Supreme Court of India
DELHI CLOTH & GENERAL MILLS COMPANY LTD. & ANR.versusRAJASTHAN STATE ELECTRICITY BOARD & ANR.
- Citation
- 1986 INSC 37
- Decided
- 12 March 1986
- Disposal
- Disposed off
- Bench
- A P SEN
Holding
Sections 49A and 49B are constitutionally valid; the Board may revise tariffs and levy the surcharge, and s.49B validates demands made before the 1976 ordinance but not those made after it.
Summary
The Rajasthan State Electricity Board entered into a 1961 agreement with Delhi Cloth Mills to supply bulk electricity at a concessional rate, subject to a review clause (cl.18) and a provision that the agreement was subject to future legislation (cl.34(b)). The Board later imposed a 15% general surcharge and, invoking the 1976 Rajasthan Electricity (Supply) Amendment which introduced sections 49A and 49B with retrospective effect, demanded payment of the difference between the uniform tariffs it framed and the agreed special rate for the periods Jan 1971‑June 1974 and July 1974‑Feb 1976. The appellants challenged the constitutional validity of sections 49A/49B, the Board's power to levy the surcharge, and alleged violations of Arts. 14, 19(1)(f)(g) and 31(2) of the Constitution as well as promissory estoppel. The Court held that the amendment was a valid exercise of legislative power, that s.49A empowered the Board to revise tariffs and s.49B validated demands made before the ordinance but not those made after it, and that the surcharge was within the Board’s statutory authority. Consequently, the demand for the 1974‑1976 period under the 1974 schedule was invalid, and the Board must raise a fresh demand under the 1969 schedule, while the earlier demand for Jan 1971‑June 1974 was upheld. All constitutional challenges were rejected.
Issues considered
- Whether clause 18 of the 1961 agreement is an escalation clause limiting the Board’s power to revise tariffs.
- Whether clause 34(b) makes the agreement subject to future legislation and thus incorporates sections 49A and 49B.
- Constitutionality of sections 49A and 49B of the Electricity (Supply) Act, 1948 as introduced by the Rajasthan Amendment Act, 1976.
- Whether the Board may levy a 15% general surcharge on the appellants.
- Whether the retrospective validation of past tariff demands under s.49B violates Arts. 14, 19(1)(f)(g) and 31(2) of the Constitution.
- Whether the doctrine of promissory estoppel applies to bar the Board’s demands.
Legislation cited
- Constitution of Indias. Art.14, s. Art.19(1)(f), s. Art.19(1)(g), s. Art.31(2)
- Electricity (Supply) Act, 1948s. 49, s. 49A, s. 49B, s. 59
- Electricity (Supply) (Rajasthan Amendment) Act, 1976s. 49A, s. 49B
Subjects
electricity tariffuniform tariffretrospective legislationnon obstante clauseconstitutional lawpromissory estoppelsurchargestatutory contractacquisition of property
Judgment
633
A
DEUII CLO'l1I & GENERAL MILLS <n!PANY LTD. & ANR.
v.
RAJASTllAN STATE ELECTRICITY BOARD· & ANR.
MARCH 12, 1986
B
[A.P. SEN AND D.P. MADON, JJ.]
Electricity Supply Act, 1948 - SS. 49A and 49B (as
introduced by Electricity (supply) (Rajasthan Amendment) Act,
1976) - Scope of - Electricity Board - Power of - To frame
uniform tariffs unilaterally - Raise demands for payment of
difference between uniform tariffs plus surcharge and agreed c
tariffs with retrospective effect - Whether permissible -
Whether s.49 of the Act is violative of Arts. 14, 19(l)(f) &
(g) and 31 (2) of the Constitution - Whether doctrine of
Promissory estoppel attracted.
Words and Phrases - D
'Escalation clause', 'Review', and 'Surcharge' - Meaning
of.
By an agreement dated July 28, 1961, the Respondent-
State Electricity Board agreed to supply the appellants with E
bulk electrical energy for their power oriented industry at a
concessional rate for a period of 20 years. Under cl. 18 of
the agreement, it was provided that the rate of supply was
~reviewable by the Bo~rd every five years after January, 1971,
and the revision of rate was to be effected if to rise in the
cost of generation out of the total cost varied by 25% or more F
from the cost last fixed. It was further envisaged by cl.
34(b) that the nutual rights and obligations of the parties
would be subject to alteration by further legislation relating
to supply and consumption of electricity enacted during the
period of the agreement. The Board commenced supplying
electrical energy to the appellants with effect from March 1, G
"1'1963. The Board issued various not'ffications from time to time
bringing into effect the revised tariffs for the supply of
electricity to its different classes of consumers at different
·rates. By Notification dated July 26, 1966, the Board imposed
general surcharge on the appellants at the rate of 15% on the
normal tariff. H
634 SUPREME COURT REPORTS [1986] I S,C,R,
A
The appellants filed a petition under Article 226 r- '
challenging the power of the Board to levy the general sur-
charge of 15%, The High Court allowed the petition and held
that the levy of general surcharge of 15% on the appellants
was ultra vires the Board insofar as the appellants were con-
B cerned because the parties having entered into a statutory
agreement dated July 28, 1961, there was a fetter created on
the power of the Board to unilaterally increase the tariff
under s. 49 of the Electricity (Supply) Act, 1948 and there- ~
fore the appellants could not be subjected to payment of the
general surcharge of 15%. The Board preferred an appeal
C against the judgment of the Single Judge.
From January l, 1971, the Board intimated its intention
to the appellants to revise the concessional rate of supply
and charge them the uniform rate of tariff under Schedule
HS/LP/HT-1 as applicable to all large industrial consumers and
D the general surcharge of !5% thereon in exercise of its powers
under cl. 18 of the agreement. Accordingly, the Board by its
letter dated February l, 1971 forwarded a bill for the billing
month January 1971, raising a demand on that basis.
The appellants thereupon filed a writ petition under
E Article 226. A Single Judge of the High Court quashed the
impugned bill and held: (i) that the Board was entitled under
the first part of cl.18 to review the rate of supply 'every
fifth year starting from the first date of supply', but in
view of the restrictive clause contained in the second part of
cl.18 it was impermisible for the Board to make any such~
F upward revision in the rate of supply till January l, 1971;
(ii) that in the circumstances it can be inferred that the
rise in the cost of generation was at least 25% and
accordingly the Board was entitled to revise the rate of
supply by 25% and (iii) that if the Board claimed a further
rise, it would have to establish that the rise in the cost of
G generation was more than 25% and it had to for that purposes
get the percentage in the cost of generation determined either
by mutual dialogue or by reference to arbitration.
During the pendency of the appeals preferred both by the
appellants and the Board, on February 7, 1976 the Governor of
H Rajasthan promulgated the Electricity (supply) (Rajasthan
.Amendment) Ordinance, 1976, by which new ·sections 49-A. and
DELHI CLOTH MILLS v. STATE ELECT. BOARD 63 5
A
• .._, 49-B were introduced into the Act with retrospective effect to
overcome the difficulty created by the judgment of the High
Court in this case, and more particularly by the judgment of
this court in Indian Alumf.Di11111 Co. v. Kerala State Electricity
Board, [1976] 1 S,C.R. 70. By the use of a non obstante clause B
in sub--s.(l) of s. 49A the Legislature made it lawful for the
Board to revise, from time to time, the tariffs fixed for the
supply of electricity to persons other than licensees and to
"' frame uniform tariffs for the purpose of such supply, Sub--s.
(2) thereof provided that in revising or framing tariffs under
sub-s.(l), the Board shall be guided by the principles set out
in s. 59 and as respects any period conmencing on and from C
September 16, 1966 i.e. the date on which the new s. 49 of the
Act was brought into force, by the provisions laid down in
sub-ss. (2), (3) and (4) of s, 49-A notwithstanding anything
contained in the Act or in any agreement, undertaking, commit-
ment or concession made before the first day of April, 1964
· -..,. i.e. the date when the uniform tariffs were first framed by D
· the Board. Sub--s. (3) of s. 49A provided that all such agree-
ments, undertakings, commitments or concessions as are
referred to in sub--s,(l), shall, insofar as they are incon-
sistent with the provisions of sub-ss.(l) and (2) and to the
extent of the tariffs fixed· or provisions made therein for
such fixation, be void and shall be deemed always to have been E
void. Section 49A (3) thus had the effect of nullifying the
agreement entered into by the appellants with the Board under
s.49 for supply of electricity at concessional rate. Similarly
by use of a non obstante clause, s. 49B provided that any
fllllOUnt realisedor demand made or created by the Board or the
·Government, etc. according to the uniform tariffs in force F
from time to time or against any person claiming any special
tariffs under any such agreement, undertaking. or concession
made before February 7, 1976, the date of proaulgation of the
Ordinance, shall be deemed to have been validly realised, made
or created under the Act as amended by the Ordinance.
G
Immediately thereafter on March 12, 1976, the Board
.j:urnished the appellants with a bill for the billing month of
February 1976 at uniform rate, under Schedule LP/HT-1 framed
by the Board's tariff Notification dated May 28, 1974 together
with the general surcharge of 15%.
H
The appell'lllts, therefore, filed petition under Art. 226
636 SUPREME COURT REPORTS [1986) 1 S.C.R.
A
challenging the constitutional validity of ss. 49A and 498 of ~ '
the Act, as introduced by the Amending Ordinance as also the
impugned bill sent by the Board for the billing month of
February, 1976.
On November 4, 1976 the Board issued another
8 Notification under s.49(1) framing revised uniform tariffs to
be applicable for the billing month of December, 1976. But
unlike the earlier notifications, this notification did not :..
contain any exclusionary clause granting exemption for
specially negotiated loads. On November 3, 1977 the Board
furnished another bill to the appellants claiming arrears
c amounting to Rs. 5.57 crores on account of the difference
between the normal rate of tariff and the agreed rate for the
supply of electrical energy for the period from January 1, ' ·
1971 to JamlSry 31, 1976.
The appellants filed another petition under Article 226 ,_~
o questioning their liability to pay the said amount.
The High Court upheld the constitutional validity of
ss. 49A and 498 of the Act as introduced by the Electricity
(Supply) (Rajasthan Amendment) Act, 1976 and also the right of
0
the Board to revise the rate of supply as agreed upon for the
E period commencing from January 1, 1971 onwards and enforce a
demand for payment of the difference between the uniform
tariffs as fixed from time to time and the agreed rate.
In the appeals to the Court, the questions for'-
consideration were : (i) Interpretation of the terms of
F agreement between the parties dated July 28, 1961,
particularly cl. 18 and 34(b) thereof; (ii) Interpretation of
es. 49A and 498 of the Act; and (iii) whether the demands
raised by the Board for payment of the difference by the
impugned bills dated February 1, 1971 and March 12, 1976 which
involved the imposition of a liability on the appellants by
.G the retrospective conferment of a prospective power under
s.49A and the validation of such power under s.498 was wholly,,_
arbitrary and irrational, confiscatory in nature and amounted
to deprivation of property without payment of compensation and
was thus violative of Arts. 14, 19(l)(f) and (g) and 31(2) of
the Constitution.
H
DELHI CLOTH MILLS v. STATE ELECT. BOARD 63 7
A
~· On behalf of the appellants it was contended : (i) that
cl.18 was an escalation clause and therefore the Board was not
entitled to unilaterally frame uniform tariffs as due and
' payable by the appellants but the rate of increase must be in
proportion to, or correlated with, the actual rise in the cost
of generation; (ii) that the stipulation in cl.34(b) cannot be B
regarded as a contractual stipulatii>n at all and that in no
case cl.34(b) can possibly be made applicable to any purported
_..alteration of contracting parties' right for a past period by
means of retrospective legislation; all that the parties
contemplated was that the mutual rights and obligations would
be subject to future legislations on supply and consumption of
electricity but such legislations necessarily had to be valid c
legislations and if cl.34(b) was to be treated as a
contractual stipulation providing that the rights stipulated
in the agreement were subject to any modification by any
legislation, .valid or invalid, cl.34(b) will have to be struck
down as a totally uncertain clause which cannot find place in
- ~any contract; (iii) that while the concessions stipulated by o
the agreement under s.49(1) could have been altered in
proportion to the rise in the cost of generation, such
concession could not have been altogether eliminated as that
would amount to a total disregard of the guiding principles
contained in section-'49(3) and thus contrary to the mandate of
s.49(2) of the Act; (iv) that ss.49A and 49B were integrally E
connected and were intended and meant to achieve a joint
purpose which was merely to validate such of the past actions
of the Board as would have been valid if s.49A had already
been in force at the relevant time and the demand to be
falldated had to be raised prior to February 7, 1976 and not
on a date subsequent thereto; since the bill dated March 12, F
1976 was subsequent to the date of promulgation of the
Ordinance, the same was not validated under s.49B; it was not
open to the Board to make a demand from the appellants for
payment of charges for the period commencing from June 1, 1974
1 and ending with February 6, 1976 according to the uniform
tariff of 1974; and (v) that the demand raised by the Board G
against the appellants for payment of the difference between
1!he uniform tariffs and the agreed rate for the period
subsequent to January 1, 1971 was violative. of Arts. 14,.
19(l)(f) and (g), and 31(2) of the Constitution.
On behalf of the Respondent-Board it was contended: (i) H
that cl. 18 is not an escalation clause; (ii) that cl.34(b)
638 SUP.REME COURT REPORTS [1986] 1 s.c.R.
A
makes the contract subject to any legislation;· that the right~
which the parties derived under the agreement for supply of
electricity at a concessional rate undet· s.49 of the Act waa
defeasible; and that being so, ss.49A and 49B had to be read •
into the contract and therefore became a contractual term; 1
that the appellants derived a right to get electricity at a
B concessional rate only for a limited period till January 1,
1971 and thereafter the Board derived the power to revise the
rate of supply under cl.18 and it waa, therefore competent foi;_.
the Legislature to enact a law providing for application of
uniform tariffs notwithstanding any such colllllitment,
undertaking or concession to the contrary made during any
c period prior to April 1, 1964,
BBLD 1, By virtue of ss. 49A and 49B of the
Electricity (Supply) Act, 1948 as introduced by the
Electricity (Supply) (Rajasthan Amendment) Act, 1976, it was
lawful for the Respondent-Board to revise the special rate of
D tariff agreed upon and to raise a demand against ther-
appellants by its letter dated February 1, 1971 for payment
of the difference between the uniform tariff under Schedule
HS/LP/HT-1 applicable to all large industrial consumers under.
the Board's tariff notification dated April 26, 1969 and the1
concessional rate in terms of cl.18 of the agreement between
E the parties dated July 28, 1961 for the period from January 1,
1971 upto February 6, 1976, i.e. the date of promulgation of,1
the Electricity . (Supply) (Rajasthan Amendment) Ordinance,
1976, as also the general surcharge of 15% thereon levied by
the Board by its tariff notification dated April 26, 1969 as,
from September 16, 1966 onwards. (689 C-E) ~
F
2. The Board's letter dated March 12, 1976 being
subsequent to the date of promlgation of the ordinance the
demand raised by the Board for payment of the revised uniform
tariff under Schedule LP/HT-I applicable to all such large
industrial consumers under the Board's tariff notification
dated May 28, 1974 purporting to act under ss. 49A and 49B of r
G
the Act read with cl.18 of the agreement, was not validated by
s.49B and, therefore, the Board was only entitled to recove~
uniform tariff at the same rate i.e. under Schedule HS/LP/HT-I
of 1969 for the period from July 1, 1974 to February 6, lq76,
that is, prior to the pronulgation of the Ordinance. (689 E--0)
H
DELHI CLOTH MILLS v. STATE ELECT. BOARD 639
A
~ 3, The Board was entitled by the terms of s.49A to raise
· a demand for payment of the revised uniform tariff under·
Schedule LP/HT-I of 1974 w.e.f. February 7, • 1976 and
thereafter as per the revised uniform tariffs framed from time
to time as applicable to all large industrial consumers in
terms of cl.18 of the agreement. [689 G-H; 690 A] B
4. An "escalation clause" according to its accepted
~ legal connotation means a clause which takes care of the rise
and fall of prices in the market, whereas the right to review
confers the power to revise the rate of supply. [666 D-E]
S. The word 'review' in cl.18 necessarily implies the c
power of the Board to have a second look and to so adjust from
time to time its charges as to carry on its operations under
the Act without sustaining a loss. The parties clearly
contemplated by cl.18 for a fresh revision of the rate once in
a block of five years. The only fetter on the power of the
--~ review is that contained in the proviso to cl.18, according to o
which power of review shall be exercisable if the component of
cost of generation out of the total cost varies by 25% or more
and that such power shall not be exercisable by the Board till
January l, 1971. Therefore, cl.18 cannot be regarded to be an
escalation clause. [666 F-H]
E
Butterworths' Encyclopadeia of Forms and Prece-
dents, 4th Edn., Vol.3·, p.148; Hudson's Building
and Engineering Contracts, 10th Edn., Keating's
Building Contracts, 4th Edn., p.498; Black's Law
) Dictionary, 4th Edn. , p. 639; .American Jurispru-
dence, 2nd Edn., Vol.17, p. 786 and Corpus Juris F
Secnnchm, Vol.17, p.806, referred to.
