Holding

The Board’s statutory power to unilaterally revise security deposits is valid so long as the exercise is not arbitrary or unreasonable.

Summary

The Haryana State Electricity Board (HSEB) unilaterally raised the security deposit required from industrial consumers—both the per‑kilowatt security and the meter security—under its standard contract. The petitioners challenged the increase, arguing that the Electricity (Supply) Act, 1948 and its rules do not authorize such security and that the Board’s amendment was arbitrary. The Supreme Court held that Section 49(1) of the Electricity (Supply) Act, 1948 empowers the Board to prescribe any terms, including security, and that clause 31 of the contract permits the Board to amend schedules. The Court further observed that the Board’s power is valid provided it is not exercised arbitrarily or unreasonably, and it is reasonable for the Board to demand security equivalent to a few months’ energy bills. The Court dismissed the petitions, directing a 50 % reduction in the meter‑security increase and an increase in interest on security to 10 %.

Issues considered

Whether the Electricity (Supply) Act, 1948 and its rules permit the Board to demand security deposits for payment of energy bills.
Whether the Board may unilaterally amend the security‑deposit schedule under clause 31 of the standard contract.
Whether the Board’s increase in security is arbitrary, unreasonable or violative of statutory limits.
Whether sub‑para (a) of the first proviso to clause VI of the schedule to the Indian Electricity Act, 1910 applies to security requirements.

Legislation cited

Electricity (Supply) Act, 1948s. 49(1), s. 79
Indian Electricity Act, 1910s. clause VI schedule (sub‑para (a) first proviso)

Subjects

electricity supplysecurity depositunilateral amendmentpublic utilityreasonablenessstatutory powercontractual termstariff revisionIndian Electricity Actconsumer protection

Judgment

.. l65
•· JAGADAMBA PAPER INDHSTRIES
(PVT.) LTD. ETC. ETC. A
v.
t HARYANA STATE ELECTRICITY BOARD & ORS. ETC.

September 29, 198 3

(AMARENDRA NATH SEN AND RANGANATH MISRA; jJ.)

Indian Electricity (Supply) Act, 1948, Sections 39(1) read with clauses 22
and 31 of tf1e Standard-Contract Agreement to supply electricity-Power {)j the
Board to amend, revise and change schedule of tariff and charges and conditions c
of supply of electricity-Whether the power can be assailed so long it is not
exercised arbitrarily or unreasonably-Sub-para (a) of the first proviso to c/a14se
VI of the Indian Electricity Act, 1910, scope of.

From 1968, the Haryana ~tate Electricity Board has been collecting
security from every consumer to ensure timely cleafance of energy bills and in D
th'e case of industrial consumers ·the security was worked out at Rs. 30 per
KW. With effect from 1st April 1981. thC amount was changed to Rs. 100
per KW. Similarly in regard to the industrial meter a different basis has been
adopted and from April ·1, 1981 the security deposit now varies between
. Rs. 5,000 and Rs. 10,000 in regard to industrial consumers. The petitioners
have therefore, challenged the said unilateral increase on the ground that the
enhancement is without any jUstification. E

-
Dismissing the petitions, the Court

HELD : I. To contend that the Eleetricity (Supply) Act, 1948 and
the Rules made thereunder do not contemplate any provision f~r security for
the timely payment of energy charges "is not correct. Sub-para (a) of the first F
·proviso to clause VI. of the schedule to the Indian Electricity Act, 1910 would
be applicable and what would be sufficient security should bC left to' the
Electricity Board to decide. [I 71 E-F]

