Holding

The Delhi Municipal Corporation, as a local authority, is not a ‘licensee’ under the Indian Electricity Act and may raise minimum consumption guarantee charges under Section 283 of the Delhi Municipal Corporation Act without State Government sanction, and the increase is neither unreasonable nor discriminatory.

Summary

The petitioners, owners of arc/induction furnaces classified as large industrial power (LIP) consumers, challenged the Delhi Municipal Corporation's (DMC) resolution that raised the minimum consumption guarantee charges from Rs. 40 to Rs. 340 per KVA for such furnaces. They argued that the increase violated Section 21(2) of the Indian Electricity Act, 1910, which they said required State Government sanction, that the proviso to Section 22 governed such charges, and that the differential treatment breached Article 14 of the Constitution. The High Court rejected these contentions, holding that a local authority like the DMC is not a ‘licensee’ under Part II of the 1910 Act and therefore not bound by Section 21(2); the proviso to Section 22 dealt with separate supplies and was inapplicable; and the tariff increase was a legislative function exercised under Section 283 of the Delhi Municipal Corporation Act, justified by evidence of pilferage and under‑utilisation. The Supreme Court affirmed this view, finding the rate rise neither unreasonable nor discriminatory, and dismissed the appeals with costs.

Issues considered

Whether Section 21(2) of the Indian Electricity Act, 1910 requires prior State Government sanction for the DMC's increase in minimum consumption guarantee charges.
Whether the proviso to Section 22 of the Indian Electricity Act, 1910 governs the levy of minimum consumption guarantee charges in this case.
Whether the differential tariff for arc/induction furnaces violates Article 14 of the Constitution as discriminatory.
Whether the DMC has authority under Section 283 of the Delhi Municipal Corporation Act, 1957 to fix such tariffs.
Whether the tariff fixation can be challenged on grounds of unreasonableness or arbitrariness.

Legislation cited

Constitution of Indias. Article 14
Delhi Municipal Corporation Act, 1957s. 277, s. 283
Indian Electricity Act, 1910s. 21, s. 22

Subjects

tariffelectricity supplyminimum consumption guarantee chargeslicenseeArticle 14discriminationunreasonablelegislative functionDelhi Municipal CorporationIndian Electricity Act

Judgment

A ASHOK SOAP FACTORY AND ANR.
v.
MUNICIPAL CORPORATION OF DELHI AND ORS.

JANUARY 12, 1993

B [J.S. VERMA, YOGESHWAR DAYAL AND
N. VENKATACHALA, JJ.]

Delhi Municipal Corporation Acr, 1957:

C Section 283-Levy of charges for supply of electricity-Minimum co11-
sumption guarantee charges for 'large industrial powers' consumers--lncrease
in rate in respect of Arc/induction furnaces-Validity of

Electricity Ac~ 1910:

D Section 21-Applicability to local authoritie~elhi Municipal Cor-
poration, being a 'licensee by virtue of provisions of the Delhi Municipal
Corporation Act, and not one licensed under Part II to supply energy, Section
not applicable.

Section 22, proviso-Proviso does not deal with the minimum con-
E sumption charges. ):;

Constitution of India, 1950:

Article 14--Price fu:ation-Fixation of tariff, a legislative func-
tion-Hence, fu:ation of higher rate not open to challenge on ground of
F non-disclosure of reasons in the absence of any unreasonableness or arbitrari-
ness-Since arc/induction furnaces constitute a class by themselves, question
of discrimination does not arise.

Section 283 of the Delhi Municipal Corporation Act, 1957 em•
powered respondent No.l - Delhi Municipal Corporation to levy charges
G for the supply of electricity on such rates as may be f1Xed from time to time
by it. For the purpose of charging the consumers, the Corporation bad
divided the consumers into different categories/classes providing for dif-
ferent tariffs for each category. One oftbe categories was 'large industrial
powers' (LIP) consumers. The consnmers who bad a sanctioned load of
H 100 KWs fell in the category of large industrial powers.
124
ASHOK SOAP FACTORY v. M.C.D. 125

For the levy of charges for the supply of electricity there were two A
systems of tariff, namely, the Oat rate system and the other two-part tariff
system. Under the former a Oat rate was charged on the units of energy
consumed while the latter system was meant for big consumers of
electricity i.e. industrial power, and it was comprised of two charges (1)
minimum consumption guarantee charges (called demand charges) and
B
(2) energy charges for the actual amount of energy consumed.

