Maharashtra State Electricity Board v. Kalyan Borough Municipality & Anr.

137 A MAHARASHTRA STATE ELECTRICITY BOARD _v._ KALYAN BOROUGH MUNICIPALITY & ANR. _February_ 8, 1968 B #### c D E F G [K. N. WANCHOO, C.J., S. M. Snoo, J.M. SHELAT, V. BHARGAVA AND C. A. VAIDlALlNGAM, JJ.] _Electricity (Supp(v)_ _Act 54 of_ 1948; _s._ 49 _as_ _amended_ _by_ _the_ _Electri-_ _city_ _(S11pply)_ _Amendment Act_ 30 _of_ 1966, _s. 24-Pow.er_ _of_ _Electricity_ _Board_ _to_ /ev,v _uniform tariffs for different consumers-Valulity_ _of_ _s._ 49 _-Whether_ _colourable exercise_ _of_ _taxing power-Whetf1er gives unguided_ _po,.-er_ _to Board--Ej/ect_ _of s._ 24 _of_ _Amendment Act._ The appellant the Maharashtra State Electricity Board which took over tho supply of electrical energy from the original linc<,nsec, increased the tariff and fixed a 11niform tariff for all its consumers. The respondentsconsume;s filed petitions under Art. 226 of the Constitution. contending that (a) s. 49 of the Electricity (supply) Act 1948 .did not permit the Board to frame uniform tariffs for consumers in compact areas as well as consumers in sparse areas. so as to require the former to pay a part of the oost involved in the supply of electricity to the latter: and (b) if s. 49 gave such power to the Board it was _ultra_ _vii"es_ and void, as it offended the provisions of the Constitution. The High Court allowed the writ J>Zlitions. The Board filed appeals to this Court and during its pcndency s. 49 was amended 1cb:ospectively by the Electricity (Supply) Amendment Act 1966 and by s. 24 of the Amendment Act tho imposition and cotlcc· tion of cha1ges undeJ s. 49 was validated. HEID : The appeals must be allowed. (i) "Ibc appellate-Board had ample powers to frame uniform tariffs and the levy was valid. In the old s . .,.'> .. there was no such policy or direction indicated by the Legislature that ~·Board is to frame uniform tariffs. Under that section, the Board had the po\\-er to supply electricity on such terms and conditions as it may from time to time fix, having regard to t!n matters referred to in the said section.' "Ihe only restriction upon the Board's power was that it shall not show undue preferenee to any person in fixinR any such tef1n.;. ###### and conditions. In s. 49 as it now stands tm Legislature hns empowered the Board to frame uniform tariffs and it has also indicated the. factor~ to 00 taken into account in fixing uniform tariffs. These two aspects arc contained in sn~. (1) and (2). The Legislature has also made it clear in sub-s. (3) that the Boan! in the special circumstances mentioned thcn:-iii, has got power to fix different tariffs for the supply of electricity. Subsection (4) directs the Board not to show undue preference to any person f01 fixing the tariffs and the terms and conditions for the supply of electricity. Though _prima_ _fade_ it would appear that sub-s. ( 4) will govern sub-ss. (1) to (3) in s. 49 the proper way to interpret sub-s. ( 4) will be to read it along with snb-s.. (7). When the e'ntire tariff is uniform for every consumer. there is no question of any undue preference as every customer will pay the same amount for the same benefit received b~r him. (153 CE] H _So11th_ _of Scotlcnd Electricity Board_ _&_ _Ors._ v. _British Oxygen Co. Ltd._ (195~ 2 All E.R. 225 and _Attorney-Gene/"11 for_ _Victoria_ v. _Mayor,_ _Aldermen. Councillors and Citizens_ _of Melbourne,_ [19071 A.C. 469, re·· ferred' to. L4SUp.Cl./6S-10 138 SUPREME COURT REPORTS (1963] 3 S.C.R. (ii) In the counter-affidavit filed on behalf of the Board, it has been stated that ever sinoe its constitution, it has been carrying an its opuatiQlia **at** **a** **loss** **and** **there** **has** **been** **no** **occas:on** **when** **any** **part** **of** **its** **revenues** has bc,on passed to the consolidated fund of the State, as provided by the proviso to sub-<:l. (b) of cl. 10 of s. 67. Even otherwise, before the pro**viSo** **can** **come** **into** **operation,** **there** **are** **several** **other** **items** **in** **respect** **of** which adjustments will have to be made, and there will be n9 occasion at **an** **for** **th-e** **proviso to** **come** in~o **effect.** **There** **is no** **force** **in** **ffie** **contention** of the respondents that with a view to give effect to the proviso. the Board will so. fix <he tariffs as to enable them to have huge surplus, after meeting the various adjustments. In case such a thing happens in future. the proviso, which is clearly severable, may have to be struck down. Therefore, this ground of attack, that there is a colourable exercise of taxing power, cannot be accepted. f.154 H-155 CJ (iii) Section 49 is not, in any way, bad on the ground that it gives an unguic!ed and arbitrary power to the Board to fix its tariffs as it likes. The prm·isions of the Act have the effect of properly guiding the activities of the Board, in its dealings with the consumers including the levy of tariffs. Section 49 itself is hedged in by various restrictions lllld directions which the Board will have •o comply in thp, matter of frattling uniform tariffs or in the matter of fixing different tariffs, and that section also provides a proper guide-line for framing uniform tariffs and different tariffs. Therefore, in particular, it may be noted that the extension and cJieapcning of supplies of electricity to sparsely developed areas undeF cl. (d) of__s. 49(2) of the Act can only be complied with by keeping the uniform rate at a minimum, consistently \vith the requirement of s. 59, of not mnning at a Joss. [156 B-DJ (iv) The contention, that while restrictions have been placed on the licensees no such restriction has been placed on the Board in as much as ·that the licensee shall so adjust his charges for the sale of .electrici•y, whether by enhancing or reducing them that his dear profit in any year. of account shall not, as far as possible, exceed an amount of reasonable **return,** **has** **no** **substance.** **The** lio~nsiees **are** **persons** **who** **must· have** in~ vested considerable caoital in the matter of their business. and obviously. the Legislature thought that some directions will have to be given so as to enable them to have a reasonable return. [156 E-GJ ( v) Section 24 of the Amendment Act, deals with all rates, as a matter of fact fixed under s. 49 of the Act. In this case, the Board has fixed tariffs under s. 49 of the Act. Therefore, s. 24 of the Amendment ·Act has full effect and force. [157 BJ CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 335 and 336 of 1967. Appeals from the judgment and order dated April 26, 27 and 28, 1965 of the Bombay High Court in Special Civil Applications Nos. 1570 and 1571 of 1962. _L._ _M. Slnghvi, B. Dutta_ and _RavinJer Narain,_ for the appellant (in both the appeals) . _Poras_ _A._ _Mehta,_ _G._ _L._ _Sanghi,_ _R. A. Gagrat_ and _B. R. Agar-_ _wa?a,_ for the respondents (in both the.appeals). _V._ _A. Seyid Muhammad_ and _S._ _P._ _Nayar,_ for intervener No. 1 (in both the appellls). A 8 #### c **D** E F **ff** **A** MAHARASHTRA ELEC. _v._ KALYAN MUNIC. _(Vaidlalingam,_ _!.)_ 139 _A. K. Sen_ and _B._ _R._ _Agarwala,_ for intervener No. 2 (in both the appeals). The Judgment of the Court was delivered by **Vaidialingam,** **J.