Holding

The 1948 agreement does not qualify as a special agreement under Section 49(3) and the tariff increase is not discriminatory, so the appeal is dismissed.

Summary

Fertilizers & Chemicals Travancore Ltd entered into a 1948 agreement with the princely State of Travancore for electricity at a fixed rate, later succeeded by the Kerala State Electricity Board (KSEB). In 1968 KSEB raised the tariff for the appellant to Rs.200 per kW per year under Regulation 11 of the 1966 General Tariffs Regulations, invoking its power under Section 49(1) of the Electricity Supply Act, 1948. The appellant claimed the original agreement, deemed to be entered into by the Board under Section 60, fell within Section 49(3) and therefore was immune from unilateral increase, and also alleged discriminatory treatment violating Article 14. The Supreme Court held that the 1948 agreement lacked a fixed period and could be terminated at the Board’s discretion, so it did not qualify for protection under Section 49(3); consequently the tariff increase was lawful. The Court also found the appellant’s discrimination claim unsubstantiated, as the allegations were not specific and the Board’s actions were presumed reasonable. The appeal was dismissed.

Issues considered

The 1948 electricity supply agreement is deemed to have been entered into by the Board under Section 60 of the Electricity Supply Act and, if so, whether it falls within Section 49(3) granting immunity from unilateral tariff increase.
Whether the 1968 tariff enhancement constitutes hostile discrimination violating Article 14 of the Constitution.
Whether the presence of a ‘period‑factor’ is essential for an agreement to be protected under Section 49(3).

Legislation cited

Constitution of Indias. Article 14
Electricity (Supply) Act, 1948s. 49(1), s. 49(3), s. 60, s. 79(j)
Kerala State Electricity Board (General Tariffs) Regulations, 1965s. Regulation 11

Subjects

Electricity tariffSection 49(3)Section 60Unilateral tariff increaseDiscriminationArticle 14Special agreementPeriod factorKerala State Electricity BoardContract interpretation

Judgment

FERTILIZERS & CHEMICALS TRAVANCORE LTD. A
V,
KERALA STATE ELECTRICITY BOARD & ANOTHER

MAY 5, 1988

)- B
[S. NATARAJAN AND M.N. VENKATACHALIAH, JJ.J

Electricity Supply Act, 1948: Sections 49( 1), 49(3), 60 and
79(j)-Electricity Tariff-Protection from unilateral increase--'Period
factor' in agreement-Enhancement of tariff-When.permissible.

Kera/a State Electricity Board (General Tariffs) Regulations, c
1965: Regulation 11-Enhancement of rate or tariff for supply of
power-Validity of.

Constitution of India, 1950: Article 14-Allegations of dis-
criminatory treatment-To be specific-Action of Governmental D
authorities-Presumed to be reasonable and in public interest-Person
assailing-To plead and prove contrary.

The Appellant, a company registered under the Companies Act,
had its registered office at Eloor in the. e.rstwhile State of Travancore.
On October 21, 1948 the company entered into an agreement (Exhibit- E
Pl) with the erstwhile princely State of Travancore for the supply of
electrical-<!nergy under the terms and conditions particularised i.n the
agreement. The price was fixed at Rs.110 per K. W.. per annum. Sub-
sequently, the State of Tranvancore merged in, and became part of,
the Kerala State, and the Electricity Board was constituted for the
Sta.te. On May JO, 1965 ~supplementary agreement was entered into F
between the appellant and the Electricity ·Board for supply of
additional power for a period of IO years ·at the rate of Rs.140 per
K.W. per year.

On October 28, 1966 the Electricity Board in. exercise of the
powers under Section 79(j) ofthe Electricity Supply A:ct, 1948 framed G
."'(. and promulgated the Kerala State Electricity Board (General Tariff)
Regulations, 1966 by which the Board empowered itself to prescribe
higher tariffs for different classes of consumers. Regulation 11 thereof
empowered the Board to amend-·the terms and conditions of supply
from time to time.
H

925
926 SUPREME COURT REPORTS 11988] 3 S.C.R. -\

A The Board issued a Notification dated July 16, 1968 (Exhibit P-2)
providing that the rates for supply of power at 66 K. V. to the appellant
company availed of by them as per the agreement dated October 21,
1948 be revised to Rs.200 per K.W. per year. The supplemental agree·
ment with the appellant dated May 10, 1965 which pertained to the
additional supply of power for a period often years at Rs.140 per K.W.
B per year was, howev.er, left undisturbed. ~

The appellant in a writ petition before the High Court assailed the
enhancement in the electricity tariff, contending that the terms for the
supply of electricity to the appellant's industrial unit were governed by
the agreement dated October 21, 1948 entered into by the company
·J
C with the erstwhile Travancore State; that the agreement, in terms or .
Section 60 of the Electricity Supply Act, should be deemed to have been
entered into by the Electricity Board and that during the subsistence of
the said agreement the rates fixed therein were immune from any
unilateral upward revision even if the purported enhancement was
pursuant to the statutory regulations made under Section 49(2). It was
D further contended that the enhancement being selective and discrimi·
natory, was violative of Article 14 of the Constitution.

