Holding

The proviso to Regulation 46 is valid and not arbitrary; demand charges based on actual maximum demand during restricted supply are lawful.

Summary

The Orissa State Electricity Board (OSB) entered into a contract with M/s I.P.I. Steel Ltd (the respondent) for power supply up to a maximum demand of 7,778 kVA, with a two‑part tariff comprising demand charges and consumption charges. Due to a severe generation shortfall, the State Government issued an order under Section 22‑B of the Indian Electricity Act, 1910 directing a 50 % cut in supply. OSB issued a proviso to Regulation 46 of its 1981 General Conditions of Supply, stating that during periods of restricted supply exceeding 150 hours a consumer must pay only actual energy consumption plus demand charges based on the maximum demand actually drawn, and is exempted from minimum charges. The respondent challenged this proviso as arbitrary, unreasonable and confiscatory, relying on a January 1989 example where it was billed for a higher demand than it actually used. The Orissa High Court struck down the proviso. On appeal, the Supreme Court held that the proviso is neither arbitrary nor unreasonable; demand charges are justified to recover capital costs and are payable for the maximum demand actually availed, even during restricted supply. The High Court’s order was set aside.

Issues considered

Whether the proviso to Regulation 46 of the Orissa State Electricity Board (General Conditions of Supply) Regulation, 1981, is arbitrary, unreasonable or confiscatory in view of Section 22‑B orders.
Whether an electricity board may levy demand charges during periods of restricted supply when the consumer draws less than contract demand.
Whether an order under Section 22‑B overrides contractual obligations and the board’s right to impose a two‑part tariff.

Legislation cited

Electricity (Supply) Act, 1948s. 49, s. 78(A), s. 79
Indian Electricity Act, 1910s. 22-B
Orissa State Electricity Board (General Conditions of Supply) Regulation, 1981s. Regulation 46

Subjects

electricitydemand chargestwo‑part tariffSection 22‑Brestricted supplyminimum chargescontract demandRegulation 46Orissa State Electricity BoardI.P.I. Steelarbitrariness

Judgment

r I
'

A ORISSA STATE ELECTRICITY BOARD AND ANR. ETC.
v.
M/S !Pl STEEL LTD. ETC.

APRIL 21, 1995
,
B (B.P. JEEVAN REDDY AND SUHAS C. SEN, JJ.]

Indian Electricity Act, 19 ](}-Section 22-B-Orissa State Electricity
Board (General Conditions of Supply) Regulation 1981-Proviso to Regula-
•
\.

tion 46 as substituted by notification dated June 25, 1987-0rder under Sec.
C 22-B to cut supply of energy /Jy fifty per cent-Regulation 46 substituted to
provide for two pal! levy-Consumer charged for actual consumption plus the
maximum demand but exempted from payment of minimum charges during
the period of restricted supply-Held : Not unreasonable and arbitrary-Jus-
tification for levy of maximum demand charges under two part levy.

D The respondent had entered into an agreement with the appellant
Board for supply of power upto but not exceeding a maximum demand of ,_
7778 KVN7000 KW. The agreement between the appellant and the respon-
dent stipulated that the provision of the Orissa State Electricity Board
(General Condition• of Supply) Regulation, 1981 as modified from time to
E time, shall form a part of the agreement and shall bind the respondent.

The agreement incorporated payment of electricity charges on the
basis of two part levy where the consumer, apart from the charges for the
actual consumption of electricity, also pays charges for the maximum
demand (the highest level/load at which the consumer draws electricity
F over any period of thirty minutes in a month) subject to payment of the
minimum charges, which in this case was 80% of the r.ontract d•mand. This
meant that even if the maximum demBnd of the consumer was less than
80% of the contract demand of 7778 KVN7000 KW, as contemplated in the
agreement the consumer has to pay charges for 80% of the contract
G demand.

For the period January, 1989 to August, 1990, the Government of
Orissa, in view of short fall in generation of power, made an order under
Section 22-B of the Indian Electricity Act, 1990 read with Section 78(A) of
the Electricity (Supply) Act, 1948 directing the appellant to reduce the
H supply of energy to the consumers to the extent as specified in the schedule
684
1'

ORISSA STATE ELECTRICITY BOARD v. LP.I. STEEL LTD. 685

to the said order. The effect of the order was that the supply of energy to A
the respondent's industry was reduced by 50 per cent. However, it was open
to the respondent to distribute the maximum demand permitted to him in
any manner convenient to him. If the respondent wished to run his unit
drawing energy at the contract demand level of 7778 KVA be could do so
but could run his unit for six months thus observing the 50 per cent cut . B
or in the alternative the respondent could run bis unit throughout the year
but at half the level of contract demand, i.e. at 3889 KVA.
'
j Subsequently, by a notification dated June 25, 1987, the appellant
substituted Regulation 46 of the Orissa State Electricity Board (General
Conditions of Supply) Regulation, 1981 providing that during the period C
of operation of an order under Section 22-B of the Indian Electricity Act,
1910 the appellant shall be under an obligation to supply energy only in
accordance with the restrictions placed by that order. The proviso to the
substituted Regulation 46 provided that during the period of restricted
supply, if the restriction on supply of electricity exceeds 150 hours in a
month, the consumer shall not be liable to pay the minimum charges but D
only charges for the actual energy consumption plus charges for the
m~ximum demand. In the present case, as restriction was for In.ore than
150 hours, the proviso to Regulation 46 was applicable.

The respondent challenged the validity of the proviso to Regulation E
46, by way a Writ Petition in the High Court. Before the High Court, the
respondent contended that the proviso was unreasonable, arbitrary and
confiscatory in so far as during the period.of restricted supply the supply
of power is irregular. It was contended by the respondent that the appel-
lant charges the consumer on the basis of maximum demand which means
that even if the consumer draws 7778 KVA on the first day of the month F
and thereafter there is no drawal. throughout the month, the consumer
would be charged for 7778 KVA on the basis of maximum demand. Specific
instance of January, 1989 was pointed out in which month the quantity of
demand was 478.3 KVA but the respondent was charged at 683 KVA on
the basis or maximum demand. G
The High Court allowed the writ petition or the respondent relying,
inter a/ia, upon the instance or January, 1989 to bold that the proviso to .
Regulation 46 was unreasonable and arbitrary.

In appeal to this court, the appellant assailed the order or the High H
686 SUPREME COURT REPORTS [1995] 3 S.C.R.

A Court pointing out that the instance of January 1989 taken by the High
Court was an entreme case as in January, 1989 there was system distur-
bance and the respondent had already been given remission on that
account.

Allowing the appeal, this Court
B
HELD : 1.1. There is no arbitrariness or nnreasonableness in the
proviso to Regulation 46 of the Orissa State Electricity Board (General
Conditions of Supply) Regulation, 1981. It means and says that during the '
periods of restricted supply of power, the consumer pays the energy
'·
charges for the actual consumption plus maximum demand charges for
C the maximum demand availed of by him at the rate prescribed in the
agreement. In no event, a consumer is made to pay maximum demand
charges for more than what he actually avails. The over-all limitation is
that he must have remained within the fifty per cent quota allotted to him
during the year of restriction; If the consumer avails of energy at half the
D maximum demand/contract demand, he will pay demand charges only for
that. [708-D, 688-C, 708-C, 708-B, C, 707-H]

1.2. Even when there is no power cut in force, if an industry draws
energy at 7000 KVA on the first day of the month and does not draw the
energy at all on the subsequent twenty nine days, it would still be required
E to pay the demand charges at 7000 KVA X Rs. 35. This is because the
demand · charges are meant "to cover investment, installation and the
standing charges to some extent.'' [708-F]

Bihar State Electricity Board and Anr. v. Mis. Dhanawat Rice and Oil
p Mills, [1989] 1 SCC 452; Mis. Northern India Iron and Steel Co. v. The State
of Haryana and Anr., [1976] 2 SCR 677 and Maharashtra State Electricity
Board v. Kalyan Borough Municipality, (1968] 3 SCR 137, distinguished.

