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PETITIONER: JAGADAMBA PAPER INDUSTRIES (PVT.) LTD. ETC. ETC.

       Vs.

RESPONDENT: HARYANA STATE ELECTRICITY BOARD & ORS. ETC.

DATE OF JUDGMENT29/09/1983

BENCH: MISRA RANGNATH BENCH: MISRA RANGNATH SEN, AMARENDRA NATH (J)

CITATION:  1983 AIR 1296            1984 SCR  (1) 165  1983 SCC  (4) 508        1983 SCALE  (2)1008  CITATOR INFO :  R          1988 SC 985  (8)  R          1990 SC1851  (36)

ACT:      Indian Electricity  (Supply) Act,  1948, Sections 39(1) read with  clauses  22  and  31  of  the  Standard  Contract Agreement to supply electricity-Power of the Board to amend, revise  and  change  schedule  of  tariff  and  charges  and conditions of supply of electricity-Whether the power can be assailed  so   long  it  is  not  exercised  arbitrarily  or unreasonably-Sub-para (a)  of the first proviso to clause VI of the Indian Electricity Act, 1910, scope of.

HEADNOTE:      From 1968, the Haryana State Electricity Board has been collecting security  from every  consumer to  ensure  timely clearance of  energy bills  and in  the case  of  industrial consumers the security was worked out at Rs. 30 per KW. With effect from  1st April  1981, the  amount was changed to Rs. 100 per  KW. Similarly  in regard  to the industrial meter a different basis  has been adopted and from April 1, 1981 the security deposit now varies between Rs. 5,000 and Rs. 10,000 in regard  to industrial  consumers.  The  petitioners  have therefore, challenged  the said  unilateral increase  on the ground that the enhancement is without any justification.      Dismissing the petitions, the Court      HELD: 1.  To contend that the Electricity (Supply) Act, 1948 and  the Rules  made thereunder  do not contemplate any provision for  security for  the timely  payment  of  energy charges is not correct. Sub-para (a) of the first proviso to clause VI  of the  schedule to  the Indian  Electricity Act, 1910 would  be  applicable  and  what  would  be  sufficient security should  be left to the Electricity Board to decide. [171 E-F]      Krishna Cement  Works v.  The Secretary APSEB, AIR 1979 AP 291  approved. M/s. B. R. Oil Mills v. Assistant Engineer (D) (RSEB),  Bharatpur &  Anr., AIR  1981 Raj. 108; and M/s. Goodyear India  Ltd. v.  H.S.E.B. &  Ors. CW.  4765/81 dated 9.4.82 Pb.  & Haryana  H.C. referred to Modi Industries Ltd. (Steel Section)  v. U.P.  State Electricity  Board AIR  1979 All. 375;  M/s. Devidayal  Metal Industries v. The Municipal Corporation for  Greater Bombay  & Anr.  AIR 1980  Bom.  154

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distinguished.      2:1 Section  49(1) of  the Indian  Electricity (Supply) Act, 1948  clearly  indicates  that  the  Board  may  supply electricity to  any person upon such terms and conditions as the Board thinks fit. In exercise of this power the Board 166 had initially  introduced the  condition regarding  security and each of the petitioners had accepted the term. The Board has been conferred statutory power under s. 49(1) of the Act to determine  the conditions on the basis of which supply is to be  made. This  Court in  Bisra Stone Lime Company Ltd. & Anr. Etc. v. Orissa State Electricity Board & Anr., [1976] 2 SCR 307.,  took the view that enhancement of rates by way of surcharge was  well within  the power of the Board to fix or revise the  rates of tariff under the provisions of the Act. What applied  to the  tariff  would  equally  apply  to  the security, that  being a condition in the contract of supply. Each of  the petitioning  consumers had  agreed  to  furnish security in  cash for payment of energy bills at the time of entering into  their respective supply agreements. There was no challenge  in these  writ petitions  that the  demand  of security at  the time of entering into supply agreements has to be struck down as being without jurisdiction.      [172 G-H; E-F]      2:2 Under clause 31 of the Agreement the Board reserved to itself  the right  to amend,  cancel or add to any of the schedules and conditions at any time. The provisions of this clause are  similar to clause 13 of the agreement which came to be considered in Bisra Lime Stone Company’s case (supra). Therefore, the  Board  had  authority  under  the  agreement itself to  amend the  conditions. In  exercise of that power the Board has now raised the additional demand. [173 A-B]      2:3. It  is true  that the affairs of the Boards in the different States of the country are not upto the expectation of the  consumers and  there have  been instances which give rise to  genuine anguish  and dissatisfaction. The scheme of the Act  clearly indicates  a legislative  mandate that  the Board should  manage its commercial activities in such a way that it  does not  make any  loss. It is also clear that the Board being a public utility organisation is not expected to make any  undue profit  by abusing its monopoly position. An inbuilt system  of control  and supervision  has been set up and the  State Governments  have been  given power  to  give policy directions.  Situation  seems  to  have  arisen  when stricter control  and supervision  are  called  for  and  if organisational changes  and provision  for  greater  control appear necessary,  to improve the functioning of the Boards, steps should  be taken  without delay  in this  regard.  The Board should  always remember  that it  is a  public utility service and  not a  governmental agency enjoying wide powers and expected  to have  a share  in  the  governance  of  the country. On  the facts  placed that  the stand  of the Board that a  demand equal  to the  energy bill of two months or a little more  is not  unreasonable,) when  the Board  has the power to  unilaterally revise  the conditions  of supply, it must follow  that the  demand of  higher additional security for payment  of energy  bills is unassailable, provided that the power is not exercised arbitrarily or unreasonably.      [173 E-H; 174 A-B]      3:1. The  argument that  the security  should be in the shape of  Bank guarantee does not call for consideration, in view  of  the  acceptance  of  the  court’s,  suggestion  to increase the  interest @  10% per  annum  on  per  with  the interest payable by the Scheduled Banks. 174 E; C]      3:2. In  regard to  the enhanced security for the meter

