Court is coloured by the extreme
example taken by it relating to the month of January, 1989
(Bill No.705 dated February 3, 1989). The learned counsel
explains that during the month of January, i.e., on January
5, 1989, there was “system disturbance following failure of
a 220/ 132 KV auto-transformer at TTPS, Talcher for which
loads had to be restricted to all the sub-stations receiving
power at 132 KV, from TTPS due to which M/ s.IPI STEEL, were
not allowed to draw their furnace load during several
periods in the month of January, February and March, 1989
which extended to more than 3 days at a stretch each time”
and on which account a special remission has been granted to
the respondent under Board Memorandum No.Com-1-70/83, a copy
of which has been placed before us. The learned counsel
submits that such an unusual situation cannot be taken as
the standard or as a test case for judging the validity of
the provision. One must go by the generality of the
situation. Such breakdowns may occur even during periods of
normal supply. Barring the special situation arising from
the breakdown aforementioned, he says, all the consumers
including bulk and large scale consumers have been supplied
energy as explained in the tabular statement referred to
above. Sri Hegde relies upon Paras 18 to 24 in the decision
of this Court in Bihar State Electricity Board, Patna & Ors.
v. M/s. Green Rubber Industries & Ors. (1990 (1) S.C.C.731)
where this court justified the concept of minimum charges
with reference to several decisions of High Courts. It is
pointed out that this Court referred with approval to the
decision of the Calcutta High Court in Saila Bala Roy v.
Chairman, Darjeeling
118
Municipality (AIR 1936 Cal.265) wherein it was held that
“the minimum charge was not really a charge which had for
its basis the consumption of electric energy. It was really
based on the principle that every consumer’s installation
involved the licensee in certain amount of capital expen-
diture in plant and mains on which he was to have a
reasonable return. lie could get a return when the energy
was actually consumed in the shape of payments of energy
consumed. When no such energy was consumed by the consumer,
or a very small amount was consumed in a longer period, the
licensee was allowed to charge minimum charges by his
license, but those minimum charges were really interest on
his capital outlay incurred for the particular consumer.”
Learned counsel points out that this Court has also quoted
with approval the decision of the Madras High Court in
MG.Natesa Chettiar v. Madras State Electricity Board (1969
(1) Mad.LJ 69), where it was held that:
“the minimum fixed was only consideration for
keeping the energy available to the consumer
at his end; it was not a penalty for not
consuming a stated quantity of energy but was
a concession shown up to the amount fixed,
energy at a specified rate could be consumed
free, consumption beyond only had to be paid
for. The statutory basis for the terms in the
agreement providing for minimum annual charge
was found in Section 22 of the Act and Section
48 of the Supply Act. Section 22 deals with
obligation on licensee to supply energy. The
proviso to the section says:
“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.”
Section 48 of the Supply Act empowers the
licensee to carry out arrangement under that
Act.”
25.The decision of the Punjab High Court in Watkins Mayor &
Co. v. Jullundhar Electric Supply Co. (AIR 1955 Punj.133),
it is pointed out, was also quoted with approval by this
Court wherein the High Court had taken the view that:
“….. the whole scheme of the Act seems to
show that the provision made in any contract
for a minimum charge was really to provide for
a fair return on the outlay of the licensee,
and it was for this reason that the law
allowed the contract of this kind to be
entered into. Clause XI-A of the schedule to
the Act, as it then stood, provided:
“A licensee may charge a consumer a minimum
charge for energy of such amount and determine
in such manner as may be specified by his li-
cence, and such minimum charge shall be
payable notwithstanding that no energy has
been used by the consumer during the period
for which such minimum charge is made.”
The court accordingly held that there was
nothing illegal in the insertion of the term
for payment of a minimum charge in the
agreement of the supply of energy and held
that it had not been made out that it was an
unreasonable levy.”
119
26. Sri Hegde further points out that in Para 2 1, this
Court has approved the decisions of the Allahabad and Andhra
Pradesh High Courts holding that the requirement to pay
minimum charges was one of the terms and conditions of
supply and cannot be faulted. Learned counsel points out
that the decision of this Court ultimately rested on the
principle that the stipulation of minimum guarantee charges
in the agreement cannot be held to be ultra vires the
statutory provisions governing the supply and that the
agreement stipulating therefor was reasonable and valid.
Sri Hegde points out that the rationale behind the concept
of minimum charges referred to in the said decision is the
very rationale underlying the concept of two-part levy
concerned herein and which is also incorporated in the
agreement between the parties. Learned counsel emphasises
that the agreement expressly recites that the respondent has
read the regulations and has agreed to be bound by them not
only as they stood on the date of the agreement but with
such modifications thereto as may be made therein in future.
