Holding

Tariff revisions by the State Electricity Board are valid despite non‑consultation of the Consultative Council, and the Board may generate a reasonable surplus without a specified quantum; the revisions are neither arbitrary nor discriminatory and therefore stand.

Summary

The appellants, industrial electricity consumers, challenged the Andhra Pradesh State Electricity Board’s upward revision of high‑tension tariffs and the imposition of a fuel‑cost adjustment charge. The Supreme Court held that the Board’s power to fix tariffs under s.49 of the Electricity (Supply) Act, 1948, remains valid even without prior consultation of the State Electricity Consultative Council, and that the Board may generate a reasonable surplus without a specific surplus being prescribed by the State Government under s.59. The Court found that the surplus generated was not extravagant, the tariff revision was not arbitrary or discriminatory, and the fuel‑cost adjustment clause applied to power‑intensive consumers. Consequently, the appeals were dismissed and the interim orders in favour of the appellants were vacated.

Issues considered

The validity of tariff revisions made without prior consultation of the State Electricity Consultative Council under s.16.
Whether the Board can adjust tariffs to generate a surplus in the absence of a surplus specification by the State Government under s.59.
Whether the surplus generated is so extravagant as to render the tariff revision arbitrary and violative of the Board’s public‑utility character.
Whether the fuel‑cost adjustment charge levied only on high‑tension consumers amounts to unreasonable discrimination.
Whether the fuel‑cost adjustment clause in the H.T. tariff applies to power‑intensive consumers.
Whether directions issued under s.78‑A of the Act are binding on the Board.
The extent of judicial review over tariff fixation under the Electricity (Supply) Act.

Legislation cited

Electricity (Supply) Act, 1948s. 16, s. 49, s. 4A, s. 59, s. 61, s. 63, s. 67, s. 67A, s. 68, s. 78-A
Electricity (Supply) Amendment Act, 1978 (Act No. 23 of 1978)
Electricity (Supply) Amendment Act, 1983 (Act No. 16 of 1983)

Subjects

electricity tariffElectricity (Supply) Actsurplus generationfuel cost adjustmentjudicial reviewpublic utilitydiscriminationconsultative councilprice fixationadministrative law

Judgment

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

MAY 2, 1991

[M.N. VENKATACHALIAH, J.S. VERMA AND B
N.D. OJHA, JJ.]

Electricity (Supply) Act, 1948: Ss. 4A, 16, 49, 59, 61, 63, 67,
67A, 68, 78-A-Orders No. 1014 and No. DEJCOMLJIV/2250/83/l
dated 13.12.1983 and Memo dated 18.11.1975.

S. 49-Tarzffs-Power of fixation-No unreasonable preference c
shall be shown to any person.
S. 16--Electricity Tariff-Revision-State Electricity Consulta-
tive Council-Non-consultation by State Electricity Board-Validity of.
S. 59-State Electricity Board-Finance-Tariff-Generation of D
surplus-Non-specification of quantum by _State Government-
Whether board can adjust its tariffs to generate a reasonable surplus.

Whether the ·surplus generated could be called extravagant.
Whether revision of tariffs fall within the scope of judicial review.
E
Fuel cost adjustment'-Charged only from particular category of
consumers-Whether reasonable.

S. 78A-Tariffs-Directions by State Government-Whether
__. . binding on the Board.
F
Administrative Law: Delegated legislation-'Laying procedure'
-Placing Electricity Board's annual financial statement u/s 61 of the
Electricity (Supply) Act before the Legislature-Whether effectively
controls exercise of Board's delegated power.

The appellants are H. T. electricity consumers of various catego- G
ries in the State of Andhra Pradesh. The respondent-State Electricity
-i Board (the Board), by its orders B.P. Ms. No. 1014 dated 13.12.1983
revised upwards the tariffs for various categories of consumers includ-
ing H. T. categories 1 (lndustrial) and II (Non-Industrial); and by
Memo No. DE/COML/IV/2250/83/I of the same date it revised upwards
the electricity tariffs for highly power intensive industries falling under H

643
644 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

H.T. Category III. Tariffs consisted of three parts. The said three
A
categories of H.T. consumers fell in Part A. H.T. consumers availing
supply of electricity for irrigation and agricultural purposes were
~
included in part B. Part C provided for miscellaneous and general
charges. Tariffs were not revised for consumers availing H. T. supply for
purposes of irrigation and agriculture falling in Part B or L. T. supply
B for domestic cottage industries, public lighting and small poultry farms
units.

Besides the energy charges, the H. T. consumers included in Part
A were also required to pay at different rates effective from 1.9.1982 <-
an additional charge levied as 'fuel adj_ustment charges'; and some
amount as 'voltage surcluuiled' in accordance with the terms of the agree-
c ment entered into by the individual consumers with the Board.

The writ petitions filed by the appellants challenging the said
upward revision of the Electricity Tariffs were dismissed by the High
Court upholding the revision of tariffs made by the respondent-Board.
D Aggrieved the appellants preferred appeals by special leave to this
Court.

It was contended on behalf of the appellants that: ( 1) the upward
revision of tariffs by the State Electricity Board was invalid being made
without prior consultation with the State Electricity Consultative
E Council as envisaged by s. 16 of the Electricity (supply) Act, 1948; (2)
without specification of any surplus by the State Government the Board
had no power to adjust its tariffs in a manner which resulted in general-
ing any surplus; (3) there is discrimination in recovery of the entire run . ~

cost adjustment from the H.T. consumers alone; (4) the upward hike of
the tariffs for the H. T. consumers including power intensive consumers
F was arbitrary and discriminatory inasmuch as it was not related to the
cost of generation and was based on irrelevant factors; and (5) and the
Board had acted with profit motive losing its public utility character.
Learned counsel representing the power intensive consumers also con-
_,tended that in the absence of a clause relating to fuel cost adjustment in
the G.Os. issued in respect of the power intensive units, they could not
~
G be governed by the clause of fuel cost adjustment made applicable to the ~

H. T. tariffs.

Dismissing the appeals, this Court,

HELD: 1.1 The power of i1XBtion of tariffs in the Board is pro-
H vided by s. 49 of this Supply Act whch requires the ilXBtion of uniform
HINDUSTAN ZINC v. A.P.S.E.B. 645

tariffs ordinarily having regard particularly to the specified factors and
A
enables fixation of such tariffs for any person having regard to the
factors expressly stated and any other relevant factors providing
further that no unreasonable or undue preference shall be shown to any
person by the Board in exercise of its powers of fixing the tariffs. S. 59,
requiring the Board to adjust the tariffs for the purpose of its finance is
to be read along withs. 49. [667B-C; 668B-C] B

1.2 The common premise for the purpose of the instant case that
the revision of tariffs by the State Electricity Board is a question of
·-, policy may indicate that it would be open to the Consultative Council to
advise the Board also on the question of revision of tariffs, and if such
advice is given, then the Board must consider the same before taking
the final decision. That, however, does not necessarily mean that where C
no such advice was taken from the Consultative Council or was
rendered on account of the absence of any meeting during the relevant
period, it would necessarily render invalid the revision of tariffs made
by the Board. [664A-B]
D
--· Though it is advisable to seek advice of the Con;'Ultative Council
before revision of the tariffs yet failure to do so does not result in
invalidation of the revised tariffs. This consequence appears to be the
logical and reasonable view to take of the requirement of s. 16 along-
with other provisions of the Act. [666A·B]
E
1.3 The consequence of non-compliance of s. 16 is nofprovided,
and the nature of function of the Consultative Council and the force of
/·. its advice being at the best only persuasive, it cannot be said that revi-
sion of tariffs without seeking the advice of the Consultative Council
renders the revision of tariffs itself invalid. [6648-C]
F
1.4 It is also significant !bat the annual financial statement con-
taining ail particulars relating to revision of tariffs is required to be
submitted to the State Government in February each year and the State
Government is required after receipt of such statement to cause it to be
laid on the table of the House or Houses of the State Legislature and the
said statement is open· to discussion therein. The Board is bound to take G
into consideration any comments made on the said statement in the
State Legislature. The 'laying procedure' before the legislature effec-
tively controls the exercise of the delegated power lof the Board. Thus
there is ample provision for discussion on the revised tariffs in the State
Legislature with the Board being bound to take into consideration any
comments made thereon. [664C-D; 666A] H
646 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

A Kera/a State Electricity Board v. M/s. S.N. Govinda Prabhu &
Bros. & Ors., [1986] 4 S.C.C. 198, relied on.