6, The true: object and purpose of the enactment should
not be ignored and due effec-t should be given to the
provisions of ss.49A and 49B of the Act with a retrospective
effect which clothed the Board with power to make the uniform G
tariffs applicable to bulk consumers like the appellants who
..-under agreements entered into with the Board on July 28, 1961,
· that is, before April l, 1964, the cut-out date mentioned in
sub-s.(1) of s.49A had been, to the great financial detriment
of the Board, enjoying a concessional rate of supply which had
no relation to the eldsting cost of generation, with the ·H
640 - SUPREME COURT REPORTS [1986] 1 S.C.R.
A
result that the burden of this cost had to be passed over to...-
other consumers. As is clear from the Statement of Objects and
Reasons of the Bill, the Legislatllre thought it expedient to
amend the Act so as to cover the rising cost of generation
from time to time, notwithstanding any special contract,
undertaking or concession to the contrary. The legislative
B mandate contained in ss.49A and 49B of the Act as introduced
by the Rajasthan Electricity (Supply) Amendment Act, 1976,
subserves the public interest to ensure that the Board shall ,.
not, as far as practicable, after taking credit for any sub-
vention from the State Government under s.63, carry on its
operations under the Act at a loss. (672 A-El
c
7.1 It is not uncommon for statutory contracts to contain
a term like cl.34(b) which makes the contract subject to
future legislation. Such a clause can usually be found in
forest or excise contracts relating to the grant of a
privilege which subjects the mutual rights and obligations )- -- .
D flowing from such a contract to be liable to be altered or
modified by subsequent legislations. [669 A-Bl
7.2 In the instant case, the rights which the appellants
derived under the agreement for supply of electricity at a
concessional rate under s.49 was defeasible inasmuch as on a
E fair construction of the terms of cl.34(b) taken in
conjunction with the conduct of the parties, it is clear that
the parties had contemplated that the mutual rights and
obligations under the contract would be subject to alteration
by future legislation. That being so, ss.49A and 49B have to
1
be read into the contract and these provisions by virtue of-,
F cl.34(b) became a contractual stipulation. [668 E-F; 670 H;
671 A-Bl
8. The State Legislature under Entry 38 of the Concurrent
List was competent to enact the Rajasthan Electricity (Supply)
Amendment Act, 1976 and introduced the impugned ss.49A and 49B
G with retrospective effect to overcome the difficulty created
by the decision of this Court in Indian Aluminiua Company's
case (Supra). There being a change in the law brought about"'
by the introduction of ss.49A and 49B of the Amending Act, the
Court is bound to give effect to these provisions
notwithstanding anything contained in the Act or in any
H agreement, undertaking, commitment O> concession to the
contrary made by the Board before the first day of April,
DELHI CLOTH MILLS v. STATE ELECT. BOARD 641
A
--11964, or the decision of this Court in Indian Aluminilllll
Company's case (supra). [673 D-D]
Indian Aluminium Company v. Kerala State Electricity
Board, [1976] l s.c.R. 70 referred to. B
9. A combined reading of the provislons contained in
ss.49A and 49B shows that the Board is relieved of the
_..shackles of the contractual obligations flowing from the
agreements relatable to s.49(3), and the Board is empowered in
terms of s.49A to revise the tariffs or frame uniform tariffs
with respect to consumers enjoying special benefits as from c
September 16, 1966. However, the Board could not on the
strength of s.49A alone recover the difference between the
uniform tariffs fixed from time to time and the agreed rate of
supply from the appellants for the period from January 1, 1971
to February 6, 1976 without the aid of s.49B. [677 F-H; 678 A]
D
10. Section 49B on its terms has no application unless
there was a demand raised or created prior to February 7,
1976, the date of promulgation of the ordinance. There is,
therefore, insuperable barrier in applying the uniform tariff
under Schedule LP/HT-I framed by the Board's tariff
notification dated'May 28, 1974 from the billing month of July E
1974 i.e. from June 1, 1974 to February 6, 1976. The Board
never intimated the appellants that they would have to pay
charges for the supply of electricity to them at that rate.
Therefore, the appellants would be liable for that period to
~pay charges at the uniform tariff as per Schedule HS/LP/HT-I
'framed by Board's tariff notification dated April 26, 1969. F
[678 A-DJ
11. The word "surcharge" is not defined in the Act.
Plainly, it means an additional or extra charge of payment. A
surcharge is in substance an addition to the stipulated rates
of tariff~ The general surcharge of 15% as also that the G
uniform tariff were part of the general burden borne by all
consumers alike. Whatever may have been the position under the
.,-old s.49, the new section as substituted by the Amendment Act
30 of 1976, makes it plain that the Board can fix uniform
tariffs. The power to fix uniform tariffs must necessarily
include power to make uniform increase in tariffs. Section 49A H
had the effect of removing the Board from the shackles of the
agreement to supply electricity as a concessional rate entered
642 SUPREME COURT REPORTS [1986] l s.c.R.
A
into under s.49. The effect of the non/obstante clause in "y
sub-s.(l) of s.49A was to nullify the agreement. (678 E-F;
679 G-H; 680 A-BJ
Bisra Stone Lille Co. Ltd. v. Orissa State llectricity
Board, [1976] 2 s.c.R. 307; and Shorter Oxford English Dictio-
B nary, p. 2199 relied upon.
Inclfan AlUlliniua Co. v. l'erala State llectricity Board, >--
(1976] l s.c.R. 70; and ntagarh Papers Kills Ltd. v. Orissa
State llectricity Board & Anr., (1975] 2 S.C.R. 436 referred
to.
c
12. Where a law does not, in reality, affect a transfer
of ownership or possession, Art. 31(2) cannot be attracted. In
order to constitute acquisition within the meaning of
.\.rt.31(2), there llllSt be transfer of ownership of property to
the State or to a Corporation owned or controlled by the
D State. (683 F-G] . r-
13. Unless the taking of property had taken place in
either of the two way i.e. "acquisition or requisitioning",
there was no obligation to pay compensation under the
Constitution. The extinction of the right of the appellants
E under the contract with the Board to get electric supply at· a
concessional rate under cl.18 of the agreement for the period
after January 1, 1971 when revision of tariff was due under
cl. 18 thereof, had not amounted to acquisition of property
under Art. 31(2). Further, there was no question .of any;
transfer of money representing any debt owned by the Board
'F from the appellants which stood extinguished by reason of
ss.49A and 49B of the Act. All that the appellants had under
their contracts with the Board was a defeasible right by
reason of cl. 34(b) of the agreement. The appellants had
contracted themselves by cl. 34(b) to be subject to any
subsequent legislation, and s. 49A of the Act struck at the
G agreement. It is an enabling provision and empowers the Board
to revise the tariffs for supply of electricity to a class of
consumers enjoying special benefit under agreement entered~
into under s. 49(3). The Board was competent to review the
tariff in terms of cl. 18 of the agreement as from January l,
1971. Section 49A liberates the Board from the constraints of
H the agreed rate under the agreement entered into by the Board
with the appellants under s.49 of the Act and empowers the
DELHI CLOTH MILLS v. STATE ELECT. BOARD 643
A
~aising of demand according to the uniform tariffs. Here,
there was no debt due or owing to the State or a Corporation
owned or controlled by the State. Article 31(2) was thus not
attracted. [683 G-H; 684 A-B; 683 C-F]
B
14. The concept of "property" in Art. 31 is not a narrow
concept and is used in a comprehensive sense. Any legal right
which can be enforced through a Court is a right in the nature
-Vf property within the meaning of Art. 31. (682 G-H; 683 A]
Indian· AJnwinfna Co. v. Kerala State Electricity Board,
[1976] l S.C.R. 70; Madan Mohan Patbalt v. Union of India, c
[1978] 3 S.C.R. 334; R.H. Maharajadhiraja Madhav Rao Jiwaji
Rao Scindia Bahadnr v. Union of India, [1971] 3 S.C.R. 9; and
State of M.P. v. Rajojirao Sbindi, [1968] 3 s.C.R. 489 distin-
guished •
.· 15. The contention based on Art. 19(1 )(f) and (g) cannot D
prevail. The present case concerns only with sale of goods
, i.e. electricity and price to be paid therefor, for "tariff"
is nothing but the price. The contract itself provided for
revision of the rate under _cl.18 of the agreement after
January 1, 1971. The Board was within its powers in applying
the uniform tariffs to the appellants after the period E
stipulated for had expired. There was nothing unreasonable for
the Board to have enforced the uniform tariffs as against the
appellants as from January 1, 1971. Reasonableness of the
increase in tariff is established by the fact that the Board
lf&S not bound to supply electricity to the appellants at a
concessional rate by incurring operational losses beyond that F
date. [687 D-F]
16. The appellants have not shown nor produced any
material to show that they have suffered any loss on account
of the increase in tariff. There is nothing to show that the
appellants had not the capacity to bear the burden of uniform G
tariffs. It cannot be said that the impugned demand made by
J.he Board as against the appellants were confiscatory in
nature. When all the large industrial undertakings including
the public sector undertakings of the Government of India and
the State Government were paying for the supply of electricity
at uniform tariffs fixed from time to time, the appellants had H
no right to claim immunity. [687 F; 688 D-E)
644 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
17. It is evident that the cost of generation in the grid.-
was far higher than the concessional rate at which the
appellants were getting the supply. As a result the Board was
incurring very heavy losses on account of this low rate for a
large bulk consumption. It would have been unreasonable for
B the Board not to have applied the uniform tariffs to the
appellants as from January 1, 1971 when t:he Board derived the
power to revise the rate under cl.18 of the agreement. The
component of cost of generation worked out by the Board shows~
that the appellants were getting their electricity free of
all charge. Even the uniform tariff under HS/LP/HT-I was very
c much less than the price at which the Board was getting its
supply. Therefore, there was no reason why the appellants
should not be treated alike wit all other large industrial
undertakings which were all subjected to payment of uniform
tariffs fixed from time to time. The contention based on
Art.14 must, therefore fail, [686 D-F; H; 687 A-CJ
D
18. There was no question of any estoppel against the ,
Board inasllllch as the appellants did not open their PVC plant
on account of any assurance or promise by the Board. The
appellants approached the Board for supply of high tension
ower for their industrial complex and the Board complied with
E the request. Even·otherwise, the appellants have not made out
that but for the statutory contract for s;upply of electricity
at a concessional rate under s.49 they would not have
established their industry. There were number of incentives
offered by the State Government to enterpreneurs to set up
their industries in the State. The Board l.s not the Government
F and the appellants cannot rely on promissory estoppel for thJ
incentive offered by the Government. [688 F-H; 689 A-BJ
19. All the appeals, except CA. No. 2675/80 are
dismissed. Civil Appeal No. 2675/80 arising out of the
judgment and order of the Division Bench of the High Court
G dated September 12, 1980 dismissing S.B. Writ Petition
No. 8579/80 filed by the appellants challenging the validity
of the bill dated March 12, 1976, for payment of Rs. 21,35,
506. 70p. for the billing month of February 1976, is partly~
allowed to the extent that the said bill is quashed with the
declaration that the Respondent Board is empowered in terms of
H s.49A of the Electricity (Supply) Act, 1948 as introduced by
the Electricity (Supply) (Rajasthan Amendment) Act, 1976 to
DELHI CLOTH MILLS v, STATE ELECT, BOARD [SEN, J,] 645
~ raise a fresh demand for payment under Schedule HS/LP/HT-1 of A
1969 for the period from July 1, 1974 to February 6, 1976 and
further that the Board is entitled to recover from the
appellants charges under Schedule LP/HT/ 1 of 197 4 as from
February 6, 1976 and thereafter as per the revised uniform
tariffs, framed from time to time as applicable to all large
industrial consumers together with general surcharge of 15% B
thereon in terms of cl. 18 of the agreement. [ 690 E-H;
_. 691 A-BJ
CIVIL APPELLATE JURISDICTION Civil Appeals Nos.
2675-2679 of 1980.
From the Judgment and Order dated 12th September, 1980 c
of the Rajasthan High Court in Writ Petitions Nos. 628/76,
525/77, 114, 121 and 152 of 1973.
Shanti Bhushan and P.H. Parekh for the Appellants.
-,
Dr, Y.S. Chitale, S.N. Kakkar, V.M. Tarkunde, B.D. D
Sharma, Sushil Kumar Jain, Sudhanshu Atreye, Badri Das Sharma,
R.K. Mehta and H.P. Gupta for the Respondents.
The Judgment of the Court was delivered by
SEN, J, These five consolidated appeals by special leave E
from the common judgment and orders of a Division Bench of the
Rajasthan High Court dated September 12, 1980 raise questions
of far-reaching importance. By the judgment under appeal, the
Division Bench has upheld the constitutional validity of ss.
49A and 49B of the Electricity (Supply) Act, 1948, as intro-
duced by the Electricity (Supply) (Rajasthan Amendment) Act, F
1976, with retrospective effect, making it lawful for the
Rajasthan State Electricity Board to revise from time to time
the tariffs fixed for the supply of- electricity in respect of
any period commencing from September 16, 1966 i.e. the date of
introduction of the new s. 49 by the Electricity (Supply)
(Amendment) Act, 1966, and for the validation of amount G
~· realized, demand made or created by the Board according to the
uniform tariffs in force from time to time before the publi-
cation in the official Gazette of the Electricity (Supply)
(Rajasthan Amendment) Ordinance, 1976, i.e. prior to February
7, 1976, the date of promulgation of the Ordinance.
