Judgement

ORDER :- Petitioners, herein M/s. Chowgule and Company Private Limited and Ashok Vishwasrao Chowgule seek in this writ petition a declaration that whilst the power cut was in operation, respondents were not entitled to claim from them the full demand charges, the liability of the petitioners No.1 being to pay only the said demand changes reduced pro rata to the extent to which the supplies were made, and also a direction to the respondents not to charge the full demand charges as per the contract and Tariff, whilst respondents were unable to supply the contracted quantities and further to refund to the 1st petitioners the sum of Rs. 1,39,800/- and any other demand charges collected illegally from them.

2. The case of the petitioners is as under :-

The 1st petitioners carryon business inter alia, as mine owners and operate certain mineral processing plants, palletisation plants and also have a ship building yard and a textile mill. For the aforesaid purpose, they require electricity which is supplied to them by the respondents under an agreement dated 8th Feb., 1978. This agreement is to be read and construed in conformity with the provisions of the Electricity Act, 1910 and provides that the supplier shall supply and the consumer shall take all the power requirements at the petitioners Pale plant with a demand of 8,000 KVA. It further provides that the charges for such supply would be made in accordance with the Scheduled rates specified in suppliers standard rate Schedule HTI in force and that in consideration of the special obligations assumed and investments made by the supplier for the benefit of the consumer, the consumer undertook and guaranteed that the total annual charges payable by him for a period of 7 years for the electric energy consumed shall not be less than Rs. 55,339/- and that if the amount chargeable was less than the said amount in a particular year, the consumer would make up the difference and pay the same. Under S.23 read with Sec.51-A of the Electricity Act, 1910, a licensee is empowered to prescribe Schedules from time to time laying down charges to be recovered by the licensee for the purposes of the electricity supplied. In the exercise of the said powers, different methods of calculating power charges are prescribed by the respondents. Ordinary domestic consumers are ordinarily required and receive low tension supply and they are charged only on the basis of the actual quantity of electrical units consumed by them. Consumers like the 1st petitioners are supplied high tension power and are charged on a double basis being required to pay what are called demand charges and what are called energy charges. Energy charges are collected at the prescribed rates depending upon the quantity of energy actually consumed by the consumer in question. Demand charges are however charged at the rate prescribed per KVA of billing demand per month and the Tariff provides that the amount of such minimum monthly charges will be payable by all the high tension consumers. The said monthly minimum demand charges are calculated on the basis of the actual demand during the relevant month or 75% of the contract demand or the actual maximum demand during the period of 11 months whichever is higher. Accordingly, petitioners were required to pay not only the charges of the actual energy consumed but also the demand charges calculated as aforesaid. The Union Territory of Goa obtains virtually the totality of its electricity requirement from Maharashtra or Karnataka. Maharashtra and Karnataka have reduced the supply of electricity available to the respondents for distribution in Goa and as a result thereof a power cut ranging from 40 to 60 per cent has been imposed throughout Goa and the 1st petitioners were permitted to consume reduced energy as laid down in Column 2 of the Order No.2-12-72-IPDB, dated 31-10-1979. Consequent upon this power cut, petitioners have suffered heavy losses as they were unable to produce the various products made by them to the full extent, the investments having remained constant and the overheads and other expenses having continued to be the same. Despite this power cut and that the agreed amount of power had not been supplied, respondent have demanded the minimum demand charge based on the actual maximum demand during 11 months or the contract demand whichever is higher. This action of the respondents had caused great prejudice to the petitioners as they were made to pay the minimum demand charge based on the supplies of energy as per the agreement when the actual energy supplied to them was substantially less. The 1st petitioners paid the demand charges under protest. Respondents are undoubtedly entitled in the case of bulk consumers such as the 1st petitioners to charges made not merely on the basis of the actual amount of energy consumed by the consumers but also by taking into account a certain demand charge. The demand charge is levied to ensure that a large consumer who had agreed to consume energy to a certain agreed extent does so and if he fails to do so, he must nevertheless pay for the same on a minimum charge basis. It is inherent to the very concept of charging the minimum charge that the consumer is in a position, if so desires, to consume the electrical energy up to the maximum contracted quantity. The levy of the said minimum charge in the circumstances, were beyond the control of the consumer respondents refused to supply the contracted energy, results not only in a totally unfair, levy of a charge but a levy totally unwarranted by the Scheme and object of the Act and the Schedule (sic). The said minimum demand charge as per the terms of the said Schedule cannot be levied in cases where due to power cut imposed by the licensee the consumer is unable to take the full contracted quantity, for in such a case the amount of such minimum demand charge must be reduced pro rata to the extent to which the respondents are able to make supplies. Besides, the Electricity Act only empowers the licensee to make a charge for the electricity supplied by it and has not empowered the licensee to impose a charge wholly unconnected with the electrical energy supplied by it. The levy of minimum demand charge, though the respondents were unable to supply electrical energy to the full contracted quantity under the Tariff, violates Art.19(1)(g) of the Constitution inasmuch as it imposes a wholly unreasonable restriction on the rights of the petitioners to carry on trade or business. Similarly, the insistence of the respondents in recovering the said minimum demand charge without taking into account their inability to supply power to the contracted quantity would cause heavy loss to the petitioners business and is an unreasonable exercise of statutory power contrary to Art.19(1)(g) of the Constitution. The Tariff does not impose any such minimum demand charge in the case of ordinary low tension consumers. In the event of inability of supply, such ordinary low tension consumers are, therefore, only required to pay for the electrical energy actually consumed by them. There is, as such, hostile discrimination contrary to Article 14 of the Constitution between consumers such as the 1st petitioners and the ordinary low tension energy consumers.