The writ_petition having been dismissed by a Single Judge of the
High Court, and the Division Bench having confirmed the order of ~
dismissal in appeal, the appellant appealed to this Court hy Special
E Leave. ·

In the appeal it was contended on behalf of the appellant that the
agreement, Exhibit P-1, though one entered into prior to the constitu·
tion of the 'Board' was; by virtue of Section 60 of the Act, one which
should he deemed to have been entered into by or with the Board, and ~
F must also be held to be referable to Section 49(3) of the Act. Relying on I
the decision of this Court in Indian Aluminium Co. v. Kera/a Electricity
Board, [1976] 1 SCR 701, it was contended that the agreement must be
regarded as having been entered Into by the Board In exercise of Its
statutory powers under Section 49(3) of the Act, and therefore, immune
from the operation of the Kerala State Electricity Board (General
G Tariffs) Regulations, 1966. It was also submitted that power under
Section 49(1) would be available to the statutory-authority enabling an .J.
unilateral upward revision of the tariff only if the agreement Itself
enabled such revision, that as long as the agreement did subsist and was·
not terminated a unilateral change was impermissible and that the ap·
pellant was subjected to a steep revision in the tariffs while other siml-
H larly circumstanced high tension consumers were left unaffected.
FERTILIZERS & CHEMICALS v. K.S.E.B. 927

On behalf of the respondent-Board it was urged that Exhibit P-1
A
could not be held to fall under, and be protected by, Section 49(3) of the
Act; that the agreement having been anterior to the commencement of
the 'Act' itself could not be held to have been entered into for "purposes
of the Act" within the meaning of Section 60; that the agreement could
not be deemed to be one entered into by the Board under Section 60( 1),
because it did not satisfy the essential requirement of having been en- B
tered into by the State Government; that the Board had not done any-
thing with reference to the agreement which could attract Section 60 to
it and though the obligations of the State Government became the obli-
gations of the Board, the agreement itself did not qualify for recognition
under Section 60 of the Act; that there was no fixity of tenure with
reference to and in the context of which alone any immunity from
unilateral alteration under Section 49(1) and (2) could be conceived and C
measured. It was further contended that the additional agreement
dated May 10, 1965 was for an independent purpose and that the action
of the Board in entering into this agreement did not constitute any such
Act in relation to the original agreement as would constitute a conscious
adoption by the Board of the original agreement, so as to attract Section D
60(1); that the essential quality of the agreement which qualified for
recognition and protection as one made in exercise of the Board's power
under Section 49(3) was its distinctiveness as to the period of operation
and that the protection and immunity from unilateral increase of tariff
could only be with reference to the period of the agreement.
Two questions arose for consideration: (1) Whether the agree- E
ment datecd October 21, 1948 (Exhibit P· 1) should be held to be one
which was deemed to have been entered into by the Board under Section
60 of the Act and whether it is required to be considered as one entered ·
into by the Board in exercise of its powers under Section 49(3) of the
Act, and (2) Whether the enhancement under the Notification dated
July 16, 1968 (Exhibit P·2) brings about a hostile discrimination against F
the appellant, because for similarly situated and circumstanced High
Tension Consumers there was no such revision of the tariff.
Dismissing the Appeal,

. HELD: l(i) The Board's power to enter into an agreement fixing a' G
· special tarifffor a 'specified period' is relatable to Section 49(3). [938HI
·~
(ii) One of the tests whether an agreement is entered into in
exercise of the power under Section 49(3) Is that such agreement has
-the effect of excluding the other statutory , power under Sec-
ti6n 49(1). [939A) H
928 SUPREME COURT REPORTS [1988] 3 S.C.R.

A (iii) The main consideration for protection from unilateral
increase under Section 49(1) is the 'period-factor' in an agree-
ment. [939A-B)

(iv) A contract which does not provide for, an obligation to
supply electricity at a specific-rate for a specific-period and does not,
B therefore, have the effect of excluding Section 49(1) cannot be said to
fall under Sectiou 49(3). [939G]
-<
(v) If by an unilateral, volitional act on the part of the Board the
assurance of a fixed-rate to the consumer could be denuded that

c
circumstances, in itself, would be such as to detract from the agreement
being considered as one entered into in exercise of power under Section
49(3). [939G-HI
)
In the instant case, the agreement was precarious in regard to the
period of its operation and was susceptible to termination at the volition
of the Board. It cannot, therefore, be construed as one which was
D intended to give a statutory protection for the tariff by means of a
special agreement by the exercise of the statutory power g! the Board
under Section 49(3). [940D]

Indian Aluminium Co. v. Kera/a Electricity Board, [1976] l SCR
70 and Delhi Cloth & General Mills Co. Ltd. v. Rajasthan State Electri- ~
E city Board, [1986] AIR SC 1126, referred to.

(vi) In a long term contract of indefinite duration it is not unnsual
to find provisions for cancellation with reasonable notice and for pay-
ment of compensation in the event of termination. It is also not unusual

F
to infer, under certain circµmstances, terminability by notice even in
the absence of an express provision in that behalf, upon a construction
of the contract. A contract which contains no express provision for its
r-
termination may well be terminated by reasonable notice by one or the
other party depending upon the implication of a term or upon a true
construction of the agreement. This principle has no application in the
instant case. [94IC-D]
G
Staffordshire Area Health Authority v. South Staff(Jrdshire Water
Works Co., [1978) 3 All E.R. p. 769, referred to.
;.
(vii) The agreement dated October 21, 1948 Exhibit P-1, there-
fore, does not qualify to be recognised and protected under Section
H 49(3) of the Act. [94IE)
FERTILIZERS & CHEMICALS v. K.S.E.B. 929

2(i) The Board while denying that there was any hostile discrimi-
A
nation, averred that no similarly situate consumer had been left out of
the tariff revision and ouly cases that had been left-out were those
where the Board, owing to the subsistence of the agreements protected
under Section 49(3), was under the legal inhibition from making an
unilateral enhancement. [943E-F]
B
2(ii) The charge of discrimination against the respondent Board
could not be said to have been established. Indeed the appellant had not
laid a proper foundation for examination of a case of discrimination
under Article 14. [944C]

(iii) The allegations of discrimination ought to be specific. Action
of Governmental authorities must be presumed to be reasonable and in c
public interest. It is for the person assailing that presumption to
plead and prove the contrary. But in the instant case the allegations are
in general terms. [9440 J

State of Maharashtra and Anr. v. Basantilal Mohan/al Khetan D
and Ors., AIR 1986 SC 1466 para 12 and Kasturi Lal Lakshmi
Reddy v. State of J & K, [1980] 3 SCR 1338 at 1357, referred
to.

