Holding

Conditions imposed on a sanction‑holder are contractual, the 60‑day notice is not mandatory, and State Government approval can be retrospective, thereby validating the tariff revisions.

Summary

Graphite India Ltd. obtained electricity from Durgapur Projects Ltd. (DPL), a sanction‑holder under Section 28 of the Electricity Act, 1910. DPL revised its tariff in 1991, 1993 and 1995, giving only a two‑day short notice and seeking State Government approval after the fact; Graphite challenged the revisions in three writ petitions. The High Court allowed the petitions, holding the revisions violated Section 57 of the Electricity (Supply) Act, 1948 and Schedule VI, but the Division Bench reversed that decision. The Supreme Court held that the conditions imposed on a sanction‑holder are contractual, not statutory, so the 60‑day notice requirement is not mandatory and State approval can be given retrospectively, validating the tariff from the date of revision. The Court also ruled that the burden of proving excess of reasonable return lies on the challenger, which Graphite failed to discharge. Consequently, the appeals were dismissed and Graphite was ordered to pay the differential tariff and interest.

Issues considered

The nature of conditions imposed on a sanction‑holder under Section 28: contractual or statutory.
Whether the 60‑day notice provision in Schedule VI of the Electricity (Supply) Act is mandatory for a sanction‑holder.
Whether State Government approval of tariff revision can be given retrospectively and bind the date of increase.
Whether the burden of proving that the revised tariff exceeds reasonable return lies on the appellant.
Whether the Sixth Schedule of the Electricity (Supply) Act applies to a sanction‑holder.

Legislation cited

Electricity Act, 1910s. 28, s. 29, s. 2(h), s. 3, s. 41
Electricity (Supply) Act, 1948s. 2(6), s. 57, s. 57A, s. Schedule VI

Subjects

electricity tariffsanction holderlicenseeSixth Scheduleretrospective approvalnotice periodreasonable returncontractual vs statutory

Judgment

A GRAPHITE INDIA LTD. AND ANR.
v.
DURGAPUR PROJECTS LTD. AND ANR.

AUGUST 27, 1999

B [D.P. WADHWA AND M.B. SHAH, JJ.J

Electricity Act, 1910-Sections 2(h), 3, 28, 29 and 41-Sanction holder
for supply of electricity-Revision in tariff-Conditions prescribed while
C granting sanction-Conformity with Sixth Schedule to Supply Act and
approval of State Government-Whether conditions imposed are contractual
or statutory-Held, conditions imposed upon sanction holder are contractual
and not statutory-Schedule VI prescribing sixty days notice-Whether
mandatory for sanction holder-Held requirement of sixty days notice to the
State Government is not mandatory sin~e it is contractual and can be varied
D or waived by the Government-Notice for revision issued to State
Government-Tariff revised after expiry of notice period pending approva/-
Approva/ coming afterwards-Effect of -Held, the approval relates back to ,.._
the date of revision and all acts or actions taken in anticipation of approval
get validated-Licensee under Part-II. of Electricity Act fvcing and adjusting
E rates in terms of the Sixth Schedule is not bound to obtain any approval by
the State Government- "License" would not mean sanction as we/1-
Electricity (Supply) Act, 1948-Sections 2(6), 41, 57, 57-A and Schedule VI

Electricity (Supply) Act, 1948-Sections 2(6), 57, Schedule V/-
Licensee-Scope of-Held whenever the word 'licensee' is used in the Supply
F Act it would not also include the sanction holder-Sanction holder cannot
be equated with a licensee under Part-II of the Electricity Act-Electricity
Act, 1910-Section 28.

Electricity (Supply) Act, 1948-Schedule VI-Electric Supply-Revision
in tariff by Licensee-Challenged-Burden of proof-Held, the party
G challenging should prove that the charges exceed the amount of reasonable
return.

Respondent No. 1 was granted sanction by Respondent No.2, State of
West Bengal, under section 28(1) of the Indian Electricity Act, 1910 to
engage in the business of supplying energy to the public in accordance with
H specified conditions. Respondent No. 1 was supplying energy to the appellant
16
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. 17
/

under an agreement It wrote a letter to the State Government on February A
9, 1991 to accord necessary approval to the revision in tariff from April, 8,
... 1991 and also addressed a letter to the appellant on February 7, 1991
informing it about the increase in tariff. Appellant filed a writ petition in the
High Court challenging the revision in tariff. The State vide its communication
dated April 27, 1992 granted approval to the increase in tariffwith effect
from April 8, 1991. While the writ petition was pending, respondent no. 1
B
again revised its tariff in 1993 and 1995 which resulted in the appellant
filing two more writ petitions challenging the further revisions in tariff.
Single Judge by a common order allowed all the three writ petitions on the
ground that the notice of enhancements and the enhancement of tariff were
contrary to the provisions of Section 57 of the Electricity (Supply) Act, 1948 c
read with the statutory requirements of Schedule VI of that Act Against the
Order of the Single Judge, appeal filed by Respondent No. 1 was allowed by
the Division Bench. Against the order of the Division Bench, appellants have
filed the present appeal.

Appellants contended that the agreement between the respondent Nos. D
1 and 2 provided a condition that rates of electricity had to be fixed in
- conformity with the provisions of the Sixth Schedule to the Supply Act and
with the approval of the State Government and this condition was contravened
in revising the tariff; that "Licensee" would include sanction holder in view
of the definition givi:n in Section 2(6) of the Supply Act and by virtue of
E
Section 57 of the Supply Act, Sixth Schedule is incorporated in the license
of a licensee and compliance with the Sixth Schedule is thus by force of law
an obligation of the sanction holder; that relevant consideration for revision
in tariff that revised charges should not exceed the amount of reasonable
profit was not considered and extraneous consideration like tariff fixed by
WBSEB was taken into account. For the first writ petition where revision F
in tariff was effected in 1991, it was further contended by the appellant that
60 days clear notice to the State before revision is effected was not given
which is mandatory and cannot be waived; that there was no approval of the
State before the increase was effected; and that approval cannot be given
retrospectively after the increase.
..,, G
Respondent No. 1 contended that approval subsequently given by the
State vide its communication dated 27.4.1992 would date back to the date of
request The State contended that the provisions of Section 57 and the Sixth
Schedule of the Supply Act do not statutorily apply to a sanction holder under
Section 28 of the Electricity Act which falls under Part-Ill of the Act and H
18 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A applies to non-licensees, and the applicability of Sixth Schedule is only
contractual; that the provision for giving 60 days notice is procedural and
-
not mandatory; that prior approval of the State Government is not necessary
and once approval is given it relates back to the date of increase in the tariff
and ratifies all actions taken in contemplation of the approval; that letter of
the State Government dated August 29, 1986 contained guidelines that for
B uniformity, its tariff should be fixed in the lines of West Bengal State
Electricity Board (WBSEB) rates; that consideration of WBSEB's tariff is
not an extraneous matter; that State Government has power to amend or add
to the conditions of sanction order; that there is no allegation that it is
exceeding tariff rate of the WBSEB or that it is making a clear profit in
c excess of 20% of the reasonable profit; that for the tariff revisions in 1993
and 1995, notices were duly served an~ approval obtained; that the appellant
had failed to discharge its burden of proof; and that there was proper
application of mind by the State in approving the tariff.

Dismissing the appeals, the Court
b
HELD: 1.1. When approval was granted by the State Government by its
letter dated April 27, 1992 the approval relates back and the revision would
be effective from April 8, 1991. It is difficult to accept the argument that the
letter dated April 27, 1992 is not an approval of the increase in tariff
-
effective from April 8, 1991. [37-B]
E
UP. Avas Evam Vikas Parishad and Anr. v. Friends Co-op. Housing
Society Ltd and Anr., [1995) Supp. 3 SCC 456, relied on.