** These two appeals, by certificate, are directed against the common judgment of the. Bombay High **B'** Court, rendered in Special Civil Applications, Nos. 1570 & 157 i of 1962. The circumstances, under which t.he two writ petitions were filed, by the respondent, in each of these two appeals, may be brielly stated. Till January 14, 1959, a company called the #### c Kalyan Electricity Company (Private) Ltd., held a licence for supplying electrical energy to the town of Kalyan · and the surrounding areas. The licence of the said company was revoked hy the Government ·of Maharashtra, and, on option being given to purchase the undertaking of the said company, the appellant purchased the same, on January 15, 1959. The appellant, hereinafter to be referred to as the Board, continued to supply elec**D** trical energy to the residents of Kalyan, according to the rates prescribed by the former Kalyan licensee, pending notification oE its standard rates of supply. In March 1962, a public notice was given by the Board, to the effect that in the Western Maharashtra area (which includes 'Kalyan) revised tariff would be #### **c** **E** **F** applicable from the first day of the month next ·following the month .in which supply of Koyna power became available. As the electrical energy from the Koyna Project became available from the month of June 1962, the Board caused another public notice to be issued, informing the public that the Board's revised tariffs would come into force from July 1962, and that bills, in respect of the power consum_ption, during that month, would be issued at the revised tariffs, in August 1962. The Kalyan Borough Municipality, which is the respondent, in Civil Appeal No. 335 of 1967, was being supplied by the appellant, electrical energy for street lighting, till June 1962, on the same terms on which the ol,d Kalyan licensee was supplying. The Board submitted a draft of the new agreement to the said **G** Municipality, in respect of the supply of electrical energy for street lighting, under which the charge which the Municipality had to pay, per unit of electricity, was slightly less than before, but the Municipality was required to pay several fixed charges, with the result that the total amount payable was greater tlian before. The Municipality, however, intimated its desire to enter **H** into the new agreement, only for a period of .one year, instead of seven years, as suggested by the Board. Tne Board was not prepared to accede to this request, of the Municipality, and, on the latter's ·failure. to pay bills for street lighting, according to the 140 SUPREME COURT ).lll'Or.TS (196S} 3 S.C.R. draft agreement, an intimation 'l"lllS sent, by the appellant, on A October 12, 1962, that the supply of electricity, for stteet lighting, would be cut off, from October 22, 1962. The Municipality filed a writ petition, under Art. 226, being Special Civil Application No. 1570 of 1962, in the High Court, against the Board, seeking a writ of _mandamus,_ prohibiting the appellant from enforcing the directions, contained in its notioe, dated October 12, B 1962. One Dattatraya Pandurang Pimpale and other COllSUlllCIS of electricity formed an association called 'Kalyu-Dombivali-Vij Grahak Manda!', to protest against the steps taken, by the appel#### lant, to levy increased charges, for the supply of electrical energy. c As the request of the Association, for not increasing the charges, was not heeded to, by the appellant, which threatened to stop supply of electricity to consumers, if the bills were not paid, according to the revised tariffs, the said Dattatraya filed, in the Higli Court, a writ petition, under Art. 226, being Special Civil Application No. 1571 of 1962, seeking directions to restrain the Board from disconnecting supply of electrical energy. D In both these writ petitions, the action of the Board, in increasing the tariffs, over and above the rate which was charged by the original Kalyan licensee, and fixing a unifOilll tariff, was challenged. Two contentions appear to have been raised, in the writ petitions, before the High Court, _viz.,_ (a) thats. 49, of the E Electricity (Supply) Act, 1948 (Act LIV of 1948) (hereinafter referred to as the Supply Act), did not permit the Board to frame uniform tariffs for consumers in compact areas as well as consumers in sparse areas, so as to require the former to pay a part of the cost involved in the supply of electricity to the latter; and (b) that, if s. 49 gave such power to the Board, it was _ultra vires_ F and void, as it offended the provisions of the Constitntion. The Board, by reference to the scheme and the provisions of the Supply Act, contended that the levy of a unifOilll tariff was valid and within its power and that s. 49 did not offend any provisions of the Constitution. At this stage, it may be mentioned that ·the High Court considered the contentions of the G· parties, on the basis of s. 49, as it was, prior to the amendment of the Supply Act in 1966. Before the High Court, it appears to have been common ground that distn1mtion costs involved in the supply of electricity, per unit of consumption, to sparse areas. was higher than the distribution costs, involved in the supply of electricity, per unit of consumption, to compact areas. The High H Court has taken the view that one of the factors which the Board has to take into account, under s. 49, in framing its tariffs, is the location, where the consumer wants electrical ~ to be sup #### c ~·,. A B #### c D E F G H MAHARASHTRA BLBC. _v._ XALYAN MUNIC, _(Vaidialingam,_ 1.) 141 plied to him, and' that this iinplies that if, on a consideration of this factor, the Board finds that the cost of supply of electricity to different areas, are widely divergent, different tariffs could be framed, in respect of such areas. On this line of reasoning, the learned Judges of the High Court, came to the conclusion that, in framing the impugned tariffs, the Board did not have due regard to the provisions, contained in s 49, and therefore, the Board was not entitled to enforce the demand, made by it. The leiimed Judges also seem to have been impressed with the objections. raised by the respondents, that the Board had assumed that s. 49 permitted it to frame its tariffs, in such a way that a part of the higher cost, involved in the supply of electrical energy, to undeveloped areas, may be borne, by consumers, in compact areas. As the High Court accepted the contention of the respondents, that the Board had no power to fix uniform tariffs, so as to cast a higher burden, on the consumers, in a compact area, where the cost of supply was less, it did not express any opinion, regarding the constitutional validity of s. 49, though, there again, the High Court appears to have been inclined to hold that unguided and unfettered power had been given, to the Board, to fix its charges as high as it liked. Ultimately, the High Court allowed the writ petitions and prohibited the appellant, from enforcing its claim to recover the revised tariff, and disconnecting electric supply. Civil Appeal No. 335 of 1967 is against the order in Special Civil Application No. 1570 of 1962, in which the respondent is the KaJyan Borough Municipality; and Civil Appeal No. 336 of 1967 is against the order in Special Civil Application No. 1571 of 1962, in which the respondent is Dattatraya Pandurang Pim pale. During the pendency of the above appeals, Parliament enacted the Electricity (Supply) Amendment Act, 1966 (Act XXX of 1966) (hereinafter called the Amendment Act), by which the Supply Act was amended, in various particulars. It is only necessary to refer to two sections of the Amendment Act, _viz .._ ss. 11. and 24. Section 11, substituted, witli retrospective effect new s. 49, in the place of old s. 49. The new s. 49, runs as follows: "49. Provision for the sale of electricity by the Board to persons other than licensees. ( 1) Subject to me provisions of this Act and of regulations, if any, made in this behalf the Board may supply electricity to any person not being a licensee upon such terms and conditions as the Board thinks fit and may for the purposes of such suuply frame uniform tariffs. 