1. In recent times, the wind of reform which aims at paving the way for a healthy, dynamic, financially viable and self-sustained growth of the power sector to meet the ever increasing demand for electricity from various categories of customers on an equitable basis both in terms of quality and quantity as well as of reasonable tariff so as to facilitate a rapid growth of the Nation’s economy is blowing in almost all the States in India. Sometimes, as in the case of the State of Andhra Pradesh, the blowing of the reform wind was very hard, strong and hurting too against certain hitherto protected and favoured categories of consumers of electricity like agriculturists and domestic consumers, irrespective of the
fact whether it is justified or not. This resulted in perceived shock and dismay and spontaneously generated persistent and percurrent protests, rallies, agitations ending, at times, with unpardonable violence denounced with abomination and righteous indignation by the Father of the Nation. Police interventions in the troubled situations and accusations of the police excesses have become talk of the State and rocked the proceedings of the A.P. State Legislative Assembly. The State of Andhra Pradesh recently underwent such experience immediately after the impugned increase of the electricity tariff. It is stated that it is the aim of the State Government to structure the power sector in such a manner as to impart the creditworthiness needed to new investments by facilitating its functions on sound commercial lines. The State Government has recognised that functional unbundling and corporatisation of the power sector is one of the necessary and crucial steps for investment so as to bring around fundamental change in its functioning, and make it work on sound principles of modern management. It was also felt that distancing of the State Government from the ownership and operations of the power sector by imparting functional autonomy to the various functional unbundled entities in the power sector will go a long way in fostering the much needed commercial orientation, to the long ailing power sector. As a necessary corollary, it seems, the State Government wanted to withdraw from its earlier role of regulation of power sector including the regulation of tariff to retain with itself only the role of broad formulation of socio-economic policies. The result of the new thought and orientation is the enactment of the Andhra Pradesh Electricity Reform Act, 1998 (Act 30 of 1998) (for short ‘the Reform Act’)
2. In this Batch of writ petitions the Constitutional validity of certain provisions of the Reform Act and the legality and
validity of the revision of electricity tariff for the year 2000-2001 done by the Andhra Pradesh Electricity Regulatory Commission (for short the ‘Commission’) vide its order dated 27-5-2000 and the consequent tariff notification dated 28-05-2000 as well as that of the Government Order G.O. Ms. No.11, Energy (Power-III), dated 31-1-2000 and the proceedings of the Commission dated 31-3-2000 are assailed. The questions of fact and that of law that arise for consideration and decision of the Court are substantially similar in all these writ petitions. Hence, all these writ petitions were clubbed and heard together and they are being disposed of by this common order.
3. WP No.9388 of 2000 is filed by a learned member of the Bar of this Court. It is stated that he is also the Joint Secretary of Sai Citedal Residents Association, Vittalwadi, Hyderguda, Hyderabad. The prayer in this writ petition reads as follows:
“For the reasons stated in the accompanying affidavit it is prayed that this Hon’ble Court may be pleased to issue a writ, order or direction, declaring Section 11(1)(e) and Section 26(1) and (2) of the A.P. Electricity Reforms Act which empowers the 3rd respondent to fix the rate of electricity retail tariff without making the authorities responsible for causes such as pilferage, theft, failure to collect consumed and billed power and improper management of power as a fraud on the constitution as arbitrary, illegal, unjust, violative of the fundamental rights guaranteed under Articles 14, 21 and 300-A of the Constitution of India and to further declare the action of the 3rd respondent in issuing a notification enhancing the power tariff with effect from 4-6-2000 vide paper publication dated 28-5-2000 as arbitrary, illegal, unconstitutional, violative of the fundamental rights and constitutional rights guaranteed under
the Constitution and also contrary to the provisions of the A.P. Electricity Reforms Act and the procedure laid down therein and issue the consequential direction not to give effect to the same and to continue supply of electricity in the State according to pre-existing rates until revised in keeping with the principles of law and in accordance with law and pass such other appropriate orders as this Hon’ble Court may deem fit and proper in the circumstances of the case”.
4. WP No.10484 of 2000 is filed by Sri P. Chengal Reddy said to be the President of Andhra Pradesh Rythu Sanghala Sainakhya (Federation of Farmer’s Association of Andhra Pradesh), Hyderabad and also a member of the Advisory Committee to the Andhra Pradesh State Electricity Regulatory Commission and Sri W. Raja Naidu who is said to be the Secretary of Chittoor Zilla Rythu Samakhya. The petitioners in this writ petition, while questioning the Constitutional validity of sub-section (1) of Section 5 including the second proviso thereto, Section 11(1)(e), Section 11(3), Section 12, Section 21(1) and (2) on the ground that those provisions are violative of fundamental rights and Constitutional rights guaranteed under Articles 14,21 and 300-A of the Constitution of India, and while assailing the notification issued by the Transmission Corporation of Andhra Pradesh Limited (for short ‘APTRANSCO’) dated 28-5-2000 enhancing power tariff with effect from 4-6-2000 as arbitrary and unconstitutional, have stated that they are particularly aggrieved by the impugned hike as regards agricultural sector dealt with under category LT 5 of the impugned notification.
5. WP No.1 1516 of 2000 is filed by the Peoples Union for Civil Liberties, A.P. State represented by its General Secretary Smt. Jaya Vindhyala. It is stated
that the Peoples Union for Civil Liberties was founded by Lok Nayak late Sri Jayaprakash Narayan in 1976 with a motto to promote and protect civil liberties of the citizens and seek redressal in cases of violation of Civil Liberties. It is claimed that the writ petition is filed as public interest litigation. In this writ petition the petitioner has not questioned the Constitutional validity of any of the provisions of the Reform Act or the legality of the order of the Commission or that of the Notification issued by the APTRANSCO enhancing electricity tariff. The limited prayer in the writ petition reads as follows:
“For the reasons stated in the accompanying affidavit filed herein, the petitioner prays that this Honourable Court may be pleased to issue an appropriate writ or order or direction under Article 226 of the Constitution of India, particularly one in the nature of writ of mandamus, directing the respondents to suspend the enhanced rates of electricity charges for some time meanwhile effective steps to be taken to regularise the illegal connections pilferage seeking co-operation of all parties, mass-orgainsations and local bodes after calling for the records and to pass such other orders that this Honourable Court may deem just to pass”.
6. WP No.10245 of 2000 is filed by Association of Industrial Electricity Users, which is said to be a registered society whose members are industries and who are consumers of electricity in the State of Andhra Pradesh, represented by its President Sir M.L Agarwal. In this writ petition, the Constitutional validity of Sections 23(4)(b), 26(1), 26(2), 26(5)(a), 26(5)(b) of the Reform Act is questioned. The petitioner has also sought for a writ declaring G.O. Ms. No.11 Energy Power (III) Department, dated 31-1-2000 as unconstitutional, illegal and
void and further declaring that the order passed by the Commission in OP Nos.205 of 2000, 206 of 2000 and 347 of 2000, dated 27-5-2000 as unconstitutional, illegal and void and for setting aside the same; and further declaring the tariff notification dated 28-5-2000 issued by the Transmission Corporation of Andhra Pradesh Limited, second respondent in the writ petition as illegal and void and for setting aside the same.
7. Writ Petition No. 1113 8 of 2000 is filed by Federation of Andhra Pradesh Small Industries Association said to be a registered society, whose members of associations are small-scale industries within the State of Andhra Pradesh and who are consumers of electricity, represented by its President Sri T.V.R. Murthy. It is claimed in the writ petition that the petitioner is recognised by the State and Central Governments as representative body of the interest of the small-scale sector in the State of Andhra Pradesh. The petitioner has assailed the Constitutional validity of Sections 23(4)(b), 26(2), 26(1), 26(5)(a) and (b) of the Reform Act as being unreasonable and violative of Articles 14 and 300-A of the Constitution of India and also vitiated by the vice of excessive delegation without proper and sufficient policy and guidelines amounting to abdication of legislative functions. In addition to that, the petitioner has assailed the legality and validity of G.O. Ms. No.11 Energy Power (III) Department, dated 31-1-2000 as being arbilrary, unreasonable, irrational, contrary to public interest and violative of Articles 14 and 300-A of the Constitution of India; that of the proceedings of the Commission APERC/Secy/Engg No.6 dated 31-3-2000 as being arbitrary, illegal and void offending Article 14 of the Constitution of India as being ultra vires of the provisions of the Reform Act; that of the order dated 27-5-2000 passed by the Commission as being arbitrary, unreasonable, unjust, illegal and vitiated by incurable
procedural faults and deficiencies and vitiated by undue dictation by the World Bank and improper purpose and violative of Articles 14 and 300-A of the Constitution of India; and that of the tariff notification dated 28-5-2000 published by the Transmission Corporation of Andhra Pradesh Limited, second respondent as being arbitrary, unreasonable, unjust, illegal and violative of the provisions of the Reform Act and violative of Articles 14 and 300-A of the Constitution of India.
8. WP No.11645 of 2000 is filed as public interest litigation by two persons M/s. M. Sabasiva Rao and M. Thimma Reddy. They claim to be the social workers of long standing and that in the past they raised number of issues concerning the rights of vulnerable sections of the public which were affected by the unlawful and unconstitutional commissions and omissions on the part of the public authorities responsible for public welfare before the Courts as well as in other public forums. It is also claimed in the affidavit that the petitioners along with like-minded individuals have set up People’s Monitoring Group on Electricity Regulation (PMGER) to monitor the reforms undertaken by the Government. The prayer in the writ petition reads as under:
“For the reasons stated in the accompanying affidavit it is hereby prayed that this Hon’ble Court may be pleased to issue a Writ of Mandamus or other appropriate order in the nature of writ order or direction by calling upon the second respondent to produce all power purchase agreements entered into with private power supplies and APGENCO and direct the first respondent to take into account the price at which power is purchased by the second respondent while fixing the price. It is also further prayed that this Hon’ble Court be pleased to provide effective
guidelines in price fixation for public utility enterprises where the emphasis cannot on maximization of profits and pass such other order or orders as this Hon’ble Court may deem fit and proper.”
9. Although in the prayer, neither the constitutional validity of the provisions of the Reform Act nor the validity of the notification issued by the APTRANSCO dated 28-5-2000 enhancing the electricity tariff is assailed, in paragraph (2) of the affidavit filed in support of the writ petition it is stated that the writ petition is filed as public interest litigation questioning the order dated 27-5-2000 passed by the Commission in OP Nos.205, 206 and 347 of 2000. The petitioners after filing the writ petition with the above prayer filed WP MP No. 16929 of 2000 praying the Court to permit them to take an additional ground to attack the competency of the A.P. State Legislature to enact the Reform Act. In the said WPMP, it is contended that the Electricity Regulatory Commission Act, 1998 enacted by the Parliament and the A.P. Electricity Reform Act, 1998 enacted by the A.P. State Legislature trace their competence to legislate to Entry 38 of the List III (Concurrent list), and that the Reform Act enacted by the A.P. State Legislature is repugnant to the Electricity Regulatory Commission Act, 1998, and that the President’s assent is not a mere empty formality and there is an obligation on the Stale to explain as to why the State needed a special Legislation on the same subject covered by the Legislation enacted by the Parliament, and that the assent by the President was obtained obviously without application of mind and therefore, the Reform Act is incompetent. We have allowed the WPMP and permitted the Counsel to argue on issues raised therein.
10. WP No.14999 of 2000 is filed by A.P. Municipal Rate Payers and Civic
Welfare Association said to be a registered society. It is stated in the affidavit that the petitioner association is non-political and unconnected with any political activity and its main object is to promote the welfare and progress of the rate payers and their interest. In this writ petition the lengthy prayer reads as follows :
“For the reasons stated in the accompanying affidavit the petitioner prays that this Hon’ble Court may be pleased to issue a writ, direction or order preferably in the nature of certiorari calling for the order of Revision of Tariff of Transmission Corporation of A.P. Limited for financial year 2000-2001 dated 27-5-2000 passed by A.P. Electricity Regulatory Commission, Hyderabad i.e., the 3rd respondent herein, in OP No.205 of 2000, OP No.206 of 2000, OP No.347 of 2000 and may be pleased to examine the legality, propriety, regularity and correctness of the said Order of Revision of Tariff on the 6th respondent and quash the same declaring the said order being violative of Articles 14 and 21 of the Constitution and further being violative of principles of natural justice, and the findings made by the 3rd respondent are based on insufficient material furnished by the 6th respondent, who did not comply with the provisions of Sections 57 and 57-A of Electricity Supply Act, 1948 and also the proposal made by the 6th respondent is in violation of Section 26(9) of A.P. Electricity Reforms Act, 1998 and also the findings made by the 3rd respondent is inconsistent with the conclusion and also remarks made by the Comptroller and Auditor General of India in his report for the year 31-3-1999 relating to A.P. Gen. Corporation Ltd., the 6th respondent and also the findings arrived by the 3rd respondent are not just and proper; and further declare the A.P. Electricity Reforms Act 1998 is ultra vires of Indian
Electricity Act, 1910 as no concurrence and consent from the Union of India has been taken by the 4th respondent and therefore, the 4th respondent has no legislative competence to enact A.P. Electricity Reforms Act, 1998; and forbid the respondents from proceeding in any manner in pursuance of the said order of Revision of Tariff of Transmission Corporation of A.P. Limited for financial year 2000-2001 dated 27-5-2000 passed by the 1st respondent; and pass such further or other order or orders as this Hon’ble Court may deem fit.”
11. Except in WP No.14999 of 2000, the Government of Andhra Pradesh, the APTRANSCO and the Commission are impleaded as respondents whereas only in WP No.14999 of 2000 in addition to the above three entities, Union of India represented by its Secretary to the Ministry of Power and the Central Electricity Regulatory Commission, New Delhi represented by its Secretary are impleaded as respondents.
12. Counter affidavits are filed by the Government of Andhra Pradesh, APTRANSCO and the Commission opposing the writ petitions.
13. We have heard M/s. S. Ramachandm Rao, K.G. Kannabiran, senior Counsel, Mr. K. Gopal Chowdary and Mr. P. Venkateswarlu, learned Counsel for the petitioners and the learned Advocate General for the State of Andhra Pradesh, Mr. E. Manohar, learned senior Counsel for AP TRANSCO and Mr. M.G. Ramachandran, learned senior Counsel for the Commission.
14. It is not necessary for us to dilate on the arguments advanced by each of the learned Counsel appearing for the parties as may of them overlap. Suffice it to state that the contentions advanced by the learned Counsel may conveniently be considered under the following heads:
Sub-Section (1) of Section 5 including the second proviso thereto, Section 11(1)(e) Section 11 (3), Section 12, Section 21(1) and (2), Section 23(4)(b), Section 26(1) and (2) and Section 26(5)(a) and (b) are unconstitutional.
Contention No. 2
Even otherwise, the Reform Act is a piece of colourable Legislation enacted by the Andhra Pradesh State Legislature at the dictation of and in accordance with the terms imposed by the World Bank which is an extra-territorial body, and thus the Andhra Pradesh State Legislature has surrendered its legislative sovereignty in favour of the World Bank and, therefore, the Reform Act is invalid and unconstitutional.
Assent of the President of India was secured to the 7Reform Act by the State Government of Andhra Pradesh under Article 254(2) of the Constitution of India without furnishing to the President all the relevant materials and information and that the assent of the President suffers from the vice of non-application of mind.
The APTRANSCO, as on 6-4-2000, had no locus standi to submit ‘Filing of Proposed Tariff (FPT) before the Commission for it legally ceased to be a licensee with effect from 1-4-2000 and consequently the order of the Commission dated 27-5-2000 made on the said FPT of the APTRANSCO is one without jurisdiction.
The function of the Commission in determining the electricity tariff under the Reform Act is quasi-judicial in nature, and the procedure adopted by the Commission
in the matter of impugned electricity tariff fixation was in utter violation of principles of natural justice,
The order of the Commission dated 27-5-2000 and the consequent revised tariff notification dated 28-5-2000 issued by the APTRANSCO enhancing the electricity tariff are irrational and arbitrary and contrary to the statutory norms and prescriptions.
Contention No. 7
The Commission’s order dated 27-5-2000 is invalid for breach of the statutory period of three months specified under Section 26(9) of the Reform Act.
G.O. Ms. No.11 Energy (Power III) Department, dated 31-1-2000 and the proceedings of the Commission dated 31-3-2000 are arbitrary and irrational and violative of Articles 14 and 300-A of the Constitution of India.
15. We think it appropriate and pertinent at this stage to briefly peep into the legislative history and the policy environment of the Reform Act before we take up the contentions of the learned Counsel for the parties for consideration and decision because such a treatment, in our view, would throw some needed light on the historical background of the new Legislation and backdrop of the impugned revision of the electricity tariff, which in turn would be of assistance in the decision-making.
16. The supply and use of electricity was first controlled and regulated under the Electricity Act, 1910 thereinafter called as ‘the Electricity Act“). The Electricity Act was comprehensive and provided for generating companies, the licensing of suppliers of electricity, the rights and obligations of licensees, the rights and obligations of the consumers, the safety and technical requirements and the matters connected therewith. The Electricity Supply Act, 1948 thereinafter called as “the Supply Act“) envisaged the establishment of State Electricity Boards in the States and vesting in them a monopoly for the generation, transmission and distribution of electricity and the functions of regulation relating to electricity. The Supply Act also constituted a license under the Electricity Act for the Board, provided for the take-over of power systems, power of the Boards and the matters connected therewith and also modified several provisions of the Electricity Act in their application to the Board. The Supply Act also, inter alia, envisaged not only functions of development and management of the electricity supply system for the Board, but also the regulatory functions in respect of the electricity supply industry. However, though intended to be independent entities, the Boards were in fact and reality under the control of the State Governments which were given wide, substantial and all pervading powers to issue policy directions which were binding on the Boards. The members of the Board were also appointed and removed at the pleasure of the State Governments. The Andhra Pradesh State Electricity Board thereinafter called as “APSEB”) was constituted under the provisions of the Supply Act and operated in such circumstances and environs in the State of Andhra Pradesh. Over the 50 years of operation, though it did serve the objects and purposes of its establishments in many significant ways, it is slated, the APSEB was subjected to much political abuses and manoeuvres. Under the provisions of the
Supply Act, particularly Sections 49 and 78-A thereof, there were unduly wide powers given to the APSEB in the matter of fixing tariffs and power to the Government to give directions in that respect. It was an untidy combination that had the potential to promote arbitrariness and irrationality in the matter of fixing electricity tariffs from time to time. Electricity energy was used indiscriminately as a largesse to be given away to certain sections of customers of electricity at untenable prices to gain political mileage by the political parties. Certain sectors were subsidised to undue extents for mere political advantage and in course of time those sectors came to be addicted to the subsidy. On the other hand, other sectors were burdened with cross-subsidy to absorb the impact of subsidy granted by the Government. Higher costs of electricity were injected into the national economy by multiplier effects, and consequently the costs of several goods and services went up. These costs were ultimately borne by the national economy by way of inflationary spirals, uncompetitiveness in international trade, waste and inefficiency. The State Government of Andhra Pradesh promised its budgetary supports from time to time, but they were either not eventually given or were given after such long delays that the cash strapped APSEB suffered considerable damage in the meantime. The APSEB began to borrow heavily and debt service costs further dragged it down. In the circumstance, the cash strapped APSEB had to cut on critical infrastructure and growth fronts, and this resulted in the power supply system to become unduly overburdened and inefficient. Side by side rampant pilferage and theft of electricity grew to frightening proportions under insensitive management of the APSEB and political indifference. The overburdening of the system also led to severe problems in the quality of power. Lack of investment in generation and the ever growing losses,
technical and commercial, in the transmission and distribution system resulted in serious shortages in the availability of electricity and thus arrested the growth of the economy on the expected line. Several industrial units and others had necessarily to turn to alternative source of electricity. Over the long period of time, the APSEB was also being managed in a manner, as described by the APTRANSCO themselves, “typical for a State owned enterprise” and with “increasingly greater inefficiencies”.