· K'ishna Cement Works v. The Secretary APSEB, AIR 1979 AP 291
approved. Mfs. B. R. Oil Mills v. Assistant Engineer (D). (RSEB), BharatPur G
& Anr., AIR 1981 Raj. 108; and M/s. Goodyear India Ltd. v. H.S.E.B. & Ors.
CW. 4765/81 dated 9.4.82 Pb. & Haryana H.C. referred to Modi Industries
Ltd. (Steel Section) v. U.P. State Electricity Board AIR 1979 AU. 375; M/s.
Devidayal Metal Industries v. The Municipal CorporatiOfl for Greater Bombay
& Anr. AIR 1980 B!im. 154 distinguished.
H
2:1 Section 49{1) of the Indian Electricity {Supply) Act, 1948 clearly
indicates that the Board may supply electricity to any person upon such terms
and conditions as the Board thinks fit. Jn exercise of this power the BO':l.rd
SUPREME COURT !i.HPORTS [19S4j i s.c.il.
had initially . introduced the condition regarding security and each of . the
A petitioners had accepted the term. The Board has been conferred statutory
power under s. 49(1) of the Act to determine the cOnditions on the basis of
_ whic;:h supply is to be made. This Court in J!irra Stone Lime C1mpany Ltd. &
Anr. Etc. v. Orissa State Electricity Board & Anr., [1976) 2 SCR' 307., took the
view that enhancement of rates by way of surcharge w<is well within the pOwer
of the Board to fix or revise the rates of tariff under the proyisiQns of the Act.
What applied to the tariff would equally apply to the security, that being a
B condition in the contract of supply. Each of the petitioning consu1ners had
agreed to furnish security in cash for payment of energy bills at the time of
entering into their respective supply agreements. There was no challenge.iri
these writ petitionS that the demand of security at the time of entering-into
supply agreements has to be struck down as being without jurisdiction.
. [172 G-H; E-F]
c 2:2 Under clause 31 of the Agreement the. Board reserved to itself the
right to amend, cancel or add to any of the schedules and conditions at a~y
time. The provisions of this clause are similar to clause 13 of the agreement
which came to be considered in Bisra Lime· Stone Company's Case (supra).
Therefore, the Board had authority under the agreement itself to amend the
conditions. In ex:ercise of that power the Board has now raised the additional.
demand. (173 A·BJ

2:3. It·is true that the affairs of the Boards 'in the different States of
the country are not upto the expectation of the co~sum,ers and there have been
instances which give rise to genuine anguish and dissatisfaction. The scheme
of the Act clearly i~dicates a legislative m¢1.ndate that the Board should manage
E its co1nmercial activities in such a way that it does not make any loss. It is
alS'o clear that the Board being a public utility organisation is not expected to
make any undue profit by abusing its monop6ly position. An inbuilt system
of controi and supervision has been set up and the State Governments have
been. given power to give policy directions. Situation seems to have arisen
when stricter control and supervision are called for and if oI'ganiSational

F
changes and provision for greater control appear necessary, to improve the
functioning of the Boards, steps should be taken without delay in this regard. ...
The Board should always remeinber that it is a public utility service and not a
_governmental a8;ency enjoying wide pOwers and expecte.d to have a share in
the governance of the country. On the facts placed that the stand of the
·Board that a demand equal to the energy bill of two m.onths . or a little more
is not unreasonable.,) When the Boa.rd has the power to unilaterally revise the ,
conditions of supply, it must follow that the demand of higher additional
G security for payment of eq~_rgy bills is unassailable, provided that the power
is not exercised arbitrarily or unreasonably. [173 E-H;.174 A-BJ

3:1. The argument that the security should be in the shape Of Bank
guarantee does not call for consideration, in view of the acceptance of the
court's, suggestion to increase the interest @ 10% per annum on Per with the
H interest payable by the Scheduled Banks. 174 E; CJ

3:2. In regard to the enhanced security for the meter the explanation
advanced by the Board is that the meters are required to be replaced ~r many
JAGDAMBA PAPER v. H.s.li. BOARD (Ranganath Misra, i.) 167
costly parts have to be su.bstituted by way of repair. In view of the High ·cost
of the meters the Board is justified in enhancing the security. PetitionCrs have A
not disputed their obligation to furnish security for the meter. But the
chaUenge is to the enhancement. Indisputably all the meters to the petitioning
consumers have been supplied prior to the decision to enhance the security.
Keeping in view the likelihood of replacement or substantial repair, the court
suggested that the escalation n1ay be reduced by 50% to which the Board has
accepted. The Board under took to evolve a new formula accordingly and
introduce it from 1-10-83 and not to enforce the rates impugned. B
(174 E-G; H; 17S A]
,
ORIGINAL JURISDICTION: Wr;t Petition No: 4167"68, 7346·53,
7689-97, 8638, 8640-41, 9899 of 1982, 910-912 of 1983, 7987-91 of
1982 and 29, 1642 of 1983.
c
(Under article 32 of the Constitution)

AND.