H
646 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
Upon that view, the Division Bench has reversed the
judgmemt and order of Tyagi, J. dated October 17, 1969 and
upheld the impugned notification dated July 26, 1966 issued by
the Board for the levy of a general surcharge of 15% of
the normal tariff as also the judgment and order of J,P. Jain,
J, dated April 13, 1973 holding that the Board was entitled to
B recover from the appellants the difference between the normal
rate of tariff and the special rate of tariff agreed upon
between the parties in terms of a statutory agreement dated
July 28, 1961 under s.49 of the Act as it then stood, by
virtue of ss. 49A and 49B of the Act read with cl.18 of the
agreement as from January 1971 onwards for the supply of
c electrical energy to the appellants for the electro-chemical,
electro-thermal and poli--vinyl chloride industry known as
Messrs Shriram Vinyl & Chemical Industries, Kota, formerly
known as Rajas than Vinyl & Chemical Industries, and to levy
the general surcharge of 15% thereon contrary to the terms and
conditions of the aforesaid agreement for the supply of such
D electrical energy to the appellants at a concessional rate for
a period of 20 years. Pursuant thereto, the Division Bench has
upheld the demand raised by the Board by its letter dated
February 1, 1971 for payment of Rs,ll,67,959.95p. for the
billing month January 1971 onwards at normal tariffs together
with general surcharge of 15% thereon under Schedule
E HS/LP/HT-1 applicable to all large industrial consumers under
the Board's tariff notification dated April 26, 1969, under
cl.18 of the agreement i.e. prior to the proU11lgation of the
Ordinance. It has also upheld the demand raised by the Board's
letter dated March 12, 1976 for payment of Rs.21,35,506.72p.
for the billing month February 1976 at normal tariff plus the
F general surcharge of 15% thereon under Schedule LP/HT-1 appli-
cable to all large industrial consumers under the Board's
tariff notification dated May 28, 1974 purporting to act under
ss. 49A and 49B of the Act read with cl.18 of the agreement
for the period subsequent to the proU11lgation of the
Ordinance.
G
The principal question in controversy is whether ss. 49A
and 49B of the Act were integrally connected with each other;
and if so, the retrospective conferment of a prospective power
validated any amount realized, or demand made or created by
the Board, according to the uniform tartffs from time to time,
H
. DELHI CLOTH MILLS v, STATE ELECT. BOARD [SEN, J. ] 64 7
~from or against any person claiming any special tariffs under A
any agreement, undertaking, commitment or concessions made,
before the first day· of April 1964 i.e. the date when the
uni-form tariffs were first framed by the Board at different
rates for different classes of consumers by its notification
dated March 18, 1964, notwithstanding anything contained in
the Act or ~n any such agreement, undertaking, commitment or B
concessions so made. This question turns on a construction of
~ the provisions contained in ss. 49A and 49B of the Act, the
constitutionality of which has not been challenged before us.
Sub-s. (1) of s. 49A of the Act by the use of a~
obstante clause has the effect of nullifying all such agree-
ments, undertakings or commitments made before the first day c
of April 1964 by the Board or the Government of Rajasthan or
the Government of any covenanting State of Rajasthan or in any
judgment and order of any court, and provides that it shall be
lawful for the Board to revise, from time to time, the tariffs
fixed for the supply of electricity to persons other than
licensees and to frame uniform tariffs for the purpose of such D
supply in respect of any period counnencing on and from
September 16, 1966, the date when new s. 49 had come in force.
Sub-s. (2) thereof provides that in revising the tariffs or
framing uniform tariffs under sub-s,(l), the Board shall be·
guided by the principles set out in s,59 and as respects any
period commencing on and from September 16, 1966 i.e. after E
the introduction of the new s. 49 of the Act, by the princi-
ples laid down in sub-ss. (2), (3) and (4) of s. 49. Sub- s.
l (3) of s. 49A provides that all such agreements, undertaking,
·commitment or concessions as are referred to in sub-s.(l),
shall, insofar as they are inconsistent with the provisions of
sub-ss.(l) and (2) and to the extent of the tariffs fixed or F
provisions made therein for such fixation, be void and shall
be deemed always to have been void. One of the crucial
I questions is whether the demand to be validated in terms of s.
49B of the Act, had to be raised prior to February 7, 1976 and
not on a date subsequent thereto and therefore the appellants
__,were liable to pay the revised uniform tariff under Schedule G
· LP/HT-1 of the Board's tariff notification dated May 28, 1974
w.e.f, July· 1, 1974. The contention on behalf of the appel-
lants is that s. 49B of the Act in terms does not have the
effect of validating the demand raised by the Board by its
letter dated March 12, 1976 for payment of charges for the
H
648 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
supply of electrical energy to them at uniform tariff framed y
by the aforesaid Board's notification dated May 28, 1974, such
a demand having been made after the pronulgation of the
Ordinance i.e. after February 7, 1976; and if that be so,
whether the Board was only entitled to recover from the
appellants uniform tariff under Schedule HS/LP/HT-1 framed by
the Board's tariff notification dated April 26, 1969 as from
B
January 1971 onwards. Various subsidiary questions also arise,
viz. whether the demands so raised are violative of Art.14, "-
Art,19(l)(f) and (g) and Art.31(2) of the Constitution.
The Facts
c Facts giving rise to these appeals are these. By an
agreement dated July 28, 1961 the Rajasthan State Electricity
Board, Jaipur agreed to apply the appellants with bulk
electrical energy upto maximum of 25,000 KW per year for their
Rajasthan Vinyl & Chemical Industries situate at Kota for ..-- --
electro-chemical, electro-thermal and PVC and allied
D
industrial products at a concessional rate for a period of 20
years upon the terms and conditions contained therein. Cl.17
of the agreement provides for a special rate of tariff as
negotiated between the parties and is in these terms :
"17. The consumer shall pay to the Board every
E
month charges for the electrical demand made by the
consumer during the preceding month at the rate of
201.04/12 = Rs. 16.753 per KVA of the demand
assessed which shall be calculated as defined in 1
clause 19."
F
We are informed that this works out roughly to 3p. per unit.
Under cl.18 of the agreement, the rate of supply was
reviewable by the Board every five years after January 1,
1971. Proviso thereto was in the nature of a rider and it
provided that the revision of rate shall be effected provided
G
the component of cost of generation out of the total cost 'r
varied by 25% or more from the cost last fixed. The relevant
part of cl.18 may be reproduced
"18 ........ The rate of supply as determined in
clause 17 above shall be reviewed every fifth year
H
DELHI CLOTH MILLS v. STATE ELECT, BOARD [ SEN, J. ] 64 9
A
starting from the date of first supply provided the
component of cost of generation out of total cost
varies by 25% or more from the cost last fixed.
Further the rate fixed by this Agreement shall be
reviewed only on or after 1st January, 1971."
B
It is not necessary to set out cl.31 which is the arbitration
clause. Cl.34(b) of the agreement which has a material bearing
_.. upon these appeals reads as follows :
11
34(b) Nothing contained in this Agreement or any
amendment thereof shall restrict any rights,
obligations and discretions which the Board or the
Consumer has derived under any legislation relating
c
to supply and consumption of Electricity enacted
during the period of this Agreement,"
It is necessary to mention that Messrs Rajasthan Vinyl &
Chemical Industries was set up by the appellants at Kata for
D
electro-chemical, electro-thermal and PVC and allied
industrial products with a capital investment of Rs,10 crores
as a result of the Board agreeing to supply electrical energy
at a concessional rate which came to be known later as Messrs
Shriram Vinyl & Chemical Industries. It is a power oriented
industry and electricity is the basic raw material. The only
E
other industry of this kind in the country was the one set up
by Messrs Calico Mi1ls Ltd. which has since been closed.
It is common ground that the Board commenced supplying
1 electrical energy to the appellants with effect from March 1,
1963. The Board in pursuance of its powers under s. 49 of the
F
Act, with the prior concurrence of the State Government, has
been issuing various notifications from time to time bringing
into effect the revised tariffs for the supply of electricity
to its different classes of consumers at different rates. The
first of these was notification dated March 18, 1964 which
brought into effect the revised tariffs for the supply of
electricity to its consumers and they became applicable for G
-r the consumption recorded for the billing month May 1964 on-
wards. Cl,3 of the said notification provided that the revised
~.- tariffs shall replace all existing tariffs and shall supersede
all the existing orders of the Board and the State Government
in that behalf with effect from the date of introduction of
the,revised tariffs, except for the following, namely : H
650 SUPREME COURT .REPORTS (1986] 1 S.C.R,
A "(i) Special contracts for Large or Special loads,...
separately negotiated or to be negotiated; and
(ii) Special loads for which concessional tariffs
have been already given under the orders of the
Goverrurent/Board."
B The second of these notifications was the one dated July
26, 1966 by which the Board purported to levy different rates ~
of surcharge on different classes of consumers with effect
from the billing month of September 1966, The general
surcharge imposed on the appellants was 15% on the normal
tariff, The third notification dated April 26, 1969 brought
c into effect the revised tariffs for supply of electricity
to consumers falling under the category 'large industrial
loads' viz. schedule HS/LP/HT-1 with effect from the billing
month June 1969, and the fourth dated May 28, 197 4 making
effective revised tariffs for the supply of electricity to its
consumers from the billing month of July 1974. The third and •~
D fourth notifications contained similar exclusionary clause.
According to the appellants, the uniform tariffs as revised
from time to time under the aforesaid notifications were not
applicable to them in view of the said exclusionary clause.
The appellants filed a petition in the High Court under
E Art.226 of the Constitution assailing the power of the Board
to levy the general surcharge of 15% under the impugned noti-
fication dated July 26, 1966, The aforesaid writ petition was
allowed by Tyagi, J, by his judgment dated October 17, 1969 by
which the leared Judge held that the impugned notification'
levying general surcharge of 15% was ultra vires the powers of
F the Board insofar as the appellants were concerned. The deci-
sion was based on the ground that the parties having entered
into a statutory agreement dated July 28, 1961 for a conces-
sional rate of tariff for the supply of electrical energy to
the appellants, there was a fetter created on the power of the
Board to unilaterally increase the tariff under s.49 of the
G Act and therefore the appellants could not be subjected to
payment of the general surcharge of 15%. Feeling aggrieved, \..
the Board preferred an appeal against the judgment of the
learned single Judge.
As from January 1, 1971, the Board manifested its
H
DELHI CLOTH MILLS v. STATS ELECT. BOARD [SEN, J.] 651
A
~ intention to the appellants to revise the concessional rate of
supply and charge them the uniform rate of tariff under
Schedule HS/LP/HT-1 as applicable to all large industrial
consumers and the general surcharge of 15% thereon .in exercise
of its powers under cl.18 of the agreement. There followed
several meetings between the, off ice rs of the Board and the
B
representatives of the appellants and they were informed that
they would have to pay for the consumption of electricity at
the normal rate of tariff prevalent plus the general surcharge
of 15%. It is quite evident from the appellants' letter dated
September 5, 1970 addressed to the Chairman of the Board that
the Board had the power to review the tariff insofar as they
were concerned as and from January 1, 1971. In their letter
they adverted to cl.18 of the agreement which conferred power
c
on the Board to review the tariff on or after January 1, 1971
and referred to the discussion they had with the Chairman and
other officials of the Board, making a request that the Board
should furnish the necessary details with regard ta the total
cost and the component of cost of generation at the time of
D
the· supply under the agreement as well as the relevant time,
if any review of tariff was being contemplated. In response
thereto, the Board by its letter· dated December 22/24, 1970
drew the attention of the appellants to cl.18 and stated that
the cost of generation had been worked out in the office of
the Board and it had been found that the present cost was
E
higher than 25% of the cost of the time of executing the
agreement as detailed below :
"Component of cost of generation
at the time of agreement 2.089 P/Kwh.
F
.Component of cost of generation
during the year 1969-70 5.17 P/Kwh."
It went on to say :
"In view of this, the Board is entitled to review
G
the rates of supply to you and intends to charge
from 1st January, 1971, at the normal tariff
Schedule HS/LP/HT-1 (copy enclosed) plus 15%
general surcharge."
Accordingly, the Board by its letter dated February 1,
H
652 SUPREME COURT REPORTS [1986] 1 S.C.R.
A
1971 enclosed a bill for the billing month January 1971 for a ,_
sum of Rs.12,18,740.60p. at the normal tariff with a rebate of
Rs.50,780.65p. which worked out to Rs.ll,67,959.95p. It was
stated that the rate of supply had been reviewed by the Board
under cl,18 of the agreement w.e,f. January 1, 1971 and the
rate charged was under Schedule HS/LP /HT-1 applicable to all
large industrial consumers. We are informed that this works
B
out to 7.67 P• per unit exclusive of the general surcharge of
15% and to 8. 73p. inclusive thereof and this more or less .1..
represented the actual cost of generation.
On a petition filed by the appellants under Art. 226 of
the Constitution assailing the validity of the demand raised
c by the Board by its letter dated February 1, 1971 and the
enclosed bill for Rs.U,67,959.95p. on the ground that the
Board was not entitled to revise the tariffs applicable to
them under cl.18 as from January 1, 1971, J.P. Jain, J, by his
order dated April 13, 1973 quashed the impugned bill issued by
the Board. He repelled the construction sought to be placed by
D
the appellants on the terms of cl.18 of the agreement and held
that the Board was entitled under the first part of cl.18 to
review the rate of supply 'every fifth year starting from the
first date of supply', but in view of the restrictive clause
contained in the second part of cl.18 it was impermissible for
the Board to make any such upward revision in the rate of
E supply till January 1, 1971. He further rejected the
contention of the appellants that the Board was not competent
to review the tariff under cl.18 prior to March 1, 1973. He
also held that it was not open for them to contend that the j
cost of genaration had not va~ied by 25% or more, they having
by their letter dated January 18, 1971 'addressed to the Board
F declined to go into the question of cost of generation as on
the date last fixed and at the relevant time i.e. in the year
1969-70 on the pretext that they were advised that the rate
revision was in no case due till March 1, 1973. The learned
Judge next held that in the circumstances he would infer that
the rise in the cost of generation was at least 25% and
G accordingly the Board was entitled to revise the rate of .,_
supply by 25% of the rate specified in cl.17 upon the basis
that the upward revision in the rate of supply under cl.18
must be in proportion to, .or correlated with, the actual rise
in the cost of generation. In that view, he held that the
Board could not unilaterally impose the normal tariff in
H disregard of the agreement, and added :
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 653
"Sub-s.(3) of s.49 of the Electric Supply Act, 1948 A
clearly empowers the Board to fix different tariffs
if it considers it necessary or expedient for the
supply of electricity to any non-licensee having
regard to the geographical position of the area,
the nature of the supply is required and any other
relevant factor. The petitioner company is B
·admittedly the biggest consumer in the State and
the Board at one time under the agreement agreed to
give it an exceptional rate. Sub-s.(3) is an
exception to sub-s.(l) which lays down that the
Board shall frame uniform tariff. Sub-s. (4) again
prescribes a limitation to sub-s.(3) that the Board
shall not give undue preference. It has not been C
the case of the Board that by executing the
agreement any undue preference was shown to the
petitioner company."
---.', In conclusion, the learned Judge held that if the Board claim-
ed a further rise, it would.have to establish that the rise in D
the cost of generation was more than 25% and it had to for
that purpose get the percentage in the cost of generation
determined either by nutual dialogue or reference to arbitra-
tion.
Pronulgation of the Electricity E
(Supply) (Rajasthan Amendment)
Ordinance, 1976 :
Introduction of Sections 49A
And 49B into the Act.