1'2 **SUPUMI ClOU&T** **d!Ot.TS** (1968] 3 s.c.R. ( 2) In fixing the uniform tariffs, **tho** **Bolll'd** shall have regard to all or any of the following factors, namely :(a) the nature of the supply and the purposes for which it is required; (b) the coordinated development of the supply and distribution of electricity within the State in the most efficient and economieal manner, with particular reference to such development in areas not for the time being served or adequately served by the licensee; ( c) the simplification and standardisation of methods and rates of charges for such supplies; ( d) the extension and cheapening of supplies of electricity to sparsely developed areas. **A** B #### **c** **D** (3) Nothing in the foregoing provisions of this sec tion shall derogate from the power of the Board, if it considers it necessary or expedient to fix different tariffs for the supply of electricity to any person not being a licensee, having regard to the geographical position of any area, the E nature of the supply and purpose for which supply is required and any other relevant factors. ( 4) In fixing the tariff and terms and conditions for the supply of electricity, the Board shall not show undue preference to any person." Section 24, of the Amendment Act, validating the imposition and collection of charges for the supply of electricity, under s. 49. is, as· follows : "(1) Notwithstanding any judgment, decree or order of any Court, all rates fixed under section 49 of the Electricity (Supply) Act, 1948, for the sale of electricity to any person, other than a licensee before the commencement of this Act shall be deemed to have been v~lidly fixed as if the provisions of the said section, as amended by this Act, had been in force at all material times when such rates were fixed and accordingly, (a) no suit or other proceeding shall be maintained "r continued in any Court fQI: the refund of any F G **H** A B #### c D E F G H (2) For the removal of doubts, it is hereby declared that nothing contained in sub-section (I) shall be construed as preventing any person from claiming refund of any amount paid by him in excess of. the amount due from him under the said Act, as amended by this Act and the rules or regulations made thereunder." In view of the Atµendment Act, this Court permitted the parties to file affidavits, stating their case, wi~h respect to the amended section 49, and gave an opportunity to them, to raise their respective contentions. The respondents have raised the contention that s. 24, of the Amendment Act, on a proper interpretation, does not validate the impugned rates of electricity supply, imposed on them, by the appellant. According to them, on a proper interpretation of s. 49, as amended, the Board is not empowered to fix uniform tariffs, in such a way tl!at a great part of the higher costs involved in the supply of electricity to sparse areas, is to be borne by consumers in developed or compact areas. It is their further contention that, under the amended section, uniform tariffs can, if at all, be levied by the Board, with particular reference to the development in areas which are not. for the time being served at all, or adequately served, and it does not ·authorise the appellant to secure development of electricity in the sparse areas, at the cost of the consumers in areas which are already developed and adequately served, and hence the levy of the tariffs at the amended rate, is unauthorised and illegal. The respondents further contend that levy of uniform tariffs, as contemplated by s. 49(2), as amended, can be done only when the Board fixes uniform tariffs, for the whole State of Maharashtra. In this connection, they point out, that the appellant has not fixed uniform tariffs for the entire State of Maharashtra, but, on the other hand, has fixed different tadffs, for different areas, for supply of electricity. As an instance of the Board itself levyin)! different rates in different areas, the respondents have referred to the case of Poona City, which was formerly served by the MAHARASHTf.A ELEC. r. KALYAN MUNIC. _(Vaidia/ingam,_ /.) 143 amount collected from any person on the basis of such rates; (b) (c) no Court shall enforce a decree or order directing the refund of any amount collected from such person on the basis of such rates; any amount due from any person on the basis of such rates before the commencement of this Act but not recovered before such commencement may be recovered in the manner provided under the Electricity (Supply) Act, 1948. 144 SUPREME COURT REPORTS [1968] 3 S.C.R. Poona Electricity Supply Company Ltd. In Poona City, the respondents point out, the Board has fixed a lower rate of tariff, _viz.,_ 13 paise per unit of electricity, whereas it has fixed 31 paisa per unit in other areas, including the Kalyan Municipality area. It is the claim of the respondents that the appellant should have fixed tariffs for the Kalyan Municipality area also, in the same manner as it has done for the Poona City area. The Board according to them, is not entitled to charge higher rate from consumers in the Kalyan Municipality area, in order to give cheaper supplies to other areas, in the western region. It is their further contention, that, under s. 49(2), as amended, the appellant may charge lesser rate than the cost of supply for the sparsely developed areas, but, in no case is it entitled to charge the compact areas, rates higher than warranted by the. cost of supply to such areas. They point out that by charging consumers in compact areas more than the cost of supply, the Board has shown undue preference. The consumers, in the compact areas, are being made to pay more than what is due by them, _i.e.,_ more than the cost of supply, in order to charge less from consumers in undeveloped areas, _i.e.,_ less than what is due by them, and this offends sub-s. ( 4) of s. 49. The respondents also co11tend that if s. 49, as amended, empowers the Board to levy and co!Iect, at the rate of the revised tariff, s. 49 is unconstitutional and void. They point out that by the Board charging consumers in compact areas more than what is due by them, _i.e.,_ more than the cost of supply, it was, in effect, taxing a class of consumers, which it had no power or authority to do, P,nder the Supply Act, as amended. No maximum limit has been fixed, under the Supply Act, beyond which the Board cannot charge, for electricity supplied by it. They also point out that the consumers, to whom electricity is supplied by the Board, are treated differentially