Civil Appeals Nos. 2464-65 of 1982. D
Appeals by Speciai'leave from the Judgment and Order dated
the 9th April, 1982 of the Punjab and Haryana High Court in C.P.
Nos. 4805 and 5184 of 1981.

For the appearing Petitioners/Appel/ams: E

- S.B .. Bhasme, B.R. -.Kapur, S.R. Srivastava, C.P. Mittal,
D.B. Vohra, K.G. Bhagat, Vimal Dave, Ms. Kai/ash Mehta, A.K. Goel
and _Sar~a Ji{itter.
F
For Respondent :

Parmod Dayal, K.K. Jain and A.D. Sanger .
y•
The Judgment of the Court was delivered by
G
RANGANATH MISRA, J. : Each of these writ petitions is by a
consumer of electric energy which has entered into a contract with
the Haryana State Electricity Board ('Board' for short), and challenge
in these petitions under Article - 32 of the Constitution is to the H
enhancement of security unilaterally made by the Board both in
respect of meter as also for the payment of the energy dues. Clause 22
of the ~tanuard contract stipulates ; -
'
168 sui>RllMll eoinl.r R.EroRts fi984] i s.c.ii..
I

"22. Security Deposit :
'A
(a) ·Before commencing or resuming supply to a
consumer the Board may require the consumer to lodge
with the Board as security for the payment by the
consumer of his monthly bills' and for the value of the
meters·and/or other apparatus belonging to the Board
B and installed at the consumer's premises a deposit, which
may not be tr~nsferable, calculated as follows : -

c
Rs. 10.00 per KW 'of connected load or part thereof
in the case of domestic ; Rs. 20 per 'KW of connected
load or part thereof in· case of commercial and Rs. 30 per
KW of connected load or part thereof in case .of
industrial/agricultural/bulk supply/street lighting con-
sumers plus the following amount per m~ter :-
'
(I)
D (2)

'
(3)

(4) For medium industrial supp!y and
bulk supply above 20 KW and up to
E '100 KW. "" Rs. 100.00

F
(5) For industrial and bulk supply
above 100 KW.
•
Rs. 200.00

The security is obtainable in casli' and an interest
--
- · at the rate of 4% per annum shall be payable on security
deposits of Rs. 50.00 and above. No interest will be
'payable if a connection is disconnected within a year of
giving supply. '•
'
G (b) The Board will be at liberty at any time to
demand further security deposit from consumers who
have habitually defaulted in making. payments of their
monthly dues."

Clause 31 provides :
"31. Rights of Board to revise schedules of tariffs
and charges and conditions of supply: Subject to -clause
iAGDAMBA PAPER v. iU.B. BOARD (Ranganath Misra, J.) 169

30 above (relating to interpretation) the Board reserves •
the righi'at any time to amend, cancel, or add to. any of A
these. schedules and conditions."

Eich of the contracts contains detailed provisions for security
·deposi(as provided under clause 22. The Board enhanced the
\. tariff by almost four times but the enhancement of tariff has not
B
been challenged by the consumers, who have filed these writ
petitions. Thereafter the Board decided in October 1980 that with
effect from April l, 1981', the security contemplated under clause 22
both in regard to the meter as also for due payment of the energy
bills should be enhanced and fixed a new schedule. Challenge in '
these petitions is to the enhancement in regard to both the meter as c
also security for due payment of energy bills ·made unilaterally by 'the
Board. As <his is the common question arising in all these writ
petitions, they are being disposed of by a common judgment.

