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The Ahmedabad Electricity Ltd. Vs. Gujarat Electricity Board, Baroda and ors. - Court Judgment

LegalCrystal Citation
SubjectElectricity
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 388 of 1964
Judge
Reported inAIR1976Guj89
ActsElectricity (Supply) Act, 1948 - Sections 57A
AppellantThe Ahmedabad Electricity Ltd.
RespondentGujarat Electricity Board, Baroda and ors.
Appellant Advocate C.T. Daru and; H.B. Shah, Advs.
Respondent Advocate S.B. Vakil, Adv., i/b.,; G.G. Mehta, Adv. of Bhaishanker Kanga and;
Cases ReferredAmalgamated Electricity Co. Ltd. v. N. S. Bathena
Excerpt:
electricity - rating committee - section 57a of electricity (supply) act, 1948 - constitution of rating committee to examine charges fixed by licencee for supply of electricity to consumers - electricity board satisfied that licencee failed to comply with provisions of sixth schedule of act - rating committee should be constituted to examine charges fixed by licencee. - - 1 gujarat electricity board (board) in exercise of powers under section 57-a of the electricity (supply) act, 1948 (act) on the ground that the board was satisfied that the licensee (petitioner) had failed to comply with the provisions of sixth schedule of the act. the second ground incorporated in the show cause notice was to the effect that the petitioner company had made special proportions in its accounts for.....thakkar, j.1. a 10-year old battle is raging around, the question as regards the legality and validity of an order dated april 30, 1964 (annexure 'h') made by the state electricity board constituting a rating committee to examine the charges for the supply of electricity fixed by a licensee (petitioner) under the indian electricity act, 1910. the rating committee was constituted by respondent no. 1 gujarat electricity board (board) in exercise of powers under section 57-a of the electricity (supply) act, 1948 (act) on the ground that the board was satisfied that the licensee (petitioner) had failed to comply with the provisions of sixth schedule of the act. upon the constitution of the rating committee, the ahmedabad electricity co. ltd., the licensee under the act, instituted the present.....
Judgment:

Thakkar, J.

1. A 10-year old battle is raging around, the question as regards the legality and validity of an order dated April 30, 1964 (Annexure 'H') made by the State Electricity Board constituting a rating committee to examine the charges for the supply of electricity fixed by a licensee (petitioner) under the Indian Electricity Act, 1910. The rating committee was constituted by respondent No. 1 Gujarat Electricity Board (Board) in exercise of powers under Section 57-A of the Electricity (Supply) Act, 1948 (Act) on the ground that the Board was satisfied that the licensee (petitioner) had failed to comply with the provisions of Sixth Schedule of the Act. Upon the constitution of the rating committee, the Ahmedabad Electricity Co. Ltd., the licensee under the Act, instituted the present petition under Article 226 of the Constitution of India with the end in view to challenge the legality and validity of the impugned order (Annexure 'H') dated April 30, 1964 constituting the rating committee and to obtain incidental and consequential relief's. The principal question that clamours for solution is, therefore, whether or not the impugned order constituting the rating committee is valid.

