M. Anantanarayanan, C.J.
1. This appeal is instituted by the Union of India, represented by the Secretary, Ministry of Communications, New Delhi, and the General Manager, Telephones, Madras from the judgment of our learned brother Venkatadri, J., in W.P. No. 2122 of 1966, striking down the recently enhanced Telephone tariff. I might immediately state that the entire Judgment proceeds upon two bases, or comprehensive considerations, both of which have now become academic, or inapplicable. Firstly, in striking down this enhancement of the tariff the learned Judge was largely influenced by the fact that the increased revenue, thereby secured, was sought to be utilised to cover the deficits in the Posts and Telegraph Department. The learned Judge thought that this was illegitimate and inadmissible. To quote:
The Posts and Telegraphs Department consists of various units, such as postal, telegraph, radio and telephone units. Each department or wing is a separate unit by itself, with regard to personal or service conditions, or management or supervision. The units are not interconnected, intervened or interlaced with each other.
2. For this reason, the learned Judge considered that there was no nexus of integration, following D.C.M. Chemical Works v. Its workmen (1962) 1 I.L.J. 385, between the sections of the Posts and Telegraphs Department and Telephones, and hence that this vitiated the levy altogether. This matter has now become strictly academic, in the light of the developments before us in the arguments of both learned Counsel, particularly of Sri Kumaramangalam for the appellant. Sri Kumaramangalam has contended that this perspective of approach is redundant, even if it be conceded as not erroneous. He contends that the Department of Telephones (appellant) is a public Utility Undertaking, which, in this country, is a State-owned monopoly under Article 19 (6) (ii) of the Constitution of India. The regulation of its Tariff is or ought to be governed by principles, which are evident in the various decisions of American Courts, where this branch of the law has reached fullest development. Both on these very principles, and on the principles on which judicial Review of subordinate legislation is permissible, since it is conceded that the Rule embodying the enhancement is made under a Statute and placed on the table of the Houses of Parliament, in terms of the Rules itself, the enhancement is perfectly justified, and not liable to be struck down. When he can show this, according to the argument and show that the rates of return on the ' Rate Base' are very reasonable, and within limits ranging from 3 and 4 per cent up to 8 per cent, on the Mid-term Capital Investment, the further argument of the learned Counsel is that, whether the amount is to be utilised ultimately to cover deficits in the Posts and Telegraphs Department, or to reduce the burden on the taxpayer, by crediting to General Revenues is quite academic.
3. The other base or foundation of the judgment of the learned Judge (Venkatadri, J.) is a related one, that this tariff is a ' fee ' and not a tax, governed by the principle of the levy of ' fee ' to be deduced from such authorities, as The Commissioner, Hindu Religious and Charitable Endowments v. L.T. Swamiar : 1SCR1005 , Hingir Rampur Coal Co. v. State of Orissa : 2SCR537 and India Sugars and Refineries Ltd. v. Municipal Council, Hospet : AIR1943Mad191 . But it is now clear beyond doubt, from a careful study of the record and from the very arguments submitted in the appeal, that what we have here is a Rate or Tariff of Rates, imposed by a State-owned Public Utility Corporation ; it is certainly not a 'fee ', in the restricted sense, for the element of quid pro quo cannot exhaust its content. Such a Corporation, according to the authorities, is entitled to charge a tariff, which would include a reasonable return on the 'Rate base', or the Mid-term Capital Investment. Such a Corporation is equally entitled to make provision for; expansion of capital or ' self-financing ', as it has been termed in the treatises, it is entitled to appropriate sums towards dividends for subsidies by Government, from General Revenues, if made, before the return is determined. We have permitted an amendment of the pleadings, in the formal sense, to enable these arguments to be pressed before us. The consequence has inevitably been, that the entire appeal has been argued upon a somewhat different level by learned Counsel on both sides.
4. Sri T.R. Mani, for the respondent, who has submitted arguments on these aspects, at considerable length, has sought to convince us that, assuming without conceding, what we have here is a Tariff of Rates charged by a Public Utility, and not the mere imposition of a ' fee ', and also that the ultimate utilisation of the net return to cover a deficit in the Posts and Telegraphs Department may be irrelevant, if the return is reasonable, nevertheless, the return, on the facts and figures, is extortionate, oppressive or unreasonable. His further contentions are that we have here a species of Subordinate legislation, and the Tariff is liable to be struck down on this score, as constituting a fraud on power, and as an instance of the delegatee (here the Government) exceeding the statutory mandate altogether. He has also sought to argue that the Fundamental Rights of the respondent, under Articles 19 (1 ) (g) and 19 (1) (f) are involved by the increase, and are injuriously affected. This is the main outline of the contentions in the appeal.
