# ORISSA STATE ELECTRICITY BOARD AND ANR. ETC v. M/S !Pl STEEL LTD. ETC

- **Citation:** [1995] 3 S.C.R. 684
- **Court:** Supreme Court of India
- **Decided:** 1995-04-21
- **Case number:** Civil Appeal No. 4689 of 1995
- **Bench:** B.P. Jeevan Reddy, Suhas C. Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/orissa-state-electricity-board-and-anr-etc-v-m-s-pl-steel-ltd-etc-13195
- **Pages:** 28

## Headnote

Indian Electricity Act, 19 ](}-Section 22-B-Orissa State Electricity
Board (General Conditions of Supply) Regulation 1981-Proviso to Regulation 46 as substituted by notification dated June 25, 1987-0rder under Sec.
C 22-B to cut supply of energy /Jy fifty per cent-Regulation 46 substituted to
provide for two pal! levy-Consumer charged for actual consumption plus the
maximum demand but exempted from payment of minimum charges during
the period of restricted supply-Held : Not unreasonable and arbitrary-Justification for levy of maximum demand charges under two part levy.
D
The respondent had entered into an agreement with the appellant
Board for supply of power upto but not exceeding a maximum demand of
7778 KV N7000 KW. The agreement between the appellant and the respondent stipulated that the provision of the Orissa State Electricity Board
(General Condition• of Supply) Regulation, 1981 as modified from time to
E time, shall form a part of the agreement and shall bind the respondent.
The agreement incorporated payment of electricity charges on the
basis of two part levy where the consumer, apart from the charges for the
actual consumption of electricity, also pays charges for the maximum
demand (the highest level/load at which the consumer draws electricity
F over any period of thirty minutes in a month) subject to payment of the
minimum charges, which in this case was 80% of the r.ontract d•mand. This
meant that even if the maximum demBnd of the consumer was less than
80% of the contract demand of 7778 KV N7000 KW, as contemplated in the
agreement the consumer has to pay charges for 80% of the contract
G demand.
For the period January, 1989 to August, 1990, the Government of
Orissa, in view of short fall in generation of power, made an order under
Section 22-B of the Indian Electricity Act, 1990 read with Section 78(A) of
the Electricity (Supply) Act, 1948 directing the appellant to reduce the
H supply of energy to the consumers to the extent as specified in the schedule
684
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ORISSA STATE ELECTRICITY BOARD v. LP.I. STEEL LTD.
685
to the said order. The effect of the order was that the supply of energy to A
the respondent's industry was reduced by 50 per cent. However, it was open
to the respondent to distribute the maximum demand permitted to him in
any manner convenient to him. If the respondent wished to run his unit
drawing energy at the contract demand level of 7778 KV A be could do so
but could run his unit for six months thus observing the 50 per cent cut . B
or in the alternative the respondent could run bis unit throughout the year
but at half the level of contract demand, i.e. at 3889 KV A.
j
Subsequently, by a notification dated June 25, 1987, the appellant
substituted Regulation 46 of the Orissa State Electricity Board (General
Conditions of Supply) Regulation, 1981 providing that during the period C
of operation of an order under Section 22-B of the Indian Electricity Act,
1910 the appellant shall be under an obligation to supply energy only in
accordance with the restrictions placed by that order. The proviso to the
substituted Regulation 46 provided that during the period of restricted
supply, if the restriction on supply of electricity exceeds 150 hours in a
month, the consumer shall not be liable to pay the minimum charges but D
only charges for the actual energy consumption plus charges for the
m~ximum demand. In the present case, as restriction was for In.ore than
150 hours, the proviso to Regulation 46 was applicable.
The respondent challenged the validity of the proviso to Regulation E
46, by way a Writ Petition in the High Court. Before the High Court, the
respondent contended that the proviso was unreasonable, arbitrary and
confiscatory in so far as during the period.of restricted supply the supply
of power is irregular. It was contended by the respondent that the appellant charges the consumer on the basis of maximum demand which means
that even if the consumer draws 7778 KV A on t

## Text

_Characters 0–39,798 of 67,555. This is a partial read: ask again with offset=39798 for what follows._

A
ORISSA STATE ELECTRICITY BOARD AND ANR. ETC.
B
v.
M/S !Pl STEEL LTD. ETC.
APRIL 21, 1995
(B.P. JEEVAN REDDY AND SUHAS C. SEN, JJ.]
Indian Electricity Act, 19 ](}-Section 22-B-Orissa State Electricity
Board (General Conditions of Supply) Regulation 1981-Proviso to Regulation 46 as substituted by notification dated June 25, 1987-0rder under Sec.
C 22-B to cut supply of energy /Jy fifty per cent-Regulation 46 substituted to
provide for two pal! levy-Consumer charged for actual consumption plus the
maximum demand but exempted from payment of minimum charges during
the period of restricted supply-Held : Not unreasonable and arbitrary-Justification for levy of maximum demand charges under two part levy.
