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PETITIONER: ASHOK SOAP FACTORY AND ANR.

       Vs.

RESPONDENT: MUNICIPAL CORPORATION OF DELHI AND ORS.

DATE OF JUDGMENT12/01/1993

BENCH: YOGESHWAR DAYAL (J) BENCH: YOGESHWAR DAYAL (J) VERMA, JAGDISH SARAN (J) VENKATACHALA N. (J)

CITATION:  1993 SCR  (1) 124        1993 SCC  (2)  37  JT 1993 (1)   128        1993 SCALE  (1)98

ACT: Delhi Municipal Corporation Act, 1957: Section    283--Levy    of    charges    for    supply    of electricity--Minimum   consumption  guarantee  charges   for ’large  industrial  powers’ consumers--Increase in  rate  in respect of Arc/induction furnaces--Validity of. Electricity Act, 1910: Section   21--Applicability  to   local   authorities--Delhi Municipal  Corporation,  being  a  licensee  by  virtue   of provisions  of the Delhi Municipal Corporation Act, and  not one  licensed  under Part II to supply energy,  Section  not applicable. Section 22, proviso--Proviso does not deal with the  minimum consumption charges. Constitution of India, 1950: Article   14--Price   fixation--Fixation   of   tariff,    a legislative  function--Hence,  fixation of higher  rate  not open to challenge on ground of non-disclosure of reasons  in the absence of any unreasonableness or  arbitrariness--Since arc/induction  furnaces  constitute a class  by  themselves, question of discrimination does not arise.

HEADNOTE: Section 283 of the Delhi Municipal Corporation Act, 1957 em- powered respondent No.1  Delhi Municipal Corporation to levy charges  for the supply of electricity on such rates as  may be  fixed  from  time to time by it.   For  the  purpose  of charging  the  consumers, the Corporation  had  divided  the consumers  into different categories/classes  providing  for different tariffs for each category.  One of the  categories was   ’large  industrial  powers’  (LIP)   consumers.    The consumers  who had a sanctioned load of 100 KWs fell in  the category of large industrial powers. 125 For the levy of charges for the supply of electricity  there were two systems of tariff, namely, the flat rate system and the  other two-part tariff system.  Under the former a  flat rate  was charged on the units of energy consumed while  the latter  system  was meant for big consumers  of  electricity i.e.  industrial power, and it was comprised of two  charges (1)  minimum  consumption guarantee charges  (called  demand

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charges) and (2)    energy charges for the actual amount  of energy consumed. Under the two-part system an LIP consumer would pay  minimum guarantee  consumption  charges  at the rate  fixed  by  the respondents.   If  the  LIP consumer  did  not  consume  the specified  minimum quantity of electricity or no  energy  at all  even then he had to pay the minimum guarantee  charges. But in case the consumer consumed more electricity then what was  prescribed by the minimum guarantee charges,  then  the consumer  paid the minimum guarantee charges and  also  paid the  electricity  charges  for  the  actual  consumption  of electricity, beyond the minimum guarantee charges, in such a manner that the minimum guarantee charges were merged in the total bill of electricity consumed and a rebate was given to the  consumer.  In other words, if a consumer consumed  more than the specified minimum quantity of electricity then,  in effect,  he  would pay for electricity  which  was  actually consumed by him. For the period from 1985-86 to 1988-89, the respondents  had fixed rates of minimum consumption guarantee charges at  the rate  of Rs. 40 per KVA for 1000 KVA and Rs38 per KVA  above 1000  KVA.  However, pursuant to a Resolution passed by  the respondent  Corporation approving the resolution  passed  by the  D.E.S.C.,  there  was an upward revision  of  rates  of minimum   consumption  guarantee  charges  in   respect   of arc/induction furnaces. As  a result, for demand charges for the first 1000 K-VA  of billing demand for the month, instead of tariff being Rs. 40 per or part thereof, it was enhanced to Rs. 340 per KVA-  or part thereof. The  appellants had set up/installed arc/induction  furnaces for   the  manufacture  of  castings  in  their   factories. Electricity  was one of the important raw materials for  the appellants   and   had   obtained   electricity   from   the respondents.  The sanctioned load was more than 100 KWS and, therefore, they fell into the LIP category and the  two-part tariff  was applicable to them.  ’The appellants filed  writ petitions before the High 126 Court  challenging the enhancement of the minimum  guarantee charges. It  was contended that the provisions of Section 21  of  the Indian  Electricity  Act, 1910 applied and the  decision  to increase  minimum charges was contrary to Section  21(2)  of the  Act, that changing the rates at which  minimum  charges were  to  be realised amounted to altering or  amending  the conditions of supply and this could not be done without  the previous  sanction of the State Government,  and  therefore, the  proposed increase was in violation of Section 21(2)  of the 1910 Act, that the minimum guarantee charges could  only be  levied under the proviso to Section 22 of the 1910  Act, that under the proviso to Section 22 the licensee could only charge  that amount which would give it a reasonable  return on  the  capital  expenditure  and  cover  standing  charges incurred by it in order to meet the possible maximum demand, that  the  respondents  had to satisfy the  Court  that  the minimum  demand charges had been raised to Rs. 340 from  Rs. 40  and  that the additional capital  expenditure  had  been incurred,  which  would justify Rs. 340 being charged  as  a reasonable return on the said capital expenditure, and  that the  tariff  vis-a-vis a consumer owning  are  furnaces  was violative of Article 14 of the Constitution inasmuch as  the other  bulk consumers in the category of LIP  consumers  had not been so treated. The High Court dismissed the writ petitions holding that  in