In the instant case, the respondent-Board while denying that
there was any hostile discrimination, averred that no similarly E
situate consumer had been left out of the tariff revision, and only
cases where the consumer had the protection of an agreement under
Section 49(3) which prevented the unilateral increase, had been left
out. [944D-EJ

Bisra Stone Lime Co, v. Orissa State Electricity Board, [1976] 2 F
SCR 307, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 880
(N) of 1974.

From the Judgment and Order dated 13.6.1973 of the Kerala G
~ High Court in Writ Appeal No. 103 of 1971.

G.L. Sanghi, V.C. Mathur and A.M. Dittia for the Appellant.

P.S. Potti, K.M.K. Nair and Ms. Malini Poduval for the
Respondents. H
930 SUPREME COURT REPORTS [1988) 3 S.C.R.

The Judgment of the Court was delivered by
A
VENKATACHALIAH, J, This appeal, by special leave, is by
Messrs Fertilizers & Chemicals Travancore Limited and is directed
against the Judgment and Order dated 13.6.1973 of the Division Bench
of the Kerala High Court in Writ Appeal No. 103 of 1971 affirming the
B order dated 26.11.1970 of the learned Single Judge in O.P. No. 3772 of -<'.
1968.

The High Court dismissed the appellant's writ-petition challeng-
ing the enhancement, of the electricity tariff from Rs.110 per K.W. per )
annum to Rs.200 per K. W. per annum. The enhancement was made by
the Kerala State Electricity Board ('Board' for short) pursuant to the
c power reserved to it under Regulation 11 of the Kerala State Electric-
ity Board (General Tariffs) Regulation, 1966 ("Regulation") framed
under Section 79(j) read with Sec. 49(1) of the Electricity (Supply)
Act, 1948, ('Act'). The enhancement was to take effect from
16.8.1968. The period to which the challenge pertains is between
D 16.8.1968 and 1.1.1970.

The appellant assailed this enhancement before the High Court
on grounds, inter alia, that the terms for the supply of electricity to
appellant's industrial unit manufacturing fertilizers were governed by 1
an agreement dated 21.10.48 entered into with the erstwhile Trivan-
E core State; that the agreement, in terms of Section 60 of the Act,
should be deemed to have been entered into by the Board referable to
statutory powers under Section 49(3) of the Act; that during the sub-
sistence of the agreement the rates fixed therein were immune from
any unilateral upward revision even if the purported enhancement was
pursuant to the statutory regulations under Section 49(2) and that, at ~
F all events, the enhancement, being selective and discriminatory, was
violative of Article 14 of the Constitution.

2. We may refer, briefly, to the factual antecedents:

Appellant is a company registered under the Companies Act
G with its Registered Office at Bloor, Udyogamandal P.O. in the
erstwhile State of Trivancore, now part of Kerala. On 21.10.1948 an f
agreement was entered into between the appellant and the erstwhile
princely State of Travancore for the supply of electrical energy by the
latter to the former under terms and on conditions particularised in the
agreement. The price was fixed at Rs.110 per K. W. per annum. Subse-
H q uently the State merged in and became part of the Kerala State and
FERTILIZERS & CHEMICALS v. K.S.E.B. [VENKATACHALIAH, J.J 931

the Electricity' Board was constituted for the State. On 10.5.1965 a A
supplementary agreement was entered into between the appellant and
the board for supply of additional power for a period of ten years at the
rate of Rs.140 per K.W. per year. On 28.10.1966 the Board, in exer-
cise of the powers under Section 79(j) of the Act, framed and pro-
mulgated what were called "Kerala State Electricity Board (General
Tariffs) Regulations, 1966", by which, inter alia, power was reser- B
ved to the Board to amend, from time to time, the terms and condi-
tions of supply after issue of the prescribed notice to the consumer
of the Board's intention so to do in that behalf. Regulation 11
provided: .

"The Board may amend the terms and conditions of c
supply from time to time, provided that any amendment
having the effect of enhancement of charges payable by the
consumer shall come into force from such date as notified
in the Gazette provided that there shall be at least 30 days
between the date of publication and coming into force."
D

In exercise of the power so reserved to it, the Board issued a
notification dated 16. 7.1968 (Exhibit P/2) which provided:

"In accordance with the provisions contained in
clause 11 of the Kerala State Electricity Board (General E
Tariffs) Regulations issued in Kerala Gazette No. 47 dated
29 .11.1966, it is hereby notified that the rates for the supply
of 4200 K.W. of power at 66 K.V. to messrs F.A.C.T.
availed by them as per the agreement dated 21.10.1948
executed with the erstwhile Travancore- Government, is
hereby revised to Rs. 200 per K.V. A. per year. This revi- F
sion will take effect 30 days soon after the publication of
this notification in the Gazette.''