D
The respondent had entered into an agreement with the appellant
Board for supply of power upto but not exceeding a maximum demand of
7778 KV N7000 KW. The agreement between the appellant and the respondent stipulated that the provision of the Orissa State Electricity Board
(General Condition• of Supply) Regulation, 1981 as modified from time to
E time, shall form a part of the agreement and shall bind the respondent.
The agreement incorporated payment of electricity charges on the
basis of two part levy where the consumer, apart from the charges for the
actual consumption of electricity, also pays charges for the maximum
demand (the highest level/load at which the consumer draws electricity
F over any period of thirty minutes in a month) subject to payment of the
minimum charges, which in this case was 80% of the r.ontract d•mand. This
meant that even if the maximum demBnd of the consumer was less than
80% of the contract demand of 7778 KV N7000 KW, as contemplated in the
agreement the consumer has to pay charges for 80% of the contract
G demand.
For the period January, 1989 to August, 1990, the Government of
Orissa, in view of short fall in generation of power, made an order under
Section 22-B of the Indian Electricity Act, 1990 read with Section 78(A) of
the Electricity (Supply) Act, 1948 directing the appellant to reduce the
H supply of energy to the consumers to the extent as specified in the schedule
684
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ORISSA STATE ELECTRICITY BOARD v. LP.I. STEEL LTD.
685
to the said order. The effect of the order was that the supply of energy to A
the respondent's industry was reduced by 50 per cent. However, it was open
to the respondent to distribute the maximum demand permitted to him in
any manner convenient to him. If the respondent wished to run his unit
drawing energy at the contract demand level of 7778 KV A be could do so
but could run his unit for six months thus observing the 50 per cent cut . B
or in the alternative the respondent could run bis unit throughout the year
but at half the level of contract demand, i.e. at 3889 KV A.
j
Subsequently, by a notification dated June 25, 1987, the appellant
substituted Regulation 46 of the Orissa State Electricity Board (General
Conditions of Supply) Regulation, 1981 providing that during the period C
of operation of an order under Section 22-B of the Indian Electricity Act,
1910 the appellant shall be under an obligation to supply energy only in
accordance with the restrictions placed by that order. The proviso to the
substituted Regulation 46 provided that during the period of restricted
supply, if the restriction on supply of electricity exceeds 150 hours in a
month, the consumer shall not be liable to pay the minimum charges but D
only charges for the actual energy consumption plus charges for the
m~ximum demand. In the present case, as restriction was for In.ore than
150 hours, the proviso to Regulation 46 was applicable.
The respondent challenged the validity of the proviso to Regulation E
46, by way a Writ Petition in the High Court. Before the High Court, the
respondent contended that the proviso was unreasonable, arbitrary and
confiscatory in so far as during the period.of restricted supply the supply
of power is irregular. It was contended by the respondent that the appellant charges the consumer on the basis of maximum demand which means
that even if the consumer draws 7778 KV A on the first day of the month F
and thereafter there is no drawal. throughout the month, the consumer
would be charged for 7778 KV A on the basis of maximum demand. Specific
instance of January, 1989 was pointed out in which month the quantity of
demand was 478.3 KV A but the respondent was charged at 683 KV A on
the basis or maximum demand.
G
The High Court allowed the writ petition or the respondent relying,
inter a/ia, upon the instance or January, 1989 to bold that the proviso to .
Regulation 46 was unreasonable and arbitrary.
In appeal to this court, the appellant assailed the order or the High H
686
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A
Court pointing out that the instance of January 1989 taken by the High
Court was an entreme case as in January, 1989 there was system disturbance and the respondent had already been given remission on that
account.
Allowing the appeal, this Court
B
HELD : 1.1. There is no arbitrariness or nnreasonableness in the
proviso to Regulation 46 of the Orissa State Electricity Board (General
Conditions of Supply) Regulation, 1981. It means and says that during the
periods of restricted supply of power, the consumer pays the energy
charges for the actual consumption plus maximum demand charges for
C the maximum demand availed of by him at the rate prescribed in the
agreement. In no event, a consumer is made to pay maximum demand
charges for more than what he actually avails. The over-all limitation is
that he must have remained within the fifty per cent quota allotted to him
during the year of restriction; If the consumer avails of energy at half the
D maximum demand/contract demand, he will pay demand charges only for
that. [708-D, 688-C, 708-C, 708-B, C, 707-H]
1.2. Even when there is no power cut in force, if an industry draws
energy at 7000 KV A on the first day of the month and does not draw the
energy at all on the subsequent twenty nine days, it would still be required
E to pay the demand charges at 7000 KV A X Rs. 35. This is because the
demand · charges are meant "to cover investment, installation and the
standing charges to some extent.'' [708-F]
Bihar State Electricity Board and Anr. v. Mis. Dhanawat Rice and Oil
p Mills, [1989] 1 SCC 452; Mis. Northern India Iron and Steel Co. v. The State
of Haryana and Anr., [1976] 2 SCR 677 and Maharashtra State Electricity
Board v. Kalyan Borough Municipality, (1968] 3 SCR 137, distinguished.
