Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.5842-5889 OF 1998

Grid Corporation of Orissa Ltd. & Ors. … Appellants

Vs.

Eastern Metals & Ferro Alloys & Ors. … Respondents

WITH

CA Nos. 3 to 8 of 1999,  CA No.748 of 1999,  CA No.7246 of 2010 (Arising out of SLP (C) No.4596 of 1999)

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted in SLP(C) No.4596 of 1999.

These appeals involve the interpretation of a tariff  provision in the  

provisional  supply  and  distribution  Licence  issued  under  the  Orissa  

Electricity Reform Act, 1995 (‘Act’ for short).  

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2. The State of Orissa enacted the said Act, to restructure and rationalize  

the  generation,  transmission,  distribution  and  supply  of  electricity  in  the  

state.  

2.1) Section  3  of  the  Act  provided  for  the  establishment  of  the  Orissa  

Electricity Regulatory Commission (‘Commission’ for short), to discharge  

functions  including the  issue of  licences  in accordance  with  the  Act and  

determine the conditions of such licences.   

2.2) Chapter VI of the Act deals with licensing of transmission and supply.  

Section  14(iv)  of  the  said  Act  authorized  the  State  Government  to  grant  

provisional licences for a period not exceeding twelve months, for carrying  

on the  business  of  transmission or  supply of  electricity,  as  a  transitional  

measure  till  the  establishment  of  the  Orissa  Electricity  Regulatory  

Commission (‘Commission’ for short).  

2.3) Section 13 of the Act provided that the Grid Corporation of India Ltd.  

(‘GRIDCO’  for  short,  the  appellant  herein)  incorporated  with  the  main  

object of engaging in the “business powers” of the state government under  

section  12 of  the  Act,  would be the  principal  company to  undertake the  

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planning and co-ordination in regard to transmission and to determine the  

electricity  requirements  in  the  state  in  co-ordination  with  various  

stakeholders.  

2.4 Chapter VIII of the Act dealt with tariffs. It contained two sections -  

section  26  dealing  with  licencee’s  revenues  and  tariffs  and  section  27  

dealing with finances of licencees.

3. In exercise of the power under section 14(iv) of the Act,  the State  

Government,  by notification dated 30.3.1996, issued three licences to the  

appellant - the Provisional Orissa Transmission Licence 1996, Provisional  

Orissa  Supply  Licence  (Bulk  Supply)  1966  and  the  Provisional  Orissa  

Supply Licence  (Retail  Supply  and Distribution),  1996 --  authorising  the  

appellant to engage in the business of transmission, bulk supply and  retail  

supply and distribution of electrical energy within the State of Orissa, upon  

the terms and conditions mentioned in those licences. In pursuance of such  

licences,  the appellant took over the transmission, distribution and supply of  

electricity from the Orissa State Electricity Board (‘OSEB’ for short) with  

effect from 1.4.1996.  Part III of the Retail Supply and Distribution Licence  

(similar provisions were contained in the Provisional Transmission Licence  

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and  Provisional  Bulk  Supply  Licence  also)  related  to  “Tariffs”  and it  is  

extracted below :  

“9. Basis of Charges

9.1 The  charges  made  by  the  licensee  shall  not  exceed  on  average  117% of  those  permitted  under  the  interim  tariffs  issued  by  the  State  Government and in force on 1st April 1996.

9.2 The authority granted in clause 9.1 expires with the expiration of  this license.”

The “interim tariffs in force as on 1.4.1996 issued by the state government”,  

referred to in the said clause 9.1 were the tariffs which came into effect on  

5.11.1995,  contained  in  the  Notification  dated  28.10.1995  issued  by  the  

Orissa State Electricity Board, predecessor of GRIDCO.  