2. The validity of regulations, which have force of law, should not be
judged by laking either a stray case or an unnsual case but on _the
G generality of the situation. Situation in January 1989 was an unusual
situation for which appropriate relief bas been given to the respondent.
[709-H, 710-A, 710-C]
3.1. The Electricity Board produces energy required by the factory
and keeps it in readiness for that factory. Electricity once generated cannot
H be stored for future use. This is the reason and the justification for the
1 \

ORISSASTATE ELECTRICITY BOARD v. J.P.!. STEEL I.TD. 687

demand charges and the manner of charging for it. [693-G] A
3.2. There is yet another justification for levy of demand charges.
Demand charges and consumption charges are intended to defray different
items. Broadly speaking, while demand charges are meant to defray the
capital costs, consumption charges are snpposed to meet the running
charges. Every Electricity Board requires machinery, plant, equipment, B
sub-stations, transmission lines and so on, all of which reqnire a huge
capital ontlay. The Board like any other corporation has to raise fnnds for
•) the purpose which means it has to obtain loans. The loan have to be repaid,
and with interest. Provision bas to be made for depreciation of machinery,
equipment and buildings. Plaints, machines, stations and transmission C
lines have to maintained, all of which requires a huge staff. It is to meet
the capital outlay that demand charges are levied and collected whereas
the consumption charges are levied and collected to meet running charges.
[ 693-H, 694-A, BJ
Bihar State Electricity Board, Patna and Ors. v. M/s. Green Rubber D
Industries and Ors., [1990] 1 SCC 731; Saila Bala Roy v. Chainnan,
Darjeeling Municipality, AIR (1936) Cal. 265; M.G. Natesa Chettiar v.
Madras Stale Electricity Board, (1969) Mad. L.J. 69 and Watikins Mayor and
Co. v. Jullundhar Electric Supply Co., AIR (1955) Punj. 133; referred to.

4. An order made under Section 22-B of the Indian Electricity Act, E
1910 is binding upon the Electricity Board and overrides the contracts and
agreements which the Board may have entered into with the consumers.
When an order section 22-B is issued, the Board is freed from the obliga-
tion to supply energy at the ievel stipulated in the agreements with the
consumers and its obligation is to supply in accordance with the order F
under Section 22-B. [707-C, 696-D]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4689 of
1995.

From the Judgment and Order dated 17.5.94 of the Orissa High G
Court in O.J.C. No. 3467 of 1990.

N.S. Hegde, Kapilsibal, Raj K. Mehta, Ms. Mana Chakraborty, Mrs.
Indira Sawhney, B.A. Mohanty, Ms. Kirti Mishra, Praveen Kumar, V.
Kaushal, D.N. Dwivedi, J.B. Dadachanji and S. Sukumaran for JBD & Co, H
688 SUPREME COURT REPORTS (1995] 3 S.C.R.

A for the appearing parties.
The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. Leave granted. Heard counsel for the
Parties.
B
The Orissa State Electricity Board is questioning in this appeal the
correctness of the judgment of the Orissa High Court declaring the proviso
to Regulation 46 of the Orissa State Electricity Board (General Conditions •
\_
of Supply) Regulations, 1981, (hereinafter referred to as "Regulations") as
C unreasonable, arbitrary and illegal. Having struck down the proviso - i.e.,
the proviso as substituted by Notification dated June 25, 1987 - the High
Court has directed the Board to revise the bills issued to the respondent-
writ petitioner "on the basis of proportionate reduction taking into account
the actual consumption of energy".

D The respondent-writ petitioner (M/s. IPI Steel Limited) has a mini
steel plant in Orissa. On August 16, 1984, it had entered into an agreement
with the appellant-Board whereunder the Board undertook to supply
power "upto but not exceeding a maximum demand of 7778 KVN7000
KW". The agreement contains the following stipulations among others :
E (1) "The consumer has perused a copy of the Orissa State Electricity
Board (General Conditions of supply) Regulations, 1981, understood its
contents and undertakes to observe and abide by all the terms and condi-
tions stipulated therein including all future modifications thereto, to the
extent they are applicable to him. The Orissa State Electricity Board
F (General Conditions of Supply) Regulations, 1981 as modified from time to
time shall be deemed to form part of this Agreement" [Vide clause (2)]
(Emphasis added).

(2) "The consumer shall pay to the Engineer for the power demand
G and electrical energy supplied under this Agreement in accordance with
the tariff as mentioned below, subject to any revision that may be made by
the Board from time to time.

Large Industries

H (a) The monthly charges shall be :
ORISSA STATE ELECTRICITY BOARD"· J.P.J. STEEL LID. [B.P. JEEVAN REDDY, J.) 689

Demand charges at Rs. 35.00 per KVA of maximum demand pll!S A
/~
energy charges at the following rate on units metered less units billed
separately under (c) and (d} below :

Paise 36.00 for each unit without prejudice to payment of monthly
minimum charges indicated below : B

{b) The monthly minimum charges shall be calculated at the above rates,
) on a demand of 80 percent contract demand and on units calculated at an
average power factor of 0.9 and an average load factor of 15 per cerit on
the said contract demand. [Vide clause (7) ]". {The remaining portion of c
clause (7) is omitted as unnecessary.)

The respondent complains that notwithstanding the agreement, the
Board was in no position to supply the full quantity of energy stipulated in
the agreement. It is, however, not necessary to consider the said plea, since D
we are concerned herein with the period January, 1989 to August, 1990
alone. During this period, an order under Section 22-B of the Indian
Electricity Act, 1910 read with Section 78(A} of the Electricity (Supply}
Act, 1948 issued by the Government of Orissa on February 14, 1990 was
in force. It. would be appropriate to notice the relevant contents of the E
Order. The Order recited that since .the total availability of power from the
generating stations in Orissa will fall short of the total requirement of
power in the State substantially, the State Government is of the opinion
that for maintaining the supply and securing equitable distribution of
, ' energy, it is expedient to regulate the supply, distribution, consumption and
use of energy from the Orissa grid. The Order directed "the Orissa State
F
Electricity Board to reduce the supply of energy so as to allow the con-
sumer to avail to the extent as specified in the Annexure anything in any
contract agreement or requisition for supply or increase in the supply of
energy notwithstanding". Contravention of the provisions of the Order
rendered the consumer liable for disconnection of service line without G
notice and for payment of energy charges at double the highest rate of
energy charges for any category in addition to the penalties. In the An-
nexure to the said order, the respondent, M/s. !PI Steel occurs at SI. No.
13 under the Heading "Large Industries". It would be appropriate to extract
the schedule insofar as it concerns the respondent : H

•
690 SUPREME COURT REPORTS [1995) 3 S.C.R.