from the consumers who are supplied electricity, by licensees. In respect of the latter class, they point out, that the Supply Act has placed several restrictions, regarding the manner in which the rate has to be fixed, whereas there is no such restriction, placed on the powers of the Board. This amounts to discrimination, resulting in Art. 14, of the Constitution, being violated. On these grounds, both the respondents ur~e that the levy of uniform tariff, by the Board, is illegal and VOid. The appellant Board has controverted the stand, taken by the respondents. According to it, the levy and collection at the revised uniform tariff, is perfectly legal and valid, and s. 24, of the Amendment _Act,_ in any event, has validated such levy. The appellant points out that the fixing of uniform tariff A B #### c D E E G H A B #### c D E F G H MAHARASHTRA ELEC. _v._ XALYAN MUNIC. _(Vaidialingam,_ J;) 145 is authorised by s. 49, as amended; and such uniform rates are fixed, not with the intention of making the developed areas bear the incidence of higher costs of supply to undeveloped areas, but really with a view to achieve the co-ordinated development of generation, distribution and supply of eJectrical energy, in the most efficient and economical manner, as required by the Supply Act. According to the Board, it is not necessary to fix one single uniform tariff for the whole State of Maharashtra, and that, on the other hand, it is empowered to fix region-wise uniform tariffs, having due regard to the provisions, contained in s. 49(2). In this connection, the Board a:so points out that both the respondents are consumers of electricity, at low tension, and that they are concerned only with tariffs for supply of electricity at low tension. The Board further avers that since April 1962, it has prescribed and applied, uniform tariffs for supply of electricity at low tension, in all the areas in the State of Maharashtra, which are served by it, except Poona area. With reference to Poona area, the Board has referred to the circumstances. under which a lower rate of tariff is -levied. Even in respect of Poona area, it is stated by the Board that it has intrduced uniform tariffs for. low tension electricity, with effect from January 1, 1966 except in regard to consumers of electricity for lights and fans and small power in residential buildings. Regarding the attack, on the constitutional validity of s. 49, as amended, the Board points out that there is no question of any taxing power being entrusted to it, under the said section. The Board points out that in view of the special circumstances under which a licensee is operating, certain provisions have been made in the Supply Act; but the special position occupied by the Board, which has been entrusted with various duties and functions has been recognised by the Supply Act. But no discrimination as alleged by the respondents has h'!en made by the statute between consumers who are supplied by the licensee and the consumers who are supplied by the Board. The Board fmther states that the Supply Act does not cast any duty on the Board to fix the tariff, in accordance with the cost of supply; and it points out that what is necessary, under s. 49, is the taking into account of the over-all economy of the Board's system of generatfon and supply of electricity. Tue Board seeks to sustain the levy of uniform tariff, on the basis of the various provisions of the Supply Act, with particular reference to s. 49, as amended. In view of the Amendment Act, it has becom; really unnecessary to consider the correctness or otherwise of the views, expressed by the High Court, regarding s. 49, as it stood prior to its amendment; and these appeals will have to be disposed of, on a consideration of the Supply Act, as - amended in 1966, with special reference to s. 49, as it now stands. 146 SUPREME COUJ.T **REPOllTS** (1968) 3 S.C.R. Two questions arise for consideration, in these appeals, _viz.,_ (i) the proper interpretation to be placed, on s. 49, as amended, and the power of the Board to levy a unifoon taritf, as in this case; and (ii) the validity of s. 49, as amended. It is necessary to state at this stage that both the respondents are consumers of electricity at low tension and that the Board bas fixed uniform tariff for the whole of the State of Maharashtra for supply of electricity at low tension, except in Poona city in respect of certain types of consumers. Even in respect of such cqnsumers, the Board bas stated. that it is taldng steps to levy a uniform tariff. It is on this basis that the contentions of the parties are being considered and dealt with in these appeals. It is necessary now to refer to some of the relevant provisions of the Supply Act as that will indicate the scheme underlying the Act. The Supply Act, as the preamble shows, is an Act to pro· vide for the rationalisation of the production and supply of electricity, for taking measures conducive to electrical development. Chapter II deals with the Central Electricity Authority. Section 3<1) provides for the constitution by the Central Governm~nt of a body cal!ed the Central Electricity Authority to exercise such functions and perform such duties under the Supply Act and - in such manner as the Central Government may prescribe· and ### direct. Chapter m deals with the constitution and composition of the State Electricity Board and certain other incidental matters. Section _5_ provides for the State Government . constituting a State Electricity Board, hereinafter referred to as the Board. Section 16 deals with the constitution by the State Government of a State Electricity Consultative Council for the State. Subsec. (2) deals with the composition of the State Elec!ricity Consultative Council. It provides for inclusicin, in the said Council of representatives of cons11mers of elec•ricity also. Subsection ( 6) casts a duty on the State E'ectricity Board to place before the State Electricity Consultatitve Council the annual financial statement and supplementary statement if any. A duty is also cast upon the Boar<! to take into consideration any comments made on such stateme11t by the said Council before it is submitted to the State Government under s. 16 (1). Chapter IV deals with the powers and,duties. of State Electricity Boards .. Section 18 cha•ges the Board with the ~neral duty of promoting the co-ordinated development of the generation supply and distribution of electricity within the State in the mosi efficient and economical manner. with particular reference to such development in areas not for the time ~ing served or adeauately served by any licensee. Section 49 as incorporated by the Amendment Act of 1966 retrospectively, makes provision for the sale of electricity by the Board to persons other than A B #### c D I! F G H MAHARASHTRA ELEC. _v._ KALYAN MUNIC. _(Vaidialingam,_ _J.)