# GUJARAT ELECTRICITY BOARD v. AHMEDABAD ELECTRICITY CO. LTD. & ORS

- **Citation:** [1974] 2 S.C.R. 492
- **Court:** Supreme Court of India
- **Decided:** 1973-11-28
- **Case number:** Civil Appeal No. 1797 of 1967
- **Bench:** D. G. Palekar, V. R. Krishna ]Yer, R. S. Sarkaria
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gujarat-electricity-board-v-ahmedabad-electricity-co-ltd-ors-6155
- **Pages:** 13

## Headnote

Electricity Supply Act, 1948. Ss. 51A, 60(1), 76 (I) and (2) and Para 16of Sch. 6Reference by licensee of dispure between it and Electricity Board to arbitration of
Central Electricity Authol'ity-Jf operates as bar ro appointment of Rating Committee
by Board.
In September 1963 the respondent company intimated to the appellant-Board
and the State Governmfnt of its intention to revise the rates of electricity on certain
grounds. Both the State Government and the Board informed the respondent th3t
they were not satisfied , that there was any justification for the revision. The respondent, however, brought the rates into effect in November, 1963. Being of the
view that the ITSpondent'was over charging the consumers in breach of the provisions
of the 6th Schedule to the Electricity Supply Act, the appellant issued a notice to show
cause why a Rating Coirimittee under s. 57A should not be constituted for inquiring
into .the matter. The respondent justified the increase and also intimated that if
its explanation was not accepted the issues involved would be referred to the arbitration of the Central. Electricity Authority under para 16 of the Schedule read
with s. 76 of the Act.
As the respondent did not receive any intimation, it referred
the matter to the arbittation of the Central Electricity Authority. The appellant,
however, not being satisfied with the explanation given to the show cause notice
appointed a Rating Coi;nmittee.
On a petition filed' by the respondent, the High Court held that a dispute or
difference between the Soard and the Electricity Company which was referable to
the arbitration of the Authority under para 16 of the 6th Schedule had arisen, and
since pending such arbitration, no Rating Committee could be constituted because
of the second proviso to s. 57A the constitution of the Rating Committee by the
appellant was illegal and the Committee had no power to function.
Allowing the appeal to this Court,
HELD : There is no provision in the Act which makes a dispute between the
Board and the licensee as to whether the provisions of the 6th Schedule had been
complied with or not referable to the Central Electricity Authority,
The second
proviso to s. 57A does not contemplate holding up of the constitution of the Rating
Committee merely on' the ground that such a dispute was referred by the licensee to
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the Authority. [504 C-EJ
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(a) Under s. 57A the State Electricity Board has power to interfere by the appointment of a Rating Committee if it is satisfied that the licensee has over charged
the consumers by committing a breach of any of the financial principles mentioned
in the 6th Schedule. The second proviso to the section contains three conditions
which are to coexist, if the Rating Committee was not to be constituted by the Board:
{i) there should be an alleged failure of the licensee to comply with any provisions
of the 6th Schedule; (ii) such alleged failure niust raise a dispute or difference as to
the interpretation of the said provisions or any matter arising therefrom; and (iii)
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and such difference or dispute had been referred by the licensee to the arbitration of
the Authority tJnder,para 16 of that Schedule before a certain date. [497 H-498 B;
501 C·E; 502 FJ
In the present case, there is an allegation by the appellant Board that the licensee
had failed to comply with the provisions of the 6th Schedule. It could also be
assumed that the alleged failure raised a dispute or difference as to the interpretation
of the said provisions or any matter arising therefron;i, though it is not clear whether
Parliament wanted, for.purposes ofs. 57A and para 16 of the 6th Schedule, that the
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Authority should be approached not merely for the interpretation of the provisions
of the 6th Schedule but also for sundry matters of detail arising out of the provisions.
As regards the third condition the dispute had been referred by the licensee to the
arbitration of the Authority within the time allowed by the statu

## Text

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492
GUJARAT ELECTRICITY BOARD
v.
AHMEDABAD ELECTRICITY CO. LTD. & ORS.
November 28, 1973
[D. G. PALEKAR, V. R. KRISHNA ]YER AND R. S. SARKARIA, JJ.]
Electricity Supply Act, 1948. Ss. 51A, 60(1), 76 (I) and (2) and Para 16of Sch. 6Reference by licensee of dispure between it and Electricity Board to arbitration of
Central Electricity Authol'ity-Jf operates as bar ro appointment of Rating Committee
by Board.