2.1 Mere generation of surplus by the Board as a result of adjust- .
ing its tariffs when the quantum of surplus has not been specified by the
State Government after the 1978 amendment of s. 59 of the Act, cannot
B invite any criticism unless it is further shown that the surplus generated
as a result of the adjustment of tariffs by the Board has resulted in the
Board acting as a private trader shedding off its public utility char-
acter. If the profit is made not merely for the sake of profit, but for the
purpose of better discharge of its obligations by the Board, it cannot be ,-
said that the public enterprise has acted beyond its authority. [669C-E J
c
2.2 The general principle for the Boards finance indicated by
s. 59 is that prior to the 1978 amendment, tariffs could be adjusted to
avoid any loss, but as a result of the shift made by the 1978 amendment
the power could be exercised to generate a surplus and when the State
Government specified the amount of surplus then the Board was bound
D to adjust the tariffs to ensure generation of the specified surplus. How-
ever, generation of a reasonable surplus in any year of account without
specification of the surplus amount by the State Government was not
.-
contra-indicated in the provision inasmuch as the duty to generate a
surplus was implicit with the added obligation to ensure generating
surplus to the extent specified by the State Government when it was so
E specified by it. It cannot be accepted as a reasonable view that in the
absence of specification of the surplus by the State Government, the
Board could not adjust its tariffs to generate even a reasonable surplus
in any year of account. [668E-GJ . ---
2 .3 In the instant case the Board showed that the surplus result-
F ing from upward revision of tariffs applicable to the H. T. consumers
was for the purpose of better discharge of its other obligations under the
Supply Act and in effect the same has merely resulted in a gradual
withdrawal of the concessional tariffs provided earlier to the power r
I
intensive consumers which did not in its opinion require continuance of
!
the concessional tariffs any longer. It was not proved that this assertion
G of the Board was incorrect or there was any reasonable basis to hold
that the upward revision of tariffs applicable to H. T. consumers was
merely with a desire to earn more profits like a private trader and not to
generate surplus for utilisation of the funds to discharge other obliga-
~
-
tions of the Board towards more needy consumers, such as agri-
culturists, or to meet the needs of expansion of the supply to deserving
H areas. I669E-G I
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.] 647

3.1 The H. T. consumers, including the power intensive con- A
somers, are known power guzzlers and in power intensive industries,
electricity is really a raw material. This category of consumers, there-
fore, forms a distinct class separate from other consumers like L. T.
consumers who are much smaller consumers. There is also a rational
nexus of this classification with the object sought to be achieved.
B
Moreover, the power intensive consumers have been enjoying the
benefit of a concessional tariff for quite some time, which tO!' is a
relevant factor to justify this classification. Placing the burden of fuel
cost adjustment on these power guzzlers, who had the benefit of conces-
~,
sional tariffs, for quite some time and have also a better capacity to pay,
cannot, therefore, be faulted since the consumption in the power inten-
' sive industries accounts for a large quantity. [670B-C] c
3.2 It is not unreasonable to take the view that the thermal power
has become costlier on account of the increase in fuel cost and could
notionally be allocated to the consumption by H.T. and power Intensive
consumers and, therefore, the fuel cost adjustment is made applicable
D
to them alone. [671E-F]
-,
4.1 The Court would not strike down the revision of tariffs as
arbitrary unless the resulting surplus reaches such a height as to lead to
the inevitable decision that the Board has shed Its public utility char-
acter and is obsessed by the profit motive of private enterpreneur in
order to generate a surplus which is extravagant. [672A-B] E

-·
4.2 The surplus generated by the Board as a result of revision of
tariffs during the relevant period cannot be called extravagant by any
standard to render it arbitrary permitting the striking down of the
revision of tariffs on the ground of arbitrariness nor is it discrimina-
tory. It was pointed out on behalf of the Board that its action was based F
on the opinion of Rajadhyaksha Committee's report submitted in 1980
and the formula of fuel cost adjustment was on a scientific basis linked
to the increase in the fuel cost. This is a possible view to take and,
therefore, the revision of tariffs by the Board does not fall within the
available scope of judicial review. [672C-D]
~ G
Kera/a State Electricity Board v. M/s. S.N. Govinda Prabhu and
Bros. & Ors., [1986] 4 S.C.C. 198, relied on.

Shri Sitaram Sugar Company Limited & Anr. v. Union of India &
Ors., (1990] 3 S.C.C. 223, followed.
H
648 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

5. It cannot be said that the term relating to fuel cost adjustment
A
had no application to the power intensive consumers during the rele·
vant period. The Memo dated 18.11.1975 did not merely extend the
non-specified 'terms and conditions of supply' applicable to normal
H. T. consumers to the power intensive consumers but also "other
charges" which were merely illustrated by the words, "such as Misc.
B charges, terms and conditions of supply not mentioned herein". This
express provision in the said Memo clearly provided that except for the
provisions specifically made for power intensive consumers, in respect
of all other provisions the power intensive consumers were to be gover·
ned by the provisions, by whatever name called, applicable to the nor-
mal H.T. consumers. However in the bills issued to the power inten·
sive consumers the terms relating to fuel cost adjustment was specifi-
c cally indicated. [673D-H; 674A]

Nav Bharat Ferro Alloys Ltd. v. A.P.S.E. Board Hyderabad,
AIR 1985 A.P. 299, approved.

D CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
2567-70 of 1985.

From the Judgment and Order dated 3.4.1985 of the Hyderabad
High Court in Writ Petition No. 9403 of 1984.

E Kapil Sibal, Additional Solicitor General, G.L. Sanghi, Anil
B. Diwan, G. Ramaswamy, P.A. Choudhary, Kailash Vasudev,
Naunit Lal, M.J. Paul, C.S. Vaidyanathan, U.K. Khaitan, Praveen
Kumar, S. Murlidhar, Vineet Kumar, Vinoo Bhagat and Mukul
Mudgal for the Appellants.

F Shanti Bhushan, V.R. Reddy, Rajendra Choudhary, S. Thanan·
jayan, K. Ram Kumar for the Respondents.

V.B. Saharya for the Intervenor.

The Judgment of the Court was delivered by
G
VERMA, J. These appeals by special leave are by several indust-
rial concerns against the Andhra Pradesh State Electricity Board
(hereinafter called 'the Board') challenging the common judgment of
the Andhra Pradesh High Court in writ petitions filed by these con-
cerns challenging the revision of the electricity tariffs by the Board by
H its proceedings contained in B.P. Ms. No. 1014 (Commercial) dated
·HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.J 649

13.12.1983 which came into force on 15.1. 1984. Prior to this revision,
A
the tariffs were governed by B.P. Ms. No. 418 (Commercial) dated
12.1.1981. On 13.12.1983, two separate orders were issued by the
Board revising the various tariffs. By one of them, namely, B.P. Ms.
No. 1014, the tariffs for various categories of consumers including
H. T. categories I and II were revised. By the other order of the same
date, namely, Memo No. DE/COML/IV/2250/83/I, the tariffs for B
highly power intensive industries were also revised upwards. Out of
the appellants, it was applicable to five units, namely, ( 1) Nav Bharat
Ferro Alloys Ltd., (2) Andhra Sugars Ltd., (3) Ferro Alloys Corpora-
tion Ltd., (4) Grindwell Norton Ltd., and (5) A.P. Carbides Ltd. This
upward revision of tariffs made by the Board by its two orders dated
13, 12.1983 which were made effective from 15.1.1984, was challenged
by the appellants in writ petitions filed in the Andhra Pradesh High c
Court on various grounds. The High Court rejected all the grounds
and dismissed the writ petitions by its common judgment now reported
in A.LR. 1985 A.P. 299. These appeals by special leave are against the
High Court judgment.
D
The appella11.ts are all H. T. power consumers of one category or
other. The tariffs consist of three parts: Part-A, Part-B and Part-C.
Part-A provides for H.T. tariffs; Part-B for L.T. supply; and Part-C
provides, inter a/ia, for miscellaneous and general charges. H.T. con-
sumers in Part-A are broadly classified into three categories: H.T.
Category-I (Industrial); H.T. Category-II (Non-Industrial); and H.T. E
Category-III comprising of power intensive consumers and some
others. The B.oard retained the power to decide in accordance with
the guidelines as to which industries were power intensive and which
were not. This was the position in the tariffs of 1975. Subsequently, the
Board began to deal with the power intensive industries by notifying
tariffs for them separately from time to time. In effect, there were four F
classes of consumers availing H.T. supply; (1) H.T. consumers falling
under H.T. Category-I (Industrial); (2) H.T. consumers falling under
H.T. Category-II (Non-Industrial); (3) H.T. consumers falling under
the category 'power intensive industries'; and (4) H.T. consumers
·• availing supply of electricity for irrigation and agricultural purposes
included in Part-B. The tariffs for these different categories of H. T. G
consumers were enhanced from time to time. For H.T. Category-I
(Industrial), it was 21 paise in 1975, increased to 30 paise in 1979, 33
paise in 1980, 40 paise in 1981 and 48 paise in 1984. Likewise, there
was corresponding increase in the energy rates for H.T. Category-II
(Non-Industrial), being 28 paise, 37 paise, 40 paise, 47 paise and 56
paise. The tariffs for power intensive industries were, however, H
650 SUPREME COURT REPORTS [ 1991] 2 S.C.R.