Both the appellants and the Board preferred appeals. F
While the aforesaid appeals were pending in the High Court, on
February 7, 1976 the Governor of Rajasthan pronulgated the
Electricity (Supply) (Rajasthan Amendment) Ordinance, 1976 by
which new ss. 49A and 49B were introduced into. the Act with
retrospective effect to overcome the difficulty created by the
._Judgment of the High Court in this case, and more particularly G
·by the judgment of this Court in Indian Aluminium Company v.
Kerala State Electricity Board [1976] 1 S.C.R. 70. By the use
of a non-obstante clause in sub-s.(l) of s.49A the Legislature
made it lawful for the Board to revise, from time to time, the
tariffs fixed for the supply of electricity to persons other
H
654 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
than licensees and to frame uniform tariffs for the purpose of..-
such supply. Sub-s. (2) thereof provided that in revising or
framing tariffs under sub-s.(1) the Board shall be guided by
the principles set out in s. 59 and as respects any period
commencing on and from September 16, 1966 i.e. the date on
which the new s.49 of the Act was brought into force, by the
provisions laid down in sub-ss.(2), (3) and (4) of s.49A
B notwithstanding anything contained in the Act or in any
agreement, undertaking, commitment or concession made beforek
the first day of April 1964, i.e. the date when the uniform
tariffs were first framed by the Board by its tariff
notification dated March 18, 1964. Sub-s. (3) of s.49A
provides that all such agreements, undertakings, commitments
c or concessions as are referred to in sub-s. (1), shall, inso-
far as they are inconsistent with the provisions of sub-ss.(1)
and (2) and to the extent of the tariffs fixed or provisions
made therein for such fixation, be void and shall be deemed
always to have been void. The agreement between the parties\. __
thus had the effect of nullifying the agreement between the·
D parties entered into by the Board with the appellants under
s.49 of the Act for the supply of electricity at a concession-
al rate for their industrial undertaking. Similarly, by the
use of a ~ obstante clause s.49B provided that notwith-
standing anything contained in the Act or in any agreement,
uruh!rtaking or concession as are referred to in sub-a. (1) of
E s. 49A, any amount realized or demand made or created by the
Board or the Government etc. according to the uniform tariffs
in force from time to time from or against any person claiming
any special tariffs under any such agreement, undertaking O\
concession made before February 7, 1976, the date of proDlll~
gation of the Ordinance, shall be deemed to have been validly
F realized, made or created under the Act as amended by the
Ordinance. It is necessary to reproduce s.49A in its entirety
and s.49B insofar as relevant, which read:
"49A. Power of the Board to revise certain
tariffs :-
G . y
(1) Notwithstanding anything contained in this Act
or in any agreement, undertaking, commitment or
concessions made, before the first day of April,
1964 by the Rajasthan State Electricity Board or
the Government of Raj as than or by the ruler or
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 655
A
Government of any covenanting State of Rajasthan,
or in any judgment or order of any court, it shall
be lawful for the said Board to revise, from time
to time, the tariffs fixed for the supply of
electricity to persons other than licensees and to
frame uniform tariffs for the purpose of such
B
supply •
. (2) In revising the tariffs or framing uniform
tariffs under sub-section (1), the said Board shall
be guided by the principles set out in section 59
and as respects any period commencing on and from
the 16th day of September, 1966, by the principles
laid down in sub-sections (2), (3) and (4) of
c
section 49.
(3) All such agreements, undertakings, commitments
or concessions as are ref erred to in sub-section
(1), shall, in so far as they are inconsistent with
D
the provisions of sub-sections ( 1) and (2) and to
the extent of the tariffs fixed or provisions made
therein for such fixation, be void and shall be
deemed always to have been void.
49B. Valldat:ion of certain tariffs etc. -
E
Notwithstanding anything contained in this Act or
in any agreement, undertaking or concession
referred to in sub-section (1) of secton 49A, or in
any judgment or order of anY. Court -
(a) any amount realized, or demand made or created, F
by the Rajasthan State Electricity Board, or the
Government of Rajasthan or the ruier or Government
of any covenanting State of Rajasthan, according to
the uniform tariffs in force from time to time,
from or against any person claiming any special
G
tariffs under any such agreement, undertiiking or
concession before the publications in the official
Gazette of the Electricity Supply (Rajasthan
Amendment) Ordinance, 1976, shall be deemed to have
been validly realised, made or created under this
Act as amended by the said Ordinance."
H
656 SUPREME COURT REPORTS [19861 1 s.c.R.
A
Immediately thereafter on March 12, 1976 the Board,.
furnished the appellants with a bill for payment of an am:>unt
of Rs.21,35,506.72p. for the billing m:>nth of February 1976 at
uniform rate, under Schedule LP /HT-1 framed by the Board's
tariff notification dated May 28, 1974 together with the
general surcharge of 15%.
B
The appellants were therefore constrained to move the
High Court under Art.226 of the Constitution challenging the ~
constitutional validity of ss.49A and 49B of the Act, as
introduced by the aforesaid Ordinance .as also the impugned
bill sent by the Board for the billing m:>nth of February 1976
C for Rs.21,35,506.72p. On November 4, 1976 the Board issued
another notification under s.49(1) framing revised uniform
tariffs at different rates for different class of consumers
which became applicable from the billing month of December
1976. But unlike the earlier notifications prescribing
uniform tariffs under s.49(1) of the Act, this notification
D did not contain any exclusionary clause granting exemption for '.-~
specially negotiated loads. While the matters were pending
before the High Court, on November 3, 1977 the Board furnished
another bill to the appellants claiming arrears am:>unting to
Rs.5.57 crores on account of the difference between the normal
rate of tariff and the agreed rate for the supply of
E electrical energy to them for the period from January 1, 1971
to January 31, 1976.
Again, the appellants filed another petition in the High
Court under Art. 226 of the Constitution questioning their'
liability to pay the said am:>unts. Both the aforesaid writ •
F petitions, namely, the one challenging the vires of ss.49A and
49B of the Act as well as the legality of the impugned bill
sent by the Board claiming Rs.21,35,506.72p. for the billing
month of February 1976, and the other questioning the legality
and propriety of the bill dated November 3, 1977 raising a
demand for payment of Rs.5.57 crores on account of the
G difference between the uniform rates of tariffs and the agreed
rate of supply for the period from January 1, 1971 to January
31, 1976 were referred to a Division Bench. "'
By the judgment under appeal, a Division Bench speaking
through Fudal, J. allowed the appeal preferred by the Board
H
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 65 7
'i and dismissed that of the appellants as well as the writ A
petitions filed by them. The learned Judge disallowed the
contention raised on behalf of the appellants as to the
c.onstitutional validity of ss.49A and 49B of the Act as
introduced by the Electricity (Supply) (Rajasthan Amendment)
Act, ·1976 and upheld the right of the Board to revise the rate
of supply as agreed upon for the period commencing from B
January l, 1971 onwards and enforced a demand for payment of
--'the difference between the uniform tariffs as fixed from time
to time and the agreed rate. Learned counsel for the parties
have placed no reliance on the judgment of the Division Bench
which, according to them, does not deal with the points raised.
Extent of the Appellants' liability c
We find it convenient at this stage to indicate the
extent of the appellants' liability involved in these appeals.
r
From the abstract statement filed by the Board, the net amount
due with interest as per the uniform tariffs under Schedule
HS/LP/HT-1 framed by the Board's tariff notification dated D
April 26, 1969 for the period from January l, 1971 to June 30,
r 1974 and the uniform tariff Schedule LP/HT-1 framed by the
Board's tariff notification dated May 28, 1974 for the period
from July 1, 1974 to February 6, 197 6 together with the.
general surcharge of 15% on the tariff from September 16, 1966
and the interest thereon comes to Rs.14,50,99,654-47p. On the E
other hand, if the appellants contention regarding the in-
applicability of the uniform tariffs under Schedule LP/HT-1 of
~1974 were to prevail on the ground that the Board had failed
'to raise a demand for payment of electricity charges at that
rate prior to February 7, 1976, the date of prolllllgation of
the Ordinance, the net amount due on account of this differ- F
ence for the aforesaid period applying the uniform tariff
Schedule HS/LP/HT-1 of 1969 comes to Rs.12,10,51,510-46p. The
resultant sums have. been arrived at after making adjustment of
various payments made by the appellants from time to time
towards the bills submitted by the Board as per the interim
._,,orders passed by the High Court from time to time together G
with interest, as also under the interim order of this Court
dated October 6, 1980 while granting special leave and stay of
the operation of the judgment of the High Court. We may state
that the figures given in the abstract statement filed by the
_Ii
658 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
Board more or less correspond with those in the statement,..
filed by the appellants. The difference between the two
amounts with interest thereon at 9% works out to Rs.2,41,
58,937. That is the magnitude of the claim in these appeals.
B We had the benefit of hearing Shri Shanti Bhushan
appearing for the appellants and Dr. Y.S. Chitale, on behalf
of the Board. At the very outset Shri Shanti Bhushan, learned
counsel for the appellants with all fairness stated that he'-
does not challenge the constitutional validity of ss.49A and
49B of the Act.
c
The nature of controversy.
The controversy in these appeals can be viewed fr~:.
three aspects. First rests on the interpretation of the terms
of the agreement between the parties dated July 28, 1961 and
D the various clauses thereof, particularly clauses 18 and 34(b) ,~
which both have a material bearing. The second on the
construction of ss.49A and 49B of the Act, the scope and
effect of s.49A which by the non-obstante clause nullifies the
agreement for the supply of electrical energy at a concession- \
al r~te to the appellants and makes it lawful for the Board to
E
charge the uniform tariff with retrospective effect from
September 16, 1966 Le. the date on whi.ch the new s.49 was
introduced, and s.49B which validates the making of such
demand with retrospective effect. As also the validity of the
demands created by the Board by its letter dated February 1,
1971 for the billing month January 1971 for Rs.11,67,959. 95p.~
under Schedule HS/LP/HT-1 to the Board's tariff notification
F
dated April 26, 1969 applicable to all large industrial con-
sumers, and the bill sent by the Board on March 12, 1976 for
the billing month February 1976 for payment of Rs.21,35,506-
72p. under Schedule LP/HT-1 to the Board's tariff notification
dated May 28, 1974. The third comprises of various subsidiary
issues as to whether the Board is precluded by the doctrine of
G
promissory estoppel from raising these demands, as also
whether sdch demands are violative of Arts. 14, 19(l)(f) an<\,
(g) and 31(2) of the Constitution. We shall deal with these
contentions in seriatim.
I
'
I
I DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 659
A
'i In order to appreciate the issues involved, it is
necessary to deal with the legislative changes. Under s.49 of
the Act as it stood at the relevant time i.e. on July 28,
1961, the date of agreement, a general power was conferred on
the Board to supply electricity upon such terms and condition&
as it may, from time to time, fix having regard to the matters B
referred to in that section and the proviso thereto directed
the Board not to show undue preference to any person in fixing
~.the tariffs. The section was in the following terms :
"49. Provision for the sale of electricity by the
Board to persons other than licensees :
c
Subject to the provisions of this Act and of any
regulations made in this· behalf, the Board may
supply electricity to any person not being a
,
licensee upon such terms and conditions as the
Board may from time to time 'fix having regard to
the nature and geographical position of the supply D
and the purposes for which it is required :
Provided that in fixing any such terms and
conditions the Board shall not show undue
preference to any person."
E
It appears that a view was taken by the Bombay High Court
in a case relating to the Kalyan Borough Municipality that
s.49 of the Act a~ it then stood, did not permit the Board to
frame uniform tariffs for consumers in compact areas as well
•as consumers in sparse "reas, so as to require the former to
pay a part of the cost involved in the supply of electricity F
to the latter i.e. so as to ::ast a higher burden on the
consumer in a compact area, where the cost of supply was less.
An appeal was brought by the Maharashtra Electricity Board to
this Court. During the pendency of the appeal, Parliament
enacted the Electricity (Supply) Amendment Act, 1966 •by which
the Act was amended in various particulars. It is only G
necessary to refer to two sections of the Amendment Act viz.
"'ss. ll and 24. Section ll substituted, with retrospective
effect, new s. 49 in the place of old s.49, and s.24 of the
amending Act validated the imposition and collection of
charges for the supply of electricity, preventing any person
from claiming refund of any amount paid ITf him in excess of Jl
660 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
the amount due under the Act. The new s.49 of the Act runs as v
follows :
"49. Provision for the sale of electricity by the
Board to persons other than Lf.ceneees :
B
(1) Subject to the provisions of this Act and of
regulations, if any, made in this behalf, the Board
may supply electricity to any person not being a •.
licensee upon such terms and conditions as the
Board thinks fit and may for the purposes of such
c supply frame uniform tariffs.
(2) In fixing the uniform tariffs, the Board shall
have regard to all or any of the following factors,
namely :-
(a) the nature of the supply and the purposes
::~
D
which it is required;
(b) the coordinated development of tl:ie supply
distribution of electricity within the State in the
most efficient and economical manner, with
particular reference to such development in areas
E
not for the time being served or adequately served
by the licensee;
(c) the extension and cheapening of supplies of
electricity to sparsely developed areas.
F
(3) Nothing in the ·foregoing provisions of this
section shall derogate from the power of Board, if
it considers it necessary or expedient to fix
different tariffs for the supply of electricity to
any person not being a licensee, having regard to
the geographical position of any area, the nature
G
of the supply and purposes for which supply is
required and any other relevant factors.
(4) In fixing the tariff and terms and conditions
for the supply of electricity, the Board shall not
H
show undue preference to any person."
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J •. ] 661
A
'< In Maharashtra State Electricity Board v. Kalyan Borough
Municipality & Aor. [1968] 3 S.C.R. 137, this Court reversed
the decision of the Bombay High Court and it was held that the
levying of uniform tariff on the const11Ders irrespective of
whether they were in sparse areas or in ~ompact areas, which
was not directly related to the cost of supply, did not amount B
to a colourable exercise of trucing power by Parliament.
The Electricity (Supply) (Rajasthan Amendment) Ordinance
was first pronulgated on February 7, 1976, later replaced by
the Electricity (Supply) (Rajasthan Amendment) Act, 1976
introducing ss.49A and 49B to the Act, to obviate the
difficulty created by the judgment of the High Court in this c
case as also by the decision of this Court in the case of the
Indian Aluminium Coq>any v •. Kerala State Electricity Board
[1976] l S.C.R. 70. In the. Indian Aluminium Company's case,
the Court speaking through Bhagwati, J. held that agreements
for supply of electricity to the consumers for a specified
~ period at a special tariff are the result of negotiations D
between the Board and the consumers and hence a matter of
agreement between them. Such agreements for the supply of
electricity to the consumers 1111st therefore be regarded as
having been entered into by the Board in exercise of the
statutory powers conferred under s.49(3) and thus the-re could
be no question of such stipulation being void as fettering the E
exercise of the statutory powers of the Board under s.49(1).
The learned Judge observed that in fact such agreements under
s.49(3) represented the exercise of the statutory powers and
the Board could not unilaterally frame uniform tariffs under
~- s.49(1) of the Act in derogation of such agreements entered
into under s.49(3). Upon that basis, the learned Judge further F
observed that the Board was not competent to enhance the
charges under the guise of fixing uniform tariffs because,
sub-s.(l) of s.49 is subject to sub-s. (3); and once special
tariffs were fixed under sub-s.(3) there could be no question
of fixing uniform tariffs applicable to such consumers under
sub-s. ( 1). Such a power could not be exercised in violation of G
the stipulation fixing special tariffs under sub-s.(3).
