Ferro
Alloys Corpn. Ltd. & Ors Vs. A.P. State Electricity Board & Ors [1993]
INSC 221 (15 April 1993)
Mohan,
S. (J) Mohan, S. (J) Reddy, K. Jayachandra (J)
CITATION:
1993 AIR 2005 1993 SCR (3) 199 1993 SCC Supl. (4) 136 JT 1993 (3) 82 1993 SCALE
(2)593
ACT:
Electricity
Supply Act, 1948: Sections 2(b) (v), 49, 59, 79, Schedule VI-Clause 14.
Section
49-Whether unconstitutional for want of guidelines for terms and conditions of
supply of electricity.
Indian
Electricity Act, 1910:
Indian
Electricity Rules, 1956: Rule 27.
Interest
Act, 1978: Section 4(2).
Electricity
Boards-General terms and conditions of supply of electricity-Condition of
Consumption Deposit-Whether arbitrary-Whether Board has power to make
Regulations to demand security deposit-Nature and object of consumption
deposit-What is Electricity Board-Whether liable to pay interest on Consumer
Deposit-Rate of Interest on Consumption Deposit-Whether should be same as paid
by Scheduled Bank- Clause in General Terms and Conditions providing for non
payment of interest on Consumption Deposit-Whether unconstitutional and arbitray-Demand
for additional Consumer Deposit-Reasonableness of-Electricity Board-Whether
should give reasons for additional demand.
Indian
Trusts Act, 1882: Section 90.
Relationship
between Electricity Board and Consumers-Whether of Trustee and Beneficiary.
Practice
and Procedure-Interlocutory order passed by a Bench of 3 Judges-Whether binding
on a Bench of 2 Judges.
200
Constitution of India, 1950: Article 12.
Electricity
Boards are State.
Words
and Phrases:
'Unconscionability'-'Deposit'-'Interest'-Meaning
of.
HEAD NOTE:
Under
the General Terms and Conditions for supply of electricity notified by the
Andhra Pradesh State Electricity Board, under Section 49(1) of the Electricity
(Supply) Act, 1948, the consumers were obliged to keep with the Electricity
Board an amount equivalent to three month's demand and energy charges as
consumption deposit on which Interest at the rate of 3% per annum was payable
by the Board. In the event of delay in payment of consumption deposit within
the stipulated period not only surcharge was payable by consumer but also the
supply was liable to be disconnected. Various petitions were riled before
Andhra Pradesh High Court challenging the validity of terms and conditions
contending that the consumption deposit should In no event exceed two months
average consumption charges and that In view of the judgment of Supreme Court
In M/s. Jagdamba Paper Industries v. H.S.E.B. Board, [1983] 4 S.C.C. 508, the
Board was liable to pay Interest at the game rate as Is paid by a Scheduled
Bank on fixed deposit. The High Court dismissed the petitions.
In
appeals to this Court, It was contended on behalf of the consumers that:
(1)
Section 49 of the Electricity (Supply) Act is ,unconstitutional since there are
no guidelines for framing the terms and conditions of supply of electricity;
(2) in
view of the fact that in case of power intensive consumers the cost of
Electricity is very high the condition requiring 3 months' security deposit is
arbitrary and illegal for power intensive consumers; and
(3) there
is no power under the Electricity Supply Act to enable the Board to raise
revenue or to cover its capital cost etc. except by way of adjusting tariffs as
seen from under Section 59 of the Supply Act, 1948. Therefore, consumption
deposit cannot be used for the purpose of revenue or raising revenue.
On
behalf of the Electricity Board it was contended that:
(1) In
view of the fact that the object of consumption deposit (which is In the nature
of advance payment and not a security deposit) Is to ensure prompt payment of
electricity supply, It cannot be contended that 3 201 month's consumption
deposit Is arbitrary; (2)the fact that some of the consumers pay large amounts
by way of electricity charges has nothing to do with the nature of deposit.
Merely because a unit Is power based it cannot be treated separately for the
terms of supply relating to consumer deposit must be uniform.
In the
case of Rajasthan Electricity Board the General Conditions expressly provided
that no Interest will be paid by the Electricity Board on security deposit. Futher,
the Electricity Board issued notices requiring the consumers to deposit the
enhanced amount of cash security as well as bank guarantee on the basis of
maximum power consumption. The consumers flied petitions In the Rajasthan High
Court contending that provision for no Interest was bad In law and that the
enhanced security deposit must he calculated not on three months maximum consumption
but on the basis of minimum power consumption. A Single Judge of the High Court
allowed the petitions. On appeal, the Division Bench held that the clause
relating to nonpayment of interest was not reasonable. Relying on Section 4 of
the Interest Act as well as on the Model Form of draft conditions contained In
Schedule VI of the 1948 Act, the Division Bench held that interest was payable
on the security deposit.
In
appeals to this Court, it was contended on behalf of the Rajasthan State
Electricity Board that:
(1) there
is no statutory provision which casts an obligation on the Board to pay
Interest on the security deposit; nor even Interest is payable under common law
or in equity;
(2) the
High Court erred In relying on the Model Form conditions as well as on the
Interest Act;
(3) the
security deposit for three months is neither unreasonable nor arbitrary;
(4) even
if the contract between the Board and consumer is adhesion contract, it is not
necessarily unconsciable;
(5) in
Jagdamba Paper Industries case the right of Interest was based on the
concession of parties and the Court had no occasion to decide the rate or
interest.
On
behalf of the consumers it was contended that:
(1)the
scheme of the Electricity Act and Supply Act together with the Rules suggest
the payment of interest;
(2) since
the money is deposited but the consumers with the Board to secure the Board
against default In payment of bills, the Board Is in the position of a trustee
in respect of 202 this money;
(3) even
under English Law, interest was payable on security for electricity.
For
the intervenor on behalf of the Electricity Board of Orissa, it was submitted
that Regulation 7 of the Orissa State Electricity Board General Conditions of
Supply Regulations 1981 providing that no interest would be payable on security
deposit is just and reasonable and is not arbitrary or violative of Article 14
of the Constitution.
The
Uttar Pradesh State Electricity Board was also paving 3% interest on
consumption deposit. The consumers preferred writ petitions before the
Allahabad High Court claiming 12% interest ,but the same were dismissed.
In
appeals to this Court it was contended on behalf of the consumers that in a
number of matters this Court has also ordered interest at the rate of 12% on
security deposit and the same principle should apply to this case; (2) if
interest is not paid, security deposit cannot be demanded as this will amount
to unconscionable bargain; and (3) the security deposit does not contemplate
appropriation.
On
behalf of the Electricity Board it was contended that:
(1) in
cases where 12 per cent interest was awarded it was only by way of ad interim
measure. Therefore, orders are not conclusive on this aspect; (2) under Article
226 of the Constitution, the court is to conduct a limited scrutiny whether by
imposing a condition the Board has not acted as a private trader and thereby
shed off its public utility character. If the Court comes to the conclusion
that the Board has not acted as a private trader and the nature of deposit has
a rational relationship, the issue will fall outside the scope of judicial
purview.
The
Bihar State Electricity Board was paying 5 % interest on the security deposit.
The consumers claimed interest at the rate payable on fixed deposit by a nationalised
bank and the High Court allowed the same. The Electricity Board filed petition
in this court contending that the High Court erred in awarding a higher rate of
interest.
On
behalf of the consumers it was contended that the increase in security deposit
without assigning any reason was had in law.
203 In
the connected writ petition, the challenge is to the validity of Sections 49
and 79 of the Supply Act.
According
to the Punjab State Electricity Board, while the Electricity Board is required
to make colossal advances to generate electricity and supply to consumers the
consumers also use and consume electricity on credit ranging from 2 to 3 months
depending upon the category of consumers. To off- set part of the amount that
the consumer owes to the Board constantly and also to ensure timely payment of
advances by the Board to its suppliers an advance consumption deposit is
insisted upon before commencing supply to the consumer. If this is not so taken
the Board will be left with no other option than to increase the tariff. Thus
advance deposit cannot be termed as a fixed deposit as the amount cannot be utilised
against nonpayment of dues from consumers.
Besides,
the consumers can also ask for the refund.
Therefore,
Sections 49(1) and 79 (j) cannot be termed as arbitrary.
It was
also contended on behalf of the Punjab State Electricity Board that the
amendment to clause 23 of abridged conditions of supply requiring consumers to
pay advance consumption deposits is perfectly reasonable.
For
the intervenor on behalf of Calcutta Electricity Supply Corporation, it was
submitted that the deposit though called security deposit is really an
adjustable advance payment of consumption charges. The amount is revisable from
time to time depending upon the average consumption charges on the basis of
actual consumption over a period. In short, it is in the nature of a running
account. The security deposit does not remain in tact like a fixed deposit but
gets depleted day after day depending on the extent of consumption. More often
than not. the consumption charges and other dues exceed the security deposit.
That necessitates calling for additional advance to make up a shortfall. In the
absence of any usage or contract or an,*, provision of law requiring payment of
interest is not payable for wrongful detention of money. In this case, there is
no wrongful detention [of even.] Section 4(2) of the Interest Act has no
application to this deposit.
204
Disposing the petitions, this Court,
HELD:1.
Section 49 of the Electricity (Supply) Act, 1948 is valid Sub-section(1) of the
said section starts with the words "Subject to the provisions of the Act
and all regulations, if any, made in this behalf". Therefore, the Board
has to conform to the various provisions of the Act and the regulations.
Section 49 contains two powers; (1) to prescribe terms and conditions of
supply; and (2) fix the tariff. No guidelines are required in this regard.
[278A- 248CE] Hindustan Zinc Ltd. v. A.P.S.E.B., 1991 (3) S.C.C. 299; Mysore
State Electricity-Bought v. Bangalore Woolen Cotton and Sill Mills Ltd. A.I.R.
1963S.C. 1128, Jagdamba Paper Industries Pvt. Ltd. v. Haryana State Electricity
Board, 1983 (4) S.C.C. 508, referred to.
Roberts
v. Hopwood, 1925 A.C. 578; Pyx Granite v. Minister of Housing and Local
Government, 1958 (1) All E.R. 625, cited.
1.1.Where
regulations are made under Section 49 read with Section 79 (j), the validity of
the regulations could be examined by the court, whether they are reasonable or
not.
[249-D]
Southern Steel Ltd., Hyderabad v. The Andhra, Pradesh State Electricity Board, A.I.R. 1990 Andhra Pradesh 58, and M/s.
B.R. Oil Mills. Bharatpur v. Assistant Engineer (D) R.S.E.B.. Bharatpur, A.I.R
1981 Rajasthan 108, referred to.
1.2The
terms and conditions notified under Section 49 must relate to the object and
purpose for which they are issued.
Certainly,
that power cannot be exercised for a collateral purpose. In this Section 49 is
valid. [251-C]
2.The
nature of consumption deposit is to secure prompt payment and is intended for
appropriation. The deposit though called security deposit is really an
adjustable advance payment of consumption charges. The payment is in terms of
the agreement interpreting the conditions of supply.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 205 terms of supply of energy with reference to all the Boards. [278 A, 252
D-E]
2.1The
cycle of Billing by the Board demonstrates that in the very nature of things,
the consumer is supplied energy on credit. The compulsory deposit in the
context of billing cycle is hardly adequate to secure payments to the Board by
the time the formal hill by the Board is raised on the consumer. In one sense,
the consumption security deposit represents only a part of the money which is
payable to the Board on the bill being raised against the consumer. Thus, the
Board secures itself by resorting to such deposit to cover part of the
liability. [253 F-G]
2.2The
deposit made cannot be equated to a fixed deposit.
In the
case of daily supply of electricity, there is a consequential liability to pay
for each day's consumption of electricity. To ensure that payment the security
deposit is furnished. Hence, it cannot he equated to a deposit at all.
It is
in the nature of a running current account. [262-A] 2.3The argument that the
deposit does not contemplate appro- priation is not correct because in the
nature of contract it is liable to be appropriated for the satisfaction of any
amount liable to be paid by the consumer to the Board for violation of an),
conditions of supply in the context of wide scale theft of energy tempering
with the meters and such other methods adopted by the consumers. Therefore, the
said consumption security deposit serves not only too secure the interest of
the Board for any such violation but should serve as a deterrent on the
consumer in discharging his obligations towards the Board. [264 F-6) Union of India v. A.L. Rallia
Ram, [1964] 3 S.C.R. 164;
Riches
v. West minister Bank Ltd. 1947 Appeal Cases 390, held inapplicable.
2.4While
the Electricity Board is required to make colossal advances to generate
electricity and supply to consumers, the consumers use and consume electricity
on credit ranging from 2 to 3 months depending upon the
category of consumers.
To
off-set part of the amount the consumer owes to the Board continually to ensure
206 timely payment of bills by the Board to its suppliers, the advance
consumption deposit is required to he kept with the Board before commencing
supply to the consumer. The clauses in the contract in relation to conditions
of supply of electric energy enable the Board to adjust the bill against such
deposits. Therefore, this is not a case of mere deposit of money as in
commercial transaction. In demanding security deposit, it is open to the court
to take note of pilferage. [254 F-H] Ashok Soap Factory v. Municipal
Corporation of Delhi, J.T. 1993 (1) S.C. 128, referred
to.
Corpus
Juris Secundum, Vol.26A,p.194,Davidson v. U.S.,
C.C.A. Pa., 292 F. 750, 752, referred to.
2.5Three
month's security deposit cannot be characterised either unreasonable or
arbitrary. 1255-F] Jagdama Paper Industries P. Ltd. v. Haryana State Electricity Board, [1993] 4S.C.C.508; K.C. Works v.
Secretary A.P.S.E.B., Vidyut Soudha, A.I.R. 1979 Andhra Pradesh 291; Municipal
Corporation for Greater Bombay v. M/s D.M. Industries, A.I.R. 1984 Bombay 242; Haryana
Ice Factory v. Municipal Corporation of Delhi, A.I.R. 1986 Delhi 78, referred
to.
Southern
Steel Ltd., Hyderabad v. The A.P. State Electricity
Board, A.I.R. 1990 Andhra Pradesh 58, approved.
Indian
Aluminium Company v. Karnataka Electricity Board 1992 (3) S.C.C. 580, cited.
2.6Under
the regulations framed by the Board in exercise of powers of Section 49 read
with Section 79 (j) 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. In cases where regulations
have not been made Rule 27 of the Rules made under the Electricity Act enables
the adoption of model form of draft conditions of supply.
207
Annexure VI in clause 14 states that the licensee may require any consumer to
deposit security for the payment of his 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. [251F-H, 252A-B] 2.7Under Section 59 the Board is obligated to carry
on its operation as to ensure that it generates a surplus of 3 per cent or as
specified by the State Government. The Board is obligated to adjust its tariffs
for ensuring such surplus.
The
condition of supply requiring a consumption security deposit has a direct
bearing on the operations of the Board which are to be conducted in such a
manner as to ensure a surplus. The language in Section 59 of the Supply Act is
"carry on its operations under this Act and adjust its tariffs." The
language of the said Section is not by adjusting tariff. Therefore, the
argument that the only manner in which the Board can achieve a surplus is to
adjust its tariffs does not flow from the language of Section 59.
So
read, in the context of the insistence of a security deposit which has direct
bearing on the operations of the Board is per se reasonable and constitutional.
[266 E-6] Kerla State Electricity Boaed v. S.N. Govinda Prabhu & Bros.
3.There
is no liability on the Electricity Board either under the statute or common law
or equity to pay interest on security deposit. [278-B] 3.1There is no statutory
provision which casts an obligation on the Board to pay interest on security
deposit.
Model
form of draft conditions of supply containing Clause 14 relating to interest on
security deposit) as found in Annexure VI. traceable to Rule 27 of Indian
Electricity Rules, 1956, is applicable only to a licensee as defined in Section
2 (4) of the Electricity Act. Even for a licensee it is not compulsory to adopt
the model condition of supply.
These
is an option available to adopt the model conditions of supply with such
modifications as the circumstances of each case require. [259G-H, 260 A-C] 208
3.2Schedule VI has been framed in exercise of powers under Sections 57 and 57A.
In defining "clear profit" paragraph (2)of clause XVII, Item (v)
makes a reference, as interest on security deposits which is a part of expenditure
properly incurred by the licensee.From this, it is impossible to hold that this
clause imposes an obligation on the licensee to pay interest on security
deposits, All that would when is, if interest, is paid then it qualifies as an
item of expenditure properly incurred. This is the position with regard to
licensee. But this cannot apply to the Board, which is not a licensee. For the
same reason Item L 1 (c) of Form IV of the Electricity Rules relating to
interest paid and accrued on consumers' security deposits is of no avail
because that relates to the manner of keeping accounts by the licensee, not
being applicable to a Board.
