# FERRO ALLOYS CORPN v. A.P.S.E.B

- **Citation:** [1993] 3 S.C.R. 199
- **Court:** Supreme Court of India
- **Decided:** 1993-04-15
- **Case number:** Civil Appeal Nos. 2117 to 2122 of 1993
- **Bench:** K. Jay A Chandra Reddy Ands. Mohan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ferro-alloys-corpn-v-a-p-s-e-b-11814
- **Pages:** 81

## Headnote

Elecricity Supply Act, 1948: Sections 2(b) (v), 49, 59, 79, Schedule
· VI-Clause 14.
A
B
Section 49-Whether unconstitutional for want of guidelines for c
terms and conditions of supply of electricity.
Indian Electricity Act, 1910:
Indian Electricity Rules, 1956: Rule 27.
Interest Act, 1978: Section 4(2).
Electricity Boards-General terms and conditions of supply of
electricity-Condition of Consumption Deposit-Whether arbitraryWhether Board has power to make Regulations to demand security .
deposit-Nature and object of consumption deposit-What is Electricity Board-Whether liable to pay interest on Consumer Deposit-Rate
of Interest on Consumption Deposit-Whether should be same as pai4
by Scheduled Bank-Clause in General Terms and Conditions providing for 11011 payment of interest on Consumption Deposit-Wflether
unconstitutional and arbitrary-Demand for additional Consumer
Deposit-Reasonableness of-Electricity Board-Whether should give
reas01is for additional demand.
lndianJfusts Act, 1882: Section 90.
D
E
F
Relationship b.etween Electricity Board.and Consumers-Whether
G
of Trustee and Benejtciary• ..
Practice and Procedure-Interlocutory order passed by a Bench of
.---
3 Judges-Whether binding on a Bench of 2 Jr.dges.
H
199
200
SUPREME COURT REPORTS
(1993] 3 S.C.R.
A
Consititution of India, 1950 : Article 12.
B
Electricity Boards are State.
Words and Phrases:
'Unconscionability'-'Deposit'-'Interest'-Meaning of
Under the General Terms and Conditions for supply of electricity notified by the Andhra Pradesh State· Electricity Board, under
Section 49(1) of the Electricity (Supply) Act, 1948, the consumers
were obliged to keep with the Electricity Board an amount equivalent
to three month's demand and energy charges as consumption deposit
c on which interest at the rate of 3% per annum was payable by the
Board. In the event of delay in payment of consumption deposit within
the stipulated period not only surcharge was payable by consumer but .
also the supply was liable to be disconnected. Various petitions were
filed before Andhra Pradesh High Court challenging the validity of
terms and conditions con tending that the consumption depositshou Id
D in no event exceed two months average consumption charges and that
in view of the judgment of Supreme Court in Mis. Jagdamba Paper
Industries v. H.S.E.B. Board, [1983] 4 S.C.C. 508, the Board was liable
to pay interest at the same rate as is paid by a Scheduled Bank on fixed
deposit. The High Court dismissed the petitions.
E
F
In appeals to this Court, it was contended on behalf of the
consumers that: (l) Section 49 of the Electricity (Supply) Act is
~nconstitutional since there are no guidelines for framing the terms
and conditions of supply of electricity; (2) in view of the fact that in
case of power intensive consumers the cost of Electricity is very high, ·
the condition requiring 3 months' security deposit is arbitrary and
illegal for power intensive consumers; and (3) there is no power under
the Electricity Supply Act to enable the Board to raise "revenue or to
cover its capital cost etc. except by way of adjustingtaritis as seen from
under Section 59 of the Suppl~· Act, 1948. Therefore, consumption
G deposit cannot be used for the purpose of revenue or raising revenue.
On behalf of the Electricity Board it was contended that: (1) in
view of the fact that the object of consumption deposit (which is in the
nature of advance payment and not a security deposit) is to ensure
H prompt payment of electricity supply, it cannot be contended that 3
.~
FERRO ALLOYS CORPN. v. A.P.S.E.B.
201
month's consumption deposit is arbitrary; (2) the fact that some of the
A
consumers pay large amounts by way of electricity charges has
nothing to do with the nature of deposit. Merely because a unit is
power based it cannot be treated separately for the terms of supply
relating to consumer deposit must be uniform.
In the case of Rajasthan Electricity Board the General Conditions expressly provided that no int

## Text

_Characters 0–39,952 of 166,898. This is a partial read: ask again with offset=39952 for what follows._

FERRO ALLOYS CORPN. LTD. AND ORS. ETC. ETC.
"·
A.P. STATE ELECTRICITY BOARD AND ORS ETC. ETC.
APRIL 15, 1993
[K. JAY A CHANDRA REDDY ANDS. MOHAN, JJ.]
Elecricity Supply Act, 1948: Sections 2(b) (v), 49, 59, 79, Schedule
· VI-Clause 14.
A
B
Section 49-Whether unconstitutional for want of guidelines for c
terms and conditions of supply of electricity.
Indian Electricity Act, 1910:
Indian Electricity Rules, 1956: Rule 27.
Interest Act, 1978: Section 4(2).