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case the local authority was the licensee, no prior approval of the State Government was required in law for changing the rates,  and  that  apart from proviso  to  Section  22,  the agreement  between  the parties justified the claim  of  the respondent-  Corporation for minimum  consumption  guarantee charges. Dismissing   the   appeals  preferred  by   the   consumers- appellants, this Court HELD:1.1.  Section 21(2) of the Act was  applicable  to the licensees other than the local authorities.   ’Licensee’ as defined in the 1910 Act in Section 2(h) means any  person licensed under Part 11 to supply energy’.  The D.M.C., which is  the  licensee  in the present case  is  not  a  licensee licensed under Part 11 to supply energy.  D.M.C. is licensee by virtue of the provisions contained in the Delhi Municipal Corporation Act, 1957. [136G-H, 137A] 1.2.The  proviso  to Section 22, talks  about   a  separate supply unless 127 he  had  agreed with the licensee to pay  him  such  minimum annual  sum’.  In the present case, there is no question  of any separate supply or any agreement in relation to  minimum annual  sum.   Section  22  deals  with  totally   different situation and has nothing to do with the minimum consumption guarantee  charges provided as part of the tariff  which  in turn was part of the agreement between the parties. [137E-F] 1.3.The  reasons  for the revision of  minimum  consumption charges, in respect of arc/induction furnaces, were that  in many  instances  it was noticed that the meters  where  bulk supply  was  made  were  found  to  be  defective  and   the consumption  recorded was found to be extremely low  causing loss  of huge revenue.  The arc/induction furnaces  normally run continuously and, therefore, the D.E.S.C. was  justified to  increase  the  rate  of  minimum  consumption  guarantee charges.   The  variation  in the  electricity  consumed  by different  consumers indicated that the charge of  pilferage of electricity and gross under-utilisation or consumption of electricity compared to the sanctioned load was not  without foundation.  The tabulated statement of the consumers  using induction furnaces placed on record by the respondents deals with  52 consumers including most of the  appellants.   This statement shows large variation of the electricity consumed. It  is  surprising  that the units are  still  surviving  by working  for  a short period.  On the  assumption  that  the electricity  consumed  is as per the  sanctioned  load,  the approximate number of hours for which the induction furnaces have  been  worked in a month has been stated  in  the  said statement.   There  was thus a reasonable  basis  to  assume theft  by  substantial  number  of  arc/induction   furnaces consumers.   The consumer contracts for a minimum supply  of electricity  of certain dimensions and the D.M.C.  which  is licensee  in the present case, has to buy energy by  way  of bulk supply from outside sources and has to keep it  readily available for the consumer for the whole year round.  Surely the  consumer,  who  contracts for  such  high  quantity  of energy,  does so because of its need and not for keeping  it as  stand  by,  without paying for,  it.   No  licensee  can possibly  keep  such  enormous quantity  of  electricity  in reserve  for  a  consumer, month after  month,  without  its consumption.   That is why in the tariff, which was part  of the  agreement, for LIP consumers there was two part  tariff system   partly  minimum consumption guarantee  charges  and partly for actual energy consumed. [138F-H, 139A-B-D] 1.4.It  was  also stipulated that  the  minimum  consumption guarantee