1.2. It is also difficult to accept the argument that unless approval is
granted there cannot be any revision in tariff. It is not the requirement of
F law even if Sixth Schedule of Supply Act is held to be applicable that approval
has to be granted within 60 days of the notice given to the State Government.
That revision can certainly become applicable after the expiry of the period
of 60 days. If approval is not granted, the increased charges paid by the
consumer are liable to be adjusted/refunded. [37-E-F] <t
G 2.1. Supply of-electric energy is governed by two statues i.e., the Indian · -~

Electricity Act, 1910 and the Eiectricity (Supply) Act, 1948. While the
Electricity Act deals with the supply and use of electrical energy and the
rights and obligations of licensee and the sanction holder under Part-ID of
the Act, the Supply Act deals with the statutory powers and functions of the
H Central Electricity Authority, State Electricity Boards and generating
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. 19
companies and also provides for fixi"lg of charges to the consumers of A
energy by the licensee. Section 2(6) of the Supply Act defines licensee to
mean a person licensed under Part-Il of the Electricity Act and also a person
who has obtained sanction under Section 28 of that Act. However, it is not
that whenever the word 'licensee' bas been used in the Supply Act it would
also include the sanction-bolder. Section 57 of the Supply Act providei that B
Sixth Schedule shall be deemed to be incorporated in the license of every
licensee, not being a local authority and that would be notwithstanding
anything contained in any provision of the Electricity Act or terms of the
license granted to him under that Act or under any other law. Sixth Schedule
of the Supply Act bas thus over-riding effect. Sixth Schedule uses the
expression 'license' in its various clauses. But then the terms 'license' and C
'sanction' have not been defined. It would be difficult to bold that 'license'
would mean 'sanction' as well. [38-D-E; 39-A-B)

2.2. A person to whom sanction bas been granted under Section 28 of
the Electricity Act cannot exercise all the powers of a licensee under that
Act. The powers to be exercised by bolder of sanction are specifically mentioned D

- under the Act. Reference may be made to Section 29 of the Electricity Act.
Under it, the local authority may confer and impose upon a sanction bolder
all or any of the powers and liabilities of a licensee under Sections 12 to 19,
and the provisions of the said sections shall thereupon apply as if such
,~
sanction bolder was a licensee under Part-II oftbe Act. It is thus, apparent E
that a sanction bolder under Section 28 of the Electricity Act cannot be
equated with a licensee under Part-II of that Act. [40-H; 41-A-B)

3. Sanction was granted to Respondent No. 1 in the year 1964; much
after the coming into force oftbe Supply Act and it was specifically mentioned
in clause 5 of the conditions that certain provisions of the Electricity Act F
would apply and clause 6 provided that the rates for supply of energy shall
be fixed and adjusted from time to time in conformity with the provisions of
the Sixth Schedule to the Supply Act and with the approval of the State
Government. If Sixth Schedule was applicable to a sanction bolder under
Section 28 of the Electricity Act there was no occasion for 'the State G
·Government to mention that rates would be fixed and adjusted in conformity
with the Sixth Schedule. Moreover, when a licensee under Part-II fixes and

-- adjusts the rates in terms of the Sixth Schedule he is not required to obtain
any approval by the State Government. Rather power under paragraph (1) of
the Sixth Schedule would justify enhancement of the rate beyond that fixed
earlier by the licensee or by any order of the State Government. Though a H
20 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A sanction holder is bound to seek approval of the rates from the State
Government there is no such limitation on a licensee. This term would show
that conditions imposed by the State Government to a sanction-holder under
Section 28 of the Electricity Act are· cQDtractual in nature and are not
statutory. (39-C-F)

B 4. Under Section 57ofthe Supply Act the Sixth Schedule is applicable
to a licensee. This Schedule has been made applicable to a sanction holder .
under the terms of the sanction. Third proviso to the Sixth Schedule provides
that the licensee shall not enhance the charges for the supply of electricity
until after the expiry of a notice in writing-of not less than sixty clear days
C of his intention to so enhance the cha!"~_es, given by him to the State
Government and to the State Electricity Board. There is no question of any
approval to be given by the State Government to the licensee. When notice
of enhancement of charges is given in the case of sanction holder under the
terms of the sanction, approval of the State GoverDlllent is required. The bar
in the proviso is only to the extent that enhanced charges may not be levied
D till after the expiry of sixty days notice to t~f Government. It is not that the
State Government is required to grant its approval within 60 days period. As
far as sanction holder is concern~d, re<iufrement of notice and approval by
the State Government are not statutory conditions. These are contractual
·-
and could be varied or waived by the State Government. Conditions have been
E imposed by the State Government and not by virtue of any statute. State
Government has not insisted of notice being less than 60 days. It would
therefore, appear that the requirement of sixty days notice to the State
Government is not mandatory. (41-C-HJ

State Bank of Patiala & Ors. v. S.K. Sharma, (1996) 3 SCC 364 and
F Rajendra Singh v. State of MP. & Ors., (1996) 5 SCC 460, relied on.

5. In the letter dated February 9, 1991 to the State Government seeking
revision in tariff, Respondent No. 1 mentioned that the tariff was last revised
for all categories of consumers w.e.f; August 1, 1988 and thereafter the cost
C? of operation of maintenance of power plant has increased considerably. T ..e
revenue derived by the company from the.existing tariff has been found to
be quite inadequate to absorb spiralling cost and expenses. The State

H
Government was also informed that it had approved revision in tariff by the
WBSEB w.e.f. March 1, 1991 and WBSEB has published a notification in the
press announcing "revision in their rates and charges. It was further pointed
out that the State Government by its letter dated August 29, 1986 had
-
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHW A, J.] 21

directed that the power tariff of Respondent No. 1 should be fixed in line with A
that of the WBSEB for the purpose of uniformity. In the letter seeking tariff
revision for the year 1993-1994, details were given as to how revision in
tariff bas been necessitated. The appellant bas failed to show that the charges
enhanced by Respondent no. 1 exceed the amount of reasonable return as
required under clause (1) of the Sixth Schedule. It is certainly a relevant
consideration for Respondent No. 1 to fix its tariff in line with the WBSEB B
for the purpose of uniformity unless it is shown that tariff revision has
contravened the provisions of the Sixth Schedule. [42-B-F]

The Amalgamated Electricity Co. Ltd. v. N.S. Bhathena and Anr., [1964)
7 SCR 503, relied on. C
Hindustan Zinc Ltd etc. v. Andhra Pradesh States Electricity Board &
Ors., [1991) 3 SCC 299; Shri Malaprabha Co-op. Sugar Factory Ltd v.
Union of India & Anr., [1994) 1 SCC 648 and Poona Electric Supply Co.
Ltd Bombay v. Commissioner of Income Tax, Bombay City I, Bombay, AIR
(1966) sc30, cited. D

-- 1999.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4750-52 of

From the Judgment and Order dated 3.6.98 of the Calcutta High Court
in A.P.O. No. 709-710/97, 713/97 in M. No. 801/95, 2918/93 and 4955of1991. E
Dipankar P. Gupta, Mrs. Roopa Seth Mitra, Ms. Gouri Rasgotra and
Suman J.Khaitan for the Appellants.