A Allowable drawal Provisional
allotment for
SI. Name of the Period of water Quantity in the water 90-91
No. Industry yr. 1989-(1.7.89 Million (1.7.90 to
to 30.6.90) ·KWH. 30.6.91)
1 2 3 4 5
B
Large Industries
13. !PI STEEL
Gundichapada 1.7.89 to 30.6.90 16.863 16.863

C It is agreed by the parties that the effect of the above order is to
reduce the supply by fifty per cent. The Electricity Board has explained
how the said fifty per cent reduction is being implemented and operated,
by producing before us a statement relating to the water year 1988-89. It
would be appropriate to extract the said statement:
D M/S. IP! STEEL LTD. : DHENKANAL

1. Contract Demand (C.D.) 7778KVA (Kilo-volt- Amperes)

2. 80% of C.D. - 0.8 x 7778 KVA 6222.4 KVA
E 100% requirement of energy
3.. 37.467 MU
for the water year 1988-89 (Million Units)

4. % of level of allocation for the 50% of the
water year 1988-89 full requirement
F
5. Energy allocation for the 18.737 MU

..
year 1988-89
SL aX1mum Month ~ Charge• Energy Liability of ~lief Total
No. demand pa entitlement con.sumer for consumption
in K.VA KVA per month payment of
(in MU) 80% ofC.D.
G L 7778 X6 Rs. 35 Rs. 16,33,380 3.122 Rs. 29,40,084 Rs. 13,00,7Q4 Rs. 18,737 MU
(no charge .{fillZl
for six 6
months)

2 3889 x 12 Rs. 35 Rl;. 16,33,380 1,561 Rs. 26,13,405 Rs. 9,80,100 Rs. 18,737 MU
l. 5185 X9 Rs. 35 Rs. 16,33,Z75 2081 Rs. 19,60,056 Rs. 3,26,781 Rs. 18,737 MU
(no charge .{fillZl
for 3 months) 3
H

•
\'
ORISSASTATE ELECTRICITY BOARDv. J.P.L STEELLTD. tB.P. JEEVAN REDDY, J.) 691

Shri Santosh Hegde, learned counsel for the Orissa Electricity Board A
explains the conteJ?.ts of the above table thus : the maximum demand
allowed under the Agreement to the respondent is 7778 KVA; the cut is
fifty per cent, i.e., to the extent of half; the consumer, however, has been
given an option in the matter of utilisation of the fifty per cent allowed to
him. It is open to him to avail of the maximum demand every month but B
in such a case he can run his factory only for six months as mentioned
under Sl.No.1 in the Table contained in the above statement; if, however,
the consumer wants to operate his plant for twelve months in the year, he
has to reduce his maximum demand to half of 7778 KVA, i.e., to 3889 as
mentioned under SI. No. 2 of the Table; it is equally open to the consumer
to distribute the maximum demand permitted to him in such a manner that C
his plant works for nine months in the year availing 5185 KVA as men-
tioned under SL. No. 3 of the Table · or for that matter, ·in any other
manner convenient to him. But all this is subject to the overall ceiling
prescribed during such period. Sri Hegde submits that energy was made
available to all the bulk consumers on the above basis, which fact, he says, D
. is not disputed by the respondent nor any complaint is made by him that
. i energy was not made available in the manner stated in the said tabular
Statement.

At this stage, it would be appropriate to explain certain concepts
relevant herein. The expression "contract demand" is defined in clause (viii) E
of Regulation 3 of the Regulations. The definition reads thus :

"(viii) Contract demand, means the maximum kilowatt (KW) or
kilo-volt-ampere (KVA) as the case may be agreed to be supplied
by the Board and contracted by the consumer".
F
(In the case of the respondent, the contract demand, as stated hereinabove,
is 7778 KVA.)

The expression "minimum charges" is referred to and explained in
clause 7(b) of the Agreement between the parties. The clause, extracted
hereinabove, says that "the monthly minimum charges shall be calculated G
at the above rates cin a demand eighty per cent of contract demand and
on units calculated at an average power factor of 0.9 and an average load
factor of fifteen per cent on the said contract demand." (The reason for
prescribing the minimum charges is that the Board generates and keeps in
readiness, energy for the respondent to the extent contract demand. Even H
~
I

692 SUPREME COURT REPORTS [1995) 3 S.C.R.
A if the respondent does not avail of it, the energy cannot be stored or
preserved. The respondent is, therefore, made to pay for the energy
generated for his use even though he does not avail of it at the contracted
level; even so, the minimum charges are pegged at eighty per cent.)

The expression "maximum demand" is defined in clause (xx) of
B Regulation 3. It reads :

"(xx) Maximum demand, means the average amount of kilowatts
or kilovolt-amperes as the case may be, delivered to the point of
supply of the consumer and recorded during a thirty minutes'
period or maximum use in the month or it shall mean twice the
c largest number of kilowatt-hours (KWH) or kilovolt- ampere-
hours (KVAH) delivered to the point of supply by the consumer
during any consecutive 30 minutes' period. The Board, however,
reserves the right to shorten this period in special cases, if neces-
sary. n
D
The above definition has to be read in the light of and in continuation
of the definition of the said expression of clause (8) of Section 2 of the
Electricity (Supply) Act, 1948, which runs thus :

"(8). "Maximum demand" in relation of any period shall, unless
E otherwise provided in any general or special order of the State
Government, mean twice the largest number of kilowatt-hours or
kilo-volt-ampere-hours supplied and taken during any consecutive
thirty minutes in that period."

F It is necessary to elaborate what does not expression "maximum
demand" mean and signify? In the case of bulk consumers and large scale
consumers, the Electricity Boards all over the country generally adopt a
two-part levy system. One part is called the 'maximum demand charges'
and the other part 'consumption charges'. Every such consumer is provided
with two meters. One is called the 'trivector meter' and the other is the
G normal meter which records the total quantity of energy consumed over a
given period - which is ordinarily a month. The meter which records the
total consumption requires no explanation or elaboration since we are all
aware of it. It is the other meter which requires some explanation. 1'[ow
every large scale consumer known the amount of energy required by him
H and requests for it from the Board. If the Board agrees to supply that or
ORISSASTATE ELECTRICITT BOARD'· I.P.L STEELLTD. (B.P.JEEVAN REDDY,J.j 693

any other particular amount of energy, it make necessary arrangements A
therefor by layiog the lines to the extent necessary and installing other
requisite equipment. It is obvious that if a factory uses energy at a par-
ticular level/load and for a particular period, it consumes a particular
quantity of energy. The trivector meter records the highest level/load at
which the energy is drawn over any thirty- mioute period in a month while B
the other meter records the total consumption of energy io units io the
month. Let us take the case of the respondent to illustrate the poiot. The
maximum demand in his case is upto but not exceediog 7778 KVA. That
is his requirement. In the normal times, he is entitled to draw energy at
that level/load. That is this maximum demand under the agreement. But he
may not always do so. Say, io a given month, he draws energy at 6000 KVA C
level only, even then he has to pay the minimum charges as stipulated in
the agreement. But if he draws and consumes energy exceeding eight per
cent of the energy, he pays demand and energy charges for what he utilises.
Now, let us notice how the trivector meter, i.e., the meter which records
the maximum demand works; the meter is so designed that it only records D
the maximum load/level at which energy is drawn over any thirty-mioute
period in a month. It only goes forward but never goes back until it is put
back manually. To be more precise, suppose the respondent had drawn .
energy at 7770 KVA for a thirty-mioute period on the first day of the
month, the meter will record that figure and will stay there even if the E
respondent consumes at 7000 or lesser KVA level during the rest of the
month. From this circumstances, however, one canoot jump to the con-
clusion that it is an arbitrary way of levying consumption charges. Normally
speakiog, a factory utilises energy at a broadly constant level. May be, on
certain occasions, whether on account of breakdowns, strikes or shutdowns F
or for other reasons, the factory may not utilise energy at the requisite level
over certain periods, but these are exceptions. Every factory expects to
work normally. So does the Electricity Board expect - and accordingly
produces energy required by the factory and keeps it in readiness for that
factory - keeping it ready on tap, so to speak. As already emphasised,
electricity once generated cannot be stored for future use. This is the G
reason and the justification for the demand charges and the manoer of
charging for it. There is yet another justification for this type of levy and
it is this: demand charges and consumption charges are intended to defray
different items. Broadly speaking, while demand charges. are meant to
defray the capital costs, consumption charges are supposed to meet the H
-
694 SUPREME COURT REPORTS [1995) 3 S.C.R.