2. It will be appropriate to trace a short history of the litigation before coming to grip with the main issue, The impugned order constituting the rating committee was challenged on numerous grounds, One of the principal contentions was that before the constitution of the rating committee on April 30, 19,64 the petitioner Company had already made a reference in regard to the identical dispute or difference between the parties to the arbitration of the competent authority specified in paragraph XVI of the Sixth Schedule and that the tendency of the reference so made as per Annexure V dated April 6, 1964 would operate as a bar to the constitution of the rating committee. This contention found favour with a Division Bench of this High Court before whom the petition came up. The Division Bench accordingly by its judgment and order dated December 15, 1964 allowed the petition solely on this point without entering upon an examination of the various other contentions raised by the petitioner Company and quashed the impugned order dated April 30, 1964 constituting the rating committee. The first respondent Board, approached the Supreme Court of India by way of Civil Appeal No. 1797 of 19,64 and called into question the aforesaid decision of the Division Bench rendered on December 15, 1964. The Board canvassed before the Supreme Court the proposition that the tendency of a reference before the competent authority for arbitration in terms of paragraph XVI of Sixth Schedule would not operate as a bar on a true interpretation of the relevant provisions including second proviso of Section 57-A of the Act and paragraph XVI of the Sixth ,Schedule of the Act. And taking into account the principle laid down in the Amalgamated Electricity Co. Ltd, v. N. S. Bathena, AIR 1964 SC 1598, the Supreme Court upheld the contention of the Board and allowed the appeal on forming the opinion that the existence of a dispute between the Board and, the licensee and the existence of a reference to arbitration made by the licensee would not attract the embargo embodied in the aforesaid provision having regard to the fact that what was contemplated by the Act was the existence of a dispute or difference ,between the State Government on one hand and the licensee on the other and a reference to arbitration stemming there from and not the existence of a dispute or a difference between the Board and a licensee. The Supreme Court under the circumstances allowed the appeal and, set aside the order of the Division Bench rendered on December 15, 1964 quashing the constitution of the rating committee. Since the Division Bench which disposed, of the petition giving rise to the appeal before the Supreme Court had not decided the other points raised by the petitioner, the Supreme Court remanded the matter to the High Court for disposal in accordance with law. For the sake of preciseness, the operative portion of the order of the judgment and order of the Supreme Court deserves to be quoted. It runs as follow is:-

'We have, therefore, to conclude that the finding of the High Court on which relief was given to respondent No. 1 cannot be sustained in law, It appears that some other issues had, been also raised before the High Court but they were not dealt with in view of the finding recorded. The parties, therefore, are agreed that the case will have to go back to the High Court for disposal in accordance with law after considering the other issues raised in the Special Civil Application . Accordingly the case is remanded to the High Court for disposal. The costs shall be costs in the cause.'

That is how this petition has made its way back to this High Court for being disposed of in the light of the directions of the Supreme Court.

3. It is now time to briefly recount the events leading to the institution of the present petition. The seeds of trouble were sown on September 11, 1963 on which day the petitioner gave intimation to the State government and the Chief Engineer of the Board of its intention to enhance the charges for the supply of electricity in respect of certain class of consumers with effect from Novbember 16, 1963 on the ground that on the basis of the current rate structure the 'clear profit' as defined in paragraph XVII, clause (2) of Sixth Schedule of the Act was expected to fall short of 'reasonable return' as defined in clause (9) of paragraph XVII of Sixth Schedule. This intimation was given in compliance with the requirements of the relevant provi sion of the Act on,September 11, 1963. It evoked a hostile response on the part of the Board as reflected in Annexure 'B' dated March 7, 1964, a notice under the first proviso to sub-section (1) of Section 57-A of the Act to show cause after the expiry of thirty clear days from the receipt of the notice as to why the proposed action of constituting a rating committee should not be taken by the Board. This show cause notice was issued, subsequent to the enhancement of the electricity charges in regard to certain categories with effect from November 16, 1963 in pursuance of intimation given to the Board under Annexure 'A' dated September 11, 19,63. The show cause notice was mainly grounded, on two circumstances. First, that the 'clear profit' of the Company for the year commencing from 1st April 1963 'has exceeded' the amount of reasonable return permissible under the relevant provisions of the Act read with Sixth Schedule thereto. The second ground incorporated in the show cause notice was to the effect that the petitioner Company had made special proportions in its accounts for past three years (for 1959-60, 1960-61 and 1961-62) with out obtaining the permission of the State Government and that thereby the Company had failed to comply with the provisions of paragraph XVII (2) (c) (vi) of the Sixth Schedule to the Said Act. In the course of the said show cause notice the Board expressed its satisfaction that the 'clear profit' of the petitioner Company in the year 1963-64 'must exceed' the -amount of reasonable return by reason of the enhancement of the charges which came into force with effect from November 16, 1963 and that the Board was satisfied that the Company had failed to comply with the provisions of Part I of the Sixth Schedule to the said Act as also had failed to comply with the provisions of paragraph XVII (2) (c) (vi) of the Sixth Schedule.