According to s. 59 of the Act, the Board is required to
carry on its operations without incurring any loss. In the
Indian Aluminium Coq>any's case, however, the learned Judge
repelled the contention of the Board that since it was operat- H
662 SUPREME COURT REPORTS [1986] i s.c.R. ·
A
ing at a loss it was bound under s.59 to readjust its charges ,_
to avoid the loss. It was said that s,59 does not give a
charter to the Board to enhance its charges in breach of a.
contractual obligation. The view taken by the Court in that
case would have had a disasterous effect in some of the States
if new ss.49A and 49B were not introduced by the Ordinance. In
B the State of Rajasthan, not only special agreements or con-
cessions in tariffs were made several years ago by the
covenanting States, but also by the old State of Rajasthan ~
after its formation as a Part B State; and if they were allow-
ed to continue, they would not cover the existing cost of
generation with the result that the burden of this cost would
c have to be passed on to other consumers who do not, in any
way, benefit from such special contracts providing concession-
al tariffs. It would have been manifestly unjust and discri-
minatory that one consumer should benefit at the cost of other
consumers or general tax-payers. It was therefore thought
expedient to amend the Act with retrospective effect so as to
D enable the Board to revise the contractual rates in order to ':-
cover. the cost of generation from time to time, nothwithstand-
ing any special contract, undertaking or concession to the
contrary. See Statement of Objects & Reasons for the Electri-
city (Supply) (Rajasthan Amendment) Bill, 1976,
E Purport and effect of es. 49A and 498 of the Act.
It is a well-known principle that for the validation of
an invalid act done under an Act, it is essential that the
subsequent validating statute nnst confer power for the doing .
of the Act at the time it was done, and that the power should •
F also be exercised. In the absence of such authorisation for
the doing of the Act, the validation would be futile as that
would only amount to attempt to exercise a power which ~
hypothesi did not exist. This has been achieved by the Legis-
lature by enacting s.49A of the Act. The purport and effect of
s.49A of the Act is to nullify the judgment of the High Court
G and more particularly the decision of this Court in Indi1111
Allllld.niUll Coqlany's case laying down that sub-s. (l) of s~49
was subject to sub-s. (3) and therefore the Board could not "
unilaterally frame uniform tariffs under s.49(1) with respect
to the class of consumers who were entitled to the supply of
electricity at a special rate by virtue of agreements entered
H into by· the Board with them under sub-a. (3) of s,49, By the
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J,] 663
'i use of the non-obstante clause in s.49A(l), the Legislature A
has removed the hurdle placed on the Board against framing of
uniform tariffs with respect to such class of consumers and by
the retrospective conferment of a prospective power empowered
the Board to raise a demand for payment of the difference
between the uniform tariffs in force from time to time and the
special rates as respects any period commencing on and from· B
September 16, 1966 i.e. the date when the new s.49 of the Act
~ was brought into force. On its plain construction, s.49A makes
it lawful for the Board to revise, from time to time, the
tariffs fixed for the supply of electricity to all such
consumers who were enjoying special benefits by virtue of the
agreements entered into with the Board under s.49(3) of the
Act, and also to frame uniform tariffs for the purpose of such c
supply, notwithstanding anything contained in any agreement,
undertaking, commitment or concession to the contrary made by
the Board before the first day of April 1964. The non-obstante
--..;' clause contained in s.49(1) has clearly the effect of over-
riding the agreement between the parties.
D
Section 49B of the Act by the non-obstante clause pro-
vides that notwithstanding anything contained in the Act or in
any agreement, undertaking or concession referred to in sub-
s. (l) of s.49A, or in any judgment or order of any Court, any
amount realized, or demand made or created by the Board,
according to the uniform tariffs in force from time to time, E
from or against any person claiming any special tariffs under
any such agreement, unde.rtaking or concessions, before the
..f publication in the official Gazette of the Ordinance i.e.
before February 7, 1976, shall be deemed to have been validly
realized, made or created under the Act, as amended by the
Ordinance. A combined reading of ss.49A and 49B seeks to F
achieve a two-fold object. S.49B in terms validates the
demands raised by the Board by virtue of its powers under
.,. s.49A against the appellants prior to the proillllgation of the
Ordinance on February 7, 1976 for payment of the difference
between the uniform tariffs in force from time to time and the
"' special rates as from January 1, 1971. The other legal conse- G
quence is that the appellants who were entitled to supply of
electricity at a concessional rate under the agreement between
the parties, became subject to payment of uniform tariffs in
force from time to time and it became lawful for the Board to
raise a demand upon that basis subsequent to the proillllgation
H
664 SUPREME COURT REPORTS [1986] 1 s.c.R.
A '
of the Ordinance and also to revise the tariffs fixed for the v
supply of electricity to them, The appellants do not dispute
•
their liability to pay for the supply of electricity according
to the uniform tariffs fixed for all large industrial
consumers as from February 7, 1976 and the dispute only
'elates to the power of the Board to raise a demand for·pay-
B · ment of the difference for the past period.
Contentions of the parties.
It is in this setting and the factual background that we
are required to consider the submissions addressed to us, As
c already stated, the controversy in these appeals can be viewed
from three aspects, namely, (1) Interpretation of the terms of
the agreement between the parties dated July 28, 1961,
particularly els. 18 and 34(b) thereof; (ii) Interpretation of
ss.49A and 49B of the Act; and (iii) Whether the demands
raised by the Board for payment of the difference by the
D imPugned bills dated February 1, 1971 and Ma-rch 12, 1976 which
involved the imposition of a liability on the appellants by
the retrospective conferment of a prospective power under
s.49A and the validation of such power under s.49B was wholly
arbitrary and irrational, confiscatory in nature and amounted.
to deprivation of property without payment of compensation and
E was thus violative of Arts.14, 19(l)(f) and (g) and 31(2) of
the Constitution. It would be convenient to deal with the
first and third aspects together.
Interpretation·of the agreement
between the parties :
F Clause 18 of the agreement.
As to the construction of the terms of the agreement
between the parties we may first deal with cl.18. The
appellant's submission is that on a true construction of the
agreement, cl.18 is nothing but an escalation clause and
...
G therefore the Board was not entitled to unilaterally frame
uniform tariffs as due and payable by the appellants but the
rate of increase rust be in proportion to, or correlated with, "
the actual rise in the cost of generation. It is said that in
every case, the function of the Court is to find the
contractual intention by plf!.cing a construction of what is
H just and reasonable. The agreement was for the sale and
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 665
'1 purchase of electricity and the prices had been specifically A
stipulated by the parties in cl.17. A perusal of cl.17 of the
agreement which fixes the rate of supply at the rate of
201.04/12 = Rs. 16. 753 per ¥!/A of the demand assessed shows
that the rate had been worked out by the parties jointly on
the basis of some calculation with reference to the cost of
generation. The only reasonable construction should be that B
clear co-relation between the cost of generation and increase
_.. in the rate of supply had been stipulated, as was the view
expressed by Jain, J. On re-determination the rate of supply
could be increased only to the extent that the cost of
generation had gone up and not to any arbitrary extent. Cl.18
is not susceptible of a construction which could make the
price of the goods totally uncertain and dependent on the c
arbitrary volition of one party to the contract. In this
connection, the appellants placed reliance on the following
passages from Anson's Law of Contract, 25th Edn. , p.61:
"On the other hand, a transaction which at first
sight seems to have some essential term of the D
bargain undetermined may, by implication, if not
expressly, provide some method of determination
other than a future agreement between the parties.
In that event, since it is a maxim of the law that
id certum estquod certum reddi potest, there will
be a good contract. In every case the function of E
the Court is to put a fair construction on what the
parties have said and done, though the task is
often a difficult one when an instrument has
attempted to record some complicated business
bargain. The parties making such a bargain
naturally assume that it will be carried out and F
therefore do not always express it with the exact-
ness of terminology that lawyers, whose profession
leads them to contemplate the possibility of future
disputes, might have employed."
It is accordingly urged that cl.18 was an escalation clause G
-' and therefore the power of the Board to revise the rate of
supply arises as and when the cost of generation goes up, and
therefore the rate must be in proportion to, or correlated
with, the actual rise in the cost of generation. Learned
H
666 SUPREME COURT REPORTS [1986] 1 S.C.R.
A counsel for the appellants tried to draw sustenance from they
following extract from the Statement of Objects & Reasons of
the Rajasthan Electricity (Supply) Amendment Bill, 1976
"Such special agreement or concessions in tariff
were made several years ago by covenanting States
and if they were allowed to continue, they would
B
not cover the existing cost of generation, with the
result that the burden of this. cost would have to ~
be passed over to other consumers ••••••• "
"It was, therefore, expedient to amend the Act ••••
so as to enable the Board to revise the contractual
c rates in order to cover the rising cost of
generation from time to time, notwithstanding any
special contract, undertaking or concession to the
contrary."
We find it difficult to subscribe to the contention 'r.
D
advanced by learned counsel for the appellants that cl.18 is
an escalation clause and therefore the Board's power to revise
the rate of supply must be restricted to the actual rise in
the component of cost of generation. As rightly pointed out by
learned counsel appearing on behalf of the Board, an 'escala-
tion clause' according to its accepted legal connotation means
E a clause which takes care of the rise and fall of prices in
the market, whereas the right to review confers the power to
revise the rate of supply. It is submitted that cl.18 in terms
provides that the rate of supply as determined in cl.17 shall
be 'reviewed every fifth year starting from the date of first~
supply'. The word 'review' in cl.18 necessarily implies the
F power of the Board to have a second look and to so adjust from
time to time its charges as to carry on its operations under
the Act without sustaining a loss. The parties clearly
contemplated by cl.18 for a fresh revision of the rate once in
a block of five years. The only fetter on the power of review
is that contained in the proviso of cl.18. The limitations
G placed on such power are two-fold in nature. The first of
these is that such power of review shall be exercisable if theY
component of cost of generation out of the total cost varies
by 25% or more. The second is that such power shall not be
exercisable by the Board till January 1, 1971. If the parties
intended cl.18 to be in the nature of an escalation clause,
H
DELHI CLOTH MILLS v. STATE ELECT, BOARD [SEN, J,] 667
A
'1 the language would have been different. In that event, the
rate of supply being linked with the component of cost of
generation would keep on progressively increasing. In support
of his submissions, learned counsel for the Board referred to
us Butterworths' Encyclopaedia of Forms & Precedents, 4th
edn.,Vol.3, p.148, Hudson's Building &Engineering Contracts, B
10th edn., Keating's Building Contracts, 4th edn., p.498 and
Black's Law Dictionary, 4th edn., p.639 giving different forms
_ of 'rise and fall' or escalator clause in building or commer-
cial contracts, and the accepted meaning thereof. The expres-
sion 'escalation clause' has a well defined meaning. This is
brought out succinctly in American Jurisprudence, 2nd edn. ,
vol.17, p.786 in these terms : c
"In some contracts, there is what is known as an
escalator or fluctuation clause, which is de~ined
as one in which the contract fixes a base price but
contains a provision tha~ in the event of specified
cost increases, the seller or contractor may raise D
the price upto a fixed percentage of the base, and
such escalator clauses are generally held to be
sufficiently definite for enforcement."
In Corpus Juris Secundum, vol.17, p.806, the law on the
subject is stated thus : E
"(A) contract giving one of the parties the right
to vary the price is not unenforceable for lack of
1llltuality where the right is not an unlimited one,
as where its exercise is subject to express or
implied limitation, such as that the variation 1lllst F
be in proportion to some objectively determined
base, or 1l11St be reasonable; and this rule has been
applied to contracts containing so-called "escala-
tor" clauses."
These considerations however do not apply as on its true
construction. Cl,18 cannot be regarded to be an escalation
" clause. There is therefore no basis for the. submission that
there could only be proportionate increase keeping in view the
increase in the component of cost of generation.
The effect of cl.34(b) of the Agniement H
668 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
•
Turning next to cl.34(b), the rival contentions may be ,.,
set out. The appellants' contention is that firstly, the sti-
pulation in cl.34(b) cannot be regarded as a contractual
stipulation at all and secondly, that in no case cl,34(b) can
possibly be made applicable to any purported alteration of I
contracting parties' rights for a past period by means of
B
retrospective legislation. It was said that cl.34(b) cannot be
construed in a manner favourable to the Board; all that the
parties contemplated was that the llB.ltual rights and obliga- ~
tions would be subject to future legislations on supply and
consumption of electricity but such legislations necessarily
had to be valid legislations and if cl.34(b) was to be treated
c as a contractual stipulation providing that the rights stipu-
lated in the agreement were subject to any modification by any
legislation, valid or invalid, cl.34(b) will have to be struck
down as a totally uncertain clause which cannot find place in
any contract and such clauses have been described ~s meaning-
less terms in Anson's Law of Contract, 25th edn., p.63:
D
"Finally, we should note that if the contract f·
contains an indefinite, but subsidiary provision,
the courts have felt at liberty to strike it out·as
being without significance, and to give effect to
the rest of the contract without the meaningless
term."
E
The contention to the contrary on behalf of the Board is
that a plain reading of cl.34(b) makes the contract subject to
any legislation. The right which the parties derived under the
agreement for supply of electricity at a concessional rate ~
under s.49 of the Act was therefore defeasible. That being so,
F
it would be as if ss.49A and 49B of the Act had to be read
into the contract and therefore became a contractual term. The
submission is that the appellants derived a right to get
electricity at a concessional rate only for a limited period
till January l, 1971 and thereafter the Board derived the
power to revise the rate of supply under · cl.18, It was
G
competent for the Legislature to enact a law provicj.ing for
application of . uniform tariffs notwithstanding any such "
commitment, undertaking or concession to the contrary made
during any period prior to April 1, 1964. There is, in our
opinion, considerable force in the submissions advanced on
behalf of the Board.
H
DELHI CLOTH MILLS v, STATE ELECT. BOARD [SEN, J, ] 669
'i It is not uncommon for statutory contracts to contain a A
term like cl.34(b) which makes the contracts subject to future
legislations. Such a clause can usually be found in forest or
excise contracts relating to the grant of a privilege which
subjects the D11tual rights and obligations flowing from.such a
contract to ,be liable to be altered or modified by subsequent
legislations. Although there was no such term in the Indian B
Al.Ulll.niua Company's case, even so, the Court speaking through
~ Bhagwati, J, observed :
"(A) case may conceivably arise where there may be
an overriding statutory provision which expressly
or by necessary implication authorizes tho public
authority to set at naught, in certain given c
circumstances, a stipulation though made in
exercise of a statutory power. Where there is such
a statutory provision, the stipulation would
certainly be binding .. ,"
On a plain construction of the terms of the agreement, D
the appellants were no doubt guaranteed the supply of electri-
city for a period of 20 years but the right to get the supply
at the concessional rate was subject t.o the power of the Board
to effect a revision of the rate of supply every fifth year
starting from the date of first supply subject to the only
restriction that such revision could not be effected before E
January 1, 1971. The Board's contention that the right of the
appellants to the supply of electricity at a concessional rate
_.under the agreement entered into by the Board with them under
s.49 of the Act was defeasible, is clearly well-founded and
DllSt be given effect to. It follows that the rights derived by
the appellants under the contract were subject to the stipula- F
tion contained in cl.34(b) which made the mutual rights and
obligations of the parties subject to any legislation relating
to supply anil consumption of electricity enacted during the
period of the agreement.