In September 1963 the respondent company intimated to the appellant-Board
and the State Governmfnt of its intention to revise the rates of electricity on certain
grounds. Both the State Government and the Board informed the respondent th3t
they were not satisfied , that there was any justification for the revision. The respondent, however, brought the rates into effect in November, 1963. Being of the
view that the ITSpondent'was over charging the consumers in breach of the provisions
of the 6th Schedule to the Electricity Supply Act, the appellant issued a notice to show
cause why a Rating Coirimittee under s. 57A should not be constituted for inquiring
into .the matter. The respondent justified the increase and also intimated that if
its explanation was not accepted the issues involved would be referred to the arbitration of the Central. Electricity Authority under para 16 of the Schedule read
with s. 76 of the Act.
As the respondent did not receive any intimation, it referred
the matter to the arbittation of the Central Electricity Authority. The appellant,
however, not being satisfied with the explanation given to the show cause notice
appointed a Rating Coi;nmittee.
On a petition filed' by the respondent, the High Court held that a dispute or
difference between the Soard and the Electricity Company which was referable to
the arbitration of the Authority under para 16 of the 6th Schedule had arisen, and
since pending such arbitration, no Rating Committee could be constituted because
of the second proviso to s. 57A the constitution of the Rating Committee by the
appellant was illegal and the Committee had no power to function.
Allowing the appeal to this Court,
HELD : There is no provision in the Act which makes a dispute between the
Board and the licensee as to whether the provisions of the 6th Schedule had been
complied with or not referable to the Central Electricity Authority,
The second
proviso to s. 57A does not contemplate holding up of the constitution of the Rating
Committee merely on' the ground that such a dispute was referred by the licensee to
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the Authority. [504 C-EJ
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(a) Under s. 57A the State Electricity Board has power to interfere by the appointment of a Rating Committee if it is satisfied that the licensee has over charged
the consumers by committing a breach of any of the financial principles mentioned
in the 6th Schedule. The second proviso to the section contains three conditions
which are to coexist, if the Rating Committee was not to be constituted by the Board:
{i) there should be an alleged failure of the licensee to comply with any provisions
of the 6th Schedule; (ii) such alleged failure niust raise a dispute or difference as to
the interpretation of the said provisions or any matter arising therefrom; and (iii)
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and such difference or dispute had been referred by the licensee to the arbitration of
the Authority tJnder,para 16 of that Schedule before a certain date. [497 H-498 B;
501 C·E; 502 FJ
In the present case, there is an allegation by the appellant Board that the licensee
had failed to comply with the provisions of the 6th Schedule. It could also be
assumed that the alleged failure raised a dispute or difference as to the interpretation
of the said provisions or any matter arising therefron;i, though it is not clear whether
Parliament wanted, for.purposes ofs. 57A and para 16 of the 6th Schedule, that the
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Authority should be approached not merely for the interpretation of the provisions
of the 6th Schedule but also for sundry matters of detail arising out of the provisions.
As regards the third condition the dispute had been referred by the licensee to the
arbitration of the Authority within the time allowed by the statute, but it was not a
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GUJARAT ELEC. BOARD V • . AHMEDABAD ELEC, CO. LTD.
493
(Palekar, l.)
reference under para 16 of the Schedule, because, the reference to arbitration by the
Authority under that paragraph could be made by the licensee only against the
grantor of the licence, namely the State Govern111ent and not the Board. (501 E, 502CE 1
(b) There is no agreement between the appellant-Board nnd respondent-co111·
pany to refer any dispute to the arbitration of the Authority, Tho:re is no substanc~
1n the contention that para 16 of the 6th Schedule is n statutory provision for arb1·
tration to which s. 46 of the Arbitration Act, 1940, would apply. [497 C; 504 CJ
(c) The State Governn1ent and the Board have been required by the Act to be
vigilant and if they find that by any illegal manipulation in the financial structure the
licensee is overcharging the consumers they have to step in. To that end the
two Schedules, namely the 6th and 7th are made by the Act part of tlie
licence issued by the State Government to the licensee under the Indian Electricity Act, 1910, and have effect notwithstanding any other inconsistent provisions
or terms of that licence.
The parties to the licence in spite of the incorporation
of the provisions of the 6th Schedule continued to be the State Governn1ent and the
respondent company, and therefore, if any of the provisions of that licence including
incorporated provisions of the 6th Schedule provide for arbitration of a dispute
the dispute, unless othern·ise expressly indicated must be between th~ parties to
the licence, namely the State Government and the respondent-company. P.ara·
graph 16 of the 6th Schedule provides for arbitration clause and this arbitration
clause is incorporated in the licence t.> which the State Governn1ent and the electricity company are parties, On its plain construction the alleged dispute or differ·
ence should be between the State Governn1ent and the respondent and that dispute
or difference alone is referable to the Authofity. There is no spccific provision in
the Act that the Board shall be substituted in the flace of the State Government as
grantor of the licence, Indeed, the functions o the State Government and the
Board are well-defined under both the Acts and the Board 1 as such, is not subs·
tituted in the place of the State Oovernm,nt. [497 E·H. 498 O; 4990]
The Amalganiated Electrli;ily Co. Ltd. v. N. S. Bat!ieJJa, {1959] Suppl, 2 S.C.R
213, followed.