3. Only respondent No.3 filed a return. His case is that the petition is not maintainable inasmuch as the relationship between the petitioners and the respondents is based on a written contract entered into between the 1st petitioners and the President of India. On merits, respondent No.3 submits that special arrangements were to meet the power requirements of the various industries of the 1st petitioners on their agreeing and undertaking to pay the minimum demand charges. The said payment was understood and meant to be solely made for having arranged and given the necessary supply and not for the use thereof. The 1st petitioners have agreed and undertaken to pay the full tariff minimum charges even if any restrictions were placed in the supply for causes beyond the control of the respondents. The cut in energy was solely due to causes beyond that control of the respondents and therefore, petitioners are bound and obliged under the contract to pay the minimum demand charges. No demand cuts have been imposed in respect of the petitioners Pale plant. However, a general order dated 31-10-1979 applicable to all high tension consumers was made imposing energy cuts ranging from 40 to 60 per cent of their average monthly consumption over the period from October 1978 to June 1979 and petitioners Pale plant was imposed a cut of 60 per cent. By the said order restrictions have been imposed only on the drawal of energy and not on Demand and notwithstanding the imposition of energy cuts, the demand of the various installations of the 1st petitioners has not shown any downward trend. Restrictions in energy do not mean reduction in demand, being imposed in accordance with Section 22-B of the Electricity Act. There are two systems of tariffs, one being the flat rate system and the other the two part tariff system. In case of a consumer whose requirement of load is 100 KVA and above the second system is attracted and the said consumer is required to pay demand charges to cover the expenditure towards the power purchased.

4. Before entering into the merits of the petition, it is necessary to deal first with the preliminary point raised by the respondent No.3 in respect of the maintainability of the petition. In fact, it was contended that the petition is not maintainable inasmuch as the relationship between the petitioners and the respondents is based on a contract entered into between the 1st petitioners and the President of India and the whole case of the petitioners is founded in an alleged breach of the said contract by the respondents. Mr. Joachim Dias, learned Government advocate, argued that the agreement entered into by the respondents with the petitioners is not at all statutory and, therefore, the writ jurisdiction is not attracted. Reliance was placed on the rulings of the Supreme Court in the cases of Radhakrishna Agarwal v. State of Bihar, (AIR 1977 SC 1496) and Har Shankar v. Dy. E. and T. Commr., (AIR 1975 SC 121), as well as on the case of Krishnan v. State of Travancore and Cochin (AIR 1952, Trav-Co 287). It was, however, contended by Sr. Setalvad, learned Sr. Advocate appearing for the petitioners, that the agreement itself is bad inasmuch as it contravenes the provisions of the Electricity Act, according to which charges are to be levied on the actual energy consumed. It was further contended that respondents were not discharging mere contractual functions under the Electricity Act, but were acting under statutory obligations imposed by the same Act. My attention was specifically invited to S.23(3),(4) and S.51-A and to the circumstance that petitioners challenge the action of the respondents based on the Tariffs and/or the agreement which was entered into and is subject to the Act. Therefore, as held in D.F.O., South Kheri v. Ram Sanehi, (AIR 1973 SC 205), the petition is maintainable. Admittedly, respondent No.2 is the licenseee and the agreement was entered into under the Electricity Act, 1910. Section 23 of the Act provides that a licensee shall not show undue preference in making any agreement for the supply of energy. Sub-sec.(3) lays down that in the absence of an agreement to the contrary, a licensee may charge for energy supplied or by the electrical quantity contained in the supply, or by such method as may be approved by the State Government. Sub-section (4) provides that any charge made by a licensee under Cause (c) of sub-section (3) may be based upon, and vary in accordance with, anyone or more of the factors mentioned therein. And Section 51-A provides that when the State Government engages in the business of supplying energy to the public, it shall have all the powers and obligations of a licensee under the Act. In the light of the above provisions of law, it appears to me that respondents Nos.2 and 3 were vested with some statutory powers whilst entering into agreements for the supply

of electric energy and as such, the said agreements are, at least partly, statutory. I fail, therefore, to see in what

manner the rulings in the cases of Krishnan v. State Trav. and Co., Har Shankar and Radhakrishna Agarwal (above)

help the respondents. On the contrary, the ruling of the Supreme Court in the case of D.F.O., South Kheri v. Ram

