# __. . HINDUSTAN ZINC LTD. ETC. ETC v. ANDHRA PRADESH STATE ELECTRICITY BOARD & ORS

- **Citation:** [1991] 2 S.C.R. 643
- **Court:** Supreme Court of India
- **Decided:** 1991-05-02
- **Case number:** Civil Appeal Nos. 2567-70 of 1985
- **Bench:** M.N. Venkatachaliah, J.S. Verma, N.D. Ojha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/hindustan-zinc-ltd-etc-etc-v-andhra-pradesh-state-electricity-board-ors-11132
- **Pages:** 33

## Headnote

Electricity (Supply) Act, 1948: Ss. 4A, 16, 49, 59, 61, 63, 67,
67A, 68, 78-A-Orders No. 1014 and No. DEJCOMLJIV/2250/83/l
dated 13.12.1983 and Memo dated 18.11.1975.
S. 49-Tarzffs-Power of fixation-No unreasonable preference
shall be shown to any person.
S. 16--Electricity Tariff-Revision-State Electricity Consultative Council-Non-consultation by State Electricity Board-Validity of.
A
B
c
S. 59-State Electricity Board-Finance-Tariff-Generation of
D
surplus-Non-specification of quantum by _State GovernmentWhether board can adjust its tariffs to generate a reasonable surplus.
Whether the ·surplus generated could be called extravagant.
Whether revision of tariffs fall within the scope of judicial review.
Fuel cost adjustment'-Charged only from particular category of
consumers-Whether reasonable.
S. 78A-Tariffs-Directions by State Government-Whether
binding on the Board.
Administrative Law: Delegated legislation-'Laying procedure'
-Placing Electricity Board's annual financial statement u/s 61 of the
Electricity (Supply) Act before the Legislature-Whether effectively
controls exercise of Board's delegated power.
E
F
The appellants are H. T. electricity consumers of various categoG
ries in the State of Andhra Pradesh. The respondent-State Electricity
-i Board (the Board), by its orders B.P. Ms. No. 1014 dated 13.12.1983
revised upwards the tariffs for various categories of consumers including H. T. categories 1 (lndustrial) and II (Non-Industrial); and by
Memo No. DE/CO ML/IV /2250/83/I of the same date it revised upwards
the electricity tariffs for highly power intensive industries falling under
H
643
644
SUPREME COURT REPORTS
[ 1991] 2 S.C.R.
A
H.T. Category III. Tariffs consisted of three parts. The said three
categories of H.T. consumers fell in Part A. H.T. consumers availing
supply of electricity for irrigation and agricultural purposes were
included in part B. Part C provided for miscellaneous and general
~
charges. Tariffs were not revised for consumers availing H. T. supply for
purposes of irrigation and agriculture falling in Part B or L. T. supply
B for domestic cottage industries, public lighting and small poultry farms
units.
Besides the energy charges, the H. T. consumers included in Part
A were also required to pay at different rates effective from 1.9.1982
<-
an additional charge levied as 'fuel adj_ustment charges'; and some
c amount as 'voltage surcluuiled' in accordance with the terms of the agreement entered into by the individual consumers with the Board.
The writ petitions filed by the appellants challenging the said
upward revision of the Electricity Tariffs were dismissed by the High
Court upholding the revision of tariffs made by the respondent-Board.
D Aggrieved the appellants preferred appeals by special leave to this
Court.
It was contended on behalf of the appellants that: ( 1) the upward
revision of tariffs by the State Electricity Board was invalid being made
without prior consultation with the State Electricity Consultative
E
Council as envisaged by s. 16 of the Electricity (supply) Act, 1948; (2)
without specification of any surplus by the State Government the Board
had no power to adjust its tariffs in a manner which resulted in generaling any surplus; (3) there is discrimination in recovery of the entire run
. ~
cost adjustment from the H.T. consumers alone; (4) the upward hike of
the tariffs for the H. T. consumers including power intensive consumers
F
was arbitrary and discriminatory inasmuch as it was not related to the
cost of generation and was based on irrelevant factors; and (5) and the
Board had acted with profit motive losing its public utility character.
Learned counsel representing the power intensive consumers also con_,tended that in the absence of a clause relating to fuel cost adjustment in
the G.Os. issued in respect of the power intensive units, they could not
~
G
be governed by the clause of fuel cost adjustment made applicable to the
~
H. T. tariffs.
Dismissing the appeals, thi

## Text

_Characters 0–39,351 of 78,464. This is a partial read: ask again with offset=39351 for what follows._

__. .
HINDUSTAN ZINC LTD. ETC. ETC.
v.
ANDHRA PRADESH STATE ELECTRICITY BOARD & ORS.
MAY 2, 1991
[M.N. VENKATACHALIAH, J.S. VERMA AND
N.D. OJHA, JJ.]