Under the two-part system an LIP consumer would pay minimum
guarantee consumption charges at the rate fixed by the respondents. If the
LIP consumer did not consume the specified minimum quantity of
electricity or no energy at all even then he had to pay the minimum C
guarantee charges. But in case the consumer consumed more electricity
then what was prescribed by the minimum guarantee charges, then the
consumer paid the minimum guarantee charges and also paid the
electricity charges for the actual consumption of electricity, beyond the
minimum guarantee charges, in such a manner that the minimum guaran-
tee charges were merged in the total bill of electricity consumed and a D
rebate was given to the consumer. In other words, if a consumer consumed
more than the specified minimum quantity of electricity then, in effect, he
would pay for electricity which was actually consumed by him.

For the period from 1985-86 to 1988-89, the respondents bad fixed E
rates of minimum consumption guarantee charges at the rate of Rs. 40 per
KVA for 1000 KVA and Rs.38 per KVA above 1000 KVA. However, pur-
suant to a Resolution passed by the respondent Corporation approving
the resolution passed by the D.E.S.C., there was an upward revision of
rates of minimum consumption guarantee charges in respect of arc/induc-
tion furnaces. F

As a result, for demand charges for the first 1000 KVA of billing
demand for the month, instead of tariff being Rs. 40 per KVA or part
thereof, it was enhanced to Rs. 340 per ·KV.A oi' part thereof.

The appellants bad set up/installed arc/induction furnaces for the G
manufacture of castings in their factories. Electricity was one of the
important raw materials for the appellants and had obtained electricity
from the respondents. The sanctioned load was more than 100 KWS and,
therefore, they fell into the LIP category and the two-part tariff was
applicable to them. The appellants filed writ petitions before the High H
126 SUPREME COURT REPORTS (1993] 1 S.C.R.

A Court challenging the enhancement of the minimum guarantee charges.

It was contended that the provisions of Section 21 of the Indian
Electricity Act, 1910 applied and the decision to increase minimum char-
ges was contrary to Section 21(2) of the Act, that changing the rates at
which mioimom charges were to be realised amounted to altering or
B amending the conditions of sopply and this could not he done without the
previous sanction of the Stat• Government, and therefore, the proposed
increase was in violation of Section 21(2) of the 1910 Act, that the mini-
mum guarantee charges could only he levied under the proviso to Section
22 of the 1910 Act, that under the proviso to Section 22 the licensee could
c only charge that amount which would give it a reasonable return on the
capital expenditure and cover standing charges incurred by it in order to
meet the possible maximum demand, that the respm1dents had to satisfy
the Court that the minimum demand charges had been raised to Rs. 340
from Rs. 40 and that the additional capital expenditure had been incurred,
which would justify Rs. 340 being charged as a reasonable return on the ·
D said capital expenditure, and that the tariff vis-a-vis a consumer owning
are furnaces was violative of Article 14 of the Constitution inasmuch as
the other bulk consumers in the category of LIP consumers had not been
so treated.

E The High Court dismissed the writ petitions holding that in case the
local authority was the licensee, no prior approval of the State Govern-
ment was required in law for changing the rates, and that apart from
proviso to Section 22, the agreement between the parties justified the
claim of the respondent- Corporation for minimom consumption guaran-
tee charges.
F
Dismissing the appeals preferred by the consumers-appellants, this
Coort

HELD: 1.1. Section 21(2) of the Act was applicable to the liceilsees
G other than the local aothorities. 'Licensee' as defined in the 1910 Act in
Section 2 (h) means 'any person licensed ooder Part II to sopply energy'. The
D.M.C., which is the licensee in the present case is not a licensee licensed
under Part II to sopplyenergy. D.M.C. is licensee by virtue of the provisions
contained ir, the Delhi Municipal Corporation Act, 1957. [136G-H, 137A]

H 1.2. The proviso to Section 22, talks about 'a separate supply unless
ASHOK SOAP FACTORY v. M.C.D. 127

he liad agreed with the licensee to pay him sncb minimum annual snm'. A
In the present case, there is no question of any separate supply or any
agreement _in relation to minimum annual sum. Section 22 deals with
totally different situtation and has nothing to do with the minimum
consumption guarantee charges provided as part of the tariff which in
tum was part of the agreement between the parties. (137E·F]
B
1.3. The reasons for the revision of minimum consumption charges,
in respect of arc/induction furnaces, were that in many Instances it was
noticed that the meters where bulk supply was made were found to be
defeciive and the consumption recorded' was found to be extremely low