The supplemental agreement dated 10.5.1965 which pertained to
the additional supply of power for a period of ten years at Rs.140 per G
K.W. per year was however, left undisturbed. The case of the Board is
that while the agreement, Exhibit P-1, as, one under Section 49(3) of
the Act, the supplemental agreement dated 10.5.1965, however, was
entered into by the Board in exercise of the Statutory powers under
Section 49(3) and was, therefore, immune from any alteration during
its tenure. H
932 SUPREME COURT REPORTS [!9881 3 S.C.R.

A The principal controversy in this appeal is whether the agree-
ment dated 21.10.1948 could be said to be one within the contempla-
tion of Section 49(3) of the Act; and whether the enhancem~nt of the
tariff under Exhibit P-2 was impermissible.

Another contention which was not urged before the learned
B Single Judge of the High Court, but which was permitted to be raised
in appeal before the Division Bench was whether by the said enhance-
ment appellant was subjected to a hostile and invidious discrimination.

Both contentions have been repelled by the High Court. Appel-
lant has come up by special leave.
c 3. We have heard Shri G.L. Sanghi, learned Senior Advocate
for the appellant and Shri P.S. Potti, learned Senior Advocate for the
Board. The submissions of counsel spread over a much wider field
than was covered before the High Court. On the contentions urged at
the hearing, the points that fall for consideration in the appeal are:
D
(a)(i): Whether the agreement dated 21.10.1948
(Exhibit P-1) should be held to be one which was deemed
to have been entered into by the Board under Section 60 of
the Act. ~

E (ii) If so, whether the said agreement requires to be
considered as one entered into by the Board in exercise of
its power under Section 49(3) of the Act with the attendant
consequence that during its subsistence, the tariff does not
admit of being raised even pursuant to the Regulations
made under Section 49(1) of the Act. (Y'·
F
(b) Whether, at all events, the enhancement under
Exhibit P-2 brings about a hostile discrimination against
the appellant, in that, while in the case of other similarly
situated and circumstanced High Tension Consumers there
was no such revision of the tariff.
G
Re; contentions a (i) and (ii):

Shri Sanghi submitted that the agreement Exhibit P-1 though
one entered into prior to the constitution of the 'Board' was yet, by
virtue of Section 60 of the Act one which should be deemed to have
H been entered into by or with the Board, and must also be held to be
FJ?RTILIZERS & CHEMICALS v. K.S.E.B. IVENKATACHALIAH, J.J 933
•,,·~-

referable to Section 49(3) of tI:ie Act. Shri Sanghi, placing reliance on
A
the pronouncement of this Cmirt-in Indian Aluminium Co. v. Kera/a
Electricity Board, I1976] 1 SCR 70 contended that the agreement must
be regarded as having been entered into by the Board in Exercise of its
Statutory powers conferred under Section 49(3) of the Act, and there-·
fore, immune from the operation of the Regulations. The contract
under Section 49(3), it was submitted, substitutes for the power under B
Section 49(1) and that where, as here, even there is in subsistence an
agreement under Section 49(3) the power under Section 49(1) would
be available to the statutory-authority enabling an unilateral upward
revision of the tariff, only if the agreement itself enables such a
revision.

Shri Potti for the Board urged that Exhibit P-1 could not be held c
to fall under, and be protected by, Section 49(3) of the Act. Shri Potti
urged a number of considerations, which according to him, militate
Exhibit P-1 being accorded such a status.

5. It is appropriate, at this stage, that some of the statutory D
provisions which have a bearing on the matter are noticed.

Sections 49, 59 and 79 of the Act (as they then stood) read:

"Section 49(1): Subject to the provisions of this Act
and of regulations, if any made in this behalf, the Board E
may supply electricity to· any person not being a licencee
upon such terms and conditions as the Board thinks fit and
may for the purpose of such supply frame uniform tariffs.

(2)
F
(3) Nothing in the foregoing provisions of this sec-
tion shall derogate from the power of the Board if it consi-
ders it necessary or expedient to fix different tariffs for the
supply of electricity to any person not being a licencee, hav-
ing regard to the geographical position of any area, the
nature of the supply and purpose for which supply is G
required and any other relevant factors.

(4) ................. ......................... .
~

"Section 59: The Board shall not, as for as practic-
able and after taking credit for and subventions from the H
934 SUPREME COURT REPORTS I 19881 3 S.C.R. ·--\

State Government under Section 63, carry on its operation
A
under this Act at a loss, and shall adjust its charges accord-
ingly from time to time."

"Section 79: The Board may make regulations not
inconsistent with this Act and the rules made thereunder to
B provide for all or any of the following matters, namely:

(a) I

to I

(i) I Omitted as irrelevant
c
(j) principles governing the supply of electricity by
the Board to persons other than licensees under Section 49.