2. The validity of regulations, which have force of law, should not be
judged by laking either a stray case or an unnsual case but on _the
G generality of the situation. Situation in January 1989 was an unusual
situation for which appropriate relief bas been given to the respondent.
[709-H, 710-A, 710-C]
3.1. The Electricity Board produces energy required by the factory
and keeps it in readiness for that factory. Electricity once generated cannot
H be stored for future use. This is the reason and the justification for the
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ORISSASTATE ELECTRICITY BOARD v. J.P.!. STEEL I.TD.
687
demand charges and the manner of charging for it. [693-G]
3.2. There is yet another justification for levy of demand charges.
Demand charges and consumption charges are intended to defray different
items. Broadly speaking, while demand charges are meant to defray the
capital costs, consumption charges are snpposed to meet the running
charges. Every Electricity Board requires machinery, plant, equipment,
sub-stations, transmission lines and so on, all of which reqnire a huge
capital ontlay. The Board like any other corporation has to raise fnnds for
the purpose which means it has to obtain loans. The loan have to be repaid,
A
B
and with interest. Provision bas to be made for depreciation of machinery,
equipment and buildings. Plaints, machines, stations and transmission C
lines have to maintained, all of which requires a huge staff. It is to meet
the capital outlay that demand charges are levied and collected whereas
the consumption charges are levied and collected to meet running charges.
[ 693-H, 694-A, BJ
Bihar State Electricity Board, Patna and Ors. v. M/s. Green Rubber D
Industries and Ors., [1990] 1 SCC 731; Saila Bala Roy v. Chainnan,
Darjeeling Municipality, AIR (1936) Cal. 265; M.G. Natesa Chettiar v.
Madras Stale Electricity Board, (1969) Mad. L.J. 69 and Watikins Mayor and
Co. v. Jullundhar Electric Supply Co., AIR (1955) Punj. 133; referred to.
4. An order made under Section 22-B of the Indian Electricity Act, E
1910 is binding upon the Electricity Board and overrides the contracts and
agreements which the Board may have entered into with the consumers.
When an order section 22-B is issued, the Board is freed from the obligation to supply energy at the ievel stipulated in the agreements with the
consumers and its obligation is to supply in accordance with the order F
under Section 22-B. [707-C, 696-D]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4689 of
1995.
G
From the Judgment and Order dated 17.5.94 of the Orissa High
Court in O.J.C. No. 3467 of 1990.
N.S. Hegde, Kapilsibal, Raj K. Mehta, Ms. Mana Chakraborty, Mrs.
Indira Sawhney, B.A. Mohanty, Ms. Kirti Mishra, Praveen Kumar, V.
Kaushal, D.N. Dwivedi, J.B. Dadachanji and S. Sukumaran for JBD & Co, H
688
SUPREME COURT REPORTS
(1995] 3 S.C.R.
A for the appearing parties.
B
The Judgment of the Court was delivered by
B.P. JEEVAN REDDY, J. Leave granted. Heard counsel for the
Parties.
The Orissa State Electricity Board is questioning in this appeal the
correctness of the judgment of the Orissa High Court declaring the proviso
to Regulation 46 of the Orissa State Electricity Board (General Conditions
of Supply) Regulations, 1981, (hereinafter referred to as "Regulations") as
C unreasonable, arbitrary and illegal. Having struck down the proviso - i.e.,
the proviso as substituted by Notification dated June 25, 1987 - the High
Court has directed the Board to revise the bills issued to the respondentwrit petitioner "on the basis of proportionate reduction taking into account
the actual consumption of energy".
D
The respondent-writ petitioner (M/s. IPI Steel Limited) has a mini
E
steel plant in Orissa. On August 16, 1984, it had entered into an agreement
with the appellant-Board whereunder the Board undertook to supply
power "upto but not exceeding a maximum demand of 7778 KV N7000
KW". The agreement contains the following stipulations among others :
(1) "The consumer has perused a copy of the Orissa State Electricity
Board (General Conditions of supply) Regulations, 1981, understood its
contents and undertakes to observe and abide by all the terms and conditions stipulated therein including all future modifications thereto, to the
extent they are applicable to him. The Orissa State Electricity Board
F (General Conditions of Supply) Regulations, 1981 as modified from time to
time shall be deemed to form part of this Agreement" [Vide clause (2)]
(Emphasis added).
(2) "The consumer shall pay to the Engineer for the power demand
G and electrical energy supplied under this Agreement in accordance with
the tariff as mentioned below, subject to any revision that may be made by
the Board from time to time.
