# INDIAN ALUMINIUM COMPANY ETC v. KERALA STATE ELECTRICITY BOARD luly 23, 197!i

- **Citation:** [1976] 1 S.C.R. 70
- **Court:** Supreme Court of India
- **Decided:** 1976
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/indian-aluminium-company-etc-v-kerala-state-electricity-board-luly-23-197-i-6671
- **Pages:** 32

## Headnote

70
INDIAN ALUMINIUM COMPANY ETC.
v.
KERALA STATE ELECTRICITY BOARD
luly 23, 197!i
[A. ALAGIRISWAMI, P. N. BHAGWATI AND P. K. GOSWAMI, JJ.l
Electricity Supply Act (54 of 1948) Ss. 49, 57, 59 and 19(i)-Scope of.
Po1ver of public authority to fetter its discretion-Scove of.
Delegated
Jegislation-Na power to enhance charges in Act-If delegate
can do f>O by franiing regulation.
B
interpretation of statutes-Marginal Note, u.te of.
C
Under s. 49(1) and (2) of the Electricity Supply Act, 1948, the Lcgiolature
has crn~o\vered the State Electricity Board to frame uniform tnriffs and has
also indicated the factors to be taken into accoun't in fixing uniform tariffs.
Under sub-s. (3), the Board m~, in the special circumstances mentioned
therein, fix different tariffs for the supply of electricity, but, in doing so,
sub-s. ( 4) directs that the Botlrd is not to show undue preference to any person.
Under s. 59 the Board shall not, as far as practicable, carry on its operations
D
at a Joss and shall adjust its charges accordingly from time to time.
Certain consumers of electricity had entered into agreements for the supply
of clcctrlcity for their manufacturing purposes at specified rates for specified
periods. Some of the agreements were entered into with the State Governments
and the others with the State Electricity Boards. In one of the agreements
there was an arbitration clause. On account of the increase in the operation
and maintenance cost, due to various causes whi:h caused loss to the State
~
Electricity
Boards,
the Boards wanted
to
increase the charges
in
all
the cases. The consumers challenged the competency of the Boards to do so
by petitions in the respective High Courts. The High Court sustained the
Board's claim, in some ca·ses, under Ss. 49 and 59, and in others, held that
the Board was incompetent to do so. In the case of the consumer where there
\Vas the arbitration clause, the High Court refused to en'tertain the petition on
ac:ount of the clause.
In appeals to this Court by the aggrieved consumers a·nd the Boards,
HELD : ( 1) The agreements with the State Governments must also
be
F
•
treated as agreements entered into with 'the Boards. Section 60 of the Act provides
that all contracts entered into by or with the State Government for any of the
purposes of the Act, shall be deemed to have been entered into by or with the
Board. One of the primary purposes of the Supply Act is to provide for the
supply of electricty. An agreement for supply of electricity to a consumer is.
therefore, an agreement for one of the purposes of the Supply ,\ct, and s. 60
G
1
has application to such an a·greement.
[78G-H]
2(a) Fixation of special tariffs under s. 49(3) can be a unilateral Act 011
the part of the Board but more often it would be the result of negotiations
between the Board and the consumer and hence a matter of agreement betw-een
(
them. Therefore, the Board can, in exercise of the power conferred under the
sub·section, enter into an agreement with a consun1cr stipulating for special
tariff for supply of electricity for a specific period of tin1c.
The agreements
H
for su_pply of electricity to the consumers must therefore be regarded as having
been entered into by the Boards in exercise of the statutory power conferred
under s. 49(3). [81E-F. H-82BJ
..
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J'ODJAN ALUMINIUM co. v. KERALA ELECT. BOARD (Bhagwati, J.)
71
(b) When a public authority is entrusted by a statute with a discretionary
_po\ve.r to be exercised for the public good, it cannot, when making a private
cov·:ract in general terms, fetter itself in the use of that power or in the exercise
of s•.•_(.h discretion. This principle is attracted when an attempt is made to
fetter in advance the future exercise of statutory powers otherwise ihan by Lhe
\ alid exercise of a statutory power.
Where a statutory power i~ exercised to
e.nter in: .o a stipulation with a third party which fetters the future exercise
(tf other statutory powers, where such stipulation is ma

## Text

_Characters 0–39,888 of 104,510. This is a partial read: ask again with offset=39888 for what follows._

70
INDIAN ALUMINIUM COMPANY ETC.
v.
KERALA STATE ELECTRICITY BOARD
luly 23, 197!i
[A. ALAGIRISWAMI, P. N. BHAGWATI AND P. K. GOSWAMI, JJ.l
Electricity Supply Act (54 of 1948) Ss. 49, 57, 59 and 19(i)-Scope of.
Po1ver of public authority to fetter its discretion-Scove of.
Delegated
Jegislation-Na power to enhance charges in Act-If delegate
can do f>O by franiing regulation.
B
interpretation of statutes-Marginal Note, u.te of.
