KERALA STATE ELECTRICITY BOARD KERALA STATE ELECTRICITY BOARD TRIVANDRUM KERALA STATE ELECTRICITY BOARD Vs. S N GOVINDA PRABHU AND BROS:TRAVANCORE ELECTRO CHEMICAL INDUSTRIES LIMITED:M R F LIMITED

JUDGEMENT

(1.) , J. : - These appeals preferred by the Kerala State Electricity Board raise the question of the extent of the authority of the Board to increase the Electricity Tariff under the Electricity (Supply) Act. The upward revision of tariff made by the Board in 1980, 1982 and 1984 was successfully challenged in the Kerala High Court. The first two revisions were struck down by a Full Bench of three judges by a majority of two to one and, later, all three revisions were struck down by a Full Bench of five judges by a majority of four to one. The principal ground of challenge and that which was accepted by the High Court was that the Kerala State Electricity Board acted outside its statutory authority by formulating a price structure intended to yield sufficient revenue to off set not merely the expenditure properly chargeable to the revenue account for the year as contemplated by S. 59 of the Act but also expenditure not so properly chargeable. Had S. 59 been strictly followed and had items of expenditure not chargeable to the revenue account for the year been excluded, the revised tariff would have resulted in the generation of a surplus far beyond the contemplation of S. 59 of the Act. According to the High Court, in the absence of a specification by the Government the Board was not entitled to generate a surplus at all and it acted entirely outside its authority in generating a surplus to be adjusted against items of expenditure not authorised to be met from the revenue receipts. The notifications prescribing revised tariffs were, therefore, struck down. The view of the High Court, as might be seen, was based primarily on their construction of S. 59 of the Electricity (Supply) Act.

(2.) IN order to understand the questions at issue, it is necessary to set out S. 59 as it stood prior to 1978, as amended by Act No. 23 of 1978, and finally as amended by Act No.16 of 1983 : <FRM>JUDGEMENT_198_4_1986Html1.htm</FRM>

(3.) NOW, a State Electricity Board created under the provisions of the Electricity (Supply) Act is an instrumentality of the State subject to the same constitutional and public law limitations as are applicable to the government including the principle of law which inhibits arbitrary action by the Government. It is a public utility monopoly undertaking which may not be driven by pure profit motive not that profit is to be shunned but that service and not profit should inform its actions. It is not the function of the Board to so manage its affairs as to earn the maximum profit even as a private corporate body may be inspired to earn huge profits with a view to paying large dividends to its shareholders. But it does not follow that the Board may not and need not earn profits for the purpose of performing its duties and discharging its obligations under the statute. It stands to commonsense that the Board must manage its affairs on sound economic principles. Having ventured into the field of commerce, no public service undertaking can afford to say it will ignore business principles which are as essential to public service undertakings as to commercial ventures. If the Board borrows sums either from the Government or from other sources or by the issue of debentures and bonds, surely the Board must of necessity make provision year after year for the payment of interest on the loans taken by it and for the repayment of the capital amount of the loans. If the Board is unable to pay interest in any year for want of sufficient revenue receipts, the Board must make provision for payment of such arrear of interest in succeeding years. The Board is not expected to run on a bare year-to-year survival basis. It must have its feet firmly planted on the earth. It must be able to pay the interest on the loans taken by it; it must be able to discharge its debts; it must be able to give efficient and economic service; it must be able to continue the due performance of its services by providing for depreciation, etc., it must provide for the expansion of its services, for no one can pretend the country is already well supplied with electricity. Sufficient surplus has to be generated for this purpose. That we take it is what the Board would necessarily do if it was an ordinary commercial undertaking properly and prudently managed on sound commercial lines. Is the position any different because the Board is a public utility undertaking or because of the provisions of the Electricity (Supply) Act(?) We do not think that either the character of Electricity Board as a Public Utility Undertaking or the provisions of the Electricity (Supply) Act preclude the Board from managing its affairs on sound commercial lines though not with a profit-thirst. It may be noticed here that S. 18(a) prescribes it as one of the duties of the Board to arrange for the supply of electricity that may be required within the State and for the transmission and distribution of the same, in the most efficient and economical manner and S. 49(2)(b) requires the Board to have regard, in fixing uniform tariffs, the co-ordinated development of the supply and distribution of electricity within the State in the most efficient and economical manner, both with particular reference to those areas which are not for the time being served or adequately supplied with electricity. The principles of efficiency and economy are, therefore, not forsaken but resolutely emphasised. NOW if we turn to S. 59, what do we find? Though at one time it appears to have been thought that it was enough if the Board did not carry on its operations at a loss it was realised that the statutory admonition to the Board should be positive and not negative and that the Board should be given an affirmative and self-assuring direction. So S. 59 was amended in 1978. The Statement of Objects and Reasons says,