4. The petitioner Company replied to the show cause notice and explained its point of view by Annexure 'C' dated March 26, 19,64. The explanation was considered unsatisfactory by the Board as disclosed by its communication dated April 30, 1964 (Annexure 'C') addressed to the petitioner Company and on the same day i.e. April 30, 1964 the Board constituted a rating committee under the impugned order (Annexure 'H') and that has given rise to the present petition.

5. A multi-pronged attack has been launched by the petitioner in order to assail the validity of impugned order, Annexure '11', constituting a rating committee. The first and the most substantial ground of attack is that the essential precondition for the exercise of powers under Section 57-A of the Act on the part of the Board does not exist. Now, the powers under Section 57-A(1)(a)(i) to constitute a rating committee to examine the charges fixed by a licensee for the supply of electricity to its consumers can be exercised only if the Board is satisfied that the licensee has failed to comply with any of the provisions of the Sixth Schedule to the Act. The plain reading of Section 57-A makes this evident and this proposition is not disputed. The question then is whether the satisfaction recorded, by the Board to the effect that the licensee has failed to comply with the relevant provisions of the Sixth Schedule is capable of being challenged on the ground that the essential pre-condition does not exist. In order to comprehend the real content of the challenge, it is necessary to realise that the Board has assumed the posture that the non-compliance is on two scores. First, that the 'clear profit' of the Company for the year commencing from April 1, 1963 and ending with March 31, 1964 has exceeded the 'reasonable return' permissible under the Act. Now, the show cause notice (Annexure 'B'), it will be recalled, was issued on March 7, 1964 before the relevant accounting year had come to a close (it would end on March 31, 1964 i.e. 24 days after the issuance of the show cause notice). The show cause notice proceeded on the assumption that the 'clear profit' for the relevant year ending on March 31, 1964 'must exceed' (this is the expression employed by the Board in Annexure 'B') the amount of reasonable return permissible under the Act, The actual constitution of the rating committee, however, was made on April 30, 1964, i. e. about a month after the expiry of the relevant accounting year (on March 31, 19,64). When the show cause notice was issued, the accounting year had not ended and the accounts for the year expiring on March 31, 1964 for obvious reasons were not available. The accounts showing the result of the operations for the year ending 31st March 1964 have subsequently become available. The learned counsel for the Board after taking instructions from the competent authority and consulting the competent officers of the Board has made a statement at the Bar that having examined the accounts of the petitioner Company for the relevant year (year ending March 31, 1964) the position of affairs which emerged was that according to the Board, the 'clear profit' (as defined in the Act) for the relevant period was in excess of the 'Treasonable return' (as defined in the Act) but that it was not in excess, of a margin of 15 % over and above the reasonable return. The counsel for the petitioner made a statement that he did not admit that the profit for the relevant year exceeded the reasonable return, but that he was prepared to argue the matter on the assumption that the 'clear profit' did exceed the reasonable return though it did not exceed the reasonable return by more than 15 %. Both the sides thus agreed to argue the petition on this footing and they invited the Court to examine the validity of the impugned order on this premise. Now, 'clear profit' is an expression which is defined by clause (2) of paragraph XVII of Sixth Schedule to the Act. It means the difference between the amount of income as specified in the said clause and the sum of expenditure plus specific appropriations as specified in the subsequent part of the definition clause. The expression 'reasonable return' has been defined by clause (9) of paragraph XVII of Sixth Schedule. A formula for computation of 'reasonable return' has been embodied in the definition -clause. For the purposes of the present petition it is not necessary to examine the components of the formula. In view of the statements made by counsel at the Bar we have to examine the question as to whether it can be said, that there is a noncompliance with the relevant provisions of the Sixth Schedule if the clear profit made by a licensee exceeds the reasonable return by a margin of not more than 15%. This concept of margin of 15% in excess of the amount of reasonable return has relevance from the point of view of paragraph I of Sixth Schedule read with Sections 57 and 57-A of the Act. At the material time (thereafter there has been an amendment) the said paragraph was in the following terms:-

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

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

Provided further that the licensee shall not be deemed to have failed so to adjust his charges if the clear profit in any year of account has not exceeded the amount of reasonable return by fifteen per centurn of the amount of reasonable return:

Provided further that the licensee shall not enhance the charges for the supply of electricity until after the expiry of a notice in writing of not less than sixty clear days of his intention to so enhance the charges, given by him to the State Government and to the Board:

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

Provided also, that nothing in this Schedule shall be deemed to prevent a licensee from levying with the previous approval of the State Government, minimum charges for supply of electricitv for any purpose.'