C
Under s. 49(1) and (2) of the Electricity Supply Act, 1948, the Lcgiolature
has crn~o\vered the State Electricity Board to frame uniform tnriffs and has
also indicated the factors to be taken into accoun't in fixing uniform tariffs.
Under sub-s. (3), the Board m~, in the special circumstances mentioned
therein, fix different tariffs for the supply of electricity, but, in doing so,
sub-s. ( 4) directs that the Botlrd is not to show undue preference to any person.
Under s. 59 the Board shall not, as far as practicable, carry on its operations
D
at a Joss and shall adjust its charges accordingly from time to time.
Certain consumers of electricity had entered into agreements for the supply
of clcctrlcity for their manufacturing purposes at specified rates for specified
periods. Some of the agreements were entered into with the State Governments
and the others with the State Electricity Boards. In one of the agreements
there was an arbitration clause. On account of the increase in the operation
and maintenance cost, due to various causes whi:h caused loss to the State
~
Electricity
Boards,
the Boards wanted
to
increase the charges
in
all
the cases. The consumers challenged the competency of the Boards to do so
by petitions in the respective High Courts. The High Court sustained the
Board's claim, in some ca·ses, under Ss. 49 and 59, and in others, held that
the Board was incompetent to do so. In the case of the consumer where there
\Vas the arbitration clause, the High Court refused to en'tertain the petition on
ac:ount of the clause.
In appeals to this Court by the aggrieved consumers a·nd the Boards,
HELD : ( 1) The agreements with the State Governments must also
be
F
•
treated as agreements entered into with 'the Boards. Section 60 of the Act provides
that all contracts entered into by or with the State Government for any of the
purposes of the Act, shall be deemed to have been entered into by or with the
Board. One of the primary purposes of the Supply Act is to provide for the
supply of electricty. An agreement for supply of electricity to a consumer is.
therefore, an agreement for one of the purposes of the Supply ,\ct, and s. 60
G
1
has application to such an a·greement.
[78G-H]
2(a) Fixation of special tariffs under s. 49(3) can be a unilateral Act 011
the part of the Board but more often it would be the result of negotiations
between the Board and the consumer and hence a matter of agreement betw-een
(
them. Therefore, the Board can, in exercise of the power conferred under the
sub·section, enter into an agreement with a consun1cr stipulating for special
tariff for supply of electricity for a specific period of tin1c.
The agreements
H
for su_pply of electricity to the consumers must therefore be regarded as having
been entered into by the Boards in exercise of the statutory power conferred
under s. 49(3). [81E-F. H-82BJ
..
.{
-
A
B
c
D
J'ODJAN ALUMINIUM co. v. KERALA ELECT. BOARD (Bhagwati, J.)
71
(b) When a public authority is entrusted by a statute with a discretionary
_po\ve.r to be exercised for the public good, it cannot, when making a private
cov·:ract in general terms, fetter itself in the use of that power or in the exercise
of s•.•_(.h discretion. This principle is attracted when an attempt is made to
fetter in advance the future exercise of statutory powers otherwise ihan by Lhe
\ alid exercise of a statutory power.
Where a statutory power i~ exercised to
e.nter in: .o a stipulation with a third party which fetters the future exercise
(tf other statutory powers, where such stipulation is made, not as part of a
private contract in general terms, but in exercise of a
s~a·'-utory power-'he
~xercise of the statutory power would not be held to be invalid as a fetter on
tbe fu :urc exercise of other statutory powers.
If it were so held, it w-0uld
rend<!r the siatutory power meaningless and futile.
Therefore, 'vhere a stipula·
i:on !n a contract is entered into by a public authority in exerdse of a sta'utory
po'io\'er, then, even though such stipulation fetters the subsequent exercise of
the same statutory power or future exercise of another statutory power it would
be valid and the exe;cise of such statutory power, would protanro stand res~
tricted.
The public authority \vould not, in s_uch a case. be free to denounce
the ~tipul<..:'.ion as a nullity and claim to exercise its statutory power in disregard
of it, except, where there is an overriding statutory provision which, exprc~sly
or by necessary implication, authorises the public authority to set at naught,
in certain circumstances, a stipulation though made in exercise of ~ statutory
rawer.
[82E-F; 83F-G; 84F-G; 85A-C, E]
Ay<'r llu.rbour Trustees v. Oswald, 8 A.C. 623, York Corporation v. Ilc11ry
Leethan1 and Sons, (1924] 1 Ch. 557, Straffordshire & Warcestershire Canal
.~'1avigatio11 ·v. Birminghani Canal Navigation, 1866 L.R. 1 H.L. 254, Southendon-Sea Corporation,
v.
Hodgson (Wickford) Ltd.
[1961] 2 All. E.R. 46,
Southport (,'orporation v. Birkda!e District Electric Supply Co. [1925] 1 Ch. 794,
Com111issioncrs of Crown La11ds v. Page,
[1960] 2 All. E.R. 726 and Dowty
Boulton v. JVolverhe1npton Corporation, {1971] 2 All. E.R. 277, referred to.
(c) In the present case, 'the agreements were entered into with the consumers
ir. exercise of the statutory power to fix special tariffs under s. 49(3) and
therefore there could be no question of such stipulation being void as fettering
or hindering the exercise of the s' atutory power under that provision.