4. By notification dated 13.5.1996, the appellant revised/prescribed the  

electricity charges for different categories of consumers of electricity in the  

State as per the tariff schedule appended to the said notification with effect  

from 21.5.1996, in supersession of the tariff rates prescribed in the OSEB  

Notification  dated  28.10.1995.  The  tariff  schedule  under  the  Notification  

dated 13.5.1996, prescribed different tariff rates for (i) large industries, (ii)  

medium  industries,  (iii)  small  industries,  (iv)  irrigation  pumping  and  

agriculture, (v) public water works and sewerage pumping, (vi) commercial,  

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(vii) domestic, (viii) railway traction supply, (ix) street lighting, (x) direct  

current service, (xi) power intensive industries, (xii) heavy industries, (xiii)  

general purpose supply, (xiv) public institutions, (xv) mini-steel plants; and  

(xvi) emergency power supply to captive power plants.  

5. Several industries which were consumers of electricity and the Utkal  

Chamber  of  Commerce,  filed  writ  petitions  before  the  High  Court,  

challenging (i) the validity of section 14(iv) of the Act; (ii) the validity of the  

provisional  Retail  Supply  and  Distribution  Licence  issued  by  the  State  

Government under section 14(iv) of the Act to the appellant, in particular the  

provision of the licence which enabled the appellant to increase the tariff not  

exceeding  on  average  117%  of  those  permitted  under  the  interim  tariff  

issued  by  the  State  Government;  and  (iii)  the  tariff  notification  

dated 13.9.1996 issued by the appellant.

6. A Division Bench of the High Court disposed of the said writ petitions  

by the impugned judgment dated 30.10.1998. The High Court upheld the  

vires of section 14 (iv) of the Act and the Notification dated 30.3.1996 of the  

State of Orissa granting the provisional licences in favour of the appellant. It  

also  upheld  the  power  of  the  appellant  to  revise  the  tariff  under  the  

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provisional licence. It however held that the increase in tariff rates under the  

tariff  notification dated 13.5.1996 issued by the appellant  was more than  

17% (over the tariff rates contained in OSEB Notification dated 28.10.1995)  

in regard to some categories of consumers and as such was in excess of the  

power given to the appellant under clause 9.1 of the provisional supply &  

distribution  licence.  The  High Court  held  that  while  the  appellant  could  

increase the tariff upto 17% in terms of the licence, there was no power or  

authority to increase the tariff rates beyond 17% in respect of any particular  

category of consumers; and as the appellant had increased the tariff rates by  

different percentages in regard to different categories of consumers, in the  

absence of a specific authorization for enhancement beyond 17% in regard  

to  any category of  consumers,  it  was not  competent  for  the  appellant  to  

enhance the tariff rate beyond 17% in respect of any category of consumer.  

The  High  Court  negatived  the  contention  of  the  appellant  that  it  could  

increase the tariff by more than 17% in regard to some categories, provided  

the increase in respect of other categories was less than 17%, and the net  

overall result by way of average did not exceed 17%. As a consequence, the  

High  Court  quashed  the  tariff  notification  dated  13.5.1996  as  also  the  

demands under the respective bills raised against the various writ petitioners.  

The High Court directed the Commission to redetermine the tariff as per law  

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and further directed that any excess payments collected from the consumers  

shall be adjusted towards future demand/s.  