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the explanation advanced by the Board is that the meters are required to be replaced or many 167 costly parts  have to  be substituted  by way  of repair. In view of  the High  cost of the meters the Board is justified in enhancing  the security.  Petitioners have  not  disputed their obligation  to furnish security for the meter. But the challenge is to the enhancement. Indisputably all the meters to the petitioning consumers have been supplied prior to the decision to  enhance  the  security.  Keeping  in  view  the likelihood of  replacement or  substantial repair, the court suggested that the escalation may be reduced by 50% to which the Board has accepted. The Board under took to evolve a new formula accordingly and introduce it from 1-10-83 and not to enforce the rates impugned.      [174 E-G; H; 175 A]

JUDGMENT:      ORIGINAL JURISDICTION: Writ Petition No. 4167-68, 7346- 53, 7689-97,  8638, 8640-41,  9899 of 1982, 910-912 of 1983, 7987-91 of 1982 and 29, 1642 of 1983.            (Under article 32 of the Constitution)                             AND             Civil Appeals Nos. 2464-65 of 1982.      Appeals by  Special leave  from the  Judgment and Order dated the  9th April,  1982 of  the Punjab  and Haryana High Court in C.P. Nos. 4805 and 5184 of 1981.      For the appearing Petitioners/Appellants:      S.B. Bhasme,  B.R. Kapur, S.R. Srivastava, C.P. Mittal, D.B. Vohra, K.G. Bhagat, Vimal Dave, Ms. Kailash Mehta, A.K. Goel and Sarva Mitter.      For Respondent:      Parmod Dayal, K.K. Jain and A.D. Sanger.      The Judgment of the Court was delivered by      RANGANATH MISRA, J.: Each of these writ petitions is by a consumer  of electric  energy which  has  entered  into  a contract with  the Haryana  State Electricity Board (’Board’ for short),  and challenge  in these petitions under Article 32 of  the Constitution  is to  the enhancement  of security unilaterally made  by the  Board both in respect of meter as also for  the payment  of the  energy dues. Clause 22 of the standard contract stipulates: 168      "22. Security Deposit:           (a) Before  commencing or  resuming  supply  to  a      consumer the  Board may  require the  consumer to lodge      with the  Board as  security for  the  payment  by  the      consumer of  his monthly bills and for the value of the      meters and/or  other apparatus  belonging to  the Board      and installed  at the  consumer’s premises  a  deposit,      which may not be transferable, calculated as follows:-           Rs. 10.00 per KW of connected load or part thereof      in the  case of  domestic; Rs.  20 per  KW of connected      load or  part thereof  in case of commercial and Rs. 30      per KW  of connected  load or  part thereof  in case of      industrial/agricultural/bulk   supply/street   lighting      consumers plus the following amount per meter:-      (1)              ...                        ...      (2)              ...                        ...      (3)              ...                        ...      (4)  For medium industrial supply           and bulk supply above 20 KW           and up to 100 KW.                  Rs. 100.00