The petitioning consumers have contended 1hat the enhance- D
ment made in the security amount towards the meter is without any
justification. It is all the more so where meters have been installed
several years before .and there {s no change in the circumstances
justifying an enhancement in the security deposit for it. Challenge
is also advanced against the enhancement of the security deposit in
the matter of payment of energy bills. From 1968 the Board had E
introduced the condition of taking a security from every consumer to
ensure timely clearance of energy bills and in the case of industrial
consumers the security was worked out 'at Rs. 30 per KW. With effect
from April 1, 1981, in place of Rs. 30 per KW Rs. 100 per KW has
been substituted. It is contended that on ace.aunt of this enhance- F
ment most of the petitioning consumers have been called upon to
furnish additional security to the tune .of several lakhs of rupees.
Similarly in regard to the meter a different basis has been adopted
and·V:om April I, 1981, the security deposit now varies between
Rs. 5000 an~ Rs. 10,000 in regard to industrial consumers. After
the enhancement came into force the Bo.ard throvgh its prescribed G
officers called upon the petitioning consumers to make additional
security deposits on both counts, within a time indicated.

According 'to the petitioners the Electricity (Supply) Act, 1948 H
('Act' for i!ihort) and the Rules made thereunder do not contemplate
any provision of security for the timely payment of energy charges.
The Board has not frame·d any Regulations ~under s. 79 of the Act
;·

i76 stii'koo c0URr iuiroRrs
for demanding security of the type in · issue. According to the
A petitioners as the supply is controlled under an agreement entered
into between the Board and . the petitioning consumers, unilateral
escalation would be contrary to any acceptable notion of contract
Reliance is placed on behalf of the petitioners on the decision of
the Allahabad.High Court in Modi Industries Ltd. (Steel Section) v.
U.P. State Electricity'Board(l), and that of the Bombay High Court in
B
M/s. Devldayal Metal Industries v. The Municipal Corporation for
Greater l!ombay and. AIJ1°'.(2) Before the Allahabad . High Court it
was contended by thb consumer that the Board contracted with it
to supply 9500 KW electrical energy. The rate schedule applicable
c to the consumer was HV-2 .. Under the_ agreement of December 31,
1970, the consumer had deposited with th~ Board a sum of
Rs. 3,44,135 as security. , The Board demanded a further security of
Rs. 9,00,000. The consumer took the plea before the High Court
that neither under the Indian Electricity Act, 1910 ('1910 Act' for
short), nor the Act and the agreement for supply between the parties
D was the Board authorised to demand additional security. The Board,
took the plea that the tariff had gone up from time to time and the
then existing rate schedule was of 1974. Normally the meter reading
was done after every 30 days or once in 30 days and it took about
, 15 to 20 days thereafter to prepare the bill and to send it to the
consumer. A-further period of 15 days was allowed to the con-
E sumer to make the payment. Seven ·days' disconnection notice after
expiry of the due period was to be given to the consumer. It took
2 or 3 days thereafter to verify the accoul)ts an 1 take steps for
disconnection on the ground of non-payment, of the energy bill.
Thus a period of about 3 inonths·was necessary to collect the energy
bills ·from the date of consumption. In order to safeguard .the
F financial interest of the Boar4 a sum equal to energy bill for three
months on the average was demanded as security, Reiiance was.
placed on clause VI of the Schedule to the 1910 Act for authorising
the Board· to rise the additional demand of security. The Court
to.ok the view a that clause VI of the Schedule to the 1910 Att had
G no application and came to the conclusion :

"The Board is a statutory authority and has to act
within the framework of the statutory provisions appli-
cable to it. If the act of the Board is found to be not
H
(I) A:T.R. 1979 All. 375.
(2) A.I.R. 1980 Born. 154,
iAGDAMBA PAPER V• .H.S.E. BOARD (Ranganat!t Misra, J.) 17!
• •
in consonance with or in breach of some statutory pro-
~'1 visions of law, rule or regulation, it is open to challenge A
' in a petition under Art. 226 of the Constitution. In
these petitions no contractual rights are sought to be
enforced which may more suitably be agitated in a
t competent Civil Court as contended by the learned
· counsel for the Board" .
...
A learned single Judge of the Bombay High Court without
referring to the Allahabad decision, came to the conclusion that the
scheme of the Act made it clear that it was not open to the licenser
to impose any financial burden in addition to what was provided for
in the Act itself. If this were not so, the whole object of the Act, c
which is to ensure the supply of electricity to the consumers in a
controlled manner at rates which have to be controlled and approved
by the State Government would be destroyed. Because, in addition
to the electricity charges, the 1icenser·may, by contract, provide for
other charges and thus impose a greater financial burden on the D
consumer than contemplated in the Act itself. As against these
decisions, reliance has been placed on a Bench decision of the
Andhra Pradesh High Court in Krfahna Cement Works v. The
Secretary, APSEB(i), and a single Judge decision of the Rajasthan
High Court in M/s. B.R. Oil Mills v. Assistant Engineer (D), RSEB,
Bharatpur and Anr.('), on behalf of the Board in support of the E
demand of security. The Andhra Pradesh High Court has taken