Electricity Boards-General terms and conditions of supply of
electricity-Condition of Consumption Deposit-Whether arbitraryWhether Board has power to make Regulations to demand security .
deposit-Nature and object of consumption deposit-What is Electricity Board-Whether liable to pay interest on Consumer Deposit-Rate
of Interest on Consumption Deposit-Whether should be same as pai4
by Scheduled Bank-Clause in General Terms and Conditions providing for 11011 payment of interest on Consumption Deposit-Wflether
unconstitutional and arbitrary-Demand for additional Consumer
Deposit-Reasonableness of-Electricity Board-Whether should give
reas01is for additional demand.
lndianJfusts Act, 1882: Section 90.
D
E
F
Relationship b.etween Electricity Board.and Consumers-Whether
G
of Trustee and Benejtciary• ..
Practice and Procedure-Interlocutory order passed by a Bench of
.---
3 Judges-Whether binding on a Bench of 2 Jr.dges.
H
199
200
SUPREME COURT REPORTS
(1993] 3 S.C.R.
A
Consititution of India, 1950 : Article 12.
B
Electricity Boards are State.
Words and Phrases:
'Unconscionability'-'Deposit'-'Interest'-Meaning of
Under the General Terms and Conditions for supply of electricity notified by the Andhra Pradesh State· Electricity Board, under
Section 49(1) of the Electricity (Supply) Act, 1948, the consumers
were obliged to keep with the Electricity Board an amount equivalent
to three month's demand and energy charges as consumption deposit
c on which interest at the rate of 3% per annum was payable by the
Board. In the event of delay in payment of consumption deposit within
the stipulated period not only surcharge was payable by consumer but .
also the supply was liable to be disconnected. Various petitions were
filed before Andhra Pradesh High Court challenging the validity of
terms and conditions con tending that the consumption depositshou Id
D in no event exceed two months average consumption charges and that
in view of the judgment of Supreme Court in Mis. Jagdamba Paper
Industries v. H.S.E.B. Board, [1983] 4 S.C.C. 508, the Board was liable
to pay interest at the same rate as is paid by a Scheduled Bank on fixed
deposit. The High Court dismissed the petitions.
E
F
In appeals to this Court, it was contended on behalf of the
consumers that: (l) Section 49 of the Electricity (Supply) Act is
~nconstitutional since there are no guidelines for framing the terms
and conditions of supply of electricity; (2) in view of the fact that in
case of power intensive consumers the cost of Electricity is very high, ·
the condition requiring 3 months' security deposit is arbitrary and
illegal for power intensive consumers; and (3) there is no power under
the Electricity Supply Act to enable the Board to raise "revenue or to
cover its capital cost etc. except by way of adjustingtaritis as seen from
under Section 59 of the Suppl~· Act, 1948. Therefore, consumption
G deposit cannot be used for the purpose of revenue or raising revenue.
On behalf of the Electricity Board it was contended that: (1) in
view of the fact that the object of consumption deposit (which is in the
nature of advance payment and not a security deposit) is to ensure
H prompt payment of electricity supply, it cannot be contended that 3
.~
FERRO ALLOYS CORPN. v. A.P.S.E.B.
201
month's consumption deposit is arbitrary; (2) the fact that some of the
A
consumers pay large amounts by way of electricity charges has
nothing to do with the nature of deposit. Merely because a unit is
power based it cannot be treated separately for the terms of supply
relating to consumer deposit must be uniform.
In the case of Rajasthan Electricity Board the General Conditions expressly provided that no interest will be paid by the Electricity
Board on security deposit. Futher, the El~tricity Board· issued
notices requiring the consumers to deposit the enhanced amount of
cash security as well as bank guarantee on the basis of maximum
power consumption. The consumers filed petitions in the Rajasthan
High Court contending that provision for no interest was bad in law
and that the enhanced security deposit must be calculated not on three
months maximum consumption but on the basis of minimum power
consumption. A Single Judge of the High Court allowed the petitions.
On appeal, the Division Bench held that the clause relating to non·
payment of interest was not reasonable. Relying on Section 4 of the
Interest Act as well as on the Model Form of draft conditions
contained in Schedule VI of the 1948 Act, the Division Bench held that
interest was payable on the security deposit.
B
c
D
In appeals to this Court, it was contended on behalf of the
E
Rajasthan State Electricity Board that: {l) there is no statutory
provision which casts an obligation on the Board to pay interest on the
security deposit; nor even interest is payable under common law or in
equity; (2) the High Court erred in relying on the Model Form
conditions as well as on the Interest Act; (3) the security deposit for
three months is neither unreasonable nor a~bitrary; (4) even if the
contract between the Board a!ld consumer is adhesion contract, it is
F
not necessarily unconsciable; (5) in Jagdamba Paper Industries case
the right of interest was based on th~ concession of parties and the
Court had no occasion to decide the rate of interest.
On behalfoftheconsumersit was contended that: {l)thescheme
of the Electricity Act and Supply Act together with the Rules suggest
G
the payment of interest; (2) since the money is deposited bu the
consumers with the Board to secure the Board against default in
payment of bills, the Board is in the position of a trustee in respect of
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202
SUPREME COURT REPORTS
[1993] 3 S.C.R.
A this money; (3) .even under English Law, interest was payable on ·
security for electricity.
B
For the intervenor on behalf of the Electricity Board of Orissa,
it was submitted that Regulation 7 of the Orissa State Electricity
Board General Conditions of Supply Regulations 1981 providing that
no interest would be payable on security deposit is just and reasonable
and is not arbitrary or violative of Article 14 of the Constitution.