7. The said judgment is challenged in these appeals by special leave. The  

appellant  contends  that  Clause  9.1  of  the  Provisional  Licence  clearly  

provided that the charges made by the licensee shall not exceed 17% on an  

average, which implied that while the increase in case of some categories of  

consumers could be more than 17%, it could be less than 17% in case of  

other categories so that  the total  increase on an average does not exceed  

17%.  It  is  submitted  that  the  interim  tariffs  permitted  by  the  State  

Government and which was in force on 1.4.1996 was an average 171.6 paisa  

per unit. The revised tariff under the notification dated 13.5.1996 effective  

from 21.5.1996 was estimated to yield a revenue of Rs.1241.12 crore by sale  

of 629.1 crore units  during the whole of the year 1996-97, which would  

mean that the average tariff would be 200.15 paise per unit. During the year  

1996-97,  the  interim  tariffs  were  in  force  for  the  period  1.4.1996  to  

20.5.1996 and the revised tariff under notification dated 13.5.1996 was in  

force  from 21.5.1996 to  31.3.1997.  In  view of  it,  the  estimated yield  of  

revenue during the year 1996-97 worked out to Rs.1216.81 crore by sale of  

620.1 crore units, and the average tariff for the full year 1996-97 worked out  

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to 195.228 paise per unit. Therefore it is contended that the average increase  

in the tariff for the year 1996-97 over the interim tariff in force on 1.4.1996  

was  14.35%,  well  within  the  permissible  limits  and  did  not  violate  the  

provisions of clause 9.1 of the provisional supply and distribution licence.

8. This  Court  by  interim  order  dated  3.4.2000  directed  the  Orissa  

Electricity Regulatory Commission to determine the tariff by two methods,  

that is by taking into account the observations made by the High Court in the  

impugned  judgment,  and  the  second,  without  reference  to  the  

observations/directions of the High Court.  

9. In pursuance of the said direction, the Commission submitted a report  

dated  24.11.2000 to  this  Court  in  regard to  the  tariff  determination.  The  

Report stated :

“We have carefully examined the basic facts  and figures on which the  impugned tariff notification dated 13.05.96 was issued. The mandate for  us  is  to  redetermine  tariff  within  the  parameters  stipulated  in  the  provisional  license  that  the  charges  shall  not  exceed  117%  of  those  permitted under the interim tariffs in force. As per law, revised tariff can  be proposed by licensee when it finds that its annual revenue requirement   cannot be met by the charges fixed under prevailing tariff notification. As  the  estimated  revenue  fell  short  of  annual  revenue  requirement,  the  licensee was authorized under the temporary licensee to increase the tariff,  subject  to  the  limit  aforesaid.  Gridco  estimated  its  annual  revenue  requirement for 1996-97 at Rs.1413 crores which was at a substantially  higher level than estimated realization of Rs.1033.94 crores on prevailing  

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interim tariff.  Hence Gridco was entitled to revise tariff  but within the   parameters indicated at clause 9 of  the Licence.  The charges proposed  under impugned notification dated 13.5.1996 would raise a total revenue  of  Rs.1241.22  Crores  for  a  whole  year  and Rs.1212.83 Crores  for  the  period  upto  31.3.1997  when  provisional  license  was  to  expire.  Thus,  Gridco’s notification authorized charges considerably short of its annual  revenue  requirements.  Hence  legitimacy  of  tariff  increase  cannot  be   assailed. We  have  come  to  this  conclusion  after  taking  into  account  objections raised before us during the redetermination proceeding. We do  not consider it appropriate to burden this note with the facts, statements  and views presented by the objectors during the proceeding. It may suffice  to  say  that  there  has  been  no  serious  or  reasonable  challenge  to  the  calculation of actual revenue requirement of Gridco even though objectors  have challenged Gridco on various grounds such as lack of prudence in  purchase  of  power,  in  expenditure,  failure  to  restrict  T  &  D  Loss,  unreasonableness of increase in tariff and lack of concern for affordability  etc.  In  view  of  wide  gap  between  revenue  requirement  and  revenue  realizable, Gridco was justified in increasing tariff. But what has to be  ensured  is  whether  the  increase  was  hit  by  the  ceiling  imposed  under  clause 9 of provisional license.”