Electricity (Supply) Act, 1948: Ss. 4A, 16, 49, 59, 61, 63, 67,
67A, 68, 78-A-Orders No. 1014 and No. DEJCOMLJIV/2250/83/l
dated 13.12.1983 and Memo dated 18.11.1975.
S. 49-Tarzffs-Power of fixation-No unreasonable preference
shall be shown to any person.
S. 16--Electricity Tariff-Revision-State Electricity Consultative Council-Non-consultation by State Electricity Board-Validity of.
A
B
c
S. 59-State Electricity Board-Finance-Tariff-Generation of
D
surplus-Non-specification of quantum by _State GovernmentWhether board can adjust its tariffs to generate a reasonable surplus.
Whether the ·surplus generated could be called extravagant.
Whether revision of tariffs fall within the scope of judicial review.
Fuel cost adjustment'-Charged only from particular category of
consumers-Whether reasonable.
S. 78A-Tariffs-Directions by State Government-Whether
binding on the Board.
Administrative Law: Delegated legislation-'Laying procedure'
-Placing Electricity Board's annual financial statement u/s 61 of the
Electricity (Supply) Act before the Legislature-Whether effectively
controls exercise of Board's delegated power.
E
F
The appellants are H. T. electricity consumers of various categoG
ries in the State of Andhra Pradesh. The respondent-State Electricity
-i Board (the Board), by its orders B.P. Ms. No. 1014 dated 13.12.1983
revised upwards the tariffs for various categories of consumers including H. T. categories 1 (lndustrial) and II (Non-Industrial); and by
Memo No. DE/CO ML/IV /2250/83/I of the same date it revised upwards
the electricity tariffs for highly power intensive industries falling under
H
643
644
SUPREME COURT REPORTS
[ 1991] 2 S.C.R.
A
H.T. Category III. Tariffs consisted of three parts. The said three
categories of H.T. consumers fell in Part A. H.T. consumers availing
supply of electricity for irrigation and agricultural purposes were
included in part B. Part C provided for miscellaneous and general
~
charges. Tariffs were not revised for consumers availing H. T. supply for
purposes of irrigation and agriculture falling in Part B or L. T. supply
B for domestic cottage industries, public lighting and small poultry farms
units.
Besides the energy charges, the H. T. consumers included in Part
A were also required to pay at different rates effective from 1.9.1982
<-
an additional charge levied as 'fuel adj_ustment charges'; and some
c amount as 'voltage surcluuiled' in accordance with the terms of the agreement entered into by the individual consumers with the Board.
The writ petitions filed by the appellants challenging the said
upward revision of the Electricity Tariffs were dismissed by the High
Court upholding the revision of tariffs made by the respondent-Board.
D Aggrieved the appellants preferred appeals by special leave to this
Court.
It was contended on behalf of the appellants that: ( 1) the upward
revision of tariffs by the State Electricity Board was invalid being made
without prior consultation with the State Electricity Consultative
E
Council as envisaged by s. 16 of the Electricity (supply) Act, 1948; (2)
without specification of any surplus by the State Government the Board
had no power to adjust its tariffs in a manner which resulted in generaling any surplus; (3) there is discrimination in recovery of the entire run
. ~
cost adjustment from the H.T. consumers alone; (4) the upward hike of
the tariffs for the H. T. consumers including power intensive consumers
F
was arbitrary and discriminatory inasmuch as it was not related to the
cost of generation and was based on irrelevant factors; and (5) and the
Board had acted with profit motive losing its public utility character.
Learned counsel representing the power intensive consumers also con_,tended that in the absence of a clause relating to fuel cost adjustment in
the G.Os. issued in respect of the power intensive units, they could not
~
G
be governed by the clause of fuel cost adjustment made applicable to the
~
H. T. tariffs.
Dismissing the appeals, this Court,
HELD: 1.1 The power of i1XBtion of tariffs in the Board is proH
vided by s. 49 of this Supply Act whch requires the ilXBtion of uniform
HINDUSTAN ZINC v. A.P.S.E.B.
645
tariffs ordinarily having regard particularly to the specified factors and
enables fixation of such tariffs for any person having regard to the
factors expressly stated and any other relevant factors providing
further that no unreasonable or undue preference shall be shown to any
person by the Board in exercise of its powers of fixing the tariffs. S. 59,
requiring the Board to adjust the tariffs for the purpose of its finance is
to be read along withs. 49. [667B-C; 668B-C]
1.2 The common premise for the purpose of the instant case that
the revision of tariffs by the State Electricity Board is a question of
A
B
·-,
policy may indicate that it would be open to the Consultative Council to
advise the Board also on the question of revision of tariffs, and if such
advice is given, then the Board must consider the same before taking
the final decision. That, however, does not necessarily mean that where C
no such advice was taken from the Consultative Council or was
rendered on account of the absence of any meeting during the relevant
period, it would necessarily render invalid the revision of tariffs made
--·
by the Board. [664A-B]
Though it is advisable to seek advice of the Con;'Ultative Council
before revision of the tariffs yet failure to do so does not result in
invalidation of the revised tariffs. This consequence appears to be the
logical and reasonable view to take of the requirement of s. 16 alongwith other provisions of the Act. [ 666A ·B]
1.3 The consequence of non-compliance of s. 16 is nofprovided,
and the nature of function of the Consultative Council and the force of
D
E
/·.