It may incidentally be mentioned that by virtue of an amendment by Act 30 of 1966, the second proviso to paragraph I has now been modified end the percentage of permissible excess over and above reasonable return is 20% instead of 15%. At the material time the proviso permitted only 15 % excess and it is on that footing that the present petition has to be decided. Now, the scheme of paragraph I appears to be to ensure that a license does not over-charge the consumer. Liberty is accorded to the licensee to enhance the charges unilaterally provided by virtue of such enhancement his clear profit in any year of account shall not as fer as possible exceed the amount of reasonable return with the rider that the licensee gives a written notice with regard to the intention to so enhance the charges sixty clear days in advance to the State Government and the Board as contemplated by the third proviso and it further provides that there can be only one enhancement in any year of account (see first proviso). Subject to these two riders a licensee may enhance the charges for the sale of electricity. The scheme contemplates that as a result of such enhancement, the licensee shall not be enabled to make clear profit in excess of reasonable return as far as possible. It appears to us that the expression 'as far as possible' has been employed out of logical necessity because however farsighted and foresighted a licensee may be, one cannot expect the licensee in the middle of a year to anticipate the ultimate outcome of the operations of the said year. And it is in this context that the second proviso has been enacted. it may be quoted along with the first part of paragraph I in order to put it under the spot-light for the purposes of the interpretation of the relevant provision in the context of the discussion:-

'I. Notwithstanding anything contained in the Indian Electricity Act, 1910 except sub-section (2) of Section 22-A, and the provisions in the licence of a licensee, the licensee shall so adjust his charges for the sale of electricity whether by enhancing or reducing them that his clear profit in any year of account shall not, as far as possible, exceed the amount of reasonable return: Provided further that the licensee shall not be deemed to have failed so to adjust his charges if the clear profit in any year of account has not exceeded the amount of reasonable return by fifteen per centum. of the arnount of reasonable return - '