17. The Government of India,
recognising that the problems of shortage of electricity was of chronic proportions and that additional resources could not be generated out of public funds alone and with the objective of bringing in additional resources for the capacity addition programme in the electricity sector, issued a policy dated 22-10-1991 on private participation in the power sector. The said policy was the first step to change from a policy of monopoly of the State in the fields of power generation, transmission and distribution to a policy of involving private initiatives and investment. The policy also refers to changes in the financial and administrative environments in addition to changes in the legal environment by amendments to the Electricity Act and the Supply Act. The meeting of the Chief Ministers of all States was convened by the Government of India to discuss and deliberate on the issues pertaining to power sector and find a lasting solution to the ailing power sector. The Chief Ministers met on 16-10-1996 and on 3-12-1996 and a ‘Common Minimum Action Programme’ was formulated. The salient points of the outcome of this meeting was agreement, inter alia, amongst all the States that the gap between supply and power is widening; that the financial position of the State Electricity Boards is fast deteriorating; that reforms and restructuring of State Electricity Boards are urgent; that creating independent
Central and State regulatory commissions was imperative; that the future expansion and improvement of the power sector cannot be fully achieved through public resources alone and it is essential to encourage private sector participation in the generation, transmission and distribution; that cross-subsidy be restricted only to really needy sectors and that too on specified norms; that the State shall, as a rule, provide budgetary support for any subsidy ordered by it; that the State Electricity Boards shall be restructured and corporatised and run on commercial and self-sustaining basis; that necessary amendments be made in the relevant Acts/Rules to allow private participation in transmission and distribution of electricity; that the Slate Governments will encourage co-generation/captive power plants. The outcome of the meetings of the Chief Ministers formed the basis for the comprehensive change of policy from one of the State’s monopoly in the power sector to the policy of unbundling and dismantling the monopoly and allowing multiple players under a regulatory regime. The Indian Parliament, consequent to the policy initiatives noticed above and in furtherance thereof, enacted the Electricity Regulatory Commission Act, 1998, The said Act provided for the establishment of Central Electricity Regulatory Commission and provided for its powers and functions. The said Act also enabled the State Governments to establish, by notification, State Electricity Regulatory Commissions and provided for their powers and functions. The Act also provided for the rationalisation of electricity tariff, transparent policies regarding subsidies, promotion of efficient and environmentally benign policies relating to the generation, transmission, distribution and supply of electricity and matters connected therewith.
18. The Government of Andhra Pradesh in pursuance of the changed policy environment and the report of the Hiten Bhayya Committee constituted by it in
respect of power sector reforms in the State of Andhra Pradesh, initiated several moves towards restructuring and reorganising the power sector as detailed in the report entitled “Reforms and Restructuring of Andhra Pradesh Power Sector’. Ultimately a Bill entitled A.P. Electricity Reform Bill, 1998 was introduced by the A.P. Legislative Assembly in the year 1998 and subsequently Reform Act was enacted in terms of the said Bill. The Presidential assent was sought under Article 254(2) of the Constitution of India and the same was given to the Reform Act on 21-10-1998 which was published in the A.P. Gazette on 28-10-1998 and the Reform Act was brought into force with effect from 1-2-1999 by issuing G.O. Ms. No.6 Energy (Power III) Department dated, 27-1-1991.
The preamble of the Reform Act reads:
“An Act to provide for the constitution of an Electricity Regulatory Commission, restructuring of the Electricity Industry, Rationalisation of the Generation, Transmission, Distribution and supply of Electricity avenues for participation of private sector in the Electricity Industry and generally for taking measures conducive to the development and management of the Electricity industry in an efficient, economic and competitive manner and for matters connected therewith or incidental thereto.”
Section 3 of the Reform Act provides for establishment of a Commission called A.P. Electricity Regulatory Commission. The powers of the Commission are set out in Section 10. The functions of the Commission are set out in Sections 11, 14, 15 and 16. Following are some important functions entrusted to the Commission; (i) Issuing and regulating Transmission and Supply licenses; (ii) Regulating the tariffs for Transmission and Supply of Electricity; (iii) Fixing and enforcing standards of performance and quality of supply and
consumer service; (iv) Balancing the need to maintain the viability of the power sector with the need to protect the interests of the consumers; (v) To regulate the purchase, distribution, supply and utilisation of electricity, the quality of service, tariff and charges payable keeping in view the interests of both the consumers as well as the licensees and also keeping in view the facts which would encourage efficiency, economic use of the resources, good performance and optimum investments.
19. The Commission is an autonomous statutory body. The Commission is authorized to prescribe the performance standards to the licensees and by closely monitoring the same, protect the consumer interest. The Commission is also charged with functions as a quasi-judicial authority under Sections 37 and 38 of the Reform Act. The Commission is empowered to pass orders and also enforce its decisions as provided under Sections 28, 29, 30 and 31 of the Reform Act. The Commission can also exercise its quasi-judicial powers under Sections 40, 41, 42,43 and 44 of the Reform Act. The Commission is further empowered to make regulations under Section 54 of the Reform Act. An appeal is provided under Section 39 of the Reform Act to the High Court of Andhra Pradesh by a person aggrieved by any decision or order of the Commission passed under the Reform Act on question of law arising out of such decision or order.
20. By G.O. Ms. No.9 Energy (Power III), dated 29-1-1999, the State Government issued the Andhra Pradesh Electricity Reforms (Transfer Scheme) Rules, 1999 thereinafter called “the Transfer Rules”) to come into effect from 1-2-1999. The effect of the Transfer Rules was to, immediately on the coming into effect, vest all the assets, liabilities and proceedings of the APSEB in the State Government. The said Rules also provided for classification of
assets into (a) Generation Undertakings and (b) Transmission and Distribution Undertakings (Rule 4); the transfer of the assets and liabilities to the APGENCO and APTRANSCO (Rule 5); the further transfers from APGENCO and APTRANSCO to further licensees or generating companies (Rule 6); transfer of personnel (Rule 7); restricting the rights and obligations of third parties (Rule 8); pending suits and proceedings (Rule 9); and provisionality of the transfers (Rule 10) and the matters related thereto. In particular, Part-I of both Schedules A and B to the Transfer Rules specified the particular assets and liabilities that stood transferred to the APGENCO and APTRANSCO respectively. Part-11 of the said scheduled purportedly state the provisional value of the assets and liabilities that stood so transferred and vested.
21. On 1-2-1999 the Government of Andhra Pradesh granted APTRANSCO a provisional license under Section 14(4) of the Reform Act to engage in business of “Transmission and Bulk Supply” and “Distribution and Retail Supply”. The validity of the provisional license was for a period of 12 months or on date notified by the Commission under Section 14(4)(b) of the Reform Act, whichever was earlier. On 10-9-1999 the APTRANSCO submitted a draft license to the Commission as required under Section 14(4) (a) for grant of license to engage in the business of Transmission and Bulk Supply of Electricity and another draft license for grant of license to engage in the business of Distribution and Retail Supply of Electricity and these draft licenses were numbers as OP No.3 of 1999 and OP No.4 of 1999 respectively. On 9-10-1999 the Commission communicated to the APTRANSCO the guidelines for filing of “Expected Revenue from Charges” and Tariff Application for 2000-2001 as required under Section 28(1) of the Reform Act. In October, 1999, the Commission issued a
draft document for public circulation entitled “Issues of Tariff Philosophy” and the public were invited for sending written comments on the same. The Commission, in October, 1999, also framed “Guidelines for Revenue and Tariff Filing” separately for the Transmission and Bulk Supply Licenses and the Distribution and Retail Supply Licenses containing the manner in which revenue and tariff filings before the Commission were to be made and the terms and conditions thereof. On 29-12-1999 the AP TRANSCO, as the provisional license holder, filed its Expected Aggregate Revenue from Charges (ERC) as required under Section 26(5) of the Reform Act separately for the Transmission and Bulk Supply activity and the Distribution and Retail Supply activity and the same are numbered as OP Nos.205 of 2000 and 206 of 2000 respectively. On 31-1-2000 the Commission issued to AP TRANSCO two separate licenses, License No.1 of 2000 for Transmission and Bulk Supply and License No.2/2000 for Distribution and Retail Supply. The licenses issued contemplate the Transmission and Bulk Supply as a distinct and separate licensed activity from the Distribution and Retail Supply, and accordingly stipulate for separation of assets, accounts and also contemplate the establishment of separate tariffs for the two separate licensed activities. Further on 31-1-2000 itself, the State Government issued G.O. Ms. No.11 Energy (Power III) making amendments to Transfer Rules so as to modify Part-11 of the schedule to the Transfer Rules and consequently altering the values of the assets and liabilities indicated therein. In view of the provision of Section 23(6)(f) read with Rule 10 of the Transfer Rules, the scheme in the Transfer Rules as amended became final with effect from 1-2-2000. On 7-2-2000 the Commission directed the AP TRANSCO to provide information and finalise the transfer scheme contained in the Transfer Rules in the aforesaid notification dated 31-1-2000. By G.O. Ms.
No.31 Energy (Power III) dated 27-3-1999, the State Government approved the constitution of four separate and independent distribution companies thereinafter called “DISCOMs”) and the AP TRANSCO was required to take further steps to incorporate the said companies. At the meeting of the Board of Directors of AP TRANSCO held on 27-3-2000, it was resolved that AP TRANSCO apply for registration of the said DISCOMs under the Companies Act, 1956 and attend to the matters incidental thereto. On 30-1-2000 four DISCOMs were incorporated. On 31-3-2000 the AP TRANSCO made an application to the Commission under para 5.4 of AP TRANSCO Distribution and Retail Supply license for permission to assign the Distribution and Retail Supply functions to the four DISCOMs. On 31-3-2000 the Commission by its proceedings APERC/Secy/Engg/No.6 granted approval to AP TRANSCO to assign the Distribution and Retail Supply functions to the four DISCOMs.
22. By G.O. Ms. No.35 Energy (Power III), dated 31-3-2000 the State Government in exercise of powers conferred by Sections 23 and 24 of the Reform Act, more particularly Section 23(5), notified a “Second Transfer Scheme” for vesting of the distribution undertakings of the AP TRANSCO together with properties, rights, interests, distribution functions, contracts, agreements, licenses etc., in the four DISCOMs. The said vesting was to take effect from 1-4-2000. On 6-4-2000 AP TRANSCO submitted a Filing of Proposed Tariff (FPT) seeking revision of the then existing electricity tariff rates chargeable to consumers for an additional revenue of Rs.808 crores before the Commission along with supplementary ERCs and the same was numbered by the Commission as OP No.347 of 2000. On 8-4-2000, the APTRANSCO issued publication in newspapers stating that it has filed Annual Revenue Requirement (ARR) and tariff proposals for the year 2000-2001and that the copies of the applications together with supporting materials were available with the Chief Engineer Regulatory Affairs Cell, AP TRANSCO, Headquarters, Hyderabad and all Superintending Engineers in charge of operation circles of APTRANSCO in all districts of Andhra Pradesh State, and that objections should be filed on or before 28-4-2000 and persons who wish to make personal presentation during the public hearing may also indicate the same. On 12-4-2000 the Commission sent a summary of Tariff Proposals and Supplementary ERC to the members of the Commission and the Advisory Committee calling for their comments/suggestions by 28-04-2000. 78 persons/organisations sent their objections/suggestions on AP TRANSCO’s proposals for revision of tariff, and out of those 78 persons/organisations, 26 persons/organisations expressed their desire to be heard in person in the course of public hearing. Notice on public hearing from 8-5-2000 to 12-5-2000 was given. On 8-5-2000 public hearing was conducted by the Commission. On 12-5-2000 the Commission communicated the Government of Andhra Pradesh the tariffs proposed by it presumably for the purpose of ascertaining from the State Government whether it wanted to issue any policy direction as regards subsidy envi saged under Section 12(3) of the Reform Act. On 26-5-2000 the Government of Andhra Pradesh informed
the Commission that it would provide subsidy of Rs. 1,345 crores. The Commission on 27-4-2000 passed the order in OP Nos.205 of 2000, 206 of 2000 and 347 of 2000. On
3-6-2000 the Government of Andhra Pradesh wrote to the Secretary to the Commission stating that the Government of Andhra Pradesh had decided to extend additional subsidy under Section 12(3) of the Reform Act to the time of Rs.281.25 crores to LT-I domestic consumers. On 02-06-2000 the Commissions permitted APTRANSCO to reduce the tariff further with effect from
4-6-2000 on the basis of the additional promise made by the Government of Andhra Pradesh.
23. Now, it may be relevant to notice the impact of the impugned revision of the electricity tariff on customers of electricity. During the course of hearing of these writ petitions, learned Advocate-General produced before us the following three tables, the correctness of which was not contested before us by the learned Counsel for the petitioners. Table-I is an Abstract of Revenue Mobilisation for the year 2000-2001. Table-II is a Calculation Memo for supply of electricity to domestic category of consumers under the old tariff rates regime as well as the revised tariff rates regime. Table-III is a statement showing the earlier and revised tariff rates for supply of electricity to agricultural sector.
ABSTRACT OF REVENUE MOBILISATION (2000-2001)
Existing Revenues per Year
Additional Revenue thro’ Tariff
Initial APERC Order
Revenue with addl. Govt.
Route (Starting point and
terminus with important intermediate stations and route length).
Area (Name of routes with
starting points and termini and intermediate stations and route length.
Visakhapatnam to Masulipatnam via Turn, Annavaram, Kakinada,
Ramachandrapuram,Mandapeta, Marteru, Palacole, Bhimavarani, Kaikalur,
Gudivada & Gudlavalleru (400 Kms.)
Whether town services or
mofussil services or both.
Motussil services (Stage Carriages)
Maximum and minimum number
of vehicles proposed to be operated on each route by the State Transport
Undertaking to the exclusion, complete or partial or otherwise of other
The following number of vehicles are proposed to be operated to
the complete exclusion of other persons except holders of the existing stage
carriage permits operating on the portions of the route in East Godavari and
(a) Maximum number
(b) Minimum number
(d) Seating Capacity
Maximum and minimum number
of trips to be performed in each route by the State Transport Undertaking to
the exclusion, complete or partial or otherwise of other persons.
The following number of trips
are proposed to be performed to the complete exclusion of other persons
except holders of the existing stage carriage permits operating on the
portions of the route in East Godavari and Visakhapatnam districts.
(a) Maximum number
(b) Minimum number
Number of vehicles intended
to be kept in reserve to maintain the services and to provide for special
12 1/2% of the total number of
vehicles required for the operation of scheduled services will be kept in
The arrangements proposed
for housing maintenance and repair of the vehicles.
The existing depot at
Visakhapatnam, Bhima-varam and Masulipatnam will provide for ‘housing,
maintenance and repair of the vehicles.
The arrangements proposed for
the comfort and convenience of passengers.
Bus stations at important
traffic points and wayside shelters are proposed to be constructed.
The arrangements proposed
for the stands and halts on the route at which copies oftime-tables
of the services are proposed to be exhibited.
At important traffic points
where bus stations are proposed to be constructed. Time-table boards will be
Whether it is proposed to
permit the carriage of goods in addition to passengers.
unaccompanied parcels and postal mail bags will be permitted in additionto
passengers and their personal luggage.
Any other information the
State Transport Undertaking desires to submit.
(By Order and in the name of the Governor of Andhra Pradesh)
Joint Secretary to Government.
24. Now, let us proceed to consider the contentions advanced by the learned Counsel for the petitioners.
Contention No. 1:
25. The first contention of the petitioners cumulatively in this batch of writ petitions is that sub-section (1) of Section 5 including the second proviso thereto, Section 11(1)(e), Section 11(3), Section 12, Section 21(1) and (2), Section 23(4)(b), Section 26(1) and (2) and Section 26(5) (a) and (b) of the Reform Act are unconstitutional being violative of Articles 14, 19(1)(g), 21 and 300-A of the Constitution of India. It is not as if the constitutional validity of all the above provisions of the Reform Act is assailed in each and every writ petition. No constitutional validity of any of the provisions of the Reform Act is challenged in WP No.11516 of 2000 and WP No. 11645 of 2000. In WP No.9338
of 2000 the constitutional validity of Section 11(1 )(e) and Section 26(1) and (2) alone is challenged whereas in \V.P No.10484 of 2000 the constitutional validity of Section 5(1) including the second proviso thereto, Section 11(1)(e), Section 11(3), Section 12, Section 21(1) and (2), Section 23 (4)(b), Section 26(1) and (2) is assailed. In WP No.10245 of 2000 and WP No.11138 of 2000 the constitutional validity of Section 23(4)(b), Section 26(1) and (2) and Section 26(5) (a) and (b) atone is challenged. In WP No.14999 of 2000 a declaration is sought that the Reform Act is ultra vires of the Indian Electricity Act, 1910 on the ground that “no concurrence and consent from the Union of India has been taken by the 4th respondent” (i.e., Government of Andhra Pradesh) and, therefore, the 4th respondent had no Legislative competence to enact the Reform Act.
26. Although in WP No.9388 of 2000 and WP No.10484 of 2000 the constitutional validity of certain provisions, as stated above, is assailed by the petitioners, not a word is said about the constitutional invalidity of those provisions in WP No.9388 of 2000, and no factual matrix for making out necessary grounds to bring home the charge of unconstitutionality is laid in the affidavits filed by the petitioners in both the writ petitions.
27. It is trite law that mandamus is the proper relief to be asked for -where the petitioner seeks a declaration that an ‘Act’ or ‘Ordinance’ is unconstitutional and a consequential direction restraining the State and its Officers or the concerned statutory authorities, as the case may be from interfering or giving effect to the provisions of such unconstitutional law. It is also trite law that the presumption is always in favour of the constitutionality of an enactment, and the burden is upon him who attacks it to show that there has been a clear transgression of constitutional principles and limits, whether it is a pre-Constitution or post-Constitution law. This position is well settled by the Judgments of the Apex Court in Chiranjit Lal v. Union of India, (1950) SCR 869. In Madhu Limaye v. Sub-Divisional Magistrate, and in Cf Rao Bahadur v. State of U.P., (1953) SCR 1188, the Supreme Court held that the burden of proving all the facts which are requisite for the constitutional invalidity is upon the person who challenges the same. However, it is not to state that by reason of the presumption in considering the validity of the impugned law, the Court will be restricted to the pleadings only. The Court would be free to satisfy itself whether under any provision of the Constitution the impugned law can be sustained having due regard to the circumstances in which such law was enacted, as opined by the Supreme Court in Burarkar Coal Co. v. Union of India, , Hamdard
Dawakhana v. Union of India, . For the same reason, the Court should, if possible, make such a progressive and/or narrow construction of the impugned statute as would sustain its constitutional validity, as opined by the Supreme Court in Sunil v. Delhi Admn., ATR 1978 SC 1675. The Supreme Court in Naresh v. State of Maharashtra, , has opined that the Court should not cover grounds or make observations on points not directly involved in the proceedings, thereby meaning that unless a point arises for consideration and decisions out of the pleadings of the parties, the Court shall not express its opinion on such point. It is well settled by the judgments of the Supreme Court in Diamond Sugar Mills v. State of U.P., AIR 1962 SC 652, Navinchandra v. Commissioner of Income Tax, and in Peerless v. R.B.I., , that when the vires of an enactment is challenged, and there is any difficulty in ascertaining the limits of a Legislature’s power, the difficulty must be resolved, so far as possible, in favour of the legislative body, putting the most liberal construction upon the relevant legislative entry so that it may have the widest amplitude, and looking at the substance of the Legislation. The judgment of the Supreme Court in Jathi v. Calicut Municipality, , embodies the principles of ‘reading down’ and according to this principle when the power of a Legislature with limited authority is exercised in respect of a subject matter, but words of wide and general import are used, it may be presumed that the Legislature was using the words in regard to that activity in respect of which it is competent to legislate and to no other, and that the Legislature did not intend to transgress the limits imposed by the Constitution. In other words, in such a case, the Court should read the wide words used by the Legislature as cut down by the limits imposed by the Constitution. Since a petition under Article 226 lies for the enforcement of
fundaments rights under Part-III or of any of the mandatory provision of the Constitution, it is obvious that in those classes of cases, the Court would be called upon to determine the constitutionality of a statute on the ground of violation of any of such justiciable provisions of the Constitution. However, in such cases, before pronouncing upon such constitutional issue, the Court shall have to consider the general principles relating to judicial review.