_ 147' A licensees. As, in these appeals, the proper interpretation to be placed on that section arises for consideration, that section will be dealt with by us more exhaustively, in the latter part of the judgment. It is enough to note at this stage that the said section deals with the framing of uniforms tariffs and also offixing difierent tariffs as the case may be, in accordance with the principles. B laid down therein. #### c D E F G H Chapter VI ·deals with the Board's finance, accounts and audit. Section 59, leaving out the proviso, states that the Board shall not, as far as. practicable, and after taking credit for any subventions from the State Government under s. 63, carry on its operations under the Supply Act at a loss, and that it shall adjust its charges accordingly from time to time. Section 61 directs the Board to submit in February of each year to the State Government a statement in the prescribed form of_ the estimated capital and revenue receipts and expenditure for the ensuing. year, Sub-section (3) thereof makes it obligatory on the State Govern· ment to place the said statement before the House or Houses, M. the case may be, of the State Legislature and it also provides that the said statement shall be open to discussion by the Legislature, but it is not subject to vote. Sub-section ( 4) casts a dufy on the Board to take into consideration any comments that may be· made on the said statement in the State Legislature. It may be noted that s. 61 realiy deals with the Board's preparing its budget for the succeeding year and making it available for discussion by the State Legislature. Section 63 gives power. to· the State Government, with the approval of the State Legislature, to make subventions from time to time to the BOll)'d for the purposes of the Act on such term.s aitd conditions as the State Government may determine. Section 67 deals with the priorify and .discharge of liabilities by the Board and how the balance amount, i~ any, is to be utilised. Section· 70(2) provides that save as otherwiseprovided, the provisions of the Supply Act shall be in addition to, and not in derogation C)f, the . Indian Electricity Act, 1910 (Central Act X _of_ 1910). Section 7 _5_ ( 1 ) deals with the preparation and submission to ihe State Government by the Board ##### soon after the end of each financial year a report giving aii account of its activities during the previous financial year. The report should also give an account of the activities, if any, which are likely to be undertaken by ihe Board in the next financial year. It also makes it obligatory on· ihe !State Government to plaee the said r~port before the State Legislature. Here again, it may be notetl, that the Board has to give a report ofits activities for the past year. Section 78 gives power to the State Government to make rules to give effect to the provisions of the Act. One of the items in respect of which rules could be framed is that referred ti:i in cl. (g) of s. 7.8(2) namely the form in which, and· 148 SUPREME COURT REPORTS £196SJ 3 s.c.R. .the date by which, the annual report of the Board shall be sub mitted under s. 75; The State Government in this case has framed the Maharashtra Electricity (Supply) Rules, 1963. Rule _Si_ thereof relates to the submission of annual reports under s. 7 5 (1 ) by the Board. Sub-s. ( 2) indicates the various matters that are to be included in the annual report that is sent by the Board. Item (q) of sub-r. (2) relates to details of the tariffs of the Board during the year. Therefore, it will be seen, that in the .annual report that is sent under s. 75 (1) by the Board to the State Government and which report, as already referred, is placed before the State Legislature, the Board, among various other matters, will have alsci to give details of the tariffs imposed by it during the year. Under s. 78A(l), the Board is to be· guided in the discharge of its functions by such directions on questions of policy, as may be given to it by the State Government. Section 79 ·enables the Board to make regulations not inconsistent with the Act and the Rules made thereunder. One of the matters which may be covered by regulations made by the Board and to which reference is necessary to be made, is dealt with under cl. (j) to the effect, 'principles governing the supply of electricity by the Board to persons other than licensees under section 49'. Now taking up the first question arising for consideration, namely, the power of the Board to levy uniform tariffs under s, 49 of the Supply Act as amended, Mr. Poras A. Mehta, learned counsel for the respondents, whose contentions have been also reiterated by Mr. A. K. Sen, learned counsel for the interveners, 'urges that in fixing the ratt of tariff, one of the essential matters to be taken into account by the Board is the cost of supply to particular areas concerned. That is in other words, according to the respondents. the tariff must be based upon the cost of ~up­ ply. It is their fu•ther contention that in fixin~ the tariff<, the cost incurred by the Board for supply of electricity to different areas must be given due consideration and importance. Extension of electricity to soarse areas or to areas which are not adequately supolied, should not be made at the cost of, and to the detriment of, consumers of electricity in already developed or compact areas. It is also their contention that the Board may have, if at all, power to levy a lesser uniform rate of tariff in undeveloped or spa•se areas, and any loss that may be incurred by the Board in that regard will have to be compensated by the subventions that may be received by the Board from the State Government under s. 63 of the Supplv Act. In no case, the counsel points out. can that burden be shifted to the consum ers in the already well-Oeveloped a•eas. By levying uniform tariffs in tlli< case on consumers whose area is already well developed. they are being made to pay for the development schemes that are being carried out in sparse areas. That, accord A B #### c D E F G H A B #### c D E F G H MAHARASHTRA ELEC. _v._ KALYAN MUNIC. _(Valdia1i11gam,_ J.) 14 9 ing to them, is violative of sub-s. ( 4) of s. 49 by the Board, in as. much as, the consumers of spaise aieas to whom the cost of supply is more, are enabled to pay at the same rate as those in compact areas. In effect, they point out that there has been undue preference to the consumers in the sparse aieas in as much as they pay much less than the cost of supply. The further stand taken on behalf of the respondents is that in this case, the question of imposing different tariffs ~hould have been considered by the Board under sub-s. (3) of s. 49 in view of the fact that the compact aiea is geographically different from sparse area. According to them, the rates should have been fixed more favourably in favour of the consumers in the compact area. They also urge that sub-s. ( 4) of s. 49 which directs the Board not to show undue preference to any person in fixing the. tariffs and terms and conditions for the supply of electricity, governs sub-ss. ( 1) to (J) of s. 49 and the Board, by fixing the same tariff in the sparse areas as in the compact areas, has shown undue preference to the fonner which is not pennissible in law. On the .other hand, Dr. L. M. Singhvi, learned . co.unsel appearing for the Board pointed out that there is absolutely no indication in the Supply Act that the Board should fix its tariff, having regard to the cost of supply. Counsel points out that the Board is charged, under s. 18 of the Act, with the duty of promoting the co-ordinated development of generation, supply and distribution of electricity within the State in a most efficient and· economical manner. Nonnally, the Board which is deemed to· be a company, under s. 