To pick up the thread and resume the discussion it would appear to be an essential part of the scheme to ensure that the consumer is not overcharged and to impose a ceiling on the rate which can be charged by the licensee in respect of the supply of electricity to the consumer. The licensee is at liberty to enhance the charges not more than once a year after giving the requisite notice on condition that as far as possible the clear profit in the accounting year does not exceed the reasonable return subject to the rider (embodied in the second provision that the adjustment made by him by way of enhancement or by way of reduction does not result in the licensee making a profit beyond the margin of 15% in excess of the amount of reasonable return calculated in accordance with the formula embodied in definition clause contained in paragraph XVII of Sixth Schedule. As remarked earlier, the expression 'as far as possible' has been employed by the Legislature having regard to the practical considerations and logic-al necessity in the context of difficulty of envisioning the ultimate result of the operations of the accounting year in advance with a degree of preciseness. A practical solution appears to have been incorporated by way of the second proviso by introducing a concept of margin of error and what is provided is that the adjustment by way of enhancement or reduction must be so made that the clear profit is not in excess of the reasonable return by more than 15%. In other words, if the clear profit is equivalent to reasonable return plus 15%, it would not offend the second proviso. If it does exceed 15%, it would offend the second proviso. That is what is conveyed by reason of the expression 'shall not be deemed to have failed so to adjust his charges', (as enjoined by the first part of paragraph I), if the clear profit in any year of account has not exceeded the reasonable return by fifteen per centum. to put it differently, the Legislature obliges the licensee to so adjust his charges in em accounting year that his clear profit does not exceed the reasonable return by more than 15% so long as the first part of paragraph I imposes an obligation on a licensee to make necessary adjustment in order to ensure that a clear profit in a year does not exceed as far as possible the reasonable return. The adjustment may be necessitated because the costs have risen and there may be necessity to enhance the rates in the middle of a year. In such an event he has an option or a right to enhance provided by such adjustment his clear profit does not exceed his reasonable return by more than 15 %. So also the corresponding duty or obligation is cast on him to anticipate things and to reduce his charges in case the cost structure goes down and a possibility of the clear profit exceeding the reasonable return arises. But whether he exercises the option to enhance or is obliged to reduce, in order that the clear profit does not exceed the reasonable return, the Legislature enjoins that the adjustment shall be so made that 'as far as possible' the clear profit does not exceed the reasonable return. But then the question arises why the Legislature employed the expression 'as far as possible'? 'Evidently on account of the difficulty of anticipating the outcome of the operations in advance without making the adjustment in the middle of the year and as mentioned earlier the solution found is to provide the formula of a margin of error of 15% embodied in the second proviso to paragraph I. It is in this context that the Legislature, has enacted the formula embodied in the second proviso extending immunity to the licensee by providing that 'the licensee shall not be deemed to have failed so to adjust' (i. e. adjust in accordance with first part of paragraph I) if the clear profit in any year of account has not exceeded the amount of reasonable return by fifteen per century of the amount of reasonable return'. In other words, so long as the adjustment by way of enhancement or reduction, as the case may be, is made, it does not offend the formula of reasonable return plus 15%, a licensee will not be offending paragraph I of the Sixth Schedule. The argument of the learned counsel for the Board is that the second proviso to paragraph I of the Sixth Schedule is attracted only in one eventuality, namely, when the licensee maintains the rate structure without making an upward or downward revision. The argument is that the question regarding 15% of margin of error cannot arise when an adjustment is sought to be made either by way of enhancement or by way of reduction. The applicability of the second proviso will arise only when the licensee maintains, the rate structure in a particular year without having recourse to adjustment by way of enhancement or by way of reduction. According to him, two situations can arise. First, a licensee may enhance or reduce the charges in an accounting year and secondly, when a licensee does nothing by way of an overt act of adjustment by way of enhancement or reduction but maintains fie status quo by continuing to charge the prevailing rates. It is his argument that the second proviso will be attracted only in the latter case but not in the former. We are unable to comprehend how such a truncated interpretation can be placed on the second proviso in the face of the clear language employed by the Legislature which does not engraft any such limitation as is suggested by counsel for the Board. It is inconceivable why the Legislature should permit to a licensee a clear profit of reasonable return plus 15% in any year when he maintains the rate structure as in the past year but should frown upon and prohibit the licensee from making a clear profit of this order in the event of a necessity for enhancement or reduction arising in the course of a year. There is no rational basis (and none is shown) for allowing a higher margin of clear profit (reasonable return plus 15%) when the rate structure is maintained but not allowing the same order of clear profit when the rate structure is altered by way of enhancement or reduction. In fact the licensee is required to be vigilant and to anticipate the clear profit which would emerge at the close of the year. However, having regard to the limitations of human vision and impossibility of anticipating the future with any degree of preciseness the Legislature has provided a margin of error of 15% by introducing the formula embodied in second proviso. It is legitimate to ask the question: what else is the purpose of the second provision The manifest purpose is to devise a formula necessitated by reason of the impossibility of anticipating with preciseness The outcome of the operations of a business in advance and there appears to be no point or purpose in devising such a formula only in case of licensees who continue or maintain the existing rate structure to the exclusion of those licensees who may have to enhance or reduce the rate structure in order to conform to the ceiling imposed by the Legislature in Paragraph I of Sixth Schedule. The expression 'as far as possible' employed in the first part of paragraph I provides a clear end reliable clue to this conclusion. In our opinion, the first part of paragraph I read with the second proviso constitutes a self-contained scheme in order to ascertain the ceiling or upper limit as regards the charges which a licensee can levy in regard to the supply of electricity to its consumers. We are fortified in our opinion by the interpretation placed by the Supreme Court on a similar provision contained in the Electricity (Supply) Act of 1948 as amended by Act 101 of 1956 in Amalgamated Electricity Co. Ltd. v. N. S. Bathena, AIR 1964 SC 1598 at p. 1614, says the Supreme Court:-

'We thus reach the position that there could be a unilateral adjustment of the rates by a licensee but that such an adjustment must not leave him with more than the reasonable return plus another 30 per cent. this being an absolute limitation on the power to 'adjust'. Where the amount of 'reasonable return' is exceeded Paragraph 2 comes into play -and the excess over the reasonable return is distributed in the manner laid down in that paragraph.'