The Uttar Pradesh State Electricity Board was also paying 3%
interest on consumption deposit. The consumers preferred writ ·
C petitions before the Allahabad High Court claiming 12 % interest, but
-""'"=
the same were dismissed.
In appeals to this Court it was contended on behalf of the
consumers that in a number of matters this Court has also ordered
D interest at the rate of 12% on security deposit and the same principle
should apply to this case; (2) if interest is not paid, securit)' deposit
cannot be demanded as this will amount to unconscionable bargain;
and (3) the security deposit does not contemplate appropriation.
On behalf of the Electricity Board it was contended that: (I) in
E cases where 12 per cent interest was awarded it was only by way of ad
interim measure. Therfore, orders are not conclusive on this aspect;
(2) under Article 226 of the Constitution, the court is to conduct a
limited scrutiny whether b)· imposing a condition the Board has not
acted as a private trader and thereb)· shed off its public utility
F character. If the Court comes to the conclusion that the Board has not·
acted as a private trader and the nature of deposit has a rational
·relationship, the issue will fall outside the scope of judicial puniew.
The Bihar State Electricit)' Board was paying 5% interest on the
G security deposit. The consumers claimed interest at the rate payable
on fixed deposit b)· a nationalised bank and the High Court allowed
the san:ie. The Electricity Board filed petition in this Court contending
that the High Court erred in awarding a higher rate of interest.
On behalf of the consumers it was contended that the increase in
H security deposit "ithout assigning any reason was bad in law.
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FERRO ALLOYS CORPN. v. A.P.S.E.B.
203
In the connected writ petition, the challenge is to the validity of
A
Sections 49 and 79 of the Supply Act.
According to the Punjab State Electricity Board, while the
Electricity Board is required to make colossal advances to generate
electricity and supply to consumers the consumers also use and
consume electricity on credit ranging from 2 to 3 months depending
upon the category of consumers. To off-set part of the amount that the
consumer owes to the Board constantly and also to ensure timely
payment of advances b)· the Board to its suppliers an advance
consumption deposit is insisted upon before commencing supply to
the consumer. If this is not so taken the Board will be left with no other
option than to increase the tariff. Thus advance deposit cannot be
· termed as a fixed deposit as the amount cannot be utilised against nonpa~·ment of dues from consumers. Besides, the consumers can also ask
for the refund. Therefore, Sections 49(1) and 79 (j) cannot be termed
as arbitrary.
It was also contended on behalf of the Punjab State Elecricity
Board that the amendment to clause 23 of abridged conditions of
suppl~· requiring consumers to pa~· advance consumption deposits is
perfect!~· reasonable.
For the intervenor on behalf of Calcutta Electricity Supply
Corporation, it was submitted that the deposit though called securit)·
deposit is reall)' an adjustable advance payment of consumption
charges. The amount is revisable from time to time depending upon
the average consumption charges on the basis of actual consumption
O\'er a period. In short, it is in the nature of a running account. The
securit~· deposit does not remain in tact like a fixed deposit but gets
depleted day after day depending on the extent of consumption. More
often than not. the consumption charges and other dues exceed the
security deposit. That necessitates calling for additional advance to
make up a shortfall. In the absence of any usage or contract or an)'
proYision of law re<JUiring payment of interest, interest is not payable
for wrongful detention of mone)'· In this case, there is no wrong ful
detention [of eYen.] Section 4(2) of the Interest Act has no application
to this deposit.
B
c
D
E
F
G
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204
SUPREME COURT REPORTS
[1993] 3 S.C.R.
A
Disposing the petitions, this Court,
8
HELD.: 1. Section 49 of the Electricity (Supply) Act, 1948 is
valid. Sub-section (1) of the said section starts with the words "Subject
to the provisions of the Act and all regulations, if any, made in this
behalt". Therefore, the Board has to conform to the various provisions of the Act and the regulations. Section 49 contains two powers;
(1) to prescribe terms and conditions of suppl)·; and (2) fix the tariff.
No guidelines are required in this regard. [278A-248CEJ
Hindustan Zinc Lrd. v. A.P.S.E.B .. 1991 (3) S.C.C. 299; Mysore
C Srate Electricitl' Board v. Bang/ore Woollen. Cotton and Silk Mills Ltd.,
A.J.R.1963 S.C. 1128; Jagdamba Paper lndustries P\'f. Ltd. v. Haryana
State Electricity Board, 1983 (4) S.C.C. 508, referred to.
Roberts v .. Hopwood. 1925 A.C. 578; Py.r Granite v. Minister of
0
Housing and Local Goremment, 1958 (1) All E.R. 625, cited.
E
1.1. \Vhere regulations are made under Section 49 read with
Section 79 (j), the validity of the regulations could be examined by the
court, whether they are reasonable or not. [249-D]
Soutflem Steel Ltd .. Hyderabad v. The Andl!ra Pradesh State
Electricity Board. A.J.R. 1990 Andhra Pradesh 58, and Mis B.R. Oil
Mills. Bharatpur v. Assis tam Engineer (DJ R.S.E.B., Blwratpur. A.J.R.