5. As this is the first instance, or almost the first instance, that the matter of Judicial Review of Rates imposed by a State-owned Public Utility Corporation comes up before this Court, I do not think that any apology is necessary for dealing with the relevant aspects in this judgment, in some detail, though I have also sought to be as terse, in the required analysis, as possible. For the sake of convenience, the judgment itself is divided into the following main sections:
(1) Public Utilities : Tariff or Rate Regulation and legal developments in the United States.
(2) Judicial Review--Subordinate Legislation, and the Telephone Tariff.
(3) Fundamental Rights, and the impugned Telephone Tariff.
(4) The merits of the appeal.
Public Utilities :--Tariff or Rate Regulation and legal developments in the United States.--It has been very clearly established, in the arguments submitted by learned Counsel on both sides, that the Department of Tele-communication (Telephones) which is a limb or branch of the Union Government, now the appellant before us, is a ' Public Utility ' conducted by the State upon a commercial basis. Since the very concept, and the development through legal process of the rights and obligations of such Public Utilities, whether state-owned or private, in relation to the consumer-class of the public, stem from the United States, no apology is necessary for elaborating the development in that country. Amidst a plethora of treatise's and precedents, placed before us by the assiduous efforts of learned Counsel, I am here making a judicious selection of certain of the authoritative treatises and the precedents, which in my view, best illuminate the somewhat intricate aspects of the subject. I have been all the more persuaded to devote time and effort to such a venture, for the reason that this is perhaps the first case in the Madras High Court, in which Judicial Review of the enhancement of tariff by a Public Utility is centrally in focus.
6. At the outset, I might refer to the very valuable study on the subject, in the Encyclopaedia Britanica, Volume 18, page 744-B. The Author defines ' Public Utilities ' as ' a designation for a special grouping of industries.' In his opinion, they have to be distinguished from State services or public works, supported by taxation, and equally from industrial or commercial undertakings comprehended under the term ' private business.' But, Public Utilities, properly so-called, need not be privately owned. The essential feature of the tariff or rates charged by these Utilities, is that ' they sell their services at prices which are not fixed in the open market, but are Governmentally fixed.' The Writer classifies those services as services of transportation, services incidental to transportation, services facilitating communication, those facilities providing power, light, heat and refrigeration, and those providing water-supply and sanitation in urban or rural communities. From an economic point of view, the concept itself is made up of two ideas; '(a) The idea, of monopoly and (b) The idea of common necessity.'
7. With regard to social control of Public Utilities, the Writer commences this part of the Essay or Article, by a reference to the famous decision of the U. S. Supreme Court in Munn v. Illinois (1876) 94 U.S. 113, which is the landmark commencing the significant part of the development of case-law. Chief Justice Waite, upholding the validity of the Illinois statute fixing the maximum rates for storing grain in elevators, referred to business which had become ' affected with a public interest, and had ceased to be juris privati only.' That was a citation from Lord Chief Justice Hale, who had penned it some 200 years earlier in England. This notion of ' public interest' was further elaborated by Chief Justice Taft of the U. S. Supreme Court in the recent case of Charles Wolff Packing Co. v. Court of Industrial Relations of the State of Kansas (1923) 262 U.S. 522.
8. As the Writer observes, where freedom of choice is seriously restricted, public interest arises in proportion as equality of opportunity to choose is restricted, and if the wants supplied are recognised as a common necessity, the concept of Public Utility is taken as established. In the United States, regulation was originally accomplished by suits at law, where the common law duties and rights of such Utilities were applied in specific cases. Later, there has been legislation, by means of Charters or Franchises and, still later, legislatively by means of the exercise of the Federal power. When legislative regulation largely supplanted judicial regulation, the function of the judiciary has been restricted to review of legislative and administrative acts. I shall devote some space, a little later, to the obligations of Public Utilities and to the most essential characteristics of Rate Regulation.