Large Industries
H (a) The monthly charges shall be :
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ORISSA STATE ELECTRICITY BOARD"· J.P.J. STEEL LID. [B.P. JEEV AN REDDY, J.) 689
Demand charges at Rs. 35.00 per KV A of maximum demand pll!S A
/~
energy charges at the following rate on units metered less units billed
separately under ( c) and ( d} below :
Paise 36.00 for each unit without prejudice to payment of monthly
minimum charges indicated below :
B
{b) The monthly minimum charges shall be calculated at the above rates,
)
on a demand of 80 percent contract demand and on units calculated at an
average power factor of 0.9 and an average load factor of 15 per cerit on
the said contract demand. [Vide clause (7) ]". {The remaining portion of c
clause (7) is omitted as unnecessary.)
The respondent complains that notwithstanding the agreement, the
Board was in no position to supply the full quantity of energy stipulated in
the agreement. It is, however, not necessary to consider the said plea, since D
we are concerned herein with the period January, 1989 to August, 1990
alone. During this period, an order under Section 22-B of the Indian
Electricity Act, 1910 read with Section 78(A} of the Electricity (Supply}
Act, 1948 issued by the Government of Orissa on February 14, 1990 was
in force. It. would be appropriate to notice the relevant contents of the E
Order. The Order recited that since .the total availability of power from the
generating stations in Orissa will fall short of the total requirement of
power in the State substantially, the State Government is of the opinion
that for maintaining the supply and securing equitable distribution of
, '
energy, it is expedient to regulate the supply, distribution, consumption and F
use of energy from the Orissa grid. The Order directed "the Orissa State
Electricity Board to reduce the supply of energy so as to allow the consumer to avail to the extent as specified in the Annexure anything in any
contract agreement or requisition for supply or increase in the supply of
energy notwithstanding". Contravention of the provisions of the Order
rendered the consumer liable for disconnection of service line without G
notice and for payment of energy charges at double the highest rate of
energy charges for any category in addition to the penalties. In the Annexure to the said order, the respondent, M/s. !PI Steel occurs at SI. No.
13 under the Heading "Large Industries". It would be appropriate to extract
the schedule insofar as it concerns the respondent :
H
•
690
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A
Allowable drawal
Provisional
SI.
Name of the
allotment for
Period of water
Quantity in
the water 90-91
No.
Industry
yr. 1989-(1.7.89
Million
(1.7.90 to
to 30.6.90)
·KWH.
30.6.91)
B
1
2
3
4
5
Large Industries
13. !PI STEEL
Gundichapada 1.7.89 to 30.6.90
16.863
16.863
C
It is agreed by the parties that the effect of the above order is to
D
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G
H
reduce the supply by fifty per cent. The Electricity Board has explained
how the said fifty per cent reduction is being implemented and operated,
by producing before us a statement relating to the water year 1988-89. It
would be appropriate to extract the said statement:
M/S. IP! STEEL LTD. : DHENKANAL
1.
Contract Demand (C.D.)
7778KV A (Kilo-volt- Amperes)
2.
80% of C.D. - 0.8 x 7778 KVA
6222.4 KVA
3 ..
100% requirement of energy
37.467 MU
for the water year 1988-89
(Million Units)
4.
% of level of allocation for the
50% of the
water year 1988-89
full requirement
5.
Energy allocation for the
18.737 MU
year 1988-89
SL
aX1mum
Month ..
~
Charge•
Energy
Liability of
~lief
Total
No.
demand
pa
entitlement
con.sumer for
consumption
in K.VA
KVA
per month
payment of
(in MU)
80% ofC.D.
L
7778
X6
Rs. 35
Rs. 16,33,380
3.122
Rs. 29,40,084
Rs. 13,00,7Q4
Rs. 18,737 MU
(no charge
.{fillZl
for six
6
months)
2
3889
x 12
Rs. 35
Rl;. 16,33,380
1,561
Rs. 26,13,405
Rs. 9,80,100
Rs. 18,737 MU
l.