Sanehi (supra) is more to the point. I, therefore, have no doubt in holding that the petition is maintainable.

5. I shall now address myself to the merits of the case. The only question that

arises in this petition is whether the respondents can levy a minimum demand charge from the consumers in a case where a power cut is imposed so as the consumer is unable to consume the electric energy to the extent he desires.

6. It was agreed by Mr. Setalvad that petitioners entered into an agreement for supply of electric energy with the respondents on 8-2-1978 and it was, inter alia, agreed that the same agreement would be read and construed in all respects in conformity with the provisions of the Indian Electricity Act, 1910 and Rules made thereunder; that the consumer would pay to the supplier every month charges for the electric energy supplied at the specified rates; and that the petitioners guaranteed that the total annual charges payable by them for a period of seven years for the energy consumed would not be less than a certain amount, or the minimum tariff charges payable under Cl. 9 (a), whichever is higher, and further that, although they would be billed for the actual energy consumed every month subject to the monthly minimum, the difference, if any, between the guaranteed minimum charges and the actual charges paid would be paid by the consumer. He further submitted that the Standard Schedule requires a consumer to pay the minimum charges, which under Cl. 8 of the Electricity Supply Tariffs, comprise the monthly demand on billing demand plus energy charges for energy consumed during the month. The billing demand, as per Cl. 5, means either (i) the actual maximum demand during the month; or (ii) 75% of the contract demand; or (iii) actual maximum demand during the previous 11 months, whichever is higher. Therefore, under the agreement read with, the Tariff, petitioners are required to pay the minimum charges even when, due to a power cut, respondents could not supply energy as stipulated in the contract. This, Mr. Setalvad contended, is inequitable and unjust Reliance was placed in support of this submission in the case of N.I.I. and S. Co. v. State of Haryana, (AIR 1976 SC 1100).

7. M/s. Dias, however, countered that the Electricity Act is not meant to the Government only but, as can be seen from the very definitions of consumer and licensee given in Section 2 (c) and (h), both for the consumer and licensee and as such, both are subject to its provisions. The Government is empowered under Section 23 (3) (c) to charge for energy supplied by such a method as approved by it and in the exercise of such powers read with Section 51-A, it framed the Electricity Supply Tariffs, which in note to Cl. 9 lays down the meaning of a Billing Demand. The demand means the load power required to start the machinery and has nothing to do with the consumption of power. The demanded load of power was supplied to the petitioners at all time though, for purpose of reduction of consumption, the period of time during which it was supplied was reduced. Therefore the Cls. 9(a), 10, 11 and 12 of the agreement are not unjust and inequitable. He further submitted that the case of N.I.I. and S.Co. v. State of Haryana stands on an entirely different footing, for in that case there existed a cut in the demand, and further, there was a specific clause in the agreement in respect of force majeure.