In such a situation, he says, the respondent cannot be al-
lowed to wriggle out of the terms of the agreement by
resorting to Article 226 of the Constitution. lie submits
further that during the period of restricted supply, the
capital charges remain the same though there may be some
reduction in the running charges, that even during the
period of restricted supply, loans have to be repaid with
interest, the plants, the stations, the transmission lines
and all other equipment have to be maintained in good shape
and depreciation etc. provided for. The staff recruited,
the learned counsel submits, cannot be reduced as soon as an
order under Section 22-B is made and reemployed when the
restriction ceases. He submits that if the respondent had
installed a generating station or unit of his own for the
purpose of supplying the energy required by his steel mill,
he would have been faced with the very same problems as are
faced by the Board.
27. On the other hand, the learned counsel for the
respondent-writ petitioner submits that if the Board is
allowed to Insist upon its pound of flesh and to enforce the
agreement and Regulation 46 as it stand, it would be highly
unjust and inequitable to the consumers like the respondent.
They would not only suffer huge losses but would be obliged
to close down, affecting the workers and the national
economy. He submits that because of the irregular and
uncertain supply of power by the Orissa Board, the
respondent-company has become sick already and its case is
now pending with B.I.F.R. He submits that when the Board is
not able to supply at the agreed level, it cannot at the
same time seek to recover the demand charges at the agreed
rate. Being a statutory public corporation and a State
within the meaning of Article 12 of the Constitution of
India, it is submitted, the Board must act fairly. The
learned counsel relies upon the decisions of this court in
Northern India Steel as also the decision in Bihar State
Electricity Board & Anr. v. M/s.Dhanawat Rice & Oil Mills
(1989 (1) SCC 452) besides the decision in Maharashtra State
Electricity Board v. Kalyan Borough Municipality.
28. Northern India Steel was a case where a power cut was
imposed by the State Government by making an order under
Section 22-B of the Electricity Act, 191 0. The appellant
was an industry governed by two-part levy system. On ac-
120
count of the said power cut, the Board did give certain
reduction in the demand charges because of its inability to
supply energy as per the requirement of the appellant. The
appellant, however, took the stand that no demand charge
should at all be levied when the Board was not in a position
to supply electric energy as per its requirement or that, at
any rate, there should be a proportionate reduction of the
demand charges. Before this Court, the appellant and the
Board took two extreme stands: the Board saying that even if
it were not in a position to supply energy according to the
demand of the consumer, it is entitled to ‘claim the full
demand charges as per clause (4) of the Tariffs and the
appellant saying that in such cases, the Board cannot claim
demand charges but that it is entitled only to energy
charges. This Court, however, did not pronounce upon the
said stand in view of the fact that clause (4)(f) of the
Tariffs notified by the Board provided a solution, The said
clause provided that the consumer is entitled to a
proportionate reduction of demand charges in the event of
lock-out, fire or any other circumstance considered by the
supplier beyond the control of the consumer. Ills Court was
of the opinion that the disability of the Board to give full
supply to the appellant-consumer because of the Government
Order under Section 22-B must be treated as a circumstance
disabling the consumer from consuming the electricity as per
the contract and, therefore, entitled to the benefit of
clause (4)(f).
29. So far as the decision in M/ s.Dhanawat Rice and Oil
Mills is concerned, it does not appear to be a case where a
power cut was imposed under Section 22-B. The decision
entirely turned upon the language of clauses (1), (4) and
(13) of the Agreement between the parties. Clause (13)
provided that where the consumer is prevented from receiving
or using the electrical energy either in whole or in part
due to strike, riots, fire, floods, explosions, act of God
or any other cause reasonably beyond the control or if the
Board is prevented from supplying or is unable to supply
such electrical energy owing to any or all the causes
mentioned above, then the demand charge and guaranteed
energy charge set out in the Schedule to the Agreement shall
be reduced in proportion to the ability of the consumer to
take or the Board to supply such power; the decision of the
Chief Engineer of the Board in that behalf was declared to
be final. The High Court had opined that the consumer was
not at all liable to pay any annual minimum guarantee
charges because of the tripping, load-shedding and power
cuts. This Court, however, held that the High Court was not
right in saying so. It held that in view of clause (13), the
consumer is entitled to proportionate reduction only.
30. The decision of the Constitution Bench in Maharashtra
State Electricity Board v. Kalyan Borough Municipality does
not appear to be relevant on the question at issue herein.
The learned counsel for the respondent could not bring to
our notice any observation in the said judgment which
supports his contentions.