increased by separate notifications issued by the Board from time to
A
time. It was 11 paise prior to 1975, raised to 12.2 paise in 1977, 16 paise
in 1978, 18.5 paise in September 1979, 21 paise in November 1979, 25
paise in 1980, 32 paise in 1981 and 45 paise in 1984. The H.T. consu- •
mers grouped in Part-B were required to pay 15 paise under the 1975
tariffs and 16 paise thereafter. Besides the energy charges as stated
B above, the H.T. consumers were also required to pay at different rates
effective from 1.9.1982 an additional charge levied as 'fuel cost adjust-
ment charges'. The H. T. consumers were also required to pay some
amount as 'voltage surcharge' in accordance with the terms of the
agreement entered into by the individual consumers with the Board.

The comparison of the aforesaid tariffs shows that the tariffs for
c power intensive industries to begin with were much less than the tariffs
for H.T. Category-I (Industrial) and H.T. Category-II (Non-Indus-
trial). In course of time, the concession in tariffs for the power inten-
sive industries was progressively withdrawn. The concessions were,
however, continued in respect of consumers availing H.T. or L.T.
D supply for purposes of irrigation and agriculture or L.T. supply for
domestic, cottage industries, public lighting and small poultry farming
units. It is the admitted position that the power generaion in the State
of Andhra Pradesh is both hydro and thermal, each source contribut-
ing almost equally to the total power generation in the State. The H. T.
categories have been consuming more than one-half of the total
E power generated in the State against the much larger number of indi-
vidual L.T. consumers availing the remaining power.

The main attacks to the upward revision of the tariffs for H.T.
consumers in the writ petitions before the High Court were: (1) The
Board, as a public utility undertaking, is expected to function in the
F most efficient and economical manner; (2) It cannot plan its activities
with a view to derive any sizeable profits on its undertaking except in
accordance with Section 59 of the Electricity (Supply) Act, 1948
(hereinafter referred to as 'the Supply Act'); (3) The Board could not \
generate a surplus in excess of that specified under Section 59 of the
Supply Act which it had been doing; (4) The Board was preparing its
G financial statements incorrectly in a manner contrary to Section 59 of
t
the Supply Act by improperly taking into account expenses chargeable
to capital by showing such expenses as charged to revenues; (5) The
steep upward revision of tariffs from 1980 made by the Board is
invalid, being arbitrary and in contravention of Sections 49 and 59 of
the Supply Act; and (6) There was no justification for the Board to
H have revised the tariffs either in 1981 or in 1984 or to have levied any
HINDUSTAN ZINC v. AP.SE.~. [VERMA. J.I 651

fuel surcharge in terms of Sections 49 and 59 of the Supply Act. It was
A
also contended that the tariffs revision was made without prior consul-
tation with the State Electricity Consultative Council as required by
Section 16(5) of the Supply Act which also rendered it invalid.

Prior to 30.7.1982, it was usual for the Board to take into account
various escalation charges such as pay revisions and increases in the B
cost of fuel and revise its tariffs from time to time. This was done in
1975 and 1981. Thereafter, the Board took the view that to avoid
making frequent tariff revisions necessitated by frequent escalations in
the cost of fuels like coal and diesel oil, the formula known as "fuel
cost adjustment" be evolved. Accordingly, the Board in its proceed-
ings contained in B.P. Ms. No. 589 dated 30.7.1982, set out the
formula known as "fuel cost adjustment". This formula was in- c
troduced as condition No. 11 in H.T. tariffs Part-A. Ever since
September 1982, all categories ofH.T.'consumers in Part-A including
the power intensive consumers are subject to this condition. Immedia-
tely after 30.7.1982, the fuel cost adjustment was fixed as 2'74 paise
per unit, which was increased gradually to 2.95 paise, 3.79 paise and D
11.68 paise. Thereafter, 3.79 paise was absorbed as part of the tariffs
applicable to these H. T. consumers and the remaining increase of 7 .89
paise alone was indicated as the fuel cost adjustment charges. The
grievance made by all H.T. consumers before the High Court was that:
( 1) the fuel cost adjustment could not be recovered as part of the
tariffs; (2) there is discrimination in recovering the entire fuel cost E
adjustment from H.T. consumers alone; (3) fairness demands that a
reasonable proportion of the burden should be shared also by Part-B
/. consumers; and (4) that fuel cost adjustment charge is excessively
computed.

The High Court rejected all these contentions. It held that this f
was a matter of policy which could be changed from time to time and it
was permissible to gradually withdraw the pre-existing concessional
tariffs given to the power intensive industrit:s for which the tariffs
earlier were much lower as compared to the other consumers and even
after the increase, they were not excessive. It was held that electricity
-;. was a raw material for power intensive industries and no grievance G
could be made against the increase of its cost just as such a grievance
was untenable against increase in the cost of any other raw material.
The challenge on the ground of discrimination was rejected on the
ground that H.T. consumers including power intensive industries
formed a separate class and the reason which justified grant of conces-
sion to them earlier also justified the gradual withdrawal of that H
652 SUPREME COURT REPORTS I 1991] 2 S.C.R.

A concession. It held that prior consultation with the State Electricity
Consultative Council according to Section 16(5) of the Supply Act was
not obligatory before revising the tariffs. The High Court held that the
Board was justified in adjusting its tariffs to ensure progressive
minimizing of losses and the failure of the State Government to sepcify
the surplus it could generate in accordance with Section 59 of the
B Supply Act, did not detract from the Board's power to adjust its tariffs
and generate a surplus on principles of commercial expediency applic~
able to a public utility undertaking. Fixation of tariffs was held to be a
matter of major policy in respect of which the Government can effec-
tively issue directions under Section 78-A of the Act. It was held that
the H.T. consumers including power intensive industries were bound
C to pay according to the revised higher tariffs fixed from time to time
under the agreement as contemplated by Section 49 of the Supply Act.
The condition offued cost adjustment, introduced as condition No. 11
in H.T. tariffs Part-A, was held applicable to power intensive con-
sumers also. An additional argument that this added burden became
unbearable for the power intensive consumers was rejected on the
D ground that such inability of the industry to survive is not a compelling
consideration for deciding the Board's power in adjusting its tariffs.
Accordingly, the High Court dismissed the writ petitions and upheld
the revision of tariffs made by the Board by the impugned B.P. Ms.
No. 1014 (Commercial) dated 13.12.1983 w.e.f. 15.1.1984. The High
Court having refused to grant a certificate of fitness to appeal to this
E Court, the appellants have preferred these appeals by special leave.

It may be mentioned at this stage that the controversy raised in
these appeals was also the controversy in another bunch of civil ap- . "'
peals arising out of a judgment of the Kerala High Court wherein a
similar challenge had been upheld and the Kerala State Electricity
F Board had come in an appeal to this Court. In those matters, the
contention of the Kerala State Electricity Board which would be the
same as that of the Andhra Pradesh State Electricity Board before us,
was accepted and the judgment of the Kerala High Court taking the
view contrary to that of the Andhra Pradesh High Court was reversed
(Kera/a Seate Electricity Board v. M/s. S.N. Govinda Prabhu and Bros.
G andOth~rs., [1986]4S.C.C. 198.)