Therefore,
there is nothing to indicate under the scheme of the Electricity Act or
Schedule VI of the Supply Act that interest must be paid on the security
deposit. Accordingly the Division Bench of Rajasthan High Court has erred in
holding that Interest Act is applicable. [260 F-H, 261-A-B] 3.3Section 4(2) of
the Interest Act, 1978 has no application to a case where on account of a
contractual term or a statutory provision payment of interest is not permitted.
A careful reading of Section 4(2) would disclose that it merely enlarges the
category of cases mentioned in Section 4(1). Even otherwise, there is nothing
to indicate that Section 4(2) could override other statutory provisions or a
contract between the parties. No doubt, Section 4(2) contains a non-obstante
clause. But, such a clause is restricted to the provisions of Interest Act and
cannot extend to other laws or a contract between the parties. [261 F-6] Civil
Special Appeal No. 83 of 1987, decided on 30th July, 1991 by a Division Bench of the
Rajasthan High Court, overruled.
3.4The
word 'interest' would apply only to cases where there is a relationship of
debtor and creditor. A lender of money who allows the borrower to use certain
funds deprives himself of the use of those funds. He does so because he charges
interest which may be described as a kind of rent for the use of the funds.
For
example, a bank or a lender lending out money on payment of interest. In this
case, there is no relationship of debtor and creditor.
Accordingly,
the claim for 209 interest cannot be legally founded either on common law or
equity. [262-G, 265-A] Halshury's Vol. 32 para 108: (Discussing cases where
interest is payable under common law) para 109 (Discussing cases where there is
equitable rights to interest), held inapplicable.
Bengal
Nogpur Railway v. Ruttanji Ramji, A.I.R. 1939 P.C. 67, referred to.
3.5The
object of the deposit is to secure the payment of consumption charges. These
charges may vary depending upon the daily consumption, depending on the level
of supply .The amount due by way of consumption charges would also be liable to
he appropriated. Therefore, it is incorrect to state that the Board is a
trustee. The relationship between the Board and consumer is not that of a
trustee and a beneficiary but a depositor and deposits. This is not event case
of a constructive trust under Section 90 of the Indian Trust Act, since no advantage
is gained by the Electricity Board in derogation of the rights of the consumer.
1262 D-F] 4.The clause not providing for interest on security deposit is
neither arbitrary nor palpably unreasonable not even unconscionable for the
following reasons:
(a)The
consumer made the security deposit in consideration of the performance of his
obligation for obtaining the service which is essential to him.
(b The
electricity supply is made to the consumers on credit.
(c)The
billing time taken by the Board is to the advantage of the consumer.
(d)Public
revenues are blocked in generation, transmission and distribution of
electricity for the purpose of supply. The Board pays interest on the loans
borrowed by the Board.
This
is in order to perform 210 public service. On those payments made by the Board
it gets no interest from the consumers.
(e)
The Board needs back its blocked money to carry out public service with
reasonable recompense.
(f)
The Board is not essentially a commercial organisation to which the consumer
has furnished the secu- rity to earn interest thereon. [269 F-H, 270 A-C]
4.1The argument that the Board is monopolistic in character and therefore, the
consumers have no other option but to enter contract appears to be
misconceived. The consumption security deposit whether or not it carries
interest is a condition precedent for the supply of electric energy. The
scrutiny by the Court In determining the uncon- stitutionality of a provision
not providing for interest must be tested on the touchstone whether in imposing
such a condition the Board has acted as a private trader and thereby shed off Its
public utility character? In imposing such a condition the Board has not acted
as a private trader. The nature of deposit has a rational relationship to the
object which is Incorporated a condition of supply.
[266
A-D,] Jagdamba Paper Industries (Pvt. ) Ltd. v. Haryana State Electric in
Board, [1983] 4 S.C.C. 508, referred to.
4.2Assuming
that the contract Is an adhesion contract, still it is not unconscionable.
Conditions and the terms of supply providing for non-payment of interest is not
so unconscionable as to shock the conscience of the Court.
[266-H]
Central Inland Water Transport Corporation v. Brojo Nath Ganguly [1986] 3
S.C.C. 156; Bihar State Electricity Board v. Green Rubber Industries, [1990] 1
S.C.C. 731, referred to.
Farmsworth
on Contracts, 2nd Edn. 319.320, para 4.27, referred to.
Gillespie
Brothers Ltd. v. Roy Bowles Ltd. (1973) 1 A. E. R. 193;
211
G.B Mahajan and Ors. v. Jalalgaon Municipal Council and Ors. [1991] 3 S.C.C. 91
cited.
4.3In Jagdamba
Papers the question of Interest on security was not raised before the Court.
Therefore, the Court had no occasion to decide this issue of interest.That part
of the judgment is sub-silentio. [271-E, 272 A-C] Jagdamba Paper Industries
(Pvt.) Ltd. v. Haryana State Electricity. Board, [1983] 4 S.C.C 508, explained and held
inapplicable.
4.4This
Court never Intended to adjudicate upon the rate of interest or render a
decision on that question.
Therefore,
it cannot be contended that the disposal of the Writ Petition though by a Bench
of 3- Judges would be binding on a Bench of two Judges because it was entirely
based on interlocutory order. Therefore, this Court is free to decide the
question on Its merits. [273 F-6] 4.5The Division Bench of the Rajasthan High
Court erred in striking down condition No. 20 of the General Conditions of the
Rajasthan Electricity Board as violative of Article 14 of the Constitution of
India. [271-D] 4.6The rate of interest on security deposit cannot be equated
with the rate of interest on the fixed deposit.
Firstly,
if the consumption charges are to be appropriated the moneys accrued by way of
deposits cannot be held in fixed deposits. Nor all deposits need carry Interest
In every transaction. Secondly, the nature and character of the security
deposit is essentially different from fixed deposit. [270 D-E] 5.It may be that
the consumers of electricity, where it is raw material, would be prompt in
their payment in their own interest. On that basis, it cannot be contended that
they cannot be treated in the same way as defaulters. The test, in Court's
considered opinion, is whether in the general application of law there is any
discrimination.
Merely
because some of the consumers are prompt those isolated cases cannot render the
provision unconstitutional.
[273
H, 274-Al 212 The Collector of Customs Madras v, Nathella Sampathu Chetty, [1962] 3 S.C.R. 786; Vivian Joseph v.
Municipal Corporation.
Bonmbay
[1972] 2 S.C.R. 257, Fatehchand Himmatlal v. State of Maharashtra, [1977]2 S.C.R. 828 and; B. Banerjee
v. Anita Pam, [1975]2 S.C.R. 774, referred to.
6.No
reason need be given for enhancement of additional security deposit. It stands
to reason that if there is a revision in the rate of tariff there must he an
upward revision in the consumption security deposit since it has direct hearing
to the level of supply in consumption of electricityThis being a condition of
supply no reason need be given at the timeof upward revision. [278-C, 277 A-C]
& CIVILAPPELLATE JURISDICTION: Civil Appeal Nos. 2117 to 2122 of 1993 etc.
etc.
From
the Judgment and Order dated 28.4.1989 of the Andhra Pradesh High Court in W.
P. Nos. 11162/84, 18968/87, 12007/84, 15131/87, 5050/82 and 15746/87.
Altaf
Ahmed, V.R. Reddy, Addl. Solicitor General, Narasimha murthy, K. Parasaran,
Anil B. Divan, Harish N. Salve, Soli j. Sorabjee, G. Ramaswamy, P.P. Rao, Gobind
Mukhoty, Dr.
Shanker
Ghosh, Shanti Bhushan, G.L. Sanghi, Pawan Kumar, P.S. Poti, B.M. Patnaik. Sanjay
Parikh, P. Niriop, Kailash Vasdev, S. Khaitan, K. K. Khaitan, Darshan Singh,
Sushi] Kumar Jain, A.P. Dhamija, S. Atreya. E.C. Agarwal, A. V. Palli. Atul
Sharma, Ms Reena Aggarwal, A. K. Mehta, R. K. Gupta, P.C Kapur, T.V.S.N Chari,
B. Reddy, Ms. Pramila, Anil K. Sangal, Ajay K. Tayal. Koka Raghava. B. Kanta Rao,
Shiv Prakash Pandey, Ms Rekha Pandey. R.K. Priyokumar Singh, T.V. Ratlinain,
K.R. Chowdhary, K. Ram Kumar, Ashok Kr. Gupta, R.B. Misra , Pradeep Misra, Mrs.
Sheil Mohini Seth, Jain Hansaria & Co, R.P. Gupta, Ms. Sarla Chandra, M/s Mitter
Mitter & Co. Ms Abha Jain, Ranjit Kumar, M.P. Jha, S.K. Jain, Vinoo Bhagat,
Surva Kant, Aruneshwar Gupta, Badridas Sharma, Prabhu Dayal, Sudarshan La] Aneja,
R. Venkataramani, Y.P. Rao, D.K Garg, K.C. Agarwals, O.P Khaitan, P.B. Agarwala,
Mohinder Rupal, Mrs. Kamakshi Mehllwal, Ms Archna Kau] (For Gagrat & Co. ),
Vijay Hansaria, R. S. Sodhi , D.A. Dave, Raian Karanjwala, Mrs. Manik Karanjawala,
Rajesh mar, Ms. Suruchi Aggarwal, K.J. John, Ms. Deepa Dixit (For 213 Swarup
John & Co.), A. T. Patra, S.R. Agarwal, Ms. Bina Gupta, Prashant Bhushan,
K. Rajendra Choudhary, Rakesh K. Sharma, Shivi Shamia, Anil K. Chopra, Pallav Sisodia,
Ravinder Narain (For JBD & Co. ) Praveen Kumar, Virender Kaushal, Bimal Rao
Jad, Ms Malini Poduval, K.K. Lahri and S. Sukumaran for the appearing parties.
The
judgment of the Court was delivered by MOHAN,J. Leave granted.
These
civil appeals are directed against the judgment of the Division Bench of Andhra
Pradesh High Court reported in Southern Steel Ltd. v. A. P. State Electricity
Board, Hydrabad AIR 1990 Andhra Pradesh 58. The facts briefly are as under:
The
Andhra Pradesh State Electricity Board is constituted under Section 5 of the
Electricity Supply Act, 1948 (hereinafter referred to as the Act). The said
board is engaged in generation, distribution and supply of electricity in the
State of Andhra Pradesh. Electric energy is supplied for
industrial, commercial, agricultural and domestic purposes. To such of these
industries, using energy about a particular level, it is supplied at a higher
voltage. They are classified as high tension consumers (H.T. consumers). All
the appellants herein belong to that category.
Section
49 of the Act empowers the Board to notify the terms and conditions upon which
it will supply electricity to a person. It is also empowered to frame uniform
tariffs in that behalf. Sub-section 2 specifies in fixing the uniform tariff,
the Board shall have regard to all or any or the following factors, namely-
a) the
nature of the supply and the purposes for which it is required;
b) the
coordinated 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 214 being served or
adequately served by the licensee;
c) the
simplification and standardisation of methods and rates of charges for such
supplies;
d) the
extension and cheapening of supplies of electricity to sparsely developed
areas.
Sub-section
3 empowers the Board to enter into a special agreement with any consumer any
prescribe different tariffs for Wm. Under Section 4, an obligation is cast on
the Board not to show undue preference to any person while fixing the tarrif
and terms and conditions for the supply of electricity. In all these cases, the
appellants are covered by the general terms and conditions notified under
Section 49 (1) of the Act. The terms and conditions were notified by the Board
and the B.P.M.S. No. 690 dated 17th of September, 1975. It is not necessary to
refer in detail to the various terms and conditions. However, what requires to
be noticed is the terms and conditions oblige every consumer executing an
agreement in the prescribed form, undertaking to abide by the term and
conditions prevailing on the date of agreement and also agreed to be bound by
the terms and conditions as may be notified from time to time. It is important
to note under Section 25, the Board has unilateral right to vary the term from
time to time under clause 25.1.
The
terms and conditions for supply of electricity by special or general
proceedings.
Condition
32. 1. provides "the Board shall as far as possible within 15 days after
the expiration of each calendar month cause to be delivered to every consumer a
bill of charges stating the amounts payable by the consumer towards charges for
energy supplied and any other sum in connection with supply of energy by the
Board." Conditions 32.2. 1. obliges the consumers to pay the amount shown
in the bill, within 15 days of the date of the bill in, default 'whereof they
are liable to pay "an additional charge of 2% per month or part thereof
for the period of delay" in paying the bill. Condition 32.3 empowers the
Board to disconnect the supply in case of default in paying the bill, without
prejudice to its right to recover the amount due. Condition 24.3 also lays down
that the consumer shall pay to the Board 215 every month the charges for
electrical energy supplied to him during the preceding month at the tariff in
force from time to time. Condition 28 obliges the consumers to deposit an
amount equivalent to three months consumption charges with the Board. It would
be appropriate to set out condition No. 28 as far as it is necessary for our
purposes, committing what is not relevant as under:
28.Consumption
deposits:- 28.1 Initial consumption deposit. 28. 1. 1. The consumer shall
deposit with the Board a sum in cash equivalent to estimated three month's
consumption charges. The consumer coming under the L.T. category 'domestic'
shall however pay at Rs. 30.00 per Kilowatt or part thereof connected load.
"Provided
that the Board may, in the case of industrial consumers, accept by way of
consumption deposit a sum equivalent to two months consumption charges during a
period of three years from the date of first release of supply of
electricity".
28.1.2In
the event of the consumer failing to pay to the Board any sum that may become
due for payment to the Board on the dates fixed for payment thereof, the Board
may, in addition to and without prejudice to the other rights of the Board,
appropriate a part or whole of such deposit towards the sum due from the
consumer.
28.2Additional
Consumption Deposit-All consumers other than those L.T. Domestic consumers whose
monthly bills are less than Rs. 500 for a continuous period of six months,
shall keep with the Board an amount equivalent to charges for three months
demand and energy charges as consumption deposit. The aduacy of the consumption
deposit shall be reviewed by.
the
Board usually once in every year and/ or at any time during the year if so
warranted dur to upward revision of tariffs, enhancement of the con- 216 tracted
demand by the consumer charges in the pattern of consumption by the consumer
relaxation of power restrictions or such other factors which in the opinion of
the Board, warrant review of the, adequacy of the existing consumption deposit.
The review shall take into account the following factors:- (i)In the case of
consumers where there is no change in the contracted demand, the average
consumption for the preceeding twelve months after taking into consideration
the quantum and nature of restrictions imposed, if any, during that period
shall be the basis.
(ii)in
the case of consumers who were sanctioned additional demand and availed it
during a part of the period, average recorded consumption for the period of
review shall be from the date of utilisation of increased demand to the date of
review after taking into consideration the nature and quantum of restrictions
imposed, if any during that period.
(iii)The
demand shall be contracted demand of the consumer at the time of review.
(iv)The
rates, at which the demand or energy charges shall be calculated, will be
tariff rates prevailing as on the date of review.
Based
on such review, if the consumption deposit of the consumer is found inadequate
or has fallen short on account of adjustments made as indicated in clause
28.1.2hereof the consumer shall deposit within 30 days of receipt of notice in
this regard such additional amountas may be required by the Board or replenish
the required amount as the case may be.
28.3
Interest on consumption deposit:- Interest shall be paid by the Board on
deposits of more than Rs. 60 made in cash at the rate of 3% per annum or such
other 217 rate as may be fixed by the Board from time to time. Full calender
months only shall be taken into account for the purpose of calculating interest
and interest shall be calculated to nearest five paisa. The interest accruing
to the credit of the consumer shall be adjusted every year in the month of
April in the Electricity Supply bills.
28.4
Disconnection or non-payment of consumption deposit:- If the consumer does not
make payment of amount of consumption deposit or additional consumption deposit
or where the deposit is given in Government security or National Saving
Certificate Bank guarantee etc., he fails to replace them by deposit in cash
when so demanded by Board within the notice period of 30 days supply of
consumer shall be liable for disconnection.
28.5
"The Consumption Deposit so calculated as per the Clause 28.1 and /or 28.2
above shall not be less than three times the monthly minimum charges,
applicable to the consumer under the category to which he belongs".