its advice being at the best only persuasive, it cannot be said that revision of tariffs without seeking the advice of the Consultative Council
renders the revision of tariffs itself invalid. [ 6648-C]
F
1.4 It is also significant !bat the annual financial statement containing ail particulars relating to revision of tariffs is required to be
submitted to the State Government in February each year and the State
Government is required after receipt of such statement to cause it to be
laid on the table of the House or Houses of the State Legislature and the
said statement is open· to discussion therein. The Board is bound to take G
into consideration any comments made on the said statement in the
State Legislature. The 'laying procedure' before the legislature effectively controls the exercise of the delegated power lof the Board. Thus
there is ample provision for discussion on the revised tariffs in the State
Legislature with the Board being bound to take into consideration any
comments made thereon. [664C-D; 666A]
H
646
SUPREME COURT REPORTS
[ 1991] 2 S.C.R.
A
Kera/a State Electricity Board v. M/s. S.N. Govinda Prabhu &
Bros. & Ors., [1986] 4 S.C.C. 198, relied on.
2.1 Mere generation of surplus by the Board as a result of adjust-
..
ing its tariffs when the quantum of surplus has not been specified by the
B
State Government after the 1978 amendment of s. 59 of the Act, cannot
invite any criticism unless it is further shown that the surplus generated
as a result of the adjustment of tariffs by the Board has resulted in the
Board acting as a private trader shedding off its public utility character. If the profit is made not merely for the sake of profit, but for the
purpose of better discharge of its obligations by the Board, it cannot be
,-
said that the public enterprise has acted beyond its authority. [669C-E J
c
2.2 The general principle for the Boards finance indicated by
s. 59 is that prior to the 1978 amendment, tariffs could be adjusted to
avoid any loss, but as a result of the shift made by the 1978 amendment
the power could be exercised to generate a surplus and when the State
D
Government specified the amount of surplus then the Board was bound
to adjust the tariffs to ensure generation of the specified surplus. However, generation of a reasonable surplus in any year of account without .-
specification of the surplus amount by the State Government was not
contra-indicated in the provision inasmuch as the duty to generate a
surplus was implicit with the added obligation to ensure generating
surplus to the extent specified by the State Government when it was so
E
specified by it. It cannot be accepted as a reasonable view that in the
absence of specification of the surplus by the State Government, the
Board could not adjust its tariffs to generate even a reasonable surplus
in any year of account. [668E-GJ
. ---
2 .3 In the instant case the Board showed that the surplus resultF ing from upward revision of tariffs applicable to the H. T. consumers
was for the purpose of better discharge of its other obligations under the
Supply Act and in effect the same has merely resulted in a gradual
withdrawal of the concessional tariffs provided earlier to the power
r
I
intensive consumers which did not in its opinion require continuance of
!
the concessional tariffs any longer. It was not proved that this assertion
~
G of the Board was incorrect or there was any reasonable basis to hold -
that the upward revision of tariffs applicable to H. T. consumers was
merely with a desire to earn more profits like a private trader and not to
generate surplus for utilisation of the funds to discharge other obligations of the Board towards more needy consumers, such as agriH
culturists, or to meet the needs of expansion of the supply to deserving
areas. I 669E-G I
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.]
647
3.1 The H. T. consumers, including the power intensive conA
somers, are known power guzzlers and in power intensive industries,
electricity is really a raw material. This category of consumers, therefore, forms a distinct class separate from other consumers like L. T.
consumers who are much smaller consumers. There is also a rational
nexus of this classification with the object sought to be achieved.