V.R. Reddy, H.K. Puri, S.K. Puri, Rajesh Srivastava, U.ijwal Banerjee and
Joydeep Kar for the Respondent for State of W.B.
F
Anand A. Mitra, Bhaskar Mitra, H.K. Puri, S.K. Puri, Rajesh Srivastava
and U.ijwal Banerjee for (the W.B.S.E.B.) Respondent.

Rana Mukherjee and Ms. Sumita Mukherjee for the Respondent No. 4.

A.K. Mitra, B.Mitra and.H.K.Puri for the Respondent in D.P.L. G

- The Judgment of the Court was delivered by

D.P. W ADHWA, J. Leave granted.

The appellant Graphite India Ltd. ('Graphite' for short) was getting H
(-
22 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A electricity supply for its project from respondent Durgapur Projects Ltd.
('DPL' for short). Graphite challenged the increase in tariff by filing three
successive writ petitions in the Calcutta High Court. The learned single Judge
of the High Court allowed the writ petitions holding that the enhancement of
tariff and the notices of enhancement issued by DPL for fixation of electricity
B tariff were contrary to the provisions of Section 57 of the Electricity (Supply)
Act, 1948 ('Supply Act' for short) read with the statutory requirements of
Schedule VI of that Act. Against that judgment of the learned single Judge
DPL filed an appeal before the Division Bench of the High Court which was
allowed by the iinpugned judgment dated June 3, 1998. Writ petitions filed by
Graphite were dismissed. Aggrieved Graphite has come to this Court.
c Facts are not much in dispute. DPL w~ granted sanction by the State
of West Bengal under Section 28(1) of the Indian Electricity Act, 1910
('Electricity Act' for short) by order dated August 28, 1964 to engage in the
business of supplying energy to the public in accordance with the conditions
specified therein. Conditions 5, 6 and 9 are relevant and are as under:
D
"Now, therefore, in exercise of the power concerned by sub-section
(I) of section 28 of the Indian Electricity Act, 1910 (Act 9of1910),
the Government is pleased, after consulting the West Bengal State
--
Electricity Board and with the consent of the local authorities concerned
namely, the Faridpur Union Board, Durgapur Union Board, Gopalpur ._
E Union Board and Jomua Union Board, to give the said Durgapur
Projects Limited (hereafter referred to as the sanction-holder), sanction
to engage in the business of supplying energy within the said area,
subject to the following conditions:

(5) that the provisions of section 11, section 17, section 18 sub-
F section (I) and (4) of section 21, section 24 and section 26 of
the Indian Electricity Act, 1910 (Act 9of1910) and the provisions
of the Indian Electricity Rules, 1956, shall apply as if the sanction-
holders were licensees;
(6) that the rates per unit for supply of energy shall be fixed and
G adjusted from time to time in conformity with the provisions laid
down to the Sixth Schedule to the Electricity (Supply) Act, 1948,
and with the approval of the State Government;
(9) that the sanction hereby given shall be liable to be rescinded or
revoked in case the sanction-holders fail to supply energy
H efficiently and satisfactorily. or fail to comply with any of the
GRAPHITE INDIA LTD. v. DURGAPURPROJECTS LTD. [D.P. WADHWA,J.] 23
conditions on which this sanction is granted;" A
DPL entered into agreement with Graphite for supply of energy to it
which agreement was renewed from time to time, the last on record being
effective from January 21, 1984. Clause 30 of the Agreement is relevant for
our purpose, which is as under:
B
"30. This agreement shall be read and construed as subject in all
respects to the provisions of the Indian Electricity Act, 1910 and the
Electricity (Supply) Act, 1948 and of the Rules for the time being in
force thereunder, so far as the same respectively may be applicable."

On February 9, 1991 DPL wrote to the State Government to accord the C
necessary approval to the revision in the rates and charges, details of which
were given in the statement annexed with the letter for supply of power to
certain categories of consumers w.e.f. April 8, 1991. However, to the Graphite
a letter was addressed on February 7, 1991 informing it of the increase in the
tariff to certain categories of consumers w.e.f. April 8, 1991. Graphite was told D
that all consumption of electricity commencing from the date of first meter
reading taken on April 8, 1991 or thereafter shall be charged in accordance
with the revised rates and charges in supersession of the existing rates and
charges. Graphite fell in the category (Rate 'A' for industrial consumers)
where increase in tariff was applicable. Graphite protested and when DPL
threatened to disconnect the supply of electricity Graphite filed a writ petition E
on October 10, 1991 in the High Court. While the writ petition was pending
DPL again revised its tariff in 1993 (w.e.f. November 1, 1993) and 1995 (w.e.f.
February 10, 1995). This led the Graphite to file two more writ petitions in the
High Court cbaJlenging further revision in tariff. All these three writ petitions
were aJlowed by a common order ofleamed Single Judge on October 3, 1997.
As noted above on appeaJ filed by DPL the Division Bench of the High Court F
set aside the order of the learned single Judge and dismissed the writ petitions.

In the present appeaJ filed by Graphite there are four respondents,
namely, (1) Durgapur Projects Ltd., (2) State of West Benga1, (3) The Secretary
and Controller of Finance and Accounts, Durgapur Projects Ltd. and (4) G
Damodar VaJly Corporation. DPL and the State of West ·aengaJ are the
contesting respondents.

Before we consider tbe rivaJ contentions of the parties it may be
·· appropriate to set out the relevant provisions of the Acts which bear upon
the controversy in the appeaJ: H
24 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A The Indian Electricity Act, 1910

Part 1

"2. Definitions-In this Act, expressions defined in the Indian
Telegraph Act, I 885 (13 of I 885) or in the Electricity (Supply) Act,
B 1948 (54 of 1948), have the meanings assigned to them in either of
those Acts, and unless there is anything repugnant in the subject or
context,

(h) "licensee" means any person licensed under Part II to supply
energy;"
c Part II

"3. Grant of licenses - (I) The State Government may, on application
made in the prescribed form and on payment of the prescribed fee (if
any) want after consulting the State Electricity Board, a license to any
person to supply energy in any specified area, and also to lay down
D or place electric supply-lines for the conveyance and transmission of
/

energy,

(a) where the energy to be supplied is to be generated outside such
·l
area, from a generating station situated outside such area to the
boundary of such area, or
E
(b) where energy is to be conveyed or transmitted from any place in
such area to any other place therein, across an intervening area not
included therein, across such area.
(2) In respect of every such license and the grant thereof the following
F provisions shall have effect, namely:

(a) ....... .

(b) ....... .

(c) ········
G
(d) ....... .

(e) the grant of a license under this Part for any purpose shall not in
any way hinder or restrict the grant of license to another person
within the same area of supply for a like purpose;
H (f) the provisions contained in the Schedule shall be deemed to be
GRAPHITE INDIA LTD. v. DURGAPURPROJECTS LTD. [D.P. WADHWA,J.] 25
incorporated with and to form part of, every license granted under this A
Part, save in so far as they are expressly added to, varied or excepted
by the license, and shall, subject to any such additions, variations or
exceptions which the State Government is hereby empowered to make,
apply to the undertaking authorised by the licensee:
Provided that where a license is granted in accordance with the B
provisions of clause IX of the Schedule for the supply of energy to other
licensees for distribution by them, then, in so far as such license relates to
such supply, the provisions of clauses IV, V, VI, VII, VIII and XII of the
Schedule shall not be deemed to be incorporated wi~ the license."