28.6
"All consumers shall pay the Consumption Deposit or additional consumer
deposit within thirty days from the date the demand notice if there be any
delay in payment, the consumer shall pay surcharge thereon equal to 1 1/2% per
month or such other percentage to be fixed by the Board from time to time, of
the demanded amount for each month of delay or part thereof. This will be
without prejudice to the Board's right to disconnected supply of
electricity".
Clause
(1) of condition 28 is general in nature. It applies to all consumers. Cl.
(1.2) enables the Board to appropriate a part or whole of the said deposit
towards any amount due to the Board and not paid within the prescribed period. Cl.
(2) applies to all consumers, except those L.T. Domestic consumers whose monthly
bills are less than Rs. 218 . 500 per month for a continuous period of six
months. Such consumers are obliged to keep with the Board an amount equivalent
to three months' demand and energy charges, as consumption deposit. The deposit
is liable to be reviewed by the Board from time to time, having regard to the
factors mentioned in the said clause. Cl. (3) prescribes interest which the
Board has, to pay on such deposit. It is 3% per annum. Clause (4) empowers the
Board to disconnect the supply if consumption deposit/ additional consumption
deposit is not made, or is not replaced whenever called upon to do so. Clause
(5) prescribes a certain floor below which consumption deposit shall not go.
Clause (6) says that the consumption deposit or additional deposit shall be
paid within thirty days of the notice demanding such deposit. In default, not
only interest is payable but the supply also is liable to be disconnected.
The
attack before the High Court was that according to Condition No. 32. 1, the
bill is served within 15 days of the expiration of each calendar month. The
amount covered by the bill is payable within 15 days of the date of the bill.
The period of 15 days for payment is calculated not from the date of service of
the bill but from the date of the bill. A bill could be served even on the very
first day of the succeeding month in which event it will become payable within
15 day of the date of the bill. In such a situation, it is not correct to say
that a consumer goes on availing and enjoying energy for a period of three
months without paying for it. Invariably it does not exceed six weeks or at any
rate, two months. In the event of non- payment under Condition No. 32.3, supply
of energy can be disconnected without seven days notice as contemplated under
Section 24 of the Indian Electricity Act, 1910. Therefore:
(1)It
was urged that the consumption deposit should in no event exceed two months
average consumption charges.
(2)The
second attack was the payment of 3% interest by the Board on such consumption
deposit is no longer good law in view of the judgment of Supreme Court rendered
in M/s Jagdamba Paper Industries (p) Ltd. v. H.S. E. Board, [1983] 4 SCC 508,
since this Court had taken the 'view that the interest on such deposit should
be paid at the same rate as is paid by the schedule bank on fixed deposit.
219 It
was generally urged that the Electricity Board being a State; within the
meaning of Article 12, it has to act fairly. Any term of condition will have to
answer the test of reasonableness. On the contrary, if it is arbitrary, it
would be violative of Article 14.
The
High Court after analysing the object behind Condition No,. 28 relating to the
consumption deposit held: The condition requiring the consumer to pay the
charges within 15 days from `the date of the bill and on such failure, a right
is conferred on the Board to disconnect the supply.
The condition
merely refer to the power of the Board.
Existence
of power is distinct from exercise of power. The Board cannot blindly act upon
Condition 32.3 and disconnect the supply the moment 15 days time (from the date
of the bill) expires. It has to take a realistic view of the situation. After
all, these industries are engaged in production of goods essential to the
community. A blind and mechanical adherence to Condition 32.3 (instant
disconnection) may indeed prove counter-productive in larger sense. It was also
not possible for the Board to notice the non payment immediately in view of the
large number of consumers and the extensive nature of organisation.
Besides,
huge sums are required by the Electricity Board as rotating capital. It borrows
large amounts from organisations like L.I.C. and Banks, on which it pays
interest to them. Hence, it is well entitled to require the consumer to co-operate
by paying their bills regularly, by furnishing security deposits and by
conforming to the terms and conditions of supply. Under these circumstances,
the requirement of three months deposit could not be said to be unreasonable
and unjustified.
As
regards, the payment of 3 % interest, the High Court was of the view that the
decision of this Court in Jagdamba Paper Industries (P) Ltd. (supra) could not
be read as a decision of the Supreme Court on the basis of which it could be
declared that the earlier Bench decisions of the High Court were no longer
binding, Accordingly, it dismissed the writ petitions.
Aggrieved
by this decision, the present S.L.Ps. have come to be preferred.
Mr.
R.N. Narasimha nmurthy, learned counsel for the appellant 220 after drawing our
attention to clauses 28 and 32 would submit that if there is any laxity on the
part of the Board in preparing the bill that cannot be a ground to make a
consumer to pay three months deposit.
The
tariffs of 1974 provided for the payment of bills within 14 days from the date
of the bill while the quantum of deposit is three months consumption charges.
Originally, the time for payment was 30 days from the date of the bill.
That
has been reduced to 15 days which is a drastic change.
The
security deposit is a provision for continued default of the consumer. The
quantum of such a deposit is reckoned on the basis of the lapse of time between
the consumption charges that become due after expiry of time required for
reading of meter, billing, delivery of the bill to the consumer; grace time
allowed and the reasonable time required for disconnecting the consumer's
service connection. The reduction to 15 days has great relevance on the quantum
of deposit as the deposit is intended to cover the defaulted amount by the time
of disconnection. However, considering that the bills of power intensive
industries are prepared within 3 days of meter reading and also considering the
close monitoring that is feasible in verification of payments of bills of these
consumers and the small number of these consumers distributed among the several
Circle Offices of the Board, any default is detectable within 20 days of the
bill for appropriate action to be taken immediately.
The
purpose of consumption deposit is only to safeguard the actual consumption
charges that become payable by the time penal action could be initiated. Even
the judgment of the High Court indicates that a time lapse of 37 days from the
date of the meter reading without considering the 7 days notice prescribed
under Section 24 of the Indian Electricity Act. The balance time of 23 days to
make up for 90 days is provided for the laxity in the Board administrative
system which justifiably cannot be passed on to the consumer by way of
consumption deposit.
In
view of the high stakes involved in the case of power intensive consumers, the
Board should evolve a suitable system of payments and must keep the security
deposit to the minimum instead of three months.
It is
further submitted that the security deposit could be in the form of bank
guarantee. There is no justification to require cash deposit. As a matter of
fact, as noted in M/s Haryana Ice Factory v. Municipal 221 Corporation of Delhi and Another AIR 1986 Delhi 78, the security in the form of
Government Bond is permissible.
In Jagdamba
Paper Industries Case (supra), paragraph 11 of the judgment deals with rate of
interest. That is a case where 8% was increased to 10% by consent. If really,
it is in the nature of a deposit, there is no Justification as to why bank rate
should not be awarded. It seen from The Chairman Karnataka Electricity Board
and Others v. Gadag Mining Co. & Ors. etc. AIR 1986 Karnataka 252, 10%
interest had been awarded.
Mr.
Anil B. Divan, learned counsel for the appellant in S.L.P. (c) No. 2564/92
would submit is under:
Power
intensive units like the appellant's form a distinct class of consumers. The
Ferro Silicon plant of petitioner No. 1 is a power intensive one where the cost
of electricity constitutes about 55% of the price of the ferro silicon
produced. Electricity, thus is the basic raw 'material for this industry. On an
average, the appellant is consuming electricity worth Rs. 1.6 crores per month.
If there was full supply of electricity (without there being a power cut), the monthly
bill would be approximately Rs. 4 crores at a present tariff.
The
power intensive plant of the appellant maintains a very high load factor of
0.9%. Ordinary H.T. consumers work at a load factor of only 60% and the units
consumed at only 50 per KVA demand. The HT-111 tariff for power intensive
consumers requires a minimum consumption of 403.3 units per KVA demand. This
means more than 8 times that of H.T. consumers. The Electricity Board has
always classified power intensive units as a separate category. At present,
there is a special tariff called HT-III tariff with a fist of power intensive
industries specified in the tariff notification.
The
appellant No. 1 had deposited Rs. 1.07 crores in cash towards the security
deposit. A bank guarantee for Rs. 53.64 lacs had also been furnished. A further
demand of Rs. 96.5 lacs prompted the filing of the writ petition in the High
Court. As per the order of this Court in S.L.P. No. 12077/84 it was directed on
6.2.1987 that a sum of Rs. 1 crore be paid by the 3rd of every month and the
balance within 7 days of the 222 presentation of the bill-This order came to be
modified that Rs.1 Crore was to be paid on the 30th of the month and the
balance within one week of the receipt of the bill. The said arrangement has
been working satisfactorily. There has not been any default in payment of
electricity bills.
Therefore,
the entire dispute is a theoretical one as to what the quantum of the security
deposit can, or ought to be. A deposit in cash of an amount equal to three
months average bills at full supply at the present tariff without any power cut
will amount to Rs. 12 cores on the basis of tariff revised in October 1992.
With ever increasing tariffs, the deposit demanded will also keep increasing.
Under
these circumstances, the condition requiring three months security deposit is
arbitrary and illegal for power intensive consumers. The paid up share capital
of appellant No. 1 is Rs. 3.8 crores. The gross value of the plant and
machinery of the power intensive unit is Rs. 7.94 crores.
The
total advances made by the consortium of bankers for working capital is Rs.
4.25 crores. The total net worth of all the divisions of appellant No. 1 that
is Merine products, Sugar & Engineering, Machine Building and the power
intensive Ferro Silicon Plant is Rs. 14.6 crores. The security already
furnished namely Rs. 5.7 crores is crippling the Ferro Silicon Plant division.
A demand of three months cash deposit would be in the range of Rs. 12 crores.
It is arbitrary and unjustifiable to require appellant No. 1 to deposit several
times its share capital by way of security. If this demand is enforced
strictly, the plant of the appellant will become sick and ultimately, will have
to be wound up. In other States, the provision is not so harsh.
If the
security deposit is 'consumption deposit' and it is for meeting the cost of
supply in advance, then the Electricity Board cannot charge penal interest at
2% per month for non-payment of bills within the stipulated period.
The deposit,
first must be appropriated against the dues and the interest charged only if
there is balance due. The Stand of the Electricity Board is perverse and
illegal.
Equally,
there can be no question of 'supply on credit' if deposit is adjusted against
consumption all the time.
The
consumer has got a right to negotiate. In The Indian Aluminum Co. v. Karnataka Electricity Board [1921] 3 SCC 580,
this Court directed the Electricity Board to adopt a realistic policy. Here
also Condition No. 28 must be altered.
223
There is no power under the Electricity Supply Act to enable the Board to raise
revenue or to cover its capital cost etc.
except
by way of adjusting tariffs as seen from under Section 59 of the Supply Act,
1948. Therefore, consumption deposit cannot be used for the purpose of revenue
or raising revenue. In this case, the Electricity Board had not placed any
material to give interest only at 3%.
Mr. K.
Parasaran, learned counsel appearing in S.L.P. No. 13004/ 89 after referring to
the passage occurring at page 66 of Haryana Ice Factory case (supra) submits
that the security deposit cannot go to buildup the capital or fixation or
tariff. Under Sections 49 and 59 of the Supply Act, finance is required to be
adjusted including the payment of interest. Demand of three months consumption
deposit cannot be resorted to. In support of his submission, reliance is placed
on Hindustan Zinc Ltd. etc. etc. v. Andhra Pradesh State Electricity Board & Ors. [1991] 3 SCC 299.
Mr. Kailash
Vasudev. learned counsel for appellant in S.L.P. 13004/89 submits that under
Section 49 of the Supply Act, it is enjoined upon the Board to adjust its
tariffs by keeping the factors detailed in the said Supply Act. Therefore, the
Board cannot have recourse methods not provided under the said Act. The demand
for a deposit to ensure the due payment of the bills for electrical energy
consumed amounts to framing an additional tariff. The Board cannot do
indirectly what it cannot do directly.
The
Board being 'a state monopoly' has to act reasonably and not arbitrarily. The
terms and conditions of supply cannot be unfair and oppressive.
Mr. R.
Venkataramani, learned counsel in his written submis- sions in Writ Petition
Nos. 1293/89 & 1353/89 and S.L.P. (c) Nos. 4791-92/90 & 4793-94/90
would urge that Section 49 of the Supply Act is unconstitutional since there
are no guidelines for framing the terms and conditions of supply of
electricity. The said Section does not specifically spell out fairness of
action. Clause 28 of the terms and conditions of supply is a clear illustration
of arbitrariness and subordinate legislation.
224
The words as the Board thinks fit ought to be interpreted so as to be
consistent with the fairness of State action. They are to be construed as
"reasonably thinks fit" as held in Roberts v. Hopwood, 1925 AC 578
and Granite v. Minister of Housing and Local Government, (1958) 1 All ER 625.
Clause
28 of the terms and conditions of supply relation to fixation of 3% interest
and additional charges are vitiated due to non-application of mind. Under
clause 28.6 of the terms and conditions, in the event of delay in payment of
consumption deposit or additional consumption deposit within the stipulated
period, the consumer is obliged to pay surcharge at 18%. The obligation to pay
surcharge and the power of the Board to vary the percentage from time to time
would constitute draconian provision.
Money,
wherever it is held in deposit could only be used to earn some interest.
Therefore, paying 3% interest on the consumer deposit is not at all justified.
A public institution cannot be allowed to get excessive interest.
In
meeting these arguments, the learned Additional Solicitor General submits that
under Electricity Supply Act, the finances of the Board are controlled to the
minutest detail.
Originally,
prior to 1978, Section 59 required the Board as far as practicable and after
taking credit for any subvention from the State Government not to carry on its
operation on loss. For this purpose, it was empowered to adjust its charges
accordingly from time to time. Section 59 was amended by Act 23 of 1978. After
the amendment, the Board after taking credit for any subvention from the State
Government was required to carry on its operations and to adjust its tariffs so
as to ensure that the total revenues in any year after meeting of the expenses
left such surplus as state government may specify from time to time. This Court
has taken the view in Kerala State Electricity Board v. S.N. Govinda Prabhu
& Bros. & Ors [1986] 4 SCC 198 that even if the Government had, not
prescribed surplus, the Electricity Board could generate surplus.
After
the amendment by Act 16 of 1983 which came into force on 225 1.4.1985, the
Board was to create a minimum surplus of 3% or such higher percentage as the
State Government would specify in this behalf. It is in this background., the
matter will have to adjuged.
The
reason why three months security deposit is demanded is, for two months, the
consumer gets free electricity. For supply of such electricity, the Board has
to borrow and make payment of interest. If there are no consumer deposits, the
tariff shall have to be increased. That will effect all the consumers. Interest
at 2% is charged in case of default only in order to ensure proper payment. It
is penal in character. In the judgment under appeal, the High Court held that
the burden relating to interest can be reflected either in the tariff or could
be set off by calling upon the consumer to make deposit. In fact, this Court
has upheld the tariff revision effected by Andhra Pradesh Electricity Board as
seen from Hindustan Zink Ltd. Etc. Etc. v, Andhra Pradesh State Electricity
Board & Others [1991] 3 SCC 299.
It
cannot be contended that the three months consumption deposit is arbitrary.
This argument ignores the following important factors:
i)This
is not a security deposit but a consumption deposit.
ii) It
in the nature of an advance payment.
iii)In
the event of failure to pay, it could be proceeded against as seen from clause
28.1.2.
(iv)
Consumption deposit is variable as per clause 28.2 (iv) If therefore, the
object of consumption deposit is to ensure proper payment with reference to
electricity supply, there is nothing arbitrary or unjustifiable. The fact that
some of the appellants pay large amounts by way of electricity charges will
have nothing to do with the nature of deposit.
Merely
because it is a power based unit, it cannot be treated separately. Nor can the
appellant make a virtue out of necessity. The terms of supply relating to
consumer deposit must be uniform, therefore, it is not correct to contend that
the power based unit must be treated separately.
As
regards payment of interest at 3%, electricity supply is made on 226 credit
basis. Therefore, it is a matter of adjustment of Board finances. Strictly speaking,
the consumer deposit is in the nature of fidelity guarantee to ensure proper
payment by consumer. The consumer may not be entitled to interest at all.
However, where the Board has so adjusted finances and pay 3% interest, the
Board cannot be defaulted.
Jagdamba
Paper Industries case (supra) cannot be said to be a decision as to the rate of
interest payable by the Electricity Board. Upon reading paragraph 11 of the
judgment, it will be clear that it proceeded on the consent of the counsel.
RAJASTHAN
The
writ petitioners applied to appellant Board for the supply of high tention
power for their factories. After the execution of the necessary agreement and
furnishing of security deposit, power connections were given.
