Title not extracted — [1993] 3 S.C.R. 199

The judgment of the Court was delivered by

MOHAN,J. Leave granted. ·

These civil appeals are directed against the judgment of the Division Bench of Andhra Pradesh High Court reported in Southern c Steel Ltd. v. A.P. State Electricty Board, Hydrabad AIR 1990 Andhra Pradesh 58. The facts briefly are as under:

The Andhra Pradesh State Electricity Board is constituted under Section 5 of the Electicity Supply Act, 1948 (hereinafter referred to as the Act). The said board is engaged in generation, distribution and supply of electricity in the State of Andhra Pradesh. Electric energy is supplied for industrial, commercial, agricultural and domestic pur- poses. To such of thes·e industries, using energy_about a particular level, it is supplied at a higher voltage. They are classified as high tension consumers (H.T. consumers). All the appellants herein belong to that category.

Section 49 of the Act empowers the Board to notify the terms and - conditions upon which it will supply electricity to-a person. It is also empowered to frame uniform tariffs in that behalf. Sub-section 2 F specifies in fixing the uniform tariff, the Board shall have regard to all or any or the following factors, namely-

a) the nature of the supply and the purposes for which it is required; G

b) the co-ordinated development of the supply and distribution of electricity within the State in the most efficient and economical manner, with partic1:1Iar ref- erence to such development in areas not for the time H

214 SUPREME COURT REPORTS [1993) 3 S.C.R.

A being served or adequately served by the licensee;

c) the simplification and standardisation of methods and rates of charges for such supplies;

d) the extension and cheapening of supplies of elec- B tricity to sparsely developed areas.

Sub-section 3 empowers the Board to enter into a special agree- -. ment with any consumer any prescribe different tariffs for him. Under Section 4, an obligation is cast on the Board not to show undue C preference to any person while fixing the tarrif and terms and condi- tions for the supply of electricity. In all these cases, the appellants are covered by the general terms and conditiions notified under Section 49 ( 1) of the Act. The terms and conditions were notified by the Board and the B.P.M.S. No. 690 dated 17th of September, 1975. It is not 0 neces5ary to refer in detail to the various terms and conditions. However, what requires to be noticed is the terms and co!lditions oblige every consumer excuting an agreement in the prescribed form, undertaking to abide by the terms and conditions prevailing on the date of agreement and also agreed to be bound by the terms aJ:\d conditions - as may be notified from time to time. It is important to note under E Section 25, the Board has unilateral right to vary the term from time to time under clause 25.1. The terms and conditions for supply of electricity by special or general proceedings. ·

Condition 32.1. provides "the Board shall as far as possible within 1< 15 days after the expiration of each calendar mon~ cause to be delivered to every consumer 'a bill of charges stating the amounts payable by the consumer towards charges for energy supplied and any other sum in connection with supply of energy by the Board."

G Conditions 32.2.1. obliges the consumers to pay the amount shown in the bill, within 15 days of the date of the bill in.default ·whereof they are liable to pay "an additional charge of 2% oer month or part thereof for the period of delay" in paying the bill. Condition 32.3 empowers the Board to disconnect the supply in case of default in paying the bill, without prejudice to its right to recover the amount due. H Condition 24. 3 also lays down that the consumer shall pay to the Board -- . '

FERRO ALLOYS CORPN. l'. A.P.S.E.B. [MOHAN, J.] 215

every month the charges for electrical energy supplied to him during A the preceding month at the tariff in force from tfme to time. Condition 28 obliges the consumers to deposit an amount equivalent to three months consumption charges with the Board. It would be appropriate 10 set out condition No. 28 as far as it is necessary for our purposes, nutting what is not relevant as under: B

28. Consumption deposits:- 28.1 Initial consumption deposit. 28.1.1. The consumer shall deposit with the Board a sum in cash equivalent to estimated three month's consumption charges. The consumer coming under the L.T. category 'domestic' shall however pay c at Rs. 30.00 per Kilowatt or part thereof connected load.

*"Provided that.the Board may, in the case of indus- trial consumers, accept by way of consumption de- D posit a sum equivalent to two months consumption charges during a period of three years from the date of first release of supply of electricty".

28.1.2 In the event of the consumerfailingtopaytothe Board any sum that may become due for payment to E the Board on the dates fixed for payment thereof, the Board may, in addition to and without prejudice to the other rights of the Board, appropriate a part or whole of such deposit towards the suin due from the con- sumer. F

- 28.2 Additional Consumption Deposit-All consumers othei;. than those L. T. Domestic consumers whose · monthly bills are less than Rs. 500 for a continuous period of six months, shall keep with.the Board an G amount equiv~lent to charges for three months de- mand and enargy charges as consu111pµon deposit. The aduacy of the consumption deposit shall be re- viewed by the Board usually once in every year and/ or at any time during the year if so warranted dur to upward revisiOfl of tariffs, enhancement of the con.;. H

216 SUPREME COURT REPORTS [1993] 3 S.C.R. __,_

A tracteddemand by the consumer charges in the pattern of consumption by the consumer relaxation of power restrictions or such other factors i\vViich in the opinion of the Board, warran~ review ofttle adequacy of the existing consumption deposit. The review shall take

B . into account the following factors:-

(i) In the c.ase of. consumers where there is no change in the cohiracted demand, the average consumption for the prt~eeding twelve months after taking into consideration the quantum and nature of restrictions c imposed, .if any, dtiring that period shall be the basis.

(ii) In the case of consumers who were sanctioned additional demand and availed it during a part of the period, average recorded consumption for the period of review shall be from the date of utilisation of D · Increased demand to the date of review after taking into consideration the nature and quantum of restric- tions imposed, if any during that predod.

(iii) The demand shall be contracted demand of the E consumer at the time of review.

(iv) The rates, at which the demand or energy charges shall be calculated, will be tariff rates prevailing as on the date of review. F Based on such review, if the consumption deposit of the consumer is found inadequate or has fallen short on account of adjustments made as indicated iµ Clause 28.1.2 hereof, the consumer shall deposit within 30 days of receipt of notice in this regard such additional G amount as may be required by the Board or replenish the required amount as the case may be.

28.3 Interest on consumption.deposit:- Interest shall be paid by the Board on deposits of more. than Rs. 60 H made in cash at the rate of 3% pt!t annum or such other

FERRO ALLOYS CORPN. v. A:P.S.E.B. [MOHAN, J.] 217

rate as may be fixed by the Board from time to time. A. Full calender months only shall be taken into account for the purpose of calculating interest and interest · shall be calculated to nearest five paisa. The intrest accruing to the credit of the consumer shall be ad- justed every year in the month of April in the Electric- B ity Supply bills.