A running charges. Every Electricity Board requires machinery, plant, equip-
ment, sub-stations, transmission lines and so on, all of which require a huge
capital outlay. The Board like any other corporation has to raise funds for
the purpose which means it has to obtain loans. The loans have to be
repaid, and with interest. Provision has to be made for depreciation of
B machinery equipment and buildings. Plants, machines, stations and trans-
mission lines have to be maintained, all of which requires a huge staff. It
is to meet the capital outlay that demand charges are levied and collected
whereas the consumption charges are levied and collected to meet the
running charge.s.

C Pausing here for a moment, we may explain the importance and
significance of maxinrnm demand. The maximum demand of a given
plant/factory determines the type of lines to be laid and the power of
transformers and other equipment to be installed for the purpose. A
factory having a maximum demand of say 1000 KVA and a factory having
D a maximum demand of 10,000 KVA require different type of lines and
other equipment for providing supply to them. In the case of latter, lines
have to be of a more load-bearing variety. Transformers have to be in-
stalled and of more capacity. Sometimes in the case of bulk consumers even
a sub-station may have to be established exclusively for such factory/plant.
Very often these industries are situated away from power stations and main
E transmission lines which means laying special power lines over considera-
tion distances to give the supply connection. As a matter of fact, the
significance of the maximum demand would be evident from the fact that
the agreement between the Board and consumer (like the respondent)
specifies only the maximum demand and not the units allowed to be
F consumed. The agreement concerned herein prescribes the maximum,
demand at 7778 KVA but does not prescribe the total number of units of
energy allowed to be consumed. This is for a reason, explains Sri Hegde,
that the total number of units energy consumed is determined by the
load/level at which power is drawn. The formula, taking the case of the
respondent is stated to be - 100% unrestricted energy requirement of the
G respondent = contract demand in KVA x power factor x load factor x total
number of hours in a year. In concrete terms, it means - 7778 KVA x 0.90
x 0.611 x ~760 = 37,467,590 KWH (units) = 37.46759 MU (Million Units).
This formula, as it states expressly, is premised on unrestricted supply.
Problems arise only when restrictions are placed on consumption on
H account of fall in production of electricity by the Board, as would be
ORISSASTATE ELECTRICITY BOARDv. J.P.!. STEEL LID. [B.P. JEEVAN REDDY,J.J 695

-,. explained hereinafter. A
Even during normal times, the Electricity Boards are not able to
generate energy commensurate with their installed capacity, though it is
true, they do try to achieve it. But situations arise - situations beyond their
control - when they are not able to produce even that much energy as they
generally do. They are obliged to cut do\Vn their production substantially B
- at times, as much as by half or more,. We ire told that the power.
~ generated by Hydro-electric stations in Orissa forms a substantial chunk of
}
the total energy produced by the Board. If in a given year, the rains fail
and more particularly, if the rains fail during who or three years consecu-
tively, the production of energy by Hydro-electric units goes down substan- c
tially. Even in the case of thermal stations, problems of supply of coal and
oil, quality of coal supplied and other probleffi.$ result in the Board produc-
ing electricity at a level far lower than what it normally does. During
periods of such reduced generation/supply, problems of distribution arise.
There are several categories of consumers; industrial (including bulk con-
'{
sumers), commercial, agricultural and domestic besides some other D
categories. Naturally, everybody cannot be supplied the full quantity of
energy required; it has to be rationed - and may be, supply staggered. It is
precisely to provide for such situations that Section 22-B of the Indian
Electricity Act, 1910 empowers the Government to make an order regulat-
ing the distribution and consumption of energy. We may now read. the · E
section :

"22-B. Power to control the distribution and consumption of energy
- (1) If the State Government is of opinion that it is necessary or
..r expedient so to do, for maintaining .the supply and securing the
equitable distribution of energy it may by order provide for regulat- F
· ing the supply, distribution, consumption or use thereof.

(2) Without prejudice to the generality of the powers conferred by
sub-section (1) an order made thereunder may dir~ct the licensee
not to comply, except with the permission of the State Government,
G
with -
).
(i) the provisions of any contract, agreement or requisition
whether made before or after the commencement of the
Indian Electricity (Amendment) Act, 1959 (32 of 1959), for
the supply (other than the resumption of a supply) or an. H
.
; I

696 SUPREME COURT REPORTS [1995] 3 S.C.R.

A increase in the supply of any energy to any person, or

(ii) any requisition for the resumption of supply of energy to
a consumer after a period of six months, from the date of its
discontinuance, or

B (iii) any requisition for the resumption of supply of energy
made within six months of its discontinuance, where the
requisitioning consumer was not himself the consumer of the
;
supply at the time of its discontinuance." ~

It is obvious that an order made under Section 22-B is binding upon
c the Electricity Board and over-rides the contracts and agreements which
the Board may have entered into with the consumers. When an order under
Section 22-B is issued, the Board is freed from the obligation to supply
energy at the level stipulated in the agreements with the consumers and its
obligation is to supply in accordance with the order under Section 22-B.
D On this score, there is no controversy. The controversy is with respect to
the power of the Board to collect maximum demand charges at the rate
prescribed in the agreement during such periods of restricted supply. In
.t
short, the question is with respect to the power of the Board to frame
Regulation 46 and more particularly, the reasonableness of the proviso to
the said Regulation.
E
Section 79 of the Electricity (Supply) Act, 1948 empowers the Board
to make Regulations to provide for matters specified therein. Inter a/ia, the
matters specified include 'G) principles governing the supply of electricity
by the Board to persons other than licensees under Section 49'. Clause (k)
is, of course, of a general nature. Section 49(1) says that :
>._
F
'49. Provision for the sale of electricity by the Board to persons
other than licensees. (1) Subject to the provisions of this Act and
or regulations, if any, made in this behalf, the Board may supply
electricity to any person not being a licensee upon such terms and
G conditions as the Board thinks fit and may for the purposes of such
supply frame uniform tariffs."
~
It would help if we notice sub-sections (2), (3) and (4) of Section 49
also. They read thus :

H "(2) Jn fixing the uniform tariffs, the Board shall have regard to all
'
'

ORISSA STATE ELECTRICITY BOARDv. J.P.I. STEELLill. (B.P. JEEVAN REDDY,J.J 697

or any or the following factors, namely - A
(a) the nature of the supply and the purposes for which it is
required;

(b) the co-ordinated development of the supply and distribu-
tion of electricity within the State in the most efficient and B
economical manner, with particular reference to su<.;h
development in areas not for the time being served or ade-
quately served by the licensee;

(c) the simplification and standar.disation of methods and
rates of charges for such supplies; C

(d) the extension and cheapening of supplies of electricity to
sparsely developed areas.

(3) Nothing in the foregoing provisions of this section shall D
derogate from the power of the Board, if it considers it necessary
or expedient to fix different tariffs for the supply of electricity to
any person not being a licensee, having regard to the geographical
position of any area, the nature of the supply and purpose for
which supply is required and any other relevant factors.
E
(4) In fixing the tariff and terms and conditions for the supply of
electricity, the Board shall not show undue preference to any
person."