B
Moreover, the power intensive consumers have been enjoying the
benefit of a concessional tariff for quite some time, which tO!' is a
relevant factor to justify this classification. Placing the burden of fuel
cost adjustment on these power guzzlers, who had the benefit of conces-
~,
sional tariffs, for quite some time and have also a better capacity to pay,
'
cannot, therefore, be faulted since the consumption in the power intensive industries accounts for a large quantity. [670B-C]
c
3.2 It is not unreasonable to take the view that the thermal power
has become costlier on account of the increase in fuel cost and could
notionally be allocated to the consumption by H. T. and power Intensive
consumers and, therefore, the fuel cost adjustment is made applicable
D
to them alone. [671E-F]
-,
4.1 The Court would not strike down the revision of tariffs as
arbitrary unless the resulting surplus reaches such a height as to lead to
the inevitable decision that the Board has shed Its public utility character and is obsessed by the profit motive of private enterpreneur in
E
order to generate a surplus which is extravagant. [ 672A-B]
4.2 The surplus generated by the Board as a result of revision of
-·
tariffs during the relevant period cannot be called extravagant by any
standard to render it arbitrary permitting the striking down of the
revision of tariffs on the ground of arbitrariness nor is it discriminaF
tory. It was pointed out on behalf of the Board that its action was based
on the opinion of Rajadhyaksha Committee's report submitted in 1980
and the formula of fuel cost adjustment was on a scientific basis linked
to the increase in the fuel cost. This is a possible view to take and,
therefore, the revision of tariffs by the Board does not fall within the
~
available scope of judicial review. [672C-D]
G
Kera/a State Electricity Board v. M/s. S.N. Govinda Prabhu and
Bros. & Ors., [1986] 4 S.C.C. 198, relied on.
Shri Sitaram Sugar Company Limited & Anr. v. Union of India &
Ors., (1990] 3 S.C.C. 223, followed.
H
A
B
c
648
SUPREME COURT REPORTS
[ 1991] 2 S.C.R.
5. It cannot be said that the term relating to fuel cost adjustment
had no application to the power intensive consumers during the rele·
vant period. The Memo dated 18.11.1975 did not merely extend the
non-specified 'terms and conditions of supply' applicable to normal
H. T. consumers to the power intensive consumers but also "other
charges" which were merely illustrated by the words, "such as Misc.
charges, terms and conditions of supply not mentioned herein". This
express provision in the said Memo clearly provided that except for the
provisions specifically made for power intensive consumers, in respect
of all other provisions the power intensive consumers were to be gover·
ned by the provisions, by whatever name called, applicable to the normal H.T. consumers. However in the bills issued to the power inten·
sive consumers the terms relating to fuel cost adjustment was specifically indicated. [673D-H; 674A]
Nav Bharat Ferro Alloys Ltd. v. A.P.S.E. Board Hyderabad,
AIR 1985 A.P. 299, approved.
D
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
2567-70 of 1985.
From the Judgment and Order dated 3.4.1985 of the Hyderabad
High Court in Writ Petition No. 9403 of 1984.
E
Kapil Sibal, Additional Solicitor General, G.L. Sanghi, Anil
B. Diwan, G. Ramaswamy, P.A. Choudhary, Kailash Vasudev,
Naunit Lal, M.J. Paul, C.S. Vaidyanathan, U.K. Khaitan, Praveen
Kumar, S. Murlidhar, Vineet Kumar, Vinoo Bhagat and Mukul
Mudgal for the Appellants.
F
Shanti Bhushan, V.R. Reddy, Rajendra Choudhary, S. Thanan·
G
jayan, K. Ram Kumar for the Respondents.
V.B. Saharya for the Intervenor.
The Judgment of the Court was delivered by
VERMA, J. These appeals by special leave are by several industrial concerns against the Andhra Pradesh State Electricity Board
(hereinafter called 'the Board') challenging the common judgment of
the Andhra Pradesh High Court in writ petitions filed by these concerns challenging the revision of the electricity tariffs by the Board by
H
its proceedings contained in B.P. Ms. No. 1014 (Commercial) dated
·•
·HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.J
649
13.12.1983 which came into force on 15.1. 1984. Prior to this revision,
the tariffs were governed by B.P. Ms. No. 418 (Commercial) dated
12.1.1981. On 13.12.1983, two separate orders were issued by the
Board revising the various tariffs. By one of them, namely, B.P. Ms.
No. 1014, the tariffs for various categories of consumers including
H. T. categories I and II were revised. By the other order of the same
date, namely, Memo No. DE/COML/IV/2250/83/I, the tariffs for
highly power intensive industries were also revised upwards. Out of
the appellants, it was applicable to five units, namely, ( 1) Nav Bharat
Ferro Alloys Ltd., (2) Andhra Sugars Ltd., (3) Ferro Alloys Corporation Ltd., (4) Grindwell Norton Ltd., and (5) A.P. Carbides Ltd. This
upward revision of tariffs made by the Board by its two orders dated
13, 12.1983 which were made effective from 15.1.1984, was challenged
by the appellants in writ petitions filed in the Andhra Pradesh High
Court on various grounds. The High Court rejected all the grounds
and dismissed the writ petitions by its common judgment now reported
in A.LR. 1985 A.P. 299. These appeals by special leave are against the
High Court judgment.
A
B
c
D
The appella11.ts are all H. T. power consumers of one category or
other. The tariffs consist of three parts: Part-A, Part-B and Part-C.