28.4 Disconnection or non-payment of consumption deposit:- If the consumer does not make payment of arnount of consumption depsoit or additional con- sumption deposit or where the deposit is given in c Government security or National Saving Certificate Bank guarantee etc., he fails to replace them by deposit in cash when so demanded by Board within the notice pariod of 30 days supply of consumer shall be liable for disconnection. D

28.5 "The Consumption Deposit so calculated as per the Clause 28.1 and /or 28.2 above shall not be less than three times the monthly minimum charges, appli- cable to the consumer under the category to which he belongs". •E

28.6 "All consumers shall pay the Consumption De- posit or additional consumer deposit within thirty days from the date the demand notice if there be any delay in payment, the consumer shall pay surcharge F thereon equal to 1 1/2% per month or such other percentage to be fixed by the Board from time to time, of the demanded amount for each month of delay or part thereof. This will be without prejudice to the Board's right to disconnected supply of electricity". G

- Clause (1) of condition 28 is general in nature. It applies to all consumers. Cl. (1.2) enables the Board to appropriate a part or whole of the said deposit towards any amount due to the Board and not paid within the prescribed period. CI. (2) applies to all consumers, except those L. T. Domestic consumers whose monthly bills are less than Rs. H

218 SUPREME COURT REPORTS [1993) 3 S.C.R.

A 500 per month for a continuous period of six months. Such consumers are obliged to keep with the Board an amount equivalent to three months' demand and energy charges, as consumption deposit. The deposit is liable to be reviewed by the Board from time to time, having regard to the factors mentioned in the said clause. Cl. (3) prescribes interest which the Board has to pay on such deposit. It is 3% per annum. B Clause (4) empowers the Board to disconnect the supply if consump- - tion deposit/ fJ<lditional consumption deposit is not made, or is not replaced whenever called upon to do so. Clause (5) prescribes a certain 'floor' below which consumption deposit shall not go. Clause (6) says that the consumption deposit or additional deposit shall be paid within c thirty days of the notice demanding such deposit. In default, not only interest is payable but the supply also is liable to be disconnected.

The attack before the High Court was that according to Condition No. 32.1, the bill is served within 15 days of the expiration of0each calendar month. The amount covered by the bill is payable within 15 0 days of the date of the bill. The period of 15 days for payment is calculated not from the date of service of the bill but from the date of the bill. A bill could be served even on the very first day of the succeding month in which event it will become payable within 15 day of the date of the bill. In such a situation, it is not correct to say that a E consumer goes on availing and enjoying energy for a period of three months without paying for it. Invariably it does not exceed six weeks or at any rate, two months. In the event of non-payment under J

Condition No. 32.3, supply of energy can be disconnected without seven days notice as contemplated under Section 24 of the Indian F Electricity Act, 1910. Therefore:

(1) It was urged that the consumption deposit should in no event exceed two months everage consumption charges.

(2) The second attack was the payment of 3% interest by the G Board on such consumption deposit is no longer good law in view of the judgment of Supreme Court rendered in Mis Jagdamba Paper .Industries (p)Ltd. v. H.S.E. Board, [1983] 4 SCC 508.,since this Court had taken the view that the interest on such deposit should be paid at the same rate as is paid by the schedule bank on fixed deposit. H

FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN, J.) 219

It was generally urged that the Electricity Board being a State A within the meaning of Article 12, it has to act fairly. Any term or condition will have to answer the test of reasonableness. On the contrary, if it is arbitrary, it would be violative of Article 14.

The High Court after analysing the object behind Condition No. B 28 relating to the consumption deposit held: The condition requiring the consumer to pay the charges within 15 days from the date of the bill and on such failure, a right is conferred on the Board to disconnect the supply. The condition merely refer .to the power of the Board. Existence of power is distinct from exercise of power. The Board cannot blindly act upon Condition 32.3 arid_disconnect the supply the c moment 15 days time (from the date of the ~ill) expires. It has to take a realistic view of the situation. After all, these industries are engaged in production of goods essential to the community. A blind and mechanical adherence to Condition 32.3 (instant disconnection) may indeed prove counter-productive in larger sense. It was also not possible for the Board to notice the non payment immediately in view of the large number of consumers and the extensive nature of organi- sation. Besides, huge sums are required by the Electricity Board as rotating capital. It borrows large amounts from organisations like L.I.C. and Banks, on which it pays interest to them. Hence, it is well entitled to require the consumer to co-operate by paying their bills regularly, by furnishing security deposits and by conforming to the terms and conditions of supply. Under these circumstances, the requirement of three months deposit could not be said to be unreason- able and unjustified. F As regards, the payment of 3% interest, the High Court was of the view that the decision of this Court in Jagdamba Paper Industries (P) Ltd. (supra) could not be read as a decision of the Supreme Court on the basis of which it could be declared that the e-ar}.ier Bench decisions . of the High Court were no longer binding. Accordingly, it dismissed the writ petitions. G

Aggrieved by this decision, the present S.L.Ps. have come to be 'Jreferred.

Mr. R.N. Narasimhanmurthy, learned counsel for the appellant H

220 SUPREME COURT REPORTS [1993] 3 S.C.R.

A after drawing our a~ention to clauses 28 and 32 would submit that if there is any laxity on the part of the Board in preparing the bill that cannot be a ground to make a consumer to pay three months deposit.

The tariffs of 1974 provided for the payment of bills within 14 days from the date of the bill while the quantum of deposit is three months consumption charges. Originally, the time for payment was 30 days from the date of the bill. That has been reduced to 15 days which is a drastic change. The security deposit is a provision for continued default of the consumer. The quantum of such a deposit is reckoned on the _basis of the lapse of time between the consumption charges that become due after expiry oftime required for reading of meter, billing, delivery_ of the bill to the consumer; grace time allowed and the reasonable time requir~d for disconnecting the consumer's service· connection. The reduction to 15 days has great relevance on the quantum of deposit as the deposit is intended to cover the. defaulted amount by the time of disconnection. However, considering that the bills of power intensive industries are preapared within 3 days of meter reading and also considering the close monitoring that is feasible in verification of payments of bills of these consumers and the small number of these consumers destributed among the several Circle Offices o~the Board, any default is detectable within 20 days of the bill for appropriate action to be taken immediately. The purpose of consumption deposit is only to safeguard the actual consumption charges that become payable by the time penal action could be intiated. Even the judgment of the High Court indicates that a time lapse of37 days from the date of the meter reading without considering the 7 days notice prescribed.under Section 24 of the Indian Electricity Act. The balance ti me of 23 days to make up for 90 days is provided for the laxity in the Board administrative system whichjustificably cannot be passed on to the consumer by way of consumption deposit.

In view of the high stakes involved in the case of power intensive consumers, the Board should evolve a suitable system of payments and must keep the security deposit to the minimum instead of three mont!1s.

It is further submitted that the security deposit could be in the foqn of bank guarantee. There is no justification to require cash deposit. As H a matter of fact, as noted in Mis Harya11a Ice Factory v. Municipal

FERRO'i\LLOYS CORPN. v. A.P.S.E.B. [MOHAN, J.] 221

- Corporation of Delhi and Another AIR 1986 Delhi 78, the security in the form of Government Bond is permissible. A

In Jagdamba Paper lndustries Case (supra), paragraph 11 of the judgment deals with rate of interest. That is a case where 8% was increase.d to 10% by consent. If really, it is in the nature of a deposit, B there is no Justification as to why bank rate should not be awarded. It it seen from The Chairman Kamataka Electricity Board aizd Others v. Gadag Mining Co. & Ors. etc. AIR 1986 Karnataka 252, 10% interest had been awarded.

Mr. Anil B. Divan. -learned counsel for the appllant in S.L.P. (c) c No. 2564/92 would submit as under: ....