  (emphasis supplied)

The report also noticed the submission of the appellant that as the average of  

the interim tariff (as per OSEB Notification dated 28.10.1995) which was in  

force till 20.5.1996 was 171.6 paise per unit and as it was empowered to  

raise the average tariff to 117%, it had the mandate to raise the average tariff  

to 200.772 paise per unit (that is 117% of 171.6 paise); that as the interim  

tariff  under  OSEB  notification  dated  28.10.1995  was  in  operation  till  

20.5.1996 and the new tariff under GRIDCO notification dated 13.5.1996  

was in operation from 21.5.1996 to 31.3.1997, the percentage of increase  

over the interim tariff  with reference to the revenue receipts  for the said  

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period was only 200.166 paise, that is an increase of 16.65% and therefore,  

was not hit  by the ceiling of 117% imposed by the provisional  lincence.  

(For this purpose, the average tariff rate (200.166 paise) was arrived at by  

dividing the Revenue for the period when the tariff was in force, by the total  

consumption  during  that  period).  The  Report  did  not  find  anything  

unreasonable in the said contention of the appellant.  But the commission  

proceeded to opine that in the light of the definition of the word ‘tariff’ in  

the Act and the clear difference between the words ‘tariff’ and ‘charges’,  

clause 9 of the Provision Supply Licence by using the words “charges made  

by the licencee”, conferred on the appellant only a limited power of raising  

charges by a maximum of 17% for any category of consumer. It observed  

that ‘tariff’ referred to the Schedule of standard prices/charges, and “charge”  

referred to the rate to be charged for a particular category of customers and  

therefore,  ‘charges’  meant  ‘prices’.  Consequently  the  report  rejected  the  

appellant’s method of calculating the ceiling with reference to overall rate of  

tariff. The commission held that even if the observations of the High Court  

were not taken into account,  there would be a need to cut the charges in  

respect of those categories of consumers where the increase was more than  

17% as being in excess of appellant’s authorization. Consequently it  held  

that  while  the  increase  in  charges  for  the  category  of  “irrigation”  and  

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category of “railway traction” will remain unchanged (as the increase therein  

was less than 17%), there should be reduction in the tariff rates or charges  

for  all  other  categories  of  consumers  (where the increase  was more than  

17%). The Commission in effect supported the decision of the High Court.  

10. The appellant contended that the interpretation of clause 9.1, adopted  

by the High Court and the Commission was erroneous. According to the  

appellant,  the  High  Court  and  the  Commission  while  reading  and  

interpreting the words “charges made by the licensee shall not exceed on  

average 117% …..”  in  clause  9.1,  have  ignored  the  significance  of  the  

words ‘on average’ and rendered the said words redundant and otiose. The  

appellant contended that they also overlooked the fact that clause 9.1 used  

the words “charges made” and not the words “charges imposed” or “tariff  

rates”. It was also pointed out that clause 9.1 neither referred to “consumers”  

or “category of consumers”. The appellant submitted that the object of the  

provision was not to bar category-wise revisions, but to provide for different  

increases which on averaging increased the overall revenue by 17% over the  

revenue that would have been derived with reference to pre-revision tariff  

rates.  The  appellant  contended  that  the  use  of  the  word  ‘average’  was  

intended to mean that the appellant was entitled to apply different rates to  

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different  categories  of  consumers  provided  the  aggregate  of  revenue  on  

account of the increases did not exceed 17% of the revenue with reference to  

pre-revision tariff rates. The appellant contended that the provision did not  

place a ceiling of 17% in regard to increase in the tariff rates for each of the  

categories; that it was entitled to increase the tariff rates in respect of some  

categories of consumers beyond 17% while restricting the increase in the  

tariff rates for other categories to a lesser percentage, to ensure that the total  

revenue  for  the  electricity  consumed  during  the  relevant  period,  did  not  

exceed  17%  over  the  revenue  for  such  quantum  based  on  the  previous  

interim  tariff  rates.  It  was  therefore  submitted  that  the  tariff  notification  

dated 13.5.1996 was valid.   