(d) Section 76(1) of the Act as it stood at the relevant time, nlso dealt with arbi·
tration but under tl':.3.t sub-section it is not all disputes with the Board that were
referable to the Authority but only those referred to in sub·s, 2 (a), that is, only
those cases for which the Act provides .. There is no provision in the Act which
makes a reference to the Authority compulsory in a dispute between the Board and
the electricity-company relating to the non-compliance of the provisions of the 6th
Schedule. [500 C·El
(e) Under s. 76 (2) there could have been an arbitration by two arbitrators.
But such an arbitration would not have helped the licensee to prevent the appoint·
n1ent of the Rating Committee, because, that arbitration was not by the Authority
as required by the second proviso to 57A. The mere fact that in similar circumstances the State Government could have been compelled to subn1it to arbitration
of the Authority is not an adequate answer. [503 C-E]
(/) It is true that if arbitration for any sort of non-con1pliancc of the provisions
of the 6th Schedule fell within the second condition of the proviso, and, there
was a competent arbitration between the licensee and the State Government, the
licensee could have possibly prevented the constitution of the Rating Committee
by the State Governn1ent. But the interposition of the Board made all the difference, because, para 16 of the 6th Schedule contemplates a dLo;pute between the State
Government and the licensee and a reference to the Authority only of such dispute,
and not a dispute between the Board and the Company. [502 H·503Bl
(J') Section 60 of the 1948·Act cannot be invoked with a view to substitute the
Board in the place 'of the State Government for the purpose of arbitration under
para 16. After the 1948-Act came into force where the Boards were not constituted,
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the Stat~ Government had to departmentally implement the relevant provisions of
the Act and in their implementation the State Government had to incur debts and
oblia;ations, and entering into contracts, and other enaagements for the pur9ose of
the Act. Under s. 60·as soon as the Board was constituted, all these liabilitles were
statutorily transferred to the Board and in cases where suits were filed or other
6-M602SupCI/74'
494
SUPREME COURT REPORTS
(1974] 2 s.c.R.
legal proceedings were taken by or against the State Government they had to be
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continued or defended by the Board. But to say that para 16, that is the arbitration
agreement between the State Government and the licensee was an obligation in·
curred by the State Government within the meanin& ofs. 60 (1) would be to unnecess·
arily strain the languaae. (SOOE·SOICJ
(II) Having regard to the ursency of the matter and the proviso to para 16 Par·
liament did not want to prevent the constitution of the Rathia: Committee except
when there was an important dispute involving the interpretation of the provisions
of the 6th Schedule and such dispute was already before the Authority. It may be
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that there is a lacuna in the legislation in the Board not being liable to submit to the
arbitration of the Authority but if so, it is for Parliament to correct that. (.S03E, G]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1797 of 1967.
From the Judgment and Order dated the 15th December, 1964
of the Gujarat High Court in Special Civil Application No. 388 of
1964.
F. S. Nariman, Additional Solicitor Gen~ra/ of India and /. N.
Sliroff, for the appellants.
M. C. Chag/a, D. N. Mishra and J. B. Dadachanji, for respondent
No. I
The Judgment of the Court was delivered by
PALEKAR, J,-This appeal by certificate from the judgment and
Order of the High Court of Gujarat in Special Civil Application No.
388 of 1964 raises the question whether a reference by the respon·
dent Electricity Co. of an alleged dispute between itself and the Ap·
pellant Board to the Arbitration of the Central Electricity Authority
(hereinafter called the Authority) operates as a bar to the constitution
of a Rating Committee by the Board under section 57 A of the Elec·
tricity (Supply) Act, 1948 {hereinafter called the Act).
A few facts may be necessary to be stated. The appellant Board is
constituted under section 5 of the Act and has several functions to
perform under the Act. Respondent no. I, the Electricity Compa.ny,
holds a licence to generate, transmit and distribute electrical energy
within the licenced area of Ahmedabad.