1981 Rajasthan 108, referred to.
F
1.2 The terms and conditions notified under Section 49 must
relate to the object and purpose for which the)' are issued. Certainly,
that power cannot he exercised for a collateral purpose. In this view,
Section 49 is valid. [251-C]
G
2. The nature of consumption deposit is to secure prompt
payment and is intended for appropriation. The deposit though called
security deposit is reall)' an adjustable advance pa_yment of consumption charges. The payment is in terms of the agreement interpreting
the conditions of suppl)·· This security deposit is revisable from time
-
to time on the basis of average consumption charges depending upon
-
H the actual consumplion over a period. This is the position under the
\
1
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FERRO ALLOYS CORPN. v. A.P.S.E.B.
205
terms of supply of energy with reference to all the Boards. (278 A, 252
A
D-Kt
2.1 The cycle of Billing by the Hoard demonstrates that in the
ver)· nature of things, the consumer is supplied energy on credit. The
compulsoQ· deposit in the context of billing cycle is hardly adequate
to secure payments to the Board by the time the formal bill b.)' the
Board is raised on the consumer. In one sense, the consumption
security deposit represents onl}· a part of the mone:r which is payable
to the Board on the bill being raised against the consumer. Thus, the
Board secures itself by resorting to such deposit to cover part of the
B
liahilit)·. 1253 F -G)
C
2.2 The deposit made cannot he equated to a fixed deposit. In the
rnse of daily suppl)· of electricit}" there is a consequential liability to.
pay for each day's consumption of electricit}·· To ensure that payment, the securit}' deposit is furnished. Hence, it cannot he equated to
a deposit at all. It is in the nature of a running current account.
[262-A)
2.3 The argument that the deposit does not contemplate appropriation is not correct because in the nature of contract it is liable to
be appropriated for th!! satisfaction of any amount liable to be paid b.)·
the consumer to the Board for violation of any conditions of supply in
the context of wide scale theft of energy, tempering with the meters
and such other methods adopted b)· the consumers. Therefore, the
D
E
said consumption security deposit serves not onl)' too secure the
interest of the Board for any such violation but should serve as a
F
deterrent on the consumer in discharging his obligations towards the
Board. [264 F-6)
Union of India v. A.L. Rallia Ram, (1964) 3 S.C.R. 164; Ricl!es v.
Westminister Bank Ltd. 1947 Appeal Cases 390, held inapplicable.
2.4 While the Electricity Board is required to make colossal
advances to generate electricity and supply to consumers, the consumers use and consume elecricity on credit ranging from 2 to 3
months depending upon the category of consumers. To off-set part of
G
the amount the consumer owes to the Board continually to ensure
H
206
SUPREME COl1RT REPORTS
[1993] 3 S.C.R.
A timely payment of bills by the Hoard to its suppliers, the adrnnce
consumption deposit is required to be kept with the Board before
commencing suppl}" to the consumer. The clauses in the contract in
relation to conditions of suppl)' of electric en er~· enable the Board to
adjust the bill against such deposits. Therefore, this is not a case of
mere deposit of money as in commercial transaction. In demanding
B security deposit, it is open to the court to take note of pilferage.
[254 F-H]
c
As/lokSoap Factory v. Municipal Co1pomtio11 of Del/1i. J.T. 1993
(l) S.C. 128, referred to.
Corpus.lurisSecu11dum. Vol.26A,p.194,Davidsonv. U.S .. C.C.A.
Pa., 292 F. 750, 752, referred to.
2.5Three month's security deposit cannot be characterised eiD ther unreasonable or arbitrar)·· [255-F]
.lagdama Paper Industries P. Ltd. i·. Haryana State Electricity
Board. [I 993] 4 S.C.C. 508; K. C. Works v. Secretary A.P.S.E.B .. Vidyut
Soudlta. A.I.R.1979 Andhra Pradesh 291; Municipal C01porationfor
Greater Bombay v. Mis D.M. Industries. A.I.R. 1984 Bombay 242;
E Haryana lee Factory v. Municipal Corporation of Delhi, A.I.R. 1986
Delhi 78, referred to.
F
Southern Steel Ltd .. Hyderabadv. T/JeA.P. State Electricity Board.
A.LR. 1990 Andhra Pradesh 58, approved.
Indian Aluminium Company v. Karnataka Electricity Board. 1992
(3) S.C.C. 580, cited.
2.6Under the regulations framed by the Board in excercise of
G powers of Section 49 read with Section 79 (j) the consumer is onl)'
entitled and the Board has an obligation to suppl)· energy to the
consumer upon such terms and conditions as laid down in the
regulations. If, therefore, the regulations perscribed a security deposit that will have to be complied with. In cases where regulations
have not been made Rule 27 of the Rules made under the Electricity
H Act enables the adoption of model form of draft conditions of supply.
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FERRO ALLOYS CORPN. v. A.P.S.E.B.
207
Annexure VI in clause 14 states that the licensee may require any
consumer to deposit security for the payment of his monthly bills for
ener~· supplied and for the value of the meter and other apparatus
installed in his premises. Thus, the Board has the power to make
regulations to demand security from the consumers.