~· It was rightly contended on behalf of the Board that G
while the Board under the agreement had undertaken to supply
the· appellants 25MW power for a period of 20 years, the
concessions! rate of supply was assured to them only till
January l, 1971 and could not be had for.ever. The scheme of
the Act is that the Board is required to function without loss
H
670 SUPREME COUR'f REPORTS [1986] l s.c.R.
A and t9 achieve the said purpose, the Board is vested with)-'
power to adjust its charges from time to time. There was no
justification for the Board to give preferential treatment any
longer to the appellants who were bulk consumers beyond
January 1, 1971 as against all other large industrial
consumers who were subjected to uniform tariffs under schedule
HS/LP/HT-1 under the Board's tariff notification dated April
B 26, 1969. Once it was found by the High Court that the
component of cost of generation out of the total cost as on ~
the date of Board's tariff notification of April 26, 1969 had
increased at least by 25%, the fetter on that power was
removed and the Board was entitled to demand payment according
to the uniform tariff under schedule HS/LP/HT-1 appll.cable to
c all large industrial consumers but for the agreement.
Under the restrictive covenant contained in cl.18, such~
revision of rate could not be effected by the Board till
January 1, 1971. Once the period was over, the Board was
entitled to have a second look and taking an overall view when '
D
it found that it was no longer possible to supply electricity
at the concessional rate which had no reasonable relation to
the uniform tariff under HS/LP /HT-1 applicable to all large
industrial consumers, it manifested its intention to review
the rate of supply from January 1, 1971. The appellants knew
that the review of rate was due on January 1, 1971 as is clear
E from their letter dated December 5, 1970 by which they wanted
to know the extent of increase and the basis therefor. In
response thereto, the Board by its letter dated December
22/24, 1970 left them in no doubt. It was made clear to them.._
by the Board that the uniform tariff under HS/LP/RT-1 framed'
by the Board's tariff notification dated April 26, 1969 would
F be applicable to them as to all other large industrial
consumers. The Board by its subsequent letter dated February
1, 1971 intimated its decision to charge uniform tariff at
that rate from the billing month of January 1971 onwards, and
the general surcharge of 15% thereon from July 1966 upto
December 1970. At no stage, did the appellants contend that
G cl.18 was an escalation clause and the rate should be
increased in proportion to the rise in the cost of generation. "
They only asserted that it should be 'reasonable' and the
extent of increase determined.
On a fair construction of the terms of cl.34(b) taken in
H conjunction with the conduct of the parties, the conclusion is
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J.] 671
'i irresistible that the parties had contemplated that the ID.ltual A
rights and obligations under the contract would be subject to
alteration by future legislation. That being so, ss.49A and
49B of the Act have to be read into the contract and these
•
provisions by virtue of cl.34(b) became a contractual
stipulation.
Whether the raising of demand for payment of the
difference between the uniform tariffs and the
agreed rate was in disregard of the guiding princi-
ples contained in s,49(3) contrary to the mandate
of s.49A(2) of the Act.
Faced with the difficulty, learned counsel for the appel- c
lants contended that the Board in raising the impugned demands
against the appellants for payment of charges according to the
uniform tariffs framed under s.49(1) of the Act from time to
{ time, as per its letter of demand dated February 1, 1971 for
~ payment of Rs.ll,67,959.95p. for the billing month of January
1971 onwards under schedule HS/LP/HT-1 under the Board's D
tariff notification dated April 26, 1969 and its subsequent
letter of demand dated March 12, 1976 for payment of
Rs.21,35,506,72p. for the billing DX>nth of February 1976 under
schedule LP/HT-1 under the Board's tariff notification dated
May 28, i974 purporting to act under ss.49A and 49B of the Act
read with cl.18 of the agreement, had not any regard to the E
special circumstances on the basis of which the appellant's
set up its industry which required electricity at very reason-
~ able rate. fa order to be able to sustain its operations. It
is further urged that While s.49A of the Act might have
enabled the Board to increase t-he special tariff applicable to
the appellants even in disregard of the limitations imposed on F
such revision by cl.18 of the agreement, the special position
of the appellants' industry could not be totally disregarded.
In other words, while the concessions stipulated by the agree-
ment under s.49(1) of the Act could have been altered in
proportion to the rise in the cost of generation, such con-
cession could not have been altogether eliminated as that G
- would amount to a total disregard of the guiding principles
contained in s.49(3) and thus contrary to the mandate of
s.49A(2) of the Act. Sub-s.(2) of s.49A further provides that
in revising such tariffs or framing uniform tariffs as
respects any period commencing on and from September 16, 1966
H
672 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
the Board shall be guided by the principles laid down .in Y
sub-ss, (2), (3) and (4) of s.49A of the Act. At first blush,
this argument plausible though it appears, is on closer
scrutiny not well-founded. It ignores the true object and
purpose of the enactment and fails to give due effect to the
provisions of ss.49A and 49B of the Act with a retrospective
B effect which clothed the Board with power to make the uniform
tariffs applicable to bulk consumers like the appellants who
under agreements entered into with the Board on July 28, 1961 ~
i.e. before April 1, 1964, the cut out date mentioned in
sub-s.(l) of s.49A had been to the great financial detriment
of the Board enjoying a concessional rate of supply which had
c no relation to the existing cost of generation, with the
result that the burden of this cost had to be passed over to
other consumers. As is clear from the Statement of Objects and
Reasons of the Bill, the Legislature thought it expedient to
amend the Act so as to cover the rising cost of generation
from time to time, notwithstanding any special contract, r-'
D undertaking or concession to the contrary. The legislative
mandate contained in ss.49A and 49B of the Act as introduced
by the Rajasthan Electricity (Supply) Amendment Act, 1976
subserves the public interest to ensure that the Board shall
not, as far as practicable, after taking credit for any
subvention from the State Government under s.63, carry on its
E operations under the Act.at a loss.
Power of the Board to unilaterally frame uniform
tariffs under sub-s.(l) of s.49 of the Act in
derogation of the agreement under s.49(3):
F
Placing strong reliance on the decision of this Court in
the Indian Alumlniua Coq>any's case, learned counsel for the
appellants drew our attention to various observations made by
Bhagwati, J. during the course of his judgment laying down
that under the scheme of the Act the Board could not unilater-
ally frame uniform tariffs under s.49(1) of the Ac~ in deroga-
tion of such agreements entered into under s.49(3) and there-
G
fore was not competent to enhance the charges under the guise >-
of fixing uniform tariffs because sub-s.(l) of s.49 is subject
to sub-s. (3) . and, once special tariffs were fixed under
sub-s.(3), there could be no question of fixing uniform
tariffs applicable to such consumers under sub-s.(l) and that
H
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J.] 673
A
'i such a power could not be exercised in violation of the sti-
pulation fixing special tariffs under sub-s.(3). Emphasis was
p<lrticularly laid on the observations of Bhagwati, J. in the
Indian .Alnndnfum QJmpany's case where after referring to the
earlier decision of this Court in ICalyan Borough Municipa-
lity's case, supra, the learned Judge observed that : (i) the B
cost was not the sole criterion in fixing tariffs under
s.49(1) and (ii) where the Board was under a.contractual obli-
,. gation not to charge under a stipulation validly made under
s.49(3) ·anything more than a specified tariff for a specified
period, it would not be practicable for it to enhance its
rates of charges even if it finds that it is incurring
operational loss. That view expressed by the learned Judge C
proceeded on the hypothesis, to use his own words, that
'Section 59 does not give a charter to the Board to enhance
its charges in breach of its contractual stipulation'. We are
afraid, the contention cahnot prevail, Nor are the appellants
entitled to any relief on the basis of the decision of this
--< Court in Tndfan Aluminium Company's case. The State Legis- D
lature under Entry 38 of the Concurrent List was competent to
enact the Rajasthan Electricity (Supply) Amendment Act, 1976
and introduce the impugned provisions contained in ss.49A and
49B with retrospective effect to overcome the difficulty
created. by the decision of this Court in Indian AJg.tnfum
Coapany's case. These provisions so enacted confer an enabling E
power on the Board to revise the tariffs from time to time
notwithstanding any provision of the Act or any agreement,
undertaking or concession to the contrary, and also to frame
uniform tariffs with respect to the class of consumers enjoy-
.,. ing special benefits under agreements entered into with the
Board under s.49 of the Act. There being a change in the law F
brought about by the introduction of ss. 49A and 49B of the
Act by the Electricity (Supply). (Rajasthan Amendment) Act,
1976, the Court is bound to give effect to these provisions
notwithstanding anything contained in the Act or in any agree-
ment, undertaking, commitment or concession to the contrary
made by the Board before the first day of April 1964, or the G
decision of this Court in TncH..,, AluminiUJl Collpany's .case.
-- Scope and effect of Sections 49A and 49B of the
Act: Power of the Board to raise demands for pay-
ment of the difference between the unlf orm tariffs
and the agreed rate with retrospective effect and H
the validation thereof
674 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
Turning next to the second aspect, question is whether /"
the Board was entitled to recover from the appellants the
difference between the uniform tariffs and the agreed rate for
the supply of electricity to them with retrospective effect by
virtue of the powers derived under ss.49A and 49B of the Act
read with cl.18 of the agreement. That depends on the
B construction of ss.49A and 49B of the Act. The question
pertains to two periods : (i) from January 1, 1971 to May 31,
1974 and (ii) from June 1, 1974 to February 6, 1976, According ,_
to its plain terms, s.49A has been structured in a manner to
attain a two-fold object. In the first place, the non-obstante
caluse in sub-s.(l) of s.49A has the effect of overriding the
c provisions of the Act and nullifying the judgment of the High
Court and more particularly of this Court in Indian Aluminilllll
Company's case which invalidated the framing of uniform
tariffs by the Board under s.49(1) with respect to consumers
who were entitled to the supply of electricity at a special
rate by virtue of the agreements entered into by the Board
D with them under sub-s.(3) of s.49 of the Act. Sub-s.(l) oi )~·
s.49A is clearly an enabling provision and makes it lawful for
the Board not only to revise from time to time the tariffs
applicable to such class of consumers but also to frame
uniform' tariffs applicable to them as respects any period
commencing on and from September 16, 1966 i,e. the date when
E the new s.49 was brought into force. Sub-s.(2) thereof
provides that in revising the tariffs or framing uniform
tariffs, the Board shall be guided by the principles set out
in s. 59. It further provides that as respects any period
commencing on and from September 16, 1966, it shall also be
guided by the principles laid down in sub-ss. (2), (3) and (4) ~
F of s.49. Such powers of revising the tariffs or framing
uniform tariffs were exercisable notwithstanding anything
contained in the Act or in any agreement, undertaking or
concession to the contrary made by the Board before the first
day of April 1964 or the judgment and order of any Court.
Sub-s. (3) of s.49A provides that all such agreements, under-
G takings, commitments or concessions as are referred to in
sub-s. (1), shall, insofar as they are inconsistent with the
provisions of sub-ss. (1) and (2) and to the extent of the \,
tariffs fixed or provisions made therein for such fixation be
void and shall be deemed always to have been void. Secondly,
sub-s.(l) of s.49A as construed prospectively makes it lawful
H for the Board to revise the tariff.a from time to time and to
DELHI CLOTH MILLS v, STATE ELECT. BOARD [SEN, J. ] 675
A
'<·frame uniform tariffs with respect to such class of. consumers
'on or after February 7, 1976, the date on which it was brought
into force~ ·
According to its plain language, the non-obstante clause
in sub-s.(l) of s.49B has the effect of overriding the B
provisions of the Act or any agreement, undertaking or
concession referred to in sub-s.(l) of s,49A, The consequence
.,, that ensues is this. Sub-s.(2) of s,49B provides that any
amount realized or demand made or created by the Board,
according to the uniform tariffs fn force from time to time,
under s.49 from or against any person claiming any special
tariffs under any such agreement, undertaking, commitment or , c
concession made before February 7, 1976, 'the date of pro-
lUUlgation of the Ordinance, contrary to the decision of this
Court in Inc!fan Aluwlnfllll Company's case or of the High Court,
shall be deemed to have been validly realized, made or created
under the Act. The appellants do not dispute their liability
to pay uniform tariffs fixed from time to time as from D
February 7, 1976. The controversy is only with regard to their
liability to pay uniform tariffs fixed from time to time for
the past period and the extent of their liability.
Liability of the appellants to pay uniform tariffs
framed by the Board from time to time under s.49A E
read with s.49B for the period prior .to February 7,
1976 and the corresponding right of the Board to
raise such demands.
,_. Shri Shanti Bhushan contends that ss.49A and 49B were
integrally connected and were intended and meant to achieve a F
joint purpose which was merely to validate such of the past
actions of the Board as would have been valid if s.49A had
already been in force at the relevant time. He contends that
if the Board's uniform tariff notifications dated May 18,
1964, April 26, 1969 and May 28, 1974 had not containecl an
exclusionary clause (3) set out above, for the exclusion of G
' aJi consumers who were governed by specially negotiated
j tariff, any demand raised under s.49A of the Act on the basis
of such uniform tariffs fixed from time to time prior to
I February 7, 1976 would have been validated under s.49B
. notwithstanding that the said demands when made . were not
,al,lthorized in view ~f the stipulations contained in the agree- H
676 SUPREME COURT REPORTS [1986] 1 s.c.R.
A ment. As to the claim for the period from January 1, 1971 to ,
May 31, 1974, the learned counsel urges that the Board is r
seeking to'recover from the appellants charges for the supply
of electricity as per normal tariff prescriqed under the
Board's notification dated April 26, 1969. As to this he
mainly relies on the exclusionary clause (3) of the" said
tariff notification. As to the period from June 1, 1974 to
B February 7, 1976 for which the Board raised a demand for
payment of the charges for the supply of electricity at normal
tariff framed by the Board's notification dated May 28, 1974, "'
apart from relying on similar exclusionary clause contained
therein, he submits that the Board never made a demand on the
appellants that they would have to pay for the supply of
c electrical energy at normal tariff as framed by the Board's
tariff notification dated May 28, 1974. In fact, he submits
that there was no letter sent by the Board to the appellants
like the one dated December 22/24, 1970 by which it made a
demand for payment of charges at uniform tariffs framed by the
Board's tariff notification dated April 26, 1969. The learned 'I--
D counsel urges that as is clear from the terms of s.49B of the
Act, the demand to be validated had to be raised prior to
February 7, 1976 and not on a date subsequent thereto. He
submits that it was therefore not open to the Board to make a
demand from the appellants for payment of charges for the
period commencing from June 1, 1974 and ending with February
E , 6, 1976 according to the uniform tariff of 1974. There is, in
our opinion, considerable force in the argument.