-- causing loss of huge revenue. The arc/induction furnaces normally run C
continuously and, therefore, the D.E.S.C. was justilied to increase the rate
of minimum consumption guarantee charges. The variation in tbt
electricity consumed by different consumers indicated that the charge of
pilferage of electricity and gross under-utilisation or consumption of
electricity compared to the sanctioned load was not without foundation. D
The tabulated statement of the consumers using induction furnaces
placed on record by the respondents deals with 52 consumers including
most of the appellants. This statement shows large variation of the
electricity consumed. It is surprising that the units are still surviving by
working for a short period. On the assumption that the electricity con·
sumed is as per the sanctioned load, the approximate number of hours for E
which the induction furnaces have been worked in a month bas been stated
in the said statement. There was thus a reasonable basis to assume theft
by substantial number of arc/induction furnaces consumers. The con·
sumer contracts for a minimum supply of electrictiy of certain dimensions
and the D.M.C. which is licensee in the present case, has to buy energy by F
way of bulk supply from outside sources and has to keep it readily
available for tile consumer for the whole year round. Surely the consumer,
who contracts for such high quantity of energy, does so because of its need
aud 1not for k"!'ping it as stand by, without paying for it. No licensee can
possibly keep such enormous quantity of electricity in reserve for a con·
sumer, month after month, without its consumption. That is why in the G
tariff, which was part of the agreement, for LIP consumers there was two
part tariff system • partly minimum consumption guarantee charges and
)._,
partly for actual energy consumed. [138F·H, 139A·B·D]

,.. ,1.4. It was also stipulated that the minimum consumption guarantee H
128 SUPREME COURT REPORTS [1993) 1 S.C.R.

A charges would uot be payable if a consumer utilises or consumes 60% of
the sanctioned load. The rate per unit had not been changed. It was only
the minimum guarantee charges which has been revised. If a consumer
consumes more than 60% of the sanctioned load, then he is not adversely
affected by the revision of the minimum demand charges from Rs. 40 per
KVA per month to Rs. 340 per KVA per month. It is difficult to appreciate
B or understand how the manufacturers using arc/induction furnaces could
have such variation in the consumption of electricity, as indicated in the
tabulated statement, except to suggest that there was large scale pilferage
of electricity. It is not easy to accept that inducton furnaces having sane·
tioned loads of more than 1000 KW consuming electricity, if converted
C .into approximate number of hours worked in a month at the maximum
load, being as little as 18.1 hours especially when there were instances. of
other induction furnaces consuming far more number of units per month.
--
The respondents bad to keep in readiness the supply of energy as per the
sanctioned load of various consumers and were incurring expenditure for
D the generation, supply or purchase of the same. When the consumers were
not paying for it, the respondents obviously had no option but to revise
the minimum demand charges so as to cover up and make good the
generating and supply costs. [139E-H, 140A]

1.5. In the present case, the respondents themselves have placed
E figures to demonstrate the formula on the basis of which the rate of Rs.
340 per KVA has been fIXed. The formula shows that if 60% of the load
sanctioned is utilised then there is no unreasonableness or excessiveness
in the tariff. [140D)

1.6. The recommendations of the D.E.S.C. were justified on facts and
F were rightly accepted by the D.M.C. in raising the minimum consumption
guarantee charges to Rs. 340 per KVA per month for the first 1000 KVA
which are neither unreasonable nor arbitrary.. [140F]

1.7. The tarilTwas fIXed by D.E.S.C. with the approval of the D.M.C.
G in view of the power conferred under Section 283 of the Corporation
Act. [140H,141A)

2.1. The fIXation of tariff is a legislative function and the only
challenge to the fixation of such levy can be on the ground of un·
reasonableness or arbitrariness and not on demonstrative grounds in the
H sense that the reasons for the levy of charge must be disclosed in the order
ASHOK SOAP FACTORY v. M.C.D. (DAYAL, J.) 129

imposing the levy or disclosed to the court, so long as it Is based on A
objective criteria. [140BJ

2.2. As bulk consumers belonging to LIP category, the consumers or
are/induction furnaces are a class by themselves and, in any case, the
revision is as per the agreement between the licensee and the consumers
which is neither unreasonable nor arbitrary and therefore, there is no B
discrimination. All the appellants had entered into agreements with the
respondent-Corporation and clause lS(a) thereor provided that the con-
sumer shall be liable to pay ror whatever surcharge or increase in these
rates as may from time to time be levied or made by the Undertaking. Any
other method of charging decided by the Undertaking shall al§o be ap- C
plicable. [140G, 134G, 135B]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1478 of
1990.

From the Judgment and Order dated 1.3.90 of the Delhi High Court D
in Civil Writ Petition No. 1744 of 1989.