5185
X9
Rs. 35
Rs. 16,33,Z75
2081
Rs. 19,60,056
Rs. 3,26, 781
Rs. 18,737 MU
(no charge
.{fillZl
for 3 months)
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ORISSASTATE ELECTRICITY BOARDv. J.P.L STEELLTD. tB.P. JEEVAN REDDY, J.) 691
Shri Santosh Hegde, learned counsel for the Orissa Electricity Board A
explains the conteJ?.ts of the above table thus : the maximum demand
allowed under the Agreement to the respondent is 7778 KV A; the cut is
fifty per cent, i.e., to the extent of half; the consumer, however, has been
given an option in the matter of utilisation of the fifty per cent allowed to
him. It is open to him to avail of the maximum demand every month but B
in such a case he can run his factory only for six months as mentioned
under Sl.No.1 in the Table contained in the above statement; if, however,
the consumer wants to operate his plant for twelve months in the year, he
has to reduce his maximum demand to half of 7778 KV A, i.e., to 3889 as
mentioned under SI. No. 2 of the Table; it is equally open to the consumer
to distribute the maximum demand permitted to him in such a manner that C
his plant works for nine months in the year availing 5185 KVA as mentioned under SL. No. 3 of the Table · or for that matter, ·in any other
manner convenient to him. But all this is subject to the overall ceiling
prescribed during such period. Sri Hegde submits that energy was made
available to all the bulk consumers on the above basis, which fact, he says, D
. is not disputed by the respondent nor any complaint is made by him that
energy was not made available in the manner stated in the said tabular
Statement.
At this stage, it would be appropriate to explain certain concepts
relevant herein. The expression "contract demand" is defined in clause (viii) E
of Regulation 3 of the Regulations. The definition reads thus :
"(viii) Contract demand, means the maximum kilowatt (KW) or
kilo-volt-ampere (KVA) as the case may be agreed to be supplied
by the Board and contracted by the consumer".
(In the case of the respondent, the contract demand, as stated hereinabove,
is 7778 KV A.)
F
The expression "minimum charges" is referred to and explained in
clause 7(b) of the Agreement between the parties. The clause, extracted
hereinabove, says that "the monthly minimum charges shall be calculated G
at the above rates cin a demand eighty per cent of contract demand and
on units calculated at an average power factor of 0.9 and an average load
factor of fifteen per cent on the said contract demand." (The reason for
prescribing the minimum charges is that the Board generates and keeps in
readiness, energy for the respondent to the extent contract demand. Even H
692
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A if the respondent does not avail of it, the energy cannot be stored or
preserved. The respondent is, therefore, made to pay for the energy
generated for his use even though he does not avail of it at the contracted
level; even so, the minimum charges are pegged at eighty per cent.)
The expression "maximum demand" is defined in clause (xx) of
B Regulation 3. It reads :
c
D
E
F
G
"(xx) Maximum demand, means the average amount of kilowatts
or kilovolt-amperes as the case may be, delivered to the point of
supply of the consumer and recorded during a thirty minutes'
period or maximum use in the month or it shall mean twice the
largest number of kilowatt-hours (KWH) or kilovolt- amperehours (KV AH) delivered to the point of supply by the consumer
during any consecutive 30 minutes' period. The Board, however,
reserves the right to shorten this period in special cases, if necessary. n
The above definition has to be read in the light of and in continuation
of the definition of the said expression of clause (8) of Section 2 of the
Electricity (Supply) Act, 1948, which runs thus :
"(8). "Maximum demand" in relation of any period shall, unless
otherwise provided in any general or special order of the State
Government, mean twice the largest number of kilowatt-hours or
kilo-volt-ampere-hours supplied and taken during any consecutive
thirty minutes in that period."
It is necessary to elaborate what does not expression "maximum
demand" mean and signify? In the case of bulk consumers and large scale
consumers, the Electricity Boards all over the country generally adopt a
two-part levy system. One part is called the 'maximum demand charges'
and the other part 'consumption charges'. Every such consumer is provided
with two meters. One is called the 'trivector meter' and the other is the
normal meter which records the total quantity of energy consumed over a
given period - which is ordinarily a month. The meter which records the
total consumption requires no explanation or elaboration since we are all
aware of it. It is the other meter which requires some explanation. 1'[ow
every large scale consumer known the amount of energy required by him
H
and requests for it from the Board. If the Board agrees to supply that or
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ORISSASTATE ELECTRICITT BOARD'· I.P.L STEELLTD. (B.P.JEEVAN REDDY,J.j 693
any other particular amount of energy, it make necessary arrangements A
therefor by layiog the lines to the extent necessary and installing other
requisite equipment. It is obvious that if a factory uses energy at a particular level/load and for a particular period, it consumes a particular
quantity of energy. The trivector meter records the highest level/load at
which the energy is drawn over any thirty- mioute period in a month while B
the other meter records the total consumption of energy io units io the
month. Let us take the case of the respondent to illustrate the poiot. The
maximum demand in his case is upto but not exceediog 7778 KV A. That
is his requirement. In the normal times, he is entitled to draw energy at
that level/load. That is this maximum demand under the agreement. But he
may not always do so. Say, io a given month, he draws energy at 6000 KV A C
level only, even then he has to pay the minimum charges as stipulated in
the agreement. But if he draws and consumes energy exceeding eight per
cent of the energy, he pays demand and energy charges for what he utilises.