(k)
D
We may also notice Section 60:

"60( 1): All debts and obligations incurred, all con-
tracts entered into and all matters and things engaged to be 1
done by, with or for the State Government for any of the
E purposes of this Act before the first constitution of the
Board shall be deemed to have been incurred, entered into
or engaged to be done by, with or for the Board; and all suits
or other legal proceedings instituted or which might but for

F
the issue of the notification under sub-section (4) of Seclion
have been instituted by or against the Board." r
In the Indian Aluminium Company's case this Court was examin-
ing the effect of an agreement entered into between the then native
State of Trivancore on the one hand and the Indian Aluminium Com-
pany Limited on the other for the supply of electrical energy for an
• industrial enterprise of the company for reduction of alumina into
G aluminium by a process of electrolysis in which electrical-energy was
itself a primary raw material. Certain rates were agreed upon for a
period of 24 years from l. 7 .1941 with a franchise to the company for
renewal of the agreement for a further period of 20 years. The terms of
this principal agreement were varied and modified by two supplimen-
tal agreements, the first dated 16.8.1955 and the second dated
H 4.4.1963. Two other agreements were also entered into between the
FERTILIZERS & CHEMICALS v. K.S.E.B. IVENKATACHALIAH, J.I 935

parties on 30.3.1963 and 18.9.1965 respectively for supply of additional,
A
electricity. In 1966 the Kerala State Electricity Board promulgated
regulations by which the Board empowered itself to prescribe higher
tariffs for different classes of consumers. These regulations were
'amended in 1969. In exercise of powers thus assumed, the Board
purported to fix higher rates of tariffs to all extra high tension consum-
ers, including the said company. The relevant tariff was declared appl- B
icable to all extra high tension consumers notwithstanding anything
contained in the agreement entered into with the consumers either by
the Government or by the Board. This purported unilateral enhance-
ment was challenged by the company. This Court, in substance, held

l that the agreement dated 1. 7 .1941 must be deemed, by virtue of Sec-
tion 60 of the Act, to have been made by the Board· itself; that Section
49(3) enabled such specially negotiated loads as part of the statutorily
permitted scheme; that since the special stipulations in the agreement
c

were made· in exertion of the statutory power under Section 49(3), they
could not, during the subsistence of the agreement, be varied unilater-
ally by exertion of another statutory power under the same Statute. It
was observed: D

"Now, fixation of special tariffs can be unilateral act
on the part of the Board, but more often than not, it would
be the result of negotiation betWeen the Board and the
consumer and hence a matter of agreement between them.
It would, therefore, seem clear that the Board can, in exer- E
cise of the power conferred under sub-section (3) of Sec-
tion 49, enter into an agreement with a consumer stipulat-
ing. for a speciai tariff for supply of electricity for a specific
period of time. Such a stipulation would amount to fixing
of ·special tariff and it would clearly be in exercise of the
power to fix special tariff granted under sub-section (3) of F
Section 49."

"To put it differently, where a stipulation in a con-
tract is entered into by a public authority in exercise of a
statutory power, then, even though such stipulatiori fetters
subsequent exercise of the same statutory power or future G
exercise of another statutory power; it would be valid and
the exercise of such statutory power would protanto stand
restricted. That would follow on the principle of harmoni-
ous construction'."

"If the statutory power is to have any meaning and H
936 SUPREME COURT REPORTS 11988] 3 S.C.R.
1
content, the stipnlation made in exercise of the statutory
A
power must be valid and binding and it would, as pointed
out by Pennycuick V.C., in Dowsty Boulton v. Waiver-
hamption Corporation, 'exclude the exercise of other statut-
ory powers in respect of the same subject matter'."

B Shri Sanghi relies upon the _analogy of this case to support the --<'.
appellant's claim that here also the agreement Ext. P-1 has a similar
status.

Section 49(1) and (2) of the Act delegates to the State Electricity

c
Board the powers of subordinate legislation to frame uniform tariffs,
setting out the factors and criteria to be taken into account in fixing
such uniform tariffs. Section 79(j) enables the Board to frame and
promulgate regulations touching the matters envisaged by Section
49(1) and (2). Sub-section (3) of Section 49 enables the Board to fix
l
different rates of ~ariffs having regard to the special circumstances and
particularities of ,individual cases. Section 49(4), however mandates
D that the Board, iri exercising its discretion under Sub-section (3), shall
not show undue preference to any person. Section 59 says that the
Board shall so carry on its operations as not to incur a loss.

6. Enumerating the considerations which according to him,
detract from the acceptability of the claim that the agreement in this ~
E case qualifies for recognition as one referable to the statutory power
under Section 49(3) of the Act, Shri Patti said that first, the agreement
cannot be deemed to be one entered into by the Board under Section •
60(1) because it does not satisfy the essential requirement of having
been entered into by the State Government; that secondly, the Board
had not done anything with reference to the agreement which could ~·
F attract Section 6(i) to it; and, accordingly, though the obligations of the
State Government became the obligations of the Board, the agree-
ment itself did not qualify for recognition under Section 60 of the Act;
that, thirdly there was no fixity of tenure with reference to and in the
context of which alone any intmunity from unilateral-alteration under
Section 49(1) and (2) could be conceived and measured, and that,
G fourthly the agreement having been anterior to the commencement of
the 'Act' itself, it could not be held to have been entered into for }
"purposes of the Act" within the meaning of Section 60.

The point that Shri Patti particularly emphasised was that the
element of recognition of the agreement under and for purposes of
H Section 60( 1)--which in the case of the Indian Aluminium Company
FERTILIZERS & CHEMICALS v. K.S.E.B. [VENKATACHALIAH, J.I 937

consisted in the Board, after the commencement of the Act, having
A
treated and adopted the agreement by conscious overt acts which com-
prised of the subsequent modifications of its terms, - - were lacking
in the present case. The additional agreement dated 10.5.1965 in the
present case was for an independent purpose and that the action of the
Board in entering into this agreement did not constitute any such act,
in relation to the original agreement, as would constitute a conscious B
adoption by the Board of the original agreement, so as to attract
Section 60(1).