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128 charges  would  not  be payable if a  consumer  utilises  or consumes 60% of the sanctioned load.  The rate per unit  had not been changed.  It was only the minimum guarantee charges which  has been revised.  If a consumer consumes  more  than 60%  of  the  sanctioned  load, then  he  is  not  adversely affected by the revision of the minimum demand charges  from Rs.  40 per KVA per month to Rs. 340 per KVA per month.   It is   difficult   to  appreciate  or   understand   how   the manufacturers  using arc/induction furnaces could have  such variation in the consumption of electricity, as indicated in the  tabulated statement, except to suggest that  there  was large  scale  pilferage of electricity.  It is not  easy  to accept  that induction furnaces having sanctioned  loads  of more  than 1000 KW consuming electricity, if converted  into approximate number of hours worked in a month at the maximum load,  being as little as 18.1 hours especially  when  there were  instances  of other induction furnaces  consuming  far more number of units per month.  The respondents had to keep in readiness the supply of energy as per the sanctioned load of various consumers and were incurring expenditure for  the generation,  supply  or  purchase of  the  same.   When  the consumers were not paying for it, the respondents  obviously had no option but to revise the minimum demand charges so as to  cover up and make good the generating and supply  costs. [139E-H, 140A] 1.5.In  the present case, the respondents  themselves  have placed  figures to demonstrate the formula on the  basis  of which  the  rate  of Rs. 340 per KVA has  been  fixed.   Ile formula shows that if 60% of the load sanctioned is utillsed then  there is no unreasonableness or excessiveness  in  the tariff. [140D] 1.6.The  recommendations of the D.E.S.C. were justified  on facts and were rightly accepted by the D.M.C. in raising the minimum  consumption guarantee charges to Rs. 340  per  K-VA per  month  for  the  first  1000  K-VA  which  are  neither unreasonable nor arbitrary. [140F] 1.7.The  tariff was fixed by D.E.S.C. with the approval  of the D.M.C. in view of the power conferred under Section  283 of the Corporation Act [140H,141A] 2.1.The  fixation of tariff is a legislative  function  and the  only challenge to the fixation of such levy can  be  on the  ground of unreasonableness or arbitrariness and not  on demonstrative grounds in the sense that the reasons for  the levy of charge must be disclosed in the order 129 imposing  the levy or disclosed to the court, so long as  it is based on objective criteria. [140B] 2.2.As  bulk  consumers  belonging  to  LIP  category,  the consumers   of  arc/induction  furnaces  are  a   class   by themselves  and,  in any case, the revision is  as  per  the agreement  between the licensee and the consumers  which  is neither  unreasonable nor arbitrary and therefore, there  Is no  discrimination.   All the appellants  had  entered  into agreements with the respondent-Corporation and clause  15(a) thereof  provided that the consumer shall be liable  to  pay for  whatever  surcharge or increase in these rates  as  may from time to time be levied or made by the Undertaking.  Any other  method of charging decided by the  Undertaking  shall also be applicable. [140G, 134G, 135B]

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1478  of

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1990. From  the Judgment and Order dated 1.3.90 of the Delhi  High Court in Civil Writ Petition No. 1744 of 1989.                          WITH CA. Nos. 1474-1476, 1473, 1479-1483, 1477, 1484-1511,  1518, 1543 of 1990 and 4206 of 1991. R.K  Jain,  Harish N. Salve, P.P. Tripathi,  Tripurari  Ray, Mukul Mudgal Vineet Kumar, Ms. Kamini Jaiswal, Ashok  Mathur and Ranjit Kumar for the appearing parties. The Judgment of the Court was delivered by YOGESHWAR  DAYAL, J. These are batch of appeals against  the judgment  of Delhi High Court dated 1st March, 1990  whereby the  High Court by a common judgment disposed of a bunch  of writ  petitions, inter alia, filed by Gulab Rai against  the Municipal Corporation of Delhi and others. The challenge in the writ petitions was to the Resolution of the Municipal Corporation of Delhi (hereinafter referred  to as  M.C.D.)  whereby it approved the proposal of  the  Delhi Electricity Supply Committee (in short D.E.S.C.) to  enhance minimum consumption guarantee charges from Rs. 40 per KVA to Rs. 340 per KVA in respect of arc/induction 130 furnaces. The  petitioners in the writ petitions had set  up/installed arc/induction  furnaces for the manufacture of castings  and have their factories in Delhi. One of the important raw-materials for the writ  petitioners is  electricity.   Each  of  the  petitioners  had  obtained electricity from the respondents and the sanctioned load  is more  than  100 KWS.  The exact sanctioned load,  among  the various  writ petitioners, varies, depending upon  the  size and capacity of the furnaces set up by them but each one  of them has a sanctioned load of more than 100 KWS. The  case of the petitioners before the High Court was  that Section  283  of the Delhi Municipal Corporation  Act,  1957 (hereinafter referred to as ’the Corporation Act’)  empowers respondent  No.1 (D.M.C.) to levy charges for the supply  of electricity on such rates as may be fixed from time to  time by  the D.M.C. in accordance with law.  For the  purpose  of charging the consumer, the D.M.C. has divided the  consumers in  different  categories/classes  providing  for  different tariffs for each category.  One of the categories is  ’large industrial power’ (LIP) consumers.  The consumers who have a sanctioned  load  of 100 KWS fall in the category  of  large industrial  powers.   The writ petitioners fall  under  this category  as each one of them has a sanctioned load of  more than  100  KWS.  For the levy of charges for the  supply  of electricity  there  are  two systems  of  tariff  which  are followed,  namely  the flat rate system and the  other  two- part  tariff  system.   Under the former,  a  flat  rate  is charged  on  the units of energy consumed while  the  latter system  is  meant  for big  consumers  of  electricity  i.e. industrial  power,  and it is comprised of two  charges  (1) minimum   consumption  guarantee  charges   (called   demand charges)  and  (2) energy charges for the actual  amount  of energy consumed. It  was  the case of the petitioners  that  two-part  tariff system  was  applicable to them.  Under this system  an  LIP consumer  pays minimum guarantee consumption charges at  the rate fixed by the respondents.  If the LIP consumer does not consume the specified minimum quantity of electricity or  no energy at all even then he has to pay the minimum  guarantee charges.  But in case the consumer consumes more electricity that  what  is prescribed by the minimum  guarantee  charges then  the  consumer pays the minimum guarantee  charges  and