Under the circumstances, we are unable to accede to the argument advanced by the learned counsel for the Board to the effect that the second, proviso would not be attracted when enhancement or reduction is made in a prevailing rate structure by a licensee Company. Now, it is an admitted position that if this were the true interpretation of paragraphs I, the Petitioner Company cannot be said to have failed to comply with paragraphs I of Sixth Schedule. It is common ground and an admitted position that if on a true interpretation of paragraph I a licensee can make an adjustment by way of an enhancement so that the clear profit emerging at the end of an accounting year does not exceed the reasonable return by more than 15%, the petitioner must succeed in its contention that there is no failure to comply with paragraph I of the said Schedule. If this interpretation is correct, the petitioner must succeed for it is no more in doubt that the clear profit for the relevant year (ending on March 31, 1964) of the petitioner Company did, not exceed this upper limit and there, was no possible question of failure to comply with the provisions of paragraph I and if that be so, the essential pre-condition for constituting a rating committee in exercise of powers under Section 57-A(1)(a)(i) does not exist. It is not disputed by counsel for dule the Board that if the interpretation which has found favour with the Court is the true interpretation, the petitioner's challenge from the point of view of the first charge, namely, that the clear profit of the petitioner Company for the year ended March 31, 1964, has exceeded the permissible limit demarcated by paragraph I of the Sixth Schedule must succeed. It is, however, argued that the constitution of the rating committee can be sustained even on the second charge assuming that it was not warranted from the standpoint of the first charge. We do not propose to examine the argument of the other side that the constitution of the rating committee must fail if one of the charges regarding failure to comply with the Sixth Schedule out of the two charges fails, for the very good reason that in our opinion the second charge is also as frail as the first one. We will, therefore, proceed to examine the question from the standpoint of the second charge.

6. The charge in question as disclosed in the show cause notice, Annexure 'B', dated March 7, 1964, is in the following terms:-

'Whereas the Company has made special appropriations in its accounts for the years 1959-~60, 19-60-61 and 1,961-62 without obtaining the permission of the State Government -and has thereby failed to comply with the provisions of Para. XVII (2) (c) (vi) of the Sixth Schedule to the said, Act'

On this charge further onwards the satisfaction of the competent authority is recorded in the following terms:-

'.......and that the Gujarat Electri-city Board is further satisfied that the Company has failed to comply with the provisions of Para. XVII (2) (c) (vi) of the Sixth Schedule to the said Act.'

Now, before we examine the content and validity of the charge, it is necessary to take a rapid glanceat the provision which is said to have been contravened or in respect of which there is a charge of alleged, n-compliance. The provision concerned as disclosed by the aforesaid extract from the charge is paragraph XVII (2) (c) .(vi) of the Sixth Schedule to the Act. The said, provision in so far as material requires to be quoted along with the caption under which the provision appears. It is as under:-

'Definitions:

XVII, for the purposes of this Schedule-

(1)'capital base' means the sum of-

xx xx xx(2) 'Clear profit' means--

the difference between the amount of income and the sum of expenditure plus specific appropriations, made up in each case as follows:-

(a) income derived from-

xx xx xx(b) expenditure properly incurred on-

xx xx xx(c) special appropriations sufficient to cover-

(i) previous losses (that is to say excess of expenditure over income) which have arisen from the business of electricity supply to the extent in any year permitted by the State Government;

(ii) all taxes on income and profits;

(iii) xx xx xx(iv) contributions to the Contingency Reserve, computed as hereinbefore set Out;

(v) contributions towards arrears of depreciation;

(va) contributions to the Development Reserve referred to in paragraph VA;

(vi) other special appropriations permitted by the State Government.'