7. On a consideration of the matter, we are of the view that it is
unnecessary to examine the merits of these contentions as we think
that the point could be decided with reference to an aspect which goes
to the root of the matter. That is, whether the agreement, even if c
attracts Section 60(1), qualifies itself to be recognised as one under
Section 49(3). We may here notice some provisions of the agreement
(Exhibit P-1):

Clause 1 stipulates: D

(1) The Government shall furnish to the Consumer
and the Consumer shall take from the Government all the
energy required by the Consumer for operating and light-
ing the Consumer Fertilizer Factory located at Eloor,
Alwaye upto a total amount of 4000 K. W. E

Clause ~2 provides:

12. The consumer shall f!O! be at liberty, save with
the consent of the Electrical Engineer to Government to
determine this agreement before the expiration of twelve F
calendar months from the date of commencement of sup-
ply. The consumer may determine this agreement after any
time after the said period on giving the Electrical Engineer
one clear month's notice in writing. If within twelve months
from the date of commencement of supply ihe consumer
should without giving previous intimation in writing to the G
Electrical Engineer to Government cease to consume
energy under the. agreement continuously for three
months, his agreement shall be determined.

There is, in the agreement, .no specific stipulation as to the dura-
tion, or term, of the agreement. The appellant is enabled after expira- H
938 SUPREME COURT REPORTS [1988] 3 S.C.R. ·~

tion of 12 calendar months from the date of commencement, to termi-
A
nate it by notice in writing. Shri Potti's contention is that the essential
quality of the agreement which qualifies for recognition and protection
as one made in exercise of the Board's power under Section 49(3) is its
distinctiveness as to the period of operation; that the protection and
immunity from unilateral increase of tariff can only be with reference
B to the period of the agreement and that without reference to any
period the idea of such protection would be unmeaning and inconceiv-
able; as the benefit of Section 49(3) is to enure during the period
respecting which there is a commitment on the part of the Board to
supply electrical energy at a fixed rate.

c ity of 8.theShri Sanghi, however, submitted, that it was not the specific-
period of operation of the agreement, but its very existence
that brings it within the protective umbrella of Section 49(3). Learned
counsel said that what keeps an agreement outside Sec. 49(3) was the
existence in of specific stipulation in it enabling such unilateral
increases of the rates. Shri Sanghi submitted that the period factor was
D not the decisive criterion, but the very existence of a special agree-
ment, however precarious its tenure, that excludes the power under
Section 49(1) of the Act. According to Shri Sanghi even an agreement
which is not in terms bound for a fixed period and which is terminable
by either side by notice, is eligible for recognition as one under Section
49(3) and that till the Board puts an end to the agreement in a manner
E provided by the agreement, the agreement qualifies itself for such
protection under Section 49(3).

9. If an agreement, entered into by the Board does not contain
any stipulation as to the specific period for which a particular rate
should apply or, after so providing, also contains a specific stipulation
F that the rates agreed upon under it could unilaterally, be altered at the
instance of the Board, then it becomes merely academic whether such
an agreement does not qualify itself to be considered as one entered
into by the Board in exercise of its statutory'power under Sec. 49(3) or
even if so qualified, yet, it does not have the effect of excluding the
exertion of the other statutory powers under Sec. 49(1). The real
G question is whether a unilateral increase could be effected or not. In
such a case, from the point of view of practical consequences, it is
immaterial whether the importance of the absence of the period-factor
lies in taking the agreement out of Sec. 49(3) or whether, being within
49(3), yet it does not exclude the exercise of the statutory power under
Sec. 49(1). It has been held that the Board's power to enter into an
H agreement fixing a special tariff for a 'specified period' is relatable to
.~- FERTILIZERS & CHEMICALS v. K.S.E.B. [VENKATACHALIAH, J. I 939

Sec. 49(3), or conversely, one of the tests whether an agreement is A
entered into in exercise of the power under Sec. 49(3) is that such
agreement has the effect of excluding the other statutory power under
Sec. 49(1): The main consideration for protection from unilateral
increase under Sec. 49(1) is the 'period-factor' in an agreement. In the
Indian Aluminium Company's case, it was observed:
B
" ...... It would, therefore, seem clear that the Board can,
in exercise of the power conferred under sub-section (3) of
Sec. 49, enter into an agreement with a consumer stipulat-
ing for a special tariff for supply of electricity for a specific

J period of time. Such a stipulation would amount to fixing of
special tariff and it would clearly be in exercise of the power
to fix special tariff granted under sub-section (3) .of sec. 49
'' '
c

" . . . . . . . The power to enter into an agreement fixing a
special tariff for supply of electricity for a specified period of
time is, therefore, relatable to sub-section (3) of sec. 49 and D
such an agreement entered into by the Board would be in
exercise of the power under th~t sub-section ..... "
(emphasis supplied)

" ....... To hold that the Board could unilaterally revise
the charges notwithstanding these stipulations; would E
negate the existence of statutory power in the Board under
words, the Board had no power to enter into such stipula-
tions. That would negate the existence of statutory po\Ver in
the Board under sub-section (3) of Section 49 to fix the
charges for a specified period of time which would be con-
trary to the plain meaning and intendment of the section." f
(emphasis supplied)