Part-A provides for H.T. tariffs; Part-B for L.T. supply; and Part-C
provides, inter a/ia, for miscellaneous and general charges. H.T. consumers in Part-A are broadly classified into three categories: H.T.
Category-I (Industrial); H.T. Category-II (Non-Industrial); and H.T.
E
Category-III comprising of power intensive consumers and some
others. The B.oard retained the power to decide in accordance with
the guidelines as to which industries were power intensive and which
were not. This was the position in the tariffs of 1975. Subsequently, the
Board began to deal with the power intensive industries by notifying
tariffs for them separately from time to time. In effect, there were four
F
classes of consumers availing H.T. supply; (1) H.T. consumers falling
under H.T. Category-I (Industrial); (2) H.T. consumers falling under
H.T. Category-II (Non-Industrial); (3) H.T. consumers falling under
the category 'power intensive industries'; and (4) H.T. consumers
availing supply of electricity for irrigation and agricultural purposes
included in Part-B. The tariffs for these different categories of H. T.
G
consumers were enhanced from time to time. For H.T. Category-I
(Industrial), it was 21 paise in 1975, increased to 30 paise in 1979, 33
paise in 1980, 40 paise in 1981 and 48 paise in 1984. Likewise, there
was corresponding increase in the energy rates for H.T. Category-II
(Non-Industrial), being 28 paise, 37 paise, 40 paise, 47 paise and 56
paise. The tariffs for power intensive industries were, however,
H
A
B
c
D
E
650
SUPREME COURT REPORTS
[ 1991] 2 S.C.R.
increased by separate notifications issued by the Board from time to
time. It was 11 paise prior to 1975, raised to 12.2 paise in 1977, 16 paise
in 1978, 18.5 paise in September 1979, 21 paise in November 1979, 25
paise in 1980, 32 paise in 1981 and 45 paise in 1984. The H.T. consumers grouped in Part-B were required to pay 15 paise under the 1975
tariffs and 16 paise thereafter. Besides the energy charges as stated
above, the H.T. consumers were also required to pay at different rates
effective from 1.9.1982 an additional charge levied as 'fuel cost adjustment charges'. The H. T. consumers were also required to pay some
amount as 'voltage surcharge' in accordance with the terms of the
agreement entered into by the individual consumers with the Board.
The comparison of the aforesaid tariffs shows that the tariffs for
power intensive industries to begin with were much less than the tariffs
for H.T. Category-I (Industrial) and H.T. Category-II (Non-Industrial). In course of time, the concession in tariffs for the power intensive industries was progressively withdrawn. The concessions were,
however, continued in respect of consumers availing H.T. or L.T.
supply for purposes of irrigation and agriculture or L.T. supply for
domestic, cottage industries, public lighting and small poultry farming
units. It is the admitted position that the power generaion in the State
of Andhra Pradesh is both hydro and thermal, each source contributing almost equally to the total power generation in the State. The H. T.
categories have been consuming more than one-half of the total
power generated in the State against the much larger number of individual L.T. consumers availing the remaining power.
The main attacks to the upward revision of the tariffs for H.T.
consumers in the writ petitions before the High Court were: (1) The
Board, as a public utility undertaking, is expected to function in the
F
most efficient and economical manner; (2) It cannot plan its activities
with a view to derive any sizeable profits on its undertaking except in
accordance with Section 59 of the Electricity (Supply) Act, 1948
(hereinafter referred to as 'the Supply Act'); (3) The Board could not
generate a surplus in excess of that specified under Section 59 of the
Supply Act which it had been doing; (4) The Board was preparing its
G
financial statements incorrectly in a manner contrary to Section 59 of
the Supply Act by improperly taking into account expenses chargeable
to capital by showing such expenses as charged to revenues; (5) The
steep upward revision of tariffs from 1980 made by the Board is
invalid, being arbitrary and in contravention of Sections 49 and 59 of
the Supply Act; and (6) There was no justification for the Board to
H
have revised the tariffs either in 1981 or in 1984 or to have levied any
•
\
t
/.
-;.
HINDUSTAN ZINC v.
AP.SE.~. [VERMA. J.I
651
fuel surcharge in terms of Sections 49 and 59 of the Supply Act. It was
also contended that the tariffs revision was made without prior consultation with the State Electricity Consultative Council as required by
Section 16(5) of the Supply Act which also rendered it invalid.