Now, let us notice how the trivector meter, i.e., the meter which records
the maximum demand works; the meter is so designed that it only records D
the maximum load/level at which energy is drawn over any thirty-mioute
period in a month. It only goes forward but never goes back until it is put
back manually. To be more precise, suppose the respondent had drawn .
energy at 7770 KV A for a thirty-mioute period on the first day of the
month, the meter will record that figure and will stay there even if the E
respondent consumes at 7000 or lesser KV A level during the rest of the
month. From this circumstances, however, one canoot jump to the conclusion that it is an arbitrary way of levying consumption charges. Normally
speakiog, a factory utilises energy at a broadly constant level. May be, on
certain occasions, whether on account of breakdowns, strikes or shutdowns F
or for other reasons, the factory may not utilise energy at the requisite level
over certain periods, but these are exceptions. Every factory expects to
work normally. So does the Electricity Board expect - and accordingly
produces energy required by the factory and keeps it in readiness for that
factory - keeping it ready on tap, so to speak. As already emphasised,
electricity once generated cannot be stored for future use. This is the G
reason and the justification for the demand charges and the manoer of
charging for it. There is yet another justification for this type of levy and
it is this: demand charges and consumption charges are intended to defray
different items. Broadly speaking, while demand charges. are meant to
defray the capital costs, consumption charges are supposed to meet the H
694
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A running charges. Every Electricity Board requires machinery, plant, equipment, sub-stations, transmission lines and so on, all of which require a huge
capital outlay. The Board like any other corporation has to raise funds for
the purpose which means it has to obtain loans. The loans have to be
repaid, and with interest. Provision has to be made for depreciation of
B machinery equipment and buildings. Plants, machines, stations and transmission lines have to be maintained, all of which requires a huge staff. It
is to meet the capital outlay that demand charges are levied and collected
whereas the consumption charges are levied and collected to meet the
running charge.s.
C
Pausing here for a moment, we may explain the importance and
significance of maxinrnm demand. The maximum demand of a given
plant/factory determines the type of lines to be laid and the power of
transformers and other equipment to be installed for the purpose. A
factory having a maximum demand of say 1000 KV A and a factory having
D a maximum demand of 10,000 KV A require different type of lines and
other equipment for providing supply to them. In the case of latter, lines
have to be of a more load-bearing variety. Transformers have to be installed and of more capacity. Sometimes in the case of bulk consumers even
a sub-station may have to be established exclusively for such factory/plant.
Very often these industries are situated away from power stations and main
E
transmission lines which means laying special power lines over consideration distances to give the supply connection. As a matter of fact, the
significance of the maximum demand would be evident from the fact that
the agreement between the Board and consumer (like the respondent)
specifies only the maximum demand and not the units allowed to be
F consumed. The agreement concerned herein prescribes the maximum,
demand at 7778 KV A but does not prescribe the total number of units of
energy allowed to be consumed. This is for a reason, explains Sri Hegde,
that the total number of units energy consumed is determined by the
load/level at which power is drawn. The formula, taking the case of the
respondent is stated to be - 100% unrestricted energy requirement of the
G respondent = contract demand in KV A x power factor x load factor x total
number of hours in a year. In concrete terms, it means - 7778 KVA x 0.90
x 0.611 x ~760 = 37,467,590 KWH (units) = 37.46759 MU (Million Units).
This formula, as it states expressly, is premised on unrestricted supply.
Problems arise only when restrictions are placed on consumption on
H account of fall in production of electricity by the Board, as would be
ORISSASTATE ELECTRICITY BOARDv. J.P.!. STEEL LID. [B.P. JEEVAN REDDY,J.J 695
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explained hereinafter.
A
Even during normal times, the Electricity Boards are not able to
generate energy commensurate with their installed capacity, though it is
true, they do try to achieve it. But situations arise - situations beyond their
control - when they are not able to produce even that much energy as they
B
generally do. They are obliged to cut do\Vn their production substantially
- at times, as much as by half or more,. We ire told that the power.
~
generated by Hydro-electric stations in Orissa forms a substantial chunk of
}
the total energy produced by the Board. If in a given year, the rains fail
and more particularly, if the rains fail during who or three years consecutively, the production of energy by Hydro-electric units goes down substan- c
tially. Even in the case of thermal stations, problems of supply of coal and
oil, quality of coal supplied and other probleffi.$ result in the Board producing electricity at a level far lower than what it normally does. During
periods of such reduced generation/supply, problems of distribution arise.
There are several categories of consumers; industrial (including bulk con- D
'{
sumers), commercial, agricultural and domestic besides some other
categories. Naturally, everybody cannot be supplied the full quantity of
energy required; it has to be rationed - and may be, supply staggered. It is
precisely to provide for such situations that Section 22-B of the Indian
Electricity Act, 1910 empowers the Government to make an order regulating the distribution and consumption of energy. We may now read. the · E
section :
"22-B. Power to control the distribution and consumption of energy
.r
- (1) If the State Government is of opinion that it is necessary or
.
expedient so to do, for maintaining .the supply and securing the
equitable distribution of energy it may by order provide for regulatF
· ing the supply, distribution, consumption or use thereof.