Subsequently,
the Board issued notice requiring the consumers to deposit the enhanced amount
of cash security as well as the bank guarantee on the basis of maximum power
consumption of three months.
With
regard to security deposit, Part 11 of the General Conditions of Supply and
Scale of Miscellaneous Charges in Note-II stated that no interest will be paid
by the Board on the security deposit. Two contentions were raised in the
petitions, (i) Note II providing for no interest was bad in law, (ii) the
enhanced security must be calculated not on three months maximum consumption
but on the basis of minimum power consumption. These two contentions found favour
with the learned Single Judge. The Rajasthan Electricity Board filed special
appeals while the consumers filed cross appeals. The Division Bench held as
under:
i)The
Board has power to demand additional security but the average consumption of
three months should be taken as the basis for calculating the amount of such
security.
ii)The
clause relating to non-payment of interest was not reasonable. Interest must be
allowed on the entire amount of cash security from the date of the writ
petition. The appeals by the Board were dismissed while cross-appeals by the
consumers were allowed. Ag- 227 grieved by this judgment, the present S.L.Ps.
have come to be preferred by the Rajsthan Electricity Supply Board.
Mr. Soli
J. Sorabjee, learned counsel appearing for the appellant argued as follows:
There
is no legal obligation to pay interest on a deposit made by the consumer with
the Board in terms of Clause 20 (a) & (c) of the General Conditions of
Supply. Nor even interest is payable under common law or in equity. In this
connection, the learned counsel draws our attention to Halsbury's 4th Edition,
volume 32 pages 54-55. There is no legal or equitable obligation to pay
interest for detention of monies. In support of this argument, learned counsel
relies on Bengal Nagpur Railway-company Ltd. v. RuttanjiRamji, (1937) L.R. 65
I.A. 66 and Union of India v. A.L. Rallia Ram [1964] 3 SCR 164, pages 187, 189-190.
There
is no contract or agreement which provides for payment of interest. On the
contrary, Clause 9 (b) (ii) of the General Conditions expressly provides that
no interest will be paid by the Board on security deposit. There is no
statutory provision which casts an obligation on the Board to pay interest on
the security deposit. The High Court erred in relying on the model form of
draft conditions of supply because the said model form is applicable to only
licensee as defined under Section 2 (h) of Electricity Act.
It is
not applicable to a Board which is not a licencee.
Further,
it is not necessary on the part of the Board to adopt model form. Schedule VI
of 1948 Act again cannot be pressed into service as the Board is not a licencee
clause 2 (b) (v) of Schedule VI merely specifies interest on security deposit
as properly incurred item of expenditure for the purpose of determining the
'clear profit' of the licencee.
The
said clause does not and cannot by itself impose an obligation on the licencee
to pay interest on security deposit. Should interest be paid, then it qualifies
as an item of expenditure properly incurred.
The
High Court also erred in relying on Section 4 (2) of the Interest Act, 1978.
Section 4 (2) has no application where on account of contractual term or a
statutory provision, payment of interest is not permitted. Section 4 (2) of the
Interest Act, 1978 merely enlarges the 228 categories of cases mentioned under
Section 4 (1). The said Section cannot override other statutory provisions or a
contract between the parties. The non-obstante clause under Section 4 (2) is
restricted only to the provisions of Interest Act, 1948. It is submitted that
under the billing practice prevalent with the Rajasthan Electricity Board the
consumer has free use of electricity during the period between consumption of
electricity and expiry of period after notice. During this period which varies
from 2 to 2 1/2 months, the consumer in
effect enjoys a credit facility.
Therefore,
if security deposit is demanded for three months, it is neither unreasonable
nor arbitrary. As a matter of fact, the security demanded by the appellant
Board is in the form of cash for one month and bank or insurance guarantee for
two months. Therefore, it is all the more reasonable.
In
support of this, reliance is placed on Kistna Cement Works Tadepalli v. The
Secretary APSEB, Vidyut Soudha AIR 1979 A.P. 291, B.R. Oil Mills, Bharatpur v.
Assistant Engineer (D) R.S.E.B., Bharatpur, AIR 1981 Rajasthan 108, .Municipal
Corporation for Greater Bombay v. M/s Devidayal Metal Industries, AIR 1984
Bombay 242, Haryana Ice Factory v. Municipal Corporation of Delhi, AIR 1986
Delhi 78 and Southern Steel Ltd. v. The A.P.
State Electricity Board, Hyderabad, AIR 1990 A.P. 58.
On the
question of the constitutionality of the provisions regarding non-payment of
interest and whether it is violative of Article 14, it is submitted:
i)Article
14 does not mandate mathematical exactitude or scientific precision;
ii)The
mode and period of security should be related to the billing practice
prevailing in Rajasthan Electricity Board.
iii)The
consumer with open eyes has entered into the agreement and has solemnly
undertaken to abide by the condition regarding nonpayment of interest. He
cannot resile from that condition. There is nothing inherently objectionable,
nor is the condition illegal or void as opposed to public policy. Even
assuming, the contract between the consumer and the Board is an adhesion
contract it is not necessarily unconscionable. In this connection, reference is
invited to Black's Law Dictionary, 6th Edition, page 40. That passege has been
cited with 229 approval in Central Inland Water Transport Corpn. v. Brojo Nath Ganguly.
[1986] 3 SCC 156. In such matters, relief is given to the party only if the
contract is so unreasonable as to be unconscionable. In this connection
reliance is placed on Gillespie Brothers Ltd. v. Roy Bowles Ltd. [1973] 1
A.E.R. 193 at 200 (g), Farmsworth on Contracts, 2nd Edition, 319 & 320 para
4.27. The rate of interest on security deposit cannot be equated with the rate
of interest payable on fixed deposit because the nature and character of a
security deposit is basically different from fixed deposit. This is clearly
brought out by the Companies (Acceptance of Deposits) Rules, 1975. The said
Rules expressly exempt security deposit in definition of Rule 2, clause (v)
& (vi), In Jagdamba paper Industries case (supra). the rate of interest was
based on a concession by the parties. The Court had no occasion to decide the
rate of interest. That part of the judgment proceeds sub silentio.
The
argument based on surcharge levied for delayed payment is a non sequitur. If
the provision for non-payment of interest is valid and not arbitrary, it does
not become arbitrary and unconstitutional because surcharge is levied at 2% per
month. In fact, surcharge has not been challenged. Surcharge is attracted only
if the bill is not paid within the due date. The submissions based on Sections
57 & 59 of the Supply Act in relation to security deposit proceed on a
misconception of the nature and character of payment as a security deposit. The
object of security deposit is to secure prompt payment of electricity bills.
They
are not intended to finance the Board's transaction.
Section
57 read with sixth Schedule is meant to ensure a reasonable return. expression
'charges' in the Sixth Schedule clearly shows that security deposits are not
included within the expression 'charges'. There is no mutual exclusivity
between increase of tariffs and earning interest on security deposits, It is
also incorrect to contend that prompt payees of electricity bills are treated
on par with the defaulters and thus anequals are treated alike. The real test
is, whether in the general application of law there is any discrimination. In
support of this submission, the learned counsel placed his reliance on:
The
Collector of Customs, Madras v. Nathella Sampathu Chetty 230
[1962] 3 SCR 786, Vivian Joseph Ferreira v. Municipal Corporation of Greater Bombay [1992] 2 SCR 257, B. Banerjee v.
Anita Pan [975] 2 774 and Fatehchand Himmatlal v. State of Meharashtra [1977] 2 SCR 828.
The
last submission of the learned counsel is that a statutory provision may be
struck down as unconstitutional only if it is palpably arbitrary and
irrationality is writ large. Merely because the Court considers a particular
provision to be unwise or undesirable, it is never struck down. The learned
counsel fairly concedes that the enhanced security deposit could be calculated
only on the average consumption of three months of the previous years.
Mr. Altaf
Ahmad, learned counsel supporting the arguments of Mr. Soli J. Sorabjee would
urge:
In
this case, the consumers are those who use H.T. and E. H. T. lines. Section 49
(3) gives the clue that each Board can have its own scheme. Section 79 of the
Supply Act speaks of the power to make regulation. Clauses (i) and (j) are
relevant because they talk of principles governing the making of arrangements
with licensees under Section 47 and other then licensees under Section 49.
The
industrial consumers constitute the majority user of the electricity amounting
to 49.51 per cent. the transmission losses for 1992-93 alone are 22 per cent.
Besides, the Board is also purchasing power from other corporations and States.
Therefore, the demand for security deposit is fully justified and there is
nothing arbitrary in not providing for interest. That is what is provided under
clause 21 (a) of the agreement in relation to high tension supply. The
consumption deposit cannot be equated to the deposit in a bank and interest
could be demanded as of right.
Mr. Kapil
Sibal, learned counsel appearing for the Haryana Board which Board has now
withdrawn payment of interest, has filed intervention application since the
present day position of the Haryana Board is on a par with Rajasthan.
Mr.
R.K. Mehta, learned counsel for the intervenor on behalf of 231 the Orissa
Electricity Board through his written submissions.urges that it may be that the
regulations in the case of Andhra Pradesh, Utter Pradesh and Bihar Provide for
payment of interest at a certain rate on the security deposit. However, the
Rajasthan and Orissa regulations provide that no interest shall be payable on
the securities furnished by the Board. In the impugned judgment the Division
Bench has not given any cogent or valid reason for striking down Condition no.
20 of the General Conditions of the Rajasthan Electricity Board. The High Court
had failed to appreciate the following factors while quashing the impugned clause
of the regulations. Electricity is an item which cannot be sold and supplied
immediately after generation. For the sale of electricity one has to take meter
reading meant for the said purpose and, therefore, the Board sends the bill for
particular duration. It is obvious that the reading of the meter could not be
taken at every point of time but only for duration/period. In the process 2-1/2
months elapse. The Board does not charge any interest at least for 2-1/2 month
from its consumers. At the same time, the Board needs finance for production,
supply and other charges necessary for supply of electricity. The Board is thus
obliged to take loans from various financial institutions. The consumers who
are utilising electricity for 2-1/2 months without making any payment will be
unjustifiably enriched at the cost of general public in the absence of security
deposit. Further taking of advance money without interest for Providing other
services in the market is a general practice. Therefore, a similar provision in
the general conditions for supply of the Board cannot be treated as arbitrary
or unreasonable.
A
consumer is not entitled to claim interest on his security deposit having
regard to the following considerations.
1.The
security deposit is furnished in consideration of the performance of the
consumer's obligation for obtaining the service essential to the life and the
well-being of community.
2. The
electricity supply is made to that consumer on credit withoutrequiring him to
make instant payment.
3. The
billing time taken by the Board is for the benefit and convenience of the
consumer as he saves additional expenditure on 232 account of instant or
shorter billing time, possibly through electronic devices which will be
included in the tariffs.
4.The
public revenues Ire blocked in the generation, transmission and distribution of
electricity for the performance of supply on which the Board pays interest in
so far as they form part of the loans borrowed by the Board for performing the
public service. On the return of the blocked moneys the Board gets no interest
from the consumers.
5.The
Board needs back its blocked money to carry out service with a reasonable
recompense.
6.The
Board is not essentially a commercial Organisation to which the consumer furnishes
the security deposit to earn interest.
Having
entered into a contract with open eyes it is not open to the consumer to say
that interest should be paid. The basis of supply of electricity and the
conditions on which it is supplied being statutory, the provisions under the
conditions of supply that the Board shall not pay interest on the security
deposit has statutory basis and accordingly cannot be struck down as arbitrary
on the basis of a commercial transaction governing a bank deposit. Therefore,
it is submitted that regulation 7 of the Orissa State Electricity Board General
conditions of Supply Regulations, 1981 providing that no interest would be
payable on security deposit is just and reasonable and is not arbitrary or violative
of Article 14 of the Constitution.
Mr. Shanti
Bhushan, learned counsel opposing the stand of Rajasthan Electricity Board
submits that the only question in this special leave petition is whether
Electricity Board is obliged to pay interest on the cash security deposits as
the Board compels industrial consumers to secure against default in payment of
electricity bills. In the first place, as laid down in Jagdamba Paper
Industries (Pvt.) Ltd. v. Haryana State Electricity Board [1983] 4 SCC 508 this
Court has indicated that the security amount should bear the same interest as
admissible on fixed deposit of scheduled banks. The interest rate on 10 per
cent was decided not really on the basis of admission but on a positive
finding.
Apart
from this, this Court has in several other writ petitions ordered interest at
12 per cent.
233 It
is submitted that the scheme of Indian Electricity Rules of 1956 and the scheme
of the Electricity Supply Act also show that the interest on security deposit
is supposed to be payable. The Board is not entitled to use the deposits to
augment its finances. They are meant only to secure the default in payment of
the bills. Section 59 of the Supply Act indicates that the only condition in
which the Board could raise the revenue is by adjustment of its tariff.
Section
49 of the Act makes provision for the sale of electricity by the Board to
persons other then licensees under the terms and conditions as the Board thinks
fit.
It can
be seen from the definitions of the Sixth Schedule to the Supply Act that the
scheme was meant to be applicable to licensees. The place of the licensees has
been taken over by the Board. That is why clause 2 (b) (v) of Schedule VI of
the definition of "clear profit" states that the interest on security
deposits was to be a part of the expenditure properly incurred by licensees.
Then again, the manner in which the accounts are to be maintained by the
licensees also shows that the licensees have to make a provision for payment of
interest on security deposits.
The
High court is right in relying on Section 4 of the Interest Act.
The
contract in the instant case is between a consumer, however, high he might be
and a monopolistic public utility company. It is clearly an adhesion contract.
This Court in Central Inland Water Transport Corporation v. Brojo Nath Ganguly
[1986] 3 SCC 156 has clearly held that an unreasonable term of an adhesion
contract will not be enforced by the Court.
Interest
on security deposit is also admissible under equity or common law. Halsbury's
4th Edn. Vol. 32, paragraph 106 at page 53 defines "interest" as the
return or compensation for the use or retention by one person of a sum of money
belonging to or owing to another.
The
Board is clearly in the position of a trustee in respect of this money since the
money is deposited by the consumers in trust with the Board to secure the Board
against default in payment of bills. The deposit of security is like the usufructory
mortgage which is provided for in Section 76 of the Transfer of property Act.
Section 76 G & H 234 provide that the mortgagee in a usufructory mortgage
would have to keep account of the incomes received from the mortgagee in his
use and would have to pay compensation for the benefit derived by the user of
the mortgaged property.
The
position here is more or less similar.
It is
not correct to state that security is an advance payment. If it is so, it would
amount to Board taking three months advance payment from the consumers. In such
a case, the Board cannot disconnect the electricity until the period of three
months is over. But the rules of the Board enable it to disconnect even if the
consumer fails to pay his bills on the due date. Then again, a penal interests
is charged in case of default. If it is in the nature of an advance payment there
is no scope for charging 2-1/2 per cent penal interest.
Lastly,
it is submitted that even under English Law interest is payable on security for
electricity as seen from Halsbury's Volume 16 paragraph 129:
"129.
Giving of security. Security required under the Schedule to be Electric
Lighting (Clauses) Act 1899 to be given to an electricity board (See the
Electric Lighting (Clauses) Act 1899, Schedule, ss. 25 (2), 27 (2), (3), and paras.
115, 118, ante.) may be by deposit or otherwise, and of an amount agreed or,
failing agreement, determined by a magistrates' court, and that court may deal
with the caused of the proceedings and its decision is final and binding on all
parties, (bid., Schedule, S. 71; Electricity Act 1947, s. 57 (2), 1 Sch 4, Part
111) Where security is given by way of deposit the party to whom it is given
must pay interest at the rate of 4 per annum an every sop for each period of
Six months during which it remains so deposited.
(Electric
Lighting (Clauses) Act 1899, Schedule, S. 71 proviso; Decimal Currency Act
1969, S. 10 (I)." UTTAR PRADESH STATE ELECTRICITY BOARD The question
raised before the High Court was as to the rate of 235 interest. The respondent
(U.P.State Electricity Board ) amended the rate of security deposit as Rs. 2
per K.V.A. On such deposit it paid only 3 per cent interest whereas on late
payment of the bills it charged more than 24 per cent surcharge from the
consumer. The appellants preferred writ petitions in so far as they were denied
12 per cent interest on the deposit taken from the consumers. The Division
Bench of the High Court held:
"These
petitions are dismissed with a direction that in case the Supreme Court decided
that the interest at a rate higher that 3% should be paid on such security and
additional security deposit, the benefit of the same judgment shall also be
extended to the petitioners herein without the necessity of any further
proceedings being taken by the petitioners." Hence, the special leave
petitions.