On September 11, 1963 the Electricity Company intimated to the
Board and the State Government of its intention to revise the rates
of electricity with effect from November 16, 1963 on the ground that
the cost of operation had increased and it anticipated that the clear
profit for the year 1963-64 ending on March 31, 1964 would clearly
fall short of the reasonable return. Along with this notice the Electricity Company sent some financial data also. The. State Government
informed the Electricity Company that the financial data was not
correct and there was no justification for the proposed increase of the rates. The Board also by its letter dated November
14, 1963 informed the Electricity Company that they were not satisfied
with the data given and considered that there was no justification for
revising the rates. The Electricity Company informed the Government and the Board that it did not agree with the view taken by them
and, in the meantime, brought the new rates into effect from 16· 11·1963.
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3UJAllAT EL!C. BqAR.D V, AHMEDABAD ELEC. CO. LTD.
495
(Palekor, 1.)
After applying its mind in greater detail the Board propos :d to
appoint a Rating Committee under section 57 A of the Act, being of
the view that the Electricity Company was over-charging the consumers which it was not entitled to do. But before constituting the
Rating Committee it gave a notice to the Electricity Company, as
required by the first proviso of section 57 A, to show cause why the
Committee should not be constituted. The notice was issued on
7-3-1964. The notice, in short, informed the Electricity Company
that by bringing into effect the enhanced rates of supply from September
16, 1963 the Electricity Company was over-charging the consumers
and had thus failed to comply with the provisions of the Sixth Schedule
to the Act. Therefore, the Board proposed to appoint a Rating Committee to ·make recommendations to the Government
regarding
charges for electricity which the Company could make to its consumers. However, before proceeding to constitute the Committee the
show-cause notice was being given. This brought a reply
from
the Electricity Company dated March 26, 1964 in which some attempt
was made to justify the increase and it was alleged that the Company
cannot be regarded as having breached the provisions of the Sixth
Schedule. The letter was closed on this note : "We have endea·
voured to answer all the points raised by the Board in the hope that
the issues raised will be appreciated in the proper context and that the
Board would not pursue the matter further. If, therefore, the Com·
pany fails to hear from the Board, say, by 6th April, 1964, that the
explanations offered are accepted, the issues involved will be referred
to the arbitration of the Central Electricity Authority in terms of para
XVI of the Sixth Schedule read with section 76 of the Electricity
(Supply) Act 4, 1948."
The threat held out in the above letter was carried out on 6-4-1968
(Sec : Ext. 8) by which the reference was made to the Authority in the
following words : " .............. As the Company has no in·
formation as to whether the Board have accepted the explanations
preferred by the Company, we hereby refer the 'disputes' raised by
the Gujarat Electricity Board to the arbitration of the Central Electricity Authority in terms of para XVI of the Sixth Schedule read with
sections 57A(a) (1) and 76 of the Electricity (Supply) Act, 1948."
The disputes were not formulated but it appears that the copies of
correspondence between the Board and the Electricity Company were
enclosed with the letter.
The Board not being satisfied with the explanation gi'Ven to the
show-cause notice appointed a Rating Committee on 30-4-1964 as
per Ext. H. Since the Rating Committee was likely to proceed with
the enquiry, the Electricity Company filed the special Civil Application
J':lo. ,388 of 1964 to quash its appointment and to restrain it from funcllomng.
The I;Iigh Court held that a dispute or difference between the
Board and the Electricity Company was referable to the arbitratioa
of the Authority under para XVI of the Sixth Schedule, and since
pe11ding such arbitration no Rating Committee could be constituted
496
SUPREME COURT REPORTS
[1974) 2 S.C.R.
under the second proviso to section 57 A,
the constitution of the
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Rating Committee by the Board was illegal and the Committee bad no
power to function. These findings are challenged in this Court.
Though we are chiefly concerned with the Electricity (Supply
Act, 1948 a reference is also necesary to the Indian Electricity Act.
1910 because it was under the latter Act thattbe licence waa iuued by
the State Government to the Electricity
Company-the licensee.
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Section 3 of that Act empowers the State Government to grant the
licence. It may impose several. obligations on the .licensee. Sub·
section (2) sub-clause (f) shows that apart from other terms imposed,
the provisions contained in the Schedule to the Act shall be deemed
to be incorporated with and to form part of every licence granted,
save in so far as they are expressly addc_d to, varied or excepted. Sections 4 and 4A give the State Government alone the power to revoke
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or amend the licence. Certain consequences follow where the licence
is revoked as shown in Section 5 and Section 6 permits the purchase
of the Undertaking by the State Electricity Board. Under section
7 the Undertaking vests in the purchaser like the State Electricity
Board who from then on is deemed to be a licensee. ,Qnly one more
provision need be noted in this Act and that is section 52. It provides
that where any matter is by or under the Act. directed to be determined
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by arbitration the matter shall unless it is otherwise provided in the
licence of a licensee, be determined by such person or persons as the
State Government may nominate in that behalf on the application
of either party. But in all other respects the arbitration shall be subject to the provisions of the Arbitration Act, 1940. Hence if a dispute
under the licence arises between the State Government and the lillCmce
and if such dispute is referable to arbitration under section 52, it shall
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be so referred either at the instance of the State Government-the
licensor, or the Electricity Company-the licensee.