11. The respondents on the other hand contended that the word “charges”  

in clauses 9.1 referred to the tariff rates. They relied upon the definition of  

‘tariff’ in clause (b) of explanation to section 26 of the Act which reads as  

under : “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  the  tariff”.  They  submitted  that  

“charges made” in clause 9.1 do not refer to the total revenue received by  

appellant, but referred to the tariff rates prescribed by appellant. It was next  

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contended that even assuming that the words ‘charges made’ were capable  

of  being  interpreted  in  more  than  one  way,  the  interpretation  that  is  

beneficial to the consumer should be adopted. They further contended that  

where  the  opinion/  views  of  a  technically  competent  body,  that  is  the  

Commission,  was  available  in  regard  to  the  interpretation  that  should  

normally be accepted unless it was shown to be arbitrary and unreasonable.  

12. The report of the Commission discloses that in regard to consumers  

falling under the category ‘irrigation’, the increase was only 8.33% and for  

the Railways falling under the category ‘railway traction’, the increase was  

only 10.09%. In regard to the domestic consumers, the increase was 17.47%.  

In regard to all other categories of consumers, the increase was much more.  

In  particular,  for  small  industries,  the  increase  is  said to  be 27.59%, for  

medium industries the increase is said to be 29.73% and for large industries  

the  increase  is  said  to  be  32.25%.  The  question  is  whether  clause  9.1  

authorized and permitted the appellant to increase the tariff rate in regard to  

each category of consumers, by a percentage not exceeding 17% over the  

pre-revision  tariff  rate,  or  whether  the  appellants  had  the  discretion  to  

increase  the  tariff  rate  relating  to  different  categories  by  different  

percentages (that is even more than 17% in regard to some categories) so  

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long as the overall revenue on account of different increases, did not exceed  

on the whole, 17% of the overall revenue calculated at the pre-revision tariff  

rates. The entire question would thus revolve around the interpretation of the  

words “shall not exceed on average 117%” in clause 9.1.

13. It is not disputed that clause 9.1 is capable of different interpretations.  

The three possible interpretations are:

Interpretation (i) : There can be an increase in tariff rates, but the increase in  

tariff rate in respect of any category of consumers, could not exceed 17% of  

the interim tariff rates.

Interpretation (ii) : So long as the average of the different increases does not  

exceed 17% of the interim tariff rates,  the appellant had the discretion to  

apply different rates of increases to different categories and some of them  

can exceed 17%.  

Interpretation (iii) :  The increase in tariff  rates for different categories of  

consumers  could  be  of  different  percentages,  provided  the  average  

realization per  unit  during the relevant period (arrived at  by dividing the  

estimated revenue during the period, by the estimated consumption during  

that  period)  was  not  more  than  17% of  the  average  realization  per  unit  

during the previous period when the interim tariff was in force.  

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The  first  interpretation  has  found  favour  with  the  High  Court  and  the  

Commission, having regard to the definition of ‘tariff’ in the Explanation to  

section 26 of the Act.  

14. This takes us to the correct interpretation of clause 9.1. The golden  

rule  of  interpretation  is  that  the  words  of  a  statute  have  to  be  read  and  

understood in their natural, ordinary and popular sense. Where however the  

words used are capable of bearing two or more constructions, it is necessary  

to adopt purposive construction, to identify the construction to be preferred,  

by posing the following questions:  (i) What is the purpose for which the  

provision is made? (ii) What was the position before making the provision?  

(iii)  Whether  any of the constructions proposed would lead to an absurd  

result or would render any part of the provision redundant? (iv) Which of the  

interpretations  will  advance  the  object  of  the  provision?  The  answers  to  

these questions will enable the court to identify the purposive interpretation  

to  be  preferred  while  excluding  others.  Such  an  exercise  involving  

ascertainment of the object of the provision and choosing the interpretation  

that will advance the object of the provision can be undertaken, only where  

the language of the provision is capable of more than one construction. (See  

Bengal Immunity Co. v. State of Bihar – 1955 (2) SCR 603 and Kanailal Sur  

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v.  Paramnidhi  Sadhukhan –  1958  SCR  360  and  generally  Justice  

G.P.Singh’s Principles of Statutory Interpretation, 12th Edition, published by  

Lexis Nexis - Pages 124 to 131, dealing with the rule in Haydon’s case).  