WITH

CA. Nos. 1474-1476, 1473, 1479-1483, 1477, 1484-1511, 1518, 1543 of
~~~~~ E
R.K. Jain, Harish N. Salve, P.P. Tripathi, Tripurari Ray, Mukul
Mudgal, Vineet Kumar, Ms. Kamini Jaiswal, Ashok Mathur and Ranjit
Kumar for the appearing parties.

The Judgment of the Court was delivered by F
YOGESHWAR DAYAL, J. These are batch of appeals against the
judgment of Delhi High Court dated !st March, 1990 whereby the High Court
by a common judgment disposed of a bunch of writ petitions, inter alia, filed
by Guiab Rai against the Municipal Corportion of Delhi and others.
G
The challenge in the writ petitions was to the Resolution of the
,,._ Municipal Corporation of Delhi (hereinafter referred to as M.C.D.)
whereby it approved the proposal of the Delhi Electricity Supply Commit.
tee (in short D.E.S.C.) to enhance minimum consumption guarantee char-
ges from Rs. 40 per KVA to Rs. 340 per KV A in respect of arc/induction H
130 SUPREME COURT REPORTS [1993] 1 S.C.R.

A furnaces.
The petitioners in the writ petitions had set up/installed arc/induction 'r'-
furnaces for the manufacture of castings and have their factories in Delhi.

One of the important raw-materials for the writ petitioners is
B electricity. Each of the petitioners had obtained electricity from the respon-
dents and the sanctioned load is more than 100 KWS. The exact sanctioned
load, among the various wirt petitioners, varies, depending upon the size
and capacity of the furnaces set up by them but each one of them has a '-,

sanctioned loacj of more than 100 KWS.
c The case of the petitioners before the High Court was that Section
283 of the Delhi Municipal Corporation Act, 1957 (hereinafter referred to
as 'the Corporation Act') empowers respondent No.l (D.M.C.) to levy
charges for the supply of electricity on such rates as may be fixed from
time to time by the D.M.C. in accordance with law. For the purpose of J~.· -
D charging the consumer, the D.M.C. has divided the consumers in different
categories/classes providing for different tariffs for each category. One of
the categories is 'large industrial power' (LIP) consumers. The consumers
who have a sanctioned load of 100 KWS fall in the category of large
industrial powers. The writ petitioners fall under this category as each one
of them has a sanctioned load of more than 100 KWS. For the levy of
E charges for the supply of electricity there are two systems of tariff which
are followed, namely - the flat rate system and the other two-part tariff
system. Under the former, a flat rate is charged on the units of energy
consumed while the latter system is meant for big consumers of electricity ~-

i.e. industrial power, and it is comprised of two charges (1) minimum
F consumption guarantee charges (called demand charges) and (2) energy
charges for the actual amount of energy consumed. -·
r-- _\I
It was the case of the petitioners that two-part tariff system was
applicable to them. Under this system an LIP consumer pays minimum
guarantee consumption charges at the rate fixed by the respodents. If the
G LIP consumer does not consume the specified minimum quantity of
electricity or no energy at all even then he has to pay the minimum
guarantee charges. But in case the consumer consumes more electricity
that what is prescribed by the minimum guarantee charges then the con-
sumer pays the minimum guarantee charges and also pays the electricity .
H charges for the actual consumption of electricity, beyond the minimum
ASHOK SOAP FACTORY v. M.C.D. [DAYAL, J.] 131

guarantee charges, in such ·a manner that the minimum guarantee charges A
are merged in the total bill of electricity consumed and a rebate is given
to the consumer. In other words, if a consumer consumes more than the
specified minimum quantity of electricity then, in effect, he will pay for
electricity which is actually consumed by him.

For the period from 1985-86 to 1988-89 the respondents had fixed B
rates of minimum consumption guarantee charges at the rate of Rs. 40 per
KVA for 1000 KVA and Rs. 38/ per KVA above 1000 KVA. The t:yiff for
the LIP consumers in respect of the aforesaid period, including the mini-
mum guarantee charges, as fixed by the respondents was as follows :-
c
- (d) Tariff

Demand charges

Fir<1t 1000 KVA of billing Rs. 40.00 per KVA cir part
demand for the month thereof. D
All above 1000 KVA of Rs. 38.00 per KVA or part
billing demand for the thereof.
month.

First 5,00,000 units per month at 15 paise per unit. E

All above 5,00,000 units per month at 84 paise per unit.

Subject to:
a maximum overall rate of Rs. 1.10 per KVA without prejudice
to the minimum payment as laid dowu in item (g) below and F
adjustment clause at {xvii) above under General Conditions of
applications.

Item (g) of the said tariff prescribes that the minimum bill would be the
amount of the demand charges based upon the KVA of billing demand. G
Item (g) reads as under:-

'(g) Minimum Bill

The amount of the demand charges based upon the KVA
of billing demand.' H
132 SUPREME COURT REPORTS (1993) 1 S.C.R.

A The billing as per the aforesaid tariff had been explained by the
petitioners before the High Court with the following illustration :-

"(a) If a consumer with a sanctioned load of lOOOKVA does
not consume any energy in a given month, he would be liable