All the hearing before us, it was contended by Shri Shanti
Bhushan, learned counsel for the Andhra Pradesh State Electricity
Board that the Kerala decision concludes these points against the pre-
sent appellants. On the other hand, Shri G. Ramaswamy and other
H learned counsel, appearing for the appellants, made an attempt to
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.] 653

distinguish the decision in the Kerala case. The question, therefore, is:
A
Whether any ground has been made out by the present appellants to
persuade us to take a view different from the one taken by this Court
in the Kerala case? Before considering the arguments in these appeals,
we would refer to the controversies in the Kerala case and the view
taken therein.
B
The decision in Kera/a State Electricity Board v. Mis. Govinda
Prabhu and Bros. and Others, [1986] 4 S.C.C. 198 arose out of the
decision of the Kerala High Court in a similar situation. The Kerala
High Court struck down the upward revision of tariffs made by the
Kerala State Electricity Board unlike the Andhra Pradesh High Court
which has upheld the upward revision of tariffs in the present appeals.
The main question in the Kerala case also related to the extent of c
authority of the Kerala Board to increase the electricity tariffs under
the Electricity (Supply) Act 1948. The principal ground of challenge
which was accepted by the Kerala High Court was that the Kernla
State Electricity Board acted outside its statutory authority by for-
mulating a price structure intended to yield substantial revenue to D
offset not merely the expenditure properly chargeable to the revenue
account for the year as contemplated by Section 59 of the Supply Act
but also expenditure not so properly chargeable. The Kerala High
Court had held that in the absence of a specification by the Govern-
ment, the Board was not entitled to generate a surplus at all and it
acted entirely outside its authority in generating a surplus to be E
adjusted against items of expenditure not authorised to be met from
revenue receipts. This view of the Kerala High Court was based pri-
marily on the construction made of Section 59 of the Electricity (Sup-
ply) Act, 1948. Accordingly, the Kerala High Court struck down the
upward revision of tariffs made by the Kerala State Electricity Board
in the years 1980, 1982 and 1984. It may here be mentioned that F
Section 59 of the Supply Act, as it stood prior to 1978, was amended by
Act No. 23 of 1978 and thereafter, by Act No. 16 of 1983, which came
into effect from April 1, 1985 only. The Kerala case also was decided
on the basis of Section 59 as it stood amended by the 1978 (Amend-
ment) Act, prior to its amendment w.e.f. April 1, 1985 by Act No. 16
of 1983. For our purposes also, Section 59 as' it stood amended by the G
1978 Act, prior to the 1983 amendment, is relevant.

This Court expressly rejected the submission which had found
favour with the Kerala High Court that in the absence of a specifica-
tion by the State Government, the position would be as it was before
the 1978 amendment, that is, the Board was to carry on its affairs and H
654 SUPREME COURT REPORTS [1991] 2 S.C.R.

adjust the tariffs in such a manner as not to incur a loss and no more.
A
While rejecting the submission, this Court held as under:

"We are of the view that the failure of the government to
specify the surplus which may be generated by the Board
·cannot prevent the Board from generating a surplus after
B meeting the expenses required to be met. Perhaps; the
quantum of surplus may not exceed what a prudent public
service undertaking may be expected to generate without
sacrificing the interests it is expected to serve and without
being obsessed by the pure profit motive of the private
entrepreneur. The Board may not allow its character as a
public utility undertaking to be changed into that of a profit
c motivated private trading or manufacturing house. Neither
the tariffs nor the resulting surplus may reach such heights
as to lead to the inevitable conclusion that the Board has
shed its public utility character. When that happens the
court may strike down the revision of tariffs as plainly
D arbitrary. But not until then. Not, merely because a surplus
has been generated, a surplus which can by no means be
said to be ex~ravagant. The court will then refrain from
touching the tariffs. After all, as has been said by this Court
often enough 'price fixation' is neither the forte nor the
function of the court."
E
Further, it said:

"Turning back to Section 59 and reading it along with
Section 49, 67, 67-A etc. we notice that the Electricity Sup-
ply Act requires the Electricity Board to follow a particular
F method of accounting and it is on the basis of that method
of accounting that the Board is required to generate a surp-
lus. Broadly, Section 59 requires that a surplus should be
left from the' total revenues, in any year of account, after
meeting all expenses properly chargeable to revenues. It
has to be remembered that apart from subventions which
G may be received from the State Government, which
depend entirely on the bounty of the government, the only
revenues available to the Board are the charges leviable by
it from consumers. Bearing this in mind, we may now con-
sider what expenses are properly chargeable to revenues under
the Electricity Supply Act. For this purpose, we may not be
H justified in having recourse to the principles of corporate
HINDUSTAN ZINC v. A.P.S.E.B. {VERMA, J.] 655

accounting or the rules which determine what is revenue A
expenditure under the Income Tax Act. It appears to us that
the Electricity Supply Act prescribes its own sP.,cial princi-
ples of accounting to be followed by the Board ....... "
This Court also held that the prescribing of different tariffs for
high and low tension consumers and for different classes of consumers, B
such as industrial, commercial, agricultural and domestic, appears to
be reasonsable and far from arbitrary and is based on an intelligent
and intelligible differentia. Accordingly, the judgment of the Kerala
High Court upholding challenge to the validity of the upward revision
of tariffs was set aside.
Broadly speaking, the substance of the main arguments advan-
ced before us in these matters was repelled by this Court in the Kerala C
case. However, learned counsel for the appellants attempted to disting-
uish the Kerala decision and also tried to advance some additional
arguments. We shall refer to those arguments presently.
It would be appropriate at this stage to quote the relevant provi·
D
sions of the Electricity (Supply) Act, 1948, with reference to which the
arguments advanced have to be considered. Section 2 of the Act re-
lates to interpretation and give the meaning of he expressions defined
therein. Section 3 deals with the constitution of the Central Electricity
Authority. Section 4-B contains the rule-making power of the Central
Government. Section 5 provides for the constitution and composition
of State Electricity Boards. Secti~n 12 provides for the incorporation E
of the Board. Section 12-A relates to the capital structure of the
Board. Section 78 contains the rule-making power of the State
Government. Section 79 contains the power of the Board to make
regulations. Some of the provisions of the Act which may be quoted in
extenso are as under: '
F
"4A. Directions by Central Government to the Authority.
(1) In the discharge of its functions, the Authority shall be
guided by such directions in matters of policy involving
public interest as the Central Government may give to it
in writing.
G
(2) If any question arises as to whether any such
direction relates to a matter of policy involving public
inters!, the decision of the Central Government thereon
shall be final."
H
xxx xxx xxx
656 SUPREME COURT REPORTS [ 1991) 2 S.C.R.

"16. State Electricity Consultative Council. (1) The
A State Government shall constitute a State Electricity
Consulative Council for the State, and in cases to which
Sections 6 and 7 apply, the State Government concerned
shall constitute such one or more State Electricity Consul-
tative Council or Cuncils and for such areas as they may by
B agreement determine.

(2) The State Electricity Consultative Council shall
consist of the members of the Board and, if there are any
Generating Company or Generating Companies operating
in the State, one representative of the Generating Com-
pany or each of the Generating Companies, to be nomina-
c ted by the Generating Company concerned, and such other
persons being not less chan eight and not more than fifteen
as the State Government or the State Governments con-
cerned may appoint after consultation with such represen-
tatives or bodies of representative of the following interests
D as the State Government or the State Governments con-
cerned thinks or think fit, that is to say, local self-govern-
ment, electricity supply industry, commerce, industry,
transport, agriculture, labour employed in the electricity
supply industry and consumers of electricity, but so that
there shall be at least one member representing each such
E interest in the Council.

(3) The Chairman of the Board shall be ex officio
Chairman of the State Electricity Consultative C.ouncil.

(4) The State Electricity Consultative Council shall
F meet at least once in every three months.

(5) The functions of the State Electricity Consulta-
tive Council shall be as follows:-

(i) To advise the Board and the Generating Company
G or Generating Companies, if any, operating in the
State on major questions of policy and major schemes;

(ii) to review the progress and the work of the Board
and the Generating Company or Generating Com-
panies, if any, operating in the State from time to
H time;
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.] 657

(iii) To consider such other matters as the Board or A
the Generating Company or Gemerating Companies,
if any, operating in the State may place before it; and

(iv) To consider such matters as the State Govern-
ment may by rules prescribe. B

(6) The Board shall place before the State Electricity
Consultative Council the annual financial statement and
supplementary statement, if any, and shall take into con-
sideration any comments made on such statement in the
said Council before submitting the same to the State
Government under Section 61." C

xxx xxx xxx

"49. Provison for the sale of electricity by the Board
to persons other than licensees. (1) Subject to the provi- D
sions of this Act and of regulations, if any, made in this
- .. behalf, the Board may supply electricity to any person not
being a licensee upon such terms and conditions as the
Board thinks fit and may for the purposes of such supply
frame uniform tariffs.
E
(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;
F
(b) The co-ordinated development of the Supply and
distribution of electricity within the. State in the most
efficient and economical manner, with particular
reference to such development in areas not for the
time being served or adequately served by the
licensee;
G
(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. H
658 SUPREME COURT REPORTS [1991] 2 S.C.R.