15. In  this  case,  we  have  noticed  above  that  clause  9.1  is  reasonably  

capable of more than one construction, that is at least three interpretations.  

We may therefore attempt to ascertain the true meaning of the provision by  

answering  the  four  questions  referred  in  the  earlier  para.   On  a  careful  

consideration, the answers to the four questions posed are : (i) The purpose  

of  clause 9.1 is to provide for an increase in revenue by revising the tariff  

rates, by balancing the needs of the Licencee with the interests and needs of  

different categories of electricity consumers.  (ii)  Clause 9.1 being a fresh  

provision,  the  question  of  considering  the  position  that  existed  before  

making  of  the  said  provision  does  not  arise.   (iii)  The  interpretation  

canvassed  by  the  respondents,  (that  is  interpretation  (i)  that  increase  in  

respect  of  any  category  of  consumers  cannot  exceed  17%)  which  found  

favour with the High Court and the Commission, though may not lead to an  

absurd result, would render the words ‘on average’ occurring in the clause,  

redundant and otiose. (iv) The interpretation put forth by the appellant gives  

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meaning  to  every  part  of  the  clause  and also  achieves  the  object  of  the  

clause. We will elaborate the reasons therefor.  

Re: Interpretation (i)

16. The first interpretation of clause 9.1 is that it permits increase in tariff  

rates  but  with  a  ceiling of  17% in regard to  each and every category of  

consumers,  and therefore the increase in case of no category can exceed  

17%, has found favour with the High Court and the Commission. The fact  

that  there  can be different  percentages  of  increases  in  tariff  in  regard  to  

different categories is an accepted procedure. For example a lesser tariff is  

applied  to  agriculturists  using  electricity  for  irrigation  purposes  when  

compared  to  consumers  using  electricity  for  commercial  or  industrial  

purposes. Therefore, when there is a revision of tariff rates, the percentage of  

increase  will  and  can  vary  from  category  to  category.  If  the  aforesaid  

interpretation is applied by holding that in no case, the increase can be more  

than 17%, and if in regard to some categories, increases are to be nominal, it  

will  be  impossible  to  achieve  a  17%  increase  which  is  permitted  and  

contemplated under clause (9.1). Further, the words ‘on average’ would be  

rendered meaningless if by average 17% increase cannot be achieved and if  

the  increases  cannot  exceed  17%  in  any  case.  This  interpretation,  if  

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accepted, would also prevent the licensee from creating or carving out any  

new  category  of  consumers  and  fix  the  tariff  rate  for  such  category.  

Therefore this  interpretation apart  from rendering the words ‘on average’  

redundant and meaningless, militates against the provisions of clause (9.1).  

Re : Interpretation (ii)

17. The second interpretation is that so long as the average of the different  

increases does not exceed 17% of the interim tariff rates, the appellant has  

the discretion to apply different rates of increases to different categories and  

increases  with  reference  to  some  categories  can  exceed  17%.  This  

interpretation will also lead absurd result if put into effect. Let us illustrate  

with reference to a hypothetical example (not with reference to actuals):  

S.No. Category of Use Consumption  share  out  of  total quantity of electricity  generated and distributed

Percentage  in  increase  over  the  previous  tariff  rate

1. Industry 40% 60% 2. Domestic 30% 30% 3. Irrigation 10% 1% 4. Railway traction 10% 2% 5. Public Institutions 5% 3% 6. General purposes 5% 4%

The average of the percentages of increase in regard to six categories will be  

only 16.66% which is less than 17%. But in terms of revenue realization, the  

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increase  would  exceed  not  only  17%,  but  even  as  much  as  40%  with  

reference to revenue at the previous tariff rates. This obviously was not the  

object. The average should ensure that there is no increase beyond 17% in  

regard to the total revenue.   