A
Prior to 30.7.1982, it was usual for the Board to take into account
various escalation charges such as pay revisions and increases in the
B
cost of fuel and revise its tariffs from time to time. This was done in
1975 and 1981. Thereafter, the Board took the view that to avoid
making frequent tariff revisions necessitated by frequent escalations in
the cost of fuels like coal and diesel oil, the formula known as "fuel
cost adjustment" be evolved. Accordingly, the Board in its proceedings contained in B.P. Ms. No. 589 dated 30.7.1982, set out the
formula known as "fuel cost adjustment". This formula was introduced as condition No. 11 in H.T. tariffs Part-A. Ever since
September 1982, all categories ofH.T.'consumers in Part-A including
the power intensive consumers are subject to this condition. Immediately after 30.7.1982, the fuel cost adjustment was fixed as 2'74 paise
per unit, which was increased gradually to 2.95 paise, 3.79 paise and
11.68 paise. Thereafter, 3.79 paise was absorbed as part of the tariffs
applicable to these H. T. consumers and the remaining increase of 7 .89
paise alone was indicated as the fuel cost adjustment charges. The
grievance made by all H.T. consumers before the High Court was that:
( 1) the fuel cost adjustment could not be recovered as part of the
tariffs; (2) there is discrimination in recovering the entire fuel cost
adjustment from H.T. consumers alone; (3) fairness demands that a
reasonable proportion of the burden should be shared also by Part-B
consumers; and (4) that fuel cost adjustment charge is excessively
computed.
c
D
E
The High Court rejected all these contentions. It held that this
f
was a matter of policy which could be changed from time to time and it
was permissible to gradually withdraw the pre-existing concessional
tariffs given to the power intensive industrit:s for which the tariffs
earlier were much lower as compared to the other consumers and even
after the increase, they were not excessive. It was held that electricity
was a raw material for power intensive industries and no grievance
G
could be made against the increase of its cost just as such a grievance
was untenable against increase in the cost of any other raw material.
The challenge on the ground of discrimination was rejected on the
ground that H.T. consumers including power intensive industries
formed a separate class and the reason which justified grant of concession to them earlier also justified the gradual withdrawal of that
H
652
SUPREME COURT REPORTS
I 1991] 2 S.C.R.
A concession. It held that prior consultation with the State Electricity
Consultative Council according to Section 16(5) of the Supply Act was
not obligatory before revising the tariffs. The High Court held that the
Board was justified in adjusting its tariffs to ensure progressive
minimizing of losses and the failure of the State Government to sepcify
the surplus it could generate in accordance with Section 59 of the
B Supply Act, did not detract from the Board's power to adjust its tariffs
and generate a surplus on principles of commercial expediency applic~
able to a public utility undertaking. Fixation of tariffs was held to be a
matter of major policy in respect of which the Government can effectively issue directions under Section 78-A of the Act. It was held that
the H.T. consumers including power intensive industries were bound
C to pay according to the revised higher tariffs fixed from time to time
under the agreement as contemplated by Section 49 of the Supply Act.
The condition offued cost adjustment, introduced as condition No. 11
in H.T. tariffs Part-A, was held applicable to power intensive consumers also. An additional argument that this added burden became
unbearable for the power intensive consumers was rejected on the
D ground that such inability of the industry to survive is not a compelling
consideration for deciding the Board's power in adjusting its tariffs.
Accordingly, the High Court dismissed the writ petitions and upheld
the revision of tariffs made by the Board by the impugned B.P. Ms.
No. 1014 (Commercial) dated 13.12.1983 w.e.f. 15.1.1984. The High
Court having refused to grant a certificate of fitness to appeal to this
E Court, the appellants have preferred these appeals by special leave.
It may be mentioned at this stage that the controversy raised in
these appeals was also the controversy in another bunch of civil appeals arising out of a judgment of the Kerala High Court wherein a
similar challenge had been upheld and the Kerala State Electricity
F
Board had come in an appeal to this Court. In those matters, the
contention of the Kerala State Electricity Board which would be the
same as that of the Andhra Pradesh State Electricity Board before us,
was accepted and the judgment of the Kerala High Court taking the
view contrary to that of the Andhra Pradesh High Court was reversed
(Kera/a Seate Electricity Board v. M/s. S.N. Govinda Prabhu and Bros.
G
andOth~rs., [1986]4S.C.C. 198.)
All the hearing before us, it was contended by Shri Shanti
Bhushan, learned counsel for the Andhra Pradesh State Electricity
Board that the Kerala decision concludes these points against the present appellants. On the other hand, Shri G. Ramaswamy and other
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HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.]
653
distinguish the decision in the Kerala case. The question, therefore, is:
Whether any ground has been made out by the present appellants to
persuade us to take a view different from the one taken by this Court
in the Kerala case? Before considering the arguments in these appeals,
we would refer to the controversies in the Kerala case and the view
taken therein.
The decision in Kera/a State Electricity Board v. Mis. Govinda
Prabhu and Bros. and Others, [ 1986] 4 S.C.C. 198 arose out of the
decision of the Kerala High Court in a similar situation. The Kerala
High Court struck down the upward revision of tariffs made by the
Kerala State Electricity Board unlike the Andhra Pradesh High Court
which has upheld the upward revision of tariffs in the present appeals.