Power intensive units like the appellant's form a distinct class of consumers. The Ferro Silicon plant of petitioner No. 1 is a power ntensive one where the cost of electricity constitutes about 55% of the D price of the ferro silicon produced. Electricity. thus is .the basic raw material for this industry. On an average, the appellant is consuming electricity worth Rs. 1.6 crores per month. If t:here was full: supply of electricity (without there being a power cut). the monthly bill would be approximately Rs. 4 crores at a present tariff. E · The power intensive plant of the appellant maintains a very high load factorof0.9%. Ordinary H.T. consumers work at a load factor of only 60% and the units consµmed at only 50 per KV A demand. The HT~III tariff for power intensive consumers requires a minimum consumption of 403.3 units per KV A demand.This means more than F 8 times that of H. T. consumers. The Electricity Board has always classified power intensive units as a separate category. At present, there is a special tariff called HT-III tariff with a list of power intensive industries specified in the tariff notification.

G The appellant No. 1 had deposited Rs. 1.07 crores in cash towards the security deposit. A bank guarantee for Rs. 53.64 Iacs had also been furnished. A further demand of Rs. 96.5 lacs prompted the filing of the writ petition in the High Court. As per the orders of this-Court in S.L.P. No. 12077/84 it was directed on 6. 2.1987 that a sum of Rs. 1 crore be paid by the 3rd of every month and the balance within 7 days of the B

222 SUPREME COURT REPORTS (1993) 3 S.C.R.

A presentation of the bill. This order came to be modified that Rs. 1 crore -- was to be paid on the 30th of the month and the balance within one week of the receipt of the bill. The said arrangement has been working satisfactorily. There has not been any default in payment of electricity bills. Therefore,the entire dispute is a theoretical one as to what the quantum of the security deposit can, or ought to be. A deposit in cash B of an amount equal to three months average bills at full supply at the present tariff without any power cut will amount to Rs. 12 cores on the basis of tariff revised in October 1992. With ever increasing tariffs, the deposit demanded will also keep increasing. Under these circum- stances, the condition requiring three months security deposit is . c arbitrary and illegal for power intensive consumers. The paid up share capital of apellant No. 1 is Rs. 3.8 crores. The gross value of the plant and machinery of the power intensive unit is Rs. 7.94 crores. The total advances made by the consortium of bankers for working capital is Rs. 4.25 crores. The total net worth of all the dilisions of appellant No. 1 that is Merine products, Sugar & Engineering, Machine Building and the power intensive Ferro Silicon Plant is Rs. 14.6crores. The security already furnished namely Rs. 5.7 crores is crippling the Ferro Silicon Plant division. A demand of three months cash deposit would be in the range of Rs. 12 crores. It is arbitrary and unjustifiable to require appellant No. 1 to deposit several times its share capital by way of security. If this demand is enforced strictly, the plant of the appellant will become sick and ultimately, will have to be wound up. In other States, the provision is not so harsh. ·

If the security deposit is 'consumption deposit' and it is for meeting the cost of supply in advance, then the Electricity Board cannot charge penal interest at 2 % per month for non-payment of bills within the stipulated period. The deposit, first must be appropriated against the dues and the interest charged only if there is balance due. The Stand of the Electricity Board is perverse and illegal. Equally, there can be no question of 'supply_ on credit' if deposit is adjusted against consumption all ~e time.

The consumer has got a right to negotiate. In 171e Indian Alumi- nium Co. v. Karnataka Electricity Board [ 1992] 3 SCC 580, this Court directed the Electricity Board to adopt a realistic policy. Here also H Condition No. 28 must be altered.

FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN. J.] 223

.,- There is no power under the Electricity Supply Act to enable the Board to raise revenue or to cover its capital cost etc. except by way A

of adjusting tariffs as seen from under Section 59 of the Supply Act,

1948. Therefore, consumption deposit cannot be used for the purpose of revenue or raising revenue. In this case, the Electricity Board had not placed any material to give interest only at 3%. B Mr. K. Parasaran, learned counsel appearing in S.L.P. No. 13004/ 89 after referring to the passage occurring at page 66 of Haryana Ice Factory case (supra) submits that the security deposit cannot go tO build up the capital or fixation or tariff. Under Sections 49 and 59 of the Supply Act, finance is required to be. adjusted including the c payment of interest. Demand of three months consumption deposit cannot be resorted to. In support of his submission, reliance is placed :t on Hindustan Zinc Ltd. etc. e:tc. v. Andllra Pradesh State Electricity Board & Ors. (1991] 3 SCC 299. D Mr. Kailash Vasudev. learned counsel for appellant in S.L.P. 13004/89 submits that under Section 49 of the Supply Act, it is enjoined upon the Board to adjust its tariffs by keeping the factors detailed in the said Supply Act. Therefore, the Board cannot have recourse methods not provided under the said Act. The demand for a deposit to ensure the due payment of the bills for electrical energy E consumed amounts to framing an additional tariff. The Board cannot do indirectly what it cannot do directly.

The Board being 'a state monopoly' has to ~t reasonably and not arbitrarily. The terms and conditions of supply cannot be unfair an.d F oppressiv~.

Mr. R. Venkataramani, learned counsel in his written submis- sions in Writ Petition Nos. 1293/89 & 1353/89 and S.L.P. (c) Nos. ,.- 4791-92/90 & 4793-94/90 would urge that Section 49 of the Supply G Act is unconstitutional since there are no guidelines for framing the terms and conditions of supply of electricity. The said Section does not specifically spell out fairness of action. Clause 28 of the terms and conditions of supply is a clear illustration of arbitrariness and subor- dinate legislation. H

224 SUPRE~1E COL.RT REPORTS · [1993] 3 S.C.R.

A The words 'as the Board thinks fit' ought to be interpreted so as to be consistent with the fairness of State action. They are to be construed r as "reasonably thinks fit" as held in Roberts v. Hopwood, 1925 AC 578 and Pyx Granite v. Minister of Housing and Local Govemmem, (1958) 1 All ER 625.

B Clause 28 of the terms and conditions of supply relation to fixation of 3% interest and additional charges are vitiated due to non-applica- tion of mind. Under clause 28.6 of the terms and conditions, in the event of dalay in payment of consumption deposit or additional consumpion deposit within the stipulated period, the consume.r is obliged to pay surcharge at 18%. The obligation to pay surcharge and the power of the Board to vary the percentage from time to time would constitute draconian provision.

Money, wherever it is held in deposit could only be used to earn some interest. Therefore, paying 3% interest on the consumer deposit is not at all justified. A public institution cannot be allowed to get excessive interest.

In meeting these arguments, the learned Additional Solicitor General submits that under Electricity Supply Act, the finances of the E Board are controlled to the minutest detail.

Originally, prior to 1978, Section 59 required the Board as far as practiable and after taking credit for any subvention from the State Government not to carry on its operation on loss. For this purpose, it was empowered to adjust its charges accordingly from time to time. Section 59 was amended by Act 23 of 1978. After the amendment, the Board after taking credit for any subvention from the State Govern- ment was required to carry on its operations and to adjust its tariffs so . as to ensure that the total revenues in any year after meeting of the expenses left such surplus as state government may specify from time to time. This Court has taken the view in KeralaState Electricity Board v. S.N. Gov inda Prabhu & Bros. & Ors [ 1986) 4 SCC 198 that even if the Government had not prescribed surplus, the Electricity Board could generate surplus.

H After the amendment by Act 16 of 1983 which came into force on

FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN. J.] 225

1.4.1985, the Boar:d was to create a minimum surplus of 3% or such A higher percentage as the State Government would specify in this· behalf. It is in this background., the matter will have to adjuged.