80 of the Act, would be entitled to fix its· own tariff for electricity supplied by it. Under the old s. 49· of the Act, a general power was conferred on the Board to supply electricity upon such terms and conditions as jt may, from time to time, fix, having regard to the matters referred to in that section. The proviso tO the said section directed the Board not to show undue preference to any person in fixing the tariffs. Except this limitation in the exercise of its power, the Board was not placed under any further restriction. Section 49; as it now stands; has been incorporated with retrospective effect. Under that section, the Board has been directed to frame uniform tariffs. The factors which are to be taken into account by the Board for tilting unifonn tariffs have also been indicated 'therein. In particular circumstances,indicated therein, the Board has .been given the power to fix different tariffs. What was ~riginally the subjectmatter of the proviso in the old s. 49 has now been incorporated in sub-s. (4) of s. 49. Counsel points out that the question of showing undue preference cannot arise when the Board fixes uniform tariffs. Therefore, sub-s. ( 4) can govern only sub-s. _(_ 3) in the matter of fixing different tariffs. Sub-s. ( 4) cannot 15-0 SUPREME COURT REPORTS [1968] 3 S.C.R. cut down the power given to the Board in the matter of fixing uniform tariffs. Counsel also points out that going by the phraseology of sub-ss. ( 1) and (2) of s. 49, it is open to the Board to frame .uniform tariffs having regar<;l to the matters mentioned in sub-s. A (2) of s. 49. Counsel also points out that there is no question B of any development in sparse area be;ng made at the expense of the compact area. Under cl. (d) of s. 49(2), one of the factors to be taken into account for fixing uniform tariffs relates to the extension and cheapening of supplies of electricity to sparsely developed areas. If the· Board supplies electricity at cheaper rates to sparsely developed areas, the compact areas also will stand to benefit, because the cheap rate> applicable to the former C area will be a uniform tariff governing the compact area consumers also. There is no question of any undue preference being shown by the Board. We have already referred to the material provisions of the Act which wi!l show the nature of the duties cast upon the Board. Section 59 Jays down that the Board, after taking subventions from the State Government shall not, as far as practicable, carry on its operations under the Act at a loss, and that the Board is to adjust its charges acc:ordingly from time to time. That means that cost .has to be taken into account, though that is not the sole or only criterion for fixin,I! the tariff. There is also no indication in the Act that uniform tariffs can be fixed Qnly in respect of particular regions or areas. We are not impressed with the contention of the respondent that by uniform tariffs being levied by the Board, it is making more profits in compact areas than in Sj>arse areas, nor with the further contention that development of sparse areas is being done at the expense of compact areas. On behalf of the respondents, certain English decisions have been brought to our notice ·wherein the expression 'undue preference' or 'discrimination' found in the corresponding Electricity Act have come up for consideration. One of the decisions is that of the House of Lords reported as _South of Scotland Electrl·_ _-city_ _Board and others_ v. _British Oxygen Co._ _Ltd.(_ _[1]_ _)._ Section 37(8) of the Electricity Act, 1947 which the House of Lords bad to construe provided : "An area bo•rd, in fixing tariffs and making agreements under this ~ection, shall not show undue prefer. ence to any person or class of persons and shall not exercise any undue discrimination against any person # ----or class of persons." •(!) [1959) 2 All Jl.R. _225._ D E F G H MAHARASHTRA ELEC. _v._ KALYAN MUN!C. _(Vaid1alingam,_ J.) 151 **A** #### c **D** The House of Lords held that iu determining whether there has been discrimination as between high voltage consUnlers and low voltage consumers, the lesser cost of supplying high voltage power should be taken into consideration, and that, therefore, there might be discrimination against ·high voltage consumers notwithstanding that the price charged to them was a little lower than that charged to low voltage consumers. But the English statute did not contain any provision similar to s. 49(1) and (2) of our i\ct, regarding the fixation of nnifonn tariffs. It is also seen that in that case, the question of costs appears to have been relied on by the Electricity Board. In this connection, it is pertinent to note the observations of Lord Reid in his dissenting judgment at p. 244 to the effect : **E** **F** **G** **H** "W)Jat then is the standard by which preference -or discrimination is to be judged ? The appellants say price charged to the consumer and the respondents say cost of supply. The Act uses these words in connexion with the fixing of tariffs which deai ·with prices and not with cost of supply, and one would expect these words in this context to refer to price. Moreover, prices are easily ascertained by inspection of the tariff but costs of supply are not; their ascertainment probably involves highly contentious questions of costing and the like. So if preference is a matter of cost, it would be impossible to tell whether there is any preference or discrimination until an elaborate investigation had been made.' The above observations in the dissenting judgment clearly bring out the difficulcy that will be felt by having to judge the question of undue preference or discrimination with reference to the cost of production. But as we have stated earlier the provisions in the English Act were entirely different. We may also refer to another decision of the Privy Council . reported in _Attorney-General for Victoria_ _v._ _Mayor,_ _A/de_rmen,_ _Caunci/lors and Citizens of Melbourne(')_ in which the construction of s. 39 of the Victorian Electric Light and Power Act 1896 came up for consideration. Section 39 of the said Act ~as as follows: "The undertakers shall not in making any agreements for a supply of electricity show any preference to any council company or person and the charge for such supply shall be unifonn throughout such area so that each council company or person shall be supplied at the same price and not less than any other council (l) (1907] A.C. 469. 152 SUPREME COURT REPORTS [1968] 3 S.C.R. company or person, but such price shall not exceed the limits of price imposed by .