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also pays the electricity charges for the actual consumption of electricity beyond the minimum 131 guarantee  charges,  in  such  a  manner  that  the  minimum guarantee   charges  are  merged  in  the  total   bill   of electricity consumed and a rebate is given to the  consumer. In  other  words,  if  a consumer  consumes  more  than  the specified  minimum quantity of electricity then, in  effect, he  win  pay for electricity which is actually  consumed  by him. For  the period from 1985-86 to 1988-89 the respondents  had fixed rates of minimum consumption guarantee charges at  the rate of Rs. 40 per KVA for 1000 KVA and Rs. 38/per KVA above 1000  KVA.  The tariff for the LIP consumers in  respect  of the  aforesaid  period,  including  the  minimum   guarantee charges, as fixed by the respondents was as follows (d) Tariff Demand charges First 1000 KVA of billing demand for the month Rs. 40.00 per KVA or part thereof. All above 1000 KVA of billing demand for the month. Rs. 38.00 per KVA or part thereof. First 5,00,000 units per month at 15 paise per unit. All above 5,00,000 units per month at 84 paise per unit. Subject to: a maximum overall rate of Rs. 1.10 per KVA without prejudice to  the minimum payment as laid down in item (g)  below  and adjustment  clause at (xvii) above under General  Conditions of applications. Item (g) of the said tariff prescribes that the minimum bill would be the amount of the demand charges based upon the KVA of billing demand.  Item (g) reads as under:- "(g) Minimum Bill The amount of the demand charges based upon the KVA of billing demand.’ 132 The  billing as per the aforesaid tariff had been  explained by the petitioners before the High Court with the  following illustration ’(a)  If a consumer with a sanctioned load of 1000 KVA  does not consume any energy in a given month, he would be  liable to pay the minimum guarantee charge of Rs. 40,000 i.e.  1000 KVA (sanctioned load/contracts demand) x 40 (minimum guarantee charge)                   = Rs. 40,000 Even if he consumes electricity, but the value of the  units actually  consumed by him works out to less than Rs.  40,000 which  is  the minimum consumption guarantee  charges,  even then  he will have to pay the minimum consumption  guarantee charges of Rs. 40,000. (b)In the event one consumer consumes energy of the  value of  more than Rs. 40,000, then the billing would be done  in the following manner :- Assuming   that  the  consumer  consumes  80,000  units   of electricity :-      1000 KVA (sanctioned load)= Rs. 40,000      X 40 (rate of minimum      guarantee charges).      80,000 (units consumed)      0.85 paise (energy charge)= Rs. 68,000 per unit.           ------------------------                      TotalRs. 1,08,000                      ---------------------- In  terms of the tariff, the maximum charge cannot  be  more than  the  over  all rate of Rs.  1.10  per  unit  consumed. Therefore, 80,000 units consumed would be chargeable at  the