31. Now coming back to the facts of the case before us, it
must be stated at the outset that the validity or
justifiability of the order made by the Government of Orissa
under Section 22-B is not questioned nor is it in issue. We
must, therefore, proceed on the assumption that the cut was
imposed because it was necessary
121
to ensure equitable supply of energy to various consumers in
the State. It is equally beyond dispute that an order made
under Section 22-B is binding upon the Electricity Board as
well as the consumers and supersedes and over-rides the
agreements that may have been entered into between the Board
and the consumers. According to the said order, the cut was
fifty per cent and the cut was operative for one full year,
called ‘water year’. The respondent was, therefore, bound
to utilise only fifty per cent of what is permitted under
the Agreement. In other words, it must consume only half
the energy which it was entitled to consume under the
agreement in a month or in a year, as the case may be.
Evidently, if the respondent drew energy at the maximum
demand level, i.e., at the maximum contracted level, and did
so for the whole of the year, it would be utilising the full
quota of energy permissible to him under the agreement,
which he cannot do in view of the fifty per cent cut imposed
by the order under Section 22-B. The order under Section
22-B read with the option given by the Board, means,
according to the Board, that either the consumer draws
energy at half the maximum demand level and operates for
full year or draws energy at full maximum demand level and
operates only for half the relevant year of restriction, as
explained hereinbefore. The choice is left to the consumer
to arrange his affairs in such manner as he thinks fit
provided he does not go beyond the quota (restricted quota)
prescribed for him. Now, Regulation 46 says that during the
period an order under Section 22-B is in operation and the
hours of restriction exceed 150 hours in a month, the
consumer is relieved of the obligation to pay the minimum
charges, i.e., the obligation to pay eighty per cent of the
charges even if he avails of and consumes less power. The
consumer governed by the two- part tariff is, however,
obliged under the said regulation to pay “on the basis of
actual energy consumption and the ‘maximum demand’ as
provided in the agreement”. Now, what does this mean in
practice? If the consumer avails of energy at half the
maximum demand/contract demand, he will pay demand charges
only for that. In other words, if the respondent had drawn
energy at 3889 KVA, he would pay demand charges only for
3889 KVA plus the charges for the actual number of units
consumed by him. Similarly, had the respondent availed of
the energy at, say 3000 KVA he would have been liable to pay
demand charges only on that basis plus the energy charges,
and if he had availed of energy at maximum demand then he
would have been liable to pay demand charges for the maximum
demand availed by him plus the energy charges – the overall
restriction being !hat he should have remained within the
fifty per cent quota prescribed. Thus, in no event, a
consumer is made to pay maximum demand charges for more than
what he actually availed. As stated above, the over-all
limitation is that he must have remained within the fifty
per cent quota allotted to him during the year of
restriction. We are unable to see any arbitrariness or
unreasonableness in the said proviso. It means and says
that during such periods of restricted supply, the consumer
pays the energy charges for the actual consumption plus
maximum demand charges for the maximum demand availed of by
him at the rate prescribed in the agreement.
32. The High Court faulted the proviso to Regulation 46 on
the ground of arbitrariness and unreasonableness. The rea-
122
soning of the High Court is this: if in a given case, an
industry avails of energy at 7000 KVA on the first day of
the month but does not take any energy for the remaining
twenty nine days of the month, it would still be liable to
pay the demand charges for the month at the rate prescribed
in the agreement, viz., 7000 KVA x Rs.35/ -, which is not
only arbitrary and unreasonable but also confiscatory in
nature. With great respect, we are unable to subscribe to
this view. This would precisely be the result even in the
normal times. Even when there is no power cut in force, if
an industry draws energy at 7000 KVA on the first day of the
month and does not draw the energy at all on the subsequent
twenty nine days, it would still be required to pay the
demand charges at 7000 KVA x Rs.35/-. This is because the
demand charges are meant “to cover investment, installation
‘and the standing charges to some extent”, as held by this
Court in Northern India Iron and Steel, which is precisely
what we have explained hereinbefore. To say that demand
charges should not be collected if the consumer does not
avail of the electricity on the remaining twenty nine days
in a month in the above illustration would be to deny and
disallow the very concept of and rationale behind the
maximum demand charges. Of course, situation would be
different, if in the above illustration, the Board does not
or is unable to provide even the restricted supply in the
manner explained hereinbefore. In such a situation, the
consumer would certainly be entitled to the relief in an
equitable manner, just as he would have been entitled to re-
lief in normal times. In other words, what would happen if
during normal times such a thing happens? Same would be the
situation during the period of cut. There is in effect no
distinction between both situations except that during
periods of restricted supply, the availability of energy is
reduced vis-a-vis the contracted supply. Now, it is not the
case of the respondent that in any month electricity energy
was available for the first day of the month or on any par-
ticular day or days and not for the whole month. So far as
the period January to March, 1989 is concerned, the
situation in that month was a special one. It is explained
by the Board that on January 5, 1989 there was a system
disturbance on account of the failure of a 220/132 KV auto-
transformer at TTPS Talcher on account of which the
industries like the respondent were not allowed to draw en-
ergy even in accordance with the cut and restriction imposed
by the Government of Orissa and the Orissa Electricity
Board. It is explained that on account of this unusual
situation and on the basis of the representation of the
respondent, it has been given a special rebate in Board
Memorandum No.Com.1-70/83. Under this memorandum, it has
been decided that “some relief be provided to the consumer
by exempting the demand charge for the period when power was
restricted to this industry for a continuous period of
seventy two or more as special case (for the months of
January ’89 to March ’89 only). If this is approved, the
monthly maximum demand charges of this unit for the three
months from January, 89 to March, 89 shall be prorated for
the period of supply excluding the period when power supply
was not given to the consumer continuously for seventy two
hours or more. This concession, if allowed, shall be a
special case not to be cited as a precedent for future.” It
is stated by Sri Hegde, learned counsel for the Board that a
special concession has been approved and given to the
respon-
123
dent for the said months.