28. The Supreme Court in Bharat Singh v. State of Haryana, AIR 1988 SC 2-181 has declared that a party raising a point in a writ petition must plead not only relevant facts but also state facts by way of evidence in proof of facts so pleaded in support of such point. The Supreme Court in Sanjeev Coke v. Bharat Coking, and in Municipal BD. v. Swadeshi Cotton Mill, , has handed down the opinion that the Constitutional Courts will not pronounce upon a constitutional issue, unless it has been raised in a proper lis between two or more contending parties. The Supreme Court in I.T.O. v. Damodar, held that a writ application should contain in a concise form of the matters on which the part relies for his claim. Further, the Supreme Court in Municipal BD. v. Swadeshi Cotton Mills, (1977) U.J.S.C. 180, has opined that the pleading in the writ petirion must not be vague. The Supreme Court in Yadhapati v. State of A.P., (1992) Supp.(1) SCC 74, has opined that the Court would not enter into the constitutionality of a statutory provision unless its constitutionality has been specifically challenged in the pleading setting out relevant grounds. One who invokes the power of Constitutional Court to declare an enactment enacted by the competent Legislature to be unconstitutional must be able to show not only that the statute is invalid on certain constitutional grounds but that he had sustained or is in immediate danger of sustaining some direct injury as
the result of its enforcement, and not merely that he suffers in some indirect way in common with the people at large. If a party challenges a Legislation on the ground of contravention of Part-III of the Constitution, then he must satisfy the Court that some fundamental rights to which he can lay claim has been impaired or has been threatened by the impugned Legislation. It is trite to state that affidavit filed in support of the writ petition embodying only conclusions and arguments has hardly any evidentary value. Grounds taken in the writ petition should be supported by statement of necessary and relevant facts in the affidavit. If affidavits are vague and uninformative or make mere general allegations devoid of particulars, their value becomes insignificant and negligible. Since the Constitutional Courts decide applications under Article 226 on the basis of affidavits and counter-affidavits of the parties, in normal course, it is expected from the parties to the litigation under Article 226 to state full relevant particulars in clearest possible terms. The affidavit filed in support of the writ petition should clearly bring out all the material facts and circumstances entitling the applicant to the relief claimed. The Rajasthan High Court in Tikayat Govind Lalji v. State of Rajasthan, , has opined that reference to infringement of fundamental rights must be supplemented by alleging what those rights are and how those rights are violated. It is not only necessary to plead all relevant facts by the petitioner in support of the relief claimed by him, but also it is his burden of proving the necessary facts for grant of relief and if the Court finds that the burden cast on the petitioner is not satisfactorily discharged, the writ petition is liable to be dismissed.
29. In the backdrop of the above welt recognised principles governing the framing of the pleading where the constitutional validity of an enactment is questioned, let us
now have a look at the pleadings of the petitioners in WP No.9388 of 2000 and WP No. 10245 of 2000. Although the petitioner in WP No.9388 of 2000 is a practicing advocate and has chosen to file a lengthy affidavit running to 41 typed pages, there is not a single word in the affidavit, let alone a single para, to justify the charge that Sections 11(1)(e) and 26(1)(2) of the Reform Act are unconstitutional. The affidavit filed in support of the Writ Petition No. 10245 of 2000 runs to 64 typed pages. Here again, a half-hearted attempt is made to contend that Sections 5(1) including the second proviso thereto, 11(1)(e), 11(3), 12, 21(1) and (2), 23(4)(b) and 26(1) and (2) are unconstitutional. The petitioner, on typed pages 59 to 62 of the affidavit filed in support of the writ petition after referring to the impugned provisions of the Reform Act have badly stated that those provisions are unconstitutional for violating the ‘requirements’ of Article 14 and Article 300-A without stating what those ‘requirements’ are. In assailing the constitutionality of any of the impugned provisions of the Reform Act, the petitioners have utterly failed to lay any factual foundation/grounds. The contention based on Articles 14 and 300-A to invalidate the statute remain unsubstantiated. The affidavit averments in both the above writ petitions, strictly speaking, do not answer or adhere to the expected standard of pleadings in a Constitutional Court when constitutionality of an enactment is assailed. Strictly speaking, the pleadings utterly lack in material and relevant facts germane to the lis brought before the Court and for decision-making. On the other hand, the pleadings are full of unsubstantiated conclusions and findings. As if that is not enough, the petitioners, in both the writ petitions, have made several reckless and preposterous statements which have no basis. The petitioners have freely used licentious, objectionable and intemperate language to question the conduct of the respondent authorities without disclosing anything which could justify
such attack of the public authorities. The petitioners have made unwarranted insinuations and innuendos against the Commission and Governmental authorities. The affidavit filed in support of the writ petition contains wild and vague statements with no supporting proof in the form of any kind of evidence. The petitioners ought to have seen that when they level serious allegations against the Commission, they should be very responsible and accountable to what they allege. In levelling the allegations that the Commission is “a mere puppet in the hands of Governmental authorities”; the Commission “is not only taking cue from the governmental directions but is also acting virtually at their behest; “the Commission has neither expertise nor it has taken up the exercise of applying its mind”; the Commission is hand-in-glove with the Government and Governmental authorities “to cover up several thousands of crores of rupees of losses incurred by the defunct APSEB and to pass on those losses to the present Companies”; that “the Commission has become a mere instrument of the State to lay its seal of approval”; that the hike effected by the Commission in the electricity tariff is “steepest, harshest, horrible, horrendous and that it is a saga of harrowing hardship inflicted by the State and the Commission”; the State Government, the AP TRANSCO and the Commission “have taken the people for a ride by inflicting infinite agony and sufferings”; the increase in the electricity tariff permitted by the Commission does not have “a parallel anywhere in India”; the hike permitted by the Commission is “highest hike in the world for power and that it is high lime the so called “Reforms” are thrown out and all electricity supply bodies may be auctioned for scrap value”; that “for getting a loan of some thousands of crores of rupees from the World Bank the State has bartered its economic freedom”; that now “our saga of sad and shameful purchases begin”; that “several senior politicians with experts in
industry and agriculture in the Cabinet did not arise their voice for the sake of consumers and the Cabinet has failed its duty to the people”; that by the impugned hike the “common people are harassed, victimised and exploited”, the petitioners have undoubtedly crossed ‘Lakshmana Rekha’ of the pleading law. Large number of similar allegations and attacks are made against the respondent authorities by the petitioners throughout the affidavits, and those allegations are totally unjustified and unwarranted, and they are rather on the border of abuse than averments in a pfeading, and they cannot be considered to be legitimate part of a proper pleadings. Is it necessary for us to point out that the above noticed part of the pleading, nay, the abuse is totally irrelevant, unwarranted to the decision-making? We emphatically say, No. Should the petitioners in the above two writ petitions note that the pleading is not a garb to scandalize, humiliate others and if they do it, they should be accountable. The Courts cannot and shall not countenance any tendency to scandalise the opposite party in a litigative action. Innuendo, insinuation, sarcasm have no place in pleadings before a Court of law. Pleading is not and cannot be a medium to air the political or personal vendetta and tirade. In that view of the matter, we think that the complaint made by the Commission in its counter-affidavit that if such allegations are allowed to stand, the same will seriously affect the credibility and proper working of the Commission which is an important central statutory authority created under the Reform Act having been vested with vital and important powers and consisting of well qualified and experienced Chairman and members selected by a Selection Committee presided over by no other person than a retired Chief Justice of a High Court or a retired Judge of the Supreme Court is, in our view, well justified.
30. This Court speaking through one of us (S.R Nayak, J.) in J. Gopalan v.
Municipal Corporation of Hyderabad, , dealing with a complaint made by one of the respondents therein that the allegation made by the petitioner therein against her are scandalising, humiliating and totally unfounded, and after finding that those allegations levelled against that respondent are baseless, the Court had to observe the following in paragraph (44) of the judgment:
“The whole object of pleading is to bring the parties to an issue, and to prevent the issue being to prevent enlarged, which would prevent either party from knowing when the case came on for trial or hearing, what the real point to be discussed and decided was. In civil suits, every pleading must state facts and not law, but that rule applicable to the civil suits stands modified by the decision of the Apex Court in Bharath Singh’s case, (supra). Now, a party raising a point for decision in the writ petition must plead not only relevant facts but also state facts by way of evidence in proof of facts pleaded. The party, whether it is a suit or writ petition, must plead only relevant material facts on which the party pleading relies for his claim or defence. Pleading is not a garb to scandalise or humiliate others and if a party does it he should be accountable. Any tendency to scadalise should be scrupulously avoided. Innuendo, insinuation, sarcasm have no place in pleadings. In the light of these well accepted principles governing pleadings, it should be held that what is stated by the petitioner in Para 12 of the affidavit is totally unwarranted, unnecessary, not at all relevant and material and it tends to scandalise and humiliate Smt. Amala Akkineni and others who formed Blue Cross. In Para 10 of the affidavit also the petitioner has described Smt. Amala Akkineni as ‘cine glamour’. Such kind
of pleadings should be disapproved and it is accordingly disapproved.”
31. It is also relevant to state that not only the petitioners have used intemperate language and have thrown reckless and unsubstantiated allegations against the respondent public authorities but also they are guilty of pleading their case in an unintelligible manner. Many parts of the pleading in the affidavits are totally defective in drafting and they do not make any sense. Here again, we do not want to dilate much on it except extracting one or two paragraphs/ sentences as examples from the pleadings filed by the petitioners in the above two writ petitions to justify our observation and dissatisfaction. Paragraph (8) of the affidavit filed in support of the WP No.9388 of 2000 reads:
“Now we go to a peculiar situation domestic power requirements are 34%. Agricultural requirements 61%, 10% is the industrial sector and the State Cabinet gave approval for AP TRANSCO for enhancement and the same was submitted to the Commission and the middle class are now even in enhancement of 55% of charges.”
In paragraph (10) of the affidavit the following sentence occurs:
“The Regulatory Commission has invited peoples opinion in May as power to exercise the process of informing the peoples’ opinion.”
In paragraph (29) of the same affidavit filed in WP No.9388 of 2000 the following is stated:
“…..The present tariff shows that the premium is placed on this who consume electricity while those who produce it can go scot-free”.
“….. Based on its FPT proceedings we are ensured by the Commission and
the Commission has now permitted enhancement to the tune of Rs.1104 crores. It is submitted that as such the Commission has gone beyond FPT and on this ground along the order is liable to be set aside. To award tariff revision to the tune of Rs.1104 crores as against an application of Rs.860 crores not only betrays the Commission, misunderstanding of its statutory duties but also falls well short of the statutory requirement of consultation before revising tariff rates”.
We find many such other paragraphs and sentences also in the affidavits filed in WP No.9338 of 2000 as well as in WP No. 10484 of 2000. It is ironical that the Court should find such objectionable averments made violating propriety and primary defects in the pleadings filed in support of the above two writ petitions where one of the petitioners himself is a practicing advocate of the Bar of this Court and where the pleadings are drawn and filed through a practicing advocate with considerable standing of this Court and where one of such pleadings in WP No.10484 of 2000 is settled by no other than a designated senior advocate. We, therefore, express our strong displeasure and disapproval to the pleadings filed in the above noted two writ petitions, though such defective and improper pleadings have not come in the way of our consideration of the contentions raised by various Counsel.
32. Although, as pointed out supra, there is total lack of relevant pleading and grounds in WP Nos.9388 of 2000 and 10484 of 2000 to sustain the challenge that Sections 5(1) including second proviso thereto, 11(1) (e), 11(3), 12, 21(1) and (2), 23(4)(b) and 26(1) and (2), Sri S. Ramachandra Rao, learned senior Counsel, who appeared and argued mainly for the petitioners in those writ petitions, would
contend that the second proviso to subsection (1) of Section 5 which prescribes that persons below the age of fifty five years shall not be eligible for appointment as Chairman or member, is totally arbitrary and irrational and therefore violates Article 14 of the Constitution. Although the Constitutional validity of Section 11(1)(e) is assailed both in WP No.9388 of 2000 and WP No. 10484 of 2000, Sri S. Ramachandra Rao, on 27-7-2000 in the course of the hearing told us that he would give up the contention that Section 11(1)(e) is unconstitutional. In that view of the matter, there is no need for us to deal with the question of unconstitutionally of Section 11(1)(e). Attacking the constitutional validity of Section 11(3), learned senior Counsel would maintain that the Commission is granted a totally arbitrary and unreasonable power to act as arbitrator or arbitrators to adjudicate and settle the dispute arising between the licensees without laying down any guidelines to exercise such an important and vital power. It is further contended that Section 12 grants unguided, omnibus, unchanellised, unlimited power to the State Government to issue directions in regard to tariffs and subsidies and this amounts to virtually denuding the Commission of its powers; the power granted to the State Government under Section 12 is capable of being misused and abused and in that event, it would definitely interfere with proper functioning of the Commission. Section 12 is also attacked on the ground that that Section does not specify in what policy matters the State Government can issue directions. It was contended that the restrictions imposed on the licensees and generating companies under sub-sections (1) and (2) of Section 21 are totally unjustified, oppressive, arbitrary, unreasonable and violative of Article 14 of the Constitution. Assailing the validity of Section 23(4)(b), it is contended that that Section seeks to confer an arbitrary and unguided power to the State Government by making any transaction under
the transfer scheme binding on third parties and, therefore, that power could be exercised arbitrarily. It is maintained that that Section empowers the State Government to arbitrarily transfer any amount from one head of account to a completely unrelated head of account. Assailing the constitutional validity of Section 26(1) and (2), learned senior Counsel would contend that those two subsections grant arbitrary and unguided powers to the Commission to specify the methodologies and procedures to be followed by the holders of licences granted under the Reform Act in calculating the expected revenue from the charges which they are permitted to recover pursuant to the terms of their licences and in designing tariffs to collect those revenues and to prescribe the terms and conditions to the licensees for the determination of the licensees’ revenue and tariffs by framing regulations and therefore those two subsections are violative of Article 14 of the Constitution.
33. Sri K. Gopal Choudary, learned Counsel appearing for the petitioners in WP No.11138 of 2000 and WP No.10445 of 2000 assailing the constitutional validity of Section 23(4)(b) would contend that that Section seeks to confer an arbitrary, unreasonable and unguided power to the State Government by making any transaction under the transfer scheme binding on third parties. The learned Counsel would maintain that such power, when exercised arbitrarily as has been done in the instant case in the matter of consumer contributions could be used in an arbitrary and capricious manner to the peril of the rights of the consumers. He would also maintain that the Reform Act has not laid down any policy or guidelines by which the power under Section 23(4)(b) is to be exercised. He would conclude by maintaining that Section 23(4)(b) offends Articles 14, 19(1)(g) and 300-A of the Constitution. Assailing the constitutional validity of Sections 26(1) and (2), Sri Gopal
Choudary would maintain that if Section 26(2) is net considered mandatory as held by the Commission, it would consequently appear that the proviso to subsection (2) of Section 26 would also not be binding on the Commission, and in that event, the parameters specified in the proviso to Section 26(2), viz., (a) the financial principles according to the Sixth schedule of the Supply Act, (b) factors encouraging efficiency, economic usage and resources, good performance etc., and (c) the interest of the consumers would also not be binding on the Commission in determining tariff. The learned Counsel conclude that having due regard to the fundamental importance of the parameters specified in the proviso to Section 26(2), the Commission ought not have held that Section 26(2) is merely an enabling provision and there is no compulsion on the Commission to frame regulations and publish them before the determination of tariff and therefore, it became necessary for the petitioners to assail the constitutional validity of Section 26(1) and (2) also. The argument of learned Counsel while assailing the constitutional validity of Sections 26(5)(a) and (b) runs like this: it is represented on behalf of APTRANSCO that the impugned tariff proposal was made under Section 26(5) and not under Section 26(9); Section 26(5) requires the filing of an expected revenue from charges and, as per explanation (a) to Section 26, this means that the revenue computation has to be made only on the basis of the already established tariff; merely by filing an ERC, AP TRANSCO cannot seek revision of tariff or amendment to the existing tariff; in any case, the specific provisions of Section 26(9) cannot be defeated merely by surplus age of the ‘irrelevant’ words, “tariff proposals” occurring in Section 26(5)(a) and 26(5)(b); therefore, it became necessary for the petitioners to challenge the validity and vires of Section 26(5)(a) and 26(5)(b) also insofar as the said provisions conflict with the
34. Before considering the above contentions of the learned Counsel for the petitioners regarding constitutionality of the impugned provisions of the Reform Act should it be noted that it is trite law that an enactment cannot be declared to be invalid solely on the ground that such an enactment is capable of being misused or abused. It is because every power is capable of being used as well as misused or abused. Every power is capable of being exercised arbitrarily, unreasonably and unfairly. Therefore, simply because a power granted to an authority is capable of being misused or abused, that circumstance can never be a valid ground to strike down a law enacted by a competent Legislature. If a donee of the power under a statute abuses or misuses the power granted to him or it or such a power is exercised arbitrarily and irrationally, the affected person can always invoke jurisdiction of the Constitutional Courts seeking judicial review of such action and seeking appropriate redressal to the injury suffered by him/her or it or resort to private law review remedies like declaration, injunction and for damages. Similarly, no enactment can be struck down by the Constitutional Courts just saying that in the opinion of the Court it is arbitrary or unreasonable. Although non-arbitrariness, reasonableness and fairness are postulates of Article 14 of the Constitution, when an enactment is sought to be struck down on the ground of arbitrariness and unreasonableness, the reviewing Court should find some or other constitutional infirmity in addition to those grounds before invalidating the enactment. An enactment cannot be struck down merely on the ground that the Court thinks it is unjustified and unwise. This position is fairly well settled
by the decision of the Supreme Court in State of A.P. v. Mc. Dowell & Company, . It is not open to a Court to declare an enactment unconstitutional and void solely on the ground of unwise and harsh provisions or that it is supposed to violate some of the perceived natural, social, economic or political rights of the citizen, unless it can be shown with satisfactory proof that such injustice is in fact prohibited or such rights guaranteed or protected by the Constitution.
Sub-section (1) Section 5 reads thus:
5. Conditions for appointment as member of the Commission :–(1) The members of the Commission shall be persons of ability, integrity and standing who have adequate knowledge or experience of, or have shown capacity in dealing with problems relating to engineering, economics, commerce, finance, accountancy, law or administration and that at all times the selection and appointment shall be made in accordance with the qualifications and experience specified below;P2
(i) one member shall be a graduate Electrical Engineer with adequate experience in generation or transmission or distribution of electricity;
(ii) two members shall have graduate qualification with specialization and adequate experience in any of the disciplines like law, economics, commerce, finance, accountancy or administration :
Provided that at any point of time the Commission shall not consist of more than one member from the same discipline;
Provided further that persoP1 ns below the age of fifty five years shall not be eligible for appointment as Chairman or member, as the case may be.
35. Although a declaration is sought that sub-section (1) of Section 5 itself is unconstitutional in WP No. 10484 of 2000, no argument was placed before us on the alleged unconstitutionality by Sri S. Ramachandra Rao. Be that as it may, we do not find anything in sub-section (1) of Section 5 which would offend any of the constitutional provisions or limitations. Subsection (1) of Section 5 merely prescribes that the members of the Commission should be persons of ability integrity and standing and who have knowledge and expertise in engineering, economics, commerce etc. and prescribing the technical qualification and expertise in certain disciplines of knowledge. The contention that the second proviso to sub-section (1) of Section 5 which prescribes that the persons below the age of 55 years shall not be eligible for appointment as Chairman and member is totally arbitrary and irrational and violative of Article 14 of the Constitution is not acceptable to us. In the first place, we do not find any element of arbitrariness and irrationality in the prescription of the age. It cannot be gainsaid that a man in the course of his life span gains more and more experience including the experience of the office held by him. He acquires more and more knowledge and expertise, technical or otherwise, as the years pass through, and there will be a progressive improvement in the quality and quantity of knowledge and expertise in him. If this is the truth and historical experience of the mankind, and if the Legislature in its wisdom prescribes that no person below the age of 55 years shall be appointed as Chairman or member of the Commission, the Court cannot say that that prescription is irrational or arbitrary.
Sub-section (3) of Section 11 reads:
Act, 1948 (Central Act 54 of 1948), the Commission shall have the power to act as arbitrator or nominate arbitrator/ arbitrators to adjudicate and settle the disputes arising between the licensees in accordance with the regulations to be prescribed and this shall be a condition precedent of the grant of licenses.