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maximum  rate  of Rs. 1.10 per unit which works out  to  Rs. 88,000.  Since the amount of Rs. 1,08,000 is higher than Rs. 88,000  i.e. by Rs. 20,000 a rebate of Rs. 20,000  would  be given to the consumer and the consumer would be billed  only for Rs. 88,000. It  would be thus evident from the above  illustration  that the consumer, in any event, has to pay the minimum guarantee 133               charge  even if the value/price of the  energy               actually  consumed  is more than  the  minimum               consumption  guarantee charges, the amount  of               the minimum consumption guarantee gets  merged               into/with the energy charges." It was then submitted on behalf of the writ petitioners that the General Manager of respondent No.2 wrote a letter  dated 24th January, 1989 to DE.S.C. inter alia, proposing revision of rates of minimum consumption guarantee charges in respect of  arc/  induction furnaces.  In this  letter  the  General Manager gave the figures of the fixed expenditure per KW per month.  It was stated that the rates of minimum  consumption guarantee  were  fixed  in 1985 and the  increase  in  fixed expenditure  per KW per month necessitated the  revision  of rates of minimum consumption guarantee charges.  It was also mentioned that the transmission and distribution losses were quite  high  and  they fell  into  two  categories,  namely, technical  losses  and  commercial losses.   The  cause  for commercial  losses was explained by the General  Manager  in the following words :-               "The Commercial losses are also attributed  to               pilferage/  fraudulent abstraction  of  energy               etc.  The minimum consumption guarantee  being               quite  low also attributes to the tendency  of               fraudulent   abstraction  of  energy.    After               giving   a  serious  thought  to  reduce   the               pilferage/fraudulent abstraction of energy, it               has been felt desirable to revise the rate  of               minimum consumption guarantee to a  reasonable               level so that consumers are not attracted  for               such   unfair   means  and   the   rates   are               commensurate with the fixed expenditure  being               measured by the undertaking." In  the  proposal  contained in this letter,  there  was  no suggestion  for increase of minimum consumption  charge  for domestic  category  but for other  categories  increase  was recommended  and  in respect of aec/induction  furnaces  the increase for minimum consumption guarantee charge was to  be Rs. 340 instead of Rs. 40 per KVA. This  proposal contained in the letter dated  24th  January, 1989  was discussed by the D.E.S.C. in its metting  held  on 9th  March,  1989  and the case was  referred  back  to  the General   Manager  to  inform  the  D.E.S.C.   whether   the respondent  was  recovering its dues from  the  bulk  supply consumers  based  on  their  actual  consumption.   Pursuant thereto, the 134 General Manager wrote another letter dated 23rd March,  1989 to  D.E.S.C.  and  inter alia, stated that  the  billing  is normally  done on the basis of consumption recorded  in  the meters but in many instances it has been noticed that meters were  found to be defective.  The consumption  recorded  was found  to  be  much  less than  the  consumption  which  was recorded  in  the  previous year and when  compared  to  the connected  load, the consumption was found to  be  extremely less  in  many  cases causing loss of  huge  amount  to  the Undertaking.  It was also stated in this letter that for the

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aforesaid  reason "the proposal was put up to  D.E.S.C.  for levy  of higher minimum consumption charges in the  case  of arc/induction furnaces on basis of their load.  It is  worth mentioning  that  these furnaces normally  run  continuously and,  therefore, levy of minimum charges is considered  jus- tified." The  aforesaid proposal of the General Manager was  accepted by  D.E.S.C.  by Resolution dated 30th March,  1989  and  it recommended to the D.M.C. that the proposed revised rates of minimum  consumption guarantee charges be approved  only  in respect  of  plastic  and arc/induction  furnaces  in  their respective categories. Pursuant  to the aforesaid Resolution of the  D.E.S.C.,  the D.M.C. also vide its Resolution dated 1st May, 1989 approved the enhancement of the minimum consumption guarantee charges only in respect of arc/induction furnaces to Rs. 340 per KVA or part thereof instead of Rs. 40/ per KVA. The writ petitions, out of which the present appeals  arise, were   filed  by  the  owners  of   arc/induction   furnaces challenging   the  aforesaid  enhancement  of  the   minimum consumption guarantee charges. The result of the enhancement by the aforesaid Resolution of the  D.M.C. was that for demand charges for the  first  1000 KVA of billing demand for the month, instead of tariff being Rs.  40 per KVA or part thereof it was enhanced to  Rs.  340 per KVA or part thereof. It is common case that all the writ petitioners had  entered into  agreements  with the D.M.C and  clause  15(a)  thereof provided as follows:-               "15(a)  The consumer shall pay each  month  to               the Undertaking for electrical energy supplied               during  the  preceding month  such  amount  as               shall   be  calculated  and   ascertained   in               accordance               135               with the Rate-Schedule L.I.P. attached hereto.               The rates contained in the schedule are  those               in  force  at  the  time  of  executing   this               agreement.  The consumer shall be eligible for               whatever reduction or rebate as may be granted               on  the rates and shall be liable to  pay  for               whatever surcharge or increase in these  rates               as may from time to time be levied or made  by               the Undertaking. Any other method of  charging               decided  by  the  Undertaking  shall  also  be               applicable.’ The rate schedule of the L.I.P. consumers, which was part of the  agreement,  for  the  year  1988-89  has  already  been reproduced above. Various contentions were urged by the appellants before  the High Court.  One of the main contentions raised was that the provisions of section 21 of the Indian Electricity Act, 1910 (hereinafter  referred to as ’the 1910 Act’) apply  and  the decision to increase minimum charges is contrary to  section 21(2) of the said Act. it  was submitted that changing the rates at  which  minimum charges  are to be realised amounts to altering or  amending the conditions of supply and this could not be done  without the previous sanction of the State Government.   Adraittedly the  State Government had not, in the present case,  granted the approval for the change in the rates and, therefore, the proposed  increase was in violation of section 21(2) of  the 1910 Act.  The High Court rejected this submission and  held that in case the local authority was the licensee, no  prior approval  of  the  Government  for  changing  the  rates  is