to pay the, pllnimum guarantee charge of Rs. 40,000 i.e. 1000
B KVA (sanctioned load/contracts demand) x 40 (minimum
guarantee charge) = Rs. 40,000

Even if he consumes electricity, but the value of the units
actually consumed by him works out to less than Rs. 40,000
which is the minimum consumption guarantee charges, even
c then he will have to pay the minimum consumption guarantee
charges of Rs. 40,000.

(b) In the event one consumer consumes energy of the value
of more than Rs. 40,000, then the billing would be done in the
D following manner :-

Assuming that the consumer consumes 80,000 units of
electricity :-

1000 KVA (sanctioned load) = Rs. 40,000
E X 40 (rate of minimum
guarantee charges).

80,000 (units consumed)
0.85 paise (energy charge) = Rs. 68,000
per unit.
F Total Rs. 1,08,000

In terms of the tariff, the maximum charge cannot be more
than the over all rate of Rs. 1.10 per unit consumed. Therefore,
80,000 units consumed would be chargeable at the maximum
rate of Rs. 1.10 per unit which works out to Rs. 88,000. Since
G
the amount of Rs. 1,08,000 is higher than Rs. 88,000 i.e. by Rs.
20,000 a rebate of Rs. 20,000 would be given to the consumer
· and the consumer would be billed only for Rs. 88,000.

It would be thus evident from the above illustration that the
H consumer, in any event, bas to pay the minimum guarantee
ASHOK SOAP FACTORY v. M.C.D. [DAYAL, J.] 133

charge even if the value/price of the energy ac,ually consumed A
is more than the minimum consumption guarantee charges, the
amount of the minimum consumption guarantee gets merged
into/with the energy charges."

It was then submitted on behalf of the writ petitioners that the
·General Manager of respondent No.2 wrote a letter dated 24th January, B
1989 to D.E.S.C. illler a/ia, proposing revision of rates of minimum con-
sumption guarantee charges in respect of arc/ induction furnaces. In this
letter the General Manager gave the figures of the fixed expenditure per
KW per month. It was stated that the rates of minimum consumption
guarantee were fored in 1985 and the increase in fJXed expenditure per KW c
per month necessitated the revision of rates of minimum consumption
.guarantee charges. It was also mentioned that the transmission and dis-
tribution losses were quite high and they fell into two categories, namely,
technical losses and commercial losses. The cause for commercial losses
was expl•ined by the General Manager in the following words :-
D
"The Commercial losses are also attributed to pilferage/
fraudulent abstraction of energy etc. The minimum consump-
tion guarantee being quite low also attributes to the tendency
of fraudulent abstraction of energy. After giving a serious
thought to reduce the pilferage/fraudulent abstraction of ener-
E
gy, it bas been felt desirable to revise the rate of minimum
consumption guarantee to a reasonable level so that consumers
are not attracted for such unfair means and the rates are
commensurate with the fJXed expenditure being measured by
the undertaking."
F
In the proposal contained in this letter, there was no suggestion for
increase of minimum consumption charge for domestic category but for
other categories increase was recommended and in respect of arc/induc-
tion furnaces the increase for minimum consumption guarantee charge was
to be Rs. 340 instead of Rs. 40 per KVA.
G
This proposal contained in the letter dated 24th January, 1989 was
discussed by the D.E.S.C. in its melting held on 9th March, 1989 and the
case was referred back to the General Manager to inform the D.E.S.C.
whether the respondent was recovering its dues from the bulk supply
consumers based on their actual consumption. Pursuant thereto, the H
134 SUPREME COURT REPORTS [1993) 1 S.C.R.

A General Manager wrote another letter dated 23rd March, 1989 to D.E.S.C.
and inter alia, stated that the billing is normally done on the basis of
consumption recorded in the meters but in many instances it has been
noticed that meters were found to be defective. The consumption recorded
was found to be much less than the consumption which was recorded in
the previous year and when compared to the connected load, the consump-
B tion was found to be extremely less in many cases causing loss of huge
amount to the Undertaking. It was also stated in this letter that for the
aforesaid reason 'the proposal was put up to D.E.S.C. for levy of higher
minimum consumption charges in the case of arc/induction furnaces on
basis of their load. It is worth mentioning that these furnaces normally run
c continuously and, therefore, levy of minimum charges is considered jus-
tified."

The aforesaid proposal of the General Manager was accepted by
D.E.S.C. by Resolution dated 30th March, 1989 and it recommended to
the D.M.C. that the proposed revised rates of minimum consumption
'
>--
D guarantee charges be approved only in respect of plastic and arc/induction \
furnaces in their respective categories.

Pursuant to the aforesaid Resolution of the D.E.S.C., the D.M.C. also
vide its Resolution dated 1st May, 1989 approved the enhancement of the
E minimum consumption guarantee charges only in respect of arcfmducfion );
furnaces to Rs. 340 per KV A or part thereof instead of Rs. 40/ per KVA.

The writ petitions, out of which the present appeals arise, were filed
