M.P. STATE ELECTRICITY BOARD AND ANR. v. GRASIM INDUSTRIES LTD

Citation: [2007] 11 S.C.R. 1060

Court: Supreme Court of India

Bench: ARIJIT PASAYAT, R.V. RAVEENDRAN

Case summary

M.P. STATE ELECTRICITY BOARD AND ANR. v. GRASIM INDUSTRIES LTD.pdf

Judgment text

M. P. STATEELECTRICITYBOARDANDANR. v. GRASIM INDUSTRIES LTD. NOVEMBER 12, 2007 [DR. ARIJIT PASAYAT AND R. V. RAVEENDRAN, JJ. ] Electricity Supply Act, 1948: ss. 26, 49, 79(/) Deletion ofprovisionfor payment ofinterest on security deposits by electricity Board-Permissibility-Single Judge held that it was permissible-Division Bench ofHigh Court held that view ofSingle Judge was not correct based en paragraph 158 ofthe Judgment in Ferro Alloys case-On appeal, held, Division Bench read only part ofthe paragraph 158 ofthe judgment and not the relevantpart which empowers the Boardto delete such condition-Matter remittedto High Court for fresh consideration-Electricity Act, 1910-Schedule II Clause (6), Clause 21(/) and 21(g). The respondents filed the writ petitions challenging the action of.

appellant-Board in deleting Clauses 21(t) and 21(g) ofthe Board's General conditions for supply ofElectrical energy and the Sale of Miscellaneous and General Charges which pertained to the agreement for payment ofinterest on security deposits. The Single Judge ofHigh Court held thatsuch a course was permissible. Division Bench ofthe High Court held that the view ofthe siqgle Judge was not correct based on paragraph 158 ofthe judgment in *Ferro Alloys case. In appeals to this Court, appellant-Board contended that the Division Bench read only part ofparagraph 158 ofthe judgment and not the relevant part which empowers the Board to delete such a condition. Disposing ofthe appeals and remitting the matter to the High j M. P. STATEELECTRICITY BOARD v. GRASIM ·1061 INDUSTRIES LTD. .... r Court, the Court HELD: 1.

A bare reading ofparagraph 158 ofthe Judgmen~ in *Ferro Alloys case shows that it is permissible for the Board to t$ke a decision relating to the desirability for payment of interest. on security deposits or otherwise. [Para 8) [1065-A, BJ --t 2. Each of the appellants-Electricity Boards is a State witI;iin f the meaning ofArticle 12 ofthe Constitution oflndia. The Boa~ds are different from licensees. Each ofthe Boards has framed its own terms and conditions ofsupply. One such condition relates to security deposits. Such a deposit varies from Board to Board. [Para 9) [1065-B, CJ 3. The Electricity (Supply) Act, 1948 is complementary to t'1. e Electricity Act, 1910. S. 26 of the Supply Act states that the Board shall have all the powers and obligations of a licensee under the Electricity Act. Under the regulations framed by the Board in exercise ofpowers ofs. 49 read with i.

79(j) ofSupply Act, the Boa11d has an obligation to supply energy to the consumer upon such terms and conditions as laid down in the regulations. If, therefore, the regulations prescribed a security deposit that will have to be complied with. Under Clause (6) ofSchedule II ofthe Electricity Act, the requisition for supply ofenergy by the Board is to be made under proviso (a) after a written contract is duly executed with sufficient security. This, together with the regulations would be enough to clothe it with legal sanction. In cases where regulatfons have not been made, Rule 27 of the Rules made under the Electricity Act ,. _, ~ enables the adoption of model form ofdraft conditions of supply. Annexure VI in Clause 14 states that the licensee may require any consumer to deposit security for the payment ofhis monthly bills, for energy supplied and for the value of the meter and other apparatus installed in his premises.