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required in law. It was next submitted before the High Court that the minimum guarantee  charges can only be levied under the  proviso  to section 22 of the 1910 Act.  It was submitted that under the proviso  to  section 22 the licensee can  only  charge  that amount which will give it a reasonable return on the capital expenditure  and  cover standing charges incurred by  it  in order to meet the possible maximum demand.  According to the learned  counsel the respondents have to satisfy  the  Court that the minimum demand charges have been raised to Rs.  340 from Rs. 40 and that the additional capital expenditure  had been incurred which would justify Rs. 340 being charged as a reasonable return on the said capital expenditure. The  High Court rejected this submission and took  the  view that apart 136 from  proviso  to  section 22,  the  agreement  between  the parties  justified  the  claim of  the  D.M.C.  for  minimum consumption guarantee charges. The  next submission of the appellants was that  the  tariff viz-a-viz  a  consumer owning arc furnace was  violative  of Article 14 of the Constitution in as much as the other  bulk consumers in the category of LIP consumers have not been  so treated.   The High Court rejected this contention also  and dismissed the writ petitions. Before  us also the arguments have been uged by the  various counsel who appeared during the hearing of the batch of  the appeals on similar lines. Before  considering  the  first  submission  based  on   the provisions  of  section 21(2) of the 1910 Act  it  would  be useful  to  notice the provisions  thereof.   Section  21(2) reads as follows :-               "21(2)  A  licensee  may.  with  the  previous               sanction of the State Government, given  after               consulting  the  State Electricity  Board  and               also  the local authority, where the  licensee               is  not the local authority,  make  conditions               not  inconsistent  with this Act or  with  his               licence or with any rules made under this  Act               to regulate his relations with persons who are               or  intend to become consumers, and may,  with               the   like  sanction  given  after  the   like               consultation,  add  to or alter or  amend  any               such conditions; and any conditions made by  a               licensee  without such sanction shall be  null               and void :               Provided that any such conditions made  before               that  23rd  day  of January,  1922  shall,  if               sanctioned   by   the  State   Government   on               application  made by the licensee before  such               date; as the State Government may, by  general               or  special  order,  fix in  this  behalf,  be               deemed  to have been made in  accordance  with               the provisions of this Sub-section." It will be noticed that this provision is applicable to  the licensees  other than the local authorities.  "Licensee"  as defined  in the 1910 Act in section 2(h) means  ’any  person licensed under part II to supply energy’.  The D.M.C., which is  the  licensee  in the present case  is  not  a  licensee licensed under part 11 to supply energy.  D.M.C. is licensee by virtue of the 137 provisions contained in the Delhi Municipal Corporation Act, 1957. Coming to the second submission urged before the High  Court