Jn exercise of the power conferred by Section 79 read with Section
49. of the Electricity (Supply) Act, the Orissa Board has framed Regulation F
46. Before its amendment by Notification dated June 25, 1987, Regulation
46 read as follows :

"Right of Board in case of break down in Board's supply system.-

If at any time during the continuance of any agreement between G
the Board and consumer, due to reason mentioned in clause-40(d)
and 43 above, the Board/Engineer shall be under no obligation to
give supply of electrical energy as contracted during the period of
such break down/force measure situation continues. Such period
of discontinuance/reduced supply shall not be added to the initial H
698 SUPREME COURT REPORTS [1995] 3 S.C.R.

A period of the agreement.

Provided that during such period of discontinuance/reduced
supply, the consumer shall not be liable to pay the minimum
charges in accordance with the agreement, but shall only pay for
the actual quantity of demand and/or energy supplied to the
B consumer in lieu of the contracted demand."

The Regulation was substituted by the Notification dated June 25,
1987. The substitute Regulation reads as follows :

'If on account of shortage of the generation of electrical energy,
c restrictions on power supply are imposed by the State Government
under Section 22(B) of the Indian Electricity Act, 1910 or by the
Board under Section 49 of the Electricity Supply Act, 1948 and all
other power available under law, the Board and the Engineers
shall be under no obligation to supply energy contracted for except
D in accordance with the restriction order and subject'to the other
provisions of the Regulation. y

Provided that during the period restrictions are in force, the
consumer shall not be liable to pay the minimum charges in
accordance with the agreement if the restriction on supply in a
E month exceeds 150 (One Hundred Fifty) hours but shall only pay,
in case of two part tariff, on the basis of actual energy consumption
and the "maximum demand" as provid~d in the agreement and in
all other cases, on the basis of actual consumption of energy."

F We are concerned in this case with the substituted Regulation 46 and
hence, reference to Regulation 46 hereinafter means the amended Regula-
tion 46 only.

Regulation 46, it is evident, is designed to meet the situation obtain-
ing during the period an order under Section 22-B-of the Electricity Act,
G 1910 is the force. It says so specifically. The Regulation says that when such

1
an order is in operation, the Board shall be under no obligation to snpply
the contracted demand/maximum demand and that it will supply energy
only in accordance with the restrictions placed by such order. To this extent
it states the obvious. The proviso - which is the one in question - then says
H that during the period of such restricted supply if the restriction on supply
_j

ORISSASTATEELECTRICITYBOARDv. l.P.I. STEEL LIB. [B.P.JEEVAN REDDY,J.) 699

~ exceeds 150 hours in a month, (a) the consumer shall not be liable to pay A
minimum charges in accordance with the agreement but (d) he shall pay
in case of two-part tariff, on the basis of actual energy consumption and
the maximum demand as provided in the agreement and (b) in all other
cases, (i.e., in case of consumers to whom two-part tariff does not apply)
on the basis of actual consumption of energy.
B
~ Now, in the case before us, the restriction on supply did exceed 150
\
J.
hours in a month; indeed it was fifty per cent. In accordance with the said
proviso, therefore, the respondent was obliged to pay (i) the maximum
demand charges as provided in the agreement and (ii) the actual energy
consumption charges though he is relieved of the obligation to pay mini- c
mum charges. The maximum demand contracted by the respondent is upto
but not exceeding 7778 KVA as mentioned hereinbefore. Now, if the respon-
dent draws energy at full load, i.e., at 7778 KVA, his consumption of energy
over the year would be twice the quota permitted to him during the year
of restriction. Therefore, the respondent is obliged to - and should - draw D
·f
energy at half the maximum/contracted demand, i.e., at 3889 KVA, if he
wants to run his factory for the whole of the year of restriction. And since, .
he is relived of the obligation to pay the minimum charges as per the
agreement, he pays demand charges only on the basis of the actual maxi-
mum KVA drawn by him plus charges for the energy actually consumed
by him. Secondly, the Board explains, there is an option available to such E
consumers. If their unit cannot work at a level/load less than the maximum
demand/contract demand or if the consumer wishes to do so for his own

. ~
reasons, he is free to draw energy at the contract/maximum demand level,
but then he can work only for six months in the year of restriction since he
is bound to observe the cut in consumption of energy by fifty per cent. In F
other words, if he avails power/energy at the maximum agreed level, he will
exhaust his fifty per cent quota in six months itself. It is however open to
a consunier to draw energy at any other level so long as he does not exceed
the fifty per cent quota permitted to him during the year of restriction, as
explained in the tabular statement referred to hereinbefore. The option to
draw at the maximum level/load permitted is probably conceived to provide G
). for those units which cannot operate except when they draw energy at the
maximum demand level. They can do so but they can operate only for six
months in the year of restriction. So far as the respondent is concerned, it
is admitted that it is not a unit which can operate only when it draws energy
at 7778 KVA or thereabout; it can operate even if energy is drawn at half H
700 SUPREME COURT REPORTS (1995] 3 S.C.R.

A the maximum demand level. May be, such functioning may be less economi-
cal, but function it can.

We shall now deal with the precise grievance of the respondent- writ
petitioner and the grounds on which the High Court has invalidated the
proviso to Regulation 46. The respondent says that where the cut in the
B supply is as much as half, there is no justification or equity behind the
regulation which entitles the Board to levy full demand charges. (There is
no complaint insofar as the levy of actual consumption charges are con- '
cerned; the whole grievance is only about the maximum demand charges
or demand charges, as they are called.) The respondent submits that during
C the periods of restricted supply, there are frequent cuts and breakdowns,
the supply is irregular and yet the Board proposes to levy full demand
charges only because in any thirty- minute period in a given month, the
power is availed at the maximum demand level. According to the respon-
dent, during the period of such supply the demand charges should not be
D collected at all but only the consumption charges. This submission has been
upheld by the High Court on the following reasoning which may better be
put in their own words :

"Under the two part tariff system which is meant for big consumers
of electricity, the consumer is required to pay the demand charges
E which charges are levied to cover investment installation and the
standing charges to some extent and energy charges for the actual
amount of energy consumed. The expression "Demand charges"
would mean that the charge leviable for the readiness of the
supplier to meet the demand of the consumer. Where, therefore,
F the supplier, namely, the State Electricity Board was not at all in
a position to supply the energy as per the demand of the consumer
it would he an unreasonable burden on the consumer if the
supplier is permitted to raise the entire demand charges. The
excessiveness of the burden on the economy of the industry as well
as on the consumer would be apparent from a small illustration.
G An industry needs 7000 KVA for running of its factory but because
of the power restrictions issued by the State Government in exer-
cise of power under section 22(b) of the Supply Act it cannot run
the factory through out the month as that would exceed the
quantum of energy which the industry could utilise. But to run its
H machinery if the industry in question on the first day of the month
0RISSASTA1EELECIRICTIY BOARD'· LP.l SIBEL LTD. [B.P. JEEVAN REDDY,J.] 701

takes power than in the demand meter it would show 7000 KVA A
Thereafter even if for next twenty nine days of the month, the
industry does not take any further energy still by virtne of the
proviso to Regulation 46 in accordance with the agreement be-
tween the patties the consumer will be required to pay towards
"demand charge" to the extent of Rs. 35 x 7000. Levy of such a B
charge, in our considered opinion, cannot but be held to be
arbitrary, unreasonable and confiscatory in nature."