Thus, the Board has the power to make regulations to demand security from the consumers. ... .... ( [Para 10] [1065-D, E, F, G; 1066-A] • 4. The deposit though called security deposit is really an adjustable advance payment ofconsumption charges. The payment -1 i h is in terms ofthe agreement interpreting the conditions ofsupply. This security deposit is revisable from time to time on the basis of average consumption charges depending upon the actual consumption over a period. This is the position under the terms of supply ofenergy with reference to all the Boards. For the supply of electricity, the Board needs fmance for production, supply and other charges necessary for supply ofelectricity. For this purpose, it takes t-loans from various financial institutions. ~ [Paras 11, 12 and 13] [1066-B, C] 5.

Obviously, the Division Bench of the High Court has not considered the effect of the underlined observations of this Court regarding the permissibility to delete provisions for payment on security deposits, as noted in the said paragraph158. This has to be decided on the factual position ofeach case. In the order of the Single Judge which formed the subject matter of challenge in the LPAs, there are certain factual conclusions arrived at by Single Judge. The Division Bench has not dealt with the acc~pt3:bility or otherwise ofthe view and has only referred to paragraph 158 to hold that it cannot be done, overlooking the underlined portion relating to the permissibility for such a course to be adopted. [Para 15] [1067-B, C, D] *Ferro Alloys Corpn. Ltd. v. A. P. State Electricity BoardandAnr. , [1993] Supp 4 SCC 136, referred to. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1019 of 2006. --::.. , -{ From the final Judgment and Order dated 9. 10.

2003 of the High Court ofMadhya Pradesh, Bench at Indore in Writ Petition No. 751 of 1996 (I 07/99). WITH C. A. Nos. 1026-1034 & 3223 of 2006. ~_,... M. L. Verma, C. S. Vaidyanathan, M. L. Jaiswal, A. K. Chitale and Kailash Vasdev, Prakash Shrivastava, Akshat Shrivastava, Pradipti . -; t Shrivastava, Miten Mahapatra, Sakesh Kr. , Rohit Singh, Dharmendra Kumar Sinha, M. R. Vij, Niraj Sharma, Praveen Kumar, K. V. Vishwanathan, Vikram Bajaj, Sanjeev Kumar, Vishal Gupta (for Khaitan & Co. ), S. K. Verma, Sushil Kumar Jain, Sanjay Grover and Nikilesh R. (for Temple Law Firm) for the appearing parties. The Judgment ofthe Court was delivered by I -+ { ~ DR. ARI. TIT PASAYAT, J. 1. In each ofthe appeals challenge is to the order passed by a Division Bench ofthe Madhya Pradesh High Court, Indore Bench, in Letters Patent Appeals/writ petitions filed by the respondents in each case. CA nos. I033 and 1034 of 2006 have been filed with leave to file special leave petition.

It is to be noted that while allowing the writ petitions filed, the High Court placed reliance on the judgment rendered in the Letters Patent Appeal filed under clause 10 of the Letters Patent by Grasim Cement, Raipur, i. e. LPA 20207 of 1997. In the cases where the Letters Patent Appeals were filed, learned Single Judge had decided in favour ofthe appellant-Board. / 2. Challenge in the writ petitions filed, which were decided related to the illegality ofaction taken by the appellant-Board in deleting Clauses 21(±) & 21(g) ofthe Board's General Conditions for Supply ofElectrical Energy and The Sale oflvfiscellaneous and General Charges. These related to agreement for payment ofinterest on security deposits. The notification is dated 24. 1. 1996. Learned Single Judge in the cases which were subject matter of the Letters Patent Appeal held that such a course was permissible. Reliance for the purpose was placed on a decision of this Court in Ferro Alloys C01pn. Ltd v. A. P.