(3) Nothing in the foregoing provisions of this
A
section shall derogate from the power of the Board, if it
considers it necessary or expedient to fix different tariffs
for the supply of electricity to any person not being a
licensee, having regard to the geographical position of any
area, the nature of the supply and purpose for which supply
B 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." i-

xxx xxx xxx
c
Section 59 prior to 1978

"General principles for Board's finance. The Board
shall not, as far as practicable and after taking credit for
D any subventions from the State Government under Section
63, carry on its operations under this Act at a loss, and shall
adjust its charges accordingly from time to time:

Provided that where necessary any amounts due for
meeting the operating, maintenance and management
E expenses of the Board or for the purposes of clauses (i) and
(ii) of Section 67 may, to such extent as may be sanctioned
by the State Government, be paid out of capital."

Section 59 as amended by Act No. 23 of 1978

F "General principles for Board's finance. (1) The Board
shall, after taking credit for any subvention from the State
Government under Section 63, carry on its operations
under this Act and adjust its tariffs so as to ensure that the
total revenues in any year of account shall, after meeting all
· expenses properly chargeable to revenues, including ...
G operating, maintenance and management expenses, taxes
(if any) on income and profits, depreciation and interest
payable on all debentures, bonds and loans, leave such
surplus, as the State Government may, from time to time,
specify.

H (2) In specifying the surplus under sub-section (1),
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.) 659

the State Government shall have due regard to the availa-
A
bility of amounts accrued by way of depreciation and the
liability for loan amortization and leave

(a) a reasonable sum to contribute towards the cost
of capital works; and
B
(b) where in respect of the Board, a notification has
been issued under sub-section (1) of Section 12:A, a
reasonable sum by way of return on the capital pro-
vided by the State Government under sub-section
(3) of that section and the amount of the loans (if
any) converted by the State Government into capital
under sub-section ( 1) of Section 66A." C

Section 59 as further amended by Act No. 16 of 1983

"General principles. for Board's finance. (1) The D
---! Board shall, after taking credit for any subvention from the
State Government under Section 63, carry on its operations
under this Act and adjust its tariffs so as to ensure that the
total revenues in any year of account shall, after meeting all
expenses properly chargeable to revenues, including
operating, maintenance and management expenses, taxes E
(if any) on income and profits, depreciation and interest
payable on all debentures, bonds and loans, leave such
surplus as is not less than three per cent, or such higher
percentage, as the State Government may, by notification
in the Official Gazette, specify in this behalf, of the value
of the fixed assets of the Board in service at the beginning F
of such year.

Explanation.- For the purposes of this sub-section,

I• "value of the fixed assets of the Board in service at the
beginning of the year" means the original cost of such fixed
assets as reduced by the aggregate of the cumulative depre- G
ciation in respect of such assets calculated in accordance
with the provisions of this Act and consumers' contribution
for service lines.

(2) In specifying any higher percentage under sub-
section .(1), the State Government shall have due regard to H
660 SUPREME COURT REPORTS [1991] 2 S.C.R.

the availability of amounts accrued by way of depreciation
A
and the liability for loan amortization and leave-

(a) a reasonable sum to contribute towards the cost.
of capital works; and

B (b) where in respect of the Board, a notification has
been issued under sub-section (1) of Section 12-A, a
reasonable sum by way of return on the capital pro-

c
vided by the State Government under sub-section (3)
of that section and the amount of the loans (if any)
converted by the State Government into capital
under sub-section (1) of Section 66-A."
-
xxx xxx xxx

"61. Annual financial statement.-(!) In February of
each year the Board shall submit to the State Government
D a statement in the prescribed form of the estimated capital
and revenue receipts and expenditure for the ensuing yeat.

(2) The said statement shall include a statement of
the salaries of members and officers and qther employees
of the Board and of such other particulars as may be
E prescribed.

(3) The State Government shall as soon as may be
after the receipt of the said statement cause it to be laid on
the table of the House, or as the case may be, Houses of the
State Legislature; and the said statement shall be open to
F discussion therein, but shall not be subject to vote.

(4) The Board shall take into consideration any
comments made on the said statement in the State
Legislature.

G (5) The Board may at any time during the year in
respect of which a statement under sub-section ( 1) has been
submitted, submit to the State Government a supplemen-
tary statement, and all the provisions of this section shall
apply to such statement as they apply to the statement
under the said sub-section."
H
xxx xxx xxx
HINDUSTAN ZINC v. A.P.S.E.B .. {VERMA, J.] 661

"63. Subventions to the Board.-The State Govern-
ment may, with the approval of the State Legislature, from A
time to time make subventions to the Board for the pur-
poses of this Act on such terms and conditions as the State
Government may determine."

xxx xxx xxx B

"65. Power of Board to borrow.-(1) The Board may,
from time to time, with the previous sanction of the State
Government and subject to the provisions of this Act and
to such conditions, as may be prescribed in this behalf,
borrow any sum required for the purposes of this Act.
c
(2) Rules made by the State Government for the
purposes of this section may empower the Board to borrow
by the issue of debentures or bonds or otherwise and to
make arrangements with bankers, and may apply to the
Board with such modifications as may be necessary to be D
consistent with this Act, the provisions of the Local
Authorities Loans Act, 1914 (9 of 1914), and the rules
made thereunder as if the Board were a local authority.

(3) The maximum amount which the Board may at
any time have on loan under sub-section ( 1) shall be ten E
crores of rupees, unless the State Government, with the
approval of the State Legislative Assembly, fixes a higber
,maximum amount.

(4) Debentures or bonds issued by the Board under
this section shall be issued, transferred, dealt with and F
redeemed in such manner as may be prescribed."

xxx xx xxx

"67. Priority of liabilities of the Board.-The Board
shall distribute the surplus referred to in sub-section ( 1) of G
Section 59 to the extent available in a particular year in the
following order, namely:-

(i) repayment of principal of any loan raised (includ-
ing redemption of debentures or bonds issued) under
Section 65 which becomes due for payment in the H
662 SUPREME COURT REPORTS [1991] 2 S.C.R.

year or which became due for payment in any previ-
A
ous year and has remained unpaid;

(ii) repayment of principal of any loan advanced to
the Board by the State Government under Section 64
which becomes ciue for payment in the year or which
B became due for payment in any previous year and has
remained unpaid;

(iii) payment for purposes specified in sub-section

c
(2) of Section 59 in such manner as the Board may
decide.

67-A. Interest on loans advanced by State Govern-
-
ment to be paid on_ly after other expenses.-Any interest
which is payable on loans advanced under Section.64 or
deemend to have been advanced under Section 60 to the
Board by the State Government and which is charged to
D revenues in any year may be paid only out of the balance of
the revenues, if any, of that year which is left after meeting
all the other expenses referred to in sub-section (1) of
Section 59 and so much of such interest as is not paid in any
year by reason of the provisions of this section shall be
. deemed to be deferred liability and shall be discharged ir,
E accordance with the provisions of this section in the subse-
quent year or years, as the case may be.

68. Charging of depreciation by Board.-(1) The
Board shall provide each year for depreciation such sum
calculated in accordance with such principles as the Central
F Government may, after consultation with the Authority,
by notification in the Official Gazette, lay down from time
to time.

(2) Omitted

G (3) The provisions of this section shall apply to the
charging of depreciation for the year in which the Electri-
city (Supply) Amendment Act, 1978, comes into force."

xxxxxxxxx

H · "68-A. Directions by the State Govemment.-(1) In
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.] 663

the discharge of its functions, the Board shall be guided by
A
such directions on questions of policy as may be given to it
by the State Government.

(2) If any dispute arises between the Board and the
State Government as to whether a question is or is not a
question of policy, it shall be referred to the Authority B
whose decision thereon shall be final."

We shall first consider the common arguments advanced by the
learned counsel for the appellants in all these matters before taking up
some additional arguments advanced in some of these matters.

The first argument is that the requirement of consultation with
c
the State Electricity Consultative Council before the revision of tariffs
in accordance with Section 16 of the Electricity (Supply) Act, 1948,
not having been made, the upward revision of tariffs is invalid on
account of non-compliance of Section 16 of the Supply Act. It was
urged that revision of tariffs being a major question of policy as D
envi~aged by clause (i) of Sub-section (5) of Section 16, it is one of the
functions of the Consultative Council to advise the Board on this ques-
tion and without such advice of the Consultative Council, the revision
in tatiffs could not be made. It was argued that the consumers' interest
is also represented on the Consultative Council as indicated by Sub-
section (2) of Section 16 providing for its constitution, and therefore, it E
was necessary to know the viewpoint of the consumers through their ·
representative in the Consultative Council before deciding upon an
upward revision of the tariffs for H. T. consumers. Though the Board
may not be bound by the advice of the Consultative Council, yet it was
urged, such consultation with the Council was a condition precedent. It
was suggested that Section 16 must be read with Section 61 of the F
Supply Act which requires the Board to submit to the State Govern-
ment the annual financial statement in February each year.