The High Court then referred to the decision of this Court in Mis.
Northern India Iron and Steel Co. v. The State of Haryana and Anr., [1976]
2 S.C.R. 677, Maharashtra State Electricity Board v. Kalyan Borough C
Municipality, (1968] 3 S.C.R. 137 and to the unreported decision of the
Orissa High Court in Mis. J.M. Graphite Mining & Manufacturing Company
v. Orissa State Electricity Board & Ors., and observed :

"The ratio of the aforesaid case as well as the observations ex- D
tracted above would apply while testing the reasonableness of the
proviso to Regulation 46, namely, if the Board is ready and willing
to supply but the consumer does not consume, then obviously the
liability would arise as the Board remains in readiness to supply
energy and non-utilisation of the energy by the consumer does not
effect the liability of the Board to keep the energy set apart for E
consumption. But where the Board is not in a position to supply
and then by virtue of virtue of Regulations like proviso to Regula-
tion 46, levies demand charges on the _basis of contract demand,
it would be an unreal levy, arbitrary levy, irrational levy and as
such violates the basic mandate enshrined in Article 14 of the F
Constitution. In course of arguments, the learned counsel for the
petitioner had produced before us a calculation sheet showing the
unreasonableness of levy towards demand charge in accordance
with the proviso to Regulation 46 and we think it appropriate to
notice the same at this stage. The contract demand of the petitioner
is 7778 KVA and if there would have been no power cut in any G
month and the petitioner would have been running the factory
through out, then in a month the petitioner would be consuming
40,32,115 K.W.H. of units of energy taking the power factor at 90
and load factor at 80%. But on account of the power restriction
imposed by the State Government under Section 22(B) of the Act, H
A
702 SUPREME COURT REPORTS [1995] 3 S.C.R.

the units of power actually consumed during the month of January,
1989 as is apparent from the bill No. 705 dated 3.2.1989 is 2,56,200
.,_, -
K.W.H. and in terms of quantity of demand it is 478.3 K.V.A. but
on the basis of maximum demand recorded in the trivector metre
it is 683 KVA and, therefore, the petitioner has been made liable
to pay the demand charge at the rate of 35 per KVA, thus
B amounting to Rs. 2,51,150 though for 478.3 KVA he could have
been charged on proportionate reduction basis only to the extent
of 17,578. The aforesaid concrete illustration exhibits the arbitrari-
ness and irrationality of the provisions in question. On examining
the proviso to Regulation 46, we have not found any nexus for the
c same for which it has been introduced. If the nexus is the readiness
of the supplier to supply power then how can the provision be
sustained when the readiness is not there. In the aforesaid facts
and circumstances, we are of the considered opinion that the
proviso to Regulation 46 is unreasonable, arbitrary and unreal and
the same cannot be sustained and we accordingly quash the same."
D
Apart from criticizing the above reasoning, Sri Hegde, learned coun-
sel for the Board complains that the decision of the High Court is coloured
by the extreme example taken by it relating to the month of January, 1989
(Bill No. 705 dated February 3, 1989). The learned counsel explains that
E during the month of January, i.e., on January 5, 1989, there was "system
disturbance following failure of a 220/132 KV auto-transformer at TIPS,
Talcher for which loads had to be restricted to all the sub-stations receiving
power at 132 KV, from TIPS due to which M/s. !PI STEEL were not
allowed to draw their furnace load during several periods in the month of
F January, February and March, 1989 which extended to more than 3 days
at a stretch each time" and on which account a special remission has been
granted to the respondent under Board Memorandum No. Com-1-70/83, a
copy of which has been placed before us. The learned counsel submits that
such an unusual situation cannot be taken as the standard or as a test case
for judging the validity of the provision. One must go by the generality of
G the situation. Such breakdowns may occur even during periods of normal
l
supply. Barring the special situation arising from the breakdown aforemen-
tioned, he says all the consumers including bulk and large scale consumers
have been supplied energy as explained in the tabular statement referred
to above. Sri Hegde relies upon Paras 18 to 24 in the decision of this Court
H in Bihar State Electricity Board, Patna & Ors. v._M/s. Green Rubber Industries
ORISSA STAIB ELECTRICITY BOARD"· lP.l SIBEL LID. (B.P. JEEVAN REDDY, J.] 703

& Ors., [1990] 1 S.C.C. 731 where this court justified the concept of A
minimum charges with reference to several decisions of High Courts. It is
pointed out that this Court referred with approval to the decision of the
Calcutta High Court in Saila Bala v. Chainnan, Darjeeling Municipality,
AIR (1936) Cal. 265 wherein it was held that "the minimum charge was not
really a charge which had for its basis the consumption of electric energy. B
It was really based on the principle that every consumer's installation
involved the licensee in certain amount of capital expenditure in plant and
mains on which he was to have a reasonable return. He could get a return
i when the energy was actually consumed in the shape of payments of energy
) consumed. When no such energy was consumed by the consumer, or a very
small amount was consumed in a longer period, the licensee was allowed C
to charge minimum charges by his license, but those minimum charges were
really interest on his capital outlay incurred for the particular consumer."
Learned counsel points out that this court has also qnoted with approval
the decision of the Madras High Court in M.G. Natesa Chettiar v. Madras
State Electricity Board, [1969] 1 Mad. LI 69, where it was held that : D

"the minimum fixed was only consideration for keeping the energy
available to the consumer at his end; it was not a penalty for not
consuming a stated quantity of energy but was a concession shown
up to the amount fixed energy at a specified rate could be con-
sumed free, consumption beyond only had to be paid for. The E
statutory basis for the terms in the agreement providing for mini-
mum annual charge was found in Section 22 of the Act and Section
48 of the Supply Act. Section 22 deals with obligation on licensee
to supply energy. The proviso to the section says :
F
"No person shall be entitled to demand or to continue to
receive, from a licensee a supply of energy for any premises
having .a separate supply unless he had agreed with the
licensee to pay to him such minimum annua~ sum as will give
him a reasonable return on the capital expenditure, and will
cover other standing charges inqurred by him in order to G
meet the possible maximum demand for those premises, the
sum payable to be determined in case of difference or dispute
by arbitration. 11

Section 48 of the Supply Act empowers the licensee to carry out H
704 SUPREME COURT REPORTS [1995] 3 S.C.R.

A arrangement under that Act."

The decision of the Punjab High Court in Watkins Mayor & Co. v.
Jul/undhar Electric Supply Co., AIR (1955) Punj. 133, it is pointed out, was
also quoted with approval by this ('- ,rt wherein the High Court had taken
the view that :
B
"...... the whole scheme of the Act seems to show that the provision
made in any contract for a minimum charge was really to provide
for a fair return on the outlay of the licensee, and it was for this
reason that the law allowed the contract of this kind to be entered ,
into. Clause XI-A of the schedule to the Act, as it then stood,
c provided:

"A licensee may charge a consumer a minimum charge for
energy of such amount and determine in such manner as may
be specified by his licence, and such minimum charge shall
D be payable notwithstanding that no energy has been used by
the consumer during the period for which such minimum
charge is made. 11

The court accordingly held that there was nothing illegal in the
insertion of the term for payment of a minimum charge in the
E agreement of the supply of energy and held that it had not been
made out that it was an unreasonable levy."