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    (5)  For industrial and bulk supply           above 100 KW.                      Rs. 200.00           The security is obtainable in cash and an interest      at the  rate of  4%  per  annum  shall  be  payable  on      security deposits  of Rs.  50.00 and above. No interest      will be  payable if a connection is disconnected within      a year of giving supply.           (b) The  Board will  be at  liberty at any time to      demand further security deposit from consumers who have      habitually  defaulted   in  making  payments  of  their      monthly dues." Clause 31 provides:           "31.  Rights  of  Board  to  revise  schedules  of      tariffs and  charges and  conditions of supply: Subject      to clause 169      30  above   (relating  to   interpretation)  the  Board      reserves the right at any time to amend, cancel, or add      to, any of these schedules and conditions."      Each of  the contracts contains detailed provisions for security deposit  as provided  under clause  22.  The  Board enhanced the tariff by almost four times but the enhancement of tariff has not been challenged by the consumers, who have filed these  writ petitions. Thereafter the Board decided in October 1980  that with  effect  from  April  1,  1981,  the security contemplated  under clause 22 both in regard to the meter as  also for due payment of the energy bills should be enhanced and  fixed  a  new  schedule.  Challenge  in  these petitions is  to the enhancement in regard to both the meter as also  security for  due  payment  of  energy  bills  made unilaterally by  the Board.  As this  is the common question arising in all these writ petitions, they are being disposed of by a common judgment.      The  petitioning  consumers  have  contended  that  the enhancement made in the security amount towards the meter is without any  justification. It  is all  the  more  so  where meters have been installed several years before and there is no change  in the circumstances justifying an enhancement in the security  deposit for  it. Challenge  is  also  advanced against the  enhancement of  the  security  deposit  in  the matter of  payment of  energy bills. From 1968 the Board had introduced the  condition of  taking a  security from  every consumer to  ensure timely  clearance of energy bills and in the case of industrial consumers the security was worked out at Rs.  30 per  KW. With effect from April 1, 1981, in place of Rs.  30 per KW Rs. 100 per KW has been substituted. It is contended that  on account  of this  enhancement most of the petitioning consumers  have  been  called  upon  to  furnish additional security  to the tune of several lakhs of rupees. Similarly in  regard to the meter a different basis has been adopted and  from April  1, 1981,  the security  deposit now varies  between  Rs.  5000  and  Rs.  10,000  in  regard  to industrial consumers.  After the enhancement came into force the Board  through its  prescribed officers  called upon the petitioning consumers  to make  additional security deposits on both counts, within a time indicated.      According to  the petitioners  the Electricity (Supply) Act, 1948 (’Act’ for short) and the Rules made thereunder do not contemplate  any provision  of security  for the  timely payment of  energy charges.  The Board  has not  framed  any Regulations under s. 79 of the Act 170 for demanding  security of  the type  in issue. According to the  petitioners  as  the  supply  is  controlled  under  an agreement entered into between the Board and the petitioning