These
E
:.-tipul:i.tions did not divest the Board of its statutory power or fetter or hinder
its exercise. In fact, they represented ''.he exercise of the statutory power. Once
rhe agreements. were made containing the stipulations they were binding as
having been validly made in exercise of the statutory power, and it wa-s not
compe' ent to the Board to ovenide them.
The Board could not enhance the
charges in breach of these stipulations, for that would negate the existence
of the statutory power in the Board under s. 49(3) to fix the charges for
" 5pccific period of time.
[85E-86B]
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(d) 1he Board was also not 1::ompe··ent to enhance the charges under the
;i.Vse of fixing unifonn tariffs because, sub-s. (1) of s. 49 is subject to sub-s. (3);
and once special tariffs were fixed under sub-s. (3) there could be no question
of fixing uniform tariffs applicable to the consumer under sub-s. ( 1). Such
<:t power could not be exercised in derogation of the stipulation fixing &pecial
tariffs o.nder r.ub-,<;. (3). f86B-CJ
(e) lf the s··ipulations as to charges were not binding <l:nd the Board could
e.n .. 'lance the charges unilaterally in disregard of them the consumer would also
be free to repudiate the stipulations.
The stipulations as to
charges
are
i!lseverable from the rest of the agreements and if ''hese stipulations are dis·
tttrbed and .the charges are revised unilaterally by the Board, the agreen1ents
~ould no~ bind the consumer.
{86C-EJ
(f) Further, on the contention of the Board i would be impor.sible for a
cQJ.isurner to enter into an agreement with the Board for supply of electricity
<•t a certain specified rate.
But ':hat could not have been intended by the
l~islature, because, far from promoting the object of electric development ::ind
industrial growth in the State it would act as a regressive factor.
(86E-Fj
3 (a) A marginal note to a section cannot afford any le,gitima:'e aid to the
cu.11<;tn1ction of the section but it can be relied upon as indicating the drift
72
SUPREME COURT REPORTS
[1976] 1 S.C.R.
of the section to show what the section was dealing with. The marginal uute
to B. 59 reads 'General Principles for Board's finance'.
This shows that the
section is intended to do no more ':han to lay down general principles for 1he
finance of the Board.
It merely enunciates certain guidelines which the Bo~rd
must follow in managing its finance.
[86H-87B]
(b) Under the section the Boa·rd is direc~ed as far as practicable
not to
carry on its operations at a loss and to adjust its charges acoordingly from
time to ti1ne.
The legislature has deliberately and advisedly used the words
''as fair as practicable," because, since the Board is a statutory authority char.i~ed
with the general duty of promoting co-ordillated developn1ent of generation
supvly and distribution of electricity within· the State, with particular reference
to such development in areas not for 'the time being served or adequately
~erved by any licensee, it might suffer loss in ,;;:arrying on its operation~~ a<;
it might have to give special ta:riffs to consumers in undevelop;!d or spar:!ely
developed areas, and sometin1es to industrial consumers for J.ccclerating the
ra:e of industrial growth, even though such special tariffs might not be <::ufficient
to meet the cost of g3neration, supply and distribution of electricity. [87B-EJ
A
B
c
(c) Where, by a stipulation validly made under s. 49(3) the Board is
under a contra:tual obligation not to charge any'·hing more than a specified
tariff it \Vould not b~ 1r·acticable for it to enhance its charges if it finds that
it i·~ incu~ring opcrn'ional loss.
To do something contrary to Jaw in yiolation
of a contractual obligalion, can never be regarded as 'practicable'. The Board
c&n adjust ils charges under s. 59 only in so far as the law pennits it to do
so, tha' is, where it is not fettered by a contractual
stipulation
from
doing
D
so.
[87F-GJ
(4) (a) Under s. 57 of the Act a licensee can, notwithstanding any agreement
entered into v;rith the consumer, enhance the charges for sale of electrici'.y in
order to earn a reasonable return by way of profit.
The difference in language
between s. 59 a.nd s. 57 shows that s. 59 does not confer any po\\"er on the
Board to enhance the charges for St!pply of electrici'·-:y in disregard of a ·~ontrac
tual stipulation entered into under s. 49(3).
[87G-88C]
(b) The 6th Schedule of the Act is, by a fiction enacted in '.'. 57, deemed
to be incorporated in the liccn:e of every licensee and it enables the lieensee
to adjust its charges for the sale of ele:tricity by enhancing them so that it
earns a reasonable return as profit; but the definition of 'licensee' in s. 2(6)
does not include the S!ate Electricity Board.
It has been expressly taken out
of the category of licensee for the purpose of the Supply Act.
[99C-E]
(5) (a) The cost is not the sole or only criterion for fixing tariff.