Here too in assailing the constitutional validity of Section 11(3), the stock argument is that the Commission is granted totally arbitrary and unreasonable power to act as arbitrator or nominate arbitrator or arbitrators to adjudicate and settle the disputes arising between the licensees without laying down any guidelines to exercise such an important and vital power. In the first place, sub-section (3) itself has provided that the power to act as arbitrator or nominate arbitrator to adjudicate and settle the disputes arising between the licensees should be in accordance with the regulations to be prescribed. It is pertinent to notice that the Reform Act is also a piece of regulatory Legislation and the Legislature apparently wanted the Commission which is the Central statutory authority under the Reform Act to have effective control over the licensees, and in translating that objective it has enacted a clause retaining the power to act as arbitrator or nominate arbitrator in the Commission and it has further prescribed that such a condition should be a condition precedent for grant of licenses. Having due regard to the objectives of the Act and the central role assigned to the Commission under the Act, we do not think anything irrational or arbitrary in the role and power assigned to the commission in sub-section (3) and, therefore, the challenge should fail.
Section 12 of the Reform Act reads thus:
12. General powers of the State Government:–(1) The State Government shall have the power to issue policy directions on matters concerning
electricity in the State including the overall planning and co-ordination. All policy directions shall be issued by the State Government consistent with the objects sought to be achieved by this Act and accordingly shall not adversely affect or interfere with the functions and powers of the Commission including but not limited to determination of the structure of tariffs for supply of electricity to various classes of consumers.
(2) If any dispute arises between the Commission and the State Government as to whether or not a question is a matter or policy or whether a policy direction issued by the State Government adversely affects or interferes with the exercise of the functions of the Commission, the same shall be referred by the State Government to a retired Judge of the Supreme Court in consultation with the Chief Justice of the Supreme Court whose decision thereon shall be final and binding.
(3) The State Government shall be entitled to issue policy directions concerning the subsidies to be allowed for supply of electricity to any class or classes of persons or in respect of any area in addition to the subsidies permitted by the Commission while regulating and approving the tariff structure provided that the State Government shall contribute the amount to compensate such concerned body or unit affected by the grant of the subsidies by the State Government to the extent of the subsidies granted. The Commission shall determine the amounts and the terms and conditions and time frame on which such amounts are to be paid by the State Government.
(4) The State Government shall consult the Commission in relation to any proposed Legislation or rules concerning any policy direction and shall duly take
into account the recommendation by the Commission on all such matters.
Here again, the omnibus attack is that Section 12 grants omnibus, unguided and unlimited power to the State Government to issue directions to the Commission with regard to tariff and subsidies and therefore, Section 12 is unconstitutional being violative of Article 14 of the Constitution. In the first place, the attack is not well founded. By no stretch of imagination, it can be said that Section 12 grants unlimited and absolute power to the State Government to issue any and every kind of direction to the Commission with regard to tariff and subsidies. The very reading of subsection (1) of Section 12 makes it abundantly clear that the power granted to the State Government is subject to discernible limitations. The direction that may be issued by the State Government under subsection (1) of Section 12 to the Commission should be consistent with the objects that have to be achieved by the Reform Act and such direction shall not adversely affect or interfere with the functions and powers of the Commission prescribed under the Reform Act. Therefore, sub-section (1) no way affects or takes away the powers granted to the Commission under the Reform Act. Similarly, sub-section (2) provides for a safeguard in the sense that if any dispute arises between the Commission and the Slate Government as to whether or not a question is a matter of policy or not, and whether a policy direction issued by the State Government adversely affects or interferes with the exercise of the functions of the Commission, such controversies have to be referred to a retired Judge of the Supreme Court, that too, in consultation with the Chief Justice of the Supreme Court of India for resolution of the controversies. Therefore, even in such case of controversy, the State Government cannot have any upper hand, and it is not permitted to decide the legality of its own directions. In
sub-section (3), all the safeguards are incorporated not only to maintain the independence of the Commission in exercise of its powers and functions but also to protect the interest of the consumers. The State under our Constitution is a welfare State and it is charged with a duty to take up the responsibility of rendering social justice to its citizens. Understandably, therefore, sub-section (3) grants power to the State Government to issue policy directions to the Commission concerning the subsidies to be allowed for supply of electricity to any class or classes of persons or in respect of any area in addition to the subsidies that may be permitted by the Commission itself as provided under Section 26(7) in exercise of the power retained to it for formulation of socio-economic policies. Should it be noted that sub-section (3) itself subjects the power of the Slate Government to issue directions to own liability to contribute the amount to compensate the subsidy. For the reasons stated above, the challenge to constitutional validity of sub-section (3) should also fail.
36. Placing reliance on the words “including but not limited to determination of the structure of tariffs for supply of electricity to various classes of consumers” occurring in sub-section (1) of Section 12, it is contended that the said statement in sub-section (1) permits the State Government to issue directions in regard to tariffs and this amounts to virtually denuding the Commission of its powers. In our considered opinion, this contention is misconceived. We say this because those words follow upon “functions and powers of the Commission” and clarify that the determination of the structure of the tariff is a matter for the Commission as these are included in the powers of the Commission under Section 26. The expression “but not limited to” is used because the Commission has powers other than those related to tariffs. What Section 12, therefore, mandates is that
there should be no interference by the State Government with the totality of powers and functions of the Commission. It is quite apparent that the second sentence in Section 12(1) is intended to curtail the ambit of power conferred on the State Government under the first sentence of Section 12(1) and not to expand the scope of the power of the State Government.
Sub-sections (1) and (2) of Section 21 read:
21. Restrictions on licensees and Generating Companies :–(1) No licensee or Generating company shall at any time, without the previous consent in writing of the Commission, acquire by purchase or otherwise the licence or the undertaking of, or associate himself with, so far as the business of generating, transmitting, distribution or supply of energy is concerned, any other licensee or person generating, transmitting, supplying or intending to generate, transmit or supply electricity :
Provided that before granting the consent the Commission shall hear such person or authority as the Commission shall consider appropriate.
(2) The licensee shall not, at any time, assign his licence or transfer his undertaking, or any part thereof, by sale, mortgage, lease, exchange or otherwise without the previous consent in writing of the Commission.
In attacking the vires of sub-section (2) of Section 21, the contention is that the restrictions imposed on the licensees are oppressive, arbitrary and unreasonable and therefore, they are unconstitutional. In appreciating this contention, we should not lose sight of the fact that the enactment in sub-section (1) and (2) of Section 21 are regulatory in nature and if the Legislature in its wisdom and exercise of its authority
has thought appropriate and proper to prescribe that no licensee or generating company shall acquire or purchase any licence or assign or transfer licence without previous consent of the Commission in order to achieve the effective regulatory control over the licensees, it cannot be said that such enactment or provision is irrational or arbitrary.
Section 23(4) reads:
Notwithstanding any thing in this section, where,–
(a) the transfer scheme involves the transfer of any property or rights to any person of undertaking not wholly owned by the State Government, the scheme shall give effect to the transfer only for fair value to be paid by the transferee to the State Government.
(b) a transaction of any description is effected in pursuance of a transfer scheme, it shall be binding on all persons including third parties and even if such persons, third parties have not consented to it.
We have noticed the contention of the learned Counsel for the petitioners while assailing the constitutional validity of Section 23(4)(b). The thrust of the argument is that there is wide scope for exercising the power arbitrarily under Section 23(4)(b) by making any transaction under transfer scheme binding on third parties. Even assuming that there is such a scope to abuse the power under Section 23(4)(b), that circumstance itself would not be a valid ground to invalidate the enactment unconstitutional. The individual transaction is open to challenge in such a case. It is contended that Section 23(4)(b) empowers the State Government to transfer arbitrarily any amount from one head of account to completely unrelated head of account. We
do not think that Section 23(4)(b) permits the State Government to do so. Be that as it may, in a given case, if the Government exercises the power under Section 23(4)(b) in the manner apprehended or visualised by the petitioners, the validity of such wrongful action can be assailed before the Constitutional Courts by way of judicial review but the mere scope of abuse of power cannot undoubtedly be a ground to declare such enactment as unconstitutional. It is relevant to note that by force of provisions of Section 23(4)(b), none of the rights of the third parties flowing from or guaranteed under Articles 14, 19(1)(g) and 300-A of the Constitution are impaired or destroyed. Obviously Section 23(4)(b) is enacted in the Reform Act to provide for the smooth reorganisation of the power sector envisaged under the Reform Act by effecting transfer of properties and rights. If we keep in mind the objective of the delegation of power to the State Government to reorganize power sector by issuing transfer schemes and the context iu which Section 23(4)(b) is enacted, it cannot be said that Section 23(4)(b) suffers from vice of excessive delegation. We do not find any merit in the plea that Section 23(4)(b) is unconstitutional being violative of Articles 14, 19(1)(g) and 300-A of the Constitution.
37. Sub-sections (1) and (2) of Section 26 of the Reform Act reads;
26. Licensee’s revenues and tariffs :–
(1) The holder of each licence granted under this Act shall observe the methodologies and procedures specified by the Commission from time to time in calculating the expected revenue from charges which it is permitted to recover pursuant to the terms of its licence and in designing tariffs to collect those revenues.
(2) The Commission shall subject to the provisions of sub-section (3) be entitled to prescribe the terms and conditions for
the determination of the licensee’s revenue and tariffs by regulations duly published in the Official Gazette and in such other manner as the Commission considers appropriate.
In assailing the constitutional validity of Section 26(1) and (2), the argument is that there two sub-sections grant arbitrary and unguided powers to the Commission and that if sub-section (2) is not mandatory as held by the Commission, it would consequently appear that the proviso to subsection (2) of Section 26 would not be binding on the Commission, and in that event, the parameters specified in the proviso to Section 26(2) would not be binding on the Commission in determining the tariff. The contentions of the learned Counsel in that regard is already noticed by us in detail above. What virtually the learned Counsel would contend is that if the opinion of the Commission that there is no mandatory legal obligation to prescribe the terms and conditions for the determination of the licensee’s revenue and tariffs by regulations and that that sub-section is only an enabling provision is correct, then sub-section (2) would become unconstitutional. This ground, even if it is sound, could hardly be a valid ground for the Court to declare an enactment unconstitutional. The contention that since the Commission has held that there is no mandatory duty to prescribe the terms and conditions for the determination of tariff before it takes up the determination of tariff, it would lead to the conclusion that the parameters specified in the proviso to Section 26(2) would not bind the Commission in determining the tariff is not acceptable to us. A clear reading of the provisions of sub-section (1) and (2) make it very clear that the parameters specified in the proviso to sub-section (2) of Section 26 are mandatory in nature. Be that as it may, it is not the contention of the learned Counsel that the above parameters are ignored by the Commission in determining the impugned
tariff. The exercise previously being carried out by the APSEB has now been entrusted to the Commission under Section 26. The nature of the exercise of power is basically the same as that which was being earlier carried out by the APSEB. Section 26(1) does not grant unguided discretionary power to the Commission to prescribe the methodologies and procedures to be followed by the licensees. The power to the Commission to prescribe and notify the terms and conditions for the determination of the licensee’s revenue and tariffs by way of regulations and the principles to be applied by the Commission, in the absence of the terms and conditions prescribe by the Commission, in determination of the tariffs are set out in Section 26. The contention that since the Commission has determined the impugned tariff without prescribing the terms and conditions for the determination of the tariff as envisaged under subsection (2), the impugned tariff is illegal and ultra vires of sub-section (2) will be considered separately herein below. For the purpose of considering the constitutional validity of these two sub-sections, suffice it to notice that the power granted to the Commission under sub-section (1) could not be said to be arbitrary and unguided power. The power of the Commission to prescribe methodologies and procedure under subsection (1) is subject to the limitations prescribed under the proviso to subsection (2). Simply because the Commission had not chosen to prescribe any terms and conditions by regulations and acted as per the parameters mentioned in the proviso to sub-section (2) of Section 26 and held that sub-section (2) is only an enabling provision, it cannot be said, on that count, that sub-section (2) is unconstitutional. A reasonable reading of sub-section (2) shows that it does not mandate the Commission to prescribe the terms and conditions for the determination of the licensee’s revenue and tariffs as a condition precedent for determination of the licensee’s revenue and
tariffs. Sub-section (2) is only an enabling
provision for the Commission to prescribe
the terms and conditions, if it so desires.
Otherwise, the Commission is entitled to
proceed with the determination of tariff
proposed in the application (FPT) in terms
of the parameters prescribed under the
proviso to sub-section (2) of Section 26.
There is absolutely no ground for us to
declare sub-sections (1) and (2) of Section 26
Section 26(5) reads:
(5) Every licensee shall provide to the Commission in a format as specified by the Commission at least 3 months before the ensuing financial year full details to its calculation for that financial year of the expected aggregate revenue from charges which it believes it is permitted to recover pursuant to the terms of its licence and thereafter it shall furnish such further information as the Commission may reasonably require to assess the licensee’s calculation. Within 90 days of the date on which the licensee has furnished all the information that the Commission requires, the Commission shall notify the licensee either-
(a) that it accepts the licensee’s tariff proposals and revenue collections, or
(b) that it does not consider the licensee’s tariff proposals and revenue calculations to be in accordance with the methodology or procedure in its licence, and such notice to the licensee shall…..
(i) specify fully the reasons why the Commission considers that the licensee’s calculation does not comply with the methodology or procedures specified in its licence or is in any way incorrect, and
(ii) propose a modification or an alternative calculation of the expected revenue from charges, which the licensee shall accept.
We have already noticed the contention putforth by Sri K. Gopal Choudary in assailing the vires of Section 26(5)(a) and (b). The argument, to put it in nutshell, is that if tariff proposals could validly be made under Section 26(5) as contended by APTRANSCO and not under Section 26(9), then, Section 26(5)(a) and (b) would become unconstitutional. There is a total confusion in the argument advanced. The constitutionality of an enactment does not depend upon the construction that may be placed on such enactment by a Court of law. Secondly, even assuming that tariff proposals could be made both under Section 26(5) and Section 26(9), even then, we are at a loss to understand how that circumstance itself would render Section 26(5) as unconstitutional. It is permissible for the Legislature to enact more than one provision governing the procedure to be followed before an authority created in the Statute. The answer to the question whether tariff proposals could be made only under Section 26(5) or only under Section 26(9) or both under Section 26(5) and 26(9), whatever may be the answer, will be totally irrelevant consideration to decide the vires of Section 26(5). Therefore, the very basis of the argument is fallacious and consequently the challenge to Section 26(5)(a) and (b) should fail.
38. Before parting with Contention No.1, we may point out that though the petitioners in their pleadings and their learned Counsel in their arguments would contend that the above noted provisions of the Reform Act are unconstitutional being violative of Articles 19(1)(g), 21 and 300-A of the Constitution of India also, the said contention remain as contention only without
39. The second contention of the learned Counsel for the petitioners is that the Reform Act is a piece of colourable Legislation enacted by the A.P. State Legislature at the dictation of the World Bank which is an extra-territorial body and therefore, it cannot be said to be an enactment legislated by a sovereign Legislature. Learned Counsel would contend that the A.P. State Legislature surrendered its legislative sovereignty in favour of the World Bank at the tatter’s dictation and therefore, the Reform Act is invalid and unconstitutional.
40. Before dealing with the second contention, it would be appropriate and beneficial to remind ourselves of certain basic principles, propositions governing judicial review of Legislation and limitations in that behalf. As we know, in the United Kingdom, the Parliament is supreme and there are no limitations upon the power of the Parliament to legislate. Therefore, no Court in the United Kingdom can strike down an Act enacted by the British Parliament on any ground whatsoever. On the other hand, the United States of America has a Federal Constitution where the power of the Congress and the State Legislature to make laws is subjected to two limitations viz., the division of legislative powers between the States and the Federal Government; and the limitations flowing from the Bill of Rights incorporated in the Constitution, In India too the position is substantially similar to the United States of America. In India, the power of the Parliament and the State Legislature to enact law, broadly speaking, is subjected to two
limitations: a law made by the Parliament or the Legislature of a State can be struck down by the Courts only on two grounds, viz., (i) lack of legislative competence and (ii) violation of any of the fundamental rights guaranteed in Part-in of the Constitution or any other substantive constitutional provisions. In State of A.P. v. Mc Dowell and Company (supra), the Supreme Court has opined that except the above two grounds there is no third ground on the basis of which the law made by the competent Legislature can be invalidated and that the ground of invalidation must necessarily fall within the four comers of aforementioned two grounds. It is true that it will become the duty of the Constitutional Courts under our Constitution to declare a law enacted by the Parliament or the State Legislature as unconstitutional when the Parliament or the State Legislature has assumed to enact a law which is void, either from want of constitutional power to enact it, or because the constitutional forms or conditions have not been observed, or where the law infringes the fundamental rights enshrined and guaranteed in Part-III of the Constitution or any other substantive constitutional provisions. It is needless to state that Legislature and Judiciary are co-ordinate organs of the State, of equal dignity and status under the constitutional scheme. It permissible for the constitutional Courts to declare legislative enactments unconstitutional and void in some cases, but not because the judicial power is superior in degree or dignity to the legislative. The Court while declaring a law as invalid or unconstitutional is only enforcing the legislative will and the limits imposed by the Constitution on the law-making bodies. No Court can declare a statute constitutional and void, solely on the ground of unjust and harsh provisions, or because it is supposed to violate some natural, social, political or economic rights of the citizen, unless it can be shown that such injustice is, in fact, prohibited or such rights guaranteed or
protected by the Constitution. Strictly speaking, the Courts are not guardians of all kinds of rights of the people of the State, unless those rights are secured and protected by some constitutional provision which comes within the judicial cognizance. In ‘A Treatise on the Constitutional Limitation’s by Thomas M. Cooley, it is stated that the Court cannot run a race of opinions upon points of right, reason, and expediency with the law-making power, and that any legislative act which does not encroach upon the power apportioned to the other organs of the State, being prima facie valid, must be enforced, unless restrictions upon the legislative power can be pointed out in the Constitution itself, and the case shown to come within them. In the same Treatise, it is also stated that the Courts are not at liberty to declare statutes void because of their apparent injustice and impolicy, neither can they do so because they appear to the minds of the Judges to violate fundamental rights of republican Government, unless it shall be found that those rights are placed beyond legislative encroachment by the Constitution nor are the Courts at liberty to declare an enactment unconstitutional, because in their opinion it is opposed to a spirit supposed to pervade the Constitution, but not expressed in words or discernible from the context. It is not permissible to limit the legislative power of the Legislatures by judicial interposition, except so far as the expressed words a written Constitution gives that authority to the Court. In ‘A Treatise on the Constitutional Limitation’s by Thomas M. Cooley, it is aptly stated that the law-making power of the State recognises no restraints, and is bound by none except such as or imposed by the Constitution itself placing reliance on the opinion handed down in Sill v. Village of Corning, 15 NY 303. The above noted well recognised principles and propositions fully answer many of the aspects of the second contention urged before us by the learned Counsel for the petitioners.
41. Sri K.G. Kannabiran, learned senior Counsel, drawing our attention to the preamble of the Constitution and the Directive Principles of State Policy, would contend that Indian Nation is wedded to socialistic economy and it is an anathema to market economy; subsidy is not a charity, but it is a measure of levelling of the unequal society; the A.P. State Legislature under the spell of market economy and as dictated by the World Bank has sacrificed its sovereign power to legislate out of its own volition and will, but has chosen to enact the impugned Reform Act at the dictation of the World Bank in order to conform to its terms and conditions for advancing loans to the power sector in the State; the Reform Act is, therefore, a piece of colourable Legislation; supply of electricity is a public utility service and therefore, the State is obliged to supply electricity to its citizens at a fair and reasonable price. To the same effect is the submissions of Sri S. Ramachandra Rao, learned senior Counsel. In addition, he would contend that the Reform Act is a fraud on legislative power, anti-poor and anti-people and is opposed to Directive Principles of State Policy incorporated in Articles 38(2) and 45 of the Constitution. He would also contend that the Reform Act is nothing but a piece of colourable Legislation. We are afraid these submissions of the learned Counsel to attack the constitutionality of the Reform Act are of any help to the petitioners. Essentially, the question of constitutionality is always a question of power. It is trite law that the whole doctrine of ‘colourable Legislation’ revolves itself into the question of competency of a particular legislature to enact a particular law. The Constitution Bench of the Supreme Court in Shankaranarayana v. State of Mysore, , after referring to the dictum in K.C. Gajapathi Narayan Deo v. State of Orissa, , in paragraph (13), was pleased to observe:
“….. the whole doctrine of colourable
Legislation resolves itself into the question of competency of a particular Legislature to enact a particular law. If the Legislature is competent to pass the particular law, the motives which impel it to pass the law are really irrelevant. It is open to the Court to scrutinise the law to ascertain whether the Legislature by device, purports to make a law which, though in form appears to be within it sphere, in effect and substance, reaches beyond it.”