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consumers, unilateral  escalation would  be contrary  to any acceptable notion  of contract. Reliance is placed on behalf of the  petitioners on  the decision  of the  Allahabad High Court in  Modi Industries Ltd. (Steel Section) v. U.P. State Electricity Board, and that of the Bombay High Court in M/s. Devidayal Metal  Industries v. The Municipal Corporation for Greater Bombay  and Anr.  Before the Allahabad High Court it was contended by the consumer that the Board contracted with it to  supply 9500  KW electrical  energy. The rate schedule applicable to  the consumer was HV-2. Under the agreement of December 31, 1970, the consumer had deposited with the Board a sum  of Rs.  3,44,135 as  security. The  Board demanded  a further security of Rs. 9,00,000. The consumer took the plea before  the   High  Court  that  neither  under  the  Indian Electricity Act,  1910 (’1910  Act’ for  short), nor the Act and the  agreement for  supply between  the parties  was the Board authorised  to demand  additional security.  The Board took the  plea that the tariff had gone up from time to time and the  then existing  rate schedule  was of 1974. Normally the meter reading was done after every 30 days or once in 30 days and  it took  about 15 to 20 days thereafter to prepare the bill and to send it to the consumer. A further period of 15 days  was allowed  to the  consumer to  make the payment. Seven days’  disconnection notice  after expiry  of the  due period was  to be given to the consumer. It took 2 or 3 days thereafter  to  verify  the  accounts  and  take  steps  for disconnection on  the ground  of non-payment,  of the energy bill. Thus  a period  of about  3 months  was  necessary  to collect the  energy bills  from the  date of consumption. In order to safeguard the financial interest of the Board a sum equal to  energy bill  for three  months on  the average was demanded as  security. Reliance  was placed  on clause VI of the Schedule  to the  1910 Act  for authorising the Board to rise the  additional demand  of security. The Court took the view a that clause VI of the Schedule to the 1910 Act had no application and came to the conclusion:           "The Board is a statutory authority and has to act      within  the   framework  of  the  statutory  provisions      applicable to  it. If  the act of the Board is found to      be not 171      in consonance  with or  in  breach  of  some  statutory      provisions of  law, rule  or regulation,  it is open to      challenge  in   a  petition   under  Art.  226  of  the      Constitution. In  these petitions no contractual rights      are sought  to be  enforced which  may more suitably be      agitated in a competent Civil Court as contended by the      learned counsel for the Board".      A learned single Judge of the Bombay High Court without referring to  the Allahabad  decision came to the conclusion that the  scheme of  the Act  made it  clear that it was not open to  the licenser  to impose  any  financial  burden  in addition to what was provided for in the Act itself. If this were not so, the whole object of the Act, which is to ensure the supply  of electricity  to the consumers in a controlled manner at  rates which have to be controlled and approved by the  State   Government  would  be  destroyed.  Because,  in addition to  the electricity  charges, the  licenser may, by contract, provide  for  other  charges  and  thus  impose  a greater financial  burden on  the consumer than contemplated in the  Act itself. As against these decisions, reliance has been placed  on a  Bench decision of the Andhra Pradesh High Court in  Krishna  Cement  Works  v.  The  Secretary,  APSEB and a  single Judge  decision of the Rajasthan High Court in M/s.  B.R.  Oil  Mills  v.  Assistant  Engineer  (D),  RSEB,

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Bharatpur and Anr., on behalf of the Board in support of the demand of  security. The Andhra Pradesh High Court has taken the view that sub-para (a) of the first proviso to clause VI of the Schedule to the 1910 Act would be applicable and what would be  sufficient security should be left to the Board to decide. The  Andhra Pradesh  Electricity Board  had  adopted similar justification  as placed  by the  Board before us to justify demand  of enhanced  security and  dealing with such stand the learned Judge observed:           "To  our   mind,  this  is  a  quite  satisfactory      explanation of  the reasons  behind insistence  on cash      security.  Certainly  a  public  utility  service  like      Electricity Board cannot launch itself on litigation to      recover consumption  charges on  a large  scale.  Power      generation, which  it does  is an essential service and      that shall  never be  allowed to  suffer on  account of      improper security. We 172      have already referred to the fact that it is reasonable      on the  part of the Board to require security for three      months’ consumption charges. Now to require that amount      to be  deposited in  the  form  of  cash  is  eminently      reasonable..." The Rajasthan High Court has accepted the view of the Andhra Pradesh High Court. We accept the view of the Andhra Pradesh High Court.      Counsel for  the Board  has also  placed  before  us  a Division Bench decision of the Punjab and Haryana High Court in M/s.  Goodyear India  Ltd. v.  Haryana State  Electricity Board and  Others, where  the decision of the Andhra Pradesh and Rajasthan  High Courts  have been followed. We have been told that  against that  decision of  the Punjab and Haryana High Court appeals have been preferred to this Court.      We are  of the  view that  the Board has been conferred statutory power  under s.  49(1) of the Act to determine the conditions on  the basis of which supply is to be made. This Court in Bisra Stone Lime Company Ltd. & Anr. etc. v. Orissa State  Electricity   Board  &   Anr.,  took  the  view  that enhancement of rates by way of surcharge was well within the power of  the Board  to fix  or revise  the rates  of tariff under the  provisions of the Act. What applied to the tariff would equally  apply to the security, that being a condition in the contract of supply. Each of the petitioning consumers had agreed to furnish security in cash for payment of energy bills at  the time  of entering into their respective supply agreements. There  was no  challenge in these writ petitions that the  demand of  security at  the time  of entering into supply agreements  has to  be struck  down as  being without jurisdiction. Section  49(1) of  the Act  clearly  indicates that the  Board may  supply electricity  to any  person upon such terms  and conditions  as  the  Board  thinks  fit.  In exercise of  this power  the Board  had initially introduced the condition regarding security and each of the petitioners had accepted the term. 173      Under clause  31 of the agreement the Board reserved to itself the  right to  amend, cancel  or add  to any  of  the schedules and conditions at any time. The provisions of this clause are  similar to clause 13 of the agreement which came to be considered in Bisra Lime Stone Company’s case (supra). We are,  therefore, inclined to take the view that the Board had authority  under  the  agreement  itself  to  amend  the conditions. In  exercise of  that power  the Board  has  now raised the  additional demand. We have already taken note of the fact  that there  has been  a steep  escalation  in  the