(2) Without prejudice to the generality of the powers conferred by
sub-section (1) an order made thereunder may dir~ct the licensee
not to comply, except with the permission of the State Government, G
with -
).
(i) the provisions of any contract, agreement or requisition
whether made before or after the commencement of the
Indian Electricity (Amendment) Act, 1959 (32 of 1959), for
the supply (other than the resumption of a supply) or an. H
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SUPREME COURT REPORTS
[1995] 3 S.C.R.
increase in the supply of any energy to any person, or
(ii) any requisition for the resumption of supply of energy to
a consumer after a period of six months, from the date of its
discontinuance, or
(iii) any requisition for the resumption of supply of energy
made within six months of its discontinuance, where the
requisitioning consumer was not himself the consumer of the
supply at the time of its discontinuance."
It is obvious that an order made under Section 22-B is binding upon
the Electricity Board and over-rides the contracts and agreements which
the Board may have entered into with the consumers. When an order under
Section 22-B is issued, the Board is freed from the obligation to supply
energy at the level stipulated in the agreements with the consumers and its
obligation is to supply in accordance with the order under Section 22-B.
On this score, there is no controversy. The controversy is with respect to
the power of the Board to collect maximum demand charges at the rate
prescribed in the agreement during such periods of restricted supply. In
short, the question is with respect to the power of the Board to frame
Regulation 46 and more particularly, the reasonableness of the proviso to
the said Regulation.
Section 79 of the Electricity (Supply) Act, 1948 empowers the Board
to make Regulations to provide for matters specified therein. Inter a/ia, the
matters specified include 'G) principles governing the supply of electricity
by the Board to persons other than licensees under Section 49'. Clause (k)
is, of course, of a general nature. Section 49(1) says that :
'49. Provision for the sale of electricity by the Board to persons
other than licensees. (1) Subject to the provisions of this Act and
or 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."
It would help if we notice sub-sections (2), (3) and ( 4) of Section 49
also. They read thus :
"(2) Jn fixing the uniform tariffs, the Board shall have regard to all
I
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;
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.t
> ._
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ORISSA STATE ELECTRICITY BOARDv. J.P.I. STEELLill. (B.P. JEEVAN REDDY,J.J 697
or any or 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 distribuA
tion of electricity within the State in the most efficient and B
economical manner, with
particular reference to su<.;h
development in areas not for the time being served or adequately served by the licensee;
( c) the simplification and standar.disation of methods and
rates of charges for such supplies;
C
( d) the extension and cheapening of supplies of electricity to
sparsely developed areas.
(3) Nothing in the foregoing provisions of this section shall D
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."
Jn exercise of the power conferred by Section 79 read with Section
E
49. of the Electricity (Supply) Act, the Orissa Board has framed Regulation
F
46. Before its amendment by Notification dated June 25, 1987, Regulation
46 read as follows :
"Right of Board in case of break down in Board's supply system.-
If at any time during the continuance of any agreement between G
the Board and consumer, due to reason mentioned in clause-40(d)
and 43 above, the Board/Engineer shall be under no obligation to
give supply of electrical energy as contracted during the period of
such break down/force measure situation continues. Such period
of discontinuance/reduced supply shall not be added to the initial H
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SUPREME COURT REPORTS
[1995] 3 S.C.R.
period of the agreement.
Provided that during such period of discontinuance/reduced
supply, the consumer shall not be liable to pay the minimum
charges in accordance with the agreement, but shall only pay for
the actual quantity of demand and/or energy supplied to the
consumer in lieu of the contracted demand."
The Regulation was substituted by the Notification dated June 25,
1987. The substitute Regulation reads as follows :
'If on account of shortage of the generation of electrical energy,
restrictions on power supply are imposed by the State Government
under Section 22(B) of the Indian Electricity Act, 1910 or by the
Board under Section 49 of the Electricity Supply Act, 1948 and all
other power available under law, the Board and the Engineers
shall be under no obligation to supply energy contracted for except
in accordance with the restriction order and subject'to the other
provisions of the Regulation.
Provided that during the period restrictions are in force, the
consumer shall not be liable to pay the minimum charges in
accordance with the agreement if the restriction on supply in a
month exceeds 150 (One Hundred Fifty) hours but shall only pay,
in case of two part tariff, on the basis of actual energy consumption
and the "maximum demand" as provid~d in the agreement and in
all other cases, on the basis of actual consumption of energy."
F
We are concerned in this case with the substituted Regulation 46 and
hence, reference to Regulation 46 hereinafter means the amended Regulation 46 only.