It is unnecessary in the present case to decide whether the revi-
sion of tariffs falls within the ambit of 'major questions of policy' occur-
ring in Section 16(5)(i) of the Supply Act since the arguments from G
both sides proceeded on the basis that revision of tariffs for the
purpose of this case may be treated as a 'question of policy', which
expression finds place also in Section 78-A of the Supply Act. The
question, therefore, reduces itself to this: Whether the failure of the
Board to place the matter before and seek the advice of the Consulta-
tive Council on this question renders the revision of tariffs made by it H
664 SUPREME COURT REPORTS [1991] 2 S.C.R.

invalid? The common premise for the purpose of this case that revision
A
of tariffs by the Board is a question of policy may indicate that it would
be open to the Consultative Council to advise the Board also on the
question of revision of tariffs, and if such advice is given, then the
Board must consider the same before taking the final decision. That,
however, does not necessarily mean that where no such advice was
B taken from the Consultative Council or was rendered on account of the
absence of any meeting of the Consultative Council during the rele-
vant period, it would necessarily render invalid the revision of tariffs
made by the Board. The consequence of non-compliance of Section ·16
is not provided and the nature of function of the Consultative Council
and the force of its advice being at the best only persuasive, it cannot
be said that revision of tariffs without seeking the advice of the
C Consultative Council renders the revision of tariffs invalid. It is also
significant that the annual financial statement containing all particu-
lars relating to revision of tariffs is required to be submitted to the
State Government in February each year and the State Government is·
required after receipt of such statement to cause it to be laid on the
D table of the House or Houses of the State Legislature and the said
statement is open to discussion therein. The Board is bound to take
into consideration any comments made on the said statement in the
State Legislature. Thus, there is ample provision for discussion on the
revised tariffs in the State Legislature with the Board being bound to
take into consideration any comments made thereon.
E
Shri Shanti Bhushan sought to make a distinction between the
provisions of sub-section (5) of section 16 pertaining to the functions of
the 'Consultative Council' empowering or enabling the Council to
advice the Board on 'major questions of policy' and the provision in
sub-section (6) as to the obligation of the Board to place certain
F matters before the 'Council' to emphasise his point that sub-section (6)
does not envisage any obligation on the part of the 'Board' to place
before the Council the proposal for revision of tariffs. He sought to
distinguish between the functions of the 'Council' to tender advice and
the obligation of the Board to specifically seek and invite such advice.
Shri Shanti Bhushan said that the very concept of consultation does
G imply mandatory obligation or duty attaching the pain of nullity to the .,
transaction.

Provisions of the Electricity Act 1947 in England contain certain
express statutory stipulations as to the scope of the Consultative
Council's functions which do not, in terms, obtain in the Indian
H statute. For instance, Section 7 of the English Act which contemplates
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.) 665

the establishment of 'Consultative Council' specifically provides in
A
Section 7( 4):

"(4) Each of the said Councils shall be charged with the
duties-

(a) of considering any matter affecting the distribution of B
electricity in the area, including the variation of tariffs and
the provision of new or improved services and facilities
within the area, ...

(b) xxx xxx xxx

(c) of considering any matter affecting the variation of any
c
tariff regulating the charges for the provision of bulk sup-
plies of electricity by the Generating Board for distribution
in the area, being a matter which is either the subject of a
representation made to them by consumers or other
persons requiring supplies of electricity in the area, or D
which appears to them to be a matter to which considera-
tion ought to be given apart from any such representation,
and, where after consultation with the Area Board action
appears to them to be requisite as to any such matter, of
notifying their conclusions to the Generating Board;
E
(d) xxx xxx xxx

(rest of the Section omitted as unnecessary)
'
Section 37(1) of the E'.lglish statute again provides:
F
"37· Fixing and variation of tariffs

(1) The prices to be charged by the Generating Boafd for
the supply of electricity by them to Area Boards shall be in
accordance with such tariffs as may be fixed from time to
time by the Generating Board after consultation with the G
Electricity Council; the different tariffs may be fixed for
different Area Boards."

(rest of the Section omitted as unnecessary)

The pattern of the provisions in the Indian statute is quite different. H
666 SUPREME COURT REPORTS [1991] 2 S.C.R.

A The 'laying procedure' before the legislature effectively controls the
exercise of the delegated power of the Board. We are of the opinion
that though advisable yet failure to seek advice of the Consultative
Council before revision of the tariffs does not result in invalidation of
the revised tariffs. This consequence appears to us to be the logical and
reasonable view to take of the requirement of Section 16 along with
B other provisions of the Supply Act.

One of the ·arguments addressed at length before us relates to
Section 78-A of the Supply Act. It was urged on behalf of the appel-
lants that any direction of the State Government relating to tariffs was
on a question of policy within the meaning of Sub-section (!), and,
C therefore, the Board is bound by such direction subject only to the
adjudication, if any, in accordance with Sub-section (2), if any dispute
is raised by the Board in that behalf. It was urged that in the presnt
case the Board was, therefore, bound by the directions of the State
Government granting the concession to the power intensive consumers
since no dispute was raised by the Board in accordance with Sub-
D section (2) of Section 78-A. Learned counsel for the Board did not for
the purpose of this case, dispute this position, but contended that all
directions of the State Government were obeyed by the Board and,
.-
therefore, the question does not really arise. The Board's contention is
that it has acted according to the directions of the State Government
and, therefore, the question of non-compliance with any such direc-
E lions giving rise to the argument based on Section 78-A does not arise.

For consideration of the main controversy, it is advisable at this
stage to deal with Sections 49 and 59 of the Supply Act. Section 49
makes provision for the sale of electricity by the Board to persons
other than licensees. Sub-section(!} starts with the words 'Subject to
F the provisions of this Act and of regulations, if any, made in this
behalf'. This means that the provision made therein is subject to other
provisions of the Supply Act and the regulations. It then proceeds to
say that 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'. Sub-
G section (2) then enumerates several factors which the Board is
required to 'have regard to' in fixing the uniform tariffs. The meaning
of the expression 'have regard to' is well-settled. It means that the
factors specfically enumerated shall be taken into account while
performing the exercise which in this case is the fixation of uniform
tariffs. Ordinarily, therefore, uniform tariffs are required to be framed
H by the.Board for making such supply. Sub-section (3) then proceeds to
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.] 667

say that nothing in the earlier enacted provisions shall derogate from
A
the power of the Board, 'if it considers it necessary or expedient 'to fix
different tariffs for the supply of electricity to any person', having
regard to the geographical position of any area, the nature of the
supply and purpose for which supply is required and 'any other rele-
vant factors'. Sub-section (4) then says that in fixing the tariffs and
terms and conditions for the supply of electricity, 'the Board shall not B
show undue preference to any person'. In other words, Sub-section (4)
provides against any unreasonable discrimination in fixing the tariffs
and terms and conditions for supply of electricity. The power of fixa-
tion of tariffs in the Board is provided in this manner by Section 49 of
the Supply Act which requires the fixation of uniform tariffs ordinarily
having regard particularly to the specified factors and enables fixation
of such tariffs for any person having regard to the factors expressly
c
stated and any other relevant factors, providing further that no
unreasonable or undue preference shall be shown to any person by the
Board in exercise of its powers of fixing the tariffs.

The next important provision is Section 59 of the Supply Act. D
For appreciating the argument based on Section 59, it is necessary to
bear in mind the distinction in Section 59 as it stood prior to 1978, as
amended by Act No. 23 of 1978 and finally as amended by Act No. 16
of 1983, quoted earlier.