- the view that sub;para (a)·of the first proviso to clause VI of the
.Schedule to the 1910 Act would be applicable and what would ·be
sufficient security should be left t.o the Board to decide. The
Andhra Pradesh Electricity Board had adopted similar justification
as placed by th..e .Board before us to justify demand of enhanced
F
security and dealing 'with such stand the ieanied Judge observed :

"To our mind, fhis is a quite satifactory explanation
of the reasons behind insistence on . cash security.
G
Certainly a public utility service like Electricity Board
cannot launch itself on litigation to recover consumption
charges on a large scale. ·Power generation, which it
does is an essential service and that shall never be
allowed to .suffer on account of improper security. We H
(!) A.I.R. 1979 A.P. 291.
(2) A.I.R. 1981 Raj. 108,
' ~UPREME COURT REPORTs [i984] i s.c.il.
•
have alreally referred to the fact that it is reasonable on
A the part of the Board to require security for three months'
· consumption charges. Now to require that amount to
be deposited in the form of cash is eminently
reasonable ... "

B 'The Rajasthan High Court has accepted the view of the Andhra
Pradesh High Court. .We accept the view of the Andhra Pradesh
High Court.

c Counsel for the Boa.rd has. also placed before us a Division
Bench decision of the Punjab and Haryana High Court in M/s.
Goodyear India Ltd. v. Haryana State Electricity Board and Others('),
where the decision of ihe Andhra Pradesh and Rajasthan High
Courts have been followed. We have been .told that against that
decision of the Punjab and Haryana High Court appeals have been
D preferred to this Court. ·

We are of the View that the Board has been conferred statutory
· power URder s. 49( I) of the Act to determine the conditions on the
·basis of which supply is to be made. 1This Court in Bisra Stone
E Lime Company Ltd. & Aw. etc. v. Orissa State Electricity Board &
Anr.('Y, took the view that enhansement of rat~s by way of surcharge

F
.was well within the power of the Board to fix or revise the rates of
tariff under the provisions of the -Act.. What applied to . the tariff
would equally apply to the security, that being a 'condition in the
contract of supply. Each of the petitioning consumers had agr.eed to
furnish security in cash for.payment of energy bills ·at the time of
-
entering into their respective supply agreements. There was no
challenge in these writ petitions that the demand of security at the
·time of entering into supply agreements has to be struck· down as
being witl\out jurisdiction. Section 49(1) of the Act clearly indicates
G that the Board may supply electricity to any person upori such terms
and conditions as the Board thinks fit. In exercise of this power the
Board had initially introduced the condition regarding security and
each ·oflhe petitione,s had accepted the term.

H
(I) C.W. No. 4765/81 decided on 9.4.82.
(2.• [1976) 2 S.C.R, 307 •

•
lAGDAMBA PAPER v. H.S.E. BOARD (Ranganath Misra, J.) 173

Under clause 3 I of the agreement the Board reserved to itself ·
the right to amend, cancel or add to any of the schedules and
conditions at any time. The provisions of this cfause are similar to
clause 13 of the agreement which came to be considered in Bisra
Lime Stone Company's case (supra). We ate, therefore, inclined to
take the view that the Board had authority under the agreement
itself to amend the conditions, In exercise of that power the Board B
has now raised the additional demand. We have already taken
note of the fact that there has been a, steep escalation in the tariff.
Counsel for the Board placed before us a statement which indicates
that whi!e tariff has gone up almost four times, the demand for
security raised by the Board is much less-it is· a little more than