Dr. Chitale tried to impress upon us that s.49A of the
Act must after February 7, 1976, the date of prorulgation of :\.
the Ordinance, operate on its own force and therefore the
F Board was entitled to raise demands at uniform tariffs under
schedule LP/HT-1 under the Board's tariff notification dated
May 28, 1974 from that date till November 4, 1976 and there-
after as pet the revised uniform tariffs as framed by the
Board's notification dated November 4, 1976. As regards the
past period i.e. as from January 1, 1971 to February 6, 1976
G- he contends that s.49A could still be had recourse to by the
Board without the aid of s.49B, The submission proceeds upon \-
the basis that the-power of the State Legislature to make a
law under Entry 38 of List III of the Seventh Schedule carries
with it the ancillary power to make a law with retrospecth•e
H
DELHI CLOTH MILLS v. STATE ELECT, BOARD [SEN, J, ] 677
~effect. It could therefore enact a provision like s. 49A A
prescribing a rate of uniform tariff under s.49(1) with
retrospective effect as from January 1, 1971,' notwithstanding
anything contained in the Act or in any agreement, under-
taking, commitment or concession to the contrary entered into
by the Board after the first day of April 1964. We find it
rather difficult .to uphold the contention. The question does B
not really arise because the Legislature has not framed a law
.-'
for the imposition of uniform tariffs on consumers with
retrospective effect. S.49A is primarily enacted to override
the provisions of the Act or of any agreement, undertaking,
commitment or concession to the contrary made by the Board or
the Government prior to the first day of April 1964 for the
supply of electricity to consumers at a concessional rate C
relatable to s.49(3) of the Act. That is the clear effect of
the non-obstante clause which removes the legal hurdle placed
in the way of the Board framing uniform tariffs under s.49(1)
of the Act for such class of consumers. Sub-s. (1) of s.49A
----< provides that it shall be lawful for the Board to revise the
tariffs from time to time and to frame uniform tariffs for the D
supply of electrical energy. The words 'it shall be lawful'
used in s.49A (1) are essentially in the nature of conferment
of a prospective power. Sub-s. (2) thereof however further
states that in revis:l.ng or framing such tariffs under
sub-s.(l), the Board shall be guided by the principles set out
in s.59 of the Act. It then goes on to say that as respects E
any period commencing on and from September 16, 1966 the Board
shall also be governed by the principles laid down in
sub-ss.(2), (3) and (4) of s,49A. Sub-s.(3) makes all such
.(agreements, undertakings, commitments or concessions as are
referred to in sub-s. (1), insofar as they are inconsistent
with the provisions of sub-ss.(1) and (2) and to the extent of F
the tariffs fixed or provisions made therein for such fixa-
tion, be void and shall always be deemed to have been void. A
combined reading of these provisions shows that the Board is
relieved of the shackles of the contractual obligations flow-
ing from the agreements relatable to s.49(3), and the Board is
empowered in terms of s.49A to revise the tariffs or frame G
._.., <miform tariffs with respect to consumers enjoying special
benefits as from September 16, 1966.
As already stated, the Board could not on the strength
of s.49A alone recover the difference between the uniform
H
678 SUPREME COURT REPORTS [19861 1 s.c.R.
A
tariffs fixed from time to time end the agreed rate of supply ,_,
from the appellants for the period from January 1, 1971 to
February 6, 1976 without the aid of a.49B. S.49B on its terms
has no application unless there was a demand raised or created
prior to February 7, 1976, the date of pro!Dllgation of the
Ordinance. There is therefore insuperable barrier in applying
B the uniform tariff under schedule LP/HT-1 framed by the
Board's tariff notification dated May 28, 1974 from the bill-
ing month of July 1974 i.e. from June 1, 1974 to February 6, ~
1976. Although the uniform tariff under schedule LP/HT-1 of
197 4 was brought into force from the billing month of July
1974 i.e. with effect from June 1, 1974 the Board never inti-
c mated the appellants that they would have to pay charges for
the supply of electricity to them at that rate. Undoubtedly,
no letter like the one dated December 22/24, 1970 demanding
payment of charges for the supply of electricity was however
written by the Board to the appellants intimating them that
they would be governed by the schedule LP /HT-1 framed by the ,
D
Board's tariff notification dated May 28, 1974. That being so, '~ ·
the appellants would now be liable for the period in question
to pay charges at the uniform tariff as per schedule HS/LP/-
HT-1 framed by the Board's earlier tariff notification dated
April 26, 1969,
E Liability to pay the general surcharge.
Th.at takes us to the question whether the Board had no
power under the Act to levy a surcharge. The word 'surcharge'
is not defined in the Act. Plainly, the word 'surcharge' means
an additional or extra charge or payment: Shorter Oxford ).
F
English Dictionary, p.2199. As held by this Court in Bisra
Stone Lime Coiipany Ltd. & Anr. v. Orissa State Electricity
Board & Anr. (1976] 2 s.c.R. 307 a surcharge is in substance
an addition to the stipulated rates of tariff and enhancement
of the rates by way of surcharge is well within the power of
the Board to fix or revise the rates of tariff under the
G
provisions of the Act. In the Indian Almd.niua Collpany's case,
supra, there was no provision in the agreement with regard to
the revision of tariff, such as we find in cl.18 of the "-
agreement. We IDlSt however refer to the decision of this Court
in M/s. Titagarh Paper Mills Ltd. v. Orissa State Electricity
Board & Anr. [1975] 2 S.C.R. 436 where the Court taking into
H
consideration cl.13 of the agreement therein which was in
DEUII CLOTH MILLS v. STATE ELECT. BOARD (SEN, J.] 679
'<term similar to cl.18, had to consider the scope and effect of A
ss 149 and 59 of the Act and following the decision in the
Tujlfan Alualnillll Company's case stated:
''Neither s. 49 nor s. 59 confers any authority on
the Board to enhance the rates of supply of
electricity where they are fixed under a stipula- B
tion made in an agreement. The Board has no
authority under either of these two sections to
override. a contractiial stipulation and enhance
unilaterally · the rates for the supply of electri-
city." ·
The Court accordingly· in Bisra StOll!! Li.ie Collp8ny'a case held c
that J:he power of revisi<;m of- rates of the _Board under s.49(1)
and (2) as also under s.59 of the Act remained under sus!lended
animation during the subsistence of a statutory agreement
entered into in conformity with s.49(3) of the Act. But this
---~ pro tempore ban on revision of rates could only last till th~·
legislature introduced ss.49A and 49B of the Act empowering D
the Board to revise the rates and frame uniform tariffs with
retrospective effect. This was eonstitutionally permissible as
indicated by Bhagwati, J. in the Indian AJqalnf1111 Colllpany'a
case in these words :
"(A) case may conceivably arise where there may be E
an overriding statutory provision which expressly
or by necessary implication authorises. the. public
authority to set at naught, in· given circumstances,
a stipulation though made in exercise of a
statutory power."
F
·' The Board was therefore well.within its rights in raising
a demand by its letter dated February 1, 1971 that the
appellants would be subject not only to uniform tariffs under
Schedule HS/LP/HT-1 applicable to all large industrial
consumers as from January 1, 1971 in terms of cl.18 of the
agreement but also be subject to the general surcharge of 15% G
_,for the period commencing on and from September 16, 1966, the
date mentioned in sub-s.(2) of s.49A. The general surcharge of
15% as also the uniform tariff w~re part of the general burden
borne by all consumers alike. Whatever may have been the
position ilnder the old s.49, the new section as substituted by
H
680 SUPREME COURT REPORTS [19861 1 s.c.R.
A
the Amendment Act 30 of 1966, makes it plain that the Board ;r
can fix uniform tariffs. The power to fix uniform tariffs IDJSt
necessarily include power to make uniform increase in tariffs.
S.49A had the effect of removing the Board from the shackles
of the agreement to supply electricity at a concessional rate
entered into under s.49. The effect of the non-obstante clause
B in sub-s.(l) of s.49A was to nullify the agreement.
Subsidiary issues : Article 31(2),
Finally, there still remains the third aspect. Various
subsidiary issues were raised, namely, whether the demand
c raised by the Board against the appellants for payment of the
difference between the uniform tariffs and the agreed rate for
the period subsequent to January 1, 1971 was violative of
Art.14, Art.19(l)(f) and (g) and Art.31(2) of the
Constitution. Of these, the main contention put forth by Shri
Shanti Bhushan, is that the extinguishment of the right which
D ' -
the appellants had to get electricity at concessional rate for '~--
a period of 20 years which was enforceable against the Board
as held in the Tnc!fan Almliniua Collpany's case by s.49A, and
the conferral of a corresponding benefit to the Board to
revise the tariffs from time to time and to frame uniform
tariffs for supply of electricity to them as respects any
E period subsequent to September 16, 1966 (here we are concerned
with the period subsequent to January 1, 1971), amounted to
deprivation of property without payment of compensation and in
contravention of Art.31(2). He goes to the extent of
contending that the matter is concluded by the seven-Judges'
decision of this Court in the case of Madan Mohan Patbalt v. ~
F Union of India [1978] 3 s.c.R. 334 where the majority held
that the concept of property in Art.31 is not a narrow concept
and at p.359 of the Report accepted the view expressed by
Hegde, J. in the ~ Purse case [1971] 3 S.C.R. 9 that any
right which was enforceable through· courts was property. We
were referred to several passages in the judgment delivered by
G Bhagwati, J. to derive.home the point that it was not neces-
sary for the law to provide in so many words that property was \.-
transferred to the State or to a Corporation owned or cont~ol
led by the State for attracting the provisions of Art. 31 (2)
and particularly emphasis was laid on the following observa-
tions :
H
"Where by reason of extinguishment of a right or
DEUll CLOTH MILLS v. STATE ELECT. BOARD [SEN, J,] 681
A
interest of a person, detrime.nt is suffered by him,
and a corresponding benefi.t accrues to the State,
there would be transfer of ownership of such right
or interest to the State. The question would always
be : . who is the beneficiary of the extinguishment
of the right or interest effectuated by the law ?
B
If it is the State, then there would be transfer of
ownership of the right or interest to the State,
because what the owner of the right or interest
would have lost by reason of the extinguishment
would be the benefit accrued to the State."·
The Court observed in K.K. Patbak's case that the direct
effect of the impugned Act was to extinguish or put an end to
c
the debts due from the Life Insurance Corporation to class Ill
and Class IV employees. This was not disputed on behalf of the
Life Insurance Corporation and the controversy was whether the
•.. , extinguishment of these debts involved any transfer of
ownership of property to the Life Insurance Corporation. It
was conceded by the learned Attorney-Qmeral on behalf of the D
Life Insurance Corporation as a proposition of law that an
ill.egal deprivation of a pecuniary benefit to which any person
is entitled under any law amounts to deprivation of property
within the meaning of Art.31(2), He however sought to make a
distinction between extinguishment and transfer of ownership
of a debt and contended that when ownership of .a debt is E
transferred, it continues to exist as a debt in the hands of
the transferee, but when a debt is extinguished it ceases to
~exist as a debt and it is not possible to say that the .debtor
has become the owner of the debt, In dealing with the
contention, the Court observed at p. 368 of the Report, that
where by reason of extinguishment of a right or interest of a F
person, detriment is suffered by him, and a corresponding
benefit accrues to the State, there would be transfer of
ownership of such right or interest• to the State. The Court
stated that the question would always be : who is the
beneficiary of the extinguishment of the right or interest
.effectuated by the law? If it is the State, then there would G
)jbe transfer of ownership of the right or interest to the
State, because what the.owner of the right or interest would
have lost by reason of the extinguishment would be benefit
accrued to the State. It referred to the view expressed by
Hegde, J, in Sta~e of Madhya Pradesh v. Banojirao Shinde,
H
682 SUPREME COURT REPORTS [19861 i s.c.R.
[1968] 3 S.C.R. 489, that it was possible to view the aboli-',
tion of cash grants under the Madhya Pradesh law impugned in
that case as a statutory transfer of rights of the grantees to
the State and extended the same principle in judging the
validity of s.3 of the impugned Act, and added :
B "When a debt due and owing by the State or a
corporation owned or controlled by the State is
extinguished by law, there is transfer of ownership·'-
of the mqney representing the debt from the
creditor to the State or the State owned/controlled
corporation,
c
*** *** *** *** ***
The extinguishment of the debt of the creditor with
corresponding benefit to the State or State owned/
controlled corporation would plainly and indubi- 'r
D
tably involve transfer or ownership of the amount
representing the debt from the fotmer' to the
latter. This is the real effect of extinguishment
of the debt and by garbing it in the form of extin-
guishment, the State or State owned/controlled
corporation cannot obtain benefit at the cost of
E the creditor and yet avoid the applicability of
Art.31, clause(2)."
The Court also observed that the verbal veil constructed by
efili)loying the device of extinguishment of debt cannot be per-~·
mitted to conceal or hide the real nature of the transaction.
F
We fail to appreciate the relevance of the decision in
M.K. Patbalt's case to the instant case. The fallacy underlying
the agreement is that it proceeds on the assumption that there
is by reason of ss,49A and 49B of the Act an illegal depriva-
tion of any pecuniary benefit to which the appellants were
G
entitled and the extinguishment of the right they had to the
supply of electricity at concessional rate for a period of 20~
years in accordance with the agreement amounted to a depriva-
tion of property within the meaning of Art.31(2) of the Cons-
titution, While it is true that the concept of 'property' in
Art.31 is not a narrow concept and is used in a comprehensive
H
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 683
A
'f sense, any legal right which can be enforced through a court
is a right in the nature of property within the meaning of
Art.31. According to the Court in M.M. Pathak's case, 'Even an
actionable claim is 'property' in Art.31 and can be compul-
sorily acquired under cl.2 thereof'. But it is not necessary
B
to enter upon the controversy whether the State's power of
acquisition of property under Art.31(2) extends to choses of
action for purposes of this case. All that we need notice is
.~ that the majority in M.M. Patbak's case, accepted the view of
Hegde, J. in the ~ Purse case that any right which was
enforceable through courts was 'property' , but it does not
logically follow that the extingl'.ishment of the right to get
electricity at concessional rate by reason of ss.49A and 49B
c
of the Act for the period subsequent to January l, 1971 neces-
sarily attracted Art.31(2). All that the appellants had under
their contract with the Board was a defeasible right by reason
of cl.34(b) of the agreement as pointed out by us above. The
appellants had contracted themselves by cl.34(b) to be subject
-.....to any subsequent legislation. All that s,49A of the Act does
D
is to strike at the agreement between the parties. It is an
enabling provision and empowers the Board to revise the
tariffs from time to time and to frame uniform tariffs for
supply of electricity to a class of consumers enjoying special'
benefit under agreement entered into under s.49(3). The Board
E
undoubtedly was competent to review the tariff in terms of
cl.18 of the agreement as from January 1, 1971. S.49A
liberates the Board from the constraints of the agr~ed rate
under the agreement entered into by the Board with the
~appellants under s.49 of the Act and.empowers the raising of
demand according to the uniform tariffs. Here, there was no
F
debt due or owing to the State or a Corporation owned or
controlled.by the State.
Where a law does not, in reality, affect a transfer of
ownership or possession, Art.31(2) cannot be attracted. In
order to constitute acquisition within the meaning of
G
Art.31(2), there must be transfer of ownership of property to
the State or to a Corporati_on owned or controlled by the
-1
State. Cl.2(A) to Art.31 introduced by the Constitution
(Fourth Amendment) Act, 19S5 made clear what was meant by
'acquisition or requisitioning' within the meaning of cl.(2).
Unless the taking of property had taken place in either of the
H
two ways, there was no obligation to pay compensation under
684 SUPREME COURT REPORTS [1986] l s.c.R.
A
the Constitution. It can hardly be suggested that the '>'
extinction of the right the appellants had under the contract
with the Board to get electric supply at a concessional rate
under cl.18 of the agreement for the period after January 1,
1971 when revision of tariff was due under cl. 18 thereof,
amounted to acquisition of property under cl.31(2). Further,
B there was no question of any transfer of money representing
any debt owed by the Board from the appellants which stocid
extinguished by reason of ss.49A and 49B of the Act. We are ~
clearly of the opinion that the principles laid down in M.M.