The Electricity (Supply) Act, 1948 was passed as complementary
to the Indian Electricity Act, 1910 and made some special provisions
with a view to meet the needs of increased electricity consumption.
The Preamble to the Act states that the Act was passed to provide
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for the rationalization of the production and supplying of electricity
and generally for taking measures conducive to electrical development.
By sub-section 3 the Central Government was empowered to constitute a body called the Central Electricity Authority and two of its
functions were (1) to develop a sound, adequate and uniform national
power policy and particularly to guarantee the activities of the planning agencies in relation to the control and utilisation national power
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resources; (2) to act as arbitrators in matters arising between
the
State Government or the Board and a licensee .or other person as
provided in the Act. The Central Electricity Authority is called the
Authority in the rest of the Act. Under-section S power is given to
the State Government to constitute by notification in the Official
Gazette a State Electricity Board. Its constitution and jurisdiction
are given in Chapter III of the Act, section 12 of which. says
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that the Board shall be a body corporate having perpetual succession
and common seal with power to acquire and hold property and to sue
and be sued. Chapter IV provides for the powers and duties of the
GUJARAT ELEC. BQARD V, AHMEDABAD ELEC. CO, LTD.
497
(Palekar, 1.)
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State Electricity Board and we may only refer to section 26 therein
which says that subject to the provisions of the Act the Board shall
in respect of the whole State have all powers and obligations of a licensee under the Indian Electricity Act, 1910 and the Supply Act of 1948
is deemed to be the licence of the Board for the purposes of the Indian
Electricity Act, 1910.
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The principal question before us is whether the claim made by the
Electricity Company that its dispute with the Board was legally referable to the Authority is sustainable in law. For such a claim, there
must be either an agreement between the parties to refer any particular
dispute to its arbitration or there must be a statutory provision. It
is not the case that there is any agreement between the Board and the
Electricity Company to refer any dispute to the arbitration of the
Authority. But it is contended that there are statutory provisions
making such a reference competent and, therefore, we s ball have to
deal with some other provisions of the Act. To begin with, we shall
refer to the two Schedules of the Act which are known as the Sixth
Schedule and the Seventh.Schedule. The Seventh Schedule is incorporated by reference in the Sixth Schedule with which we are principally concerned. The Sixth Schedule consists of XVII paras-the
last one dealing with definitions of words used in the Schedule. The
whole Schedule deals with financial principles in accordance with
which the business of the licencee is to be carried on. The principle is
accepted that a licensee is entitled to 'clear profit' but it is also provided that this clear profit shall not exceed the amount of 'reasonable
return'. In other words, these financial provisions are laid down with
a view to ensure that the consumer of electricity is not exploited by the
licensee. Therefore, the State Government and the Board have been
required by the Act to be vigilant and if they find that by any i!lega
manipulation in the financial structure the licensee is over-charging
the consumer, they have to step in on the ground that the provisions
of the Sixth Schedule are not complied with. To that end these two
Schedules are made by the Act part of the licence issued by the State
Government to the licensee under the Indian Electricity Act, 1910.
Section 57 provides, so far as we are concerned, that the provisions of
the Sixth Schedule and the Seventh Schedule shall be deemed to be
incorporated in the licence of every licensee .................. and
................................ the licensee shall comply
with
the provisions of the said Schedules accordingly.
The provisions
of these Schedules, after incorporation in the licence, are to prevail
over any provisions of the Indian ElectricitY Act, 1910, the licence
granted to the licensee therein and of any other law, agreement or
instrument applicable to the licensee in so far as they are inconsistent
with the provisions of section 57-A and the said Schedules. In other
words, the provisions of the Schedules must prevail wherever they
are inconsistent with the other terms of the licence granted by tl:'
State Government to the licensee to the extent of the inconsistency.
Section 57-A gives a direct hand to the Board to interfere by the
appointment of a Rating Committee if it is satisfied that the licencee
498
SUPREME COURT REPORTS
(1974] 2 S.C.R,
has failed to comply with any of the provisions of the Sixth Schedule
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I.e., in other words, over-charged the consumer by committing a
breach of any of the financial principles mentioned in the Schedule.