by the owners of arc/induction furnaces challenging the aforesaid enhan-
cement of the minimum consumption guarantee charges.
F
The result of the enhancement by the aforesaid Resolution of the
:--
D.M.C. was that for demand charges for the first 1000 KVA of billing
demand for the month, instead of tariff being Rs. 40 per KVA or part
....
thereof it was enhanced to Rs. 340 per KV A or part thereof.
G It is common case that all the writ petitioners had entered into
agreements with the D.M.C and clause 15(a) thereof provided as follows:-
~
"15(a) The consumer shall pay each month to the Undertaking
for electrical energy supplied during the preceding month such
H amount as shall be calculated and ascertain~d in accordance
ASHOK SOAP FACTORY v. M.C.D. [DAYAL, J.] 135

with the Rate-Schedule L.I.P. attached hereto. The rates con- A
tained in the schedule are those in force at the time of executing
.. this agreement. The consumer shall be eligible for whatever
reduction or rebate as may be granted on the rates and shall
be liable to pay for whatever surcharge or increase in these rates
as may from time to time be levied or made by the Undertaking.
B
Any other method of charging decided by the Undertaking shall
also be applicable."
._.,-/.
The rate schedule of the L.I.P. consumers, which was part of the agree-
ment, for the year 1988-89 has already been reproduced above.

Various contentions were urged by the appellants before the High
c
Court. One of the main contentions raised was that the provisions of
section 21 of the Indian Electricity Act, 1910 (hereinafter referred to as
. 'the 1910 Act') apply and the decision to increase minimum charges is
contrary to section 21(2) of the said Act.
D
It was submitted that changing the rates at which minimum charges
are to be realised amounts to altering or amending the conditions of supply
and this could not be done without the previous sanction of the State
Government. Admittedly the State Government had not, in the present
case, granted the approval for the change in the rates and, therefore, the
E
proposed increase was in violation of section 21(2) of the 1910 Act. The
· High Court rejected this submission and held that in case the local
authority. was the licensee, no prior approval of the Government for
changing the rates is required in law.

It was next submitted before the High Court that the minimum F
guarantee charges can only be levied under the proviso to section 22 of the
1910 Act. It was submitted that under the proviso to section 22 the licensee
can only charge that amount which will give it a reasonable return on .{he
capital expenditure and cover standing charges incurred by it in order to
meet the possible maximum demand. According to the learned counsel the G
respondents have to satisfy the Court that the minimum demand charges
have been raised to Rs. 340 from Rs. 40 and that the additional capital
expenditure had been incurred which would justify Rs. 340 being charged
as a reasonable return on the said capital expenditure.

The High Court rejected this submission and took the view that apart H
136 SUPREME COURT REPORTS [1993) 1 S.C.R.

A from proviso to section 22, the agreement between the parties justified the
claim of the D.M.C. for minimum consumption guarantee charges.

The next submission of the appellants was that the tariff viz-a-viz a
consumer owning arc furnace was violative of Article 14 of the Constitution
in as much as the other bulk consumers in the category of LIP consumers
B have not been so treated. The High Court rejected this contention also and
dismissed the writ petitions.

Before us also the arguments have been uged by the various counsel
who appeared during the hearing of the batch of the appeals on similar
c lines.

Before considering the first submission based on the provisions of
section 21(2) of the 1910 Act it would be useful to notice the provisions
thereof. Section 21(2) reads as follows :-

D "21(2} A licensee may, with the previous sanction of the State
Government, given after consulting the State Electricity Board
and also the local authority, where the licensee is not the local
authority, make conditions not inconsistent with this Act or with ·
his licence or with any rules made under this Act to regulate
his relations with persons who are or intend to become con-
E
sumers, and may, with the like sanction given after the like
consultation, add to or alter or amend any such.conditions; and
any conditions made by a licensee without such sanction shall
be null and void :

F Provided that any such conditions made before tha 23rd day
of January, 1922 shall, if sanctioned by the State Government
on application made by the licensee before such date; as the
State Government may, by general or special order, fix in this
behalf, be deemed to have been made in accordance with the
provisions of this Sub-section."
G I
It will be noticed that this provision is applicable to the licensees
other than the local authorities. "Licensee" as defined in the 1910 Act in
section 2(h) means 'any person licensed under part II to supply energy'.
The D.M.C., which is the licensee in the present case is not a licensee
H licensed under part II to supply energy. D.M.C. is licensee by virtue of the
ASHOK SOAP FACTORY v. M.C.D. [DAYAL, J.] 137

provisions contained in the Delhi Municipal Corporation Act, 1957. A
