KERALA STATE ELECTRICITY BOARD v INDSIL ELECTROSMELTS LTD AND OTHERS

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** **PRESENT:** **THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE ANIL K.NARENDRAN** **FRIDAY, THE 31ST DAY OF JANUARY 2014/11TH MAGHA, 1935** **WA.No. 52 of 2010 ( ) IN WP(C) NO.15167 OF 2006** **----------------------** **AGAINST THE ORDER/JUDGMENT IN WP(C) 15167/2006 of HIGH COURT OF KERALA DATED 08-07-2009** **APPELLANT(S)/2ND RESPONDENT:** **--------------------------------------------------------** **KERALA STATE ELECTRICITY BOARD VYDHUTHI BHAWAN, PATTOM PALACE P.O. THIRUVANANTHAPURAM.** **BY ADVS.SRI.P.SANTHALINGAM (SR) SC FOR KSEB SRI.S.SHARAN,SC,K.S.E.BOARD** ## **RESPONDENT(S)/PETITIONER AND RESPONDENTS 1 AND 3:** **----------------------------------------------------------------------------------------** **1. INDSIL ELECTROSMELTS LTD AND OTHERS OFFICE AT 49, AVANASHI ROAD, COIMBATORE REP. BY, ITS FINANCIAL ADVISIOR V.NATARJAN.** **2. STATE OF KERALA REPRESENTED BY SECRETARY, DEPARTMENT OF POWER, SECRETARIAT THIRUVANANTHAPURAM.** ## **3. DEPUTY TAHSILDAR (RR) UDUMBANCHOLA, IDUKKI DISTRICT.** **R BY ADV. SRI.TERRY V.JAMES R BY ADV. SRI.JOSEPH KODIANTHARA R2,R3 BYSR. GOVT PLEADER SRI.S.MANILAL** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 31-01-2014, ALONG WITH WA NO.795/10, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ANTONY DOMINIC & ANIL K.NARENDRAN, JJ. ----------------------------------W.A.Nos.52 & 795 of 2010 ----------------------------------Dated this the 31[st] day of January, 2014 JUDGMENT ## Antony Dominic, J. - 1.W.A.52/10 is filed by the Kerala State Electricity Board and W.A.795/10 is filed by the State of Kerala and the Deputy Tahsildar (RR), Udumbanchola, against the judgment in W.P(C).15167/06 filed by the common respondent in these appeals. - 2.Writ petition was filed by the respondent, a company incorporated under the Companies Act, challenging Ext.P16 demand issued by the appellant in W.A.52/10 for payment of Rs.22,98,99,799/- and Exts.P18 and P19 notices issued under the Revenue Recovery Act for recovery of the aforesaid sum. By the judgment under appeal, learned single Judge quashed the aforesaid proceedings and it is aggrieved by this judgment, these appeals are filed. - 3.Briefly stated, the facts of the case are that on 7.12.1990, the Government of Kerala issued Ext.P1 order, allowing private agencies to set up small/ WA.52/10 & 795/10 2 mini/micro hydel schemes and this order contained the terms and conditions for the same. Clause 7 of this order provided that transmission lines required for transferring power from the captive plant of the agency to the nearest grid sub-station will be built by the K.S.E.Board at the cost of the agency, as a deposit work and after construction it shall be transferred to the Board without any compensation. ## 4. Clause 7 of Ext.P1 being relevant reads thus: “7. The transmission lines required for transferring power from the captives plant of the agency to the nearest grid sub-station will be built at the cost of the agency by K.S.E.Board, as a deposit work and after construction it shall be transferred to the Board without any compensation. Land required for construction of such transmission line will be considered as part of land required for the scheme. The metering equipment shall be provided by the agency at their cost at a point decided by the Board and handed over to the Board along with the transmission line, without any compensation.” - 5.Subsequently, the Government issued Ext.P2 order dated 12.3.1992, where, it was reiterated in clause 8 WA.52/10 & 795/10 3 that all conditions prescribed in Ext.P1 Government Order will be applicable to the private participants contemplated in the G.O. The respondent herein showed interest in setting up a small hydel scheme and based on the discussions between themselves and the Board, they entered into a memorandum of understanding evidenced by Ext.P3 dated 24.8.1992. It appears that at that stage, discussions continued between the parties and that led to a meeting convened by the then Minister for Electricity with the representatives of High Tension and Extra High Tension Industrial consumers, including the respondent, on 8.4.1994. This meeting was also attended by the Commissioner and Secretary, Power, Acting Chairman of the Board, Principal Technician and other officers of the Board. The background of this meeting as explained by the respondent in Ext.P17 letter issued by them to the Board reads thus: “At this point of time, a crucial meeting had taken place under the auspices of then Hon'ble Minister for Electricity which the then Chairman of KSEB, Member Technical, Chief Engineer (Civil) participated. Out Managing Director, manging Director of TECIL and WA.52/10 & 795/10 4 the Manging Director of SILCAL Metallurgic Limited (who were also allotted another project) were also present in the said meeting. Several issues were specifically raised at that meeting. One of them related to the charges