Part Ill c
"28. Sanction required by non-licensees in certain cases - (1) No person,

- other than a licensee, shall engage in the business of supplying energy to
the public except with the previous sanction o(the State Government and in
accordance with such conditions as the State Government may fix in this
behalf, and any agreement to the contrary shall be void. D
(IA) The State Government shall not give any sanction under sub-
section (1)-
(a) except after consulting the State Electricity Board; and
(b) except with the consent - E
(i) in any case where energy is to be supplied in any area for which
a local authority is constituted, of that local authority;

(iJ) in any case where energy is to be supplied in any area forming
part of any cantonment, aerodrome, fortress, arsenal, dockyard F
or camp or of any building or place in the occupation of the
Government for defence purposes, of the Central Government;

(fu) in any area falling within the area of supply of a licensee, of that
licensee:

Provided that except in a case falling under sub-clause (ii), no such G
consent shall be necessary if the State Government is satisfied that
such consent has been unreasonably withheld.

(2) ......... "

The Electricity (Supply) Act, 1948 H
26 SUPREME COURT REPORTS [1999} SUPP. 2 S.C.R.

A "2. Interpretation

In this Act, unless there is anything repugnant in the subject or ·
context,
(6) "licensee" means a person licensed under Part II of the Indian
Electricity Act, 1910, (9 of 1910) to supply energy or a person
B
who has obtained sanction under section 28 of that Act to
engage in the business of supplying energy but the provisions
of section 26 or 26A of this Act notwithstanding, does not
include the Board or a generating company;"

c "57. Licensee's charges to consumers

The provisions of the Sixth Schedule shall be deemed to be ·-
I

incorporated in the license of every licensee, not being/a local authority-

(a) in the case ofa license granted before the commencement of this
'

-
Act, from the date of the commence~ent of the licensee's next
D
succeeding year of account; and

(b) in the case of a license granted after the commencement of this
Act, from the date of the commencement of supply,

and as from said date, the licensee shall comply with the provisons
E
of the said schedule accordingly and any provisions of the Indian
Electricity Act, 1910 (9 of 1910) and the license granted to him
thereunder and of any other law, agreement or instrument applicable
to the licensee shall, in relation to the licensee, be void and of no
effect in so far as they are inconsistent with the provisions of section
F 57A and the said Schedule.

57A. Rating Committees
l
(I) Where the provisions of the Sixth Schedule are under section 57
deemed to be mcorporated in the license of any licensee, the following
G provisions shall have effect in relation to the said licensee, namely -

(a) the Board or where no Board is constituted under this Act, the
State Government-

(i) may, if satisfied, that the licensee has failed to comply with any
H of the provisions of the Sixth schedule; and
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHWA, J.] 27

(it) shall, when so requested by the licensee in writing, constitute A
a rating committee to examine the licensee's charges for the
supply of electricity and to make recommendations in that behalf
to the State Government:"

SCHEDULE VI
B
FINANCIAL PRINCIPLES AND THEIR APPLICATION

"1. Notwithstanding anything contained in the Indian Electricity Act,
1910 (9 of 1910), except sub-section (2) of section 22A, and the
provisions in the license of a licensee, the licensee shall so adjust his
charges for the sale of electricity whether by enhancing or reducing C
them that his clear profit in any year of account shall not, as far as
possible, exceed the amount of reasonable return:

PROVIDED that such charges shall not be enhanced more than once
in any year of account:

PROVIDED FURTHER that the licensee shall not be deemed to have D
failed so to adjust his charges if the clear profit in any year of account
has not exceeded the amount of reasonable return by twenty per
centum of the amount of reasonable return:

PROVIDED FURTHER that the licensee shall not enhance the charges E
for the supply of electricity until after the expiry of a notice in writing
of not less than sixty clear day§ of his intention to so enhance the
charges, given by him to the State Government and to tlie Board:

PROVIDED ALSO that if the charges of supply fixed in pursuance of
the recommendations of a rating comniittee constituted under section F
57A are lower than those notified by the licensee under and in
accordance with the preceding proviso, the licensee shall refund to
the consumers the excess amount recovered by him from them:

PROVIDED ALSO that nothing in this schedule shall be deemed to
prevent a licensee from levying, with the previous approval of the G
State Government, minimum charges for supply of electricity for any
purpose.

1A. The notice referred to in the third proviso to paragraph I shall be
accompanied by such f'mancial and technical date in support of the
proposed enhancement of charges as the State Government may, by H
28 SUPREME COURT REPORTS [1999] SUPP. 2 RC.R.

A general or special order, specify."

There are various clauses in this Schedule defining capital base, clear
profit, debenture capital, intangible assets, ordinary capital, original cost,
preference capital, reasonable return, standard rate, etc. all for adjusting the
charges for sale of electricity to match with reasonable return.
B
There is an earlier letter dated August 29, 1986 from State Government
to DPL whereby approval for enhancement of tariff in 1986 was granted and
it was suggested that DPL tariff should be fixed in the lines of West Bengal
State Electricity Board (WBSEB) rates. This letter we reproduce as under:
"Sir
c
I am directed to refer to your letter No. COM/Tariff/1-2025 dated
24.4.86 on the above subject and to say that the matter was taken up
with the Power Deptt. of this Govt. for concurrence to the enhancement
ofDPL's tariff from L7.86. The Deptt. has since suggested that for the
D sake of uniformity DPL's tariff should be fixed in the lines ofWBSEB's
rates which have been revised from July, 1986. Power Deptt.'s original
letter No. 404-Power/III dated 22.5.86 to the Secretary, WBSEB
containing the revised tariff rates of WBSEB has been made over to
you which may be returned along with the reply. An extract of the
Power Deptt's note in this regard is enclosed. I am now to request you
E kindly to let this Deptt. have your views as to whether the proposed
revision will meet the requirement of DPL."

Mr. Dipankar Gupta, learned counsel for the Graphite made the following
submissions:

F l. DPL is a sanction-holder under Section 28 of the Electricity Act.
D_~L is thus permitted to engage in the business of supplying
energy to the public "in accordance with such conditions as the
State Government may fix in this behalf'. Reference may be made
to condition No. 6 imposed by the State Government granting
sanction to DPL by order dated August 28, 1964. Rates of
G ele.ctricity have thus to be fixed in conformity with the provisions
of the Sixth Schedule to the Supply Act and with the approval
of the State Government. DPL in revising the tariff has
contravened condition No. 6.
2 Language of Sixth Schedule to Supply Act casts an obligation
H upon the "licensee" to adjust his charges in a particular manner
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHWA, J.] 29

- but shall not "exceed the amount of reasonable return".
"Licensee" would include sanction-holder in view of the definition
given in Section 2(6) of the Supply Act. Alternatively, even
otherwise the Sixth Schedule of the Supply Act is incorporated
in the "license of every licensee" by virtue of Section 57 of that
A

.. Act and since the definition "licensee" includes a sanction-
holder the phrase "license of every licensee" would make the
terms and conditions of the Sixth Schedule applicable to sanction
as well. Compliance with the Sixth Schedule is thus by force of
law an obligation of the sanction-holder. Sixth Schedule has
been devised to. be a financial discipline of the supplier of
B

energy and a protective provision for the consumer. A consumer c
whether falling within the area of a "licensee" or of a sanction-
holder should not be exposed to different considerations so far
as tariff fixation is concerned. It is the obligation of the sanction-
holder before revising the tariff to comply with the provisions
of the Sixth Schedule and to obtain approval of the State
Government. D
3. 60 days clear notice to the State Government before tariff revision
is effected, is mandatory. This provision, which is conceived for