The reason why three months security deposit is demanded is, for two months, the consumer gets free electricity. For supply of such electricity, the Board has to borrow and make payment of interest. If there are no consumer deposits, the tariff shall have to be increased. That will effect all the consumers. Interest at 2% is charged in case of default only in order to ensure proper payment. It is penal in character. In the judgment under appeal, the High Court held that the burden relating to interest can be reflected either in the tariff or could be set C off by calling upon the consumer to make deposit. In fact, this Court has upheld the tariff revision effected by Andhra Pradesh Electricity Board as seen from Hindustan Zink Ltd. Etc. Etc. v. Andltra Pradesh State Electrici1y Board & Others [1991] 3 SCC 299. It cannot be contended that the three months consumptions deposit is arbitrary. D This argument ignores the following important factors:

i) This is not a security deposit but a consumption deposit.

ii) It in the nature of an advance payment. E iii) In the event of failure to pay, it could be proceeded against as seen from clause 28.1.2.

(iv) Consumption deposit is variable as per clause 28.2 (iv) F If therefore, the object of consumption deposit is to ensure proper payment with reference to electricity supply, there is nothing arbitrary or unjustifiable. The fact that some of the appellants pay large amounts by way of electricity charges will have nothing to do with the nature of deposit. Merely because it is a power based unit, it cannot be treated G saparately. Nor can the appellant make a virtue out of necessity. The

- terms of supply relating to consumer deposit must be uniform, there- fore, it is not correct to contend that the power based unit must be tr~ated separately .

• As regards payment of interest at 3%, elecricity supply is made on H

226 SUPREME COURT REPORTS [1993] 3 S.C.R.

A credit basis. Therefore, it is a matter of adjustment of Board finances. Strictly speaking, the consumer deposit is in the nature of fidelity guarantee to ensure proper payment by consumer. The consumer may not be entitled to interest. at all. However, where the Board has so adjusted finances and pay 3% interest, the Board ca.nnot be defaulted.

B Jagdamba Paper lnduntries case (supra) cannot be said to be a decision as to the rate of interest payable by the Electricity Board. Upon reading paragraph 11 of the judgment, it will be clear that it proceeded on the concent of the counsel.

c RAJASTHAN The writ petitioners applied to appellant Board for the supply of high te'ntion power for their factories. After the execution of the necessary agreement and furnishing ·of security deposit, power con- nections were given. Subsequently, the Board issued notice requiring D the consumers to deposit the enhanced amount of cash security as well as the bank guarantee on the basis of maximum power consumption of . · three months.

With regard to security deposit, Pait II of the General Conditions E of Supply and Scale of Miscellaneous Charges in Note-II stated that no intrest will be paid by the :goar~ on the security deposit. Two contentions were raised in the petitions, (i) Note II providing for no interest was bad in law, (ii) the enhanced security must be calculated not on three months maximum consumption but on t'he b~~s of minimum power consumption. These two contentions found favour with the learned Single Judge. The Rajasthan Electricity Board filed special appeals while the consumers filed cross appeals. The Division Bench held as under:

i) The Board has power to demand additional security but the average consumption of three months should be taken as the basis for calculating the amount of such security.

ii) The clause relating to non-payment of interest was not reason- able. Interest must be allowed on the entire amount of cash security from the date of the writ petition. The appeals by the Board were 1

disrllissed while cross-appeals by the consumers w ere idlowed. Ag- ·-

FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN, J.} 227

grieved by this judgment, the present S.L.Ps. have come to be preferred · A by the Rajsthan Electricity Supply Board.·

Mr.. Soli J .. Sorabjee, learned counsel appearing for the appellant argued as follows:

B There is no legal obligation to pay interest on a deposit made by the consumer with the Board in teffilS of Clause 20 (a) & (c) of the General Conditions of Supply. Nor even interest is payable under common law or in equity. In this connection, the learned counsel draws our attention to Hals bury' s 4th Edition, volume 32 pages 54-55. There is no legal or equitable obligation to pay interest for detention of c monies. In support of this argument, learned counsel relies on Bengal Nagpur Railway company Ltd. v. Ruttanji Ramji, ( 1937) L.R. 65 I.A. 66 and Union of India v. A.L. Rallia Ram (1964] 3 SCR 164, pages 187, 189-190. D There is no contract or agreement which provides for payment of interest. On the contrary, Clause 9· (b) (ii) of the General Conditions expressly provides that no interest will be paid by the Board on security deposit. There is no statutory provision which casts an obligation on the Board to pay interest on the security deposit. The High Court erred in relying on the model form of draft conditions of supply because the E said model form is applicable to only licensee as defined under Section 2 (h) of Electricity Act. It is not applicable to a Board which is not a licencee. Further, it is not necessary on the part of the Board to adopt ,model form. Schedule VI of 1948 Act again cannot be pressed into service as the Board is not a licencee clause 2 (b) (v) of Schedule VI F merely specifies interest on security deposit as properly incurred item of expenditure for the purpose of determining the 'clear profit' of the _ ....... licencee. The said clause does not and cannot by itself impose an ' obligation on the licencee to pay interest on security deposit. Should interest be paid, then it quilifies as an item of expenditure 12roperly incurred. G

The High Court also erred in relying on Section 4 (2) of the Interest Act, 1978. Section 4 (2) has no application where on account of coptractual term or a statutory provision, payment of interest is not permitted. Section 4 (2) of the Interest Act, 1978 merely enlarges the H

228 SUPREME COURT REPORTS [1993] 3 S.C.R.

A categories of cases mentioned under Section 4 (1). The said Section cannot override other statutory provisions or a contract between the

1Copy pinpoint1. parties. The non-obstante clause under Section 4 (2) is restricted .only

to the provisions of Interest Act, 1948. It is submitted that under the billing practice prevalent with the Rajasthan Electricity Board the consumer has free ,use of electricity during the period between B consumption of ele~tricity and expiry of period after notice. During • f • • • .

this period which v~esfroin 2 to 2 1/2 months, the consumer in effect enjoys a qedit faciljty Therefore, if security depoit is demanded for three months, it ~ nei~er unreasonable. nor arbitrary, A.s a matter of fact, the security demanded by the appellant Board is in the form of c cash for one month and bank or insurarice guarantee for two months. Therefore, it is a~ tlie more reasonable. In support of this, reliance is placed on Kistna Cemeht Works Tadepalli v. Tile Secretary APSEB, Vidyut Soudlza AIR 1979 A.P. 291, B.R. Oil Mills. Bharatpur v. As~istaflt Engineer(D) R.S.E.B.. Blzaratpur, AIR 1981Rajasthan108; Municipal Corporation for Greater Bombay v. Mis Devidayal Metal D Industries, AIR 1984 Bombay 242, Haryana Ice Factory v. Municipal Corporation ofDelhi, AIR 1986 Delhi 78 and Southern Steel Ltd. v _Tiie A.P. State Electricity Board, Hyderabad, AIR 1990 A.P. 58.