The spot-light may now be turned on the landmarks of this provision. As is made abundantly clear by the caption of Paragraph XVII, the essential function discharged by the said Paragraph is that of furnishing dictionary of the technical expressions employed in Sixth Schedule. And clause (2) of Paragraph XVII has placed under focus the expression 'clear profit' which occurs in the Sixth Schedule and sub-clause (c) embodies the definition of special appropriations which must be taken into account for the purpose of deducing the clear profits within the meaning of the expression by working out the difference between the income as defined therein on one hand and the sum of the expenditure as defined therein including the amount representing the specific appropriations as defined by sub-clause (c). One of the items of the special appropriations is enumerated in sub-clause (vi) and the item in question refers to such special appropriations as, may be permitted by the State Government. When the charge speaks of contravention of paragraph XVII (2) (c) (vi), it means that the petitioner Company has failed to comply with the definition of special approporiations as defined by sub-clause (c) (vi) for the purposes of definition of the expression 'clear profits' which is defined by the main clause (2). It passes our comprehension how a Company can be charged with having contravened or having failed to comply with a definition clause embodied in the dictionary for the purposes of explaining the terms and expressions employed by the Legislature in the Sixth Schedule. In order to extricate himself from this unenviable position, counsel for the Board argued that what was meant was that during the years in question, namely accounting years from 1959-60 to 1961-62 the petitioner Company in its accounts had made entries in regard to special appropriations in respect of which prior permission had not been obtained from the State Government and that it was this which constituted non-compliance. Now, assuming that it is possible to interpret the charge in this manner, we fail to, comprehend how making a book entry in regard to an appropriation can ever constitute contravention of Paragraph XVII (2) (c) (vi). When we inquired from counsel for the Board as to whether there was a prohibition in regard to making of any entry in its balance sheet, setting apart a sum by way of special appropriations without the prior permission of the State Government, counsel for the Board was unable to point out any such provision from the Act. It was, however, argued that if the sum set apart for such appropriation was taken into account for working out the clear profits for the purposes of the Sixth Schedule and if thereby the clear profits exceeded the Emits permitted by the Act, it would constitute non-compliance. Now, such is not the charge. Even so the charge may be examined from this standpoint and for this purpose it will have to be shown that the clear profit for three previous years, namely, 1959-60, 1960-61 and 19-61-62 exceeded the permissible limits specified in Paragraph I of Sixth Schedule to which we have already made a reference in connection with the first point. With the benefit of hind sight it is now possible to have a clear idea about the position of accounts for these years. Learned counsel for the Board after taking instructions from the competent authority made a statement -at the Bar that according to the Board the clear profit for these three years 1959-60, 19,60-61 and 1961-62 exceeded the amount of reasonable return but that it did not exceed the said amount by more than 15%. The counsel for the petitioner claimed that the clear profit even for these years did not exceed the reasonable return but that he was prepared to argue the petition on the footing that it exceeded the reasonable return but did not exceed it by more than 15%. It will be recalled that we have already interpreted the true content of this provision in the context of the first charge and have recorded the conclusion that it cannot be said that there is a noncompliance with this provision and the clear profit does not exceed the reasonable return by more than 15 % for the relevant period. Counsel for the Board has stated that if this interpretation were true, it cannot be said that the petitioner Company has failed to comply with this provision, Me result is that even if we were to proceed on the footing that there was any such charge (in our opinion there was no such clear and specific charge), even then the petitioner must succeed for there is no escape from the conclusion that the clear profit for these three years did not exceed the permissible limits, namely, reasonable return plus 15 % permissible under Paragraph I

7. It is, therefore, clearly established that both the charges were altogether lacking in foundations and that the condition precedent for the exercise of power to appoint a rating committee under the circumstances could not have been lawfully exercised. The petition, therefore, deserves to succeed on the aforesaid grounds.

8. A number of other points have also been urged in support of the petition, We do not consider it necessary to enter upon a detailed examination of all these submissions having regard to the opinion formed by us. For the sake of completeness of judgment, however, we will briefly indicate the points concerned and our observations thereon.