It will be the function of the Rating Committee under-section 57-A
to examine the licensee's charges for the supply of electricity and to
make recommendations in that behalf to the State Government. The
section has three provisos. The first proviso requires that when it is
proposed to constitute a Rating Committee on the ground that the
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licensee had failed to comply with any provisions of the Sixth Schedule the Committee shall not be constituted unless the licensee had been
given a notice in writing of 30 clear days, to show cause against the
action proposed. In the present case the show-cause notice was given
and nothing turns.on.it., The third proviso also is not applicable. It
!s the second proviso which is important and the Electricity Company
case is mainly based on this proviso. The proviso reads as follows:-
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"Provided further that no such Rating Committee shall
be constituted if the alleged failure of the licensee to com-
'· ply with any provisions of the Sixth Schedule raises any
dispute or difference as to the interpretation of the said
provisions or any matter arising therefrom and such difference or dispute has been referred by the licensee to the
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arbitration of the authority under paragraph XVI of that
S~hedule before the notice referr~d to in the preceding proVlSO was given or is so referred Within the period of the said
notice."
It was and is the contention of the Electricity Company that there
was a dispute between the Board and itself under paragraph XVI
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referable to the Authority, and since the same was referred within
time provided in the proviso the Board had no power to constitute
the Rating Committee and if any such Rating Committee was constituted it had no jurisdiction to function.
Section 57, as we have already seen, incorporates the Sixth Schedule
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in the licence issued by the State Government to the licensee as far
back as 1944. The grantor was the State Government and the grantee
vi!., the licensee was the electricity company. The provisio~s of the
Sixth Schedule became part of this licence and had effect notwithstanding any other inconsistent provisions or terms of that licence. Nevertheless, the engagement between the State Government and the
licensee continued to bind them to each other. There 1s no specific
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provision in the whole Act to the effect that the Board shall be substituted in the place of the State Government as the grantor of the
licence.
The functions of the State Government and the Board are
well-defined under both the Acts and the Board, as such, is not substituted in the place of the State Government. The parties to the
licence, therefore, in spite of the incorporation of the provisions oft.he
Sixth Schedule continue to be the State Government and the Electnc1ty
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Company. Therefore, if any of the provisions of that licence includin.g
an incorporated provision of the Sixth Schedule provides for arbitration, the dispute, unless otherwise expressly indicated, must be
GUJARAT ELEC. BOARD V, AHMEDABAD ELEC. CO, LTD,
499
(Palekar, /.)
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between the parties to the licence namely the State Government, on the
one hand, and the Electricity Company, on the other. Para XVI of
the Sixth Schedule provides for the arbitration clause. It is as follows:
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"Any dispute or difference as to the interpretation or any
mat!er arising out of the
provisions
of this
Schedule
shall be referred to the arbitration
of
the
Authority;
Provided that where a Rating Committee has been constituted under Section 57-A no such dispute or difference
shall be referred to the arbitration of the Authority during
the period between the date of the constitution of such Committee and the date of the Order of the State Government
made on the recommendations of the Committee."
Since para XVI i. e. the arbitratio11 clause is incorporated in the
licence to which the State Government, on the one band, and the
Electricity Company, on the other are parties the plain construction
of the arbitration clause would be that the alleged di•pute .Qcdifference should be between the two and that dispute or difference alone is
referable to the Authority. That view was taken by this Court in The
Amalgamated Electricity Co. Ltd. v. N. S. Bathena (1),
In that case,
this particular clause was sought to be pressed into service by the
Electricity Company in a regular suit filed by a consumer against the
Electricity Company for over-charging. The Electricity Company
prayed for the stay of the suit on the ground that the consumer s remedy was only to go to the arbitration of the Authority under para
XVI. This Court rejected the contention in the following words at
page 216. :
Therefore all that we get is that the licence which is granted
by the Government ·to a supplier of electricity, like the
apPellant, is to contain a clause that certain disputes would
be referred to arbitration. The licence is an engagement
between the Government and the licensee, binding the parties to it to its provisions. It is unnecessary to decide
whether this engagement is contractual or statutory, for,
in either case, it is between the two of them only. An
arbitration clause in an instrument like this can only be in
respect of disputes between the parties to it. Such an arbitration clause does not contemplate a dispute between a
party to the in.trument and one who is not such a party.''
It is, therefore, obvious that since the Board is not a party to the
licenee, unless there are other provisions in that respect, the arbitration
clause in the licence cannot be exploited by the Electricity Company
for referring its disputes with the Board to the arbitration of the
Authority.