On the question of the constitutiona1ity of the provisions regard- E ing non-payment of interest and whether it is violative of Article 14, it is submitted:

i) Article 14 does not mandatt> ""'~thematical exactitude or scien- tific precision; F ii)The mode .and perioq ot sec\Jrit}' should be reiated to the billing practice prevailing in Rajastl\an Electricity Board.

iii) The co"R~fimer with open eyes has entered into the agreement and has solemnly uf\dertaken to abide by the condition regarding non- G payment of interest. He C3JlnOt resile from that condition. There is nothing inherently Qbjectionable, nor is the condition illegal or void as opposed to public policy. Even assuming, the contract between the consumer and the Board is an adhesion contract it is not necessarily unconscionable. In this connection, reference is invited to Black's Law H Dictional)', 6th Edition, page 40. That passege has been cited with

1-""ERRO ALLOYS COilPN. "· A.P.S.E.B. [MOHAN. J.} 229

approval in Cemral Inland Water Transport Corpn. v. Brojo Nath I Ganguly [1986] 3 SCC 156. In such matters, relief is given to the party only ifthe contract is so unreasonable as to be unconscionable. In this connection reliance is placed on Gillespie Brothers Ltd. v. Roy Bowles Ltd. [1973] 1 A.E.R. 193 at 200 (g), Farmsworth on Contracts. 2nd Edition, 319 & 320 para 4.27. The rate of interest on security deposit cannot be equated with the rate of interest payable on fixed deposit B because the nature and character of a security deposit is basically different from fixed deposit. This is clearly brought out by the Companies (Acceptance of Deposits) Rules, 1975. The said Rules expressly exempt security deposit in definition of Rule 2, clause ( v) & (vi), Inlagdambapaper/11dustriescase (supra), the rate ofinterest was c based on a concession by the parties. The Court had no occasion to decide the rate of interest. That part of the judgment proceeds sub silentio.

The argument based on surcharge levied for delayed payment is D a non sequitur. If the provision for non-payment of interest is valid and not arbitrary, it does not become arbitrary and unconstitutional be- cause surcharge is levied at 2% per month. In fact, surcharge has not been challenged. Surcharge is attracted only if the bill is not paid within the due date. The submissions based on Sections 57 & 59 of the Supply Act in relation to security deposit proceed on a misconception of the nature and character of payment as a security deposit. The object of security deposit is to secure prompt payment of electricity bills. They are not intended to finance the Board's transaction. Section 57 read with sixth Schedule is meant to ensure a reasonable return. The expression 'charges' in the Sixth Schedule clearly shows that security deposits are not included within the expression 'charges'. There is no mutual exclulsivity between increase of tariffs and earning interest on security deposits.

It is also incorrect to contend that prompt payees of electricity bills are treated on par with the defaulters and thus anequals are treated alike. The real test is, whether in the general application of law there is any discrimination. In support of this submission, the learned counsel plac~d his reliance on:

Tiie Collector of Customs, Madras v. Nathella Sampatlm Clzetl)' H

230 SUPREME COURT REPORTS [1993) 3 S.C.R. ~

A [1962] 3 SCR 786, Vivian Josepf1 Ferreira v. Municipal Co1poratio11 of Greater Bombay [ 1992] 2 SCR 257. B. Ba11e1jee v. Anita Pan f 1975] 2 774 and Fateflcfwnd Himmat/al v. State of Me/wrastflra [ 1977] 2 SCR 828.

The last submission of the learned counsel is that a statutory provision may be struck down as unconstitutional only if it b palpably arbitrary and irrationality is writ large. Merely because the Court considers a particular provision to be unwise or undesirable, it is never struck down. The learned counsel fairly concedes that the enhanced security deposit could be calculated only on the average consumption of three months of the previous years .

. Mr. Altaf Ahmad, learned counsel supporting the argumunts of ~MP. Joli J. Sorabjee would urge: • • _.P "

D In this case, the consumers are those who use H.T. and E. H. T. lines. Section 49 (3) gives the clue that each Board can have its own scheme. Section 79 of the Supply Act speeks of the power to make regulation. Clauses (i) and G> are relevant because they talk of principles governing the making of arrangements with licensees under Section 47 and other then licensees under Section 4•J_ E The industrial consumers constitute the majority user of the electricity amounting to 49.51 per cent. The transmission losses for 1992-93.alone are 22 per cent. Besides, the Board is also purchasing power from other corporations and States. Therefore, the demand for F security deposit is fully justified and there is nothing arbitrary in not providing for interest. That is what is provided under clause 21 (a) of the agreement in relation to high tension supply. The consumption deposit cannot be equated to the deposit in a bank and interest could be demanded as of right.

G Mr. Kapil Sibal, learned counsel appearing for the Haryana Board which Board has now withdrawn payment of interest, has filed intervention application since the present day position of the Haryana Board is on a par with Rajasthan.

H Mr. R. K. Mehta, learned counsel for. the intervenor on behaff of

FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN. J.) 231

the Orissa Electricity Board through his written submissions urges that A it may be that the regulations in the case of Andhra ·Pradesh, Utter a Pradesh and Bihar Provide for payment of interest at certain rate on the security deposit. However, the Rajsthan and Orissa regulations provide that no interest shall be payable on the securities 1tirnished by the Board. In the impugned judgmentthe Di vision Be_nch has not given any cogent or valid reason for striking down Condition no. 20 of the B General Conditions of the Rajasthan Electricity Board. The High Court had failed to appreciate the following factors while quashing the impugned clause of the regulations. Electricity is an item which cannot be sold and supplied immediately after generation. For the sale of electricity one has to take meter reading meant for the said purpose c and, therefore, the Board sends the bill for particular duration. It is obvious that the reading of the meter could not be taken at every point of time but only for duration/period. In the process 2-l/2·'.months elapse. The Board does not charge any intrest at least for 2-l/2 month from its consumers. At the same time, the Board needs finance for production, supply and other charges necessary for supply of electric- D ity. The Board is thus obliged to take loans from various financial institutions. The consumers who are utilising electricity for 2-112 months without making any payment will be unjustifiably enriched at the cost of gereral public in the absence of security deposit. Further taking of advance money without interest for Providing other serv1Ces E in the market is a general practice. Therefore, a similar provision in the general conditions for supply of the Board cannot be treated as. -. - arbitrary or unreasonable.

A consumer is not entitled to claim interest on his secudty deposit F having regard to the following considerations. -

1. The security deposit is furnished in consideration of the performance of the consumer's obligation for obtaining the service · essential to the life and the well-being of community. G

2Copy pinpoint2. The electricity supply is made to that consumer on credit without requiring him to make.instantpayment.

3Copy pinpoint3. The billing time taken by. the Board is for the benefit and convenience of the consumer as he saves additional expenditure on ff ...

232 SUPREME COURT REPORTS [199313 S.C.R. i A account of instant or shorter billing time, possibly through electronic devices which will be included in the tariffs.

4Copy pinpoint4. 1l1e public revenues are blocked in the generation, transmis- sion and distribution of electricity for the performance of supply on which the Board pays itlterest in so far as they fonn part of the loans B borrowed by th!! Board for performing the public service. On the return of the blocked moneys the ~oard gets no i merest from the consumers.

5Copy pinpoint5. The Board needs back its blocked money to carry out service with a reasonable recompense. c

6Copy pinpoint6. The Board is not essentially a commercial organisation to which the consumer furnishes the security deposit to earn interest. - Having entered into a contract with open eyes it is not open to the o consumer to say that interest should be paid. The basis of supply of electricity and the conditions on which it is supplied being statutory, the provisions under the conditions of supply that the Board shall not pay interest on the security deposit has staturory basis and accordingly cannot be struck down as arbitrary on the basis of a commercial transaction governing a bank deposit Therefore, it is submitted that E regulation 7 of the Orissa State Electricity Board General conditions of Supply Regulations, 1981 providing that no interest would be pa)"!tble on security deposit is just and reasonable and is not arbitrary or violative of Article 14 of the Constitution.