The main question in the Kerala case also related to the extent of
authority of the Kerala Board to increase the electricity tariffs under
the Electricity (Supply) Act 1948. The principal ground of challenge
which was accepted by the Kerala High Court was that the Kernla
State Electricity Board acted outside its statutory authority by formulating a price structure intended to yield substantial revenue to
offset not merely the expenditure properly chargeable to the revenue
account for the year as contemplated by Section 59 of the Supply Act
but also expenditure not so properly chargeable. The Kerala High
Court had held that in the absence of a specification by the Government, the Board was not entitled to generate a surplus at all and it
acted entirely outside its authority in generating a surplus to be
adjusted against items of expenditure not authorised to be met from
revenue receipts. This view of the Kerala High Court was based primarily on the construction made of Section 59 of the Electricity (Supply) Act, 1948. Accordingly, the Kerala High Court struck down the
upward revision of tariffs made by the Kerala State Electricity Board
in the years 1980, 1982 and 1984. It may here be mentioned that
Section 59 of the Supply Act, as it stood prior to 1978, was amended by
Act No. 23 of 1978 and thereafter, by Act No. 16 of 1983, which came
into effect from April 1, 1985 only. The Kerala case also was decided
on the basis of Section 59 as it stood amended by the 1978 (Amendment) Act, prior to its amendment w.e.f. April 1, 1985 by Act No. 16
of 1983. For our purposes also, Section 59 as' it stood amended by the
1978 Act, prior to the 1983 amendment, is relevant.
This Court expressly rejected the submission which had found
favour with the Kerala High Court that in the absence of a specification by the State Government, the position would be as it was before
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the 1978 amendment, that is, the Board was to carry on its affairs and
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SUPREME COURT REPORTS
[1991] 2 S.C.R.
adjust the tariffs in such a manner as not to incur a loss and no more.
While rejecting the submission, this Court held as under:
"We are of the view that the failure of the government to
specify the surplus which may be generated by the Board
·cannot prevent the Board from generating a surplus after
meeting the expenses required to be met. Perhaps; the
quantum of surplus may not exceed what a prudent public
service undertaking may be expected to generate without
sacrificing the interests it is expected to serve and without
being obsessed by the pure profit motive of the private
entrepreneur. The Board may not allow its character as a
public utility undertaking to be changed into that of a profit
motivated private trading or manufacturing house. Neither
the tariffs nor the resulting surplus may reach such heights
as to lead to the inevitable conclusion that the Board has
shed its public utility character. When that happens the
court may strike down the revision of tariffs as plainly
arbitrary. But not until then. Not, merely because a surplus
has been generated, a surplus which can by no means be
said to be ex~ravagant. The court will then refrain from
touching the tariffs. After all, as has been said by this Court
often enough 'price fixation' is neither the forte nor the
function of the court."
Further, it said:
"Turning back to Section 59 and reading it along with
Section 49, 67, 67-A etc. we notice that the Electricity Supply Act requires the Electricity Board to follow a particular
method of accounting and it is on the basis of that method
of accounting that the Board is required to generate a surplus. Broadly, Section 59 requires that a surplus should be
left from the' total revenues, in any year of account, after
meeting all expenses properly chargeable to revenues. It
has to be remembered that apart from subventions which
may be received from the State Government, which
depend entirely on the bounty of the government, the only
revenues available to the Board are the charges leviable by
it from consumers. Bearing this in mind, we may now consider what expenses are properly chargeable to revenues under
the Electricity Supply Act. For this purpose, we may not be
justified in having recourse to the principles of corporate
HINDUSTAN ZINC v. A.P.S.E.B. {VERMA, J.]
655
accounting or the rules which determine what is revenue
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expenditure under the Income Tax Act. It appears to us that
the Electricity Supply Act prescribes its own sP.,cial principles of accounting to be followed by the Board ....... "
This Court also held that the prescribing of different tariffs for
high and low tension consumers and for different classes of consumers,
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such as industrial, commercial, agricultural and domestic, appears to
be reasonsable and far from arbitrary and is based on an intelligent
and intelligible differentia. Accordingly, the judgment of the Kerala
High Court upholding challenge to the validity of the upward revision
of tariffs was set aside.
Broadly speaking, the substance of the main arguments advanced before us in these matters was repelled by this Court in the Kerala
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case. However, learned counsel for the appellants attempted to distinguish the Kerala decision and also tried to advance some additional
arguments. We shall refer to those arguments presently.