Coming to the second submission urged before the High Court the
provisions of section 22 of the 1910 Act may he noticed :

"22. Obligation on licensee to supply energy - where energy is
supplied by a licensee, every person within the area of supply B
shall, except insofar as is otherwise provided by the terms and
conditions of the licence, be entitled, on application, to a supply
on the same terms as those on which anyother person in the
same area is entitled in similar circumstances to a correspond-
~ ru~: c
Provided that no person shall be entitled to demand, or to
continue to receive; from a licensee a supply of energy for any

-\ premises having a separate supply unless he has agreed with
the licensee to pay to him such minimum annual sum as will
give him a reasonable return on the capital expenditure, and D
will cover other standing charges incurred by him in order to
meet the possible maximum demand for those premises, the
sum payable to be determined in case of difference or dispute
by arbitration.11

The reliance before us was placed by the learned counsel for the E
appellants on the proviso to section 22. It will be noticed that the proviso
talks about 'a separate supply unless he has agreed with the licensee to pay
him such minimum annual sum'. In the present case there is no question
of any separate supply or any agreement in relation to minimum annual
sum. Section 22 deals with totally different sitnation and has nothing to do F
with the minimum consumption guarantee charges provided as part of the
tariff which inturn was part of the agreement between the parties.

In the present case, on facts, the challe.l)ge is to the tariff. As stated
above, the tariff is the two part tariff system. The two parr tariff system is
comprised of two charges - (i) minimum consumption guarantee charges G
called demand charges and (ii) energy charges for the actual amount of
energy consumed. Under this system an LIP consumer pays a minimum
guarantee consumption charges at the rate fixed by the D.M.C. If the LIP
consumer does not consume the specified minimum quantity of electricity
or no energy at all even then he has to pay minimum consumption guaran- H
138 SUPREME COURT REPORTS [1993] 1 S.C.R.

A tee charges. But in case the consumer consumes more dectricity than the
minimum, then the consumer pays the electricity charges for the actual
consumption of electricity beyond the minimum consumption guarantee
charges, in such a manner that minimum consumption guarantee charges
are merged in the total bill for electricity consumed. In other words, if a
consumer consumes more than the specified minimum quantity of
B
electricity then, in effect, he will pay for electricity which is actually
consumed by him. As stated earlier the appellants have obtained licenses
for the supply of electricity to a sanctioned load of more than 100 KW and
they fall in the category of LIP and the two part tariff is applicable to them.
For the period 1985-86 to 1988-89 the respondents had fixed rates of
c minimum consumption guarantee charges at the rate of Rs. 40 per KVA
for 1000 KVA and Rs. 38 per KVA for consumption above 1000 KVA.

We had already noticed the reasons which persuaded the D.E.S.C.
to justify & recommend the increase in minimum consumption guarantee
D charges to the D.M.C. The commercial losses mentioned in the letter of
the General Manager were attributed to pilferage/fraudulent abstraction of
energy etc. The minimum consumption guarantee charges being quite low
also attributed to the tendency of fraudulent abstraction of energy and it
was after giving a serious thought to reduce the pilferage/fraudulent'
abstraction of energy, the D.M.C. felt desirable to revise the rate of
E minimum consumption guarantee charges to a reasonable level so that
consumers are not tempted to adopt such unfair m~ans and the rates are
commensurate with the fll<ed expenditure being measured by the undertak-
ing. The reasons for the revision of minimum consumption charges, in
resf'('Ct of arc/induction furnaces, were that in many instances it was
F noticed that meters where bulk supply were made were found to be
defective and the consumption recorded was found to be extremely low
causing loss of huge revenue. The arc/induction furnaces normally run
continuously and, therefore, it was justifed to increase the rate of minimum
consumption guarantee charges. The variation in the electricity consumed
G by different consumers indicated that the charge of pilferage of electricity
and gross under-utilisation or consumption of electricity compared to the
sanctioned load was not without foundation. The respondents had placed
on record a tabulated statement of the consumers using induction furnaces
before the High Court. If we look at the said Chart reproduced in the
judgment of the High Court under appeal it deals with 52 consumers
H including most of the appellants. This statement shows large variation of
ASI-!O~K SOAP FACTORYv. M.C.D. [DAYAL, J.] 139

the electricity consumed, particularly at serial Nos. 2, 13, 15, 26 & 44. If A
we look at consumer at serial No. 14 it shows that the unit .worked only for
29 hours in the whole month as per the consumption per unit per month.
Whereas the unit at serial No. 26 ·had a sanctioned load of 1573.11 KWS,