F Mr. Shanti Bhu~an, learned counsel opposing the stand of Rajasthan Electrieit~·· Board.~ubrnits that the only question in this sp6.Jtal leave petition is whether Electricity Board is obliged to pay interest on the cash securi~ deposits as the Board compels industrial consumers to secure against default in payment of electricity bills.- In G the fi_rst place, as laid down in Jagdamba Paper Jndusrries (Pvt.) Ltd. V. Haryana ,Stat1 ./ilectricity Board [1983] 4 sec 508 this Court has indicated that '-'•- security amount should bear the same interest as ,/. ·admissible on fixed deposit of schedbled banks. The interest rate on 10 per cent was decided not really on the basis of admission but on a positive finding. Apart from this, this Court has in several other writ H petitions ordered interest at 12 per cent.

1-""'ERRO ALLOYS CORPN. ''· A.P.S.E.B. [MOHAN, J.) . 233

It is submitted thatthe scheme oflndian Electricity Rules of 1956 A and the scheme of the Electricity Supply Act also show that the interest on security deposit is supposed to be payable. The Board is not entitled to use the deposits to augment its finances. They are meant only to secure the default in payment of the bills. Section 59ofthe Supply Act indicates that the only condition in which the Board could raise the revenue is by adjustment of its tariff. Section 49 of the Act makes B provsion for the ·sale of electricity by the Board to persons other then licensees under the terms and conditions as the Board thinks fit.

It can be seen from the definitions of the Sixth SchedtAe to the Supply Act that the scheme was meant to be applicable to licensees. c The place of the licensees has been taken over by the Board. That is why clause 2 (b) (v) of Schedule VI of the definition of "clear profit" states that the interest on security deposits was to be a part of the expenditure properly incurred by licensees. Then again, the manner in which the accounts are to be maintained by the licensees also shows that the licensees have to make a provision for payment of interest on security deposits.

The High court is right in relying on Section 4 of the Interest Act.

The contract in the i.nstant case is between a consumer, however, high he might be and a monopolistic public utility company. It is clearly an adhesion contract. This Court in Central Inland Water Transport Co1porario11 v. Brojo Natll Ganguly (1986] 3 SCC 156 has clearly held that an unreasonable term of an adhesion contract will not be enforced by the Court. F

Interest on security deposit. .is also admissible under equity or . common law. Halsbury's 4th Edn. Vol. 32, paragraph 106 at page 53 defines "interest" as the return or compensation forthe use or retention by one person of a sum of money bdonging to or owing to another. G

The Board is clearly in the position of a trustee in respect of this money since the money is deposited by the consumers in trust with the Board to secure the Board against default in payment of bills. The deposit of security is like the usufructory mortgage which is provided for in Section 76 of the Transfer of property Act. Section 76 G & H H

234 SUPREME COURT REPORTS [1993) 3 S.C.R.

A provide that the mortgagee in a usufructory mortgage would have to keep account of tli.e incomes received from the mortgagee in his use -and would have to pay compensation for the benefit derived derived by the user of the mortgaged property. The position here is more or less similar.

B It is not correct to state that security is an advance payment. If it is so, it would amount to Board taking three months advance payment from the consumers. In such a case, the Board cannot disconnect the electricity until the period of three months is over. But the rules of the Board enable it to disconnect even if the consumer.fails to pay his bills on the due date. Then again, a penal interests is charged in case of -- default. If it is in the nature of an advance payment there is no scope for charging 2-112 per cent penal interest.

Lastly, it is submitted that even under English Law interest is payable on security· for electricity as seen from Halsbury' s Volume 16 paragraph 129:

"129. Giving of security. Security required under the Schedule to be Electric Lighting (Clauses) Act 1899 .... ·to be given to an electricity board (See the Electric /... E Lighting (Clauses) Act 1899, Schedule, ss. 25 (2), 27 (2), (3), and paras. 115, 118, ante.) may be by deposit or otherwise, and of an amount agreed or, failing agreement, determined by a magistrates' court, and that court may deal with the caused of the proceedings F and its decision is final and binding on all parties, (bid., Schedule, s. 71; Electricity Act 1947, s. 57 (2), I Sch 4, Part III) Where security is given by way of deposit the party to whom it is given must pay interest at the rate of 4 per annum an every sop for each period of Six months during which it remains so deposited. G (Electric Lighting (Clauses) Act 1899, Schedule, s. 71 proviso; DecimalCurrency Act 1969, s. 10 (I)."

, H UITAR PRADESH STATE ELECIRICITY BOARD

The question raised before the High Court was as to the rate of ---

FERRO ALLOYS CORPN. i·. A.P.S.E.B. [MOHAN, J.] 235

interest. The respondent (U.P.State Electricity Board) amended the A rate of security deposit as Rs. 2 per K. V.A. On suchdepositit paid only 3 per cent interest whereas on late payment of the bills it charged more than 24 per cent surcharge from the consumer. The appellants pre- ferred writ petitions in so far as they were denied 12 per cent interest on the deposit taken from the consumers. The Division Bench of the High Court held: B

"These petitions are dismissed with a direction that in case the Supreme Court decided that the interest at a rate higher that 3% should be paid on such security and additional security deposit, the benefit of the same c judgment shall also be extended to the patitioners .herein, without the necessity of any further proceed- ings being taken by the petitioners."

Hence, the special leave petitions. D

Mr. G. Ramaswami, learned counsel for the appellants would urge that .lagdamba 's case (supra) has decided that rate of interest. Therefore, that should govern.

In a numhcr of matters this Court has also ordered interest at 12 E

-- per cent. The same principle should apply to thi!' case as well.

I. Security Deposit is a complulsory levy. The consumer has no option. F

2. Even in contractual matters if the Board. which is a State, does not behave fairly, this Court can always interfere.

3. The Board cannot compel the consumer to make a security deposit without corresponding obligation to pay interest. G

4. Deposit does not contemplate appropriation.

5. Prior to appropriation, what is the character of the deposit. requires to be determined. It is not the payment of money by way of H

236 SUPREME COURT REPORTS [1993] 3 S.C.R.

A advance.

As to the meaning of intrest it could be gathered from the case in Riches v. West111i11ister Bank Limited. _1947 Appeal Cases 390 at 400. In Union o.flndia v. A.L. Rallia Ram [ 1964) 3 SCR 164 this Court held that interest is awardable in equity. B

A distinction will have to be made hetween unreasonahle and unconscionable. In Administrative Law mere unreasonableness is enough to set aside a contract while unconscionable relates to private law. If interest is not paid security deposit cannot be demanded as this will amount to uncunscionahle bargain. As to the meaning of unconscionability. Black's Law Dictionary (Fifth Edition) at page 1367 can be usefully referred tu_:

-- recognized to include an absence of meaningful choice on the part of one of the parties, to a contract together with contract terms which are unreasonably favourahle to the other party. Gordon v. Crown Ce11tral Petrn-

F /eum Con1., D.C. Ga .. 423 F. Supp. 58, 61.