-or in pursllance of the order authorising them to supply electricity." The Privy Council, in construing that section, held that the preferen,ce prohibited therein is ·not as between customers dealing ilnder two different systems but only as between customers dealing under the same system. Based upon this decision, . counsel for the respondent argued that uniform tariffs under s. 49 of our Act can only be levied as against the same type of customers situated in the same area and that uniform tariff cannot be levied in respect of. same type of customers situated in• a different area. Counsel further urged that consumers regarding whom supply cost is more as in sparse areas, cannot be considered to be on par with consumers in compact areas in respect i:>f whom supply cost ###### is Jess. It is further pointed out that ii both these types of con sumers are treated as same, that will amount to showing undue preference, which is prohibited under sub-s. ( 4) of s. 49. In view of the wording of s. 39 of the Australian Act, the reasoning of the Privy Council in construing the said section regarding the rule of uniformity cannot be applied when construing s. 49 of our Act · But it is significant to note that as early as 1907, a system of levying uniform rates as indicated in s. 39 has been in vogue in Australia. B #### c D E F After having charged the Board under s. 18 to supply and distribute electricity in the most efficient and economical manner, as already pointed out, s. 59 states that the Board shall not, as far as practicable, carry on its operations under the Act at a loss. Section 63 empowers the State Government to make subventions to the Board. It is entirely within the discretion of the State Government under s. 63 to make subventions to the Board. We are referring to this aspect, because it has been stressed on behalf of the respondents that any development schemes in respect of sparse areas should be done by the Board only with the subventions. which the State Government pays and not by charging tlie consumers in the compact areas and sparse areas at uniform tariff. ·Section 49(1), as it now stands, provides that the Board is to frame uniform tariffs in the matter of supply of electricity to any person, not being a licensee; and sub-s. (2) lays down the factors which are to be taken into account by the Board in fixing uniform tariffs. In this connection, it is necessary to refer to the provisions of s. 49 of the Act as it originally stood. It was as fol!ows: "Subject to the provisions of this Act and of any regulations made in this behalf, the Board may supply G H A B ·C D E **fl** MAHARASHTRA ELEC. _v._ KALYAN MUNIC. _(Vaidiaiingam,_ _!.)_ 153 electricity to any person not .being a licensee upon such terms and conditions as the Board may from time to time fix having regard to the nature and geographical position of the supply and the purpose for which. it is required : Provided that in fixing any· such terms and conditions the Board shall not show undue preference to any **person.''** In the old s. 49 extracted above, there is no such policy or direction indicated by the Legislature that the Board is to frame uniform tariffs. Under that section, the Board had the powei· to supply electricity on such terms and conditions as it may from time to time fix, having regard to the matters referred to in the said se.i:tion. The only restriction upon the Board's power was that it sha!l not show undue preference to any person in fixmg any such tenns and conditions. In s. 49 as it now stands, the Legislature has empowered the Board to frame uniform tariffs •md it has also indicated the factors to be taken into account in fixing uniform tariffs. These two aspects are contained in sub-ss. _(I_ ) and (2). The Legislature has also made it clear in sub-s. 131 that the Board. in the special circumstances mentioned therein, has got power to fix different tariffs for the supply of electricity. Sub-s. ( 4) directs the Board not to show undue preference to any person for fixing the tariffs and the terms and conditions for the supply of electncity. Though _prima facie_ it would appear that sub-s. (4) will govern sub-ss. (1) to (3) ins. 49, the proper ###### way to interpret sub-s. ( 4) will be to read it along with sub-s. (3). The question of the .Board showing undue preference to any person in fixing the tariffs and terms and conditions for supply of electricity will not arise when the Board frames uniform tariffs under sub-ss. (I) and (2). When the entire. tariff is imifom1 for every consumer, there is no question of any undue preference as every ~ustomer will pay the same amount for the same benefit received by him. Sub-s. (3) of s. 49 recognises the power of ~h~ Board to .fix _different tariffs for the supply of electricity and it is rea_lly here, 1f at all, that an occasion for any undue preference bemg shown, may arise. Therefore, in· Qur opinion sub-s. (4) will control the action of the Board under sub-s. (3) ~f s. 49. We are not inclined to accept the contention of the respondents that the consumers in a compact area cannot be treated as o~ par with the consumers in sparse area and that uniform tariffs cannot be levied on both. In this case, V'1; have already referred to the fact that both the respondents are consumers of low tension electricity and that uniform tariffs have been levied for the entire State of Maharashtra excepting certain types of consumers in :L4Sup.C.J/68-l 1 154 SUPREME COURT REPORTS (1968.] J'S.C.R. Poona area: To conclude we are of the opinion, that the Board' _It._ had ample powers to frame uniform tariJfs as it has done in the case before us and the levy is valid. The second question that arises for consideration, as indicated earlier, relates to the validity of s. 49, as amended. The attack ###### on the validity of this section is made under different heads, as a indicated below. The first ground of attack is that levying of a uniform tariff on 'the consumers in sparse areas and consumers in comp11t:t areas, which is not directly related to the. cost of. supply, amounts to a colourable exercise of taiting power by Parliament. In this connection, it is stated that the power to levy tax on the consumption or sale of electricity is conferred under entry 53 List U of the 7th schedule on the State Legislature. This attack is made on the basis that the tariff levied by the Board must be relatoo to the cost of supply. We have already· rejected the contention of the respondents in this regard; and we have held that the cost of supply is only one of the factors to be taken into account in ###### fixing the tariff. If that is so, it follows, that in this case, there is no question of any levy of tax by Parliament through the medium of the Board. By reference to the proviso to sub-cl. (b) of cl. (10) of s. 67, it is. further urged by the respondents that the Board may fix tariffs in such a way that large surplus may be found by them from which one-half will be credited to the conso· lidated fund of the State. This action, according to the respondents, amounts to levy of tax for which there is no power in law. We are not inclined to accept this contention either. Section _61_ of the Supply Act which occurs in Chapter VI rt)iating 10 the Board's finance, accounts and audit, deals with priority of liabilities of the ~oard. After meeting its operations, maintenance and management expenses and providing for the payment of tax on itii" income and profits, s. 67 provides for the revenues of the Board, in so far as they are available, to be distributed in the order mentioned in els. 1 to 10. After adjustments have been made in respect of els. 1 to 9, cl. l 0 provides for the balance to be appropriated to a fund to be called the 'development fund'. Clause 10 further provides that the development fund is to be utilised for· two purposes, (a) purposes beneficial, in the opinion of ·the Board, to electricity development in the State; (2) repayment of Joans advanced to the Board under s. 64 and required to #### c D E _G_ ## ... be paid. It is after this that the proviso, on which reliance is placed by the respondents, states -that where no such Joan is outstanding, one-half of the balance shall be credited to the conso· lidated fund. of the State. Jn the counter-affidavit filed on behalf H of the Board, it has been stated that ever since its constitution, it has been carrying on its operations at a loss and there bas been A B #### c D E F H MAHARASHTRA ELEC. _v._ KALYAN MUNIC. _(Vaidialingam, I.)