9. One of the points urged is that the show cause notice is ab initio, void on the ground that the Board was not legally competent to issue the notice in regard to an alleged non-compliance for year ending with 1964 before the expiry of the accounting year. On a plain reading of Section 57-A it is clear that in order to constitute a rating committee validly it is essential to serve a notice in writing calling upon the licensee to show cause within thirty days against the proposed action to constitute a rating committee 'on account of the failure of the licensee to comply with any provision of the Sixth Schedule' and it requires little persuasion to hold that the failure to comply must be a past act of failure. In other words, some failure must have taken place before the issuance of the show cause notice. The first charge in the show cause notice dated March 7, 1964 is to the effect that the clear profit of the Company in regard to the year ending March 31, 19,64 'must exceed' the amount of reasonable return (see Annexure 'B'). Now, how can the licensee be charged with a past failure to comply with the provision in respect of the year ending on March 31, 1964, 24 days before the expiry of the year in regard to the allegation that its clear profit exceeds the reasonable return? The accounting year was yet to run out. Before the year ended, its profit for the entire year could not have been ascertained. Since the profit itself would emerge on the expiry of the year, one cannot say that the profit for the year ended March 31, 19654, had exceeded the formula embodied in the Act. The profit was still in the womb of the future for it would emerge and appear on March 31, 1964 on the completion of the year. It can never be said that the profit for year ended March 31, 1964 had come into existence on March 7, 1964. Realising this, the show cause notice uses the expression 'must exceed' which indicates that the competent authority was under the misconception that if there was a likelihood of a breach, it was open to constitute a rating committee in anticipation. It is clearly contrary to the scheme of the section which takes into account a contravention which has already taken place before the date of the show cause notice, The show cause notice was clearly contrary to law and invalid. In the absence of a valid show cause notice no rating committee could have been validly constituted. The learned counsel for the Board is unable to provide any good answer to this argument and we see great merit in it. Since we have already formed the opinion that the impugned order is invalid on the first two grounds, we do not propose to base our decision on this additional ground.

10. There is also a hurdle extremely difficult to surmount in the way of the Board for which no fault can be found with them. It arises in this way. The Legislature has embedded a rigid inflexible time-bound schedule with regard to the constitution of the rating committee, its report end its implementation in Section 57-A. Clause (c) provides that the rating committee shall make its report within three months from the date of its constitution (in the present case the rating committee was constituted on, April 30, 19,64) and that this time-limit of three months may he extended by the State Government for further period not exceeding three months (see proviso to clause (c)). It is, therefore, clear that the day on which six months expire after the constitution of the rating committee is the deadline for making the report and no valid report can be made after the expiry of this deadline, Having regard to the scheme, there is no manner of doubt that it is a rigid and inflexible deadline which even the State Government cannot extend. It is obvious that this deadline expired in 1964 even before the petition initially came up for hearing in the High Court. As it is a statutory deadline prescribed by the Act, the situation cannot be remedied whatever be the hardship. So also there is a further statutory timetable embodied in clause (d) Which makes it incumbent on the State Government to publish the report and to make an order in accordance with the report within thirty days of the making of the report and the charges fixed by the rating committee are required to be given effect to from a date which is 'not earlier than two months or later than three months after the date of publication of the report'. It is, therefore, a very tight and a very rigid statutory time-table. The report must be published and the order must be made and the charges fixed by the rating committee shall be enforced not later than seven months of the constitution of the rating committee. How Ear the circumstance that there was an interim stay which operated at the material time can help the Board in extricating itself from this difficult situation is a matter which requires serious deliberation. It appears that this factor would constitute a very serious hurdle in the way of the Board in view of the aforesaid circumstances. We, however, do not want to express any final opinion on this question and do not consider it necessary to dwell on this aspect in view of the fact that it is not necessary for the disposal of this; petition having regard to the view which has commended itself to us.

11. In the result, the petition must succeed. The impugned order, Annexure 'H', issued on April 30, 1964, constituting the rating committee must be quashed on the ground that the conditions precedent for the exercise of the powers were nonexistent and the order is without jurisdiction and contrary to law. Respondents are hereby restrained from acting in pursuance of the said order Respondent No. 1 shall pay the costs of this petition Rule is made absolute to the aforesaid extent.

12. Petition allowed.


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