Learned Counsel for the petitioners, though meekly attempted the argument that the Reform Act is a piece of colourable Legislation, have not succeeded in substantiating that contention. To the pointed query from the Court, which aspect or aspects of the legislative sovereignty is/ are surrendered in favour of the World Bank in enacting the impugned Reform Act, the learned Counsel were not in a position to reply to our query satisfactorily, By sovereignty we mean a power vested in a sovereign. A sovereign is one, which, within its own sphere, is supposed to be absolute and uncontrolled. Sometimes, sovereign power is defined and understood in juxtaposition with subordinate power. While sovereign power is supposed to be absolute and uncontrolled, the subordinate power is that which is subject to the control of some power superior and external to itself. Although theory of sovereignty is credited to Hobbes, the theory, in fact, first received definite recognition as a central element of political doctrine in the writings of the celebrated French publicist Bodin. In the writings of Hobbes, however, it assumed greater prominence and received more vigorous and clear-cut expression, and it was to his advocacy and to that of his modem followers that its reception in England must be chiefly attributed. The theory of Sovereignty, according to Hobbes, consists of three fundamental propositions:
(i) that sovereign power is essential in every state; (ii) that sovereign power is indivisible; (iii) that sovereign power is unlimited and illimitable. The first of these propositions must be accepted as correct, but the second and third would seem to have no solid foundation. It is correct that sovereignty is essential in the sense that every political society involves the presence of supreme power, otherwise, all power would be subordinate, and this supposition involves the absurdity of a series of superiors and inferiors ad infinitum. Yet although this is so, there is nothing to prevent the sovereignty which is thus essential from being wholly or partly external to the State. It is, indeed, only in the case of those States which are both independent and fully sovereign that the sovereignty is wholly internal, no part of it being held or exercised ab extra by any other authority. As regards legislative sovereignty under the Indian Constitution, it can be said that Indian Parliament is the supreme and absolute law-making body as regards subjects enumerated in the Union List and the State Legislatures are supreme and absolute as regards the subjects enumerated in the State’s List, of course, subject to constitutional limitations. As regards the subjects enumerated in the Concurrent List, the sovereignty of the State Legislatures to enact the laws is conditional and divisible depending upon whether the Parliament has enacted the law on the subject in question. If we keep the above noticed basic attributes of the concept of sovereignty, we are at a loss to understand how the contention of the learned Counsel for the petitioners that in enacting the Reform Act, the Andhra Pradesh State Legislature has surrendered its legislative sovereignty.
42. The crux of the contention No.2 is that the petitioners attribute motive to the A.P. State Legislature in enacting the Reform Act. Therefore, the threshold question for the Court is whether such plea could be
entertained at all where constitutionality of an enactment is assailed. In the Cooley’s Treatise on the Constitutional Limitations, it is stated thus:
“From what examination has been given to this subject, it appears that whether a statute is constitutional or not is always a question of power; that is, whether the Legislature in the particular case, in respect to the subject-matter of the act, the manner in which its object is to be accomplished, and the mode of enacting it, has kept within the constitutional limits and observed the constitutional conditions. If so, the Courts are not at liberty to inquire into the proper exercise of the power in any case. They must assume that legislative discretion has been properly exercised. If evidence was required, it must be supposed that it was before the Legislature when the act was passed; and if any special finding was required to warrant the passage of the particular act, it would seem that the passage of the act itself might be held equivalent to such finding. And although it has sometimes been urged at the Bar, that the Courts ought to inquire into the motives of the Legislature where fraud and corruption were alleged, and annul their action if the allegation were established, the argument has in no case been acceded to by the judiciary, and they have never allowed the inquiry to be entered upon.”
The judgments of the Supreme Court in Mohan Lal Tripati v. District Magistrate, and in State of Himachal Pradesh v. Kailash Chand Mahajan, are the authorities to state that a Legislature does not act on extraneous consideration and that an enactment cannot be struck down on the ground of mala fide and that no motive could be imputed to the Legislature. The Court, under no circumstances, can enquire into the motive
of the Legislature to enact a law. What persuaded the Legislature to enact a law cannot be subject matter of judicial scrutiny. In Slate of Himachal Pradesh v. Kailash Chand Mahajan (supra), the Supreme Court in paragraph (48) of the judgment was pleased to observe:
“For adumrating this policy a Legislation is enacted by the State. It is not for this Court to find out whether there was any need for such a Legislation. Of course, for lack of legislative competence or for violation of the right to equality under Article 14 etc.., the validity of the Legislation may be scrutinised. But, certainly, that is far from saying the Court could examine the Legislation from the point of view that it came to be passed with mala fide intention. By long established practice, which has received approbation through authorities of this Court, it has always refrained from attributing mala fides to the Legislature. !n fact, such a thing is unknown to law. Here again, we can usefully refer to the case K. Nagaraj v. State of Andhra Pradesh, . In para 36 it is stated as:-
…… The Legislature, as a body, cannot
be accused of having passed a law for an extraneous purpose. Its reasons for passing a law are those that are stated in the Objects and Reasons and if, none are so stated, as appear from the provisions enacted by it. Even assuming that the executive, in a given case, has an ulterior motive in moving a Legislation, that motive cannot render the passing of the law mala fide. This kind of ‘transferred malice’ is unknown in the filed of Legislation.”
The contention that the Reform Act was enacted by the A.P. State Legislature as dictated by the World Bank is not only factually incorrect but also totally untenable as a ground of attack when the vires of
the Legislation is assailed. It is factually incorrect because the A.P. Reforms Bill was reserved by the Governor under Article 200 of the Constitution for the consideration of the President on 19-5-1998 and assent of the President was obtained on 21-10-1998 and the Reform Act was brought into force with effect from 1-2-1999, whereas the agreement with the World Bank for loan was entered into by the State Government only on 5-3-1999, that is to say, after the Reform Act was enacted and brought into force. No motive and extraneous consideration can be imputed to the Legislature. The very psyche of the petitioners that the World Bank, which is an international organisation of which India is also a member, is an exploiter and its intentions are not good may be a reflection or an opinion of a particular political or economic school of thought or outfit, but such apprehended perceived mischief can never be a valid legal ground to assail the constitutional validity of an enactment passed by a competent Legislature. The Court cannot read any sinister design in the terms and conditions prescribed by the World Bank while advancing huge loan to the A.P. State Government. World Bank is an instrument of the United Nations Organisation (UNO) and India is a member of the UNO as well as the World Bank. If the World Bank while advancing huge sums of money to the A.P. State Government prescribes certain terms and conditions for advancing such loans, no reasonable man can find any sinister design in the prescription of such terms and conditions. The argument based on the ground of “legislative fraud” remains as an argument only without support of the pleading and substantiation. Similarly, the contention that the Reform Act violates Article 38(2) and Article 48 of the Constitution is farfetched and without any factual and legal basis and without any argumentative substantiation. The State’s obligation to supply electricity to its citizens at a particular rate is not traceable from any
of the rights enshrined and guaranteed in Part-III of the Constitution or from the Directive Principles.
Contention No. 3:
43. We have already referred to the prayer in WP No.11645 of 2000 and WPMP No. 16929 of 2000 filed in that writ petition praying the Court to permit the petitioner to take an additional ground to attack the competency of A.P. State Legislature to enact the Reform Act. We have also pointed out that in the main prayer neither the constitutional validity of the provisions of the Reform Act nor the validity of the Notification issued by the AP TRANSCO dated 28-5-2000 enhancing the electricity tariff is assailed. In WPMP, permission is sought to take an additional ground without seeking amendment of the prayer in the writ petition. We have already noticed above the standard of pleading in a writ petition where the constitutional validity of an enactment is assailed. In that view of the matter, it cannot be said that the petitioners in WP No.11645 of 2000 have adhered to the standard pleading. While the Constitutional Courts cannot shun the discussion of constitutional questions when fairly presented, they will not go out of their way to find such questions. They will not seek to draw in such weighty matters collaterally or without proper pleading and prayer. It is both more proper and essential to a coordinate organ of the State, i.e., the judiciary to discuss constitutional questions only when that is the very lis mota. In Hoover v. Wood, 9 Ind. 287, it was held that only when the constitutional question is presented in the manner suggested above and determined, the decision carries a weight with it to which no extra-judicial disquisition is entitled. Be that as it may, we do not find any merit in the additional ground taken by the petitioners in WP No.11645 of 2000 or in the contention that the Reform Act is invalid because the assent of the President
was secured by the State of Andhra Pradesh under Article 254(2) of the Constitution without furnishing to the President all the relevant materials and information.
44. Sri K.G. Kannabhiran, learned Senior Counsel who argued the case on behalf of the petitioners in WP No. 11645 of 2000 contended that the Electricity Regulatory Commission Act, 1998 enacted by Parliament and the Reform Act enacted by the Andhra Pradesh State Legislature trace their power to legislate to Entry 38 of the List III (Concurrent list), and that the field of law covered by the Reform Act is already covered by the Electricity Regulatory Commission Act, 1998 enacted by the Indian Parliament and therefore, the Reform Act should be held to be repugnant to the Central law and accordingly it should be declared unconstitutional by force of the provisions of clause (1) of Article 254 of the Constitution. Learned senior Counsel would alternatively argue that the assent of the President was secured by the Andhra Pradesh State under clause (2) of Article 254 without disclosing and furnishing relevant materials and information to the President, and on that count also, the Reform Act should be held to be unconstitutional. In support of the alternative contention, learned Counsel would place reliance on the judgment of the Supreme Court in Grama Panchayat v. Malwinder, .
45. We do not find any merit in either of the two contentions advanced by learned senior Counsel. Clause (1) of Article 254 lays down a general rule whereas clause (2) is an exception to clause (1) and the proviso to clause (2) qualifies that exception. The question of repugnancy arises only in connection with the subjects enumerated in the Concurrent List of the Seventh Schedule as regards which both the Union and the State Legislature have concurrent powers, so that the question of conflict between
laws made by both Legislatures relating to the same subject necessarily arises. Clause (1) says that if a State law relating to a concurrent subject is repugnant to a Union law relating to that subject then, whether the Union law is prior or later in time, the Union taw will prevail and the State law shall, to the extent of such repugnancy, be void. To the general rule laid down in clause (1), clause (2) engrafts an exception, viz., that after the President assents to a State law which has been reserved for his consideration by the Governor of the State under Article 200, it will prevail notwithstanding its repugnancy to an earlier law of the Union, – both laws dealing with a concurrent subject. This position is well settled by the judgments of the Supreme Court in U.P.E.S. Co. v. Shukla, and Kanmanidhi v. Union of India, . Where the President assents to a State law under clause (2), the Central Act will give way to the State Act only to the extent of inconsistency between the two, and no more. Therefore, it is quite clear that since in the instant case the President has assented to the Reform Act enacted by the Andhra Pradesh Stale Legislature under clause (2) of Article 254, the Reform Act should prevail notwithstanding its repugnancy, if any, to the Central Act i.e., Electricity Regulatory Commission Act, 1998.
46. The alternative contention of the learned senior Counsel is also not well founded. Should it be noted at the threshold that the petitioners have not made a categorical statement in the affidavit filed in support of WP MP No.16929 of 2000 that the State of Andhra Pradesh secured the assent of the President under Article 254(2) without furnishing relevant particulars and information. What is asserted in the WP MP is that the President’s assent is not a mere empty formality and there is an obligation on the State to explain as to why the State needed a special Legislation on the
same subject covered by the Legislation enacted by the Parliament, and that the assent of the President was obtained without application of mind. In the absence of necessary pleading, there is no necessity for the Court to enquire into the question whether necessary and relevant particulars were placed by the State Government or not while seeking assent of the President under Article 254(2). The Courts are not meant to gather information to satisfy the inquisitorial curiosity or interest of the applicants for writs or to make out a ground for them. Should it be noted that when WPMP No.16929 of 2000 was posted before the Court, it was pointed out to the learned Counsel for the petitioners in WP No.11645 of 2000, the Governor of India is a necessary and proper party to the application because it is the keeper and custodian of the materials and information furnished to the President when the President’s assent was sought, and State Government is not and cannot be treated to be the custodian of those information and particulars. However, learned senior Counsel maintained that it was not necessary for the petitioners to implead Government of India and it was for the State Government to furnish necessary particulars and information to the Court. We do not agree with the learned senior Counsel. The petitioners have not taken any steps to implead the Government of India as a party-respondent. Be that as it may, we do not find any merit in the alternative contention of the learned senior Counsel. It is well settled by the judgment of the Supreme Court in Hoechst v. State of Bihar, , that neither the propriety of the Governor’s reservation in a particular case under Article 200, nor that of the assent by the President under Article 254(2) is justiciable. The judgment of the Supreme Court in Grama Panchayat v. Malwinder (supra), cited by the learned senior Counsel is of no help to the petitioners. That case can be distinguished on facts also. In that case, the President’s assent was sought for a
specific purpose, i.e., to comply with the 1st proviso to Article 31 -A(1), without disclosing that there was repugnancy of the State Bill with a law of Parliament which would require the assent of the President under Article 254(2). In that context, the Supreme Court ruled that if the President’s assent was sought for a specific purpose without disclosing that there was repugnancy of the State Bill with a law of Parliament which would require the assent of the President under Article 254(2), the assent given under Article 31-A(1), 1st proviso will not cure invalidity on account of repugnancy under Article 254, because in order to validate a law under Article 254(2), the President must be apprised of the reason why his assent has been sought, particular when it was sought for another purpose specifically. That is not the situation obtaining in the instant case. Sri K.G. Kannabhiran went to the extent of maintaining that if Parliament makes a law on any subject included in the Concurrent List and if there is overriding or non-obstante clause in such Parliamentary law, the State Legislature cannot make law at all even after securing the assent of the President under Article 254(2). This proposition asserted by the learned senior Counsel is not supported by any authority, principle-wise or precedent-wise. Be that as it may, this extreme position taken by learned Counsel is not at all acceptable to us having regard to the plain and unambiguous language employed in clause (2) of Article 254 and also the case-law on the point already noticed above. Similarly, the contention that the assent accorded by the President to the Reform Act under Article 254(2) suffers from the vice of non-application of mind has to be noticed only to be rejected. Should it be noticed that the act of the President in according assent to a State law under Article 254(2) of the Constitution is a legislative act and not an administrative action. If that is so, it is well settled position in law that non-application of mind can never be a valid ground to assail the validity
of legislative act. Their Lordships of the Supreme Court in K. Nagaraj v. State of A.P., , observed :
“31. It is impossible to accept the submission that the Ordinance can be invalidated on the ground of non-application of mind. The power to issue an ordinance is not an executive power but is the power of the executive to legislate. The power of the Government to promulgate an ordinance is contained in Article 213 which occurs in Chapter IV of Part VI of the Constitution. The heading of that Chapter is “Legislative Power of the Governor”. This power is plenary within its field like the power of the State Legislature to pass laws and there are no limitations upon that power except those to which the legislative power of the State Legislative is subject. Therefore, though an ordinance can be invalidated for contravention of the constitutional limitations which exist upon the power of the State Legislature to pass laws it cannot be declared invalid for the reason of non-application of mind, any more than any other law can be. An executive act is liable to be struck down on the ground of non-application of mind. Not the act of a Legislature”.
We, therefore, uphold constitutionality of sub-section (1) of Section 5 including the second proviso thereto and Sections 11(1)(e), 11(3), 12, 21(1) and (2), 23(4)(b), 26(1) and (2) and 26(5)(a) and (b) of the Reform Act and reject the challenge to the same. We further hold and declare that the Reform Act is not a piece of colourable Legislation. We also hold and declare that the assent of the President obtained under Article 254(2) of the Constitution to the Reform Act is valid and legal.
47. It is contended that AP TRANSCO had ceased to be the licensee in respect of
distribution and retail supply with effect from 1-4-2000 by operation of law and there is no direct legal relationship of supplier and consumer between APTRANSCO and the consumers from 1-4-2000 onwards, and therefore, it has no locus standi to file application for revision of tariff. It is submitted that the proposals for tariff revision have emanated with the tiling of tariff by AP TRANSCO on 6-4-2000. That was the foundation for the exercise of jurisdiction by the Commission. It is clear from subsections (5), (6) and (9) of Section 26 that the tariff proposals and revenue calculations could only be filed by a licensee and AP TRANSCO cannot be deemed as a licensee, and therefore, the entire process of determination by the Commission is null and void. Elaborating this contention, the learned Counsel for the petitioners submit that Section 14 (1) of the Act prohibits a person other than a licensee from engaging in the business of supply of electricity without a licence granted under Section 15 or 14(4) of the Act. By virtue of the second transfer scheme notified by the Slate Government in exercise of the powers under Section 23(5), the entire distribution undertaking of APTRANSCO and the distribution and retail supply business together with the personnel stand transferred to AP DISTCO’s on and from 1-4-2000. All the assets – movable and immovable, corporeal and incorporeal including benefits, licences, permits, consents, registrations etc., stand transferred to APDISCOM’s. Therefore, the applicant – APTRANSCO cannot be said to be holding a valid licence on or before 1-4-2000. Reliance is placed on sub-sections (5), (6) and (8) of Section 23. Section 14 (1) of the Act and clause (3) of the second transfer scheme read with the definitions of ‘distribution undertaking, ‘distribution business’, ‘assets’ and ‘effective date’ contained in the said scheme.
48. It may be mentioned that the same objection raised by some of the petitioners
in the form of supplementary memorandum of objections was rejected by the Commission. The Commission observed that it has not so far permitted the assignment of licence by AP TRANSCO to the distribution companies viz., AP DISTCO’s and AP TRANSCO continues to be the distribution and retail supply licensee even though four distribution companies have been formed. Till the distribution companies get licence from the Commission in terms of Section 15, AP TRANSCO will continue to be the licensee. The Commission, as an interim measure permitted four distribution companies which are wholly owned subsidiaries of AP TRANSCO, to carry on the distribution and retail supply functions on behalf of the AP TRANSCO.
49. In other words, the objection of the petitioners was negatived, by the Commission by drawing a distinction between distribution and retail supply functions and the distribution undertaking as such. It is worthy of note that an order was passed by the Commission on 31-3-2000 pursuant to the application filed by AP TRANSCO for assigning its distribution and retail supply functions to the four subsidiary companies. In the said order, the Commission permitted the AP TRANSCO to assign its distribution and retail supply functions subject to the conditions laid down in para 5.4 of the Distribution and Retail Supply Licence held by it. The permission was granted without prejudice to the exercise of Commission’s power in regard to the issue of licences to the newly formed subsidiary companies. All new companies were permitted to make applications for licences within two months.
50. The learned Counsel for the
respondents have taken the same stand which is reflected in the Commission’s order. In reply to the arguments of the learned Counsel for the respondents in this behalf, the learned Counsel for the petitioners
submits that divestment of business and assets which has statutorily taken place mandates divestment of licence as a necessary consequence. It is contended that the licence and the business of supply of electricity are inseparable. If this contention is accepted, according to the learned Counsel – Mr. Gopal Chowdary, the newly formed distribution companies would be taking over the functions relating to supply of electricity without licence which would amount to contravention of the provisions of Section 14(1) of the Act. Referring to the Commission’s order dated 31-3-2000, the learned Counsel submits that it would be of no consequence as it cannot nullify the transfer of assets including the licence brought about by operation of law.