the approximate number of hours worked by it in a month were 106 i.e.
little more than 4 days in month. It is surprising that the units are still
surviving by working for ·a short period. On the assumption that the
B
electricity consumed is as per the sanctioned load the approximate number
of hours for which the induction furnaces have been worked in a month
has been stated in the said statement. There was thus a reasonable basis
to assume theft by substantial number of arc/induction furnaces consumers.
It will be noticed that consumer contracts for a minimum supply of C
electricity of certain dimensions and the D.M.C. which is licensee in the
present case, has to buy energy by way of bulk supply from outside sources
and has to keep it readily available for the consumer for the )Vhole year
round. Surely the consumer, who contracts for such high quantity of energy,
does so. because of its need and not for keeping it as stand by, without D
paying for it. No licensee can possibly keep such enormous quantity of
electricity in reserve for a consumer, month after month, without its con-
sumption. That is why in the tariff, which was part of the agreement, for
LIP consumers there was two part tariff system - partly minimum consump-
tion guarantee charges and partly for actual energy consumed.
E
It was also stipulated that the minimum consumption guarantee
charges would not be payable if a consumer utilises or consumes 60% of
the sanctioned load. The rate per unit had not been changed. It was only
the minimum guarantee charges which has been revised. If a consumer
consumes more than 60% of the sanctioned load, then he is not adversely F
-~
affected by the revision of the minimum demand charges from Rs. 40/- per
KVA per month to Rs. 340/- per KVA per month. It is difficult to
·appreciate or understand how the manufacturers using arc/induction fur-
·naces could have such variation in the consumption of electricity, as
indicated in the tabulated statement, except to suggest that there was large
scale pilferage Qf electricity. It is not easy to accept that induction furnaces G
having sanctioned loads of more than 1000 KW consuming electricity, if
converted into approximate number of hours worked in a month at the
maximum load, being as little as 18.1 hours especially when there were
instances of other induction furnaces consuming far more number of units
per month. The respondents had to keep in readiness the supply of energy H
......
140 SUPREME COURT REPORTS [1993] 1 S.C.R.

A as per the sanctioned load of various consumers and were incurring expen-
diture for the generation, supply or purchase of the same. When the
consumers were not paying for it, the respondents obviously had no option
but to revise the minimum demand charges so as to cover up and make
good the generating and supply costs.

B Apart from ihat the fixation of tariff is a legislative function and the
only challenge to the fixation of such levy can be on the ground of
unrea>onableness or arbitrariness and not on demonstrative grounds in the
sense that the reasons for the levy of charge must be disclosed in the order
imposing the levy or disclosed to the court, so long as it is based on
c objective criteria.

In the present case the respondents themselves have placed figures
-
to demonstrate the formula on the basis of which the rate of Rs. 340 per
KV A has been fixed. The formula shows that if 60% of the load sanctioned
is utilised then there is no unreasonableness or excessiveness in the tariff.
D It was explained that if the furnaces in question work for 24 hours a day
for 25 days in a month at a load factor of 60% the consumption against 1
KW would be equal to 1 x 24 x 25 x .60 = 360 units. Over all enrgy
consumption rate (demand charges proportionate to one unit + per unit
energy rate) is Rs. 1.10 per unit. The total amount per.KW per month =
E 360 x 1.10 = Rs. 396. Again the consumption per KVA at the rate of 0.85
(power factor) would come to 306 units and a total amount per KVA per
month at the rate of Rs. 1.10 per unit would come to Rs. 336.60 ps. i.e.
rounded to Rs. 340 for the purpose of minimun: consumption guarantee
charges.

F We are thus satisfied that the recommendations of the D.E.S.C. were
justified on facts and were rightly accepted by the D.M.C. in raising the
minimum consumption guarantee charges lo Rs. 340 per KV A per month
for the first 1000 KVA which are neither unreasonable nor arbitrary.

G Coming to the plea of discrimination it will be noticed that as bulk
consumers belonging to LIP category the consumers of arc/induction fur-
naces are of a class by themselves and in any case the revision is as per the
agreement between the licensee and the consumers which is neither un-
reasonable nor arbitrary and thus the plea of discrimination has no merit.

H The tariff was fixed by D.E.S.C. with the approval of the D.M.C. in
ASHOK SOAP FACTORY v. M.C.D. [DAYAL, J.) 141

view of the power conferred under section 283 of the Corporation Act. A
Again in view the proviso to Section 277 of the Corporation Act no
arguments were addressed on various clauses of the Schedule to the Indian
Electricity Act, 1910.

There is thus no merit in these appeals and the same are accordingly
dismissed with costs. B
N.P.V. Appeals dismissed.

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