[87E-Fl
1"\!aharaslura State Electricity Board v. Kalyan Borough Municipality. (19'68]
3 S.C.R. 137, followed.
(b) There may be certain .;:onsumers who may have to be supplied electricity at special tariff less than the cost, having regard to the geographical area
or :he na~ure or pt~,rpose of the supply. That is why the adjustn1ent of the
charges would have to be left to the discretion of the Board lo be n1ade in
such manner as it thinks fit, and since cost is not the s0le or only criterion
for fixing tariff, the Board would be free not to enhance the charge<:: in ca.~e
of some consumers even though such charges may be less than their ooslli.
If that be so, it must follow, a fortiorari, that the-re is nothing in s. 59 whk:h
requires the Boa:rd '10 enhance the charges in a case where it has bound itself
by a con:ractual stipulation not to claim anything more than certain specified
charges.
188C-E]
E
F
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(6) If the power to enhance the rates unilaterally in derogation of t.he
contractual stipulation does not reside in any provision of the Supply Act. 'it
cannot be creat·:d by regulations under s. 79(j) of the Act.
Either this power
H
can be found in some provision" of the Supply Act or it is not there at all.
Regula· iJn.s, in the nature of subordinate legislation,
canno: 1:onfer authori.t~·
on the Board to interfere with contractual rights and obligations unless ti\e
i
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\
INDIAN ALUMINIUM co. v. KERALA ELECT. BOARD (Bhagwaii, J.)
7 3
A
p0v.er to make such regulations is vested in the Board by some provision cf
the statute expressly or by necessary implication.
Therefore, it Vr·ou1J not make
nny difference whether or not the Board has made any
regulalions
under
" 79(j). [92H-93B]
B
c
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E
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(7) The arbitration clause provided that "any dispute or differ·~nce arising
betwe~n the consumer and the supplier o; their respective e!e.:tric engineers.
as to the supply of elec · rical energy hereunder or the pressure th~reof r)r as
to the supplier or the
con~umer respectively to determine the sa;ne or any
t/l1Pst1011, 1nalfer or thing arising hereunder shall be referred to a single arbitrator
who shall be mutually agreed upon by bo'h parties''.
The claim of the E·lectricity Board to enhance the charges under s~. 49 anJ
59 and the 6th Schedule to the Supply Act, is not a question, nn1N:.'r er thing
ari~ing under tlze agreen1'c11t.
1t is a claim founded on the provi-.lons of the
Sl1.pply A.:t and such a claim falls outside the ambit
of
the
;1rb:!r11.tion
provision.
[98E-H]
(8)(a) But since the Board also claimed that it ha-s the po\ver ~o clain1
the additional levy under another clause of the agreement, which provided that
lh~ 1c1riff and conditions of supply mentioned in the agreement ~hall be subject
to any revision that may be made by the supplier.
The question \\:hether the
Board had power under tha~ clause to enhance the charges is a question arising
under the agreement All the contentions raised by the consumer against the
claim of the Board are also covered by the arbitration agreement, and therefore.
there is no reason why the .:onsumer should not pursue ;he remedy of arbilrJtion and instead invoke the extraordinary jurisdiction of the High Cou~t unG1"r
Art. 226.
[99F-IOOE]
( b) When an authority takes action which is within its com re ence, jr
ca.unot be held to be invalid merely because it purports to be maJe under
~r
wrong provision, if it can be shown to be within its power under any other
pro\'i:.inn.
The Board claimed originally power under ss. 49 and 59 and the
6'h Schedule of the S11,pply Act, but if it has power under a clause of the
agreetnent, the enhancement could be jus'.ified by referen:e to that power.
C1v1L APPELLATE JURISDICTION
: Civil Appeals Nos. 1457 &
16412 of 1971.
From the judgment and order dated 19th August, 1971 of the
Kerala High Court in O.P. )'los. 2827 & 1288 of 1970 respectively.
OV!L APPEALS Nos. 1652-1654 of 1974.
Appeals by special leave from the judgment and order dated ·the
27th March, 1974 of the Orissa High Court in O.J.C. Nos. 357, 605
and 527 of 1971.
s_ V. Gupte (In C.A. No. 1457/71) G. B. Pai (In C.A. No. 1642/
71) Ajay Ray and P. Mathai, (In C.A. No. 1457 /71) O. C. Math1<r,
K. J. John and J. B. Dadachanji, for the ·appellants (Tn C.As. NDS.
1457 & 1642/71).
Lal Narain Sinha, Solicitor General (In C.A. No. 1457 /71) A. G
Pmlisscry, for the respondents (In C. As. Nos. 1457 & 1642;71).
·
Sumitra Chakravarty (In C.A. No. 1652/74) B. Panhasarthv
for the appellants <In C.A. Nos. 1652/74).
·'
A. K. Sen, B. Sen, Ranjit Mehanty, Ajay Ray, 0. C. Mathur.
K. J. John and J. B. Dadacha,11ji, for the respondent (In C.A. No.
1652174).
74
SUPREME COURT REPORTS
[1976] 1 S.C.R.
K. R. Chowdhry and K. Rajendra Chowdhry, for the intervener
Andhra Pradesh Electricity Board.