51. In order to appreciate respective contentions, we may refer in brief to the relevant provisions cited by the Counsel for petitioners. Section 23 deals with reorganisation of the State Electricity Board. Pursuant to sub-section (1) of Section 23, the first transfer scheme was promulgated by the State by reason of which the properties, rights and liabilities belonging to the Board vested in the State Government on the terms mutually agreed upon. Subsection (2) of Section 23 provides for revesting by the State Government in AP TRANSCO and generating companies in accordance with the transfer scheme published. Sub-section (3) empowers the AP TRANSCO or the generating companies to exercise the rights and powers exercisable by the Board earlier for the purpose of discharge of its functions and duties. Subsection (5) of Section 23 is important for our purpose. It empowers the State Government subject to consultation with the AP TRANSCO (described as transferor licensee) or the generating company, as the case may be, to require the said companies to draw up a transfer scheme to vest in a further licensee known as the ‘transferee
licencce’ or any generating companies any of the functions including the distribution function, property and interest therein, rights and liabilities which have been vested in the transferor licensee or generating companies, as the case may be and publish the same as a statutory Transfer scheme. It will have the same effect as the transfer scheme under Section 23(2). By virtue of this provision, the second transfer scheme was published under G.O. Ms No.35, Energy, Power HI dated 31-3-2000. The contents of such transfer scheme are specified in subsection (6). Sub-section (8) of Section 23 is another provision which is referred to by the petitioner’s Counsel. It reads as follows :
“In the event that a licensee is required to vest any part of its undertaking in another licensee pursuant 1o subsection (5), the Commission shall amend the transferee’s licence in accordance with Section 19 or revoke its licence in accordance with Section 18.”
52. It is pointed out that the words “transferee’s licence” in sub-section (8) should be read as “transferor’s licence” to give sense and meaning to sub-section (8). The word ‘transferee’ is said to be a printer’s devil.
53. In our view, there is nothing in Section 23(5) which provides that from the effective date of the statutory transfer scheme, the transferor company automatically relinquishes its licence and the transferee company will take over that licence. The employment of the words “transferor licensee”, “transferee licensee” does not bring about such a result. We have therefore to look to the terms and conditions of the second transfer scheme to find an answer to the question whether the AP TRANSCO’s licence stood terminated on the date on which it filed tariff proposals.
54. Coming to the second transfer scheme, clause 3.1 thereof lays down:
“3.1. Transfer of Distribution Undertaking to APDISTCO-I
(1) On and from the effective date, without any further act (s) or things(s) to be done by the State Government, APTRANSCO, APDISTCOs, the Personnel, or any other person, the Distribution Undertaking, related to Area-I as specified in Schedule “B” shall stand transferred to APDISTCO-I.
(2) In consideration of the transfer of the Distribution Undertaking related to Area-I by the APTRANSCO to the APDISTCO-I in terms of this Second Transfer Scheme, the APDISTCO-I shall issue and allot equity shares and/or instruments to the APTRANSCO as specified in Schedule “B”.
(3) The Provisional Balance Sheet of the APDISTCO-I as on the effective date is attached herewith as Part II of Schedule “B”.
(4) The allocation, transfer and/or assignment of Personnel to the APDISTCO-I has been dealt with in clause 7 as specified below”.
55. To the same effect are the clauses 3.2. 3.3 and 3.4. Clause 5 states that on the transfer and vesting of the distribution undertaking to the AP DISTCO’s in terms of clause (3), the transferee shall be responsible for all the contracts, rights, deeds, bonds, agreements and other instruments of whatever nature to which the AP TRANSCO was initially a party.
56. Now, let us see the definition of ‘distribution undertaking’. It reads:
“With respect to Area I, the Distribution Business, and the Assets, Liabilities, Proceedings and Personnel specified in the Schedule B
With respect to Area II…..
With respect to Area III…..
With respect to Area IV…. (vide 2(k))”
“Distribution business” means” the business of distribution and retail supply of electricity in Areas I, II, III and/ or IV, as the case may be”.
57. Pausing here for a moment, we may recapitulate the argument of the learned Counsel that ‘distribution business’ and ‘licence’ go together and the divestment of business results in divestment of licence as well. We proceed to examine how far such interpretation can be supported from the definition of ‘assets’ on which much reliance has been placed by the learned Counsel for the petitioners.
58. The expression ‘assets’ is defined by clause 2(g) as follows:
“‘Assets’ means movable and immovable, corporeal and incorporeal, tangible and intangible, land, buildings, offices, stores, plants, machinery, equipment including computer systems and telecommunication systems, installations, furniture, fixtures, vehicles, residential quarters and guest houses and amenities and installations pertaining thereto, and other movable and immovable property, software, books and records, files, manuals, warranties, plans, drawings, designs, specifications, customers lists, billing and payment records, cash in hand, cash at bank, investments, book debts, claims, receivables, deposits, capital work in progress, deferred costs, advances paid, accrued incomes and pre-paid expenses, benefits, licences, permits, consents, rights of way, authorities, registrations, liberties, patents, trademarks, design, copyrights and other intellectual property rights, privileges, liberties, easements,
advantages, benefits and approvals, contract-deeds, schemes, bonds, guarantees, agreements, insurance, and other instruments and interests of whatsoever nature, and all other interests, right and powers of every kind, nature and description whatsoever.”
59. According to the learned Counsel for the petitioners, the inclusion of the word ‘licences’ in the definition of ‘assets’, makes it explicit and clear that the distribution and retail supply licence of the transferor (AP TRANSCO) will also get transferred to and vested with the four transferee companies. In reply thereto, the learned Advocate-General and the other Counsel appearing for the respondents submit that the word ‘licence’ occurring in the definition clause pertaining to ‘assets’ does not cover distribution and retail supply licence issued under Section 14 of the Act, but, it applies to other transferable licences which the AP TRANSCO may have obtained in order to run the business. The collection of various words and expressions, viz., benefits, licences, permits, consents, registrations, rights of way, authorities, liberties, …..” are referred to
by respondents’ Counsel to make good their submission that the word ‘licence’ must be understood in a restricted sense. We find force in the contention of the learned Counsel for respondents.
60. We find it difficult to accept the contention of the learned Counsel for the petitioners for more than one reason. The very contention advanced by the petitioners that Section 23, Sections 14 and 15 should be read together, militates against the interpretation that the expression ‘licence’ in clause 2(g) of the transfer scheme includes the licence under Section 14 or Section 15. The power to grant provisional licences is vested with the State Government under sub-section (4) of Section 14 until the establishment of the Commission.
Thereafter, the Commission is the exclusive authority to grant regular licences to transmit and supply electricity in a specified area. It is not reasonable to interpret the second transfer scheme as interfering with the power of the State Government or the Commission under the aforesaid provisions. If the intention was to put an end to transferor’s licence simultaneous with ‘vesting’ contemplated by sub-section (5) of Section 23, a specific provision would have been made in this behalf. Sub-section (8) of Section 23 does not also support the petitioner’s contention. That sub-section contemplates vesting of any part of the undertaking of one licensee to another and the amendment or revocation of transferee’s licence which is not the case here. True, there is a stipulation in the second transfer scheme that the words and expressions used and defined in the Act, but not specifically defined in the scheme bear the same meaning as assigned in the Act. But the word ‘licences’ used in clause 2(g) of the second transfer scheme cannot be equated to ‘licence’ as envisaged and defined by the Reforms Act. Contextually, the expression ‘licence’ occurring in clause 2(g) should only mean transferable licence which the electricity supply licensee is having under various statutory and non-statutory provisions for the purpose of running its undertaking. There is yet another reason why the interpretation sought to be placed by the petitioners cannot be accepted. Para 5.4 of the distribution and retail supply licence held by AP TRANSCO expressly provides that the licensee may have an arrangement with the prior approval of the Commission, to assign any of the functions that the licensee is athorised to conduct or carry out under the Act and also the licence held by it to any subsidiary of the licensee and for this purpose, hold all or any part of its assets in such subsidiary. The Commission by its order dated 31-3-2000 allowed the application filed by AP TRANSCO for assigning its distribution and
retail supply functions subject to the conditions laid down in para 5.4 of the licence. Though it is argued that such assignment of distribution function is meaningless having regard to the statutory transfer of the entire undertaking with its rights and liabilities, neither the conditions in the licence nor the order dated 31-3-2000 passed by the Commission has been challenged. Para 5.4 referred to above unmistakably indicates that the licensee can assign the functions to a subsidiary of the licensee and for that purpose “hold all or part of its assets in such subsidiary” subject to the condition that any such subsidiary shall operate under the overall supervision and control of the licensee and upon the terms and conditions of the licensee. Thus, it cannot be said that AP TRANSCO shed its character as licensee under the Act and became a non-entity after 1-4-2000 and lost locus standi to move the application for tariff revision. For the same reasons, we reject the contention of the petitioners that only the subsidiary companies viz., AP DISTCOS should have filed the application before the Commission.
Contention No. 5:
61. It is the contention of the petitioners that the Commission is required to perform the functions of quasi-judicial nature adjudicating the lis between the licensee-applicant and the consumer objectors whose interests are likely to be affected by the tariff to be determined by the Commission. It is therefore submitted that the principles of natural justice with all its trappings are attracted. It is submitted that the procedure followed by the Commission and the kind of hearing given to the objections falls short of the essential requirements of natural justice and a reasonable opportunity to put forward their case has been denied. It may be noted that some of the petitioners including the writ petitioner in WP No.9388 of 2000 did not participate in the proceedings before the Commission. The said grievance
is voiced mostly by the petitioners in WP Nos.10245 and 11138 of 2000 which are the representative associations of Industrial Consumers. The learned Counsel for the petitioners submit that the quasi-judicial nature of functions of the Commission is discernible from the Statement of Objects and Reasons which employs the language “to regulate and adjudicate on the tariffs and related issues”, the Conduct of Business Regulations framed by the Commission, the judicial powers vested with the Commission under Section 10 of the Act such as summoning and enforcing of attendance of witnesses, discovery and production of documents etc., together with the provision for appeal to the High Court under Section 39 of the Act against the order or decision of the Commission. It is also submitted that the nature and effect of the decisions taken by the Commission would have far-reaching consequences to the consumers and that is the added reason why the principles of natural justice have to be complied with. Referring to Cynamide ‘s case AIR 1987 SC 1802 it is pointed out that the tariff fixation, unlike the price fixation of essential drugs in that case, does not partake of the legislative character because the Commission is called upon to approve or modify the tariff proposals of a particular licensee.
62. The infirmities in the procedure and modalities adopted by the Commission while considering the tariff proposals submitted by the licensee and the objections presented by the consumer bodies, which according to the learned Counsel, amount to infraction of principles of natural justice, are the following:
(1) No hearing was given with reference to the preliminary objections raised in the form of IAs., filed by the petitioners in WP No.10245 of 2000 though notice of hearing of the IAs., was given.
(2) Private consultations with the AP TRANSCO, AP GENCO and the representatives of the Government of A.P. were held behind the back of the objectors.
(3) After AP TRANSCO was heard on 12th May, 2000 no opportunity was given to the objectors to raise any issue arising out of the material presented by AP TRANSCO.
(4) The Commission should not have deployed its staff to make a presentation on behalf of the consumers and relied on the material furnished by the staff. The presentation made by the staff of the Commission was done after all the hearings of the consumers were over and the material and data furnished by the staff was not made available to the Commission, though AP TRANSCO was permitted to give clarifications immediately thereafter,
63. Section 10(7) of the Reform Act lays down that in the discharge of its functions, the Commission shall consult to the extent it considers appropriate such persons or group of persons who may be affected or are likely to be affected by the decisions of the Commission. Subsection (2) of Section 9 confides the power to the Commission to make regulations for the conduct of its proceedings and discharge of its functions. Sub-section (1) of Section 10 provides that the Commission shall, for the purpose of any enquiry or proceedings under the Act have the powers as are vested in a Civil Court under the Code of Civil Procedure white trying a suit in respect of certain matters, viz., summoning and enforcing of attendance of any witness, discovery and production of any document or other material objects: the reception of evidence on affidavits; requisition of any public record from any Court or office; the issue of commission for examination of witness, appearance of parties and
consequences of non-appearance and the grant of adjournments at the hearing. The Commission is also vested with the power under sub-section (2) of Section 10 to require any person to produce such books, accounts or other documents relating to any matter concerning the generation, transmission, distribution and supply or use of electricity and to furnish to a specified Officer such information as may be required for the purposes of the Act. Amongst the functions of the Commission specified in Section 11, (1)(e) empowers the Commission to regulate the purchase, distribution, supply and utilisation of electricity, the quality of service, the tariff and charges payable keeping in view both the interests of the consumers and the need to collect adequate charges for the electricity supplied.
64. The Commission in exercise of the powers conferred by Section 9(2) read with Section 54(2)(a) framed the Regulations known as A.P. Electricity Regulatory Commission (Conduct of Business) Regulations, 1999. Chapter II thereof deals with the “General rules concerning the proceedings before the Commission”.
65. Regulation 15 provides that the Commission may determine the stage, manner, place, date and time of hearing of the matter as the Commission considers appropriate consistent with the time schedules prescribed under the Act and need to expeditiously decide the matter. Regulation 20 provides for inspection of records of the Commission’s proceedings and obtaining certified copies.
66. The procedure followed by the Commission has been set out in para 1.1 of the order. Briefly stated, after APTRANSCO filed the tariff proposals on 6-4-2000 along with the supplementary ‘expected revenue from charges’ (ERCs), it was directed to serve a notice to the public by publication in
newspapers in the form approved by the Commission. In the notice, it was informed that such of those persons who wanted to make personal representation through the public hearing may indicate the same. It was also notified that copies of the applications together with supporting materials were available with the Chief Engineer, Regulatory Affairs Cell and also the Superintendent Engineers of Operation Circles for inspection. The last date for filing of the objections was fixed as 28-4-2000. On 12-4-2000, a summary of tariff proposals was also sent to the Commission’s Advisory Committee calling for their comments/suggestions. Earlier, a paper on ‘Tariff philosophy’ was prepared and it is the admitted case of the petitioners that they had access to the same.
67. Following the public notice, 78 persons/Organisations sent up their objections or suggestions and 26 of them expressed their desire to be heard in person. The notice of public hearing from 8-5-2000 to 12-5-2000 was given to the licensee -APTRANSCO. The persons who expressed their desire to be heard in person were intimated the dates on which they would be heard. Members of the Commission’s Advisory Committee were also informed of the dates of public hearing. The Commission’s staff was directed to make a presentation on the filings including the technical aspects on behalf of the consumers. The Commission held public hearings from 8-5-2000 to 12-5-2000 as follows:
(S. K. Ahamed)
Second Highest Bidder
First Highest Bidder
M. D. gouse
(S. K. Ahmed)
Second Highest Bidder
(S. K. Ahmed)
Second Highest Bidder
Second Highest Bidder
Second Highest Bidder
AP 5T 2928
Second Highest Bidder
First Highest Bidder
Second Highest Bidder
AP 5T 2620
Second Highest Bidder
68. For want of accommodation, admission was restricted to the members of the general public who expressed their desire to be heard in person, members of the Commission’s Advisory Committee, representatives of AP TRANSCO and the Government of Andhra Pradesh and the Commission staff. The tariff proposal was discussed at the Commission’s Advisory Committee meeting held on 20-5-2000. Certainly legal issues including the preliminary objections raised on behalf of the Association of Industrial Electricity Users (petitioner in WP No. 10245 of 2000 and others) were discussed in the impugned order of the Commission.
69. Now, it is time to deal with the contention regarding the violation of the principles of natural justice and denial of reasonable opportunity to the objectors. In this context, there was some debate on the question whether the tariff fixation by a statutory designated authority is a legislative function or whether it is a quasi-judicial or at any rate administrative function. If it is a legislative Function, obviously there is no room to invoke the principles of natural justice except insofar as the statute itself ordains the subordinate legislating authority. When the final act is legislative, the decision which induces it, cannot be judicial in the practical sense, although the questions considered might be the same that would arise in the trial of a case (as observed by Holmes, J. in 211 U.S. 210). The body to whom such legislative power is entrusted is free to proceed in its own manner untrammelled by the doctrine of natural justice so as to arrive at a fair and just result. However, when a statutory authority acting in a quasi-judicial or administrative capacity takes a decision which has the adverse effect on the rights and interest of persons, an obligation to observe the principles of natural justice would be readily inferred even if it is not expressly provided for. In Schwartz’s treatise on Administrative
Law, the legal position is succinctly summarised as follows:
“If a particular function is termed “legislative” or “rule-making” rather than “judicial ” or “adjudication”, it may have substantial effects upon the parties concerned. If the function is treated as legislative in nature, there is no right to notice and hearing, unless a statute expressly requires them. If a hearing is held in accordance with a statutory requirement, it normally need not be a formal one, governed by the requirements discussed in Chapters 6 and 7. The characterisation of an administrative act as legislative instead of judicial is thus of great significance.
70. Reliance is placed by the learned Advocate-General and the Counsel appearing for the respondents on the following observations and the dicta laid down in Union of India v. Cynamide India Ltd., (supra). In Cynamide case, Chinnappa Reddy, J., speaking for the Supreme Court has clarified the legal position succinctly as follows:
“Price fixation is more in the nature of a legislative activity than any other. It is true that, with the proliferation of delegated legislation, there is a tendency for the line between Legislation and administration to vanish into an illusion. Administrative, quasi-judicial decisions tend to merge in legislative activity and, conversely, legislative activity tends to fade into and present an appearance of an administrative or quasi-judicial activity. Any attempt to draw a distinct line between legislative and administrative functions, it has been said, is ‘difficult in theory and impossible in practice’. Though difficult, it is necessary
that the line must some times be drawn as different legal rights and consequences may ensue. The distinction between the two has usually been expressed as ‘one between the general and the particular’. ‘A legislative act is the creation and promulgation of a general rule of conduct without reference to particular cases -an administrative act is the making and issue of a specific direction or the application of a general rule to a particular case in accordance with the requirements of policy’.
The prospectivity of its effect, the public interest served, and the rights and obligations flowing therefrom, there can be no question that price fixation is ordinarily a legislative activity. Price-fixation may occasionally assume an administrative or quasi-judicial character when it relates to acquisition or requisition of goods or property from individuals and it becomes necessary to fix the price separately in relation to such individuals. Such situations may arise when the owner of property or goods is compelled to sell his property or goods to the Government or its nominee and the price to be paid is directed by the Legislature to be determined according to the statutory guidelines laid down by it. In such situations the determination of price may acquire a quasi-judicial character. Otherwise, price fixation is generally a legislative activity.”
71. In Ashok Soap Factory v. Municipal Corporation of Delhi, , which is a case dealing with electricity tariff revision, the Supreme Court reiterated 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. In
Akhila Bharatiya Grahak Panchayat v. APSE Board, , it was pointed out that the fixation of tariff under the Electricity Supply Act is a policy matter of legislative or sub-legislative character and principles of natural justice need not be followed before enforcing or modifying the rates.
72. In a recent case, a Full Bench of this Court, in VBC Ferro Alloys Ltd v. APSE Board, (FB), highlighted the same principle in the following words :
“It is well settled that the price fixation is more in the nature of a legislative measure even if it is based upon objective criteria found in a report or other material. It is true, the criteria adopted must be reasonable. Its validity does not depend on the observance of any procedure to be complied with or particular types of evidence to be taken on any specified matters as conditions precedent to its validity. It is equally well settled that the principles of natural justice are not attracted in case of price fixation.”
73. It is contended by the learned Counsel for the petitioners – Mr. Kannabiran and Mr. Gopal Chowdary that the Cynamide case (supra), which was concerned with price fixation of essential drugs is distinguishable. In Cynamide case, the statutory authority is enjoined to fix the prices of essential drugs after such enquiry as it considers necessary in the paramount interests of the consumers. In the present case, the Commission is expected to examine the individual proposals submitted by a particular licensee and decide whether or not it should be approved or modified. Moreover, it is submitted by the learned Counsel for the petitioners that various provisions in the Act read with the Regulations indicate that the Commission has the trappings of judicial body and it is not in the same position of a subordinate
legislating authority called upon to fix the prices.
74. The learned Counsel for the petitioners submit that the dicta and observations of the Supreme Court and of this Court was with reference to the provisions of Electricity (Supply) Act and other analogous provisions. The Scheme of Electricity Reforms Act and the very Regulations framed by the Commission to regulate its proceedings would indicate in unmistakable terms that the Commission is conferred with adjudicatory powers which a judicial or a quasi-judicial body has and therefore its functions cannot be regarded as legislative in character.