Sri Hegde further points out that in Para 21, this Court has approved
the decisions of the Allahabad and Andhra Pradesh High Courts holding
F that the requirement to pay minimum charges was one of the terms. and
conditions of supply and cannot be faulted. Learned counsel points out that
the decision of this Court ultimately rested on the principle that the
stipulation of minimum guarantee charges in the agreement cannot be held
to be ultra vires the statutory provisions governing the supply and that the
agreement stipulating therefor was reasonable and valid. Sri Hegde points
G out that the rationale behind the concept of minimum charges referred to
in the said decision is the very rationale underlying the concept of two-part
levy concerned herein and which is also incorporated in the agreement
between the parties. Learned counsel emphasises that the agreement ex-
pressly recites that the respondent has read the regulations and has agreed
H to be bound by them not only as they stood on the date of the agreement
ORISSASTATEELECIRICITYBOARD'- lP.l STEEL LTD. (RP. JEEVAN REDDY,J.J 705

but with such modifications thereto as may be made therein in future. In A
such situation, he says, the respondent cannot be allowed to wriggle out of
the terms of the agreement by resorting to Article 226 of the Constitution.
He submits further that during the period of restricted supply, the capital
charges remain the same though there may be some reduction in the
running charges, that even during the period of restricted supply, loans, B
have to be repaid with interest, the plants, the stations, the transmission
lines and all other equipment have to be maintained in good shape and
depreciation etc. provided for. The staff recruited, the learned counsel
submits, cannot be reduced as soon as an order under Section 22-B is made
and re-employed when the restriction ceases. He submits that if.the respon-
dent had installed a generating station or unit of his own for the purpose C
of supplying the energy required by his steel mill, he would have been faced
with the very same problems as are faced by the Board.

On the other hand, the learned counsel for the respondent-writ
petitioner submits that if the Board is allowed to insist upon its pound of D
flesh and to enforce the agreement and Regulation 46 as it stand, it would
be highly unjust and inequitable to the consumers like the respondent. They
would not only suffer huge losses but would be obliged to close down,
affecting the workers and the national economy. He submits that because
of the irregular and uncertain supply of power by the Orissa Board, the
respondent-company has become sick already and its case is now pending E
with B.l.F.R. He submits that when the Board is not able to supply at the
agreed level, it cannot at the same time seek to recover the demand charges
at the agreed rate. Being a statutory public corporation and a State within
the meaning of Article 12 of the Constitution of India, it is submitted, the
,..--[ Board must act fairly. The learned counsel relies upon the decisions of this F
court in Northern India Steel as also the decision in Bihar State Electricity
Board and Anr. v. M/s. Dhanawat Rice and Oil Mills, [1989] 1 SCC 452
beside the decision in Maharashtra State Electricity Board v. Kalyan Borough
Municipality.

Northern India Steel was a case where a power cut was imposed by G
the State Government by making an order under Section 22-B of the
Electricity Act, 1910. The appellant was.an industry governed by two-part
levy system. On account of the said power cut, the Board did give certain
reduction in the demand charges because of its inability to supply energy
as per the requirement of the appellant. The appellant, however, took the H
t

706 SUPREME COURT REPORTS [1995] 3 S.C.R.

A stand that no demand charge should at all be levied when the Board was
not a position to supply electric energy as per its requirement or that, at
+
any rate, there should be a proportionate reduction of the demand charges.
Before this Court, the appellant and the Board took two extreme stands:
the Board saying that even if if were not in a position to supply energy
according to the demand of the consumer, it is entitled to claim the full
B demand charges as per clause (4) of the Tariffs and the appellant saying
that in such cases, the Board cannot claim demand charges but that it is
entitled only to energy charges. This Court, however, did not pronounce
upon the said stand in view of the fact that clause (4) (!) of the Tariffs
notified by the Board provided a solution. The said clause provided that
C the consumer is entitled to a proportionate reduction of demand charges
in the event of lock-out, fire or any other circumstance considered by the
supplier beyond the control of the consumer. This Court was of the opinion
that the disability of the Board to give full supply to the appellant-consumer
because of the Government Order under Section 22-B must be treated as
D a circumstance disabling the consumer from consuming the electricity as
per the contract and, therefore, entitled to the benefit of clause (4)(!).

So far as the decision in Mis. Dhanawat Rice and Oil Mills 1s
concerned, it does not appear to be a case where a power cut was imposed
under Section 22-B. The decision entirely turned upon the language of
E clauses (1), (4) and (13) of the Agreement between the parties. Clause (13}
provided that where the consumer is prevented from receiving or using the
electrical energy either in whole or in part due to strike, riots, fire, floods,
explosions, as of God or any other cause reasonably beyond the concrol or
if the Board is prevented from supplying or is unable to supply such
electrical energy owing to any or all the causes mentioned above, then the
F demand charge and guaranteed energy charge set out in the Schedule to
the Agreement shall be reduced in proportion to the ability of the con-
sumer to take or the Board to supply such power; the decision of the Chief
Engineer of the Board in that behalf was declared to be final. The High
Court had opined that the consumer was not at all liable to pay any annual
G minimum guarantee charges because of the tripping, load-shedding and
power cuts. This Court, however, held that the High Court was not right
in saying so. It held that in view of clause (13), the consumer is entitled
to proportionate reduction only.

The decision of the Constitution Bench in Maharashtra State
H Electricity Board v. Kalyan Borough Municipality, does not appear to be
ORISSA STATE ELECTRICITY BOARD,. J.P.L STEEL LTD. (B.P. JEEVAN REDDY, l.] 707

relevant on the question at issue herein. The learned counsel for the A
respondent could not bring to our notice any observation in the said
judgment which supports his contentions.

Now coming back to the facts that the validity or justifiability of the
order made by the Government of Orissa under Section 22-B is not B
questioned nor is it in issue. We must, therefore, proceed on the assump-
tion that the cut was imposed because it was necessary to ensure equitable
supply of energy to various consumers in the State. It is equally beyond
dispute that an order made under Section 22-B is binding upon the
J' Electricity Board as well as the consumers and supersedes and over-rides
the agreements that may have been entered into between the Board and C
the consumers. According to the said order, the cut was fifty per eent and
the cut was operative for one full year, called''water year'. The respondent
was, therefore, bound to utilise only fifty per cent of what is permitted
under the Agreement . In other words, it must consume only half the
energy which it was entitled to consume under the agreement in a month D
or in a year, as the case may be. Evidently, if the respondent drew energy
at the maximum demand level; i.e., at the maximum contracted level, and
did so far the whole of the year, it would be utilising the full quota of energy
permissible to him under the agreement, which he cannot do in view of the
fifty per cent cut imposed by the order under Section 22-B. The order
under Section 22-B read with option given by the Board, means, according E
to the Board, that either the consumer draws energy at half the maximum
demand level and operates for full year or draws energy at full maximum
demand level and operates only for half the relevant year of restriction, as
explained hereinbefore. The choice is left to the consumer to arrange his
affairs in such manner as he thinks fit provided he does ~ot go beyond the F
quota {restrieted quota) prescribed for him Now, Regulation 46 says that
during the period an order under Section 22-B is in operation and the
hours of restriction exceed 150 hour in a month, the consumer is relieved
of the obligation to pay the minimum charges, i.e., the o!>ligation to pay
eighty per cent of the charges even if he avails of and consumes less power. G
The consumer governed by the two Part tariff is, however, obliged under
the said regulation to pay "on the basis of actual energy consumption and
the 'maximum demand' as provided in the agreement". Now, what does this
mean in practice? If the consumer avails of energy at half the maximum
demand/contract demand, he will pay demand charges only for that. In
other words, if the respondent had drawn energy at 3889 KVA, he would H
708 SUPREME COURT REPORTS [1995] 3 S.C.R.