Mr. G.
Ramaswami learned counsel for the appellants would urge that Jagdamba's case
(supra) has decided that rate of interest. Therefore, that should govern.
In a
number of matters this Court has also ordered interest at 12 per cent. The same
principle should apply to this case as well.
1.Security
Deposit is a compulsory levy. The consumer has no option.
2.Even
in contractual matters if the Board, which is a State, does not behave fairly,
this Court can always interfere.
3.The
Board cannot compel the consumer to make a security deposit without
corresponding obligation to pay interest.
4.
Deposit does not contemplate appropriation.
5.
Prior to appropriation, what is the character of the deposit, requires to be
determined. It is not the payment of money by way of 236 advance.
As to
the meaning of interest it could be gathered from the case in Riches v. West
minister- Batik Limited. 1947 Appeal Cases 390 at 400. In Union of India v.
A.L. Rallia Ram [1964] 3 SCR 164 this Court held that interest is awardable in
equity.
A
distinction will have to be made between unreasonable and unconscionable. In
Administrative Law mere unreasonableness is enough to set aside a contract
while unconscionable relates to private law. If interest is not paid security
deposit cannot be demanded as this will amount to unconscionable bargain. As to
the meaning of unconscionability, Black's Law Dictionary. (Fifth Edition) at
page 1367 can be usefully referred to:
"Basic
test of "unconscionability" of contract is whether under
circumstances existing at time of making of contract and in light of general
commercial background and commercial needs of particular trade or case, clauses
involved are so one-sided as to oppressor unfairly surprise party. Division of
Triple 7. Service, Inc. v. Mobil oil Corp., 60 Misc. 2d 720, 304 N.Y.S. 2d 191,
201.
Unconscionability
is generally recognized to include an absence of meaningful choice on the part
of one of the parties. to a contract together with contract terms which are
unreasonably favorable to the other party.
Gordon
v. Crown Central Petroleum Corn., D.C. Ga., 423F. Supp.
58, 61.
Typically
the cases in which unconsionablity is found involve gross overall one-sidedness
or _gross one sidedness of a term disclaiming a warranty, limiting damages. or
granting procedural advantages. In these cases one - sidedness is often coupled
with the fact that the imbalance is buried in small print and often couched in
language unintelligible to even a person of moderate education. Often the
seller deals with a particularly susceptible clientele. Kugler- v. Romain, 58,
N.J. 522, 279 A. 2d 640." 237 As to the meaning of reasonableness it is
stated in G.B Mahajan and Ors. v. Jalgaon Municipal Council and Ors. [1991] 3
SCC 91 at 109. Under English Law relating to electricity supply as seen from Halsbury's
Vol. 16 at paragraph 129 it is clearly stated that interest on security deposit
is payable. Therefore, all the more the reason why here also it must be held to
be payable.
Mr. Kapil
Sibal, opposing the stand of Mr. G. Ramaswami arguers that there is no order of
this Court adjudicating the rights of the Board on the consumer in respect of
the validity of consumption security deposit being condition precedent for the
supply of electricity by the Board as we II as the liability of the Board to
pay interest to the consumer in respect of the consumption security deposit. In
the absence of any such adjudication the question of Board being bound by the
previous orders of this Court. does not arise. In cases where 12 per cent
interest was awarded it was only by way of ad interim measure. The other orders
are also not conclusive on this aspect. Therefore, the matter will have to be
decided afresh in the instant cases.
Far
from being a compulsory levy, the consumption security deposit is not only a
deposit in cash to safeguard recovery of electricity dues for the energy
supplied to the consumer on credit but also a security towards payment or
satisfaction of any money (For example, theft), which may become due and
payable to the Board by the consumer.
The
obligation to pay interest to the consumer proceed on the assumption that the
Board is keeping the security deposit and depriving the consumer of tile use of
the money which is alleged to be earning interest with the Board.
This
assumption is not warranted for the followings reasons:
1, The
cycle of billing demonstrates that in the very nature of things the consumer is
supplied energy on credit. The security deposit is hardly sufficient to secure
the payment to the Board by the time the formal bill by the Board is raised on
the consumer.
2.The
consumption security deposit indeed represents only part of he money which is
payable to the Board at the end of the billing 238 cycle.' The said amount can
be appropriated at any time towards the payments that are due to the Board and
reflected in the formal bill.
3.In
the nature of billings cycle it is the Board which has to receive interest on
the energy supplied to the consumers on credit.
4.The
concept of interest earned on a fixed deposit is alien to the issue. The
liabilities of the consumer increase on a daily basis depending on the level of
supply and consumption. Therefore, the amounts due are liable to be
appropriated forthwith. That is not possible where moneys are placed either on
fixed deposit or a savings bank account.
It is
incorrect to contend that the amount is lying in trust with the Board. The
amount lying with the Board could also be appropriated for satisfaction of any
amount liable to he paid by the consumer for violation of any conditions of
supply in the context of wide scale theft of energy and tempering with meters.
Therefore, the security deposit serves not only to secure the interest of the
Board but also serves as a deterrent on the consumer in discharging his
obligation towards the Board. Under section 49 the Board is enabled to supply
electricity upon such terms and conditions, as it thinks fit under Article 226
of the constitution, the Court is to conduct a limited scrutiny whether by
imposing such a condition the Board has not acted as a private trader and there
by shd off its public utility character. Should the Coust come to the
conclusion that the Board has not acted as a private trader and tile nature of'
deposit has a rational relationship, the issue will fall outside the scope of
judicial purview.
Section
49 must be read alongwith Section 59. The contention that the Board can achieve
a surplus by adjusting its credit does not flow from the language of Section
59.
The
requirement of consumption security deposit is a condition of supply. It has a
direct bearing on the operation of the Board. Hence it is 'per-se' reasonable
and constitutional.
If
there is a revision in the rate of tariff there has to be an upward revision of
the consumption security deposit since it has a direct bearing on the level of
supply in consumption of electricity. In October 239 1986, the tariffs in the
State of Uttar Pradesh were adjusted upwards. The revision
in the form of an additional security deposit with interest at the rate of 3
per cent was made in January 1987. These facts would suggest the rationale in
the imposition of additional security deposit.
This
being a condition of supply no reasons need be given at the time of upward
revision. Union of India v. A.L Rallia Ran [1964] 3 SCR 164 relates to the award
of interest by an Arbitrator. The nature of consumption security deposit is
such that it represents the moneys of the Board. There is no relationship of
debtor and creditor. There is no deprivation of property which alone will
entail the consequences like payment of interest.
The
learned counsel has also filed a tabulated statement to show that the security
deposit made by the appellant is 72.42 lakh for all industries while the
affairs in electricity come to 965.73 lakh. A formal chart has been filed based
on the figures for August. September and October 1991 to show that after the
third month the consumption charges total to 45.09 lakh. While security that is
offered is 15.95. The same is the position with reference to other industries
as well concerning whom the learned counsel has filed a tabulated statement.
This so to establish how the Electricity Board has supplied electricity on
credit to the various consumers and the security deposit is hardly sufficient
even for one month's consumption.
BIHAR
SLP 11799 of 1989 The appellant (Bihar Electricity Board) provided 4 per cent
interest per annum on security deposit. When this was questioned in C.W.J.C.
No. 3000 of 1987 in the matter of Dhanbad Flour Mills, a Division Bench of the
High Court was of the view that an interest at 4 per cent appeared to be
unreasonable and directed the Board to examine the question of enhancement of
the rate of interest. Similar directions were issued in another case. The
appellant-Board after examining the matter issued a Notification on 27th of
May, 1988 and enhanced the rate of simple interest to 5 per cent per annum.
This was because the amount of security deposit was kept in the savings account
which earned 5 per cent interest which was passed on the consumer. The said notification
was questioned before the High Court by seeking 240 a writ of mandamus claiming
interest at the rate payable on fixed deposit by a nationalised bank in view of
the decision by this court in Jagdamba's case (supra). By the impugned judgment
the High Court directed payment of interest on security deposit at the rate
payable on fixed deposit by nationalised banks. Aggrieved by this judgment the
Bihar State Electricity Board has preferred the special leave petition.
Mr. G.
L. Sanghi learned counsel appearing for the Bihar Board draws our attention to
clause 15.3 of the tariff notification and submits that the consumption
security deposit is not only for the supply of energy on credit but also for
satisfaction of any money payable by him. If the consumer does not pay the dues
in time the arrears of consumption charges will have to be adjusted against the
security deposit. Therefore, the security deposit can never be kept in bank
under fixed deposit. This is the reason why the amount is kept in savings bank
account and whatever interest is earned thereon. that is passed on to the
consumer. Therefore, the High Court was not right in awarding a higher rate of
interest. In other respect, the learned counsel adopts the argument of the
other learned counsel appearing for the various Boards including the contention
that Jagdamba's case (supra) did not lay down the rate of interest.
Normally,
in market transaction when any one supplies on credit to a consumer a guarantee
is taken for the payment on dues. Such a guarantee may be in the shape of a
bank guarantee, fixed deposit. Similarly, the Board when it supplies
electricity on credit it keeps tile security for the amount of supply of the
electricity. According to Board's standing order No. 433 dated 31.12.74, dues
at any time are not allowed to exceed amount of security deposit and adjustment
is to be made against the security deposit after the disconnection of supply.
Therefore, it is not correct to state that the security is not adjusted towards
the bill and is kept in tact.
Section
24 of the Electricity Act is the only provision to ensure payment is indicated
in Bihar State Electricity Board Patna v. M/s. Green Rubber Industries and
other [1990] 1 SCC 731.
In
meeting these arguments it is submitted by Mr. M.P. Jha, learned counsel for
the respondent that the stand of the Board in 241 making payment of interest at
4/5 per cent is clearly arbitrary.. The security aspect of the Board
requirement can easily be satisfied by the board resorting to liquidation of security
deposit. As a matter of fact, the security deposit was never adjusted by the
appellant Board. As a result large amounts were kept without investing them in
fixed deposit. Learned counsel for the respondent relies on the orders issued
by this Court and submits that the question of interest is settled by the
ruling in Jagdamba's case (supra). Section 24 is of no help for payment of a
lower percentage of interest.
W.P.
No. 578 of 1987 In this writ petition, under Article 32 of the Constitution,
the challenge is to the increase of security deposit for L and H power
consumers above 100 B.H.P. It has been increased from Rs. 170 to Rs. 200. No
reason whatever has been assigned for such an increase of security deposit. That
will he bad in law as laid down in Central Inland Water Transport Corporation
Limited (supra). This is the argument of Mr. Gobind Mukhoty. 'This is countered
saying that when there is an increase in tariff the security deposit also is
liable to be increased.
PUNJAB W.P. NO. 1317 of 1990 In this writ
petition, the challenge is to the validity of Sections 49 and 79 of the Supply
Act. According to the respondent (Punjab State, Electricity Board), the writ
petition is not maintainable. A challenge to the imposition of advance
consumption of deposit does not involve any fundamental right.
The
Punjab State Electricity Board is a licensee of the State of Punjab. The electrical energy is generated
through hydro as well as thermal plants for ultimate sale to consumers. 50% of
powers generated through hydro while the remaining through thermal plants which
consume coal/oil.
The
coal companies and those major suppliers of power plants are demanding cost of
coal in advance. On these advances no interest is payable to the Board.
Therefore, while the Electricity Board is required to make colossal advances to
generate electricity and supply to consumers the consumers also use and consume
electricity 242 on credit ranging from 2 to 3 months depending upon the
category of consumers. To off-set part of the amount that the consumer owes to
the Board constantly and also to ensure timely payment of advances by the Board
to its suppliers an advance consumption deposit is insisted upon before
commencing supply to the consumer. If this is not so taken the Board will be
left with no other option than to increase the tariff. This advance deposit
cannot be termed as a fixed deposit as the amount cannot be utilized against
non- payment of dues from consumers. Besides,the consumers can also ask for the
refund. Sections 49(1) and 79 (j) cannot be termed as arbitrary. In fact, this
Court has upheld the validity of Section 49 (1) in Jagdamba's case (supra).
Lastly,
it is submitted that the Board is generating electricity and each unit so
generated costs the Board rupee one per unit. The Board is selling at an
average rate of 50 paisa per unit to the consumer which includes the
agricultural sector. Therefore, the amendment to clause 23 of abridged
conditions of supply requiring to pay advance consumption deposits is perfectly
reasonable.
Mr.
P.P. Rao, learned counsel appearing as intervenor on behalf of Calcutta
Electricity Supply Corporation supplements the submissions of Mr. Soli J. Sorabjee.
The deposit though called security deposit is really an adjustable advance
payment of consumption charges. The amount is revisable from time to time
depending upon the average consumption charges on the basis of actual
consumption over a period.
The
true nature of transaction in these cases is one of advance for consumption of
electricity estimated for a period of three months subject to adjustment
/revision, if necessary. Such an advance is liable to be made good and kept at
a stipulated level from month to month. It is open to the consumer to permit
adjustment of the advance in the first instance. Thereafter, make good the
shortfall in consumption charges and the security deposit before actual
disconnection of supply which takes at least about three months. In short, it
is in the nature of a running account.
The
security deposit does not remain in tact like a fixed deposit but gets depleted
day after day depending on the extent of consumption More often than not, the
consumption charges and other dues exceed the security deposit. That
necessitates calling for 243 additional advance to make up a shortfall. In the
absence of any usage or contract or any provision of law requiring payment of
interest is not payable for wrongful detention of money. In this case, there is
no wrongful detention of even. Section 4 (2) of the Interest Act has no
application to this deposit. When electricity supply is duly made with a
consequential liability to pay for each day's consumption, the so-called
security deposit is not a deposit in the real sense for the consumers to claim
the benefit of Interest Act.
We
will now proceed to consider the correctness of the above submissions with
reference to the following aspects:
(i)
Whether Section 49 is bad for want of guidelines.
(ii)The
nature of consumption deposit, irrespective of the nomenclature by which it is
called.
(iii)(a)
The liability of the Electricity Board to pay interest.
(b)
Whether the clause in the terms of supply providing for nonpayment of interest
is unconstitutional or arbitrary.
(iv)The
demand for additional consumer deposit Whether valid? VALIDITY OF SECTION 49 The
law relating to electricity is principally contained in two Acts.
(i)The
Indian Electricity Act of 1910 (hereinafter referred to as the
"Electricity Act"). 'Ms provides for grant of licences in relation to
supply of electricity and the projects of undertakings. It also provides for
supply of electricity including the protective clauses.
(ii)The
Electricity (Supply) Act of 1948 (hereinafter referred to as the "Supply
Act") provides for constitution of State Electricity Boards, the powers
and- duties of such Boards. Certain important 244 provisions of the Act may now
be seen.
Section
2 is interpretation Section, Under Section 2 (2) the Board means a State
Electricity Board constituted under Section 5.
Under
Section 2 (10) states that regulation means regulations made by the Board under
Section 79.
Section
5 deals with the constitution and composition of State Electricity Board.
Section
49 is the provision for sale of electricity by the Board to persons other than
the licensees. Sub-section (1) of the said Section commences with the words
"Subject to the provisions of this Act and of Regulations". This
means if there are any provisions regulating the Board in the matter of
supplying electricity to any persons not being a licensee then the supply by
the Board will he subject to all those provisions. It has been so laid down in Mysore
State Electricity Board v. Bangalore Woollen, Cotton and Silk Mills Ltd., AIR
1963 SC 11 28 at page 1136:
"The
expression "Subject to the provisions of this Act" merely that if
there are any provisions regulating the Board in the matter of supplying
electricity to any person not being a licensee, then the supply by the Board
will be subject to those provisions. No provision has been brought to our notice
which regulates the Board in the matter of the charges which it may fix for the
supply of electricity." This Court had occasion to deal with the scope-of
the said Section and Section 59. In Hindustan Zinc Ltd. v. Andhra Pradesh State
Electricity, Board [1991] 3 SCC 299 at pages 317-319 it has been observed thus:
"Section
49 makes provision for the sale of electricity by the Board to persons other
than licensees. Sub- 245 section (1) starts with the words "Subject to 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-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 specifically enumerated shall be taken into account while performing
the exercise which in this case is fixation of the uniform tariffs. Ordinarily,
therefore, uniform tariffs are required to be framed by the Board for making
such supply. Sub-section (3) then proceeds to say that nothing in the earlier
enacted provisions 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", having regard to the geographical position of
any area, the nature-of the supply and purpose for which supply is required an
d any other relevant factors'. Sub-section (4) then says that in fixing the
tariffs and terms and conditions for the supply of electricity, 'the Board
shall not show undue preference to any person., In other word, subsection (4)
provides against any unreasonable dis- crimination in fixing the tariffs and
terms and conditions for supply of electricity. The power of fixation 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 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 fixin the
tariffs.