G. L. S11.nghi, P. V. Kapur and U. K. Khaitan, for the applicantintervener-Ferro Alloys Corporation.
S. V. Gupte (In C.A. No. 1654/74) and Vinoo Bhagat, for the
A
appellant (In C.As. Nos. 1653·1654174).
.0:
_ The Judgment of the Court was delivered by
BI!AGWA n, J .-The short but important question which arises for
determination in this appeal is whether a State Electricity Board has
power to enhance the rates for suppiy of electricity notwithstanding an
agreement binding it to supply electricity at certain rates where it finds
that the contractual rates are Jess than the cost of generation, distribution and supply of electricity and in the result there is Joss to the
State Electricity Board in its operations? In order to appreciate how
the question arises, it is necessary to state a few facts givinfg rise to
the appeal.
The petitioner is a limited liability company which
carries on
business of manufacturing aluminium. The manufacture of aluminium
involves three processes, viz., mining of bauxite ore, dressing it and
cor1Verting it into alumina and reduction of alumina into aluminium.
The petitioner carried on bauxite mining at the quarries in Bihar and
also set up its factory in Bihar for dressing Bauxite ore and converting
it into alumina. So far as the process of reducing aJumina into alumln&um is concerned, it involves the application of the method of electro-
] ysL~ in which electrical en,ergy is a primary raw material and, therefore, the petitioner was anxious to set up a factory for this purpose at a
place where electric power would be cheap. The Government of the
then native State of Travancore offered to supply eleotric power te
the petitioner at reasonable rates for a long period of time if the petitioner established its factory for reducing alumina into aluminium
within its territory.
An agreement dated 30-7-41 was accordingly
entered into between the pe.titioner and the Government of the State
of Travancore for supply of electrical energy at certain rates for a
period of 34 years from 1-7-41 with anJ option of renewal in favour
of the petitioner for a further period of 20 years. In view of this agreement, the petitioner established a factory at Alupuram near Alwaye for
reducing alumina and converting it into aluminium, though alumina
for this purpose had to be brought all the way from Bihar and the
aluminium produced at the factory had to be transported outside the
Stale of Travancore for the purpose of sale.
On the integration of the States of Travancore and Cochi_n, a new
State of Trnvancore-Cochin was formed in 1948 and the agreement
30-7-41 (hereinafter referred to as
the Princioal A!!feement)
was
accepted by the new State as binding upon it. The terms and· conditions
of supoly of electrical energy laid down it\ the Princioal Agreement
were. however. varied and modified bv a
suoolemental
a{!feement
(faereinafter referred to as the first Supplemental Agreement) dated
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]'CDJ.AN ALUMINIUM co. v. KERALA ELECT. BOARD (Bhagw~:i, J.)
7 5·
16-8-1955 entered into between the petitioder and the State of Travan-·
core-Cochin. On 1-11-1956 a new State of Keraia was formed com-·
prising int~r alia the territories of the existing State of TravancoreCochin. barring a small partion transferred to the State of MacJ;as
under the States Reorganisation Act 1956, and by reason of section
~ 7 of that Act, the Principal Agreement as modified by. the First ~p
plemental Agreement was deemed to have been ~ade m the ~xei:cise
of executive power of the State of Kerala and all nghts and obhgations
under it became the rights and obligations of the State of Kerala. The
Kerala Government thereafter by a Notification issued umler section
5. sub-section ( 1) of the Electricity Supply Act, 1948 (hereinafter
referred to as the Supply Act), constituted the Kerala State Electricity
Board (hereinafter referred to as the Board) with effect from 1-4-57.
Section 60 of the Supply Act provides, inter alia that all the contracts
entered into by or with the State Government for any of the purposes
of the Act .before the first constitution! of the Board shall be deemed
to have been entered into by or with the Board. The Principal Agreement as modified by the First Supplemental Agreement was, therefore,
deemed to have been entered into with the petitioner by the Board.
The terms and conditions of agreement were subsequently modified
under another supplemental agreement (hereinafter referred to as the
Second Supplemental Agreement) dated 4-4-1963 entered into between
the petitioner and the Board. This modification did not affect either
the rates or the duration of the Principal Agreement.
It appears that the petitioner required additional electric power
for expansion of the operations of its alumina reducing factory and
an agreement dated 30-3-1963 (hereinafter referred to as the Second
Agreement) was, therefore, entered into between the petitioner and
the Board whereby the Board agreed to supply to the petitioner from
J -l -1965 a total of 1 2300 Killowatts of electric power at the rates
"nd on the terms and conditions set out in the agreement.
The duration of t~i~ agreement w~s 25 years from .1-1-1965 with an option
to the pe!tl!oner !'> renew 1t for a further penod of 25 years. Ano+her
agreement (heremafter
referred to as the Third
Agreement) was
entered into between the pe+itioner and the Board on 18-9-1965 for
supply of further 12500 k.w. of electric power at certain rates for a
p~nod of ?S years from l-1-1966 with an option of renewal in favour
ot the pet1t1oner for a further period of 25 years on the same terms
and conditions.