[251F-H, 252A-B]
2.7 Under Section 59 the Board is obligated to carry on its
operation as to ensure that it gene.rates a surplus of 3 per cent o~ as
specified by the State Go\•ernment. The Board is obligated to adjust
its tariffs for ensuring such surplus. The condition of supply requiring
A
B
a consumption security deposit has a direct bearing on the operations
C
of the Board which are to be conducted in such a manner as to ensure
a surplus. The language in Section 59 of the Supply Act is "carry on
its operations under this Act and adjust its tariffs." The language of
the said Section is not by adjusting tariff. Therefore, the argument
that the only manner in which the Board can achieve a surpius is to
adjust its tariffs does not flow from the language of Section 59. So read,
in the context of the insistence of a security deposit which has direct
bearing on the operations of the Board is per se reasonable and
constitutional. [266 E-6]
D
Ker/a State Electricity Board v. S.N. Govinda Prablzu & Bros. &
E
Ors. [1986] 4 S.C.C. 198, cited .
..._
3. There is no liability on the Electricity Board either under the
statute or common law or equity to pay interest on security deposit.
[278-B]
F
.3.1 Then~ is no statutory provision which casts an obligation on
tht' Hoard to pa)· interest on securit)' deposit. Model form of draft
conditions of suppl)' (containing Clause 14 relating to interest on
securit)· deposit) as found in Annexure VI. traceable to Rule 27 of
Indian Electricity Rules, 1956, is applicable only to a licensee as
defined in Section 2 (4) of the Electricity Act. EYen for a licensee it is
not compulsory to adopt the model condition of si,pply. These is an
option available to adopt the model conditions of supply with such
modifications as the circumstances of each case require. [259 G-H, 260
A-C]
G
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SUPREME COURT REPORTS
[1993) 3 S.C.R.
A
3.2 Schedule VI has been framed in exercise of powers under
B
Sections 57 and 57 A. In defining"clear profit" paragraph (2) of clause.
XVII, Item (v) makes a reference, as interest on securit)' deposits
which isa part of expenditure properly incurred by the licensee. From
this, it is impossible to hold that this Clause imposes an obligation on
the licensee to pay interest on Secwity deposits, All that would when
is, is, if interest, is paid then it qualifies as an item of expenditure
properl,y incurred. This is the position with regard to licensee. But this
cannot apply to the Board, which is not a licensee. For the same reason
Item Ll (c) of Form IV of the Electricity Rules relating to interest paid
and accrued on consumers' securit)' deposits is of no avail because
c that relates to the manner of keeping accounts by the licensee, not
being applicable to a Board. Therefore, there is nothing to indicate
under the scheme of the Electricit)' Act or Schedule VI of the Suppl)'
Act that interest must be paid on thesecurit)' deposit. Accordingly the
Dh·ision Bench of Rajasthan High Court has erred in holding that
Interest Act is applicable. [260 F-H, 261-A-B]
D
3.3 Section 4(2) of the Interest Act, 1978 has no application to a
case where on account of a contractual term or a statutory provision
payment of interest is not permitted. A careful reading of Section 4(2)
wou Id disclose that it me rel)' enlarges the category of cases mentioned
E
in Section 4(1). E,·en otherwise, there is nothing to indicate that
Section 4(2) could override other satutory proYisions or a contract
between the parties. No doubt, Section 4(2) contains a non-obstante
clause. But, such a clause is restricted to the prh·isions of Interest Act
and cannot extend to otlrer laws or a contract between the parties.
F
G
[261 F-6]
Ch'il Special Appeal No. 83of1987, decided on 30th July,
1991 by a Division Bench of the Rajasthan High Court,
overruled.
3.4 The word 'interest' would appl)' only to cases where there is
a relationship of debtor and creditor. A lender of money who allows
the borrower to use certain funds deprives himself of the use of those
funds. He does so because he charges interest which may be described
as a kind of rent:for the use of the funds, For example, a bank or a
H lender lending out money on payment of interest. In this case, there
is no relationship of debtor and creditor. Accordingly, the claim for
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FERRO ALLOYS CORPN. r. A.P.S.E.B.
209
interest cannot be legally founded either on common law or equity.
A
[262-G, 265-A]
Halsbury's Vol. 32 para 108: (Discussing cases where interest is
payable under common law) para 109 (Discussing cases where there
is equitable rights to interest), held inapplicable.
Bengal Nagpur Railway v. Ruttanji Ramji, A.I.R. 1939 P.C. 67,
referred to.
3.5 The object of the deposit is to secure the payment of consumpB
tion charges. These charges may vary depending upon the daily
C
consumption, depending on the level of suppl~·· The amount due by
way of consumption charges would also be liable to be appropriated.
Therefore, it is incorrect to state that the Board is a trustee. The
relationship between the Board and consumer is not that of a trustee
and a beneficiary but a depositor and depositee. This. is not even a case
of a constructive trust under Section 90 of the Indian Trust Act, since
no advantage is gained by the Electricity Board in derogation of the
rights of the consumer. [262 D-F]
4. The clause not providing for interest on security deposit is
neither arbitrary nor palpably unreasonable, nor even unconscionable for the following reasons:
(a) The consumer madethesecuritydepost in consideration of the performance of his obligation for obtaining the senice which is· essential to him.
(b) The electricity supply is made to the consumers on
credit.
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(c) The billing time taken by the Board is to the
G
advantage of the consumer.
(d) Public revenues are blocked in generation, trans-
. mission and distribution of electricity for the purpose
of supply. The Board pays interest on the loans
borrowed by the Board. This is in order to perform
H
210
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SUPREME COURT REPORTS
(1993) 3 S.C.R.
public service. On those payments made by the Board
it gets no interest from the consumers.