75. It is not necessary for us to express any opinion on the question whether in fact the functions and decisions of the Commission are quasi-judicial in nature or they partake of legislative character. The process of consultation envisaged by subsection (7) of Section 9 and the nature of duties to be performed by the Commission coupled with the procedure it evolved for the conduct of its proceedings implies an obligation to act fairly by taking into account the various view points put forward for and against the proposal. It is pointed in ‘Principles of Judicial Review’ by DE Smith, Woolf and Jowell, that procedural fairness is no longer restricted by distinctions between ‘judicial’ and ‘administrative’ functions or between ‘rights’ and ‘privileges’. This here say was scotched in Ridge v. Baldwin, (1964) AC 40. The term ‘natural justice’ is being increasingly replaced by a general duty to act fairly, which is a key element of procedural propriety, as pointed out by Lord Diphck in O’Reilly v. Mackman, 1983 (2) Appeal Cases 237 at page 275. In Principles of Judicial Review, it is commented by the learned authors, whichever term is used, the time has come to make a break with the artificial constraints surrounding the situations in which natural justice or the duty to act fairly are required.
76. We shall proceed on the basis that the principles of natural justice or principles analogous thereto cannot altogether be excluded from the arena of consideration. Fair play and fair procedure will have to inform and permeate the proceedings. Even then, can it be said on the facts of this case that they were given a go-bye by the Commission and the opportunity of making an effective representation which is a concomitant of effective consultation has been denied in the instant case ? On a deep consideration, we record our answer in the negative. By and large, consistent with the doctrine of natural justice, a fair procedure was followed by the Commission and a decision was arrived at on a consideration of the salient objections raised at the hearings and in the representations. We are of the view that the complaint of the petitioners on the kind and modalities of hearing is more technical rather than a complaint of substance. The averments in the affidavit are also vague and bereft of details.
77. It is trite to say that the principles of natural justice are not embodied rules having fixed connotation and rigid application. It is often said that the principles of natural justice cannot be put in a straight jacket formula. The extent and content of the right to be heard depends on fact-situation and the nature and complexities of the proceedings. In testing an administrative or quasi-judicial act from the point of view of its conformity with the principles of natural justice, a pragmatic and realistic view is required to be taken. In our considered view, informality and flexibility of procedure in tune with the situational exigencies and practical needs could very well satisfy the requirements of fair play in action. Let us take a case of tariff fixation on the proposals submitted by a monopolist licensee like APTRANSCO. Thousands of consumers may come forward to file objections and to air their views. The Commission is expected
to give its decision within ninety days of receipt of the informations which it requires. In this situation, it may be impracticable, if not impossible, to give hearing to each and every objector by proceeding in a methodical manner as a regular Court of law. In the course of hearings and in the light of the data furnished by the licensee and the objectors, some clarifications may be required. Nothing prevents the Commission to seek clarification from the licensee or to have it verified by the Commission’s staff. It would not be practicable to give hearing again after such verification and clarification process apart from the fact that the allegation of ‘private consultations’ is denied in the counter. It is not possible to grant time requested for by each and every objector and to interact at every stage from beginning to the end with the innumerable objectors who may have filed objections or participated in the public hearings before the Commission. As already observed, we have to take a pragmatic and reasonable view. Whether or not there was a fair hearing and fair consideration cannot be judged from a priori notion. It is not that any and every infraction of the alleged principle of natural justice that matters. Viewed from this perspective, we have no doubt in our mind that the Commission acted very fairly by affording opportunities to the consumers or their representative bodies to voice their objections and in dealing with their objections both legal and factual. The Commission went to the extent of deploying its staff to project the case of the consumer more effectively by way of checking up the data etc., having due regard to the handicaps faced by the consumers in such technical exercise. The deployment of staff to assist the statutory Committees holding public enquiries for the purpose of rate, fixation is not uncommon. In Local Government Board v. Abridge, 1915 AC 120, such a procedure was upheld by House of Lords. The role played by the staff far from being prejudicial to the interests of consumers
proved to be to their advantage. No prejudice whatsoever was caused on account of staff participation. Coming to the hearing procedure, the Commission, be it noted, heard the objectors on both legal and factual issues. The objectors had the liberty to have access to relevant documents and informations. Even the preliminary objections filed by the Association of Industrial Electricity Users (petitioner in WP No. 10245 of 2000 and others) were dealt with in detail. The principle that the justice should not only be done but seem to be done, has been kept in view by the Commission. We do not find an iota of substance in any of the complaints made by the petitioners on the aspect of violation of principles of natural justice.
Contention No. 6:
78. We shall now examine the contention that the tariff determination by the Commission is vitiated by arbitrariness and irrationality and perversity and the Commission failed to take into account or give due weight to relevant factors envisaged by the Act. Before proceeding to discuss the various facets of this contention, it is necessary to refer in brief to the approach made by the Commission and the salient points of its determination.
79. In the process of determination of tariff, the Commission scrutinised the costs and expenses proposed by the licensee, assessed annual revenue requirements meant to recover the costs and expenses and a reasonable return in accordance with the guiding financial principles in the Sixth Schedule to the Electricity Supply Act. After ascertaining the revenue requirement of the licensee, the Commission proceeded to consider as to how much of the revenue requirement should be allocated to each category of the consumers on a rational basis. The cost to serve basis was adopted
as most relevant. After the cost to serve was determined, the extent of cross subsidisation of one category of consumer by another was determined. The final tariffs were evolved, according to the Commission’s Counsel taking into account the historical factors viz., subsidisation of domestic and agricultural consumers, the impracticability of immediate application of tariff on the basis of specific cost to serve to the said categories, the need to continue cross-subsidisation subject to progressive reduction and the availability of the subsidy from the State Government. A draft paper on tariff philosophy was issued and it was discussed at public hearings.
80. It is clarified in the counter filed by the Commission that the tariff has been determined based on the provisions of Statutory Transfer Scheme notified by the State Government under Section 23 of the Act, operational expenses and other costs involved for the year 2000-2001. The AP TRANSCO (hereinafter referred to as ‘the licensee’) projected the net aggregate revenue requirement for transmission and distribution at Rs.9,017.84 crores. However, the Commission reduced the same by 652.67 crores and determined the net revenue requirement at Rs.8,365.17 crores made up of Rs.7,597.58 crores for transmission and Rs.767.59 crores for distribution. As against the licencee’s projected expenditure of Rs.7,841 crores, the Commission worked out the total expenditure at Rs.7,416 crores. It slashed down considerable amount towards the purchased power cost. The quantum of reasonable return for distribution was worked out at Rs.89.71 crores as against Rs. 161.78 crores claimed by the licensee. The expected revenue at the existing tariff from the current charges was fixed at Rs.5,447.87 crores as against the figure of Rs.5,436.87 crores calculated by the licensee. The revenue gap was then arrived at Rs.2,917 crores. Out of this, the Commission reduced the gap by Rs.500 crores through
efficiency improvements including the abatement of commercial losses as per the licencee’s rough estimate. The gap then came down to Rs.2,417.31 crores. Based on the tariff proposals of the licensee to increase the tariff revenue by Rs.808 crores, the deficit would be Rs. 1,609 crores. This was to be filled either by way of further enhancement of tariff or subsidy from the Government or both. As the Government committed to provide subsidy of Rs. 1,345 crores substantially directed towards LT domestic category I and LT agricultural category V, the gap was reduced to Rs,264 crores. Therefore, the total increase of tariff required for the year 2000-2001 was fixed at Rs. 1,072 crores i.e., Rs.808 crores + 264 crores as against Rs.808 crores initially proposed by the licensee and it was on this basis, the tariff was fixed by the impugned order dated 23-5-2000 for various categories. It appears that the proposed increase in the tariff revenue as per the estimate of licensee was based on the higher anticipated subsidy from the State Government. After the determination was done, the State Government decided to give additional subsidy of Rs.281.25 crores. The Commission directed the licensee to adjust the billing taking into account the additional subsidy. As a result of this, the schedule of tariff for the period from 4-6-2000 to 31-3-2001 had undergone further change to the benefit of LT domestic category. The rates notified by the Commission earlier and the rates revised by the Commission as per its communication dated 3-6-2000 are as follows :
Reaction of the officer in
Record of Performance Counselling on 28-8-1992 – Good.
Views of the officer during the
discussion on Planning and Development – The officer feels he is not in the right job and that he is
Reaction of the officer in
Record of Performance Counselling – Not done.
Reaction of the officer in
Record of Performance Counselling – Not done.
81. The other salient features of the tariff determination are as follows :
The Commission adopted the cost reflective tariff for different categories of consumers. It is clarified in paragraph 21 of the counter that this principle is known as ‘cost to serve’ where each consumer category is apportioned with the costs of power purchased, transmission and distribution on the basis of energy component, demand component and consumer component. It is pointed out that as far as domestic category is concerned, the ‘cost to serve’ works out to Rs.4.96 per unit. The reasons for variation between the licensee’s estimate of ‘cost to serve’ and that of the Commission is explained in Para 6.1 of the order under the heading ’embedded cost study’. It is clarified that even after the increase in the tariff revenue, the average realisation from the domestic category of consumers is Rs.2.13 per unit against the ‘cost to serve’ of Rs.4.96 per unit.
82. Percentage of increase, category-wise have been discussed in Para 6.1.2. The Commission stated that in order to be fair to those customer categories which are now paying more than the cost of service, increase in tariff in respect of those categories should be considerably less than that for others whose tariffs are below the cost to serve. Keeping this principle in view, the increase ranging between 5% and 15%, has been applied for 5 categories, the highest being in the LT non-domestic category II and the lowest being in HT Industrial Seg. Category I.
83. The revenue generated on account of such increase in tariff proposed for five categories viz., LT non-domestic category I, LT Industrial Supply Category III, HT Industrial Seg. Category I, HT non-seg. Category III, EHT RR tract category V is Rs.323 crores. This amount together with Rs.500/- generated through expected
efficiency gains is allocated to the rest of the categories in proportion to the difference between the revenue realisation and costs to serve as per the pre-existing tariffs. In order to fill the remaining deficit of Rs.2,095 crores, the Commission decided to “load it on to the same categories in proportion to the difference between the revenue realisation and the cost to serve” by taking into account Rs.823 crores (Rs.323 crores + Rs.500 crores supra). After providing for such increases, the level of worked out tariffs for recovery of fuel cost including the reasonable return is set out at Page 104 of the order in a tabular form. The manner in which the capital base calculations and the net capital base for determining the rate of return is to be found at Pages 66 and 67 of the Commission’s order. The determination of reasonable return for the activity of transmission and bulk supply is to be found at Page 85 and for distribution at Page 99. The Government subsidy of Rs. 1,345 crores has been allocated to various categories. It is seen from Table No.37, that the bulk of it goes to LT domestic category, LT Agricultural Category V, HT Rural electrical co-operative societies.
84. Coming to the tariff structure, the Commission having due regard to the overwhelming demand during public representations, decided to adopt telescopic structure for domestic customers. The Commission at the same time reduced the number of slabs from 6 to 4, i.e., (1) 0-50 units; (2) 51 – 200 units; (3) 201 – 400 units; and (4) above 400 units. While recognising the fact that a scientific approach to categorise would have to be based on the principle of paying capacity, the Commission observed that such data not being available, a practical approach to paying capacity was needed. According to the Commission, the first slab represents life line, the next two slabs represent consumption patterns of the middle class and upper middle class households and the last slab is for the rich.
The Commission observed that “by modifying the slab rates and the categories, tariff design attempts to combine efficiency with social objectives”. The Commission decided to increase the domestic tariff to a level where the revenue realisation represents at least 50% of the cost to serve.
85. The tariff designs in respect of various categories are discussed from Para 6.2.2 onwards. A brief reference may be made to LT Agriculture (category LT V). The Commission noted that “the heavily subsidised agriculture class currently pays flat charges per HP of pump size with the charges varying according to the pump size and the location of the pump-set i.e., in drought prone area or non DP area”. The last tariff increase for LT Agriculture group was in August, 1996. The Commission noted that the average realisation from this category is 18 paise per unit white the cost to serve is 236 paise per unit. The Commission with a view to rationalise the tariff structure for agriculture category and to encourage the agriculture sector to switch over to metered tariff, fixed the tariff at 35 paise per unit by metered connections on optional basis as against 50 paise suggested by the licensee. The fixed charges were enhanced to about 60% on the average as per the proposal made by the licensee. The existing and revised tariff rates for agriculture category have already been noted supra.
86. As seen from the comparative rates of various States, the rate of tariff for agriculture is less in some States and more in some other States.
87. The determination of reasonable return on the net capital base is worked out by the Commission at Para 3.6 (Page 85). It is stated there is that the reasonable return calculated as per the VI Schedule to A.P. Electricity (Supply) Act, 1948 works
out to Rs.182.74 crores as against Rs.85 crorcs claimed by the licensee. The Commission permitted the licensee to annualise the revised tariff (vide Para 6.3) so that the licensee fully covers its cost and a reasonable return.
88. It is noticed from the order that the Commission made a detailed analysis and recorded its views vis-a-vis : absence of data, agricultural consumption, transmission loss, distribution loss, VI Schedule deviation, fuel and purchased power adjustments, regulatory assets, rate of return, efficiency gain of Rs.500 crores, quality of service and conditions of service. The Commission made it clear in the counter-affidavit that the accumulated losses of the APSEB have not been taken into account while fixing the tariffs.
89. In the concluding part of the order, the Commission indicated the broad parameters within which the tariff fixation has been done. The Commission stated that the regulatory model as embodied in the VI Schedule to the Electricity Supply Act enables the Utility to cover its expenses and earn a reasonable return and therefore no deviation is warranted at present. The Commission noted that the monopolist licensee – AP TRANSCO is constrained by historical structural inefficiencies. The Commission avowed to balance the interests of the licensee and the interests of the consumers by attempting “to undo past deficiencies and distortions which have harmed the licensee, its customers and the State as a whole”. The Commission, it is pointed out, intends to do away with external subsidies in 3 to 4 years by prescribing suitable measures for increasing the efficiency of AP TRANSCO. The Commission then observed : “Coming to the present financial status of AP TRANSCO, the non-revision of tariff will only aggravate the current situation.
90. The Commission then gave the summary of tariff design evolved by it in the following words :
“Designing of tariff is a balancing exercise. While AP TRANSCO’s tariff is inefficient for oft-stated reasons, consumers have also been the beneficiaries of the same historical legacy. It is against this background that the Commission has sought to change the structure and design of tariffs to move towards embedded costs. Ultimately, recovery of full cost alone will lend viability to the power sector. As regards agriculture, the attempt of the Commission has been to regulate power consumption by promoting more efficient use of water and power in agriculture, and nudge the farmers towards metered consumption in the case of the domestic sector, a balance between cost and sustainability has been incorporated. Regarding the industrial sector, increases in rates have been guided by the consideration to bring them in line with their full cost to prevent an uneconomic bypass in the sector’s shift to captive generation and also to provide the requisite stimulus for reviving industrial growth in the State. Needless to add, in the interests of the Electricity Sector as a whole, industrial consumers must be served from the grid and not from their own captive power plants.”
91. The Commission concluded by observing that the licencee’s revenue calculations were not in accordance with the requirements and therefore, the Commission has proposed an alternative calculation of the expected revenue from the charges. The licensee was directed to accept and implement the tariff based thereon as per the order.
92. Before proceeding further to discuss whether in exercise of judicial review under Article 226, the Commission’s
determination is liable to be interfered with, we would like to refer to the relevant statutory provisions that prescribe the broad criteria and guiding principles which should go into the tariff fixation exercise and the various steps involved in such exercise. This calls for analysis of Section 26.
93. The licence-holder shall observe the methodologies and procedures specified by the Commission from time to time in calculating the expected revenue, from charges and in designing the tariffs to collect those revenues, (vide sub-section (1) of Section 6).
94. The Commission shall be entitled to prescribe the terms and conditions for the determination of licencee’s revenue and the tariff by regulations duly published. (vide sub-section (2)). The proviso adds that in doing so, the Commission shall be bound by the following parameters :
(b) the factors which would encourage efficiency, economic use of the resources, good performance, optimum investments, performance of licence conditions and other matters which the Commission considers appropriate keeping in view the salient objects and purposes of the Act; and
(c) the interest of the consumers.
Where the Commission departs from the factors specified in the Sixth Schedule to the Electricity (Supply) Act, while determining the licencees’ revenues and tariffs it shall record the reasons therefor. (vide sub-section (3)). Any methodology or procedure specified by the Commission
under sub-sections (1), (2) and (3) above shall be to ensure that the objectives and purposes of the Act are duly achieved, (vide sub-section (4)).
Sub-section (5) deals with the procedure for setting up the Commission in motion and the consequential obligations of the Commission. It enjoins that every licensee shall provide to the Commission in a format as specified by the Commission at least three months before the ensuing financial year full details as to its calculation for that financial year of the expected aggregate revenue from charges which it believes it is permitted to recover pursuant to the terms of its licence and thereafter it shall furnish such further information as the Commission may reasonably require to assess the licensee’s calculations.
In accordance with the above requirement, the AP TRANSCO filed on 29-12-1999 what is known as expected aggregate revenue from charges for distribution and transmission.
95. Within 90 days of the date on which the licensee furnishes the information that the Commission requires, the Commission shall notify the licensee either–
(a) that it accepts the licensee’s tariff proposals and revenue calculations or,
(b)such notice to the licensee shall specify the reasons why the Commission considers that the licensee’s calculation does not comply with the methodology or procedures specified in its licence or is in any way incorrect and
(i) propose a modification or an alternative calculation of the expected revenue from charges which the licensee shall accept.
96. Sub-section (6) provides for mode of publication of tariffs.
Sub-section (7) lays down that any tariff implemented under this section :
(a) shall not show undue preference to any consumer of electricity, but may differentiate according to the consumer’s load factor or power factor, the consumer’s total consumption of energy during any specified period, or the time at which supply is required, or paying capacity of category of consumers and need for cross subsidisation.
(b) shall be just and reasonable and be such as to promote economic efficiency in the supply and consumption of electricity; and
(c) shall satisfy all other relevant provisions of the Act and the conditions of the relevant licence.”‘
The Commission shall endeavour to fix the tariff in such a manner that as far as possible, similarly placed consumers in different areas pay similar tariff (vide sub-section (8)).
97. Sub-section (9) is important and it is extracted hereunder:
“No tariff or part of any tariff required by sub-section (6) may be amended more frequently than once in any financial year ordinarily except in respect of any changes expressly permitted under the terms of any fuel surcharge formula prescribed by regulations. At least three months before the proposed date for implementation of any tariff or an amendment to a tariff the licensee shall provide details of the proposed tariff or amendment to a tariff or amendment to a tariff to the Commission together with such further information as the Commission may require to determine whether the tariff or amended tariff would satisfy the provisions of sub-section (7), If the Commission considers that the proposed tariff or amended tariff of a licensee does not satisfy any of the provisions of sub-section (7), it shall, within 60 days of receipt of all the
information which it required, and after consultation with the Commission’s Advisory Committee and the licensee, notify the licensee that the proposed tariff or amended tariff is unacceptable to the Commission and it shall provide to the licensee an alternative tariff or amended tariff which shall be implemented by the licensee. The licensee shall not amend any tariffunless the amendment has been approved by the Commission.”
Sub-section (10) provides that the Commission shall ensure that the licencees comply with the provisions of their licences regarding their charges for the sale of electricity (both wholesale and retail) and for the use of their assets or systems in accordance with the provisions of the Act.
98. The “expected revenue from the charges” and “tariff are defined as follows in Explanation to Section 26 :
(a) “the expected revenue from charges” means the total revenue which a licensee is expected to recover from charges for the level of forecast supply used in the determination under sub-section (5) above in any financial year in respect of goods or services supplied to customers pursuant to a licensed activity;
(b) “tariff’ means a schedule of standard prices or charges for specified services which are applicable to all such specified services provided to the type or types of customers specified in type tariff notification.”
In accordance with the sub-section (9), the licensee -AP TRANSCO filed on 6-4-2000 the tariff proposals for the financial year 2000-2001.
99. We are constrained to remark that the sequential arrangement of various subsections and the language employed in subsection (5) is apt to create some confusion
and that is why there was considerable debate on the question whether subsections (5) or (9) shall be treated as the source of power for the fixation of tariff by the Commission. But, it is not necessary to resolve that controversy for the present.