The above excerpts would suggest that a contract which does not
have, and provide for an obligation to supply electricity at a specific
rate for a specific period and does not, therefore, have the effect of
excluding Section 49(1) cannot be said to fall under Section 49(3). If by G
an unilateral, volitional act on the part of the Board the assurance of a
fixed-rate to the consumer could be denuded, that circumstance; in
itself, would be such as to detract from the agreement being consi-
dered as one entered into in exercise of power under Section 49(3).
The importance of the period-factor was again referred to in Delhi
Cloth & General Mills Co. Ltd. v. Rajasthan State Electricity Board, H
940 SUPREME COURT REPORTS [1988] 3 S.C.R. --t
A
I1986 I AIR SC 1126. It was observed:
" ....... 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 bet-
B ween the Board and the consumers and hence a matter of
agreement between them. Such agreements for the supply
of electricity to the consumers must therefore be regarded
as having been entered into by the Board in exercise of the
statutory powers conferred under Se<:. 49(3) and thus there
could be no question of such stipulation being void as fet-
tering the exercise of the statutory powers of the Board
c under sec. 49{1) ....... "

The agreement in this case was precarious in regard to the
period of its operation and was susceptible to termination at the voli-
tion of the Board. It cannot, therefore, be construed as one which was
D intended to give a statutory protection for the tariff by means of a
special agreement by the exercise of the statutory power of the Board
under Section 49(3).

10. Shri Sanghi, however, contended that as long as the agree-
ment did subsist and was not terminated, a unilateral change was
E impermissible. To this, two answers could be posited. First is, as
already held, that if there is no statutory-protection and immunity
from unilateral change-in view of the precariousness of the tenure and •
its susceptibility to defeasance at the mere volition of the Board, the
act did not furnish it with the status of one under Section 49(3). The
second, is that at all events, even if the agreement was one under /~
F Section 49(3}, the giving of 30 days notice-though issued in comp- ·
Iiance with the requirement of the regulation-puts an end to the
agreement. Looked at from either angle, the enhancement is not
rendered infirm.

11. Shri Sanghi referred to certain observations of Lord Denn-
G ing MR in Staffordshire Area 1/ealth Authority v. South Staffordshire
Water Works Co., [1978J.J All EllJlland Reports 769. In that case a
water-company and the authorities of a hospital enterecj into agree-
ment in the year 1929 whereby the hospital was to receive 5,000 gallons
of water eV.ery day free and all the additional water required at 7d. for
1000 gallons 'at all times hereafter'. In 1975, the water-company gave a
H six months notice to the hospital intending to terminate the 1929
FERTILIZERS & CHEMICALS v. KSEB. [VENKATACHALIAH, J.J 941
. ~·
agreement. The hospital contested the right of the company to termi- A
nate the agreement, relying upon the 'at all times hereafter' clause.
The trial court upheld the hospital's claim and held that the company
could not resile from the contract. But the Court of Appeal held that
having regard to the fall in the value of money since the agreement was
made, circumstances had arisen which the parties had not foreseen and
that the agreement was not intended to hold good in the altered state B
of circumstances. The agreement was held terminable with reasonable
notice. This case holds out its own features of interest for the school-
men. Jn a long term contract of indefinite duration it is not unusual to
find provisions for cancellation with reasonable notice and for pay-

J ment of compensation in the event of termination. It is also not
unusual to infer, under certain ci.rrumstances, terminability by notice
even in the absence of an express provision in that behalf, upon a
construction of the contract. In the case cited by Shri Sanghi, Lord
c
Denning invoked the doctrine of frustration. Learned authors in
Cheshire and Fifoot's Law of Contract, 10th Edition, call that case 'a
difficult case' and that the learned Judge Master of Rolls 'reached an
interesting and controversial decision'. A Contract which contains no D
express provision for its termination may well be terminated by
reasonable notice by one or the other party depending upon the impli-
cation of a term or upon a true construction of the agreement. That
principle has no application to the present case.

Accordingly, on contentions a (i) and (ii) we hold that Exhibit E·
P-1 did not qualify to be recognised and protected under Section 49(3)
of the Act.

12. Re: Contention (b):

Appellant raised the contention of a hostile discrimination F
before the Division Bench in appeal. Jn the course of the additional
grounds raised on 31.5 .1971 the appellant averred:

"I respectfully submit that the 1st respondent being com-
mitted to supply Indian Aluminium Company Limited
quantities of electrical energy of 16,000 KWY at the rate of G
Rs.100-105 per KWY for a period upto 1995 and having
further agreed to supply electrical energy to the said com-
pany at the rate of Rs.130 KWY for a period upto 50 years
as from 1st April, 1965, has in enhancing the tariff rate for
supply of electrical energy to the appellant as per Ext. P-2
to Rs.200 per KVA per year clearly violated section 49 of H
942 SUPREME COURT REPORTS [1988] 3 S.C.R.

the Act. The 1st respondent, as for as I am aware, had not
A
increased tariff rates in the case of other extra high tension
consumers similarly placed as the appellants who are refer-
red to in paragraph 11 of the counter-affidavit of the 1st
respondent in July, 1968, by virtue of its powers under Ext.
P-3 by notification like Ext. P-2 ..... The effect of Ext.
B P-2 order is that extra high tension consumers who are
similarly placed as the appellant, have been given. undue
preference as compared to the appellant in that, while the
tariff applicable to the appellant was increased as per Ext.
P-2, there was no similar upward revision in the case of the
other extra high tension consumers who are referred to in
paragraph 11. of the counter-affidavit of the 1st respon-
c dent."