8. It is not disputed that, in terms of Cl. 9(a) of the agreement, petitioners agreed to pay to the supplier, every month, charges for the electric energy supplied at the rate specified in the suppliers Standard Rate Schedule H.T.I. and in Cl. 10 guaranteed that the total annual charges payable by them for electrical energy consumed would not be less than the tariff minimum charges payable under Cl. 9(a). It is also not disputed that Cl. 11 provides that the supplier would take all reasonable precautions to ensure continuity of supply of power to the consumer at the point of supply, but the same supplying would not be liable to the consumer for any loss due to the interruption in supply of power "by reason of damage to the equipment of the supplier during war, mutiny, riot, strike or by reason of earthquake, hurricane, tempest or any accident or for routine maintenance of the lines and associated equipment or such other causes as may be beyond the control of the supplier". It appears, therefore, correct that, in the terms of the agreement, petitioners are liable to pay the minimum charges even in case respondents are unable to supply the energy as stipulated. The question, however, is whether this is unjust and inequitable. As it was observed in N.I.I. and S.Co. v. State of Haryana, (AIR 1976 SC 1100) (supra), there are two well-known systems of Tariffs one is the flat rate system and the other is known as the two-part Tariff system. Under the former a flat rate is charged on unit of energy consumed. The latter system is meant for big consumers of electricity and comprises of (1) demand charges to cover investment, installation and the standing charges to some extent and (2) energy charges for the actual amount of energy consumed. Dealing with problem of whether or not, the supplier is entitled to ask for any demand charges in the event the same supplier was not ready to serve the consumer and the latter was ready to consume maximum electric energy and considering the rival contentions, their Lordships further observed "Such an extreme stand on either side appeared to us a bit puzzling and leading to inequitable results. The difficulty was not easy to solve. If we were to hold that for the Boards inability to supply a fraction of the consumers demand as per the contract it could claim only the energy charge, it would have been very hard and unjust to the Board and the consumer would have unjustifiably got the supply at a very cheap rate. If on the other hand, we were to say that the consumer was liable to pay the entire demand charge as per the method of assessment provided in Clause 4 of the Tariff even when for no fault of it, it could get only a fraction of its demand fulfilled, resulting in its not being able to run the industry to its full capacity, it would be liable to pay a huge amount per month, and this will not only be uneconomical but would seriously affect its economic structure". Finally, it was also observed that "We are, therefore of the view that the inability of the Board to supply electric energy due to power cut or any other circumstance beyond its control as per the demand of the consumer according to the contract will be reflected in and considered as a circumstance beyond the control of the consumer which prevented it from consuming electricity as per the contract and to the extent it wanted to consume," and held that the monthly demand charge had to be reassessed and proportionate reduction be made. Though the above decision was passed, it appears, in a case where only a fraction of demand power was supplied, it seems to me that the principle laid down is that when, for reasons beyond the control of the consumer,

the latter is prevented from consuming electricity as per the contract and to the extent he desires, a proportionatereduction in the monthly demand charges should follow. I see no sound reason as to why the principle should apply only in case demand power is not supplied, for what matters is that electricity is not supplied as per the contract and to the extent desired. In the circumstances, I find force in the contention of Mr. Setalvad and as such hold, that the agreement is inequitable inasmuch as it requires the petitioners to pay the minimum charges even when power is not supplied as stipulated in the contract.

9. It was further argued by Mr. Setalvad that on a true construction of the Electricity Act and the Schedule, the minimum demand charges as per the terms of the said Schedule cannot be levied in cases where, on account of power cut imposed by the licensee, the consumer is unable to take the full contracted quantity and should be reduced pro rata to the extent to which the supplies are made, because all statutory authorities must act reasonably. Reliance was placed in Union of India v. Anglo Afghan Agencies, (AIR 1968 SC 718). Ramana v. International Airport Authority of India, (AIR 1979 SC 1628) and Kasturi Lal v. State of Jammu and Kashmir, (AIR 1980 SC 1992). I find myself entirely in agreement with Mr. Setalvad, for in terms of Section 23 (3) of the Electricity Act, a licensee

may charge for energy supplied by him. If so, the minimum demand charges can be levied and collected only when the licensee is ready to supply but the consumer does not consume. Consequently, when the consumer is ready and willing to consume but the licensee is unable to supply, it would not be correct to say that the consumer is liable to pay for energy not consumed by him. That would be unreasonable, arbitrary and unfair and all the statutory authorities should act reasonably and with fairness, as observed by the Supreme Court in the cases of International Airport Authority and Kasturi Lal (supra). It appears, therefore, to me that the Tariff in respect of the minimum charge should be construed as above and a pro rata reduction should be made in cases where, for no fault of the consumer, energy is not supplied as stipulated in the contract.

10. The last contention of Mr. Setalvad had been that the Tariff is ultra vires Article 14 of the Constitution as consumers other than high tension consumers do not have to pay a minimum charge even when the licensee curtails supply. I find no force in the contention, for the classification distinguishing the high tension consumers from the ordinary low tension consumers is based on intelligible differentia and there is a clear nexus with the object to be achieved. In fact, the ordinary low tension consumers are practically domestic consumers, whereas the high tension consumers are the large scale consumers of electrical power, normally industries, which require special power lines. This classification is undoubtedly rational and is linked to the object of achieving the industrial and economic

development, of the country. Hence, the classification is not discriminatory and violative of Art.14 of the Constitution.

11. The petition, therefore, succeeds. As a result, the rule is made absolute in terms of prayer (a) of para 36 of the petition and it is therefore declared that the liability of the first petitioner is to pay the demand charges reduced pro rata to the extent the respondents are able to make supplies. Respondents are further directed to refund to the first petitioner any amount collected in excess of the amount pro rata reduced. There will be no order as to costs in the circumstances of the case.

Petition allowed.