Typically the cases in which unconsionablity is found involve gross overall one-sidedness or gross one- sidedness of a term disclaiming a warranty. limiting damages, or granting procedural advantages. In these G cases one-sidedness is often coupled with the fact that the imbalance is buried in small print and often couched in language unintelligible to even a person of moderate education. Often the seller deals with a particularly susceptible clientele. Kugler v. Romain, H 58, N .J. 522. 279 A. 2d 640."

FERRO ALLOYS CORPN. '" A.P.S.E.B. fMOHAN. J.) 237

As to the meaning of reasonableness it is stated in G.B Mahajan A and Ors: V • .lalgaon Municipal Council _and Ors. [ 1991] 3 sec 91 at

109. Under English Law relating to electricity supply as seen from Halsbury' s Vol. 16 at paragraph 129 it is clearly stated that interest on security deposit is payable. Therefore, all the more the reason why here also it must be held to be payable. B Mr. Kapil Sibal, opposing the stand of Mr. G. Ramaswami argures that there is no orderof this Cm1rt adjudicating the rights of the Board on the consumer in respect of the validity of consumption security deposit being condition precedent for the supply of electricity by the Board as well as the liability of the Board to pay interest to the c consumer in respect of the consumption security deposit. In the absence of any such adjudication the question of Board being bound by the previous orders of this Court. does not arise. In cases where 12 per cent interest was awarded it was only hy way of ad interini measure. The other orders are also not conclusive on this aspect. Therefore, the matter will have to.be dedded afresh in the instant cases.

Far from being a compulsory levy, the consumption security deposit is not only a deposit in cash to safeguard recovery of electricity dues for the energy supplied to the consumer on credit but also a security towards payment or satisfaction of any money (For example, theft). which may become due and payable to the Board by the consumer.

The obligation to pay interest to the consumer proceed on the assumption tha\ the Board is keeping the security deposit and depriving the consumer of tht: use of the money which is alleged to be earning interes.t with the Board. This assumption is not warranted for the following reasons:

1. The cycle of billing demonstrates that in the very nature of things the consumer is supplied energy on credit. The security deposit is hardly sufficient to secure the payment to the Board by the time the formal bill by the Board is raised on the consumer.

2. The consumption security deposit indeed represents only part of the money which is payable to the Board at the end of the billing H

238 SUPRE!\1E COURT REPORTS [1993] 3 S.C.R.

A cycle: The said amount can be appropriated at any time towards the payments that are due to the Board and reflected in the formal bill.

3. I~he nature of billing cycle it is the Board which has to receive interest on the energy supplied to the consumers on credit.

4. The concept of interest earned on a fixed deposit is alien to the issue. The liabilities ~f the consumer increase on a daily basis dcpanding on the level of supply and consumption. Therefore, the amounts due are liable to be appropriated forthwith. That is not possible where moneys are placed either on fixed deposit or a savings bank account. - It is incorrect to contend that the amount is lying in trust with the Board. The amount lying with the Board could also he appropriated for satisfaction· of any amount liable to he paid by the consumer for violation of any conditions of supply in the context of wide scale theft of energy and tempering with meters. Therefore. the security deposit serves not only to secure the interest of the Board but also serves as a deterrent on the consumer in discharging his obligation towards the Board. Under section 49 the Board is enabled to supply electricity upon such terms and conditions. as it thinks fit under Article 226 of the constitution. the Court is to conduct a limited scrutiny whether by imposing such a condition the Board has not acted as a private trader and thereby shed off its public utility character. Should the Coust come to the condusion that the Board has not acted as a private trader and the nature of deposit has a rational relationship. the issue will fall - F outside the scope of judicial purview.

Section 49 must be read along with Section 59. The contentionthat the Board can achieve a surplus by adjusting its credit does not flow from the language of Section 59. The requirement of consumption security deposit is a condition of supply. It has a direct bearing on the operation of the Board. Hence it is 'per-se · reasonable and constitu- tional.

If there is a revision in the rate of tariff there has to be an upward revision of the consumption security deposit since it has a direct bearing on the level of supply in consumption of electricity. In October -

FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN. J.) 239

1986, the tariffs in the State of Uttar Pradesh were adjusted upwards. A The revision in the form of an addtional security deposit with intei:est at the rate of 3 per cent was made in January 1987. These facts would suggest the rationale in the imposition of additional security deposit. This being a condition of supply no reasons need be given at the time of upward revision. Union ofIndia v. A.LRallia Ram [1964] 3 SCR 164 relates to the award of interest by an Arbitrator. The nature of B consumption security deposity is such that it represents the moneys of the Board. There is no relationship of debtor and creditor. There is no deprivation of property which alone will entail the consequences like payment of interest. c The learned counsel has also filed a tabulated statement to show that the security deposit made by the appllant is 72.42 lakh for all industries while the arrears in electricity come to 965. 73 lakh. A formal chart has been filed based on the figures for August. September and October 1991 to show that after the third month the consumption D charges total to 45.09 lakh. While security that is offered is 15. 95. The same is the position with reference to other industries as well concern- ing whom the learned counsel has filed a tabulated statement. This so to establish how the Electricity Board has supplied electricity on credit to the various consumers and the security deposit is hardly sufficie~t even for one month's consumption. E

BIHAR

SLP 1 1799 of 1989

The appellant (Bihar Electricity Board) provided 4 per cent interest per annum on security deposit. When this was questioned in C.W ..J.C. No. 3000 of 1987 in the matter of Dllanbad Flour Mills. a Division Bench of the High Court was of the view that an interest at 4 per cent appeared to be unreasonable and directed the Board to examine the question of enhancement of the rate of interest. Similar directions were issued in another case. The appellant-Board after examining the matter issued a Notification on 27th· of May, 1988 and enhanced the rate of simple interest to 5 per cent per annum. This was because the amount of security deposit was kept in the savings account which earned 5 per cent interest which was passed on the consumer. The said notification was questioned before the High Court by seeking H

240 SUPREME COURT REPORTS [1993) 3 S.C.R.

A a writ of mandamus claiming interest at the rate payable on fixed deposit by a nationalised bank in view of the decision by this court in Jagdamba 's case (supra). By the impugned judgment the High Court directed payment of interest on security deposit at the rate payable on fixed deposit by nationalised banks. Aggrieved by this judgment the Bihar State Electricity Board has preferred the special leave petliton. B Mr. G.L. Sanghi. Iearned counsel appearing for the Bihar Board draws our attention to clause 15.3 of the tariff notification and submits that the consumption security deposit is not only for the supply of energy on credit but also for satisfaction of any money payable by him. C If the consumer does not pay the dues in time the arrears of consump- tion charges will have to be adjusted against the security deposit. -- Therefore, the security deposit can never be kept in bank under fixed deposit. This is the reason why the amount is kept in savings bank account and whatever interest is earned thereon. that is passed on to the D consumer. Therefore, the High Court was not right in awarding a higher rate of interest. In other respect, the learned counsel adopts the argument of the other learned counsel appearing for the various Boards including the contention that Jagdamba 's case (supra) did not lay down the rate of interest.

E Normally, in market transaction when any one supplies on credit to a consumer a guarantee is taken for the payment on dues. Such a guarantee may be in the shape of a bank guarantee, fixed deposit. ....... Similarly. the Board when it supplies electricity on credit it keeps the security for the amount of supply of the clectrkity. According to F Board's standing order No. 433 dated 31.12.74, dues at any time are not allowed to exceed amount of security deposit and adjustment is to he made against the security deposit after the disconnection of supply. Therefore, it is not correct to state that the security is not adjusted towards the.bilJ and is kept in tact.