Again, in the reply affidavit dated 16.3.1973 the appellant said:

"6. With respect to the averment in paragraph 3, I submit
D that the petitioner has been discriminated. Not only Indian
Aluminium Company Ltd., but also companies like Tra-
vancore Cochin Chemicals Ltd., Premier Tyres Ltd., Com-
inco Binani Zinc Limited, Travancore Rayons Limited
etc., have been given the benefit of the contractual rates
and the existing contracts with those companies have not i
E been superseded till LL 1970 when uniform rate is pres-
cribed for all. The averment that the appellant company
and the Indian Aluminium Company Limited are not simi-
•
larly situated is made without any basis, for at any rate, for
the purpose of Article 14, it cannot be denied that they are

F
comparable concerns."
y
Shri Sanghi contended that while the appellant was subjected to
a steep revision in the tariffs other similarly circumstanced high ten-
sion consumers were left unaffected. Learned counsel also contended
that under Regulation 6 of Ext. P-3 one of the classifications was
"High tension consumers" which included the appellant, and that any
G further sub-classification purported by the Board between "high ten-
sion consumers" and "extra high tension consumers" to support a )...
further classification, not contemplated by the Regulation itself was
impermissible. Shri Sanghi relied upon the case of Messrs Indian Metal
& Ferro Alloys Ltd. v. State of Orissa, AIR 1987 SC 1727 where a
further purported classification in the matter of the benefit of clubbing
H of the allotments of electricity based on considerations which were not
FERTILIZERS & CHEMICALS v. K.S.E.B. [VENKATACHALIAH, J.) 943

recognised for purposes of the statutory classification of the consumers
A
was held impermissible. In that case amongst similarly circumstanced
consumers who fell under the same classification of power intensive
units, a further classification for the denial of the benefit of clubbing
on the ground that the particular consumer, being an export oriented
unit had failed to furnish the required export performance, was held
impermissible. This Court held: B

" .......... Wheu all other power intensive units termed
as 'domestic units' are being allowed the benefit of club-
bing, it would not be legally proper to deny the same facil-
ity to an industry classified as 'power intensive unit' merely
on the ground that being an export oriented unit, it has c
failed to fulfil the conditions pre-requisite for allocation of
additional power. Such differential treatment would
amount to arbitrary discrimination, violative of Article 14
of the Constitution and it cannot be permitted ......... .
So long as the benefit of clubbing is allowed to domestic
D
power intensive units, such benefit cannot be denied to an
export oriented unit which has not been allocated any addi-
tional power on the basis of its export performance.

In the present case, the Board while denying that there was any
hostile discrimination, averred that no similarly situate consumer had
been left out of the tariff revision and only cases where the Board, E
owing to the subsistence of .the agreements protected under Sec. 49(3)
was under a legal inhibition from making an unilateral enhancement,
had been left-out. In addition, the Board set out two other criteria
which, according to it, placed the appellant in a different .class disting-
uishing the case of the Indian Aluminium Co. with which appellant
F
pleaded similarity. These, as set out in the counter-affidavit dated
5.3.1973 filed before the Division Bench, are:

(i) that the appellant was ·not a 'power intensive' industry
operating at very high load factor whereas the Indian
Aluminium Company is a 'power intensive industry' operat- G
ing at a very high load-factor which required them to be
classified differently. The two consumers were not on the
same footing in the matter of consumption and the purpose
for which the energy was supplied.

(ii) that considerations like the power-factor were taken into H
944 SUPREME COURT REPORTS [1988] 3 S.C.R.

account in fixing the tariff. So far as the Indian Aluminium
A Company is concerned the power factor was 0.9 and they
were bound to maintain that rate whereas the appellant-
company was required to maintain the same at 0.85 as per
the agreement and it could go down to 0.80 which was
advantageous to the appellant-company.
B

On a consideration of the matter, it appears to us that the charge
of discrimination against the respondent-Board cannot be said to be
established. Indeed in the present case, the appellant has not laid a
proper foundation for examination of a case of discrimination under
Article 14. The allegations of discrimination must be specific. (See
c AIR 1986 SC 1466 para 12-State of Maharashtra and Anr. v. Basanti-
lalMohanlal Khetan and Ors.) It is also trite that action of Governmen-
tal authorities must be presumed to be reasonable and in public
interest. It is for the person assailing it to plead and prove the con-
trary. (See Kasturi Lal Lakshmi Reddy v. State of J & K, [1980] 3 SCR
D 1338 at 1357). But here allegations are in general terms. Even so, the
respondent-board has made categorical statement that in all those
cases referred to in para 6 of the appellant's reply affidavit, tariff had
been increased except where the consumer had the protection of an
agreement under Sec. 49(3) which prevented an unilateral increase. i
E
That apart the circumstance that respondent Board was ren-
dered, by virtue of the subsistence of an agreement under Sec. 49(3),
powerless to make an unilateral increase, can form a valid ground for
differential treatment as between cases covered by Section 49(3) on
the one hand and those in which the Board was competent and was at y
F liberty to give effect to the increase, on the other. In Bisra Stone Lime
Co. v. Orissa State Electricity Board, [1976] 2 SCR 307 at 314, this
Court, in similar context, held:

" . . . . . . . . . . A plea of discrimination which is available
when Article 14 is in free play is not at par with the in-
G terdict of 'undue favour' under section 49 of the Act. Apart
from this, when Jaw makes it abligatory for certain special
agreements to continue in full force during their currency
stultifying the power of the Board to revise the rates during
the period, no ground of discrimination can be made out on
the score of exempting such industries as are goverened by
H special agreements."
FERTILIZERS & CHEMICALS v. K.S.E.B. [VENKATACHAL!AH, J.] 945

Accordingly, contention (b) also fails. A

In the result, for the foregoing reasons, this appeal fails and is
dismissed, but without an order as to costs.

N.V.K. Appeal dismissed.
B