It would be appropriate at this stage to quote the relevant provi·
sions of the Electricity (Supply) Act, 1948, with reference to which the
arguments advanced have to be considered. Section 2 of the Act relates to interpretation and give the meaning of he expressions defined
therein. Section 3 deals with the constitution of the Central Electricity
Authority. Section 4-B contains the rule-making power of the Central
Government. Section 5 provides for the constitution and composition
of State Electricity Boards. Secti~n 12 provides for the incorporation
of the Board. Section 12-A relates to the capital structure of the
Board. Section 78 contains the rule-making power of the State
Government. Section 79 contains the power of the Board to make
regulations. Some of the provisions of the Act which may be quoted in
extenso are as under:
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"4A. Directions by Central Government to the Authority.
(1) In the discharge of its functions, the Authority shall be
guided by such directions in matters of policy involving
public interest as the Central Government may give to it
in writing.
(2) If any question arises as to whether any such
direction relates to a matter of policy involving public
inters!, the decision of the Central Government thereon
shall be final."
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SUPREME COURT REPORTS
[ 1991) 2 S.C.R.
"16. State Electricity Consultative Council. (1) The
State Government shall constitute a State Electricity
Consulative Council for the State, and in cases to which
Sections 6 and 7 apply, the State Government concerned
shall constitute such one or more State Electricity Consultative Council or Cuncils and for such areas as they may by
agreement determine.
(2) The State Electricity Consultative Council shall
consist of the members of the Board and, if there are any
Generating Company or Generating Companies operating
in the State, one representative of the Generating Company or each of the Generating Companies, to be nominated by the Generating Company concerned, and such other
persons being not less chan eight and not more than fifteen
as the State Government or the State Governments concerned may appoint after consultation with such representatives or bodies of representative of the following interests
as the State Government or the State Governments concerned thinks or think fit, that is to say, local self-government, electricity supply industry, commerce, industry,
transport, agriculture, labour employed in the electricity
supply industry and consumers of electricity, but so that
there shall be at least one member representing each such
interest in the Council.
(3) The Chairman of the Board shall be ex officio
Chairman of the State Electricity Consultative C.ouncil.
(4) The State Electricity Consultative Council shall
meet at least once in every three months.
(5) The functions of the State Electricity Consultative Council shall be as follows:-
(i) To advise the Board and the Generating Company
or Generating Companies, if any, operating in the
State on major questions of policy and major schemes;
(ii) to review the progress and the work of the Board
and the Generating Company or Generating Companies, if any, operating in the State from time to
time;
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HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.]
657
(iii) To consider such other matters as the Board or
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the Generating Company or Gemerating Companies,
if any, operating in the State may place before it; and
(iv) To consider such matters as the State Government may by rules prescribe.
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( 6) The Board shall place before the State Electricity
Consultative Council the annual financial statement and
supplementary statement, if any, and shall take into consideration any comments made on such statement in the
said Council before submitting the same to the State
Government under Section 61."
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"49. Provison for the sale of electricity by the Board
to persons other than licensees. (1) Subject to the proviD
sions 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 supply
frame uniform tariffs.
(2) In fixing the uniform tariffs, the Board 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 co-ordinated development of the Supply and
distribution of electricity within the. State in the most
efficient and economical 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
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electricity to sparsely developed areas.
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SUPREME COURT REPORTS
[1991] 2 S.C.R.
(3) Nothing in the foregoing provisions of this
section 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 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."
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Section 59 prior to 1978
"General principles for Board's finance. The Board
shall not, as far as practicable and after taking credit for
any subventions from the State Government under Section
63, carry on its operations under this Act at a loss, and shall
adjust its charges accordingly from time to time:
Provided that where necessary any amounts due for
meeting the operating, maintenance and management
expenses of the Board or for the purposes of clauses (i) and
(ii) of Section 67 may, to such extent as may be sanctioned
by the State Government, be paid out of capital."
Section 59 as amended by Act No. 23 of 1978
"General principles for Board's finance. (1) The Board
shall, after taking credit for any subvention from the State
Government under Section 63, carry on its operations
under this Act and adjust its tariffs so as to ensure that the
total revenues in any year of account shall, after meeting all
· expenses properly chargeable to revenues, including
operating, maintenance and management expenses, taxes
(if any) on income and profits, depreciation and interest
payable on all debentures, bonds and loans, leave such
surplus, as the State Government may, from time to time,
specify.
(2) In specifying the surplus under sub-section (1),
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HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.)
659
the State Government shall have due regard to the availability of amounts accrued by way of depreciation and the
liability for loan amortization and leave
(a) a reasonable sum to contribute towards the cost
of capital works; and
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(b) where in respect of the Board, a notification has
been issued under sub-section (1) of Section 12:A, a
reasonable sum by way of return on the capital provided by the State Government under sub-section
(3) of that section and the amount of the loans (if
any) converted by the State Government into capital
under sub-section ( 1) of Section 66A."
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Section 59 as further amended by Act No. 16 of 1983
"General principles. for Board's finance.