, Whilst these ag'.eements were in force,
the ·Board framed the
Kerala State Electnc1ty Board (General Tariffs) Regulations 1966 in
exercise of the powers conferred under section 79 (j) read with sections
49 an? 59 of the Supply Act. Regulation 4 cmoowercd the Board to
prescribe different terms and conditions for different classes of consumers and_ Regulation 6 provided that the Board may fix different
tanffs for different classes of services under various heads. The Board
""'conferred power under Regulation 10 by Notification or o•hcrwise
to fix special terms and conditions for supplv for soecial purposes and
u~der Regulation_ 11, the ~nard cnulrJ amend the terms and conditions
o supply from !tme to time.
These Regulations were amended by
76
SUPREME COURT REPORTS
[1976] 1 S.C.R.
the Board by making the Kerala Electricity Board (General Tariffs)
(Amendment) Regulations, 1969. By the amendment Regulations 6
and 8 were subsututed by a new Regulation 6 which empowered the
Board to fix different tariffs for different classes of services under the
broad heads, low tension supply, high tension supply and extra high
tension supply. Now it appears that since September 1965, when the
last revision of tariffs was made by the Board, there was a steep nse
in "prices of all commodities including plant and e,quipment, .construction materials, etc., salary and wages of employees' thereby mcreasmg
t.he operation and maintenance cost of the Board with the result thm
the Board found itself in a position where it was working at a loss.
Section 59 of the Supply Act enjoins the Board that "it shall not, as
far as possible, carry on its operations under this Act at a loss and
shall adjust its rates accordingly from time to time".
The
Board.
therefore, in exercise of the power conferred under section 49 of the
Supply Act and the Regulations, "and other enabling provisions in tte
Statute", issued an Order dated 28-11-1969 called "Kerala State Electricity Board Extra High Tension Tariff Order 1969" fixing the rates
or tariffs for supply of electric power to all extra high tension consumers-a category which included the petitioner. Clause (6) of this
Order provided that the rates or tariffs fixed by it shall apply "to all
.extra high1 tension consumers" notwithsJanding anything to the contrary
contained in any agreement entered into with any extra high tension
consumer either by the Government or by the Board or anything the
tariff Regulations or Rules previousLy issued".
The result was
th3t
-despite the Principal Agreement, the Second Agreement and the TI1ird
Agreement, which were in force, the Board claimed to be entitled tu
recover from the peti1ionler the rates or tariffs fixed by this Order,
though they were manifestly higher than the rates or tariff stipulated
in these respective agreements.
The petitioner thereupon filed a writ
petition in the High Court of Ker ala challenging the validity of thi;
order but the challenge failed.
The High Court sustained the order
on the ground that it was within the competence of the Board under
sections 49 and 59 of the Supply Act.
This view is assailed in !ho
present appeal brought with certificate obtaind from the High Cour'.
Before we proceed to consider the question which arises for determination in this appeal, it will be convenient at this stage to refer tu
a few relevant provisions of the Supply Act for this is the statute with
which we arc concerned in this appeal. The Supply Act, as its preamble and Jong title show, is enacted "to provide for the rationalisation
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of the production and supply of electricity and generally for takin,;
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measures conducive to electrical development". That is the obiect
and purpose of the Statute and this object and puroose is sought to b.o
achieved by the establishment of the Central Electricity Anthority anJ
State Electricity Boards charged with certain functions, powers and
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duties.
Section 5 (1 ) provides that the State Government shall, as
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soon as may be after the issue of the notification under section 1 ( 4)
bringing into force the various provisions of the Act, "constitute bv
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notif1ca• ion in, the Official Gazette a State Electricitv Board unde'r
·such name as shall be specified in the notification". Chapter IV sets
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!ND!AN ALUMINIUM co. v. KERALA ELECT. BOARD (Bhagwati, J.)
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om the powers and duties of the State Electricity Board. Section 18,.
which is the first sect10n in that Chapter, enumerates duties, which also
represent the funcllons, of the State Electricity Boar9. lt says, to
quote the words of the section : "Subject to the provisions of this
Act the Board shall be charged with the general duty of promoung
the co-ordinated development of the generation, supply and distribution of electricity w1thm 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 any licensee, and
without prejudice to the generality of the foregoing provisions it shall
be the duty of the Board-(a) to prepare and carry out schemes sanctioned under Chapter V; (b) to supply electricity to owners of controlled stations and to licensees who;e stations are closed down under
this Act; ( c) to supply electricity as soon as practicable to any other
licensees or persons requiring such supply and whom the Board may
be competent under this Act so to supply." Then follow other sections
in that Chapter which deal with the powers of the State Electricity
Board. They are not material and we need not refer to them. Chapter
V is headed "The Board's Works and Trading Procedure". It contains
;he fasciculus of sections dealing with making of a scheme for an area
·'~:ith a view to rationalising the production and supply of electricity"
in that area. Then there are other sections, not relevant for our purpose, which speak of controlled stations and generating stations, provide for supply of electricity by the State Electricity Board to a licensee
311d lay down the mode of fixation of grid tariff. Section 49 enacts
" provision for sale of electricity by the State Electricity Board to a
person other than a licensee. It reads :
,.