Prior to 1978, Section 59 required the Board, as far as practicable E
and after taking credit for any subventions from the State Government
under Section 63, not to carry on its operations under this Act at a loss
and for this purpose, it was empowered to adjust its charges accord-
ingly from time to time. Under the provision as it then existed, the
main thrust was to avoid the Board incurring any loss and for that
purpose, it could adjust its charges accordingly from time to time. F
Section 59 as amended by Act No. 23 of 1978 required the Board, after
taking credit for any subventions from the State Government under
Section 63, to carry on its operations under this Act and to adjust its
tariffs so as to ensure that the total revenues in any year meeting all
expenses properly chargeable to revenue including those specified, left
such surplus as the State Government specified from time to time. The G
shift was, therefore, towards having a surplus as the State Government
specified from time to time. Sub-section (2) then provided guidelines
for the State Government in specifying the surplus under Sub-sectfon
( 1) and mentioned the factors to which regard was to be had for this
purpose. The effect of the amendment made in Section 59 by Act No.
16 of 1983, which came into. effect from 1.4.1985, was to provide for a H
668 SUPREME COURT REPORTS [1991] 2 S.C.R.

minimum surplus of three per cent or such higher percentage as the
A
State Government is to specify in this behalf. In other words, prior to
1978 amendment, the requirement from the Board was to avoid incur-
ring any loss, after the 1978 amendment the shift was towards ensuring
a surplus as specified by the State Government, and after the 1983
amendment the Board is required to ensure a surplus of at least three
B per cent unless the State Government specifies a higher surplus. This is
the scheme of Section 59 and it is Section 59 as amended by 1978 Act
but prior to its amendment by the 1983 Act, with which we are con-

-
cerned in the present case.

It cannot be doubted that Section 59 requiring the Board to
adjust its tariffs for the purpose of Board's finance is to be read along
C with Section 49 which provides specifically for fixation of tariffs and
the manner in which that exercise has to be performed while dealing
with any question relating to the revision of tariffs.

It was argued on behalf of the appellants that Section 59 as
D amended by the 1978 Act did not empower the Board to ad just its
tariffs to generate any surplus unless the surplus had been specified by
the State Government and when specified, the surplus generated could
not exceed the specified surplus. In other words, it was argued that
when the State Government did not specify any surplus, the Board had
no power to adjust its tariffs in a manner which resulted in generating
E any surplus. We are unable to construe Section 59 in this manner. The
general principle for the Board's finance indicated by Section 59 is that
prior to the 1978 amendment, tariffs could be adjusted to avoid any
loss, but as a result of the shift made by the 1978 amendment, the
power could be exercised to generate a surplus and when the State
Government specified the amount of surplus then the Board was
F bound to adjust the tariffs to ensure generation of the specified sur-
plus. However, generation of a reasonable surplus in any year of
account without specification of the surplus amount by the State
Government was not contra-indicated in the provision inasmuch as the
duty to generate a surplus was implicit with the added obligation to
ensure generating surplus to the extent specified by the State Govern-
G men! when it was so specified by the State Government. It cannot be
accepted as a reasonable view that in the absence of specification of
the surplus by the State Government, the Board could not adjust its
tariffs to generate even a reasonable surplus in any year of account.
The effect of 1983 amendment, which came into force from 1.4.1985, is
that the Board is entitled to adjust its tariffs to ensure generating a
H surplus of not less than three per cent even without such specification
HINDU.STAN ZINC v. A.P.S.E.B. [VERMA. J.J 669

by the State Government and when the State Government specifies a
A
higher surplus, then the Board must ensure generating the higher
specified surplus. This is, of course, subject to the accepted norm of
the Board acting in consonance with its public utility character and not
entirely with a profit motive like that of a private trader. The pre-1978
concept of the Board's functioning to merely avoid any loss is replaced
by the shift afier 1978 amendment towards the positive approach of B
requiring a surplus to be generated, the quantum of surplus being
specified by the State Government, with a minimum of three per cent
surplus in the absence of the specification by the Government of a
higher surplus, after the 1983 amendment. This construction made of
Section 59, as it stood at different times in Govinda Prabhu's case
(supra), indicated earlier, cannot be faulted in any manner. In C
Govinda Prabhu's case (supra) the same argument which is advanced
before us was expressly rejected. We are of the same view.

It is, therefore, obvious that mere generation of surplus by the
Board as a result of adjusting its tariffs when the quantum of surplus
has not been specified by the State Government after the 1978 amend- D
:\ ment of Section 59 of the Supply Act, cannot invite any criticism unless
l ... it is further shown that the surplus generated as a result of the adjust-
ment of tariffs by the Board has resulted in the Board acting as a
private trader shedding off its public utility character. In other words,
if the profit is made not merely for the sake of profit, but for the
purpose of better discharge of its obligations by the Board, it cannot E
be said that the public enterprise has acted beyond its authority. The
Board in the present case has shown that the surplus resulting from
upward revision of tariffs applicable to the H.T. consumers made in
the present case, was for the purpose of better discharge of its other
obligations under the Supply Act and in effect, it has merely resulted
in a gradual withdrawal of the concessional tariffs pmvided earlier to F
the power intensive consumers which do not in its opinion require
continuance of the concessional tariffs any longer. In fact, no material
has been placed before us to indicate that this assertion of the Board is
incorrect or there is any reasonable basis to hold that the upward.
revision of tariffs applicable to H.T. consumers is merely with a desire
to earn more profits like a private trader and not to generate surplus G
for utilisation of the funds to discharge other obligations of the Board
towards more needy consumers, such as agriculturists, or to meet the
needs of expansion of the supply to deserving areas. The argument
with reference to statistics that the upward revision of tariffs for the
H.T. consumers results in earning amounts in excess of the cost of
generation does not, therefore, merit a more detailed consideration. H
670 SUPREME COURT REPORTS I 1991] 2 S.C.R.
It was also contended on behalf of the appellants that the genera-
A
tion of electricity by the Andhra Pradesh Electricity Board is both
thermal as well as hydro, the quantity from each source being nearly
equal and the entire electricity generated is fed into a common grid,
from which it is supplied to all categories of consumers. On this basis,
it was argued that the rise in the fuel cost which led to the fuel cost
B adjustment applicable only to the H.T. ronsumers was unreasonable
and discriminatory since the burden of rise in fuel cost was placed only
on the H. T. consumers. In our opinion, this argument has no merit.
The H.T. consumers, including the power intensive consumers, are
known power guzzlers and in power intensive industries, electricity is
really a raw material. This category of consumers, therefore, forms a
C distinct class separate from other consumers like L. T. consumers who
are much smaller consumers. There is also a rational nexus of this
classification with the object sought to be achieved. Moreover, the
power intensive consumers have been en joying the benefit of a conces-
sional tariff for quite some time, which too is a relevant factor to
justify this classification. Placing the burden of fuel cost adjustment on
D these power guzzlers, who had the benefit of concessional tariff for
quite some time and have also a better capacity to pay, cannot, therefore,
be faulted since the consumption in the power intensive industries
accounts for a large quantity.

Shri Sibal submitted that the prescription and imposition of dis-
E parate tariffs, unrelated to the production cost, on a particular section
of consumers would be a case of misplaced philanthropy on the part of
the statutory authority. The Board, Shri Sibal says, cannot use its
powers in order to confer "social or economic benefits on particular
sections of the community" at the cost of the other sections. Shri Sibal
contended that while it may be permissible for the Board to supply
F electricity to the weaker and under-privileged sections of the society at
prices which may even be lower than the costs of generation and dis-
tribution, however subsidies for such social objectives must co1ne
from subventions from Government and should not be made good by
unjustifiable higher charges on other sections of electicity consumers.
Shri Sibal read to us the following passage in Wade's Administrative
G Law (6th Edn.):

"Statutory authorities have sometimes made use of their
wide general powers in order to confer social or economic
benefits on particular sections of the community. In several
such cases they have gone beyond the true limits of their
H powers. The policy of the courts is in general hostile to the
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.I 671

use of public funds, such as rates, for new social experi-
A
ments. Local authorities are subject to a fiduciary duty to
use their revenues with due restraint."
(at p. 424)

After referring to decided cases on the point, the learned author says:
B
" ... The idea that runs through these cases is that public
money must be administered with responsibility and with-
out extravagance. This appears to mean that it is not avail-
able for charity.

The generosity of local authorities, in particular, is c
restrained by the doctrine that they owe a fiduciary duty to
their ratepayers analogous to that of trustees. This means
that, in deciding upon their expenditure, they must hold a
balance fairly between the recipients of the benefit and the
ratepayers who have to bear the cost."
D
(at p. 426)
,._.
Shri Sibal contends that in the case of the class of consumers respecting
which the tariff is enhanced, the enhancement is not justified on the
ground of making good the loss on supply to others at cheaper rates.
The increase is attributable to higher costs of generation of thermal
power. E

It is not unreasonable to take the view that the thermal power
has become costlier on account of the increase in fuel cost and could
notionally be allocated to the consumption by H. T. and power inten-
sive consumers, and, therefore, the fuel cost adjustment is made ap-
plicable to them alone. In our opinion, the argument on behalf of the F
Board in this behalf is not unreasonable.