'··
( e) The Board needs back its blocked money to carry
out public senice with reasonable recompense~
(t) The Board is not essentially a commericial organisation to which the consumer has furnished the securityto earn interest.thereon.
F-H, 270 A-C]
(269
C
4.1 The argument that the Board is monopolistic in character and
therefore, the consumers have no other option buUo enter contract
appears to be misconceived. The consumption security deposit whether
or not it carries interest is a condition precedent for the supply of
electric energy. The scrutiny by the Court in determining the unconD stitutionality of a provision not providing for interest must be tested
on the touchstone whether in imposing such a condition the Board has
acted as a private trader and thereby shed off its public utility
character? In imposing such a conditfon the Board has not acted as a
private trader. The nature of deposit has a rational relationship to the
object which is incorporated a condition of supply. (266 A-D,]
E
Jagdamba Paper Industries (Pvt. ) Ltd. v. Haryana State Electricity Board. [i983] 4 S.C.C. 508, referred to~
4.2 Assuming that the contract Is an adhesion contract, still it is.
F
not unconscionable. Conditions and the terms of supply providing for
non-payment of interest is not so unconscionable as to shock the
conscience of the Court. (266-H]
Central Inland WaterTransportCorporation v. BrojoNatll Ga11 guly,
G [1986] 3 S.C.C. 156; Bihar State Electricity Board v. Green Rubber
Industries, (1990] 1 S.C.C. 731, referred to.
Farmsworth on Contracts, 2nd Edn. 319. 320, para 4. 27, referred
to.
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Gillespie Brothers Ltd. v. Roy Bowles Ltd. (1973) 1 A.E.R. 193;
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G.B Mahajan and Ors. v. Jalgaon Municipal Council and Ors. [1991]
3 S.C.C. 91 cited.
4.3 In Jagdamba Papers the question of interest on security was
not raised before the Court. Therefore, the Court had no occasion to
decide this i~ue of interest. That part of the judgment is sub-silentio.
[271-E, 272 A-C]
Jagdamba Paper Industries (Pvt.) Ltd. v. Hayana State Electricity
Board, [1983) 4 S.C.C 508, explained and held inapplicable.
4.4 This Court ne,·er intended to adjudicate upon the rate of
interest or render a decision on that question. Therefore, it cannot be
contendedd that the disposal of the Writ Petition though by a Bench
of 3-.J udges would be binding on a Bench of two.Judges because it was
e:itirely based on interlocutory order. Therefore, this Court is free to·
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decide the question on its merits. [273 F -6)
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4.5 The Division Bench of the Rajasthan High Court erred in
striking down condition No. 20 of the General Conditions of the
Rajasthan Electricity Board as violative of Article 14 of the Constitution of India. (271-D]
4.6 The rate of interest on security deposit cannot be equated
with the rate of interest on the fixed deposit. Firstly, ifthe consumpE
tion charges are to be appropriated the moneys accrued by way of
deposits cannot be held in fixed deposits. Nor all deposits need carry
interest in every transaction. Secondly, the nature and character of
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the security deposit is essentially different from fixed deposit.
(270 D-E]
S. It ma.y be that the consumers of electricity, wher~ it is raw
material, would be prompt in their payment in their own interest. On
that basis, it cannot be contended that they cannot be treated in the
same way as defaulters. The test, in Court's considered opinion, is
whether in the general appiication of law there is any diserimination.
Merely because some of the consumers are prompt those isolated
cases cannot render the prQvision unconstitutional. (273 H, 274-AJ
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The Collector of Customs, Madras v. Nat/1ella Sampatlry Cl1etty,
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(1962] 3S.C.R. 786; Vivian Iosep// v. Municipal Co17Joratio11. Bombay.
(1972] 2 S.C.R. 257, Fate//cliand Himmatlal v. State of Ma//arasl11ra.
[1977] 2 S.C.R. 828 !ind; B. Ba11e1jee v. Anita Pam, (1975] 2 S.C.R. 774, .·
referred to.
6. No reason need be given for enhancement of additional
secu rit)' deposit. It stands to reason that ifthere is a revision in the rate
of ta riff there must be an upward re\•ision in theco11s .. mption securit)'
deposit since it has direct bearing to the level ~f supply in consllm(>tion
of electricit)" This being a condition of supply, no re~s<_m need be given
at the time of upward revision. [278-C, 277 A:-.Ct · .
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2117
to 2122 of 1993 etc. etc.
D
From the Judgment and Order dated 28.4.1989 of the Andhra
Pradesh High Court in W.P. Nos. 11162/84, 18968/87, 12007/84,
15131/87, 5050/82 and 15746/87.
Altaf Ahmed, Y.R. Reddy, Addl. Solicitor Genral, Narasimha
murthy, K. Parasaran, Anil B. Divan, Barish N. Salve, Solij. Sorabjee,
E G. Ramaswamy, P.P. Rao, Gobind Mukhoty, Dr. Shanker Ghosh,
Shanti Bhushan, G.L. Sanghi, Pa wan Kumar, P.S. Poti, B.~. Patnaik,
Sanjay Parikh, P. Niriop, Kailash Vasdev, S. Khaitan, K.K. Khaitan,
Darshan Sing'1, Sushil Kumar Jain. A.P. Dhamija, S. Atreya, E.C.