- the benefit of the consumer and in the public interest, has to be
held as mandatory and cannot be waived. This provision is not
for the "benefit" of the State Government. It is to enable the E
State Government to examine the issue of tariff revision. State
Government can complete its examination in a shorter period
than 60 days and grant approval but it cannot waive that notice
can be for a period less than 60 days. Admittedly while effecting
first revision in tariff 60 days notice was not given to the State F
Government. A question also arises whether there was any
approval of the State Government to the proposed increase
sought by the notice dated February 9, 1991.
4. Communication of the State Government dated April 27, 1992
though it grants approval to the increase with effect from April
G
8, 1991 is of no effect. Approval could not be given
retrospectively more than a year after the increase. This letter
dated April 27, 1992 of the State Government merely states that
rate 'A' (for industrial consumer) had already been increased
with effect from April 8, 1991 and the approval was with regard
to other categories which had been left out during April 8, 1991 H
30 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A revision of tariff. There is nothing to indicate that the State
Government ever applied its mind to the revision effective from
April 8, 1991 and granted its approval. Letter dated April 27, J992
is not an approval of the increase in tariff with effect from April
8, 1991. In any case DPL could not have effected tariff revision
without prior approval which came only on April 27, 1992.
B
5. When DPL wrote letter dated February 9, 1991 seeking approval
of the State Government the only reason for the revision indicated
was that there was a direction of the State Government that
DPL's power tariff should be fixed in the line with WBSEB for
the purpose of uniformity. This is an extraneous consideration
c and contrary to requirements of Sixth Schedule of the Supply
Act. Sixth Schedule provides certain accounting procedure, which,
on the face of it, must relate to the individual supply company
whose tariffs are under consideration. The accounting inputs /
can never be the same for two suppliers. Since the relevant
D conditions ·have been ignored and extraneous considerations·
have been relied upon the tariff revision with effect from April
8, 1991 is vitiated.
6. The word "shall" in the third proviso to Sixth Schedule is
mandatory and it is wrong to contend that it is not mandatory
E and the mere use of the word "shall" is not decisive factor in
deciding whether a provision is mandatory or directory. The
provisions contained in the Sixth Schedule are for the benefit of
the consumers and the Government is to act as a watch dog for
their benefit in order to ensure that the enhancement of tariff is
made within the parameters as laid down in the Sixth Schedule
F and that it is not framed in a manner which is arbitrary and
unreasonable. Provisions contained in Sixth Schedule are made
for public good and cannot be waived by the person proceeded
against. It has been held that in case of failure to observe
procedural provision which is of mandatory character it has to
G be ascertained whether the provision is conceived in the interest
of the person proceeded against or in public interest. In these
circumstances the third proviso to Sixth Schedule is a provision
of mandatory nature and the State Government cannot waive the
requirement of the notice. It has been rightly observed by the
learned single Judge that the notice dated April 9, 1991 by DPL
H to the State Government is also not in conformity with para (IA)
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHW A, J.] 31
of the Sixth Schedule. Reliance has been placed on two decisions A,
of this Court in State Bank of Patiala and Ors. v. SK. Sharma,
(1996] 3 SCC 364 and Rajendra Singh v. State ofMP., (1996] 5
SCC460.
7. Object of Section 57 of the Sixth Schedule is to protect the
consumer from arbitrary enhancement of rate for supply of B
electricity. Reliance has been placed on a decision of this Court
in Poona Electric Supply Co. Ltd., Bombay v. Commissioner of
Income-tax, Bombay City I, Bombay, AIR (1966) SC 30. Any
objection to the legality of the price and rate fixation is not
beyond challenge as court is always entitled to go into the
question and ascertain whether the price or rate fixation is valid C
or not. Reference has been made to a decision of this Court in
Shri Malaprabha Coop. Sugar Factory Ltd v. Union of India
and Anr., (1994] 1 SCC 648, which was a case of price fixation
under the Essential Commodity Act.

All these objections have been to the revision in tariff in 1991. In D
respect of tariff revisions in 1993 and 1995 Mr. Gupta submitted that though
for both these enhancement and revision notices were given by DPL to the
State Government and approval obtained, the enhancement was ex-facie illegal
and without jurisdiction and arbitrary inasmuch as revision was not in
accordance with the provisions contained in the Sixth Schedule to the Supply E
Act. He said there has been no consideration of relevant material and reliance
was placed upon extraneous considerations as in the case of first revision in
1991. He said second and third revisions in 1993 and 1995 are consequently
also vitiated.

Mr. A.K. Mitra, learned counsel appearing for DPL in reply referred to F
a decision of this Court in UP. Avas Evam Vikas Parishad and Anr. v. Friends
Coop. Housing Society Ltd and Anr., [ 1995] Supp. 3 SCC 456. This he said
was an authority for the proposition that approval subsequently given can
date back to the date of the request. He also said that in the first writ petition
there was no· challenge to the tariff revision on the ground of non-application G
of mind and it was only when the counter affidavit of the State Government
dated January l 0, 1992 mentioned that the approval had not been given that
this ground of non- application of mind was advanced in two subsequent writ
petitions.

Mr. V.R. Reddy, appearing for the State of West Bengal supported the H
32 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A impugned judgment of the Division Bench of the High Court. His submissions
are summarised. as under :

I. DPL is a wholly owned Government company of the State of
West Bengal. It has been granted sanction under Section 28 of
the Electricity Act. DPL is not a license holder under clause (h)
B of Section 2 of Electricity Act. It has no licence under Part II of
that Act. Section 28 under which sanction has been accorded to
DPL falls under Part III of the Act which applies to non-licensees.
Although under Section 2(6) of the Supply Act DPL becomes a
licensee for the purpose of said Act but that Act does not define
c the term "license" nor does it prescribe that sanction under
Section 28 of the Electricity Act shall be treated as license.
Definition of the "license" as given in Section 2(6) of the Supply
Act has to be read as such unless there is anything repugnant
in the subject or context. By virtue of Section 57 of the Supply
Act Sixth Schedule is incorporated in the license of a licensee.
D Since DPL is not a holder of license the question of incorporation
into the license of Sixth Schedule does not arise. Provisions of .,,...._
Section 57 and the Sixth Schedule do not apply to a sanction-
holder under Section 28 of the Electricity Act. These will not,
0 therefore, apply to DPL.
t
J.-
E
2 Clause (5) of the sanction order dated August 28, 1964
incorporates certain sections of the Electricity Act and Indian
Electricity Rules, 1956 to the sanction-holders as if they were
licensees. Section 57 of the Supply Act and the Sixth Schedule
thereto are not even made applicable to DPL. However, clause
F (6) of the sanction order directs that DPL shall fix the tariff on
the principles enumerated in the Sixth Schedule. Applicability of
Sixth Schedule is not by virtue of iny statute but is contractual.
Sanction order itself provides for consequences of breach of the
provisions contained in the Sixth Schedule. Notice which was
given to the State Government for tariff revision in 1991 was
G
short by tWo days. Notices are to be given by the licensee to·
the State Government and to the Board under Sixth Schedule.
Revision of tariff becomes automatically effective on expiry of 60
days. There is no provision for subsequent refunecl·of excess if
the Rating Committee reduces the tariff as proposed by licensee.
H Fourth proviso of the Sixth Schedule giving 60 days notice is
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHWA, J.] 33

procedural and not mandatory. State Government accepted the A
short notice without objection and waived the shortness of two
days. It gave its approval to the first revision though
retrospectively. Consumer has no right to object that notice is
short. It is a matter for the State Government. The period of
notice is for the benefit of State Government and the Board. 60
days notice is not a condition precedent for revision of tari.{f B
becoming effective. Short term notice does not invalidate the
revision. 60 days notice was given to Graphite. Tariff revision
was not effected before the expiry of 60 days period. That
provision for notice is directory and not mandatory and that
substantial compliance would be enough and further mandatory c
provisions can be waived by the party concerned. R~ference
was made to a decision of this Court in State Bank of Patiala
and Ors. v. S.K. Sharma, [1996] 3 SCC 364.