Pathalt'a case are in no way attracted to the present case.
c Article 14
The contention based on Art.14 and Art.19( l )(f) and (g)
need not detain us for long. Taking up the contention that the
raising of demand by the Board by its letter dated February 1,
1971 for Rs.ll,67,959.95p. at normal tarrif for the billing
month January 1971 under Schedule HS/LP/HT-1 applicable to all
r/
D
large industrial consumers as per the Board '.s tariff
notification dated April 26, 1969 together with general
surcharge of 15% thereon, and by its letter dated March 12,
· 1976 for Rs.21,35,506.72 p. at normal tariff for the billing
month February 1976 under Schedule LP/HT-1 applicable to such
E large industrial consumers framed by the Board's tariff
notification dated May 28, 1974 together with general
surcharge of 15% thereon, was violative of Art.14 and
therefore constitutionally impermissible inas1111ch as the
public sector undertakings in the State like the Hindustan ~
Zinc Limited and Hindustan Copper Limited which were similarly
F circumstanced were not subjected to any such liability and
such differential treatment was without any reasonable
classification. The contention 1111st be rejected at the very
threshold. There is no averment made by the appellants in any
of the petitions filed before the High Court that while the
Board purported to raise or create demands as against the
G appellants for payment of the difference between the uniform
tariifs and the agreed rate as respects the period beginning 1•
from January 1, 1971 by making the uniform tariffs of 1969 and
1974 applicable to them together with the general surcharge of
15% thereon, the large public sector undertakings viz. the
Hindustan Zinc Limited and the Hindustan Copper Limited were
H allowed the privilege of a concessional rate for the supply of
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J. ] 685
A
~lectrici tyto them by virtue of agreements entered into under
s.49. On the cont.rary, the Board in its counter-affidavits
specifically pleaded that all large industrial undertakings
.with capital investments several times more than that of the
appellants were paying for the supply of electricity at the
normal tariff. The Board particularly gave the instances of B
the two public sector undertakings Hindustan Copper Ltd. and
Hindustan Zinc Ltd., which were both industries controlled by
,,,.the Government of India and wer.e taking heavy loads with huge
investments, were paying at the normal tariff, For instance,
Hindustan Copper Ltd; whose investments were to the tune of
over Rs.100 crores were paying for the consumption at the
normal tariff although the load of that industry was 31,000
'i!VA comparable with the load of the industry set up by the
c
appellants which was 29,412 'i!VA. The same was the case with
Hindustan Zinc Ltd. We may set out the relevant averment which
goes thus
"It is wrong to say that 1.4.64 has been appointed
D
as the date to give any benefit to any Corporation
owned or controlled by the Central Government. So
far as the Corporations controlled by the Central
Government are concerned, it is submitted that
Hindustan Copper, which is equally a large consumer
as the petitioner company, did not get any supply E
of electricity at a rate different from what is
fixed by the uniform tariff. · As for the other
concern namely Hindustan Zinc, it was commissioned
in January 1968 and ever since it was charged at
the uniform tariff framed in 1964 plus general
surcharge of 15% imposed in 1966, No concession was F
given to it at the time when it started function-
ing. The only concession given was that in 1969
when the rates were revised, the revised rates were
not applied to Hindustan.Zinc and it was continued
to be charged at the uniform tariff of 1964 plus
15% surcharge till April, 1974. Since May 1974 the G
increased tariff of 1969 was applied to Hindustan
- Zinc also and the new tariff of 1974 ever since its
coming into force is applied to it. It is, there-
fore, absolutely incorrect to say that 1.4.64 is
fixed in order to give any benefit to the Corpora-
tions controlled by the Central Government because H
686 SUPREME COURT REPORTS [1986] 1 s.c.R.
A
Hindustan Zinc started production someti~ in 1968r
and Hindustan Copper llllCh later. The date 1.4.64 is
therefore more reasonable being the date on which
the uniform tariffs were framed by the Board."
The Board further averred that apart from these two
Corporations there are several other industries controlled by
ll the Central Government or the State Government commissioned
after April 1, 1964, and all these industries were paying at
the normal tariffs fixed by the Board from time to time. --
The argument of differential treatment is an argument of
despair. The Board has averred that there is one grid which is
c fed from supplies from different sources whether thermal,
hydel or atomic and it was impossible to say what power calbe
from which source. In 1971 the Atomic Power Project started to
supply power and the Board was being built at the rate of
about 14p. per unit. Later on, due to the breakdown of this
source the Board had to purchase large quantum of electricity 'r- -
D from various other sources at a cost falling between 18 to
19p. per unit. This was done in order to maintain the supply
of electricity to the consumers in the State, including the
appellants. It is evident that the cost of generation in the
grid was far higher than the concessional rate of 3p. per unit
at which the appellants were getting the supply. As a result
E the Board was incurring very heavy losses on account of this
low rate for a large bulk consumption. lt would have been
unreasonable for the Board not to have applied the uniform
tariffs to the appellants as from January 1, 1971 when the
Board derived the power to revise the rate under cl.18 of the-f:-
agreement. The Board by its letter dated December 24, 1970
F after drawing the attention of the appellants to cl.18 of t.he
agreement. The Board by its letter dated December 22/24, 1970
after drawing the attention of the appellants to cl. 18 of the
agreement, intimated that they would be charged as from
January 1, 1971 at the normal tariff schedule HS/LP/HT-1 fram-
ed by the Board's tariff notification dated April 26, 1969
G plus 15% general surcharge thereon. It was stated that the
component of cost of generation had been worked out in the~
office of the Board and it was higher than 25% of the cost _
fixed at the time of the execution of the agreement, as
detailed therein. The component of cost of generation during
the year 1969-70 was 5.17p:/Kwh, This, we are informed, works
H
DELHI CLOTH MILLS v. STATE ELECT. BOARD (SEN, J,] 687
A
'-but to 7.67 p. per unit without the general surcharge of 15%
and to 8, 73p. per unit including the surcharge, The conces-
sional rate as stipulated in cl. 17 of the agreement was more
or less 3p. per unit. The uniform tariff of '1969 works out
approximately to 7.67p. per unit, the uniform tariff of 1974
at 14.64p. per unit, the uniform tariff of 1976 at 16.0lp. and B
the uniform tariff of 1978 at 18.83p. The appellants were thus
practically getting their electricity free of all charge. Even
-the uniform tariff under HS/LP/HT-1 was very Ullch less than
the price at which the Board was getting its supply, In the
premises, there was no reason why the appellants should not be
treated alike with all other large industrial undertakings
which were all subjected to payment of the uniform tarrifs c
fixed from time to time. The contention based on Art.14 U11st
therefore fail,
Article 19(l)(g} SDd (g).
The next contention based on Art.19(l)(f) and (g) cannot D
obviously prevail. The present case concerns only with sale of
goods i.e. electricity and the price to be paid therefor, for
'tariff' is nothing but the price. The contract itself
provided for revision of the rate under cl.18 of the agreement
after January l, 1971. The Board was within its powers in
applying .the uniform tariffs to the appellants after the E
period stipulated for had expired. There was nothing
unreasonable for· the Board to have enforced the uniform
tariffs as against the appellants as from 'January l, 1971.
~-Reasonableness of the increase in tariff is established by the
....--fact that the Board was not bound to supply electricity to the
appellants at a concessional rate by incurring operational F
losses beyond that date. The appellants have not shown nor
produced any material to show that they have suffered any loss
on account of the increase i~ tariff, A grievance was made on
behalf of the Board that the appellants had not despite
1 repeated requests produced the balance-sheets to show how the
' increase in tariff made serious in-roads·on their business. At G
It th,e hearing before us, learned counsel for the appellants
f ~placed the annual reports of the Delhi Cloth & General Mills
Ltd. for the years 1978-79 to 1983-84, and the profit and loss
account of Messrs Shriram Vinyl & Chemical Industries from the
years 1965-66 to 1982-83, In these reports it is stated that
the claim of the Board for payment of the difference between H
688 SUPREME COURT REPORTS [1986] 1 S.C.R.
A
the uniform tariffs and the agreed rate had been upheld by. the\--
High Court and that the Company had preferred appeals before
this Court. It is further stated that in compliance with this
Court's interim order directing them to pay Rs.3 crores on
account of the difference in five quarterly instalments
commencing from December 1980, ·it had paid the instalments as
B directed which were debited to the Profit & Loss Account and
treated as allowable deduction for computing the provision for
taxation in the respective earlier years. It is also stated~
that as at June 30, 1984 there was an unprovided liability on
this account of 12 crores 16.44 lakhs which includes interest
of 5.09 crores. A memorandum of hypothecation had been
C executed creating a charge on the whole of the movable plant,
machinery and equipment .of the PVC plant at Kota in favour of
the Board for a~ amount of Rs.4.57 crores for which Rs,60.92
lakhs in fixed deposit accounts with the banks had been given
as security, The Profit & Loss Account of the PVC plant at
Kota, it is stated in foot note 4 : From the year 1980-81,,
D 100% payment to -RSEB has been made on the basis of uniform " -
tariff, under orders of the-Supreme Court. There is nothing to
show that the appellants had not the capacity to bear the
burden of uniform tariffs. It cannot be said that the impugned
demands made by the Board as against the appellants were
confiscatory in nature. When all the large industrial
E undertakings including the public sector undertakings of the
Government of India and the State Government were paying for
the supply of electricity at uniform tariffs fixed from time
to time, the appellants had no right to claim illlllllnity from
it. ~-
F Promissory estoppel.
Question of promissory estoppel does not really arise
and, in our opinion, rightly not pressed. The appellants hiive
laid no foundation in the pleadings for application of the
doctrine of promissory estoppel. There is no question of any
G estoppel against the Board inas11J.1ch as the appellants did not
open their PVC plant on account of any assurance or promise by \.- ~
the Board. The opening part of the agreement itself shows that
the appellants approached the Board for supply of high tension
power for their industrial complex and the Board complied With
the request. There was thus no question of any promise. Even
H otherwise, the appellants have not made out that but for the
DELHI CLOTH MILLS v, STATE ELECT, BOARD [SEN, J. ) 689
A
'i statutory contract for supply of electricity at a concessional
rate under s.49 they would not have established their
industry. It is significant to note that there were number of
incentives offered by the State Government to enterpreneurs to
set up their industries in the State, such as, land at conces-
sional rates, reduced development charges, facilities of B
railway siding free of cost and free of rent, reduced charges
for industrial water, special arrangement regarding disposal
~ of affluence, loan for subsidiary housing schemes, etc. In any
event, the Board is not the Government and the appellants
cannot rely on promissory estoppel for the incentives offered
by the Government.
c
To sum up : (1) By virtue of the provisions contained in
ss.49A and 49B of the Electricity (Supply) Act, 1948 as
introduced by the Electricity (Supply) (Rajasthan Amendment)
Act, 1976, it was lawful for the Rajasthan State Electricity
Board to revise the special rate of tariff agreed upon and to
raise a demand against the appellants by its letter dated D
February 1, 1971 for payment of the difference between the
uniform tariff under schedule HS/LP/HT-1 applicable to all
large industrial consumers under the Board's tariff
notification dated April 26, 1969, and the concessional rate
in terms of cl.18 of the agreement between the parties dated
July 28, 1961 for the period from January 1, 1971 upto E
February 6, 1976 i.e. the date of pro1111lgation of the
Electricity (Supply) (Rajasthan Amendment) Ordinance, 1976,
as also the general surcharge of 15% thereon levied by the
Board by its tariff notification dated April 26, 1969 as from
~ September 16, 1966 onwards. (2) The Board's letter dated March
12, 1976 being subsequent to the date of pro1111lgstion of the F
Ordinance, the demand raised by the Board for payment of the
revised uniform tariff under schedule LP/HT-1 applicable to
all such large industrial consumers under the Board's tariff
notification dated May 28, 1974 purporting to act under ss,49A
and 49B of the Act read with cl.18 of the agreement, was not
validated by s.49B and therefore the Board was only entitled G
to recover uniform tariff at the same rate i.e. under schedule
r• HS/LP/HT-1 of 1969 for the period from July 1, 1974 to
February 6, 1976, that is, prior to the date of pro1111lgation
of the Ordinance. (3) The Board was entitled by the terms of
$.49A to raise a demand for payment of the revised uniform
tariff under schedule LP/HT-1 of 1974 w.e.f. February 7, 1976 H
690 SUPREME COURT REPORTS [19861 l s.c.R.
A
and thereafter as per the revised uniform tariffs framed from 'y
time to time as applicable to all large industrial consumers
in term& of cl.18 of the agreement. All other contentioiis viz.
that the impugned demands were violative of Art.14,
Art.19(l)(f) and (g) and Art.31(2) of the Constitution stand
rejected. \.
B
In that view of the matter, the bill furnished by the
Rajasthan State Electricity Board dated March 12, 1976 requir- -
ing the appellants to pay an amount of Rs.21,35,506.72p, for
the billing month of February 1976 at the revised uniform
tariff under schedule LP/HT-1 framed by the Board's tariff
c notification dated May 28, 1974 together with the general
surcharge of 15% lll18t be quashed, and the Board shall instead
raise a fresh demand on the appellants to pay uniform tariff
under schedule HS/LP/HT-1 framed under the Board's tariff
notification dated April 26, 1969 for the period from July l,
1974 to February 6, 1976 together with 15% general surcharge
D thereon. It is declared that the Board was entitled under
s.49A of the Act to raise a demand against the appellants for
payment of the revised uniform tariff under schedule LP/HT-1
of 1974 w.e.f. February 7, 1976 and thereafter as per the
revised uniform tariffs, framed from time to time, as
applicable to all large industrial consumers together with the
E general surcharge of 15% thereon in terms of cl.18 of the
agreement.
The result therefore is that all the appeals, except
C.A.No. 2675/80, lll18t fail and are dismissed. Civil Appeal a
No. 2675/80 arising out of the judgment and order of the
F Division Bench of the High Court dated September 12, 1980
dismissing S.B. Writ Petition No.8579/80 filed by the
appellants challenging the validity of the aforesaid bill
dated March 12, 1976 sent by the Rajasthan State Electricity
Board for payment of Rs.21,35,S06.72p. for the billing month
of February 1976 is partly allowed. The said Writ Petition is
G allowed to the extent that the bill for payment of Rs.21,35,
506.72p. for the billing month of February 1976 at the revised
uniform tariff under schedule LP/HT-1 of 1974 is quashed for I~
the reasons stated above. It is, however, declared that the
Rajasthan State Electricity Board is empowered in terms of s.
49A of the Electricity (Supply) Act, 1948, as introduced by
H the Electricity (Supply) (Rajasthan Amendment) Act, 1976 to
DELHI CLOTH MILLS v. STATE ELECT. BOARD [SEN, J.] 691
A
·J raise a fresh demand for payment under schedule HS/LP/HT-1 of
1969 for the period from July 1, 1974 to February 6, 1976. It
is further declared that the Board is entitled to recover· from
the appellants charges under schedule LP/HT-1 of 1974 as from
February 6, 1976 and thereafter as per the revised uniform
B
tariffs, framed from time to time, as applicable to all large
industrial consumers together 'with the general surcharge of
15% thereon in terms of cl.18 of the agreement.
The appellants having substantially failed IDlSt pay two-
thirds of the costs of these appeals to the Rajasthan State
Electricity Board. The State of Rajasthan will bear its own
costs.
c
A.P.J. Civil Appeals Nos. 2676 to 2679/80 dismissed.
D
Civil Appeal No. 2675 of 1980 partly allowed •
.,.
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