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the provisions of section 22 of the 1910 Act may be  noticed :               "22.  Obligation on licensee to supply  energy               where energy is supplied by a licensee,  every               person within the area of supply shall, except               insofar as is otherwise provided by the  terms               and conditions of the licence, be entitled, on               application, to a supply on the same terms  as               those on which another person in the same area               is  entitled  in similar  circumstances  to  a               corresponding supply :               Provided  that no person shall be entitled  to               demand,  or  to continue to  receive,  from  a               licensee  a supply of energy for any  premises               having a separate supply unless he has  agreed               with  the licensee to pay to him such  minimum               annual  sum  as  will give  him  a  reasonable               return  on the capital expenditure,  and  will               cover  other standing charges incurred by  him               in  order to meet the possible maximum  demand               for  those  premises, the sum  payable  to  be               determined in case of difference or dispute by               arbitration." The reliance before us was placed by the learned counsel for the  appellants  on the proviso to section 22.  It  will  be noticed  that  the proviso talks about  ’a  separate  supply unless  he  has  agreed with the licensee to  pay  him  such minimum  annual  sum’.   In the present  case  there  is  no question of any separate supply or any agreement in relation to  minimum  annual  sum.  Section  22  deals  with  totally different  situation and has nothing to do with the  minimum consumption guarantee charges provided as part of the tariff which intern was part of the agreement between the parties. In  the  present  case, on facts, the challenge  is  to  the tariff.  As stated above, the tariff is the two part  tariff system.   The  two part tariff system is  comprised  of  two charges   (i) minimum consumption guarantee  charges  called demand charges and (ii) energy charges for the actual amount of energy consumed.  Under this system an LIP consumer  pays a minimum guarantee consumption charges at the rate fixed by the  D.M.C.  If  the  LIP  consumer  does  not  consume  the specified  minimum quantity of electricity or no  energy  at all even then he has to pay minimum consumption guaran- 138 tee  charges.   But  in  case  the  consumer  consumes  more electricity  than  the minimum, then the consumer  pays  the electricity   charges   for  the   actual   consumption   of electricity   beyond  the  minimum   consumption   guarantee charges, in such a manner that minimum consumption guarantee charges  are  merged  in  the  total  bill  for  electricity consumed.  In other words, if a consumer consumes more  than the  specified  minimum  quantity of  electricity  then,  in effect,  he  will  pay for  electricity  which  is  actually consumed  by  him.  As stated earlier  the  appellants  have obtained  licenses  for  the  supply  of  electricity  to  a sanctioned  load  of more than 100 KW and they fall  in  the category  of  LIP and the two part tariff is  applicable  to them.  For the period 1985-86 to 1988-89 the respondents had fixed rates of minimum consumption guarantee charges at  the rate  of Rs. 40 per KVA for 1000 KVA and Rs. 38 per KVA  for consumption above 1000 KVA. We  had  already  noticed the reasons  which  persuaded  the D.E.S.C.  to  justify & recommend the  increase  in  minimum consumption  guarantee charges to the D.M.C. The  commercial losses  mentioned in the letter of the General Manager  were

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attributed  to  pilferage/fraudulent abstraction  of  energy etc.  The minimum consumption guarantee charges being  quite low   also   attributed  to  the  tendency   of   fraudulent abstraction  of  energy and it was after  giving  a  serious thought  to reduce the pilferage/fraudulent  abstraction  of energy,  the  D.M.C. felt desirable to revise  the  rate  of minimum consumption guarantee charges to a reasonable  level so that consumers are not tempted to adopt such unfair means and  the rates are commensurate with the  fixed  expenditure being  measured  by the undertaking.  The  reasons  for  the revision  of  minimum  consumption charges,  in  respect  of arc/induction  furnaces, were that in many instances it  was noticed  that meters where bulk supply were made were  found to be defective and the consumption recorded was found to be extremely   low   causing  loss  of   huge   revenue.    The arc/induction   furnaces  normally  run  continuously   and, therefore,  it  was  justified  to  increase  the  rate   of consumption   guarantee  charges.   The  variation  in   the electricity  consumed by different consumers indicated  that the  charge  of pilferage of electricity  and  gross  under- utilisation  or consumption of electricity compared  to  the sanctioned load was not without foundation.  The respondents had placed on record a tabulated statement of the  consumers using induction furnaces before the High Court.  If we  look at  the  said chart reproduced in the judgment of  the  High Court under appeal it deals with 52 consumers including most of the appellants.  This statement shows large variation of 139 the electricity consumed, particularly at serial Nos. 2, 13, 15,  26  & 44. If. we look at consumer at serial No.  14  it shows  that the unit worked only for 29 hours in  the  whole month as per the consumption per unit per month. Whereas the unit at serial No. 26, had a sanctioned load of 1573.11 KWS, the approximate number of hours worked by it in a month were 106 i.e. little more than 4 days in month. It is  surprising that  the units are still surviving by working for  a  short period.  On the assumption that the electricity consumed  is as  per the sanctioned load the approximate number of  hours for which the induction furnaces have been worked in a month has  been  stated in the said statement. There  was  thus  a reasonable  basis to assume theft by substantial  number  of arc/induction,  furnaces consumers It will be  noticed  that consumer  contracts for a minimum supply of  electricity  of certain  dimensions and the D.M.C. which is licensee in  the resent  case, has to buy energy by way of bulk  supply  from outside sources and has to keep it readily available for the consumer for the whole year round. Surely the consumer,  who contracts for such high quantity of energy, does so, because of  its  need and not for keeping it as  stand  by,  without paying  for it. No licensee can possibly keep such  enormous quantity  of  electricity in reserve for a  consumer,  month after  month,  without its consumption. That is why  in  the tariff,  which was part of the agreement, for LIP  consumers there was two part tariff system  partly minimum consumption guarantee charges and partly for actual energy consumed. It  was  also stipulated that the  minimum  consumption guarantee  charges  would  not  be  payable  if  a  consumer utilises  or consumes 60% of the sanctioned load.  The  rate per  unit  had  not been changed. It was  only  the  minimum guarantee  charges  which has been revised.  If  a  consumer consumes  more than 60% of the sanctioned load, then  he  is not adversely affected by the revision of the minimum demand charges from Rs. 40/- per KVA per month to Rs. 340/- per KVA per  month. it is difficult to appreciate or understand  how the  manufacturers using arc/induction furnaces  could  have