State Electricity Board and )- Anr. , [1993] Supp 4 SCC 136. While deciding the appeals and the writ petitions, the Division Bench held that the view ofthe learned Single Judge is not correct and for the purpose relied on paragraph 158 ofthe judgment in Ferro Alloys case (supra). 3. Mr. C. S. Vaidyanathan, learned senior counsel for the appellant- :... _, Board submitted that the Division Bench read only a part of paragraph 158 ofthe judgment and not the relevant part which empowers the Board to delete such a condition. 4. It is submitted that notification dated 241111996 was issued in [2007] 11 S. C. R. i exercise ofpowers conferred under Section 49 ofthe Electricity (Supply) Act, 1948 (in short the 'Supply Act'). 5. Learned counsel for the respondent, on the other hand, observed that this Court categorically in paragraph 158 noted the lack ofpower to delete the condition relating to payability ofinterest on security deposits. 6.

It is to be noticed that in Ferroy Alloys case (supra), this Court t- '\ was dealing with two categories of consumers in different States. One category related to Boards' regulations for the States ofAndhra Pradesh, Uttar Pradesh and Bihar, where there was provision for payment of interest. In respect ofsome other States such as, Rajasthan and Orissa, there was no such provision. This Court in paragraphs 143 and 145 held that where there is no provision for payment ofinterest, the same is not illegal. We are not concerned with that category ofcases. 7. Since the fate ofthese appeals primarily depends upon the view D expressed by this Court in Ferro Alloys case (supra) at paragraph 158, -'· this paragraph needs to be noticed. The same reads as follows: "In view ofthe above finding, upholding the clause relating to non-payment ofinterest, for example, Rajasthan and Orissa, what is to happen to such ofthose cases where interest is provided like Andhra Pradesh, Uttar Pradesh and Bihar?

In all those cases wherever the Electricity Boards have framed a provision for payment ofinterest after adjusting its finances at a stated rate they cannot be allowed to delete such a clause. The provision for interest has been made by the variou5 Boards having regard to the overall budgetary and financial position and further, keeping in view _j 1 the quantum and mode ofsecurity deposit and billing and recovery practice. Nor again, could the Board withhold payment ofinterest on the basis ofthis judgment. However, ifthere is any change in the circumstances affecting the budgetary and financial position, the Board can examine the case and decide the future course ofaction. But any change resulting in non-payment or >--'--" reduction ofinterest will have to bejustified by cogent reasons and materials having a bearing on the financial position of . ,/ INDUSTRIESLTD. [PASAYAT,J. ] .. } each Board and facts and circumstances ofeach case. " (Underlined for emphasis) 8.

Indisputably a bare reading of paragraph 158 quoted above shows that it is permissible for the Board to take a decision relating to the desirability. for payment ofinterest on security deposits or otherwise. t ' ~" 9. Each of the Electricity Boards before us is a State within the meaning ofArticle 12 ofthe Constitution ofIndia The Boards are different from licensees. Each ofthe Boards has framed its own terms and conditions; ofsupply. One such condition relates to security deposits. Such a deposit varies from Board to Board. For example, under the terms and conditions notified by Andhra Pradesh Electricity Board under Condition No. 28. 1. 1,, the consumer is required to deposit with the Board a sum in cash equivalent to estimated three months consumption charges. In the case ofRajasthan, the security is in the form ofcash for one month and bank, or insurance guarantee for two months. 10.

The legislative sanction behind the power ofthe Board to direct a consumer to furnish security may be examined. It has already been seen ' that the Supply Act is complementary to the Electricity Act, 1910. Section 26 ofthe Supply Act states that the Board shall have all the powers and obligations of a licensee under the Electricity Act. And this shall be · deemed to be a licence ofthe Board for the purpose ofthe Act. Under the regulations framed by the Board in exercise ofpowers ofSection 49 read with Section 790) the consumer is only entitled and the Board has an obligation to supply energy to the consumer upon such terms and conditions as laid down in the regulations. If, therefore, the regulations prescribed a security deposit that will have to be complied with.