" (I) Snbject to the provisions of this Acf and of regulations, if any. made in this behalf, the Board may supply
electricity to ' f person not beiag 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 develooment in areas not for the time
being served or adequately served by the licensee;
( c) the simplification and standardisation of methods and
rates of charges for such supplies;
( d) the extension and cheapening of supplies of electricity to sparsely developed areas.
(3) No+bing in the foregoing provisions of this section
shall derogate from the power of the Board, if it coni;iders
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[1976] 1 S.C.R.
it necessary or expedient to fix differ~nt tariffs. for the supply
•)[ electricity to any person not bemg a hcensee, havmg
regard to the geographical positio;'l of any a.rea, th~ nature
of the supply and purpose for which supply 1s reqmred and
any other relevant factors.
( 4) Jn fixing the tariff and terms and conditions for the
supply of electricity, the Bo.~rd shall not show undue preference to any person."
·Chapter VI deals wi'.h "The Boar~'s l'.inance .. Ac~ounts. and Aud\f'.
The first section in this Chapter, which 1s matcnal, 1s sect10n 59 which
js in the following terms :
"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 adiust its charges accordingly from time to
time.''
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Then comes section 60 which provides inter alii.li that "all contracts"
entered into by, with the State Government for any of the purposes
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.of this Act before the first constitu'ion of the Board shall be deemed
to have been entered into by, with the Board". Lastiy, section 63
empowers the State Government, with the approval of
the
State
Legislature, from time to time to "make subventions to the Board
for the purposes of this Act on such terms and conditions as the State
:Government may determine".
Now, in the present case, as we have already seen, there are three
main agreements entered into by the appellant for purchase of electricity.
True, the Principal Agreement, as modified by the First Supple.-
mental Agreement, was not entered into with the Board, but llS pointed
-out above, by reason of section 60 of the Supply Act, it must be deemed
to have been entered into by the appellant with the Board and in view
-0f the legal fiction, all the consequences and incident must follow as
if it were an agreement made with the Board. 'Jbe learned Solicitor
General, appearing on behalf of the Board, contested the app1icability
of section 60 on the ground that the Principal Agreement as modified
'by the First Supplemental Agreement, was not an agree{nent entered
into by the State Government "for any of the purooses of this Act",
but we do not think this contention is sound.
One of the primary
purposes of the Supply Act is to provide z'nter alia for the suoplv of
electricity: in fact, the Snpply Act emvowers the Boa.rd to su;wly
elec•ricity to any person other than a licensee.
An agreement for
supply of electricity to a consumer is, therefore. plainly and indubitably
an agreement for one of the purposes of the Supoly Act and section
60 has clear\v aoolication to such an agreement. The Princinal Agreement, as modified bv the First Suoolemental Agreement. must, therefore, for all the purooses of the Suoolv Act, be treated as an al!l"eement entered into with the Board. So far as the second and the third
:agreements are concerned, there is no question of invoking section
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!Nll!AN ALUMINIUM co. v. KERALA ELECT. BOARD (Bhagwaii, J.)
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60, ns they have been entered into by the appellant with the ~oanl
from the very beginning.
The quest10n is wnetner the Board 1s entilled to overnde tne supulalJon as to charges contaJned
m these
agreements af\d enhance the charges by umla,teral aet10n as it bas
purported to do.
The Board relied principally on two provisions of the Supply Act,
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namely, sections 49 and 59, in support of its claim to incre~se ~e
charges uniiaterally despite the sl!pu1ation a,s to cnarges contamed 111
the tnree agreements. Taking firstly its stand on sect10n 49, the Board
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contended that under this secnon tne Lcg1siature has entrusted to it
the power to fix charges-described in the section as tariffs-for supply
of electncity to any person other than a licensee. Now this power is
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exercisable not once and for at!, but from
ume to time as action
requrres or circumstances justify. It was urged that the exercise of this
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power is conditioned by the statutory . obligation of "promoting the
cc>-ordinated development of the generat10n, supp,y a,nd distribution ol
electricity within the State in the most efficient and economical manner"
and in order to run its undertaking economically, that is without loss,
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the Board is entitled to refix the charges in exercise of this power-
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indeed, it is sta.tutorily bound to do so. In any event, contended the
Board, the powers and duties created by the Supply Act, the power
to fix charges under section 49 being one of them, are for public good
and they are intended to further the object of promoting the production
and supply of electricity which is a matter of public utility and hence
in public interest.
It is, therefore, not competent to the Board to
enter into 'I stipulation with the consumer binding it not to charge
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anylhing more than a specific rate and thereby divest itself of the power
to fix and refix charges entrusted to it under section 49, or fetter or
hinder its future exercise. Such a stipulation is void and it does not.
ran the argument, stand in the way of the Board enhancing unilaterally
the charges for supply of electricity. This argument was sought to be
supported by the Board by relying on two decisions of Eng isb courts.
namely, Ayer Harbour Trustees v. Oswald(!) and York Corporation
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v. Henry Leetham & So11S(").