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such  variation  in  the  consumption  of  electricity,   as indicated in the tabulated statement, except to suggest that there  was large scale pilferage of electricity. It  is  not easy  to  accept that induction furnaces  having  sanctioned loads  of  more  than  1000  KW  consuming  electricity,  if converted into approximate number of hours worked in a month at  the  maximum  load,  being  as  little  as  18.1   hours especially  when  there were instances  of  other  induction furnaces  consuming far more number of units per month.  The respondents had to keep in readiness the supply of energy 140 as  per  the sanctioned load of various consumers  and  were incurring expenditure for the generation, supply or purchase of the same.  When the consumers were not paying for it, the respondents  obviously  had  no option  but  to  revise  the minimum  demand charges so as to cover up and make good  the generating and supply costs. Apart  from  that the fixation of tariff  is  a  legislative function and the only challenge to the fixation of such levy can  be on the ground of unreasonableness  or  arbitrariness and  not  on  demonstrative grounds in the  sense  that  the reasons  for  the levy of charge must be  disclosed  in  the order  imposing the levy or disclosed to the court, so  long as it is based on objective criteria. In  the present case the respondents themselves have  placed figures to demonstrate the formula on the basis of which the rate  of Rs. 340 per KVA has been fixed.  The formula  shows that if 60% of the load sanctioned is utilised then there is no unreasonableness or excessiveness in the tariff.  It  was explained that if the furnaces in question work for 24 hours a  day  for 25 days in a month at a load factor of  60%  the consumption against 1 KW would be equal to 1 x 24 x 25 x .60 =  360  units.   Over all energy  consumption  rate  (demand charges proportionate to one unit + per unit energy rate) is Rs. 1.10 per unit.  The total amount per KW per month 360  x 1.10  = Rs. 396.  Again the consumption per KVA at the  rate of  0.85 (power factor) would come to 306 units and a  total amount  per KVA per month at the rate of Rs. 1.10  per  unit would come to Rs. 336.60 ps. i.e. rounded to Rs. 340 for the purpose of minimum consumption guarantee charges. We  are  thus  satisfied that  the  recommendations  of  the D.E.S.C.  were justified on facts and were rightly  accepted by  the D.M.C. in raising the minimum consumption  guarantee charges to Rs. 340 per KVA per month for the first 1000  KVA which are neither unreasonable nor arbitrary. Coming to the plea of discrimination it will be noticed that as bulk consumers belonging to LIP category the consumers of arc/induction  furnaces are of a class by themselves and  in any  case the revision is as per the agreement  between  the licensee and the consumers which is neither unreasonable nor arbitrary and thus the plea of discrimination has no merit. The  tariff was fixed by D.E.S.C. with the approval  of  the D.M.C. in 141 view  of  the  power  conferred under  section  283  of  the Corporation  Act.  Again in view the proviso to Section  277 of  the  Corporation  Act no  arguments  were  addressed  on various  clauses of the Schedule to the  Indian  Electricity Act, 1910. There  is  thus no merit in these appeals and the  same  are accordingly  dismissed with costs. N.P.V.                                  Appeals dismissed. 142

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