3. Under the sanction order dated August 28, 1964 prior approval
of the State Government is not required for tariff revision. The D
expression of the approval of the State Government as appearing
in clause (6) of the sanction order does not mean that approval
should be taken before hand. There is difference between the
expressions "approval" and "permission" as held by this Court
in UP. Avas Evam Vikas Parishad & Anr. v. Friends Coop.
Housing Society Ltd & Anr., [1995] Suppl. 3 SCC 456. In that E
case this Court construed the expression "with the approval"
__ • and held that once approval is given, all the previous acts done
or action taken in anticipation of the approval get validated.

4. Under the Sixth Schedule of the Supply Act no approval of the
State Government is necessary at all. Approval of the. first F
revision granted by the State Government may be at a subsequent
stage but that ratified all actions taken by the DPL in
contemplation of the approva!.

5. Letter of the State Government dated August 29, 1986 contains
guidelines of the State Government that for uniformity DPL's
G
tariff should be fixed in the line of tariff of WBSEB. There is no
allegation that DPL is exceeding tariff rate of the WBSEB or that
DPL is making a clear profit in excess of20% of the reasonable
profit. DPL has been regularly suffering losses since 1989. It has
been pointed out in the affidavit of DPL in the High Court filed H
,_.,_,
34 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A in opposition in the second writ petition that DPL has been
meeting losses and there has been no denial of the said factual
statements. Relevant considerations were taken into account
and this has been explained in the counter affidavit filed by DPL.
6. State Government has power to amend or add to the conditiops
B of sanction order.

7. Consideration of WBSEB's tafiff is not an extraneous matter.
WBSEB is the main supplier of the electricity in the State of •
West Bengal. It is the undertaking of the State Government.
Tarift of WBSEB is comparable unit to decide upon
c responsibleness of tariff of DPL as the other similar supplier of
electricity in the State of West Bengal.

8. It is wrong to allege that there was non-application of mind by
the State in approving the tariff. There are no particulars alleged
by the Graphite to show that there was non-application of mind
D by the State Government. That there was application of mind by
the State Government as well as by DPL would appear from the
counter affidavit of the State Government and from the letter
dated April 27, 1992 approving the enhancement of the tariff by
State Government and by DPL by its letter dated February 9,
1991 and 405th meeting of the Board of Directors of DPL held
E
on December 13, 1991. The very fact that the State Government
reduced the tariff proposed by DPL to L.T. consumers showed
application of mind by the State Government.

9. There is no allegation that the tariff of DPL exceeds that of
F WBSEB at the relevant times. In fact it was less at various times.

10. In the second and third writ petitions admittedly for tariff revision
notices were duly served and approval obtained. There is no
allegation in the writ petitions that on account of tariff revisions
DPL was making clear profits on electricity account or more than
20% of the reasonable return. Rather fact remains that DPL was
.....
G
suffering losses on electricity account during the relevant times.
From the year-wise losses of DPL it would appear that DPL was
continuously suffering losses in the years 1992 to 1996. There
is no denial of the said factual statement. From the affidavits
filed by the State Government as well as by DPL it is apparent
H that the revision of tariff was made in accordance with law.
- GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P WADHW A, J.] 35
11. Burden of proof that the revision in tariff was not in accordance A
with law was on the Graphite, which it has failed to discharge
(see. The Amalgamated Electricity Co. Ltd. v. NS. Bhathena &
Anr., [1%4) 7 SCR 503).

12;.. Scope of judicial review in tariff revision matter is very limited.
It has been held that fixation of tariff is a matter of legislative B
policy (Hindustan Zinc ltd. etc. etc. v. Andhra Pradesh State
Electricity Board & Ors., [ 1991] 3 SCC 299).

Concluding his arguments Mr. Reddy said that the Graphite be directed
to pay to DPL the amount of electricity charges which DPL could not collect
due to interim order of injunction obtained by Graphite in the writ proceedings C
in the High Court. These charges, he said, amount to Rs. 11,02,90,654.83 with
delayed payment surcharge at the agreed rate as stipulated in the existing
agreement of supply dated January 21, 1984.

Arguments have been in somewhat detail but the issues. are not so
complex. Broadly the contentions of the appellants are: Statutory requirements D
of Section 57 of the Supply Act read with Sixth Schedule have not been
fulfilled inasmuch as relevant considerations required for the revision in tariff
have not been kept in view and extraneous consideration has been taken into
account. Relevant consideration is that for revision in tariff there should be
reasonable profit and extraneous consideration is that the tariff fixed by E
WBSEB has been kept in view. For the first writ petition where revision in
tariff was effected in 1991, contentions are (a) 60 days clear notice, which is
mandatory, was not given, (b) there was no approval of the State Government
,I
before the increase was effected, and ( c) subsequent approval at later date
cannot be of any consequence.
F
Respondents on the other hand contend that applicability of Sixth
Schedule to a sanction-holder under Section 28 of the Electricity Act is merely
contractual and when approval is given it relates back to the date of increase
..... in the tariff. All these points are basic around which arguments revolve .
G
That approval can date back we have been referred to a decision of this
Court in UP. Avas Evam Vikas Parishad and Anr. v. Friends Coop. Housing
Society Ltd. and Anr., [1995] Supp. 3 Svc 456. In this case notification under
Section 28 of the U.P. Avas Evam Vikas Parishad Adhiniyam, 1965 was
published on June 7, 1982. Immediately the appellant had sought for approval
of the State Government through its letter dated July 27, 1982. The Government H
36 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A approved the scheme on August 24, 1982 (Section 28 is equivalent to Section
4(1) of the Land Acquisition Act, 1890). Thereafter declaration under Section
32 of the Adhiniyam (equivalent to Section 6 of the Land Acquisition Act)
was published on February 28, 1987. Allahabad High Court in a writ petition
set aside the declaration holding that since prior approval of the State
Government was not obtained the notification under Section 28 and declaration
B under Section 32 of the Adhiniyam were invalid and inoperative. Question
before this Court was whether it would be prior approval or approval given
subsequent to the notification under Section 28 or declaration under Section
32 of the Adhiniyam was valid in law. This Court observed that if prior
approval would have been a pre-condition for further steps, the Act would
C have said so and this not having been done what is material is to obtain the
approval of the State Government. This Court said that the reason for this
appeared to have been that when a scheme has been framed the land suitably
r.equired for effective implementation of the scheme should alone be acquired
and not in excess in the guise of framing the scheme. Relying on its two earlier
decisions in Life Insurance Corpn. ofIndia v. Escorts Ltd, [1986] 1 SCC 264
D and The Lord Krishna Textile Mills Ltd v. Workmen, AIR (1961) SC 860 this
Court held:

"This Court in Life Insurance Corpn. ofIndia v. Escorts Ltd considering
the distinction between "special permission" and "general permission",
E "previous approval" or "prior approval" in para 63 held that: "We are
conscious that the word 'prior' or 'previous' may be implied if the
contextual situation or the object and design of the legislation demands
it, we find no such compelling circumstances justifying reading any
such implication into Section 29(1) of the Act." Ordinarily, the difference
between approval and permission is that in the first case the action
F holds good until it is disapproved, while in the other case it does not
become effective until permission is obtained. But permission
subsequently granted may validate the previous Act. As to the word
'approval' in Section 33(2)(b) of the Industrial Disputes Act, it was
stated in Lord Krishna Textiles Mills Ltd. v. Workmen that the ....
G Management need not obtain the previous consent before taking any
action. The requirement that the Management must obtain approval .
was distinguished from the requirement that it must obtain permission,
of which mention is made in Section 33(1)."