It also: requires to be noticed under Clause (6) of Schedule II ofthe Electricity Act that the requisition for supply ofenergy by the Board is to be made under proviso (a) after a written contract is duly executed with sufficient security. This, together with the regulation-;; stated above, would be enough ... --, to clothe it with legal sanction. In cases where regulations have not been made Rule 27 ofthe Rules made under the Electricity Act enables the adoption of model form of draft conditions of supply. Annexure VI in Clause 14 states that the licensee may require any consumer to deposit security for the payment ofhis monthly bills for energy supplied and for the value ofthe meter and other apparatus installed in his premises. Thus, the Board has the power to make regulations to demand security from the consumers. 11. The next question will be: what is the object in demanding security?

The deposit though called security deposit is really an adjustable advance payment ofconsumption charges. The payment is in terms ofthe agreement interpreting the conditions ofsupply. This security deposit is revisable from time to time on the basis ofaverage consumption charges depending upon the actual consumption over a period. This is the position under the terms ofsupply ofenergy with reference to all the Boards. 12. For supply ofelectricity the Board needs finance for production, supply and other charges necessary for supply of electricity. For this purpose, it takes loans from various financial institutions. This is best illustrated ifone looks at the transactions ofPunjab Electricity Board where electric energy is generated through hydro as well as thermal plants for ultimate sale to the consumers. Ofthe total power generated about 50 per cent is through hydro plants. The remaining energy is generated through thermal power plants which are operated on coal/oil.

Due to limited hydro resources within the State ofPunjab the dependency on power on thermal plants is on the increase. The present requirement for working ofthermal plants is more than 52 Iakh tonnes of coal per annum. In addition, 60 thousand kilo litre offurnace oil is required. The coal companies/Coal India Limited together with major suppliers or power plant like Mis. BHEL demand cost ofcoal/spares/ projects in advance for the supply ofmaterial. The Board is also required to purchase power from Central projects N. T. P. C. , N. H. P. C. in order to meet the demand for power by the consumers. For purchase ofsuch power again advance payments are made by the Board. On such advances the Board is not paid interest. The effect is, the Board is obliged to bear the liability ofhundreds ofcrores ofrupees per annum. It has no option but to pay the charges and deposits in order to keep the power available at a level to meet with the demand of the r-... , consumers.

It is the case ofthe Board that it has opened letters ofcredit by making advance deposits in favour of National Thermal Power Corporation and the suppliers. Coal India Limited has also asked the Board I ? M. P. STATEELECTRICITY BOARDv. GRASIM 1067 . / r to open revolving letters ofcredit in favour ofcoal companies/Coal India Limited. Despatch ofcoal is only against the letter ofcredit. 13. In the above premises, it follows that there is nothing to indicate under the scheme ofthe Electricity Act or Schedule VI ofthe Supply Act that interest must be paid on the security deposit. -+ 14. These aspects have been highlighted in Ferro Alloys case (supra). 15. Obviously, the Division Bench of the High Court has not considered the effect ofthe underlined observations ofthis Court regarding the permissibility to delete provisions for payment on security deposits, as noted in the said paragraph 158. This has to be decided on the factual· position ofeach case.

We find that in the order ofthe learned Single Judge which formed the subject matter ofchallenge in the LPAs, there are certain factual conclusions arrived at by learned Single Judge. The Division Bench has not dealt with the acceptability or otherwise ofthe view and has only referred to paragraph 158 to hold that it cannot be done, overlooking the underlined portion relating to the permissibility for such a course to be adopted. 16. In the aforesaid circumstances, we deem it proper to set aside the impugnedjudgment in each case and remit the matter to the High Court for a fresh consideration in the light ofwhat has been stated in paragraph 158 so far as it relates to the Boards' powers to delete provision relating to payment ofinterest on security deposits on the factual scenario. We make it clear that we have not expressed any opinion on the merits of ~ the case. 17. The appeals are disposed of accordingly with no orders as to costs. D. G. Appeals disposed of.