Agarwal, A. Y. Palli. Atul Sharma, Ms Reena Aggarwal, A.K. Mehta,
F R.K. Gupta, P.C Kapur, T.Y.S.N Chari, B. Reddy, Ms. Pramila, Anil
K. Sangal, Ajay K. Tayal. Koka Raghava. B. Kanta Rao, Shiv Prakash
Pandey, Ms Rekha Pandey, R.K. Priyokumar Singh, T.V. Rathnam,
K.R. Chowdhary, K. Ram Kumar, Ashok Kr. Gupta, R.B. Misra ,
Pradcep Misra, Mrs. Sheil Mohini Seth, Jain Hansaria & Co. R.P.
Gupta, Ms. Sarla Chandra, Mis Mitter Mitter & Co. Ms Abha Jain,
G Ranjit Kumar, M.P. Jha, S.K. Jain, Vino~ Bhagat, Surya Kant,
Anmeshwar Gupta, Badridas Sharma, Prabhu Dayal, Sudarshan Lal
·'
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Aneja, R. Venkataramani, Y.P. Rao, D.K Garg, K.C. Agarwals, O.P
Khaitan, P.B. Agarwala, Mohinder Rupal, Mrs. Kamakshi Mehllwal,
Ms Archna Kaul (For Gagrat & Co. ), Vijay Hansaria, R. S. Sodhi ,
H D.A. Dave, Raian Karanjwala, Mrs. Manik Karanjawala, Rajesh
··:mar, Ms. Suruchi Aggarwal, K.J. John, Ms. Deepa Dixit (For
FERRO ALLOYS CORPN. i·. A.P.S.E.B. [MOHAN. J.)
213
Swamp John & Co.), A. T. Patra, S.R. Agarwal,· Ms. Bina Gupta,
A
Prashant Bhushan, K. Rajendra Choudhary, Rake sh K. Sharma, Shi vi
Sharma, Anil K. Chopra, Pallav Sisodia, Ravinder Narain (For JBD &
Co. ) Praveen Kumar, Virend~r Kaushal, Bimal Rao iad, Ms Malini
Poduval, K.K. Lahri and S. Sukumaran for the appearing parties.
.
.
The judgment of the Court was delivered by
MOHAN,J. Leave granted. ·
These civil appeals are directed against the judgment of the
Division Bench of Andhra Pradesh High Court reported in Southern
Steel Ltd. v. A.P. State Electricty Board, Hydrabad AIR 1990 Andhra
Pradesh 58. The facts briefly are as under:
The Andhra Pradesh State Electricity Board is constituted under
Section 5 of the Electicity Supply Act, 1948 (hereinafter referred to as
the Act). The said board is engaged in generation, distribution and
supply of electricity in the State of Andhra Pradesh. Electric energy is
supplied for industrial, commercial, agricultural and domestic purposes. To such of thes·e industries, using energy_about a particular
level, it is supplied at a higher voltage. They are classified as high
tension consumers (H.T. consumers). All the appellants herein belong
to that category.
Section 49 of the Act empowers the Board to notify the terms and
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conditions upon which it will supply electricity to-a person. It is also
empowered to frame uniform tariffs in that behalf. Sub-section 2
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specifies in fixing the uniform tariff, the Board shall have regard to all
or any or the following factors, namelya) the nature of the supply and the purposes for which
it is required;
b) the co-ordinated development of the supply and
distribution of electricity within the State in the most
efficient and economical manner, with partic1:1Iar reference to such development in areas not for the time
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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.
Sub-section 3 empowers the Board to enter into a special agree-
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ment with any consumer any prescribe different tariffs for him. Under
Section 4, an obligation is cast on the Board not to show undue
C preference to any person while fixing the tarrif and terms and conditions for the supply of electricity. In all these cases, the appellants are
covered by the general terms and conditiions notified under Section 49
( 1) of the Act. The terms and conditions were notified by the Board and
the B.P.M.S. No. 690 dated 17th of September, 1975. It is not
0 neces5ary to refer in detail to the various terms and conditions.
However, what requires to be noticed is the terms and co!lditions
oblige every consumer excuting an agreement in the prescribed form,
undertaking to abide by the terms and conditions prevailing on the date
of agreement and also agreed to be bound by the terms aJ:\d conditions
-as may be notified from time to time. It is important to note under
E Section 25, the Board has unilateral right to vary the term from time
to time under clause 25.1. The terms and conditions for supply of
electricity by special or general proceedings. ·
Condition 32.1. provides "the Board shall as far as possible within
1<
15 days after the expiration of each calendar mon~ cause to be
delivered to every consumer 'a bill of charges stating the amounts
payable by the consumer towards charges for energy supplied and any
other sum in connection with supply of energy by the Board."
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Conditions 32.2.1. obliges the consumers to pay the amount
shown in the bill, within 15 days of the date of the bill in.default
·whereof they are liable to pay "an additional charge of 2% oer month
or part thereof for the period of delay" in paying the bill. Condition 32.3
empowers the Board to disconnect the supply in case of default in
paying the bill, without prejudice to its right to recover the amount due.
H Condition 24. 3 also lays down that the consumer shall pay to the Board
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FERRO ALLOYS CORPN. l'. A.P.S.E.B. [MOHAN, J.]