Re : Interpretation (iii)

18. The words used in clause (9.1) are “charges made by the licencee  

shall not  exceed on average 117% of  those  permitted  under  the  interim  

tariffs”. It is significant to note that the clause does not use the words “the  

tariff  rates  prescribed  by  the  licencee  shall  not  exceed  17%  of  those   

permitted under the interim tariffs.” The use of the words “charges” and  

‘tariffs’  in  the  same clauses  indicates  that  they  were  intended  to  signify  

different meanings. As rightly noticed by the Commission, the word ‘tariffs’  

referred to the schedule of rates. If the object of clause 9.1 was to refer to  

‘tariff rates’ prescribed by the Licence, there was no need to use the words  

“charges made”. The use of the words ‘on average’ while referring to 117%  

has also some significance. If the words “charges made by the licencee” are  

interpreted  as  “tariff  rates  fixed  by  the  licencee”,  then,  the  words  ‘on  

average’ would be rendered meaningless and becomes an useless appendage.  

The use of the words ‘charges made by the licencee’ and use of the words  

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“shall not exceed on average 117%” necessarily indicates that the rates fixed  

by the appellant should not result in an increase in realization or revenue in  

excess of 17% of what it would have realized with reference to the tariff  

rates that were earlier in force under the interim tariff. ‘Charges made by the  

licensee’  therefore  refers  to  the  total  revenue  of  appellant  by  sale  of  

electricity to the different categories of consumers.  

19. The appellant, discharging the functions of the state government under  

the  Act,  had to  ensure  that  the  burden of  increase  on  the  agriculturist  –  

consumers, that is those consuming electricity for “irrigation”, should be the  

minimum. Similarly, increase in the tariff rate for electricity consumed by  

railway  traction  had  to  be  kept  minimal  in  national  economic  interest.  

Similarly, the increase in tariff for residential user should be comparatively  

lesser than commercial user. At the same time, the appellant had to ensure an  

increase in its revenue by 17%. If increase beyond 17% was not permissible  

in regard to any category of consumers, and if some categories had to be  

subjected to only small increases far below 17%, due to economic or social  

justice criteria,  the appellant would never be able to achieve the increase  

anything in the range of 17%. Only by adopting the process of applying a  

higher than 17% increase in the case of some categories of consumers, it can  

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offset  the effect  of small  or  marginal  increase in the case of some other  

categories  like  ‘irrigation’  and  ‘railway  traction”.  Therefore,  if  appellant  

chose  to  charge  a  lesser  increase  in  percentage  to  some  categories  of  

consumers and higher increases in regard to other categories of consumers, it  

cannot be found fault with so long as its total revenue does not exceed 17%  

over the corresponding revenue with reference to the old interim tariff rates.  

If appellant would have realized ‘X’ amount as revenue at the interim tariff  

rates which were in force before 21.5.1996, the object of the increase was to  

provide an increase in revenue by 17% over ‘X’ after 21.5.1996. That is why  

the word ‘on average’ is  used in clause 9.1.  This  gives the discretion to  

appellant to charge tariff rates with different increases depending upon the  

category of consumers, so long as the overall increase in revenue, that is the  

“charges  made”  by  the  licensee,  does  not  exceed  17%.  Any  other  

interpretation would render the words ‘on average’ otiose and have the effect  

of substituting the words tariff rate for the word charges.