This Court then said that approval envisaged is to enable the Parishad,
H the appellant, to proceed further in implementation of the scheme framed.
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHW A, J.] 37
Unless approval is given by the Government the scheme may not be effectively A
implemented. This Court then said "nevertheless, once the approval is given,
all the previous acts done or actions taken in anticipation of the approval get
validated and the publications made under the Act thereby become valid".

It would thus appear that in the present case when approval was
granted by the State Government by its letter dated April 27, 1992 the approval B
relates back and the revision would be effective from April 8, 1991. It is
difficult to accept the argument of Graphite that the letter dated April 27, 1992
is not an approval of the increase in tariff effective from April 8, 1991. On
December 23, 1991, DPL wrote to the State Government on the subject of
general revision in power tariff by it and referred to its letter dated February C
9, 1991. It said that the Board of Directors of DPL at 405th meeting held on
December 13, 1991 approved the proposal for general revision of power tariff
of DPL to all its consumers. DPL sought approval of the State Government
to effect the tariff revision from March 3, 1992. It also pointed out that "the
.company (DPL) should have a benefit-Of revision in rate of supply to WBSEB
as a whole for which Government should be moved". In its letter dated April D
27; 1992 to DPL the State Government granted approval for revision of tariff
for different categories of consumers and as regards rate applicable to Graphite
the letter said "as existing w.e.f. 8.4.91 ". We do not think any argument is
needed for us not to hold that ex post facto approval was granted for tariff
revision as regards the supply to Graphite from April 8, 1991. It is also difficult
to accept the argument of the Graphite that unless approval is granted there E
cannot be any revision in tariff. It is not the requirement of law even if Sixth
Schedule of Supply Act is held to be applicable that approval has to be
granted within 60 days of the notice given to the State Government. That
revision can certainly become applicable after the expiry of the period of 60
days. If approval is not granted, the increased charges paid by the consumer p
are liable to be adjusted/refunded. In this connection reference may be made
to the constitution of the Rating Committee under Section 57A of the Supply
Act. Under fourth proviso to clause (I) of the Sixth Schedule it is provided
· that if charges of supply fixed in pursuance of the recommendations of a
Rating Committee are lower than those notified by the licensee, the licensee
shall refund to the. consumers the excess amount recovered by him. from them. G
Under Section 28 of the Electricity Act for a person other than a
licensee to engage in the business of supplying energy to the public two
conditions are required: ( 1) sanction of the State Government and (2) in
accordance with such conditions as the State Government may fix in that
behalf. State Government is not free to give sanction except (A) after consulting H
38 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A State Electricity Board, (B) with the consent of local authority the licensee in
--
their respective areas and (C) in case the energy is to be supplied in any area
fonning part of cantonment, aerodrome, etc. of the Central Government. The
Central Government, however, cannot withhold its consent unreasonably. A
question arises if the conditions imposed by the State Government while
B granting sanction are statutory or contractual.

Supply of electric energy is governed by two statutes, i.e., The Electricity
Act and the Supply Act. A license is the requirement under the Electricity Act
for a person to supply electric energy in any area. Supply Act provides for
the rationalization of the production and supply of electricity and generally
C for taking measures conducive to electrical development. One of its main
objects is to prevent such licensees from charging unreasonable rates to the
detriment of the consumers. Under Section 57(1) of the Supply Act the
provisions of the Sixth Schedule and the table appended to the Seventh
Schedule thereto are deemed to be incorporated in the license of every
licensee. The question involved depends. on the provisions of the two Acts.
D While the Electricity Act deals with the supply and use of electrical energy
and the rights and obligations of licensee and the sanction-holder under Part
III of the Act, the Supply Act deals with the statutory powers and functions
of the Central Electricity Authority, State Electricity Boards and generating
companies and also provides for fixing of charges to the consumers of energy
E by the licensee. Section 2(6) of the Supply Act thus defines licensee to mean
a person licensed under Part II of the Electricity Act and also a person who
has obtained sanction under Section 28 of that Act. But then the term
'license' and 'sanction' have not been defined. Section 2 also starts with the
expression that "in this Act, unless there is anything repugnant in the subject
or context" and, therefore, what licensee means under Section 2(6) can be
F different ifthere is anything repugnant in the subject or context. Had the tenn
'licensee' defined to mean a person licensed under Part II of the Electricity
Act to supply energy or a person who had obtained sanction under Section
28 of that Act and the expression 'license' and 'sanction' to be construed
accordingly things would have been much simpler. However, it is not that
G whenever the word 'licensee' has been used in the Supply Act it would also
include the· sanction-holder. In this connection we may refer to Section 41 of
the Supply Act which provides for use by the State Electricity Board or the
generating company to use for any of its purposes any transmission lines .or
main transmission lines of a licensee. Here 'licensee' would certainly mean a
person who has been granted license under Part II of the Electricity Act as
H well who has been granted sanction under Section 28 of that Act. The
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHWA, J.] 39
question which falls for consideration is if the word 'licensee' in Section 57 A
of the Supply Act would include a sanction-holder. This Section provides that
Sixth Schedule shall be deemed to be incorporated in the license of every
licensee, not being a local authority and that would be notwithstanding
anything contained in any provision of the Electricity Act or terms of the
license granted to him under that Act or under any other law. Sixth Schedule B
of the Supply Act has thus over-riding effect. Sixth Schedule uses the
expression 'license' in its various clauses. It would be difficult for us to hold
that 'license' would mean 'sanction' as well. We have to see in what context
the term 'license' had been used. When sanction was granted to DPL in the
year 1964, much after the coming into force of the Supply Act, it was specifically
mentioned that certain provisions of the Electricity Act would apply (clause C
5) and clause 6 of the conditions provided that the rates for supply of energy
shall be fixed and adjusted from time to time in conformity with the provisions
of the Sixth .Schedule to the Supply Act and with the approval of the State
Government. If Sixth Schedule was applicable to a sanction-holder under
Section 28 of the Electricity Act there was no occasion for the State D
Government to mention that rates would be fixed and adjusted in conformity
with the Sixth Schedule. Moreover, when a licensee under Part II fixes and
adjusts the rates in terms of the Sixth Schedule he is not required to obtain
any approval by the State Government. Rather power under paragraph (I) of
the Sixth Schedule would justify enhancement of the rate beyond that fixed E
earlier by the licensee or by any order of the State Government. Though a
sanction-holder is bound to seek approval of the rates from the State
Government there is no such limitation on a licensee. This term would show
that conditions imposed by the State Government to a sanction-holder under
Section 28 of the Electricity Act are contractual in nature and are not statutory.
F
In The Amalgamated Electricity Co. Ltd v. N.S. Bhathena and Anr.,
[1964] 7 SCR 503 one of the questions raised was the effect of the Supply
Act on the maximum of rates fixed by the Government under Section 3(2) of
the Electricity Act which could be charged by the licensee. This Court held
that under provisions of Sixth Schedule the limit imposed by the maximum
rates, if any, prescribed by the State Governmem has no application and that G
licensee is free to adjust the rates in terms of Sixth Schedule. This Court
further held that unless it is established that the rates charged by the licensee
... resulted in a profit to it over the "reasonable return", the licensee would be
· · held to have adjusted these rates in conformity with the requirements of the
relevant provisions of the Supply Act. Court observed: H
40 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A "There is no presumption that the rate charged by a licensee
contravenes the statutory prohibition. It is for the party who alleges
his_right to relief to establish the facts upon which such relief could
be obtained. It was, therefore, for the plaintiffs to prove by facts
placed before the court that the rate charged offended the statutory
provision. This they admittedly failed to do and we, therefore, hold
B that they were not entitled to the declaration and injunction which the
learned Judge of the High Court granted."