246 The
next important provision is Section 59 of the Supply Act. 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 23 of 1978 and
finally as amended by Act 16 of 1983, quoted earlier.
Prior
to 1978, Section 59 required the Board, as far as practicable 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 accordingly 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.
Section
59 as amended by Act 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 after meeting all expenses properly chargeable to
revenue including those specified,left such surplus as the State Government
specified from time to time. The 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-section (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 16 of
1983, which came into effect from April 1, 1985, was to provide for a minimum surplus, of three per cent or
such higher percentage as the State Government is to specify in this behalf. In
other words, prior to 1978 amendment, the requirement from the Board 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 per
cent unless the State Government specifies a higher. sur- 247 plus. 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 concerned 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 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 the
revision of tariffs.
into
force from April 1,
1985, is that the
Board entitled to adjust its tariffs to ensure generating a surplus of not less
than three per cent even without such specification by the State Government and
when the State Government specifies 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 after 1978 amendment towards the positive approach of
requiring a surplus to be gener- ated, 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 case [1986] 4 SCC 198 indicated earlier cannot be
faulted in any manner. In Govinda Prabhu case the same argument which is
advanced before us was expressly rejected. We are of the same view." The
next Section is Section 79 which talks of power to make 248 regulations. Clause
(j) deals with the principles governing the supply of electricity by the Board
to persons other than the licensees under Section 49. In accordance with this,
each of the Boards has framed regulations. All consumers are required to
execute agreements governing the supply of energy.
The
attack against Section 49 is that it does not contain any norm of guideline
with regard to framing of terms and conditions for the supply of electricity
and in particular, the demand of payment of interest on the amounts due to the
Board. Further, the principle of fairness of action has not been explicitly set
out so as to make it a visible guide.
The
words occurring in the Section "as the Board thinks fit" must be
construed as "reasonably thinks fit". We are unable to countenance
this argument. A careful reading of Section 49 clearly discloses as was noted
in Hindustan Zinc Ltd. v. A.P.S.E.B. [1991] 3 SCC 299 at 317 sub-section (1) of
the said section starts with the words "Subject to the provisions of the
Act and all regulations, if any, made in this behalf'. Therefore, the Board has
to conform to the various provisions of the Act and the regulations. Section 49
contains two powers:
1. To
prescribe terms and conditions of supply; and 2. fix the tariff.
No
guidelines are required in this regard. In Jagdamba Paper Industries Pvt. Ltd.
v. Haryana State Electricity Board [1983] 4 SCC 508 at 513-14 it was pointed
out as follows:
"We
are of the view that the Board has been conferred statutory power under Section
49 (1) of the Act to determine the conditions on the basis of which supply is
to be made. This Court in Bisra Stone Lime Company Ltd. v. Orissa State
Electricity Board [1976] 2 SCR 307, took the view that enhancement of rates by
way of surcharge was well within the power of the Board to fix or revise the
rates of tariff under the provisions of the Act. What applied to the tariff
would equally apply to the security, that being a condition in 249 the contract
of supply. Each of the petitioning consumers had agreed to furnish security in
cash for payment of energy bills at the time of entering into their respective
supply agreements. There was no challenge in these writ petitions that the
demand of security at the time of entering into supply agreements has to be
struck down as being without jurisdiction. Section 49 (1) of the Act clearly
indicates that the Board may supply electricity to any person upon such terms
and conditions as the Board thinks fit.
In
exercise of this power the Board had initially introduced the condition
regarding security and each of the petitioners had accepted the term."
(Emphasis supplied) Where, therefore, under Section 49 read with Section 79 (j)
regulations are made, the validity of the regulations could be examined by the
Court, whether they are reasonable or not.
In
Southern Steel Ltd. Hyderabad v. The Andhra Pradesh State
Electricity Board AIR 1990 Andhra Pradesh 58 at 66-67, it was observed:
"Before
we proceed to deal with the rival contentions, it would be appropriate to
notice the scope of judicial scrutiny by this Court in such matters. Acting
under Art. 226 of the Constitution, this Court does not sit as an appellate
authority over the Electricity Board. Indeed, the Act has not chosen to provide
an appeal against the terms and conditions under S.49. The jurisdiction
exercised by this Court under Art. 226 is supervisory in nature. It is to
ensure the observance of fundamental right the rule of law, and to keep the
authorities within their bounds. Undoubtedly, the Electricity Board is a
'State' within the meaning of Art. 12 and hence it is subject to Parts III and
IV of the Constitution. The scope of enquiry, therefore, would be to examine
whether the power conferred 250 upon the Board by S.49 of the Act has been
exercised so unreasonably and arbitrarily that interference by this Court is
called for.
For
the purpose of this enquiry it is not necessary for us to go into the question
whether the terms and conditions notified under S.49 are statutory, in nature
or not.
We
shall proceed on the assumption that they are not statutory. We shall also
proceed on the assumption that the terms and conditions notified under S. 49
ought to be reasonable, in the sense that they must be related to the object
and purpose for which they are issued.
We are
equally aware that the power under S. 49 cannot be allowed to be used for
oblique purposes, or for purposes unrelated to the one sought to be achieved by
a given condition." In M/s Mills, Bharatpurv Assistant Engineer(D)
R.S.E-.B. ,Bharatpur AIR 1981 Rajasthan 108 at 109, it was observed:
"Where
demand for deposit of cash security for one month's estimated consumption
charges and bank security equal to two months estimated charges as contemplated
by Regulation 20 read with the Schedule theret o was made by the Electricity
Board from a consumer of high tension electricity, the demand could not be said
to be unreasonable and the consumer would not be entitled to continuation of
the energy under Sec. 24 of the Electricity Act on his failure to deposit such
security, even if no agreement had been entered. into between the consumer and
the Board after the commencement of high tension supply. Once the supply for
electricity had commenced the consumer was bound by the terms and conditions of
supply contained in the Regulations. Further, in such a case, merely because
the Board did not encase or could not encash a small portion of the security
deposited in the form of National Saving Certificates before coming into force
of the Regulations, it could 251 not be said that the demand of cash security
in the form of Bank guarantee by the Board under the Regulations was
unreasonable.
furthermore,
the demand of security from the consumer which was in accordance with the
Regulations framed by the Board could not be said to be unreasonable merely
because no interest is paid on the cash security deposited by the
consumer." In other words, the terms and conditions notified under Section
49 must relate to the object and purpose for which they are issued. Certainly,
that power cannot be exercised for a collateral purpose. In this view, we hold
Section 49 as valid.
NATURE
OF CONSUMPTION SECURITY DEPOSIT
Each
of the Electricity Boards before us is a State within the mening the meaning of
Article l2 the Constitution of India. The Boards are different from licensees.
(Emphasis supplied) Each of the Board has framed the tern-is and conditions of
supply. 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 or Rajasthan, the
security is in the form of cash for one month and bank or insurance guarantee
for two months.
The
legislative Sanction behing the power of the 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 of the 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 of the
Board for the purpose of the Act. Under the regulations framed by the Board in
exercise of powers of Section 49 read with Section 79 (j) 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 of 252 the
Electricity Act that the requisition for supply of energy 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 stated above, could be enough to clothe it with
legal sanction. In cases where regulations have not been made Rule 27 of the
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 of his 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.
The
next question will be: what is the object in demanding security? The deposit
though called security deposit is really an adjustable advance payment of consumption
charges. The payment is in terms of the agreement interpreting the conditions
of supply. 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 of energy with reference to all the
Boards.
As a
matter of fact, electricity is supplied in anticipation of payment. In almost
every case it takes nearly 2-1/2 months for the recovery of the amount before
action for disconnection could be taken. We will give one illustration as is in
the case of Rajasthan. The following.is the billing cycle:
(a)
Consumption period 30 days
(b)
Period consumed after taking the meter readings to issue bills. 10 days
(c)
Period allowed for payment 17 days
(d)
-Notice for disconnecting 253 supply if consumer fails to deposit energy bill
in 7 days time.
(e)
Period taken in actual disconnection after expiry of notice.
10
days Total: 74 days In practice, some time is also taken between the period
allowed for payment and the notice of disconnection. At the same time, there is
no obligation that the consumer must use only a particular quantum of
electricity. He could even consume more than the average consumption. The Board
after 2-1/2 months recovers amount for the electricity supplied by it. It could
charge late surcharge in case of high tension tariff after the expiry of the
said period.
Thus,
it will be clear that the true nature of the transaction in these cases is one
of advance payment of charges for consumption of electricity estimated for a
period of approximately three months. Such an advance is liable to be made good
and kept at the stipulated level from month to month. It is open to the
consumer to permit adjustment of the advance in the first instance.
Thereafter,
he could make good the shortfall in consumption charges and the security
deposit before actual disconnection. Actually speaking, it is only after three
months the disconnection takes place. Hence, it is like a running current
account.
The
cycle of billing by the Board demonstrates that in the very nature of things,
the consumer is supplied energy on credit. The compulsory deposit in the
context of billing cycle is hardly adequate to secure payments to the Board by
the time the formal bill by the Board is raised on the consumer. In one sense,
the consumption security deposit represents only a part of the money which is
payable to the Board on the bill being raised against the consumer. Thus, the
Board secures itself by resorting to such deposit to cover part of the
liability.
For
supply of electricity 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 254 illustrated if one
looks at the transactions of Punjab Electricity Board where electric energy is
generated through hydro as well as thermal plants for ultimate sale to the
consumers of the 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 of Punjab the dependency on power on thermal
plants is on the increase. The present requirement for working of thermal
plants is more than 52 lakh tonnes of coal per annum. In addition, 60 thousand kolo
litre of furnace oil is required.
The
coal companies/Coal India Limited together with major
suppliers of power plant like M/s. BHEL demand cost of coal/ spares/projects in
advance for the supply of material.
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
of such power again advance payment are made by the Board. On such advances the
Board is not paid any interest. The effect is, the Board is obliged to bear the
liability of hundreds of crores of rupees 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 consumers. It is the case of the Board that it has
opened letters of credit by making advance deposits in favour of National
Thermal Power Corporation and the suppliers. Coal India Limited has also asked the
Board to open revolving letters of credit in favour of Coal companies/Coal India Limited. Despatch of coal is only
against the letter of credit.
From
the above, it is clear that while the Electricity Board is required to make
colossal advances to generate electricity and supply to consumers, the
consumers use and consume electricity on credit ranging from 2 to 3 months depending upon the category of consumers. To
off-set part of the amount the consumer owes to the Board continually to ensure
timely payment of bills by the Board to its suppliers, the advance consumption
deposit is required to be kept with the Board before commencing supply to the
consumer. The clauses in the contract in relation to conditions of supply of
electric energy enable the Board to adjust the bill against such deposits.
Therefore, this is not a case of mere deposit of money as in commercial
transaction. In demanding security deposit it is open to the Court to take note
of pilferage as laid down in Ashok Soap Factory v. Municipal Corporation of
Delhi J.T. (1993) 1 S.C. 128 at page 137:
255
"............The variation in the electricity consumed by different
consumers indicated that the charge of pilferage of electricity and gross under
utilisation or consumption of electricity compared to the sanctioned load was
not without foundation..........
The
meaning of he term "deposit" is given in Corpus Juris Secundum, Vol.
26A,P. 194 quoted in Davidson v. U.S., CCA.Pa.,292 F. 750, 752 as follows:
"In
the sense of an Act. A deposit has been described as a mere incident of
custody, and, in its ordinary signification, implies something more than mere
possession, negatives all idea of loan with contemplation of use for profit,
and has been defined as an act by which a person receives the property of
another, binding himself to preserve it and return it in kind; the act of one
person giving to another, with his consent the possession of personal property
to keep for the use and benefit of the first or of a third party. It may mean a
permanent disposition of the thing placed or deposited, or a mere temporary
disposition or placing of the thing.
In
these circumstances, we conclude that the object of security deposit is to
ensure proper payment of bills.
Three
months' security deposit cannot be characterised either unreasonable or
arbitrary. This Court had occasion to point out in Jagdamba Paper industries
Pvt. (supra) at paragraph 10 which reads as under:
"We
agree however, on the facts placed that the stand of the Board that a demand
equal to the energy bill of two months or a little more is not unreasonable.
Once we reach the conclusion that the Board has the power to unilaterally
revise the conditions of supply, it must follow that the demand of higher
additional security for payment of energy bills is unassailable, provided 256
that the power is not exercised arbitrarily or unreasonably." Several High
Court decisions also had taken this view as seen from K.C Works v. Secretary
APSEB. Vidyut Soudha AIR 1979 Andhra Pradesh 291 at 294:
"The
reasonableness of such a requirement is explained by the Board in its counter
in W.P.
No.
2359/ 75 out of which W.A. No. 156 of 1977 arises. In the counter it was stated
as follows:- "The consumer is billed for such month separately. The consumers
electricity consumption during the month is billed at the end of the succeeding
month and 30 days time is given to him for payment of the bill. If he does not
pay the bill his supply is liable to be disconnected after giving one week's
notice under Section 24 of the Indian Electricity Act, 1910. Meanwhile he will
be consuming the power. So by the time the supply is disconnected to a
defaulting consumer the would have consumer energy for 3 months. The Board's
interest requires that there should be some protection by way of security of
advance payment in respect of the consumption of this three months
period." This is how the Board sought to explain the reasonableness of the
requirement of security representing three months average consumption charges.
Nobody can say that this is unreasonable. For three months a consumer can go on
consuming electrical power without paying any charges. It is therefore,
eminently reasonable for the Board to require the consumer to furnish security
for three months charges. Therefore, we are satisfied that the requirement of
security for three months consumption charges is reasonable." At page 295
it was observed thus:
257
"As a matter of fact it may be that the writ appellant and the writ
petitioner before us are prompt in paying their electrical dues.
but
the Board alees with lakhs and lakhs of consumers and it should have a uniform
policy in demanding security. It cannot make a dis- tinction or discrimination
from one consumer to another. That is why a uniform policy has been laid down
by incorporating it in the conditions aforesaid. For these reasons we are
satisfied that the requirement of security for three months average consumption
charges by way of cash deposit is reasonable." In Municipal Corporation
for Greater Bombay v. M/s D.M Industries AIR 1984 Bombay 242 at 256 it was observed thus:
"This
brings us to the last argument advanced by Mr. Hidayatullah that Clause 12 of
the draft agreement is arbitrary and unreasonable.
The
argument was that the power to impose conditions cannot be exercised to impose
unreasonable conditions and it must also be ascertained whether the condition
achieves the object for which it is imposed. On principle, the proposition is
undisputable. Clause 12 which can be described as unreasonable and whether this
Clause has no nexus with the object of the Act and the Rules. The argument
,appears to be that if the object of security is to secure payment of bills,
then insistence on cash deposits would be unreasonable because the object could
also be served by furnishing of any security and it is said that the consumer
was willing to furnish a bank guarantee. In addition, it is urged that the
period of. consumption for which these security is required should not exceed
two months and, therefore, the determination of three months is
arbitrary." In Haryana Ice Factory v. Municipal Corporation of Delhi AIR
1986 Delhi 78, It was held thus:
"Also,
the demand of the security was corelated to the 258 consumption Pattern of the
consumers and to cover the energy charges from the date of its consumption till
the date of ultimate disconnection as a result of non-payment of the changes
due. The court cannot enter into mathematical calculations to come to a
conclusion that in stead of three months it should be 21/2 months. The fixing
of the period of security equal to energy consumption of three months is
reasonable. It may be that the Haryana Electricity Board has fixed the period
of security deposit equal to the amount of energy consumed for a period of two
months but that would depend upon the billing cycle adopted by the Haryana
State Electricity Board." In Southern Steel Ltd. Hvderabad V. The A.P.