We have then to see if there are any statutory provisions which
make disputes between them referable to the arbitration of the Authority. Section 76 of the Act read as follows in 1964 when the present
disputearose :
(1) [1959] Supp._2 S.C.R.. 213.
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[1974] 2 S.C.R.
"76(1) All questions arising between the State
Gov~rnment or
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the Board and a licensee or other person shall be determined by arbitration;
(2) Where any auestion or matter is, by this Act, required to be
referred to arbitration, it shall be referred :
(a) in cases where the Act so provides, to the Authority,
and on such /reference the Authority shall be deemed
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to have been duly appointed as Ar,jlitrators, a!'d the
award of the Authority shall be final and conclusive; or
(b) in other cases, to two arbitrators, one to be appointed
by each party to the dispute.
(3) Subject to the provisions of this.section, the prov.isions .?f
the Arbitration Act, 1940 shall apply to arb1trat1ons under thIS Act.
Su\;-section (I) was deleted by Act 30 of 1966. When the dispute
arose a dispute between the Board and the licensee was undoubtedly
referable to arbitration. But all disputes were not referable to the
Authority only those referred to in sub-clause (a) of sub-section (2)
·i.e. to say only those cases for which the Act provides. There are some
cases where the Act provides for the Arbitration by the Authority
between the Board and the licensee. See : for example sections
44(3), 45(3) and 55(2). No similar provision has been brought to
our notice which makes a reference to the Authority compulsory in
a dispute between them relating to the non-compliance of the provisions
of the Sixth Schedule.
It was however, contended for the Electricity Company-a contention which found favour with the High Court-that by virtue of
section 60(1) of the Act the Board stepped into the shoes of the State
Government. That sub-section reads: "60(1) All debts and obligations incurred, all contracts entered into and all matters and things
engaged to be done by, with or for the State Government for any of
the purposes of this Act before the first constitution of the Board shall
be deemed to have been incurred, entered into or engaged to be done
by, with or for the Board; and all suits or other legal proceedings
instituted or which might but for the issue of the notification under
sub-section (4) of section 1 have been instituted by or against the State
Government may be continued or instituted by or against the Board."
A mere reading of the section would show that the provision is made
in respect of the engagements of the State Government prior to the
constitution of the Board. It will be seen from section 1 (3)-that sec~
tion I and some other sections including sections 57 and 57-A and the
provisions of the Sixth and the Seventh Schedules came into force at
once i.e. in 1948 only.
By section 5 the State Governments were given
power to constitute the Boards. Some States exercised that power
early, so:ne others did not. Where the Boards were not constituted
the State Government had to departmentally implement the relevant
provisions of the Act and in their implementation the State Government had to incur debts and obligations, enter into contracts, and
other engagements for the purposes of the Act. But as soon as the
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Board was constituted all these liabilities were statutorily transferred
to the Board, and in cases where suits were filed or legal proceedings
taken by or against the State Government they had to be continued
or defended by the Board. To say that paragraph XVI i.e. the arbitration agreement between the State Government and the licensee was
an obligation incurred by the State Government within the meaning
of section 60(1) would be to unnecessarily strain the language. Under
the arbitration clauses both the State Government and the licensee
were equally entitled to refer their dispute or difference to the arbitration of the Authority and, similarly, equally obliged thereunder to
submit to its arbitration. Such a clause cannot be described as an
obligation incurred by the State Government in favour of the licensee
for any of the purposes of the Act. In our opinion, section 60 cannot
be invoked with a view to substitute the Board in the place of the
State Government for the purposes of arbitration under para XVI.
Now to turn to the second proviso of section 57A which we have
already quoted. Accordit1g to that proviso, the bar against the constitution of the Rating Committee operates under 3 conditions. (I)
There should be an alleged failure of the licensee to comply with any
provisions of the Sixth Schedule; (2) This alleged failure raises a dispute or difference as to the interpretation of the said provisions or any
matter arising therefrom; (3) and such difference or dispute has been
referred by the licensee to the arbitration of the Authority under paragraph XVI of that Schedule before a certain date.
Jn the present case there is no doubt that there is an allegation by
the Board that the licensee had failed to comply with the provisions
of the Sixth Schedule. As regards the second condition there is
considerable dispute as to what exactly it means.. It is contended by
the learned Additional Solicitor General on behalf of the Board that
the dispute or difference should be one as to the interpretation of the
provisions or any matter arising therefrom i.e. the interpretation. On
the other hand, it is contended by Mr. Chagla on behalf of the Electricity Company that the expression "any matter arising therefrom"
is not limited to interpretation only, and in this connection he has
referred to para XVI itself. The wording of para XVI is rather
complicated. But it seems it may be possible to re-write it in this
form "Any dispute or difference as to the interpretation of the provisions of this Schedule or any matter arising out of the provisions
of this Schedule."