Graphite has been unable to show that increase in tariff by DPL has
contravened the provisions of the Sixth Schedule.
c In State Bank of Patiala & Ors. v. S.K. Sharma, [1996] 3 SCC 364 this
Court observed that even a mandatory requirement can be waived by the
person concerned if such requirement is in his interest and not in public
interest. This is how the court said :

"In the case of violation of a procedural provision, which is of a
D mandatory character, it has to be ascertained whether the provision
is conceived in the interest of the person proceeded against or in
public interest. If it is found to be the former, then it must be seen
whether the delinquent officer has waived the said requirement, either
expressly or by his conduct. If he is found to have waived it, then the
E order of punishment cannot be set aside on the ground of the said
violation. If, on the other hand, it is found that the delinquent officer/
employee has not waived it·or that the provision could not be waived
by him, then the Court or Tribunal should make appropriate directions
(include the setting aside of the order of punishment), keeping in mind
the approach adopted by the Constitution Bench in Managing
F Director, ECIL v. B. Karunakar, [1993] 4 SCC 727. The ultimate test
is always the same, viz., test of prejudice or the test of fair hearing,
as it may be called."

In Rajendra Singh v. State of MP. & Ors., [ 1996] 5 SCC 460 this Court
G again affirmed that even a mandatory provision which is in the interest of the
party can be waived by the party himself but if it is in public interest, it cannot
,be waived.

A person to whom sanction has been granted under Section 28 of the
Electricity Act cannot .exercise all the powers of a licensee under that Act. The
H powers to be exercised by holdef of sanction are specificaliy-mentioned under
GRAPHITE INDIA LTD. v. DURGAPURPROJECTS LTD. [D.P. WADHWA,J.] 41
the Act. Reference may be made to Section 29 of the Electricity Act. Under A
that Act, the local auth9rity may, by order in writing, confer and impose upon
any person, who has obtained the sanction of the State Government under
Section 28 to engage in the business of supplying energy, to the public, all
or any of the powers an~ liabilities ofa licensee under Sections 12 to 19, and
"· the provisions of the said sections shall thereupon apply as if such person B
..... was a licensee under Part II of the Act. It is, thus, apparent that a sanction
'
holder under Section 28 of the Electricity Act cannot be equated with a
licensee under Part II of that Act.

Under Section 57 of the Supply Act the Sixth Schedule is applicable
to a licensee. This Schedule has been made applicable to a sanction holder C
under the terms of the sanction. Third proviso to the Sixth Schedule provides
, that the licensee shall not enhance the charges for the supply of electricity
until after the expiry of a notice in writing of not less than sixty clear days
of his intention to so enhance the charges, given by him to the State
Government and to the State Electricity Board. In the present case, when we D
are considering the applicability of the Sixth Schedule to the sanction holder,
it is not the case that any notice was required to be given to the WBSEB.
Why notice is required to be given to the State Government can be seen from
the fact that the State Government or the State Electricity Board could constitute
a rating committee to ex~ine the licensee's charges for the supply of electricity
and to make recommendations in that behalf to the State Government. What E
are the consequences of the recommendations of the rating committee find
mention in Section 57A and in the Sixth Schedule. There is no question of
any approval to be given by the State Government to the licensee. When
notice of enhancement of charges is given in the case of sanction holder
·.,, \, under the terms of the sanction. approval of the State Government is required. p
We have seen above, approval from the,.State Government can be retrospective.
The bar in the proviso is only to the ~xtent that enhanced charges may not
be levied till after the expiry of sixty days notice to the Government. It is not
that the State Government is required to grant its approval within 60 days
period. As far as sanction holder is concerned, requirement of notice and
approval by the State Government are not statutory conditions. These are G
contractual and could be varied or waived by the State Government. Conditions
have been imposed by the State Government and not by virtue of any statute.
It would, therefore, appear to us that the requirement of sixty days notice to
the State Government is not mandatory. In its counter affidavit dated January
IO, 1992 filed in the first writ petition, the State Government took the stand H
42 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A that the DPL before enhancing the tariff with effect from April 8, 1991 did not
comply with the necessary formalities as required under the Supply Act read
with the Government Order No. 4520 (Power) dated August 28, 1964. Graphite
was not informed of the said hike which came into force w.e.f. April 8, 1991.
However, in the supplementary affidavit filed by the DPL subsequently it was
B stated that the Government of West Bengal by their letter dated April 27, 1992
duly approved the enhancement oftariffw.e.f. April 8, 1991. In the letter dated
February 9, 1991 to the State Government, the DPL mentioned that the tariff
was last revised for all categories of consumers w.e.f. August l, 1988 and
thereafter the cost of operation of maintenance of power plant has increased
considerably. The revenue derived by the company from the existing tariff has
C been found to be quite inadequate to absorb spiralling cost and expenses.
The State Government is also informed that by its order dated January 31,
l991, it had approved revision in tariff by ~e WBSEB w.e.f. March l, 1991
and WBSEB has published a notification in the press announcing revision in
their rates and charges. It was further pointed out that the State' Government
Jj by its letter dated August 29, 1986 had directed the DPL's power tariff should
be fixed in line with that of the WBSEB for the purpose ofunifonnity. In the
letter seeking tariff revision for the year 1993-94, details were given as to how
revision in tariff has been necessitated. As noted above Graphite has failed
to show as to how it could be said that charges enhanced by the DPL exceed
E the amount of reasonable return as required under clause (I) of the Sixth
Schedule. It is certainly a relevant consideration for the DPL to fix its tariff
in line with the WBSEB for the purpose of uniformity and as Mr. Reddy put
it for capping unless it is shown that tariff revision has contravened the
provisions of the Sixth Schedule. State Government has not insisted of notice .•
being less than 60 days. No prejudice is shown to have been caused to
F Graphite on the ground that notice period fell short by two days. In the .( ..-"

circumstances of the case requirement of 60 days notice does not appear to
us to be mandatory. ·

We do not find merit in these appeals. These are dismissed with costs. --...:
G It has been pointed out that during the pendency of the writ petitions
in the High Court, the Graphite has not been paying electricity charges on
the basis of revised rates which was the subject matter of the challenge in
the High Court. We have upheld the validity of the revised tariff from April
8, 1991. Graphite is, therefore, bound to pay the differential amount with such
H charges for delayed payment as per agreement dated January 21, 1984.
''
)
GRAPHITE INDIA LTD. v. DURGAPUR PROJECTS LTD. [D.P. WADHWA, J.] 43

Respondent Durgapur Projects Ltd. has pointed out that on that account an A
amount of Rs. 11,02,90,654.83 with delayed payment surcharge at the agreed
rate as per clause (23) of the agreement dated January 21, 1984 is due from
Graphite to it. If there is any dispute regarding the amount claimed by the
respondent the same shall be considered by the High Court and for that the
party shall move the High Court which· may pass appropriate orders. The B
amount which is not disputed by the Graphite shall be paid by it to the
respondent within four weeks with charges for delayed payment.

AK.T. Appeals dismissed.

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