to be levied for construction of transmission line for evacuation of power. It was pointed out that Clause 7 of the Government Order is not specific in this regard and that it would not be possible for the development agency as such to bear the cost of transmission line irrespective of tis distance regardless of the place where the transmission line will have to be taken for evacuation of power from the power project. At the same time, it was noted that clause 7 of Government Order contemplated transmission line cost to be borne by the agency where the transmission line is to be drawn from the power project to the nearest grid sub station. An opinion was then voiced by the officials of KSEB that Board must be given the liberty to decide where the transmission line is to be drawn from the power project whether to the nearest grid sub station or to other sub station irrespective of tis distance from the power project as such. It was, therefore, that a decision was taken in the meeting that the earlier decision will have to be modified and the cost for drawing the transmission line up to 4 KM will have to be borne by the developing agency and balance to be constructed at the cost of KSEB as promotional measure. Copy of letter sent by The Commissioner and Secretary to Govt. dt.25.4.1994 along with the minutes of the meeting and a readable copy attached thereto is enclosed herewith. Obviously, you have not WA.52/10 & 795/10 5 been appraised of this decision which was taken at the meeting held on 8.4.1994.” - 6.The minutes of the meeting, Ext.P4, in which, among the various other decisions taken, the one relevant for the purpose of this case is contained in clause 3, which reads thus: “iii) Charges to be levied for transmission line to be erected for evacuation of power. It was felt that the earlier decision modified asking the private entrepreneur to construct the line up to 4 kms, the balance be constructed at the cost of Electricity Board as promotional measures.” - 7.Reading of this provision of Ext.P4 shows that as against clause 7 of Ext.P1 Government Order which specified that transmission line would be constructed at the cost of the agency, in Ext.P4 minutes of the meeting, it was agreed by all parties that the same shall be modified by asking the private entrepreneur to erect transmission line of 4 kms and the balance will be constructed at the cost of the Board as a promotional measure. WA.52/10 & 795/10 6 8.Subsequently, on 30.12.1994, an agreement as contemplated in Ext.P1 Government Order was entered into between the Board and the respondent company. Ext.P5 is a copy of that agreement. The preamble to that agreement states that the parties will be bound by Ext.P1 and the agreement as reflected in clause (iii) Ext.P4 is incorporated in clause 9 of the agreement, which reads thus: “9. The transmission line required for transferring power from the power house to the nearest grid substation and/or other locations as suggested by the KSEB upto a length of 4 (four) Km shall be built by the KSEB at the cost of company, as a deposit work and the balance constructed by the KSEB at its cost as a promotional measure for encouraging the private entrepreneurs for generation of power. After construction of the line for the company by KSEB it shall be transferred to the KSEB without any compensation. Land required for construction of such transmission line will be considered as part of land required for the project as per conditions as elaborated under clause (6) above and the metering equipment as per the specifications of KSEB shall be provided by the company at their cost at a point in the generating station as approved by the KSEB and handed over to the KSEB alongwith transmission line, without any compensation.” WA.52/10 & 795/10 7 - 9.Pleadings show that in pursuance of the above, based on a full Board meeting, the work of transmission line was completed and by Ext.P8, the respondent was called upon to remit Rs.213.8 lakhs towards the cost of construction of 4 kms of DC line. Accordingly, the amount was paid by the company. The project was completed and the same was commissioned on 1.6.2001. - 10.In the mean while, the Board issued Ext.R2(a) letter dated 4.6.1999, requesting the Government that it be permitted to recover the cost incurred by it pursuant to Ext.P4 minutes of the meeting and Ext.P5 agreement, for drawing the transmission line in excess of the 4 kms. It also appears that while the matter was pending with the Government, the auditor raised objections evidenced by Ext.R2(c) dated 31.3.2003 that the expenditure for drawing the line in excess of 4 kms was incurred by the Board contrary to Ext.P1 policy decision of the Government. Ext.R2 (c) also shows that the Board justified its action by answering the objection and also requested for dropping the objection. WA.52/10 & 795/10 8 - 11.Be that as it may, by Ext.R2(b) dated 25.6.2005, the Government replied to Ext.R2(a) agreeing to the proposal of the Board to recover the cost of 12.477 kms of