Mr. Chagla contends that para XVI contains
cognate words throwing light on the words in the second proviso
and since para XVI clearly shows that the dispute or difference is
not merely confined to the interpretation of the provisions but also
extends to any factual matter arising out of the provisions a similar
construction should be placed on the seCOl!lld condition in the second
proviso. The learned Additional Solicitt General has pointed out
that an all India body like the Authority, whose task it is to develop
a sound, adequate and national power policy, rnay be only properly
invested with the power of -interpreting the provisions of the Sixth
Schedule because uniformity of interpretation throughout India would
be very necessary. On the other hand, disputes with regard to facts
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SUPREME COURT REPORTS
[1974] 2 S.C.R,
as to how much amount is to be included under this provision or how
much amount is to be excluded under some other provision of the Sixth
Schedule are matters of detail which could not have been intended to
be referred to the Authority. According to him the almost similar
expressions used in the second proviso and para XVI must be so il1·
terpreted that the Authority's jurisdiction as arbitrator was confined
to the intetlpretation of the pravisions and matters subsidiary thereto.
Undoubted y we see force in this submission but we do not find it
necessary to express anY final opinion on the point. We shall only
say this that there is ground for argument as to whether the one thing
or the .other was intendeu. It is for the Parliament to clear the doubt
and uncertainty. For our present purpose we shall proceed on the
assumption that in the present case the alleged failure raises a dispute
or difference as to the interpretation of the said provisions or any
matter arising therefrom. Coming to the third condition we find
that the reference must be by the licensee to the arbitration of the
Authority under paragraph XVI of the Sixth Schedule. No doubt
the dispute had been referred by the licensee to the arbitration of the
Authority within the time allowed by the Statute. But was it a re·
ference under paragraph XVI of the Schedule ? The answer must be
in the negative. The reference to arbitration to the Authority under
paragraph XVI of C.,; Schedule could be made by the licensee only
against the grantor of the licence namely the State Government
and not the Board. If the licensee could make such reference under
any other provisions of the Act, it is another matter. The present
reference, to the Authority against the Board however could not
be described as a reference under paragraph XVI of the Schedule.
That proviso puts an embargo on the constitution of the Rating Committee if at that time there is already a reference to the Authority of
a dispute between the State Government and the licensee for the in·
terpretation of any of the provisions of the Sixth Schedule. The object
is clear. There would be no point in constituting a Rating Committee
if the interpretation of the provisions is referred to the Authority in a.
reference competently made as between the State Government and
the licensee. All the three conditions of the second proviso were
necessary to co-exist if the Rating Comntittee was not to be constituted by the Board. But since the third condition is absent it must
be concluded that there could be no bar to the appointment of the
Rating Committee by the Board.
As a branch of the same argument it was pointed out that if the
Board had not been constituted and the power under section 57 A
were left to be exercised by the State Government it would have been
possible for the licensee to go to the arbitration of the Authority on
the question whether the State Government had good ground to be
satisfied that the licensee had not complied with the provisions of the
Sixth Schedule and thus held up the constitution of the Rating Committee. It was, therefore, submitted that the mere
interposition
of the Board which took over the functions of the State Government
should not make any difference. It is true that if arbitration for any
sort of non-compliance of the provisions of the Sixth Schedule fell
within the second condition of the proviso, and, otherwise, there was
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GUJARAT ELEC. BQARD V. AHMEDABAD ELEC. CO. LTD.
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a competent arbitration between the licensee and the State Government
the licensee could have possibly prevented the constitution of the
Rating Committee by the State Government. Unfortunately the
interposition of the Board makes all the difference because as already
stated para XVI of the Sixth Schedule contemplate a dispute be
tween the State Government and the. licensee and a reference to the
Authority only of such a dispute. It is not the case that the provisions
of the Sixth Schedule would.not, in the very nature of things, generate
any dispute between the State Government and the licensee with regard to the interpretation of the provisions or other matters. In that
eventto read the Board in the place of the State Government would be
incorrect. It is not 'as if the Act has made no provision at all for
referring disputes between the Board and the licensee to t.he arbitrati~n
of the authority. We have already referred to them. Then aga~n
sub-section (l) of section 76 of the Act which had not been deleted till
1966 could have also given an opportunity to the present licensee for·
an arbitration under sub-section (2) of two arbitrators if not the Authority. Indeed such an arbitration would not have helped the licensee•
to tirevent the appointment of the Rating Committee because that
arbitration was not by the Authority which is requisite for the second
proviso.