Regulation 46, it is evident, is designed to meet the situation obtaining during the period an order under Section 22-B-of the Electricity Act,
G 1910 is the force. It says so specifically. The Regulation says that when such
an order is in operation, the Board shall be under no obligation to snpply
the contracted demand/maximum demand and that it will supply energy
only in accordance with the restrictions placed by such order. To this extent
it states the obvious. The proviso - which is the one in question - then says
H that during the period of such restricted supply if the restriction on supply
y
1
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ORISSASTATEELECTRICITYBOARDv. l.P.I. STEEL LIB. [B.P.JEEVAN REDDY,J.) 699
~
exceeds 150 hours in a month, (a) the consumer shall not be liable to pay A
minimum charges in accordance with the agreement but ( d) he shall pay
in case of two-part tariff, on the basis of actual energy consumption and
the maximum demand as provided in the agreement and (b) in all other
cases, (i.e., in case of consumers to whom two-part tariff does not apply)
on the basis of actual consumption of energy.
B
~
Now, in the case before us, the restriction on supply did exceed 150
\ J.
hours in a month; indeed it was fifty per cent. In accordance with the said
proviso, therefore, the respondent was obliged to pay (i) the maximum
demand charges as provided in the agreement and (ii) the actual energy
consumption charges though he is relieved of the obligation to pay mini- c
mum charges. The maximum demand contracted by the respondent is upto
but not exceeding 7778 KVA as mentioned hereinbefore. Now, if the respondent draws energy at full load, i.e., at 7778 KV A, his consumption of energy
over the year would be twice the quota permitted to him during the year
·f
of restriction. Therefore, the respondent is obliged to - and should - draw D
energy at half the maximum/contracted demand, i.e., at 3889 KV A, if he
wants to run his factory for the whole of the year of restriction. And since, .
he is relived of the obligation to pay the minimum charges as per the
agreement, he pays demand charges only on the basis of the actual maximum KV A drawn by him plus charges for the energy actually consumed
E
by him. Secondly, the Board explains, there is an option available to such
consumers. If their unit cannot work at a level/load less than the maximum
demand/contract demand or if the consumer wishes to do so for his own
.. ~
reasons, he is free to draw energy at the contract/maximum demand level,
but then he can work only for six months in the year of restriction since he
is bound to observe the cut in consumption of energy by fifty per cent. In F
other words, if he avails power/energy at the maximum agreed level, he will
exhaust his fifty per cent quota in six months itself. It is however open to
a consunier to draw energy at any other level so long as he does not exceed
the fifty per cent quota permitted to him during the year of restriction, as
explained in the tabular statement referred to hereinbefore. The option to G
draw at the maximum level/load permitted is probably conceived to provide
).
for those units which cannot operate except when they draw energy at the
maximum demand level. They can do so but they can operate only for six
months in the year of restriction. So far as the respondent is concerned, it
is admitted that it is not a unit which can operate only when it draws energy
at 7778 KV A or thereabout; it can operate even if energy is drawn at half H
700
SUPREME COURT REPORTS
(1995] 3 S.C.R.
A the maximum demand level. May be, such functioning may be less economical, but function it can.
We shall now deal with the precise grievance of the respondent- writ
petitioner and the grounds on which the High Court has invalidated the
proviso to Regulation 46. The respondent says that where the cut in the
B supply is as much as half, there is no justification or equity behind the
regulation which entitles the Board to levy full demand charges. (There is
no complaint insofar as the levy of actual consumption charges are con-
'
cerned; the whole grievance is only about the maximum demand charges
or demand charges, as they are called.) The respondent submits that during
C the periods of restricted supply, there are frequent cuts and breakdowns,
the supply is irregular and yet the Board proposes to levy full demand
charges only because in any thirty- minute period in a given month, the
power is availed at the maximum demand level. According to the respondent, during the period of such supply the demand charges should not be
D collected at all but only the consumption charges. This submission has been
upheld by the High Court on the following reasoning which may better be
put in their own words :
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"Under the two part tariff system which is meant for big consumers
of electricity, the consumer is required to pay the demand charges
which charges are levied to cover investment installation and the
standing charges to some extent and energy charges for the actual
amount of energy consumed. The expression "Demand charges"
would mean that the charge leviable for the readiness of the
supplier to meet the demand of the consumer. Where, therefore,
the supplier, namely, the State Electricity Board was not at all in
a position to supply the energy as per the demand of the consumer
it would he an unreasonable burden on the consumer if the
supplier is permitted to raise the entire demand charges. The
excessiveness of the burden on the economy of the industry as well
as on the consumer would be apparent from a small illustration.
An industry needs 7000 KVA for running of its factory but because
of the power restrictions issued by the State Government in exercise of power under section 22(b) of the Supply Act it cannot run
the factory through out the month as that would exceed the
quantum of energy which the industry could utilise. But to run its
machinery if the industry in question on the first day of the month
0RISSASTA1EELECIRICTIY BOARD'· LP.l SIBEL LTD. [B.P.