transmission line constructed at its cost for evacuation of power generated at the power plant of the company and interest thereon. Based on that, the Board issued Ext.P16 dated 6.9.2005 demanding Rs.22,98,99,799/- from the company. The company raised its objections by Ext.P17 reply. Without any further notice, revenue recovery proceedings were initiated against the company and accordingly, Exts.P18 and P19 notices under the Revenue Recovery Act were issued. It was in these circumstances that W.P(C).No.15167/06 was filed by the company. - 12.By the impugned judgment, learned Judge rejected all the contentions raised by the appellants and quashing Exts.P16, P18 and P19, the writ petition was allowed. It is this judgment which is impugned before us. - 13.We heard Sri.P.Santhalingam, the learned senior counsel for the appellant in WA.52/10, learned senior Government Pleader appearing for the appellants in WA.52/10 & 795/10 9 WA.795/10 and Sri.Joseph Vellappally, the learned senior counsel appearing for the respondent company. 14.On behalf of the appellants, it was contended that the decision reflected in Ext.P4 minutes of the meeting held on 8.4.1994 did not form part of the policy as declared by the Government by the issuance of Government Orders in terms of the provisions of the Rules of business. Therefore, according to him, the Government as also the Electricity Board was bound by Ext.P1 and hence, the contrary provisions contained in Ext.P4 or in clause 9 of Ext.P5 agreement are not binding on either of the parties. Therefore, according to the appellants, the Board is entitled to recover the cost of the transmission line in excess of 4 kms erected at its cost. Appellants also contended that the decision contained in Ext.P4 minutes of the meeting and clause 9 of Ext.P5 agreement are contrary to the principles of the Electricity Supply Act, 1948 and therefore, the Board is entitled to proceed further in terms of the provisions of Ext.P1 policy. Counsel for the appellants also relied on the Apex Court judgments in WA.52/10 & 795/10 10 M/s.Indian Metals and Ferro Alloys Ltd. v. State of Orissa [(1987) 3 SCC 189] and Real Food Products Ltd. v. A.P. State Electricity Board [(1995) 3 SCC 295]. - 15.Learned senior counsel for the respondent company refuted the contentions raised and sought to sustain the findings of the learned single Judge, upholding their contentions. - 16.Having considered the rival submissions made at the Bar, we do not find any substance in the contentions raised by the appellants. - 17.As we have already narrated, clause 7 of Ext.P1 Government Order dated 7.12.1990 provided that the transmission lines shall be erected at the cost of the agency implementing the project. Subsequently, in the background as stated by the company in Ext.P17, a meeting was convened by the then Minister for Electricity, to which, not only the representatives of the Government but also the top officials, including the Chairman of the Board had WA.52/10 & 795/10 11 participated. In that meeting, it was agreed by all parties that in modification of Ext.P1, the agency will construct transmission lines up to 4 kms and the balance will be constructed at the cost of the Board as a promotional measure. It was in pursuance of this decision, which, in essence, modified Ext.P1 Government Order, that Ext.P5 agreement was entered into between the Board and the company, where, in clause 9, it was agreed by the Board that transmission line in excess of 4 kms will be constructed at its cost. We also notice that similar agreements evidenced by Exts.P6 and P7 were entered into between the Board and another two investors, which also contained clauses which are exactly identical to clause 9 of Ext.P5. As admitted by both sides, acting upon Exts.P4 and P5, the lines were drawn, payments were made, project was established and was also commissioned. In such circumstances, it is too late in the day for the Board or the Government to contend that they are not bound by the terms of Exts.P4 or P5 and they are estopped from doing so. WA.52/10 & 795/10 12 - 18.In so far as the argument of the learned counsel for the appellants that in the absence of an order in terms of the provisions of the rules of business issued by the Government, the Government and the Board are not bound by Ext.P4, we are inclined to think that if at all such an order was necessary and if the same was not in fact issued, the consequence of such non-issuance of such an order cannot visit the company which had no role in taking necessary action consequent to Ext.P4 minutes of the meeting. Therefore, the contention that an order which ought to have been issued by the Government, was not issued by them cannot now be taken advantage of either by the Government or the Board to resile from their commitments or from Ext.P4 or Ext.P5. - 19.We also do not find any substance in the contention of the learned counsel that Ext.P4 and clause 9 of Ext.P5 agreement are opposed to the provisions of the Electricity Supply Act. In