-- two times of the original security. c
On behalf of some of the petitioners it was contended that the
security should represent the average energy bill for one month. It
was claimed that the Legislature has set' up the Board as an .auto- D
nomous body with large powers and providing scope to act purely
with a view to creating·an effective public utility service. The Board
should not be permitted to act either arbitrarily or capriciously; nor
). should it manage its affairs in a disorderly way and taking advantage
of its monopoly status pass on the incidence of such vice to be
shared by the consumers. We share the concern of the petitioners E

- and their counsel that the affairs of the Boards in the different States
of the country are not upto the _expectation of the consumers and
there have been instances which give rise to genuine .anguish and
dissatisfaction. The scheme of the Act cleady indicates a legislative
mandate that the Board should manage its commercial activities in
snch a way that it does not make any loss. It is also clear that the F
- Board being a public utility organisation is not expected to make
any undue profit 'by abusing its monopoly positfon. An inbuilt
system of control and supervision has been set up and the State
Government~ have been given -power to.give policy directions:
Situation seems to have arisen when stricter control and supervision G
are called for and if organisational changes and provision for greater
control appe1r necessary, to improve the functioning of the Boards,
steps should be taken without delay in this regard~ The Board
should always remember that it is a public utility 'service and not
a governmental agency enjoying wide powers and expected to have H
a share i11 the governance of the country.
174 SUPREMB COURT REPORTS [1984] l s.c.R ..

We agree, however, on the facts placed that the stand· of the
A Board that a demand equal to the energy bill of two months or a
little more is not unreasonable. Once we reach the conclusion that
the Board has power to unilaterally revise the conditions of supply,
it must follow that· the demand of higher additional security for
payment of energy bills is unassailable, provided that the power is
not exercised arbitrarily or unreasonably.
B

On the security amount interest at the rate of 4% was initially
payable. The same has already been enhanced to 8% per annum.
Since the amount is held as security, we indicated to the counsel for
c the Board that security· amount should bear the same interest ·as
'admissible on fixed deposits of Scheduled Banks for a term of years
and we suggested keeping the present rate of interest in view that it
should be enhanced to 10%. Board's counsel has now agreed that
steps would be taken to enhance the present rate of interest of 8% to·
10% with effect from October 1, 1983. ·
D

Once that is done, the argument that the security should be in
the shape of Bank Gua!antee does not call for consideration. J.

E In regard to the enhanced security for the meter the explana·
tion advanced by the Board is that the meters are required to be
replaced or many costly parts have to be substituted by way of ·
repair. In view of the high cost of the meters the Board is justified
in enhancing the security. .Petitioners have not disputed their
-
obligation to furnish security for the meter. But the challenge is
to the eni)ancement. Indisputably all the meters to the petitioning
consumers have boon supplied prior to the decision to enhance the
security. Keeping in view the likelihood of replacement or sub-
stantial repair, we suggested to learned counsel for the Board that
the escalation may be reduced by 50%, i.e. in place of the enhanced
G demand varying between Rs. 5,000 and Rs. 10,000, 'it should be
limited to Rs. 2,500 and Rs. 5,000. Learned counsel has agreed
that steps would M taken by the Board to evolve a formula by which
the demand for security for the·ineter would be revised being limited
to Rs. 2,500 at the minimum and Rs. 5,000 at the maximum i'n
H
regard to industrial meters in respect pf which the demand now ,is
between Rs. 5,000 and Rs: 10,000. It would, therefore, follow that
tltQ :floard WO\lld not eµforce its decision in re~ard to es¢alatio11 of
JAGDAMBA PAPER v. H.S.E. BOARD (Ranganoth Misra, J.) 175

the meter security until the new formula is evolved and it will be
open for the Board to ask for additional security effective from A:
October 1, 1983, in accordance with the new formula towards
security for the meter.

We make no Order as. to costs.

S.R. Petions dismissed. 8

-
. ""'i