Simultaneously, section 59 was also
invoked in aid by the Board. It was pointed out that the opening
words of section 49 (1) made the power to fix charges conferred on
the Board subject to section 5!}, and therefore, the mandate of the
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Legislature conta.ined in section 59 must prevail over anything that is
done by the Board in exercise of this power. Section 59 enjoins that
the Board shall not, as far as practicable, carry on its operations at a
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loss and shall adjust its charges accordingly from time to time. Notwithstanding the fixation of charges under section 49 therefore the
Board is entitled to enhance the charges if it finds that it is nece;sarv
to do so in ~rder ~o ayoi\I operating ~t a loss. In any event, the Board
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cannot by s!Ipulat10n m a contract bmd itself to refrain from exercising
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the statutory power which it nossesses under section 59 to enhance
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the charges in case of operational loss.
The staltu'ory power cannot
be. ~'trtered awav bv a con.trac'_ual st;oulation. If it were hel<I permJSs1ble to the Board to bmd itself by a contractual stipula:tion not
{I) 8 Appeal CaSes 623.
(2) [1924] I Ch. 557.
so
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[1976] 1 s.c.«.
to euilance the charges even though such charges result in operational
loss, public interest would suffer since the production, distribution and
sttpp.y of electricity would be prejudicially affected and electnca1 development in the State would receive a serious set back. On these two
grounds the Board urge9 that, since it was incurring loss in its opec~
tions, it was entitled unilaterally to revise the charges so as to avoid
sttch loss, notwithstanding that under the stipulation contained in the
three agreements it was bound to supply electricity to the appellant at
certain fixed charges.
Let us examine whether either of these two
grouads is well-founded.
Turning first to section 49, we may point out that prior to its
amoodment by the Electricity (Supp:y) Amendment Act, 1966, this
section was in a different form. On an interpretation of the unamended section, the High Court of Bombay took the view, in a case relating
to the Kalyan Municipality, that it did not give power to the Board to
fix uniform tariffs as to cast a higher burden on the &onsnmer in a
compact area where the cost of supply was less than on the consumers
in a sparse area where the cost of supply was more owing to higher
distribution cost.
This case was taken in appeal by the Maharashtra
State Electricity Board, but before the appeal could be decided by this
Court, the Parliament enacted the Amending Act substituting
the
present section 49 for the old on.e with retrospective effect. The appeal
had, therefore, to be decided by reference to the amended section 49
and having regard to that section, as amended, this ·Court 'held that
the Board had power to fix uniform tariffs both for consumers in compact aroas as well as consumers in sparse areas. This Court, interpreting the amended section 49, pointed ant :
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"In s. 49 as it now stands, the Legislature has empowered
the Board to frame uniform tariffs and it has also indicated
the factors to be taken into account in fixing uniform tariffs.
These two aspects are contained in sub-ss. (1) and (2). The
Legislature has also made it clear in
sub-s. (3) that the
Board, in the special circumstances mentioned therein, has
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got power to fix different tariffs for the supply of electricity.
Sub-s. ( 4) directs the Board not to show undue preference
to any person for fixing the tariffs and the tenns and conditions for the supply of electricity.
Though prima' facie it
would appear that sub-s. (4) will govern sub-ss. (1) to (3)
rn s. 49. the proper wav to irrterpret sub-s. ( 4) will be to
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road it along with sub-s. ( 3).
The question of the Board showing undue preference to
any person in fixing the tariffs and terms and conditi.ons for
suooly of electricity will not arise when the Board frames
uniform tatiffs under sub-ss. ( 1) and (2). When the entire
tariff is uniform for every consumer, there is no question of
any undue preference as every customer will pav the same
:llllount for the same benefit received bv him.
Sub-s. (3)
o! s. 49 recogBises the power of the Board to fix different
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INDIAN ALUMINIUM CO. V. KERALA ELECT. BOARD (Bhagwati, J.)
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tarins for the supply of electricity and it is really .here, if at
all, that an occasion for any undue preference bemg .shown,
may arise.
Therefore in our opinion, sub-s. ( 4) will con-
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49,,
trol the action of the Board under sub-s. ( 3) of s.
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It would be seen that sub-s. (1) of s. 49 empowers the Board to fix
uniform tariffs. The fixation of uniform tariffs need not necessarily be
.regionwise or areawise, nor need it be only in respect of particular
classes of consumers.
There is no !Imitation on the exercise of the
power of fixing uniform tariffs save that certain factors are laid down
in sub-s. (2) of s. 49 which have to be taken into account by the Board
in fixing uniform tariffs.
These factors guide and control the exercise
of the power of the Board. But, even where. uni(or!Jl tariffs are fixed
for a particular category of consumers, the application of uniform
tariffs to all consumers falling within the category, irrespective of their
distinctive features, may sometime defeat the object of promotion of
elec·rical development and industrial growth and progress. There may
arise ]ndividual cases where, havir.g regard to special circumstances.
it may be found necessary to make departure from the uniform tariffs
and to fix special tariffs for them. Sub-s. (3) of s. 49, therefore, provides that the Board shall have the power, "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 anQ any other relevant factors''.