this context, learned counsel relied on the provisions of section 15A and 18A of the Electricity Supply Act, 1948 to contend that in terms of the statutory provisions, it is for WA.52/10 & 795/10 13 the generating company to provide transmission lines. Therefore, according to him, irrespective of what is provided in the agreement, the liability to provide transmission lines is entirely of the company and therefore, the Board is entitled to recover the amounts expended by it for drawing the transmission lines in excess of 4 kms. 20.While it is true that the statutory provisions provide that transmission lines are to be provided by the generating company, provisions relied on by the learned senior counsel do not prevent an arrangement for sharing the cost for the construction of the transmission line as agreed to between the parties both in Ext.P4 minutes of the meeting and in Ext.P5 bilateral agreement between the Board and the company. Therefore, we are not inclined to think that the arrangement as reflected in Exts.P4 and P5, where the Board has agreed to construct the transmission lines in excess of 4 kms at its cost is opposed to any of the provisions of the Electricity Supply Act as sought to be made out by the learned senior counsel for the Board. WA.52/10 & 795/10 14 - 21.In so far as the judgments relied on by the learned counsel for the Board is concerned, we do not see any principle laid down by the Apex Court in M/s.Indian Metals and Ferro Alloys Ltd. (supra) advancing the case of the appellants. The judgment in Real Food Products Ltd. (supra), in our view, does not support the contention urged by the Board but in fact only advances the case of the company. - 22.We say so for the reason that in paragraph 8 of the said judgment, it has been held thus: “8. The only surviving question is with regard to the nature and effect of the direction given by the State Government under Section 78-A of the Act. The question has to be examined in the context of the facts of the present case which is confined to the charging of a flat rate per H.P. for agricultural pumpsets. The nature of the function of the Board in fixing the tariffs and the manner of its exercise has been considered at length in the earlier decisions of this Court and it does not require any further elaboration in the present case. Section 78-A uses the expression “the Board shall be guided by such directions on questions of policy as may be given to it by the State Government”. It does appear that the view expressed by the State Government on a question of policy is in the nature of a direction to be WA.52/10 & 795/10 15 followed by the Board in the area of the policy to which it relates. In the context of the function of the Board of fixing the tariffs in accordance with Section 49 rad with Section 59 and other provisions of the Act, the Board is to be guided by any such direction of the State Government. Where the direction of the State Government, as in the present case, was to fix a concessional tariff for agricultural pump-sets at a flat rate per H.P., it does relate to a question of policy which the Board must follows. However, in indicating the specific rate in a given case, the action of the State Government may be in excess of the power of giving a direction on the question of policy, which the Board, if its conclusion be different, may not be obliged to be bound by. But where the Board considers even the rate suggested by the State Government and finds it to be acceptable in the discharge of its function of fixing the tariffs, the ultimate decision of the Board would not be vitiated merely because it has accepted the opinion of the State Government even about the specific rate. In such a case the Board accepts the suggested rate because that appears to be appropriate on its own view. If the view expressed by the State Government in its direction exceeds the area of policy, the Board may not be bound by it unless it takes the same view on merits itself.” 23.Reading of the above paragraph shows that even if a direction issued by the Government is not binding on the Board, once the Board choses to accept and WA.52/10 & 795/10 16 implement that direction, it cannot thereafter resile from that decision. In so far as this case is concerned, even if it is argued that Board was bound only by Ext.P1, which argument we are not accepting, the Board having acted upon Ext.P4 and entered into Ext.P5, is bound by the terms of Ext.P5 agreement. 24.In sum and substance, we are satisfied that both on facts and in law, the Board was bound by the terms of Ext.P5 agreement entered into with the company. If that be so, the demand made by Ext.P16 and Exts.P18 and P19 notices issued under the Revenue Recovery Act are clearly illegal and for that reason, the learned Judge was fully justified in setting aside these orders and allowing the writ petition. We do not find any merit in the appeals. They are accordingly dismissed. ANTONY DOMINIC, Judge. **==> picture [430 x 27] intentionally omitted <==** kkb.