20. In fact, the Commission has accepted this contention of the appellant  

to a large extent as is evident from the following observations in the report  :  

“As  there  will  be  considerable  uncovered  gap  between  revenue  requirement and revenue expected. We do not find scope to bring down  the  charges  in  any category.  But  in  the  present  environment  of  cross-

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subsidy  which  is  bound to  continue  for  a  number  of  years  and in  the  absence of reliable data for calculating cost of supply and average tariff,  we consider that the relative rates for different categories of consumers for  the  interim  period  as  decided  by  GRIDCO  is  as  good  as  any  other  alternative allocation of costs and charges………

It appears that it has not been brought to the notice of the Court that all  along in the past varying charges for different categories of consumers has  been  determined  in  consideration  of  nature  and  purpose  of  use  and  affordability of different categories of consumers. The cost of supply, the  quality of supply and affordability are widely different for different classes  of  consumers.  Due  to  socio-political  decision  to  cross-subsidize  some  categories,  it  has  never  been  considered  desirable  or  possible  to  levy  uniform charges or to decide upon a uniform percentage of increase of  charges…….  

In the practice followed by electrical  utilities in the country as well  as  abroad,  the  average  “charges”  for  electricity  tariff  is  calculated  by  considering the total revenue realizable during a period divided by number  of units estimated to be sold during the period. Percentage of increase in  charges or tariff, normally refers to percentage of increase of the average  rate  over  the  overall  average rate  of  prevailing tariff  calculated  in this  method. This has been the practice mainly due to the prevalence of cross- subsidy in the electricity tariff structure in India. Even when there is no  cross-subsidy  the  rate  of  increase  in  tariff  for  various  categories  are  different because the determination is with reference to cost of supply for  a particular category of consumer. The concept of uniform rate of increase  for all categories of consumers is unknown because every time there is a  revision  the  interests  of  different  categories  are  rebalanced  in  consideration  of  public  policy,  pattern  of  consumption,  consumer  composition and revenue requirements. Viewed in this light we find some  justification in Gridco’s claim that ceiling of 117% was with reference to  overall average of interim tariff and overall average rate of new tariff. This  logic implies that there has been no clear distinction between ‘tariff’ and  ‘charges’.”

21. The reliance upon clause (2) of Explanation to section 26 of the Act to  

interpret  the  wording  of  clause  9.1  is  misconceived.  The  explanation  to  

section 26 does not define the words ‘charges made’, but defines the word  

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‘tariffs’. Under the erroneous assumption that the word “charges” referred to  

the  actual  tariff  rates  that  were  chargeable  to  different  categories  of  

consumers,  the  Commission  ignored  its  own  conclusions  and  held  that  

clause 9.1 placed a ceiling of 17% in respect of increases in the tariff rates  

applicable  to  different  categories  of  consumers.  It  is  true  that  the  

interpretation  by  a  technical  body  in  regard  to  purely  technical  matters  

deserves  acceptance  and  will  not  be  interfered,  unless  it  is  arbitrary  or  

unreasonable.  But  in  this  case,  on  technical  issues,  the  Commission  has  

favoured the stand of the appellant. Having accepted the interpretation of the  

appellant  as  being  technically  sound  and  correct,  it  reached  a  different  

conclusion  only  because  it  thought  that  the  word  ‘charges’  had  to  be  

interpreted as ‘tariff rates’. If that is found to be without basis or erroneous,  

and  therefore  ignored,  the  opinion  of  the  Commission  fully  favours  the  

appellant.  

22. We are of the view that the High Court was not justified in holding  

that the tariff rate in regard to none of the category of consumers can exceed  

17% over the previous rates. We accept the explanation and interpretation of  

the appellant. The Commission has found that the increase in revenue, on an  

average, under the tariff notification dated 13.5.1996 was only 16.65% over  

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the revenue calculated with reference to the earlier interim tariff rates. We  

therefore,  allow these  appeals,  set  aside  the  judgment  of  the  High Court  

dated  30.10.1998 and dismiss  the  writ  petitions  filed  by  the  respondents  

before the High Court and uphold the validity of the Tariff notification dated  

13.5.1996.   

…………………………..J. (R V Raveendran)

New Delhi; …………………………J. August 31, 2010. (H L Gokhale)                   

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