100. Can it be said that the criteria and the parameters laid down in Section 26 read with the factors set out in Section 11 are infringed? Can it be said that in the process of determination of tariff, the Commission acted arbitrarily or the conclusion reached by the Commission are without basis or vitiated by perversity in approach. These are the aspects on which this Court has to address itself. In exercise of judicial review function under Article 226 of the Constitution, it is not open to the Court to find fault with the conclusion reached by the Commission on the ground that a more practical view is possible or a different approach is preferable. It is trite to say that the Constitutional Court exercising writ jurisdiction, does not place itself in the position of an appellate authority on the questions of law as well as fact and embark upon a fresh appraisal of the material placed before the Commission and lest the decision of an expert body from the standpoint of its own appraisal especially in the matters of price-fixation. As pointed out in Cyanamide ‘s case (supra), the Court refrains from going into facts and figures in detail with a view to see whether there was some error in the price fixation. The Court under Article 226 cannot undertake investigatory role. The scope of judicial review in the matter of tariff fixation has been succinctly staled by a Full Bench of this Court speaking through Sudershan Reddy, J in V.B.C. Ferro Alloy’s case (supra) in the following words:
The tariff fixation can be declared unconstitutional only if it is patently arbitrary, irrational, discriminatory or demonstrably irrelevant. The Court in
exercise of its judicial review jurisdiction ought not to normally interfere so long as the exercise of the power to fix the tariff is within the ‘zone of reasonableness’.
It is not permissible for the Courts to interfere with such tariff fixation when there is found to be a rational basis for the conclusions reached by the Board. Justice Cardozo in Mississippi Valley Barge Line Company v. United States of America (292 US 286-87; 78 L ed 1260, 1265) observed:
‘The structure of a rate schedule calls in peculiar measure for the use of that enlightened judgment which the Commission by training and experience is qualified to form…. The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body”.
This Court has no expertise to go into the intricate and complicated mechanism of tariff fixation. It would not be possible for this Court to reweigh the relevant factors and substitute its notion of expediency and fairness for that of the statutory authority”.
101. In other words, in judging the tenability of the decision of the statutory Commission entrusted with the power of tariff determination, the Court has only supervisory role to play and the enquiry is limited to the question whether the decision is contrary to the mandatory statutory provisions or the conclusion is based upon a misunderstanding of a legal principle or the decision can be said to be such that on the material available, no reasonable body of persons could have come to that conclusion. It is from this angle, we have to approach the whole issue.
102. It should be borne in mind as observed in Kerala Electricity Board v. S.N. Govinda Prabhu, AIR 1988 SC 1999, that neither the character of the licensee as a public utility undertaking nor the relevant statutory provisions preclude the Board from managing its affairs on sound economic principles though not with a profit thirst.
103. A conspectus of the order of the Commission reveals that the Commission made an in-depth analysis and critical scrutiny of various aspects and implications of tariff proposals and kept in view the criteria and parameters laid down in subsections (2) and (7) of Section 26 read with Section 11 of the Act. It is impossible to accept the contention that there was no proper application of mind to the relevant factors and principles or that the Commission mechanically accepted the tariff proposals of the licensee-APTRANSCO. We have referred in some detail to the areas of disagreement on the part of the Commission with the tariff proposals. We are unable to say that the Commission eschewed factors and took into account irrelevant factors or that the conclusions were reached without any basis or without reference to the material and the data available. That is the overall impression we get. However, as specific points having a bearing on the tariff determination were highlighted in some of the writ petitions and in the course of arguments, we proceed to deal with them.
104. The first point on which the learned Counsel for petitioners laid considerable stress was that there was no realistic estimate of distribution or commercial losses and the high percentage of losses coming upto 31% apart from the transmission loss of 4.5% which is attributable to inefficient management and pilferage, cannot be passed on to the consumers. It is contended that the proper question is not what the losses
are, but a reasonable allowance of losses that the consumers may be legitimately expected to bear. The consumers, in all fairness, be expected to bear such reasonable allowance which according to the learned Counsel has to be arrived on a ‘normative basis’ having regard to the internationally and nationally prescribed norms. Viewed from that angle, not more than 20% of the losses should be thirst on the consumers. It is contended that the amount of loss has been deliberately inflated in the name of unmetered agriculture connections and pilferage in order to pass on the burden of costs to the consumers. The guestimate made by the Commission has been critisied by the learned Counsel Mr. Gopal Choudhary.
105. The Commission discussed the subject of transmission losses in para 2.4.2. The transmission loss which was estimated at 4.5% by APTRANSCO was accepted. However, the Commission directed the licensee to install 0.2 accuracy class meters at all interface points and file a compliance report within one month. Regular and continuous energy auditing was also directed. There is not much of controversy as regards the transmission losses are concerned.
106. As regards the distribution losses, the Commission noted such losses for the year 2000-2001 at 30.90% out of which the commercial losses are estimated to be at 13%. The Commission further noted that the distribution losses is a derived figure calculated by deducting mattered sales and the assumed transmission loss of 4.5% from the gross energy purchase. After noting the contention, the Commission observed as follows:
“Much as we would like to determine the level of losses and direct the licensee to reduce the losses to a particular level, the task appears impossible in view of the present very unreliable statistics for agricultural
consumption and consequently for losses. The only reliable figure we have to go by is the level of billing which is at present 41% of the total energy purchased. Any improvement by way of regulation of agricultural consumption and reduction of losses would automatically be reflected in improved billing. When specifically asked whether it was possible to improve the billing from 41% to 51% of the generated energy, the licensee frankly replied, it would be a very difficult task, but as we see, the licensee has to make serious efforts to achieve substantial improvement in the billing to be able to collect Rs.500 crores towards efficiency improvements as committed. We therefore direct that while the licensee should strive to improve the billing to 51% should at least reach the level of 48% before 31-3-2001.”
107. There is no gainsaying that the percentage of distribution/commercial losses said to have been incurred as per the estimates of the licensee is high. Lack of reliable data of unmetered consumption of electricity, inefficient management system and unauthorized tapping of electrical energy had cumulatively given rise to this situation. At first blush, it may appear that law-abiding consumers should not be saddled with the additional burden on account of such factors accounting for high percentage of losses. But, the problem must be viewed from an overall perspective. In the absence of reliable and scientifically accurate date, it is not impermissible to make a best judgment estimate and that is what has been done by the Commission. As regards commercial losses on account of inefficient management and pilferage, it is not a new phenomenon. Unfortunately, it assumed an all time high perhaps during the previous year. The sting and impact of it has been checked to a large extent by pruning the revenue requirements by giving due allowance to expected
efficiency gain of Rs.500 crores. We must also bear in mind that the tariff structure should be such as to enable the licensee to secure a reasonable return. The reasonable return is one of the relevant considerations set out in Section 26 of the Act read with VI Schedule to the Electricity Supply Act. It is nobody’s case that even with the rates of revised tariff, the licensee would be making high profits on the lines of commercial venture. The Commission had a hard option of balancing the interests of the consumers and the licensee and to ensure that the function of the public utility concern is not debilitated by an unrealistic tariff structure. The Commission has for the first time introduced telescopic rate structure.
108. We shall now deal with the contention that the consumer contribution to the tune of Rs.488 crores shown in the balance sheet of APSEB has not been taken into account in the ARR filings of the licensee. It was clarified in the course of hearings that the amount representing consumer contribution does not include the deposits made by the consumers, but they are non-refundable service line charges. The contention of the learned Counsel for petitioner in WP No.10245 of 2000 is that by not deducting the contribution from the capital base, reasonable return is allowed to be inflated. It is further submitted that G.O. No.11, Energy (Power-Ill) dated 31-3-2000 insofar as it purports to adjust the consumer contribution to meet the Government’s liability to provide for terminal benefits of the employees of erstwhile APSEB is irrational and arbitrary. By the said GO, certain amendments were issued to the A.P. Electricity Reforms (Transfer Scheme) Rules, 1999 with effect from 1-2-1999.
109. In the counter filed by the fourth respondent in WP No.9388 of 2000, it is clarified as follows:
“The consumer’s contribution for service lines including development charges are
non-refundable and therefore considered as a part of net worth.
For proper balance sheets for the unbundled entities to enable them to function on sound commercial lines, the distortions in balance sheet of erstwhile APSEB such as inadequate provisions for doubtful debts from consumers, unserviceable inventories, old claims, and recognising the unfounded liabilities including staff related etc., had to be rectified by making restructuring adjustments.
As a part of this exercise, besides writing off retained surplus, capital grants, the consumer’s contribution for service lines also had to be adjusted as a part of net worth to accommodate the above provisions.
The consumer’s contributions adjusted for the above restructuring adjustments was Rs.893 crores.
If these are not adjusted to net worth, the provisions are normally a charge to profit and loss account and will have to be passed through tariff to consumers resulting in very heavy burden on consumers in the year of account which will be about 32 paise per unit white relief due to reduction of amount of the return on capital base will be about 3 paise per unit.”
110. The clarification given by the AP TRANSCO is acceptable and no foundation is laid for attacking the validity of GO amending the Rules. As pointed out by the learned Counsel for respondents, certain adjustments were made in the balance sheet of erstwhile APSEB to enable the new entities to start on a clean state as a part of restructuring exercise. This accounting exercise cannot be faulted especially in the face of the rules referred to above. Moreover, the effect of reducing the
consumer contribution for service lines from the capital base is likely to result in negative capital base and consequently may not ensure any return at all. Such a situation was apparently avoided by such accounting exercise.
111. It is then contended by Sri Gopal Choudhary appearing for industrial consumers that the classification of consumers according to the purpose for which the electricity is used is an impermissible classification and opposed to Section 26(7) of the Reforms Act which lays down the more reliable criterion of paying capacity. It is contended that the Commission erred in assuming that all the industrial consumers have better paying capacity than other categories and that the industrial consumers have to cross subsidise. According to the learned Counsel Sri Gopal Choudhary, the paying capacity of various categories of consumers must be ascertained first and then the need to cross subsidise must be ascertained. The Commission itself observed that there was no survey into this aspect of paying capacity. Hence, the categorisation for the purpose of providing for cross-subsidisation is not based on reliable material and is arbitrary. It is also opposed to the mandate of Section 26(7) which prohibits undue preference to any consumer of electricity, but permits differential rates on the basis of paying capacity and need for cross-subsidisation. The learned Advocate-General stressed on the expression ‘undue preference’ and submits that it is substantially different from ‘preference’. When the statute permits undue preference, it tacitly approves the differential rates to different categories of consumers. It is to be noted that undue preference was prohibited even under the provisions of Electricity Supply Act. However, the classification based on the nature and purpose of supply such as LT, HT, Industrial, agricultural, commercial and domestic was adopted and the same was approved in a catena of decisions. True, a
scientific and detailed study into paying capacity is desirable. Even in the absence of such data, it cannot be said that the Commission cannot evolve tariff on the basis of broad categorisation. There is nothing irrational in taking the view that industrial consumers have more capacity when compared to domestic and agriculture category. In fact, the Commissioner recognised the need for progressively reducing the need for cross-subsidisation by industrial sector. A dichotomy between capacity to pay and the purpose and extent of consumption of electricity cannot readily be inferred. We are unable to say that the classification adopted by the Commission, in the given circumstances, is arbitrary or violative of the mandate of sub-section (7) of Section 26.
112. There remains the question of annualisation of tariff. It is dealt with by the Commission in Para 6.3 which reads as follows :
“While on account of delayed submission of tariff proposals, there are only ten months left of the year 2000-2001 to levy and collect revenue, in the two months that passed by, the AP TRANSCO have suffered considerable revenue deficit as they realised revenues at existing tariffs only. The Commission therefore accepts the proposal of AP TRANSCO to annualise the revised tariffs so that AP TRANSCO fully covers its cost and a reasonable return.”
113. The learned Counsel for the petitioner submits that the levy of tariff which is effective from 4-6-2000 is for 301 days. It is not the case of respondents that the tariff could be or has been brought into force with retrospective effect. If so, the revenue deficit which the licensee would have faced on account of belated commencement of new tariff cannot be taken into account while determining the tariff effective from 4-6-2000. It is contended
that it amounts to doing something covertly or indirectly which the Commission cannot do directly. In other words, according to the learned Counsel, it virtually amounts to retrospective tariff. On the other hand, it is contended by the learned Counsel for respondents that the tariff determination is based on the expected revenue from charges in a financial year as a whole. When new tariff is brought into effect in the course of the year, the revenue deficit that had arisen preceding the effective date could be legitimately taken into account in fixing the new tariff, as otherwise it would result in erosion of revenue requirements for the purpose of efficiently running the undertaking. On a deeper examination, we find force in the contention of the learned Counsel for respondents. The annualisation of tariff is only a methodology of tariff fixation for the remaining part of the year having due regard to the expected annual revenue requirements and the reasonable return. It is an exercise to overcome the deficit after the tariff proposal was filed. Even if such methodology of filling up the revenue deficit in the financial year is erroneous or some other method is preferable, on that ground, we cannot strike down the tariff fixation exercise. As already indicated, an overall view has to be taken and unless the Court is satisfied that the tariff fixation is demonstrably unreasonable, the relief under Article 226 cannot be granted. We have already referred to the weighty observations of the Supreme Court in Cynamide ‘s case (supra) by which we are bound.
114. The next contention is that the tariff for distribution and retail supply ought not to have been taken up for consideration before the transmission and bulk supply tariff is established. This contention was rejected by the Commission. The Commission held that AP TRANSCO being both transmission and bulk supply licensee and distribution and retail supply licensee, a composite tariff
in the form of distribution and retail supply tariff meets the requirement as AP TRANSCO cannot sell the electricity to itself. The Commission further observed that as and when it deals with the applications for grant of distribution and retail supply licences to four distribution companies, the Commission will decide on the price at which the AP TRANSCO will sell or wheel the energy to such distribution companies. The Commission felt no need at this stage to call for separate tariff proposals and fix separate tariffs i.e., one for bulk supply and another for retail supply. The reason given by the Commission cannot be said to be irrelevant or contrary to any provision of law. Reference has been made to clause 22.3(b) of the Transmission and Bulk Supply Licence in support of the petitioners’ contention. It is contended that the licence condition requires a separate tariff to be established. We cannot agree. The said clause in the licence does not mandate or imply that even in a case where the retail supply licence is vested in the same licensee. the procedure of determination of separate tariff for both should be necessarily gone through.
115. It is then contended, relying on Section 26(9) of the Act that the tariff determined by the Commission can only be determined and enforced three months after the date of filing of the proposals. The revised tariff determined by the Commission cannot therefore be made effective from 4-6-2000 as the proposals were submitted only on 6-4-2000.
116. We have extracted sub-section (9) of Section 26. True, the licensee shall provide details of proposed tariff to the Commission atleast three months before the proposed date for implementation of the tariff. The Commission shall within 60 days of receipt of tariff proposal and
information which it requires, take a decision on the acceptability or otherwise of the tariff proposed by the licensee. On a reasonabie interpretation, these provisions do not lead to the conclusion that the tariff fixed by the Commission would take effect only three months after the proposal is submitted and the information if any required by the Commission is furnished. There is nothing which precludes the Commission to decide in a shorter time than three months. The requirement that the licensee should submit the proposals at least three months before the proposed date for implementation of tariff is merely directory and intended to facilitate the Commission to have sufficient time to examine the proposals in the light of the representations received. In support of this view, we can usefully refer to and draw support from the recent judgment of this Court in B. Sanjiva Rao v. Regional Joint Director of School Education, (DB), where the Court, speaking through S.& Nayak, J., has dealt with principles governing interpretation of statute in detail to determine whether a provision in a statute is mandatory or merely directory. It does not mean that the process of determination of tariff shall be completed and the new tariff enforced only after the expiry of three months. Such interpretation is most likely to defeat the objective underlying the provision. The duty enjoined on the licensee to file the tariff proposals atleast three months before the proposed date for implementation cannot in our view be considered to be as an embargo against implementation of tariff before the expiry of three months after the date of submission of tariff proposal if the entire process is completed by then. The contention is therefore, liable to be rejected.
117. The next contention is that the Commission has not framed any Regulations
prescribing the terms and conditions for the determination of the licencee’s revenue and tariff in accordance with Section 26(2) and therefore, the entire exercise done by the Commission is vitiated in law. It is submitted that Section 26(1} which requires the holder of licence to observe the methodologies and procedures specified by the Commission in calculating the expected revenue from charges and in designing the tariffs should be read together with Section 26(2) and the methodologies and procedures can only be prescribed by way of Regulations. It is submitted that one of the objects of the Reforms Act being to make the determination process of proposed tariff transparent, framing and publication of Regulations is essential to enable the public to effectively participate in the proceedings before the Commission. Unless there is prior publication of the terms and conditions for the calculation of revenues and tariffs, the public would not be aware of the requisite informations and the methodologies prescribed by the Commission. It is contended that Section 26(1) and 26(2) are to be read as an integral code and the use of the expression ‘may’ in sub-section (2) of Section 26 does not necessarily dilute the need for publication of the Regulations. The enabling power under Section 26(2), it is contended is a power coupled with duty. We cannot accept this contention. There is no quarrel with the proposition that framing of Regulations, Bye-laws or Rules as contemplated by the Act is not a condition precedent for enforcing the main provisions of the Act if they are otherwise capable of being enforced without reference to such subordinate Legislation. If an authority is needed, we may refer to the case of UPSEB v. City Board, Mussuori, . There is nothing in the language of subsection (2) of Section 26 which obligates the Commission to frame the Regulations before dealing with the tariff determination. We find no force in the contention that the procedure and methodologies laid down for
calculating the expected revenue from charges by the licensee could be done only by way of Regulations. Such guidelines or methodologies are primarily meant for the guidance of the licensee. It is not necessary that they should be published in the form of Regulations. The public will in no way be handicapped to file their objections against the tariff proposals submitted by the licensee for the reason that the procedure and methodology is not published before-hand. Moreover, the objector is at liberty to approach the Commission for furnishing the copy of such procedures and methodologies prescribed under sub-section (1) of Section 26. The existence of enabling provision under sub-section (2) for making the Regulations cannot be pressed into service in support of the contention that the prescription of procedures and methodologies under sub-section (1) shall also be by way of Regulations. There is no compelling reason to either read the word ‘may’ as ‘shall’ in sub-section (2) or to project the provisions of sub-section (2) into subsection (1).
118. As regards the legality of G.O. No.11, dated 31-1-2000, it has been dealt with already under Contention No.6 with regard to the proceedings of the Commission dated 31-3-2000 by which AP TRANSCO was permitted to assign certain functions relating to distribution and supply to subsidiary companies, no specific argument was advanced as to how the same is violative of Article 14 of the Constitution. Hence, we need not delve further into this aspect.
119. In view of the foregoing discussion, we find no merit in any of the contentions raised on behalf of the petitioners. However, before parting with the case, we would like to refer to one aspect which deserves the attention of the Government. For the two slabs in the domestic category i.e., from
51 – 100 and 101 – 200, the tariff hike is comparatively higher and stiff in terms of the percentage when compared to other slabs. The consumers in these brackets are either poor or lower middle class. The reason for the steep increase is said to be that from 1996 onwards, there was no enhancement. Even then, the steep enhancement at a time may result in hardship to those consumers. So also in agriculture sector, the percentage of hike is quite high. It is stated that the tariff remained static for agricultural consumers from 1996 and therefore, the hike seems to be somewhat high in terms of percentage. It is nearly 60%. The Government has thought it fit to subsidise the domestic and agricultural consumers in furtherance of avowed socio-economic objectives of the State. Even with the additional subsidy provided by the Government, the percentage of hike in the case of categories consumers referred to above appears to be, comparatively high. Though we are not inclined to give any directions as to the provision of additional subsidy for it is upto the Government to consider the question of providing additional subsidy so as to reduce the percentage of increase in respect of certain categories of domestic and agricultural sector to a reasonable level, we do hope that it would receive the earnest consideration of the Government at the earliest.
The writ petitions are dismissed with the above observations. No costs.
On a mention made by one of the learned Counsel soon after the judgment is pronounced that the time for clearance of the bills as per the revised tariff has been extended only upto September 30, 2000, we consider it just and proper to direct that in case the outstanding bills are cleared by 31-10-2000, no penalty or surcharge should be levied.