State Electricity Board AIR 1 990 Andhra Pradesh 58 at pages 68-69 it was
observed:
"It
is also stated by the Board that huge sums are required by it as rotating
capital; that it borrows large amounts from organisations like L.I.C. and
Banks; that it pays interest to them, and that in such circumstances it is well
entitled to require the consumer to co- operate by paying their bills regularly,
by giving security deposits, and by conforming to the terms and conditions of
supply. It is argued that this consideration was also one of the bases of
condition No. 28. We do not think it necessary to express any opinion on this
question, though the truth of the matter cannot be denied. There are two views
upon the matter. The petitioners say that the interest burden should be
reflected in the tariffs, while the Board says that interest burden can be
reflected in consumption deposits, and not necessarily in tariffs. All that can
say is that there no hard and fast rule in this behalf. The interest burden can
be reflected either in tariffs, or can be sought to be set off by calling upon
the consumers to make deposits.
In
this case, however. It is unnecessary to go into this aspect, since the
requirement of three months deposit, in our opinion, cannot be said to be
unreasonable and unjustified having regard to the facts mentioned above. It
cannot be said that the said condition is so unreasonable and. arbitrary as to
call for interference by this Court under Art.
259
226 of
the Constitution. We reiterate that even if this court comes to the conclusion
that the deposit should not be 3 months, but 2 months 7 days, or 2-1/2 months,
it would not be entitled to interfere in the matter, not being an appellate
authority. It cannot substitute its own opinion for the opinion of the Board.
It can interfere only when the exercise of power is shown to be arbitrary, and
unrelated to the object sought to be achieved." We are in agreement with
the above extracts.
The
liability of Electricity Board to pay interest on Security Deposit:
Now,
we come to the crucial question as to whether interest is payable on security
deposit or advance consumption deposit. We will examine from the following
angle:
(a)
The scheme of Electricity Acts.
(b)
Schedule VI of the Supply Act.
(c)
Interest Act, 1978 (d) Equity or Common Law.
(a
& 6) Scheme of Electricity Acts & Schedule VI of Supply Act:
It is
the submission of Mr. Shanti Bhushan, learned counsel appearing for the
respondent against Rajasthan Electricity Board that the scheme of the
Electricity Act and Supply Act together with the rules suggest the payment of
interest.
The
Board is 'not entitled to utilize the security deposits for augmenting its
finances as they are meant to secure the Board against default in payment of
the bills. The correctness of this argument may now be seen:
There
is no statutory provision which casts an obligation on the Board to pay
interest on security deposit. However, reliance is placed on model form of
draft conditions of supply as is found in Annexure VI, traceable to Role 27 of
Indian Electricity Rules, 1956. Clause 14 relating to security deposit of the
said Annexure reads:
260
".. .... Interest at the rate of per cent per annum will be paid by the
licensee on deposits exceeding Rs. 251/-".
(Emphasis
supplied) The model form is applicable only to a licensee as defined in Section
2 (4) of the Electricity Act.
Though
Rule 27 prescribes a model form it is not compulsory,even for a lincesee to
adopt the model condition of supply. This is because Rule 27 itself Stipulates
the model conditions of supply contained in Annexure VI, may with such
variations as the circumstances of each case require, be adopted by the
licensee." Therefore, there is an option available to adopt with such
modifications. In such a case, the adoption of the model form becomes
permissive.
In
this connection, Section 26 of the Supply Act, to which we have made a
reference earlier, must be looked at. Though the Board is to have powers and
obligations of a licensee under the Electricity Act, the second proviso to this
Section assumes importance. It reads:
"Provided
further that the provisions of Clause VI of the Schedule to that Act shall
apply to the Board in respect of that area only where distribution mains have
been laid by the Board and the supply of energy through any of them has
commenced." Second proviso of the Supply Act leads us to Schedule VI.
This
Schedule has been framed in exercise of powers under Sections 57 and 57A. In
defining "clear profit" paragraph (2) of clause XVII, Item (v) makes
a reference, as interest of security deposits which is a part of expenditure
properly incurred by the licensee. From this it is impossible to hold that this
clause imposes an obligation on the licensee to pay interest on security
deposits. All that would mean is, if interest is paid then it qualifies as an
item of expenditure properly incurred. This is the position with regard to
licensee. But this cannot apply to the Board, which as stated above, is not a
licensee. For the same reason Item L 1 (c) of Form IV of the Electricity Rules
relating to interest paid and accrued on consumers' security deposits is of no
avail because that relates to the manner of keeping accounts by the licensee,
not being applicable to a Board.
261 In
the above premises, it follows that there is nothing to indicate under the
scheme of the Electricity Act or Schedule VI of the Supply Act that interest must
be paid on the security deposit.
(c)
Interest Act: applicability.
As
regards the applicability of Interest Act, we find that the Division Bench of
Rajasthan High Court has erred in holding that it is applicable. Section 4(2)
(g) of the Interest Act of 1978 reads as under:
"Notwithstanding
the aforesaid and without prejudice to the generality of the provisions of
sub-section (1), the Court shall in each of the following cases allow interest
from the dates specified below to the date of institution of the proceedings at
such rate as the Court may consider reasonable, unless the court is satisfied
that there are special reasons why interest should not be allowed namely:
(a)Where
money or other property has been deposited as security for the performance of
an obligation imposed by law or contract from the date of the deposit."
This
section has no application to a case where on account of a contractual term or
a statutory provision payment of interest is not permitted, A careful reading
of Section 4(2) of the Interest Act would disclose that it merely enlarges the
category of cases mentioned in Section 4(1). Even otherwise, there is nothing
to indicate that section 4(2) could override other statutory provisions or a
contract between the parties.No doubt, Section 4(2) contains a non-obstante
clause. But such a clause is restricted to the provisions of Interest Act and
cannot extend to other laws or a contract between the parties.
Accordingly
we overrule the judgment of Rajasthan High Court which holds the Interest Act
is applicable.
262
The deposit made cannot be equated to a fixed deposit. It has already bee In
seen that in the case of daily supply of electricity, there is a consequential
liability to pay for each day's consumption of electricity. To ensure that
payment, the security deposit is furnished. Hence' it cannot be equated to a
deposit at all. It is in the nature of a running current account.
(d)
Position in Equity or Common Law If this be the position, could interest be
claimed either on equity or common law? The argument on behalf of the consumers
is, if money belonging to any person is used by someone else he is oblilsed to
pay interest for the period of its user. Halsbury's Volume 32 (page 53 para
106) defines "interest" as "the return or compensation for the
use or retention by one person of a sum of money belonging or owed to
another". Therefore, it is contended that the Board is clearly in the
position of a trustee in respect of this money since the money is deposited by
the consumer in trust with the Board to secure the Board against default in
payment of interest. The object of the deposit is to secure the payment of
consumption charges. These charges may very depending upon the daily
consumption, depending on the level of supply. The amount due by way of
consumption charges would also be liable to be appropriated. Therefore, it is
incorrect to state that the Board is a trustee. The relationship between the
Board and consumer is not that of a trustee and a beneficiary but a depositor
and deposited.
This
is not even a case of a constructive trust under Section 90 of the Indian Trust
Act, since no advantage is gained by the Electricity Board in derogation of the
rights of the consumer in, view of what we have observed above.
Strictly
speaking, the word "interest" would apply only to two cases where
there is a relationship of debtor and creditor. A lender of money who allows
the borrower to use certain funds deprives himself of the use of those funds.
He
does so because he charges interest which may be described as a kind of rent
for the use of the funds. For example, a bank or a lender lending out money on
payment of interest, In this case, as already noted, there is no relationship
of debtor and creditor.
We may
now refer to Halsbury's Vol. 32 para 108:
26
"108. When interest is payable at common law.
At
common law interest is payable (1) where there is an express agreement to pay
interest;
(2)
where an agreement to pay interest can be implied from the course of dealing
between the parties or from the nature of the transaction or a custom or usage
of the trade or profession concerned; (3) in certain cases by way of damages
for breach of a contract (other than a contract merely to pay money) where the
contract, if performed, would to the knowledge of the parties have entitled the
plaintiff to receive interest.
Except
in the cases mentioned, debts do not carry interest at common law."
Consumption security deposit does not fall under any of categories mentioned
above. Para 109 says:
"Equitable
right to interest. In equity interest may be recovered in certain cases where a
particular relationship exists between the creditor and the debtor, such a
mortgagor and mortgagee, obligor and obliged on a bond, personal representative
and beneficiary, prin- cipal and surety, vendor and purchaser, principal and
agent, solicitor and client, trustee and beneficiary, or where the debtor is in
a fiduciary position to the creditor, Interest is also allowed on pecuniary
legacies not paid within a certain time, on the dissolution of a partnership,
on the arrears of an annuity where there has been misconduct or improper delay
in payment, or in the case of money obtained or retained by fraud. It may also
be allowed where the defendant ought to have done something which would have
entitled the plaintiff to interest at common law, or has Wrongfully prevented
the plaintiff from doing something which have so entitled him." This
Paragraph is also inapplicable to the present case.
264
Even a case of wrongful detention of money cannot arise. In Bengal Nagpur
Railway v.RuttanjiRamji AIR 1938 PC67 the question arose whether interest was
payable on damages on account of wrongful detention of money. It was held:
"The
Interest Act however contains a proviso that "interest shall be payable in
all cases in which it is now payable by law." This proviso applies to
cases in which the Court of equity exercises jurisdiction to allow interest: As
observed by Lord Tomlin in Maine and New
Brunswick Electrical Power Co. Ltd. v. Hart, 1929 AC 63 1:
"In
order to invoke a rule of equity, it is necessary in the first instance to
establish the existence of a state of circumstances which attracts the
equitable jurisdiction, as for example, non-performance of a contract of which
equity can give specific performance." "The present case does not
however attract the equitable jurisdiction of the Court and cannot come within
the purview of the proviso." The very passage was noted by this Court in
Union of India v. A.L. Rallia Ram [1964] 3 SCR 164 at 188-189.
The
argument of Mr. G., Ramaswami, learned counsel, that the deposit does not
contemplate appropriation is not correct because in the nature of contract it
is liable to be appropriated for the satisfaction of any amount liable to be
paid by the consumer to the Board for violation of any conditions of supply in
the context of wide scale theft of energy, tempering with the meters and such
other methods adopted by the consumers. Therefore, the said consumption
security deposit serves not only to secure the interest of the Board for any
such violation but should serve as a, deterrent on the consumer in discharging
his obligations towards the Board.
Mr. G.
Ramaswami would rely on Riches v. Westminster Batik Limited 1947 Appeal Cases
390 at 400.
265
That is a case which arose under Income Tax Act. That has no application to
this case. What came up for consideration in A.L Rallia Ram's case (supra) was
the power of the Board to award interest. Hence, that case has no application.
Accordingly,
it is held that the claim for interest cannot be legally founded either on
common law or equity. As is rightly contended by Mr. Kapil Sibal, learned
counsel and the other learned counsel appearing for the various Boards, it is
the Board which should be entitled to receive interest on energy supplied to
the consumers on credit as the consumers enjoy a credit facility as noted
already. We are also unable to accept the argument advanced on behalf of
consumers that because the Electricity Boards charge interest on belated payments,
interest must be paid on security deposit. Interest on belated payments is by
way of penalty. That has no bearing, Clause providing for non-payment of
interest: Whether unrea- sonable? While the terms and conditions of supply of
Andhra Pradesh, Uttar Pradesh and Bihar provide for payment of interest at
certain rate, in the case of Rajasthan and Orissa the Boards have clearly
stipulated that no interest shall be payable on the securities furnished to the
Board. Whether that clause could be considered unconstitutional or arbitrary?
In examining the constitutionality of this provision, in that it is violative
of Article 14 of the Constitution of India, the following factors have to be
borne in mind:
1.Article
14 does not mandate mathematical exactitude or scientific precision.
2.The
mode and the period of security vis-a-vis the billing practice must form the
consideration.
3.The
consumer with open eyes has entered into the agreement and solemnly undertaken
to abide by the conditions regarding nonpayment of interest. He cannot resile
from the condition because there is nothing inherently objectionable about such
a condition nor is such a condition per se illegal or void as opposed to public
policy. It is not uncommon in commercial transaction, such a provision is
entered into.
266
The argument that the Board is monopolistic in character and therefore, the
consumers have no other option but to enter into contract appears to be
misconceived. The Board under Section 49 of the Supply Act is entitled, apart
from framing uniform tariff, to insist upon such terms and conditions as the
Board thinks fit. This has also been so stated in.
Jagdamba
case (Supra). The consumption security deposit whether or not it carries
interest is a condition precedent for the supply of electric energy. We are
clearly of the view that the scrutiny by the Court in determining the
unconstitutionality of a provision not providing for interest must be tested on
the following touchstone:
In
imposing such a condition has the Board acted as a private trader and thereby
shed off its public utility character'? By referring to Hindustan Zinc Ltd.
(supra) we have earlier pointed out the interrelationship between Sections 49
and 59 as noted by this Court. We are therefore. of the view that in imposing
such a condition the Board has not acted as a private trader. The nature of
deposit has a rational relationship to the object which is incorporated as a
condition of supply.
Some
of the learned counsel appearing for the consumers would draw our attention to
Section 59 of the Supply Act as well. Under the said section the Board is
obligated to carry on its operation as to ensure that it generates a surplus of
3 per cent or as specified by the State Government. The Board is obligated to
adjust its tariffs for ensuring such surplus. The condition of supply requiring
a consumption security deposit has a direct bearing on the operations of the
Board which are to be conducted in such a manner as to ensure a surplus. The
language in Section 59 of the Supply Act is "carry, on its operations
under this Act and adjust its tariffs." The language of the said section
is not by adjusting tariff.
Therefore,
the argument that the only manner in which the Board can achieve a surplus is
to adjust its tariffs does not flow from the language of Section 59. So read,
in the context of the insistence of a security deposit which has direct bearing
on the operations of the Board is per se reasonable and constitutional.
We
will assume, for a moment, that the contract is an adhesion contract. But
still, it is not unconscionable.
267 In
Central Inland Water Transport Corporation v. Brojo Nath Ganguly [1986] 3 SCC
156 at 208 "adhesion contract" is defined quoting Black's Law
Dictionary, Fifth Edition, at page 38, as follows:
"Adhesion
contract. Standardized contract form offered to consumers of goods and services
on essentially 'take it or leave it' basis without affording consumer realistic
opportunity to bargain and under such condition that consumer cannot obtain
desired product or services except by acquiescing in forth contract.
Distinctive feature of adhesion contract is that weaker party has no realistic
choice as to its terms is. Not every such contract is unconscionable."
With reference to these contracts the Court offered relief to the parties
against such a clause if it is so unreasonable as to be unconscionable. As a
matter of fact at page 21 1, paragraph 83 of Central Inland Water Transport
Corporation v. Brojo Nath Ganguly [1986] 3 SCC 15 it stated thus:
"Yet
another theory which had made its emergence in recent years in the sphere of
the law of contracts is the test of reasonableness or fairness of a clause in a
contract where there is inequality of bargaining power. Lord Denning, MR,
appears to have been the pro- pounder, and perhaps the originator at least in England, of this theory. In Gillespie
Brothers & Co. Ltd. v. Roy Bowled Transport Ltd. [1973] QB 400, 416 where
the question was whether an indemnity clause in a contract, on its true
construction, relieved the indemnifier from liability arising to the identified
from his own negligence, Lord Denning said (at pages 415-416):
The
time may come when this process of 'construing' the contract can be pursued no
further. The words are too clear to permit of it. Are the courts then
powerless? Are they to permit the party to enforce his unreasonable clause,
even when it is so unreasonable, 268 or applied so unreasonably, as to be
unconscionable? When it gets to this point, I would say, as I said many year
ago:.
'there
is the vigilance of the common law which, while allowing freedom of contract,
watches to see that it is not abused' John Lee & Son (Grantham) Ltd. v.
Railway Executive [1949] 2 All ER 581, 584.
It
will not allow a party to exempt himself from his liability at common law when
it would be quite unconscionable for him to do so.
(emphasis
supplied,)" Farms worth on Contracts, 2nd Edn. 319, 320 para 4.27 states:
"4.27
Precursors of Unionscionability. Courts of equity did not share the reluctance
of common law courts to police bargains for substantive unfairness. Though mere
"inadequacy of consideration" alone was not a ground for with holding
equitable relief, a contract that was "inequitable" or
"unconscionable" one that was so unfair as to "shock the conscience
of the court' would not be enforced in equity. In one such case, a man promised
to give a 20 percent interest in all property that he might later acquire in Alaska in return for the Promisee's
payment of $1,000 and his cancellation of an $11,225 debt of questionable collectability.
When the promiser acquired property worth over $ 750,000, the promises sought
specific Performance. The court refused to grant it.