G Section 24 of the Electricity Act is the only provision to ensure payment as indicated in Bi/iar State Electricity Board Patna v. Mis. Green Rubber Industries and ot//er [1990] l SCC 731.

In meeting these arguments it is submitted by Mr. M.P. Jha, H learned counsel for the respondent that the stand of the Board in

FERRO ALLOYS CORPN . .-. A.P.S.E.B. [MOHAN. J.] 241

making payment of interest at 4/5 per cent is clearly arbitrary. The A security aspect of the Board requirement can easity be satisfied by the board resorting to liquidation of security deposit. As a matter of fact, the security deposit was never adjusted by the appllant-Board. As a result large amounts were kept without investing them in fixed deposit. Learned counsel for the respondent relies on the orders issued by this Court and submits that the question of interest is settled by the ruling B in Jagdamba 's ~ase (supra) . Section 24 is of no help for payment of a lower percentage of interest.

W.P. No. 578 of 1987 c In this writ petition, under Article 32 of the Constitution, the challenge is to the increase of security deposit for L and H power consumers above 100 B.H.P. It has been increased from Rs. 170 to Rs.

200. No reason whatever has been assigned for such an increase of security de.posit. That will be bad in law as laid down in Central 111/and Water Transport C01poracio11 Limited (supra). This is the argument of D Mr. Gobind Mukhoty. This is countered saying that when there is an increase in tariff the security deposit also is liable to be increassed.

PUNJAB W.P. NO. 1317of1990 E

In this writ petition, the challenge i~_to the validity of Sections 49

- and 79 of the Supply Act. According to the respondent (Punjab State Electricity Board), the writ petition is not maintainable. A challenge to the imposition of advance consumption of deposit does not involve F any fundamental right.

The Punjab State Electricity Board is a licensee of the State of Punjab. The electrical energy is generated through hydro as well as thermal plants for ultimate sale to consumers. 50% of powers gener- G ated through hydro while the remaining through thermal plants which consume coal/oil. The coal companies and those major suppliers of power plants are demanding cost of coal in advance. On these advances no interest is payable to the Board. Therefore, while the Electricity Board is required to make colossal advances to generate electricity and supply to consumers the consumers also use and consume electricity

242 SUPREME COURT REPORTS (19931 3 S:C.R.

A on credit ranging from 2 to 3' months depending upon the category of consumers. To off-set part of the amount that the consumer owes to the Board constantly and also to ensure timely payment of advances by the . Board to its suppliers an advance consumption deposit is insisted upon· before commencing supply to the consumer. If this is not so taken the Board will be left with no other option than to increase the tariff. This 8 advance deposit cannot be termed as a fixed deposit as the amount cannot be utilized against non-payment of dues from consumers. Pr·~ides, the consumers can also askforthe refund. Sections 49 ( 1) and 79 (j) cannot be termed as arbitrary. In fact, this Court has upheld the validity of Section 49 (1) in Jagdamba 's case (supra). - c Lastly, it is submitted that the Board is generating electricity and each unit so generated costs the Board rupee one per unit. The Board is selling at an average rate of 50 paisa per unit tothe consumer which includes the agricultural sector. Therefore, the amendment to clause D · 23 of abridged conditions of supply requiring.to pay advance consump- tion deposits is perfectly reasonable.

Mr. P.P. Rao, learned counsel appearing as intervenor on behalf of Calcutta Electricity Supply Corporation supplements the submis- sions of Mr. Soli J. Sorabjee. The deposit though called security E deposit is really an adjustable advance payment of consumption charges. The amount is revisable from time to time depending upon the average consumption charges on the basis of actual consumption over a period.

F The true nature of transaction in these cases is one of advance for consumption of electricity estimated for a period of three months subject to adjustment I revision, if necessary. Such an advance is liable to be made good and kept at a stipulated level from month to month. It is open to the consumer to permit adjustment of the advance in the first instance. Thereafter, make good the shortfall in consumption charges and the security deposit before actual disconnection of supply which takes at least about three months. In short, it is in the nature of a running account. The security deposit does not remain in tact like a fixed deposit but gets depleted day after day depending on the extent of consumption More often than not, the consumption charges and other dues exceed the security deposit. That necessitates ca11ing for

FERRO ALLOYS CORPN. ,._ A.P.S.E.B. [MOHAN, J.] 243

additional advance to make up a shortfall. In the absence of any usage A .,_ I or contract or any provision of law requiring payment of interest, interest is not payable for wrongful detention of money. In this case, there is no wrongful detention of even. Section 4 (2) of the Interest Act has no application to this deposit. When electricity supply is duly made with a consequential liability to pay for each day's consumption, the B so-called security deposit is not a deposit in the real sense for the consumers to claim the benefit of Interest Act.

We will now proceed to consider the correctness of the above submissions with reference to the following aspects: c (i) Whether Section 49 is bad for want of guidelines.

(ii) The-nature of.consumption deposit, irrespective of the,nomenclature by which it is called.

D " (iii) (a) The liability of the Electricity Board to pay interest.

(b) Whether the clause in the terms of supply provid- ing for non-payment of interest is unconstitutional or arbitrary. E

(iv) The demand for additional consumer deposit- Whether valid?

VALIDITY OF SECTION 49 F The law relating to electricity is principally contained in two Acts. ·

(i) The Indian Electricity Act of 1910 (hereinafter referred to as the "Electricity Act"). This provides for grant of licences in relation to G supply of electricity and the projects of undertakings. It also provides for supply of electricity including the protective clauses.

- (ii)The Electricity (Supply) Act of 1948 (hereinafter referred to as the "Supply Act") provides for constitution of State Electricity H Boards, the powers and· duties of such Boards. Certain important

244 SliPREME COP RT REPORTS [199313 S.C.R. -r· A provisions of the Act may now be seen.

Section 2 is interpretation Section,

Under St:ction 2 (2) the Board means a State Electricity Board constituted under Section 5. B

Under Section 2 ( 10) states that regulation means regulations made by the Board under Section 79.

Sect.ion 5 deals with the constitution and composition of State C Electricity Board.

Section 49 is the provision for sale of electricity by the Board to persons other than the licensees. Sub-section (I) of the said Section conimences with the word~-; "Subject to the provisions of this· Act and D of Regulations". TI1is means ifthere are any provisions regulating the Board in the matter of supplying electricity to any persons not being a licensee then the supply by the Board will be subject to aH those provisions. It has been so laid down in Mysore State Electricity Board v. Bmlgalore Woollen. Cotton and Silk Mills Ltd., AIR 1963 SC 1128 E at page I 136:

"The expression "Subject to the provisions of this Act" merely that if there are any provisions regulating the Board in the matter of supplying dectricity to any person not being a licensee, then the supply by the F Board wiU be subject to those provisions. No provi- sion has been brought to our notice which regulates the Board in the matter of the charges which it may fix for the supply of electricity."

G This Court had occasion to deal with the scope"Ofthe said Section and Section 59. In Hindustan Zinc 'Ltd. v. A1id'1ra Pradesh State Electricity Board [I 991] 3 SCC 299 at pages 317"-3 f9 it has been observed thus:

"Section 49 makes provision for the sale o·f electricity H by the Board to persons other -than licensees. Sub-

~: FERRO ALLOYS CORPN. v. A.P.S.E.B. [MOHAN, J.} 245