215
every month the charges for electrical energy supplied to him during
the preceding month at the tariff in force from tfme to time. Condition
28 obliges the consumers to deposit an amount equivalent to three
months consumption charges with the Board. It would be appropriate
10 set out condition No. 28 as far as it is necessary for our purposes,
nutting what is not relevant as under:
28. Consumption deposits:- 28.1 Initial consumption
deposit. 28.1.1. The consumer shall deposit with the
Board a sum in cash equivalent to estimated three
month's consumption charges. The consumer coming
under the L.T. category 'domestic' shall however pay
at Rs. 30.00 per Kilowatt or part thereof connected
load.
*"Provided that.the Board may, in the case of industrial consumers, accept by way of consumption deposit a sum equivalent to two months consumption
charges during a period of three years from the date of
first release of supply of electricty".
28.1.2 In the event of the consumerfailingtopaytothe
Board any sum that may become due for payment to
the Board on the dates fixed for payment thereof, the
Board may, in addition to and without prejudice to the
other rights of the Board, appropriate a part or whole
of such deposit towards the suin due from the consumer.
- 28.2 Additional Consumption Deposit-All consumers
othei;. than those L. T. Domestic consumers whose ·
monthly bills are less than Rs. 500 for a continuous
period of six months, shall keep with.the Board an
amount equiv~lent to charges for three months demand and enargy charges as consu111pμon deposit.
The aduacy of the consumption deposit shall be reviewed by the Board usually once in every year and/
or at any time during the year if so warranted dur to
upward revisiOfl of tariffs, enhancement of the con.;.
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tracteddemand by the consumer charges in the pattern
of consumption by the consumer relaxation of power
restrictions or such other factors i\vViich in the opinion
of the Board, warran~ review ofttle adequacy of the
existing consumption deposit. The review shall take
into account the following factors:-
.
(i) In the c.ase of. consumers where there is no change
in the cohiracted demand, the average consumption
for the prt~eeding twelve months after taking into
consideration the quantum and nature of restrictions
imposed, .if any, dtiring that period shall be the basis.
(ii) In the case of consumers who were sanctioned
additional demand and availed it during a part of the
period, average recorded consumption for the period
of review shall be from the date of utilisation of
· Increased demand to the date of review after taking
into consideration the nature and quantum of restrictions imposed, if any during that predod.
(iii) The demand shall be contracted demand of the
consumer at the time of review.
(iv) The rates, at which the demand or energy charges
shall be calculated, will be tariff rates prevailing as on
the date of review.
Based on such review, if the consumption deposit of
the consumer is found inadequate or has fallen short
on account of adjustments made as indicated iμ Clause
28.1.2 hereof, the consumer shall deposit within 30
days of receipt of notice in this regard such additional
amount as may be required by the Board or replenish
the required amount as the case may be.
28.3 Interest on consumption.deposit:- Interest shall
be paid by the Board on deposits of more. than Rs. 60
made in cash at the rate of 3% pt!t annum or such other
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FERRO ALLOYS CORPN. v. A:P.S.E.B. [MOHAN, J.]
217
rate as may be fixed by the Board from time to time.
Full calender months only shall be taken into account
for the purpose of calculating interest and interest ·
shall be calculated to nearest five paisa. The intrest
accruing to the credit of the consumer shall be adjusted every year in the month of April in the Electricity Supply bills.
28.4 Disconnection or non-payment of consumption
deposit:- If the consumer does not make payment of
arnount of consumption depsoit or additional consumption deposit or where the deposit is given in
Government security or National Saving Certificate
Bank guarantee etc., he fails to replace them by
deposit in cash when so demanded by Board within
the notice pariod of 30 days supply of consumer shall
be liable for disconnection.
28.5 "The Consumption Deposit so calculated as per
the Clause 28.1 and /or 28.2 above shall not be less
than three times the monthly minimum charges, applicable to the consumer under the category to which he
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belongs".
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28.6 "All consumers shall pay the Consumption Deposit or additional consumer deposit within thirty
days from the date the demand notice if there be any
delay in payment, the consumer shall pay surcharge
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thereon equal to 1 1/2% per month or such other
percentage to be fixed by the Board from time to time,
of the demanded amount for each month of delay or
part thereof. This will be without prejudice to the
Board's right to disconnected supply of electricity".
Clause (1) of condition 28 is general in nature. It applies to all
consumers. Cl. (1.2) enables the Board to appropriate a part or whole
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of the said deposit towards any amount due to the Board and not paid
within the prescribed period. CI. (2) applies to all consumers, except
those L. T. Domestic consumers whose monthly bills are less than Rs.
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A 500 per month for a continuous period of six months. Such consumers
are obliged to keep with the Board an amount equivalent to three
months' demand and energy charges, as consumption deposit. The
deposit is liable to be reviewed by the Board from time to time, having
regard to the factors mentioned in the said clause. Cl. (3) prescribes
interest which the Board has to pay on such deposit. It is 3% per annum.
B Clause (4) empowers the Board to disconnect the supply if consump-
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tion deposit/ fJ<lditional consumption deposit is not made, or is not
replaced whenever called upon to do so. Clause (5) prescribes a certain
'floor' below which consumption deposit shall not go. Clause (6) says
that the consumption deposit or additional deposit shall be paid within
c thirty days of the notice demanding such deposit. In default, not only
interest is payable but the supply also is liable to be disconnected.
The attack before the High Court was that according to Condition
No. 32.1, the bill is served within 15 days of the expiration of0each
0 calendar month. The amount covered by the bill is payable within 15
days of the date of the bill.