It was argued on behalf of the appellants with considerable force
that the upward hike of tariff for the H. T. consumers including power
intensive was arbitrary and discriminatory inasmuch as it was not
related to the cost of generation and was based on irrelevant factors. It G
was argued that the L.T. tariffs and agricultural tariffs were relieved of
this burden and the liabilities of the Board even of a capital nature
were taken into account for increasing the tariff applicable to power
intensive units. The contention is that these factors are irrelevant and
do not permit exercise of the power to increase the tariffs. This argu-
ment was considered at length in Govinda Prabhu's case before it was H
672 SUPREME COURT REPORTS [1991] 2 S.C.R.

negatived. We agree with the reasons given in that decision to repel
A
this contention. In Govinda Prabhu, it was pointed out that the Court
would not strike down the revision of tariff as arbitrary unless the
resulting surplus reaches such a height as to lead to the inevitable ~

decision that the Board has shed its public utility character and is
obsessed by the profit motive of private enterpreneur in order to
B generate a surplus which is extravagant. The limited power of judicial
review in the field of price fixation was also indicated. This limited
scope of judicial review in striking down revision of tariffs resulting in

-
generation of surplus applied in Govinda Prabhu cannot be faulted in
view of the long line of decisions of this Court on the point and reitera-
lion of the same principle by a Constitution Bench in Shri Sitaram
Sugar Company Limited and Another. v. Union of India a'nd Others,
c [ 1990] J S.C.C. 223. The surplus generated by the Board as a result of
revision of tariffs during the relevant period cannot be called extra-
vagant by any standard to render it arbitrary permitting the striking
down of the revision of tariffs on the ground of arbitrariness. We have
already indicated that it is not also discriminatory as was the view
D taken in Govinda Prabhu. It has been pointed out on behalf of the
Board that the Board's action is based on the opinion of Rajadhyaksha
Committee's Report submitted in 1980 and the formula of fuel cost
adjustment is on a scientific basis linked to the increase in the fuel cost.
-
This is a possible view to take and, therefore, the revision of tariffs by
the Board does not fall within the available scope of judicial review.
E
One of the contentions of Shri G. Ramaswamy, on behalf of the
appellant was that the G.Os. issued in respect of the power intensive
units amounted to a special tariff for them resulting in their exclusion
from the category of H.T. consumers and, therefore, the clause relat-
ing to fuel cost adjustment inserted by amendment to the H.T. tariffs
F did not apply to the power intensive consumers without insertion of a
similar clause in the special tariff applicable to them. It was urged that
for this reason the power intensive consumers could not be governed
by the clause of fuel cost adjustment made applicable to the H.T.
tariffs. Shri Ramaswamy advanced elaborate arguments to distinguish
"terms and conditions of supply" from "terms and conditions of
G tariff". According to the learned counsel, 8.P.Ms. No. 778 dated .
18.10.1975 excluded tha power intensive units from applicability of the
Notification dated 17.9.1975 to it. It is unnecessary to repeat the
history of the H. T. tariffs by which power intensive tariffs were
separated. It would be sufficient in this context to quote the relevant ,,.
portion of Memo. dated 18.11.1975 which, in our opinion, negatives ...
H this argument. It was provided in this Memo., inter alia as under:
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.J 673

"With regard to other charges, such as Miscellaneous A
charges, terms and conditions of supply, not mentioned
specifically herein, those applicable to normal H.T. con-
sumers will apply."

The expression "other charges" is wide enough to include within B
its ambit the fuel cost adjustment admittedly made applicable to all
H.T. consumers as a result of the escalation in fuel prices. The method
adopted was to prescribe a formula linking it to the increase in fuel
cost so that it was not necessary to revise the tariffs each time as a
result of increase in fuel prices, the same being taken care of by the
relevant factors in the formula for fuel cost adjustment. It was in this
context that Shri Ramaswamy contended that the 'terms and condi-
c
tions of supply' are different from the 'terms and conditions of tariff'
and fuel cost adjustment being a term or condition of tariff and not a
term or condition of supply, the above provision in the Memo dated
18.11.1975 did not have the effect of applying the term relating to fuel
cost adjustment to the power intensive tariff. It is sufficient to state D
that the Memo dated 18.11.1975 did not merely extend the non-
specified 'terms and conditions of supply' applicable to normal H.T.
consumers to the power intensive consumers but also "other charges"
which were merely illustrated by the words following, namely, "such
as Misc. charges, terms and conditions of supply not mentioned
herein". In other words, this express provision in the Memo. dated E
18.11.1975 clearly provided that except for the provisons specifically
made for power intensive consumers, in respect of all other provisions
the power intensive consumers were to be governed by the provisions,
by whatever name called, applicable to the normal H.T. consumers. A
further discussion of this distinction sought to be made by Shri
G. Ramaswamy of the 'terms and conditions of supply' and 'terms and F
conditions of tariff' is, therefore, unnecessary. Shri Ramaswamy also
urged that there was no communication to the appellant of the applica-
bility of the term relating to fuel cost adjustment during the relevant
period which also relieves the power intensive consumers of this liabi-
lity. On the view we have already taken about the applicability of the
term relating to fuel cost adjustment to the power intensive tariffs this G
point is not material. However, it has also been shown that in the bills
issued to the power intensive consumers the same was specifically
indicated. If any communication was needed, this indication in the
bills issued to the power intensive consumers satisfied that require-
ment. We are, therefore, unable to accept the contention that the term
relating to fuel cost adjustment made applicable to H.T. consumers H
674 SL:PREME COURT REPORTS [ 1991] 2 S.C. R. ~-

had no application to the power intensive consumers dunng the reie-
A
vant period.

Shri Kapil Sibal appearing on behalf of some of the appellants
confined the challenge to the mode of exercise of power by the Board.
B He laid great emphasis on the effect of absence of consultation with
the Consultative Committee under Section 16 of the Electricity
(Supply) Act, 1948. He also claimed that the quantum of increase
could at best be justified only to the extent of one-half and no more.
Shri Sibal claimed that certain extraneous factors had been taken into
account for the purpose of revising the tariffs. The irrelevant con-
siderations, according to Shri Sibal, taken into account are the capital
C sums owed by the Board and the overall losses incurred by the Board
which accort:ing to him is impermissible under Section 59 of the
Electricity (Supply) Act. He also argued that the upward revision of
H.T. tariffs is intended to subsidise another class of consumers which
is not permissible. His arguments are already covered by our earlier
discussion. Similarly, the arguments of Shri K.N. Bhat, for the appel-
0
lant in C.A. No. 5379 of !985 to the same effect, need to further .~

discussion. The details of the several factors taken into account for the
revision in tariffs, to the limited extent they can be gone into within the
permissible scope of judicial review in such a matter also do not
require any further consideration.
E
Shri Anil Divan, on behalf of the appellant in C.A. No. 2569 of
1985, submitted that the increase in tariffs for the power intensive unit
in his case was 47 per cent as against 15 per cent for ordinary H.T.
consumers. According to him, even ignoring the FCA, the increase is
40 per cent from 32 paise to 45 paise. This is disputed on behalf of the
F Board. In our opinion, it is unnecessary to go into this question any
further for the reasons already given by us. Shri Divan also contended
that the Electricity Board's stand has been cont1icting at different
stages. In our opinion, any detailed decision on this aspect also is
unnecessary on the view taken by us about the Board's power to revise
tariffs, no case for striking down the same as arbitrary and discrimi-
G natory having been made out. In view of the earlier decision of this
Court in Govinda Prabhu, with the conclusion as well as reasoning of
which we respectfully concur and reiteration of the Court's limited
power of judicial review in Shri Siraram Sugar Company Limited
recently decided by a Constitution Bench, we do not find a.iy reason to
accept any of the arguments advanced on behalf of the appellants by
H their learned counsel. In fact, the decision in Govinda Prabhu con-
HINDUSTAN ZINC v. A.P.S.E.B. [VERMA, J.I 675

eludes the controversy against the appellants and some detailed discus- A
sion by us has become necessary only on account of an attempt on
behalf of the appellants to distinguish the decision and the emphasis
placed on the requirements of Sections 16, 49 and 59 of the Electricity
(Supply) Act.
B
We find no merit in these appeals/special leave petition and the
same are dismissed. All interim orders in favour of the appellants/
petitioner stand vacated. No costs.

"-....._, R.P. Appeals dismissed.