_ 155 no occasion when any part of its revenues has been passed to the consolidated fund of the State. We have no hesitation to accept this statement made on behalf of the Board. Even otherwise, before the proviso can come into operation, there are several other items in respect of which adjustments will have to be made, and there will be no occasion at' all for the proviso to come into effect. We are also not inclined to accept the contention of the respondents that with a view to give effect to the proviso, the Board will so fix the tariffs as to enable them to have huge surplus, after meeting the various adjustments. In case such a thing happens in future the proviso which is clearly severable, may have to be struck down. Therefore, this ground of attack, that there is a colourable exercise of taxing power, cannot be accepted. The next ground of attack against s. 49 is that it gives an unguided and arbitrary poweor to the Board to fix the tariff as it likes, and no maximum limit for the tariffs that may be fixed by the Board, has been stated. On first blush, it may appear that this contention has considerable force; but we are satisfied that no such unguided or arbitrary power has been conferred on the Board either in the matter of framing uniform tariffs or in the matter of fixing different tariffs for the supply of electricity to any person, not being a licensee. No doubt, the maximum as such, has not been fixed in the statute. But, in our opinion, there are sufficient restrictions placed upon the power of the Board. In this connection, reference may be made to some of the sections of the Supply Act. Section 16, as we have already indicated, provides for the State Government constituting a State Electricity Consultative Council for the State. That Council consists of the representatives of the various interests including representatives of consumers of electricity. The Board is bound to place before the State Electricity Consultative Council under sub-s. (6) the annual financial statement and supplementary statement and a duty is cast upon the Board to take into consideration any comments made on such statement. This annual financial statement will have then to be submitted to the State Government unper s. 61. Under that section, in February of each year, the Board ha~ to submit to the State Government an annual financial statement in the prescribed form, of the estimated capital and revenue receipts and expenditure for the ensuing year. That statement, under sub-s. (3) has to be placed before the State Leg'slature and it is open to discussion. Again, sub-s. ( 4) of s. 61 casts a duty on the Board to take into consideration any comments made on the said statement in the State Legislature. Section 75 again provides for the Board submitting to the State Government a report giving an account of its activities during the previous financial year as also an account of its activities which are likely to be undertaken by it in the next financial year. The State Government is to place the said report before the Sta1e Legislature. We 156 SUPREME COURT REPOllTS £1968) 3 s.c.R. have already indicated, by reference to r. 57 cl. (q) of the rules framed by the State of Maharashtra that details of tariff will have to be furnished by the Board in its a!"nual report. Under cl. (j) of s. 79, the Board has also to make reguJatio~ laying down the principles governing the supply of electricity by it to persons other than 'licensees under s. 49. In ·our opinion, all these provisions have the effect of properly guidin,g the activities of the Board, in its dealings with the consumers including the levy of tariffs. Sec tion 49 itself is hedged in by various restrictions and directions which the Board will have to comply in the matter of framing uniform tariffs or in the matter of fixing different tariffs, and that section, also in our opinion, provides a proper guide-line for framing uniform tariffs and· different tariffs. Therefore, in particular, it may be noted that the. extension and cheapening of supplies of electricity to sparsoly developed areas under cl. (d) of s. 49(2) of the Act can only be complied with by keeping the uniform rates at a minimum, consistently with the requirement, under s. 59, of not running at a loss. Therefore, we are satisfied, that s.-49 is not in any way, bad on the ground that it gives, an unguided and arbitrary power to the Board to fix its tariffs as it likes. The next ground of attack is that consumers who are supplied electricity by the licensees are differently treated from similar consumers under the Board.. In this connection, reference is made to s. 57 of the Supply Act which provides for the 6th and 7th schedule to be deemed to be incorporated in the licence of every licensee. Clause I of the sixth schedule provides that the licensee shall so adjust his charges for the sale of electricity, whether by enhancing or reducing them that his clear profit in any year of account shall not, as far' as possible, exceed the amount of reasonable return. It is argued that while restrictions have been placed on the licensees, no such restrictions have been placed on the Board. The distinction sought to be pointed out, in our opinion has no substance. The licensees are persons who must have invested considerable capital in the matter of their business, and obviously, the Legislature thought that some directions will have to be given so as to enable them to have a reasonable retnrn. But we have already indicated that sufficient guidance has been laid down in the matter of fixing of tariffs by the Board. Therefore this ground of attack also cannot be sustained. Therefore, both the grounds of attack, levelled by the respondents, will have to be rejected. On behalf of the respondents, a feeble attempt was made to show that s. 24 of the Amendment Act has not validated the levy and collection in these cases. According to the respondents, in this case, there is nothing to show that the provisions of s. 49, as A B #### c 0 E F G H A B #### c MAHARASHTRA ELEC. _v._ KALYAN MUN!C. _(Vaidlt!lingam,_ /.) 157 amended, whi.ch is deemed to have been in force at all material times, have been complied with by the Board before the levy was made, and therefore, the levy in this case cannot be sustained. We are not inclined to accept this contention of the respondents. Section 24 of the Amendment Act, in our opinion, deals with all rates as a matter of fact fixed under s. 49 of the Act. In this case, the Board has fixed tariffs under s. 49 of the Act. Therefore, s. 24 of the Amfndment Act has full effect and force. The result is· that all the contentio11s of the respondents fail. The order of the High Court, under attack is set aside and these two appeals are allowed. As the appellant succeeds in both these appeals on the basis of the Amendment Act, parties will bear their own costs throughout. Y.P. _Appeals allowed._