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tariff. Counsel  for the  Board placed before us a statement which indicates  that while  tariff has  gone up almost four times, the  demand for  security raised by the Board is much less-it is  a little  more than  two times  of the  original security.      On behalf  of some  of the petitioners it was contended that the  security should  represent the average energy bill for one  month. It  was claimed that the Legislature has set up the  Board as  an autonomous  body with  large powers and providing scope  to act  purely with  a view  to creating an effective public  utility service.  The Board  should not be permitted to  act either  arbitrarily or  capriciously;  nor should it  manage its affairs in a disorderly way and taking advantage of  its monopoly  status pass  on the incidence of such vice  to be  shared by  the  consumers.  We  share  the concern of  the  petitioners  and  their  counsel  that  the affairs of the Boards in the different States of the country are not upto the expectation of the consumers and there have been instances  which  give  rise  to  genuine  anguish  and dissatisfaction. The  scheme of  the Act clearly indicates a legislative  mandate   that  the  Board  should  manage  its commercial activities  in such  a way  that it does not make any loss.  It is  also clear  that the  Board being a public utility organisation  is not  expected  to  make  any  undue profit by  abusing its  monopoly position. An inbuilt system of control  and supervision  has been  set up  and the State Governments have been given power to give policy directions. Situation seems  to have  arisen when  stricter control  and supervision are called for and if organisational changes and provision for  greater control  appear necessary, to improve the functioning of the Boards, steps should be taken without delay in  this regard. The Board should always remember that it is a public utility service and not a governmental agency enjoying wide  powers and  expected to  have a  share in the governance of the country. 174      We agree,  however, on  the facts placed that the stand of the  Board that  a demand equal to the energy bill of two months or  a little  more is not unreasonable. Once we reach the conclusion  that the  Board has  power  to  unilaterally revise the  conditions of  supply, it  must follow  that the demand of  higher additional  security for payment of energy bills is  unassailable,  provided  that  the  power  is  not exercised arbitrarily or unreasonably.      On the  security amount  interest at the rate of 4% was initially payable.  The same has already been enhanced to 8% per  annum.  Since  the  amount  is  held  as  security,  we indicated to  the counsel for the Board that security amount should  bear  the  same  interest  as  admissible  on  fixed deposits of  Scheduled Banks  for a  term of  years  and  we suggested keeping  the present rate of interest in view that it should be enhanced to 10%. Board’s counsel has now agreed that steps  would be  taken to  enhance the  present rate of interest of 8% to 10% with effect from October 1, 1983.      Once that  is done,  the  argument  that  the  security should be  in the  shape of Bank Guarantee does not call for consideration.      In regard  to the  enhanced security  for the meter the explanation advanced  by the  Board is  that the  meters are required to  be replaced  or many  costly parts  have to  be substituted by  way of  repair. In  view of the high cost of the meters the Board is justified in enhancing the security. Petitioners have  not disputed  their obligation  to furnish security  for  the  meter.  But  the  challenge  is  to  the enhancement. Indisputably  all the meters to the petitioning

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consumers have  been  supplied  prior  to  the  decision  to enhance the  security. Keeping  in view  the  likelihood  of replacement or  substantial repair,  we suggested to learned counsel for  the Board that the escalation may be reduced by 50%, i.e.  in place  of the  enhanced demand varying between Rs. 5,000  and Rs. 10,000, it should be limited to Rs. 2,500 and Rs.  5,000. Learned  counsel has agreed that steps would be taken  by the  Board to  evolve a  formula by  which  the demand for  security for  the meter  would be  revised being limited to  Rs. 2,500  at the  minimum and  Rs. 5,000 at the maximum in  regard to  industrial meters in respect of which the demand  now is  between Rs.  5,000 and  Rs.  10,000.  It would, therefore,  follow that  the Board  would not enforce its decision in regard to escalation of 175 the meter  security until  the new formula is evolved and it will be  open for  the Board  to ask for additional security effective from  October 1,  1983, in accordance with the new formula towards security for the meter.      We make no Order as to costs. S.R.                                    Petitions dismissed. 176