33. The other reason given by the High Court in support of
its decision is contained in the second of the two extracts
from its judgment set out by us hereinbefore. It takes the
January, 1989 situation as a representative situation and
seeks to demonstrate on that basis the arbitrariness and
irrationality of the proviso to Regulation 46. But as
stated hereinbefore that was an unusual situation for which
appropriate relief has been given to the respondent. The
validity of regulations, which have the force of law, should
not be judged by taking either a stray case or an unusual
case but on the generality of the situation. All that
happens during the period of restriction is that electricity
is generated at a lower level than usual; if the fall in
production is expected to be fifty per cent, a corresponding
restriction is imposed on consumption. So far as breakdowns
and trippings etc. are concerned, they are not confined to
periods of restrictions alone; they may occur during normal
times as well. If there is no supply at all for
considerable periods, the situation would be different,
whether it happens during the period of normal supply or
during the period of restricted supply, but we are not
concerned with or called upon to pronounce upon such a
situation. For the unusual situation obtaining during
January-March, 1989 aforesaid, appropriate relief has
already been given to the respondent.
34. We must, therefore, say that no arbitrariness or
unreasonableness is involved in Regulation 46 or its
proviso. It only provides for collecting demand charges for
the actual maximum demand availed by such consumers during
the period of restricted supply. The consumer cannot le-
gitimately complain of this course nor can it characterise
it as confiscatory. We must also say that none of the
decisions relied upon by the learned counsel for the re-
spondent lays down any principle which can be said to
suggest that such a rule is arbitrary and unreasonable.
Once we understand the system of two-part levy and the
rationale behind it, as also the compulsions arising from an
order under Section 22-B of the Electricity Act, 1910, there
would be no room or ground for impugning the validity of
Regulation 46 of its proviso. Difficulties are no doubt
there difficulties of the consumer and difficulties of the
Board. They are essentially the problems of shortages,
perhaps endemic to a developing economy. As rightly
emphasised by Sri Hegde, the respondent would have faced the
same problems if he had installed his own plant for
generating electricity to meet his needs. While the
respondent says that it has suffered on account of these
cuts, the Board says that by reducing the demand charges
during such periods, it is also suffering. The consumer
accuse Board of several failings and the Board has its own
explanations. It is not possible to go into them. It is
enough to say that in the circumstances, Regulation 46 or
its proviso cannot be termed as arbitrary or unreasonable,
much less confiscatory.
35. The appeal is accordingly allowed and the order of the
High Court is set aside. There shall be no order as to
costs.
36. Before parting with this case, we must mention that
during the hearing of this appeal, M/s.Ispat Alloys
Limited filed a Transfer Petition (C) No.335 of 1994 praying
for transferring the writ petition
124
filed by them in and pending before the Orissa High Court
(O.J.C.No.6565 of 1992) to this Court for being heard along
with this appeal on the ground that the points arising in
this appeal are similar to those arising in its writ
petition. We told Sri Kapil Sibal, learned counsel
appearing for the petitioner that while we are not inclined
to transfer the said writ petition to this Court, we may
hear him as an intervenor in this appeal, We did hear him
for sometime but then we found that the learned counsel was
raising several issues and contentions which arc outside the
purview of the writ appeal and which were not put forward or
argued before the High Court. We, therefore, did not permit
Sri Sibal to raise those contentions. It is not necessary
to set out the learned counsel’s submissions nor is it
necessary to express any opinion thereon. Suffice it to say
that our decision is confined to the issues arising in the
appeal before us and will obviously not govern the issues
and questions not raised in this appeal.
37. Accordingly, the Transfer Petition is dismissed as
unnecessary.
127