Though
the fairness of the bargain was to be judged as of the time that the bargain
was made, in equity as at common law, here the "inadequacy of
consideration" for the promise sought to be enforced was "so gross as
to render the contrast unconscionable." In dealing with the validity of
the agreement containing a clause 269 relating to minimum guarantee this Court
had occasion to observed in Bihar State Electricity, Board v. Green Rubber
Industries [1990] 1 SCC 731 at page 740 as follows:
"It
is true that the agreement is in a standard form of contract. The standard
clauses of this contract have been settled over the years and have been widely
adopted because experience shows that they facilitate the supply of electric
energy. Lord Diplock has observed: "If fairness or reasonableness were
relevant to their enforceability the fact that they are widely used by parties
whose bargaining power is fairly matched would arise a strong
presumption." That their terms are fair and reasonable. Schroeder(A.) Music
Publishing Co. Ltd. v. Macaulayr [1974] 3 All ER 616,624. in such contracts a
standard form enables the supplier to say: "If you want these goods or
services at all, these are the only terms on which they are available. Take it
or leave it. "It is a type of contract on which the conditions are fixed
by one of the parties in advance and are open to acceptance by anyone. The
contract, which frequently contains many conditions is presented for acceptance
and is not open to discussion. It is settled law that a person who signs a
document which contains contractual terms is normally bound by them even though
he has not read them, even though he is ignorant of the precise legal
effect." In the light of the above discussion we hold that the clause not
providing for interest is neither arbitrary nor palpably unreasonable, nor even
unconscionable. In holding so we have regard to the following:
1.The
consumer made the security deposit in consideration of the performance of Ms
obligation for obtaining the service which is essential to Wm.
2.The
electricity supply is made to the consumers on credit as has been noted above.
270
3. The
billing time taken by the Board is to the advantage of the consumer.
4.Public
revenues are blocked in generation, transmission and distribution of
electricity for the purpose of supply.
The
Board pays interest on the loans borrowed by the Board.
This
is in order to perform public service. On those payment made by the Board it
gets no interest from the consumers.
5.The
Board needs back its blocked money to carry out public service with reasonable
recompense.
6.The
Board is not essentially a commercial Organisation to which the consumer has fumished
the security to earn interest thereon.
We should
also observe that the rate of interest on security deposit cannot be equated
with the rate of interest on the fixed deposit. First of all, if the
consumption charges are to be appropriated the moneys accrued by way of
deposits cannot be held in fixed deposits.
Nor
all deposits need carry interest in every transaction.
Secondly,
the nature and character of the security deposit is essentially different from
fixed deposit. It is worthwhile, in this connection, to refer to Companies
Acceptance of Deposits) Rules, 1975. In Rule 2 it is stated:- "2. Definitions.
In these Rules, unless the context otherwise requires.- (a) (b)
"deposit" means any deposit of money with, and includes any amount
borrowed by, a company, but does not include- (i) (ii) (iii) 271
(iv).............
(v) any
amount received from an employee of the company by way of security deposit;
(vi)
any amount received by way of security or as an advance from any purchasing
agent, selling agent, or other agents in the course of or for the purposes of
the business of the company or any advance received against orders for the
supply of goods or properties or for the rendering of any service;.........
We may
add that merely because the English Acts provide for interest, it is not
necessary the same should be adopted here as well.
Thus,
we hold that the Division Bench of the Rajasthan High Court erred in striking
down Condition No. 20 of the General Conditions of the Rajasthan Electricity
Board as violative of Article 14 of the Constitution of India.
Has
this Court decided the question of rate of interest in jagdamba Paper
Industries (Pvt.) Ltd. v. Haryana State Electricity Board [1983] 4 SCC 508? In
that case the following two points were raised as seen from paragraph 3 at page
51 1:
1.The
enhancement made in the security amount towards the meter is without any
justification.
2. The
enhancement of security deposit was not warranted.
On the
question of interest in paragraph 11 at page 515 in Jagdamba's case (supra) it
is stated thus:- "On the security amount interest at the rate of 4 per
cent-was initially payable. The same has already been enhanced to 8 per cent
per annum. Since the amount is held as security, we indicated to the counsel
for the Board that security amount should bear the same 272 interest as
admissible on fixed deposits of Scheduled Banks for a term of years and we
suggested keeping the present rate of interest in view that it should be
enhanced to 10 per cent. Board's counsel has now agreed that steps would be
taken to enhance the present rate of interest of 8 percent to 10 percent 'with
effect from October 1,
1983." It
requires to be carefully noted that the question of interest on security was
not raised before the Court.
Therefore,
the Court had no occasion to decide this issue of interest. That part of the
judgment, as rightly contended by Mr. Soli J. Sorabeejee, learned counsel, is
sub-silentio.
However,
the learned counsel for the consumers pressed into service the various orders
passed by this Court in relation to interest and urged that it is concluded by
those orders.
We are
unable to accept his argument. All the orders have their root in Interlocutory
Application No.1 of 1989 in Writ petition No. 578 of 1987. That order is
extracted in full:
"We
have heard counsel for the parties. Mr. Gopal Subramaniam' counsel for the
State Electricity Board on instructions states that the initial deposit which
has been made by the consumer petitioner, to the tune of Rs.10,07,378.81 was
intended as security for pay- ment of energy dues.
In
terms of our order of 5th May. 1988. the petitioner would be entitled to the
interest on that amount from the date of the deposit at the rate of 12% per
annum. Mr. Gobind Mukhoty, counsel for the petitioner now agrees to deposit the
balance amount of Rs. 691,621 minus the interest which is said to be the
additional security and while making the deposit of the additional amount, the
petitioner is entitled to deduct the interest already accrued on the deposit of
Rs. 10,07,378.81 from the date of the deposit at the rate of 12% per annum. The
balance amount after deduction of the interest shall be deposited in two equal
quarterly instalments, the first being due by 15.10.89.
273
The application for directions is disposed of accordingly." Based on this,
in Writ Petition No. 613 of 1990 it was stated thus:
"In
view of the order made by this Court in the connected matters on September 7, 1989, after hearing parties in Writ
Petition No. 578/87 on the amount deposited by the consumer as security,
interest at the rate of 12% would be admissible.
The
Writ petition is disposed of accordingly." Two other orders remain to be
seen. One rendered in W.P. 5582 of 1989 which was disposed of by consent and
the other in W.P.No.576 of 1990 where the writ petition was disposed of in the
following manner:
"If
the Electricity Board has been directed to allow interest at the rate of 12%
per annum on the security deposited with the Board by the petitioners similarly
situated, the claims of the petitioners should similarly be dealt with by the
Board. The Writ Petition is disposed of." On careful examination of the
above orders, we do not think the Court ever intended to adjudicate upon the
rate of interest or render a decision on that question. Therefore, it cannot be
contended that the disposal of Writ Petition No. 613 of 1990, though by a Bench
of 3 judges would be binding on us because, as pointed out above. It was
entirely based on Interlocutory order. We are of the view that we are free to
decide the question on its merits.
The
argument of Mr. Anil Divan, learned counsel that unequals are treated equals
has no basis. It may be that the consumers of electricity, where it is raw
material, would be prompt in their payment .in their own interest. On that
basis, it cannot be contended that they 274 cannot be treated in the same way
as defaulters. The test, in our considered opinion, is whether in the general
application of law there is any discrimination. Merely because some of the
consumers are prompt those related cases cannot render the provision
constitutional.
We may
usefully refer to the following cases:
The
Collector of Customs, Madras v. Nathella [1962] 3 SCR 786 at
829-30 it was observed? "The deleterious effects of smuggling, as pointed
out in the extract from the Report, are real and it is not in dispute that the
prevention and eradication of smuggling is a proper and legally attainable
objective and that this is sought to be achieved by the relevant law. If
therefore for the purpose of achieving the desired objective and to ensure that
the intentions of Parliament shall not be defeated a law is enacted which
operates somewhat harshly on a small section of the public, taken in
conjunction with the position that without a law in that form and with that
amplitude smuggling might not be possible of being effectively checked, the
question arises whether the law could be held to be violative of the freedom
guaranteed by Art. 19 (1) (f) & (g) as imposing an unreasonable restrain.
That the restrictions are in the "interest of the general public" is
beyond controversy." In Vivian Joseph v. Municipal Corporation, Bombay, [1972] 2 SCR 257 at 276- 77 it was
observed:
"The
levy of the cess under s. 27 of the Act is not based on the principle of quid
pro quo.
Its
object is not to repair all residential premises, but to preserve and prolong
their lives in order to avert the dilema caused by the acute shortage of
residential accommodation on the one hand, and the reluctance and/or inability
of the owners to carry out repairs resulting from the Rent Act, on the other
and to establish an agency so that structural repairs to buildings in dangerous
or ruinous 275 conditions can be carried out. The finances for these objects
are provided from a fund from the impugned cess and contributions by the State
and the Corporation.
The
contention that some of the buildings falling in categories B and C would not
need structural repairs throughout the life of the Act or that such repairs
would carried out in buildings not cared for by defaulting landlords, takes no
notice of the fact that the primary object of the Act is not to repair all
buildings subject to cess but to prevent the annually recurrent mischief of
house collages and the human tragedy and deprivations they cause. The cess
being thus levied to prevent such disasters, there is no question of unequal
treatment between one class of owners and another. The classification of
buildings into three categories is based, as already stated, on their age and
the construction current during the periods of their erection. It is,therefore,
based on an intelligible differentia and is closely related to the objects of
the legislation. There is, therefore no question of unequals being treated as
equals, as each building of the Board and has to be structurally repaired if
the need were to arise." In B. Banerjee v. Anita Pan, [1975] 2 SCR 774 at
787-88 it was observed:
"Moreover,
what is the evil corrected by the Amendment Act? The influx of a transferee
class of evictors of tenants and institution of litigation to eject and
rack-rent or re- build to make larger profits. Apparently, the inflow of such
suits must have been swelling slowly over the years and when the stream became
a flood the Legislature rushed with an amending bill. Had it made the law
merely prospective these who had in numbers, already gone to Court and induced
legislative intention would have escaped the inhibition.
This
would defeat the object and so the application of 276 the additional than to
pending actions could not be called unreasonable. To omit to do so would have
been unreasonable folly. The question is whether those cases which were filed
several years ago should have been carved out of the category of transferees
hit by the act? Where do you draw the line? When did the evil assume
proportions? These are best left to legislative wisdom and not court's commensense
although there may be grievances for some innocent transferees.
If
this be the paradigm of judicial review of constitutionality, we have to ignore
exceptional cases which suffer misfortune unwittingly. The law is made for the
bulk of 'the community to produce social justice and isolated instances of
unintended injury are inevitable martyre for the common good since God Himself
has failed to make perfect laws and perfect justice, Freaks have to be accepted
by the victims rightly or wrongly as froensic fate" In Fatelichand Himmatlal
v. State of Maharashtra, [1977] 2 SCR 828 at 851 it was observed:
"May
be, some stray money-lender,. may be good souls and to stigmatize the lovely
and unlovely is simplistic betise. But the legislature cannot easily make
meticulous exceptions and has to proceed on broad categorisations, not singular
individualisations. so viewed pragmatics overrule punctilious and
unconscionable money- lenders fall into a defined group. Nor have the creditors
placed material before the Court to contradict the presumption which must be
made in favour of the legislative judgment.
After
all, the law-makers representatives of the people, are expected to know the
socioeconomic conditions and customers. Since nice distinctions to suit every
kindly creditor is beyond the law making process, we have to uphold the
grouping as reasonable and the restrictions as justified in the circumstances
of, the case. In this 277 branch, there are no finalities." The attack on
additional consumer deposit is that no reasons have been adduced for additional
demand. It stands to reason that if there is a revision in the rate of tariff
there must be an upward revision in the consumption security deposit since it
has direct bearing to the level of supply in consumption of electricity. For example,in
the State of Uttar
Pradesh, the tariffs
were adjusted upwards in October 1986. The revision in the form of an
additional security deposit with interest at the rate of 3 per cent was made in
January 1987. These facts indicate the rationale in the demand of additional
security deposit. As stated above, this being a condition of supply, no reason
need be given at the time of upward revision. Therefore. we reject the argument
of Mr. Govind Mukhoty, learned counsel in this regard.
In
view of the above finding, upholding the clause relating to nonpayment of
interest, for example, Rajasthan and Orissa, what is to happen to such of those
cases where interest is provided like Andhra Pradesh, Utter Pradesh and Bihar? In all those cases wherever the electricity boards
have framed a provision for payment of interest 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 various Boards having regard to the overall
budgetary and financial position. Further, keeping in view the quantum and made
of security deposit and billing and recovery practice. Nor again, could the
Board withhold payment of interest on the basis of this judgment. However, if
there is any change in the circumstances affecting the budgetary and financial
position, the Board can examine the case and decide the future course of
action. But any change resulting in non-payment or reduction of interest will
have to be justified by cogent reasons and materials having a bearing on the
financial position of each Board and facts and circumstances of each case.
We
also add that not withstanding Jagdamba's case (supra) as on today, Haryana
Electricity Board has dispensed with payment of interest. We make it clear by
this judgment that we are not deciding the validity of such provision since the
matter is stated to be pending.
Inconclusion,
We hold:
278
(1) Section, 49 of the Supply Act is valid.
(2)
The nature of consumption deposit is to secure prompt payment and is intended
for appropriation.
(3)There
is no liability on the Electricity Board either tinder the statute or common
law or equity to pay interest.
(4)Conditions
and the terms of supply providing for non- payment of interest is not so
unconscionable as to shock the conscience of the Court.
(5)No
reason need be given for. enhancement of additional security deposit.
Accordingly
we uphold the judgment of Andhra Pradesh High Court and reverse the judgment of
Rajasthan High Court.
In the
result, the following cased filed against Andhra Pradesh Electricity Board are
dismissed:
S.L.P.(c)Nos.13004/89,14995/89,14629/89,14899/89,15739/89,15817/89,7475/90,6374/90,9661-65/90,5461/90,6371/00,5294/90,6779/90,
5492/90, 5921/90, 5559/90, 4793-94/90, 4791- 91/90, 6375/90. 6570/90, 12270/90,
9926/90, 11548/90, 2600/90, 6372.73/90, 6035-44/90, 6505/90,6374/90, 6094/00,
6765-68/90,6462/90, 5306-08/90, 9132/00, 12424/90, 6370/90, C.A. No. 1779/90,
S.L.P. (c) Nos. 17465/91, 17679/91, 17865- 66/91, 20125/91, 19532/91, 18043/91,
19586-93/91, 19597-600, 20076/91, 21/92, 649/92,
2564/92,5782-83/92,8336/92,9124- 25/92,9488/92,12318/92,12506/ 92, 12610/92,
12805/92, 12804/92, 12814/92, 14439/92, 14449/92, 14555/92, 1739-
43&43A/92, 13593/92, C.A. No. 2409/92, W.P. (c) Nos. 603/92,455/92,
3558/83, 566/92, 1353/89, 48/92, 362/92, 1293/ 89, 6770/90.
The
Transfer Petition (c) No. 366/92 filed by the Andhra Pradesh Electricity Board
is allowed.
279
The following cases filled by Rajasthan State Electricity Board are allowed:
C.A. Nos. 4714/91 &4028-43/91,S1,P(c)
Nos.446/92.703/92, 12941/90. 433-36/92, 439-42/92, ('.A. Nos. 5342/92. 1187-
88/92, 4512/92, 45 10/92.4511/92,2800/92.1204/92,406436/92,S.L.P.(c)No.20/92,46/02.47/92,50/92,53/02,449452/92,494/02,516/92,48/92.49/92.51/02.52/92,54/92,55/92,43-
45/92,56-72/92,428-432/92, 443-444/92,453-457/92,503-08/92.
512-14/92.530-33/92,14450/92.
The
following cases filed by the Bihar Electricity Board are allowed:
SLP(c)
Nos. 11799/89, 1856/90, 8318/92, 16028/92.
The
following, cases against Uttar Pradesh Electricity Board are dismissed.
W.P.
(c) Nos, 513/87, 804/87, 1144/87. 743/87, 531/87, 725/87. 739/87, 526/91. 576/87,
577/87, 801/87, 833/87. 769/87, 676/87, 578, 87, 728/87, 762/87. 818/87,
526/87, 744/87. 742/87. 540/87, 1238/87, 738/87.684/87, S.L.P. (c) Nos,
2952-56/1987, 15885/91, & 12902/9 1.
The
W.P. (c) No. 1317/90 filed against Punjab Electricity Board is dismissed.
All
the I.A.s are allowed.
However,
there shall he no order as to costs.
T. N.
A. Petitions disposed of.
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