A pay demand charges only for 3889 KVA plus the charges for the actual
number of units consumed by him. Similarly, had the respondent availed
of the energy at, say 3000 KVA he would have been liable to pay demand
charges only on that basis plus the energy charges, and if he had availed
of energy at maximum demand then he would have been liable to pay
demand charges for the maximum demand availed by him plus the energy
B charges - the over-all restriction being that he should have remained within
the fifty per cent quota prescribed. Thus, in no event, a consumer is made
to pay maximum demand charges for more than what he actually availed.
As stated above, the over-all limitation is that he must have remained
within the fifty per cent quota allotted to him during the year of restriction.
C We are unable. to see any arbitrariness or unreasonableness in the said
proviso. It means and says that during such period of restricted supply, the
consumer pays the energy charges for the actual consumption plus maxi-
mum demand charges for the maximum demand availed of by him at the
rate prescribed in the agreement.

D
The High Court faulted the proviso to Regulation 46 on the ground
of arbitrariness and unreasonableness. The reasoning of the High Court is
this : if in a given case, an industry avails of energy at 700C KVA' on the
first day of the month but does not take any energy for the remaining
twenty nine days of the month, it would still be liable to pay the demand
E charges for the month at the rate prescribed in the agreement, viz, 7000
KVA x Rs. 35, which is not only arbitrary and unreasonable but also
confiscatory in nature. With great respect, we are unable to subscribe to
this view. This would precisely be the result even in the normal times. Even
when there is no power cut in force, if an industry draws energy at 7000
F KVA on the first day of the month and does not draw the energy at all on
the subsequent twenty nine days, it would still be required to pay the
demand charges at 7000 KVA x Rs. 35. This is because the demand charges
are meant "to cover investment, installation and the standing charges to
some extent", as held by this Court in Northern India Iron and Steel, which
is precisely what we have explained hereinbefore. To say that demand
G charges should not be collected if the consumer does to avail of the
electricity on the remaining twenty nine days in a month in the above
illustration would be to deny and disallow the very concept of and rationale
behind the maximum demand charges. Of course, situation would be
different, if in the above illustration, the Board does not or is unable to
H provide even the restricted supply in the manner explained hereinbefore.
ORISSA STATE ELECTRICITY BOARD'· LP.I. STEEL LTD. (BP. JEEVAN REDDY, J.( 709

In such situation, the consumer would certainly be entitled to the relief in A
an equitable manner, just as he would have been entitled to relief in normal
times. Jn other words, what would happen if during normal times such a
thing happens? Same would be the situation during the period of cut. There
is in effect no distinction between both situations except that during
periods of restricted supply, the availability of energy is reduced vis-a-vis
the contracted supply. Now it is not the case of the respondent that in any
B
month electricity energy was available for the first day of the month or on
any particular day or days and not for the whole month. So far as the period
.I January to March, 1989 is concerned, the situation in the month was a
) special one. It is explained by the Board that on January 5, 1989 there was
a system disturbance on account of the failure of a 2201132 KV auto c
-transformer at TIPS Talcher on account of which the industries like the
respondent were not allowed to draw energy even in accordance with the
cut and restriction imposed by the Government of Orissa and the Orissa
Electricity Board. It is explained that on account of this unusual situation
and on the basis of the representation of the respondent, it has been given D
a special rebate in Board Memorandum No. Com 1-70/83. Under this
memorandum, it has been decided that "some relief be provided to the
consumer by exempting the demand charge for the period when power was
restricted to this industry for a continuous period of seventy two or more
as special case (for the months of Jaouary '89 to March '89 only). If this is
approved, the monthly maximum demaod charges of this unit for the three E
months from January, 89 to March, 89 shall be prorated for the period of
supply excluding the period when power supply was not given to the
consumer continuously for seventy two hours or more. This concession, if
allowed, shall be a special case not to be cited as a precedent for future."
It is stated by Sri Hegde, learned counsel for the Board that a special F
concession has been approved and given to the respondent for the said
months.

The other reason given by the High Court in support of its decision
is contained in the second of the two extracts from its judgment set out by
us hereinbefore. It takes the January, 1989 situation as a representative G
situation aod seeks to demonstrate on that basis the arbitrariness and
.,_ irrationality of the proviso to Regulation 46. But as stated hereinbefore that
was an unusual situation for which appropriate relief has been given to the
respondent. The validity of regulations, which have the force of law, should
not be judged by taking either a stray case or an unusual case but on the H
710 SUPREME COURT REPORTS (1995] 3 S.C.R.

A generality of the situation. All that happens during the period of restriction
is that electricity is generated at a lower level than usual; if the fall in.
production is expected to be fifty percent, a corresponding restriction is
imposed on consumption. So far as breal<;downs and trippings etc. are
concerned, they are not confined to periods of restrictions alone; they may
B occur during normal times as well. If there is no supply at all for consid-
erable periods, the situation would be different, whether it happens during
the period of normal supply or during the period of restricted supply, but
we are not concerned with or called upon to pronounce upon such a
situation. For the unusual situation obtaining during January-March, 1989
aforesaid, appropriate relief has already been given to the respondent.
c
We must, therefore, say that no arbitrariness or unreasonableness is
involved in Regulation 46 or its proviso. It only provides for collecting
demand charges for the actual maximum demand availed by such con-
sumers during the period of restricted supply. The consumer cannot
D legitimately complain of this course nor can it characterise ·it as confis-
catory. We must also say that none of the decisions relied upon by the
learned counsel for the respondent lays down any principle whicb can be
said to suggest that such a rule is arbitrary and unreasonable. Once we
understand the system of two-part levy and the rationale behi'ld it, as also
the compulsions arising from an order under Section 22-B of the Electricity
E Act, 1910, there would be no room or ground for impugning the validity of
Regulation 46 of its proviso. Difficulties are no donbt there - difficulties of
the consumer and difficulties of the Board .. They are essentially. the
problems of shortages, perhaps endemic to a developing economy. As
rightly emphasised by Sri Hegde, the respondent would have faced the
F same problems if he had installed his own plant for generating electricity
to meet his needs. While the respondent says that it has suffered on
account of these cuts, the Board says that by reducing the demand charges
during such periods, it is also suffering. The consumer accuse Board of
several failings and the Board has its own explanations. It is not possible
G to go into them. It is enough to say that in the circumstances, Regulation
46 or its proviso cannot be termed as arbitrary or unreasonable, much less
confiscatory.
J

The appeal is accordingly allowed and the order of the High Court
H is set aside. There shall be no order as the costs.
I
ORISSA STATE ELECTRICITY BOARD"· LP.I. STEEL LTD. [B.P. JEEVAN REDDY, J.j 711

Before parting with this case, we must mention that during the A
hearing of this appeal, M/s. !spat Alloys Limited filed a Transfer Petition
(C) No.335 of 1994 praying for transferring the writ petition filed by them
in and pending before the Orissa High Court (O.J.C. No.6565 of 1992) to
this Court for being heard along with this appeal on the ground that the
points arising in this appeal are similar to those arising in its writ petition. B
We told Sri Kapil Sibal, learned counsel appearing for the petitioner that
while we are not inclined to transfer the said writ petition to this Court,
we may hear him as an intervenor in this appeal. We did hear him for
sometime but then we found that the learned counsel was raising several
issues and contentions which are outside the purview of the writ appeal
and which were not put forward or argued before the High Court. We, C
therefore, did not permit Sri Sibal to raise those contentions. It is not
necessary to set out the learned counsel's submissions nor is it necessary
to express any opinion thereon. Suffice it to say that our decision is
confined to the issues arising in the appeal before us and will obviously not
.j govern the issues and questions not raised in this appeal.
D
Accordingly, the Transfer Petition is dismissed as unnecessary.

B.K.M Appeal allowed