9. I may next refer to the corpus juris secundum, Volumes 73 and 86. In volume 73, we have Articles on the ' definition and nature ' of Public Utilities, ' rights and duties ' of Public Utilities, the concepts underlying service to the public, and a separate section upon what vitally concerns us in the present case, namely, 'Rate and Rate-making.' Where this aspect was originally effectuated by suits in Court, based on the Common Law notion of a business ' affected with a public interest,' and therefore constrained by an obligation to charge only a reasonable rate, later, there was a virtual superseding process of legislative authority, or an administrative body functioning under delegated legislation. Courts were then left with the protective power of judicial Review. One essential feature of the tariff was the ' rate base ' namely ' valuation of property devoted to the public use, on which the utility is entitled to receive a fair return.' Reasonableness of the rate, therefore, also depends on whether it yields a fair return on such a base. In the United States, where the Public Utilities are largely administered by Private organizations, derived as a mandate from a Charter or an enactment, we find that much of the case-law centres round what has been termed confiscatory rate,' the organisations contending before Courts, that the rate was so low as to inhibit a fair return on the ' rate-base ' and, hence, confiscatory. The rule is often expressed in the form that the rate ' must not be so low as to be confiscatory, or so high as to be oppressive.'
10. In corpus juris secundum, Volume 86, there is a special study on telecommunications, including telephones, as Public Utilities, and a discussion of the ' rate base,' 'return and rate of return' and allowances for expenses and depreciation, when the process of rate-regulation is at work. These treatises have some relevance, with regard to select passages, to the discussion, at a later stage, whether the Department entitled to utilise an appreciable part of the surplus towards capital improvement, expansion of facilities, and capital works.
11. At this stage, I may refer to one treaties containing an unusual discussion, namely, Glaeser's 'Public Utilities in American Capitalisam' (1957 Edition) Macmillan Company, New York. This Author claims that Public Utility regulation grew out of the general matrix of Governmental regulation ' until it developed certain procedures and objectives which are characteristically its own.' According to him, this entire development from the Common Law, can be traced to its roots in the very ancient ideal of social justice which, ' as applied to economic life by the early Church Fathers, became their very famous doctrine of justum pretium, i.e., 'just price'' This was opposed to the then contemporaneous doctrine of' verum pretium, namely, natural price. In other words, where compelling necessities left the Government without power, such as a food famine, the trade was only entitled to a just price, and not to the price dictated by competition. It was this idea, that the individual customer was in a position of dependence and required protection, which led Lord Hale to make this famous statement in his treatise De Portibus Maris:..duties must be reasonable and moderate, though settled by the King's licence or charter. For now the wharf and crane and other convenience are affected with a public interest, and they cease to be juris privati only.
12. The exposition by Lord Hale, was the foundation, in 1887 of Munn v. Illinois (1876) 94 U.S. 113, Before proceeding to three other treatises, it may be convenient to note leading American decisions, which have been placed before us, stemming from Munn v. Illinois (1876) 94 U.S. 113.
13. In Missouri Ex Re (1876) 94 U.S. 113. S. W. Bell T. Co. v. Public Service Commission 67 L. Ed. 981, a return of 5 1/2 per cent. upon the minimum value of the property of a public telephone corporation was considered wholly inadequate as a reasonable return on ' rate base ' as the prevailing investment and interest rates were much higher. In Wolff Packing Company v. Court of Industrial Relations 67 L.Ed. 1103, there is a discussion about the categories of business clothed with a public interest justifying some public regulation.' But the extent to which regulation may go, varies with the kind of business. In Bluefield W.W. & Improvement Co. v. Public Service Commission 67 L. Ed. 1179, it was laid down that a Public Utility was entitled to such rights as will permit it to earn a return upon the value of the property employed 'equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings, which are attended by corresponding risks and uncertainties. But such an utility was not entitled to a return, realised or anticipated 'in highly profitable enterprises or speculative ventures.' Six per cent. was considered too low to constitute just compensation, for supplying a city with water.
14. In Chicago and Grand Trunk Railway Company v. Thomas Wellman 36 L. Ed. 176, we have an action in damages for alleged excess fare charged to a passenger, and the question was with regard to the propriety of the items included as operative expenses. The Court observed (at page 180).
While the protection of vested rights of property is a supreme duty of the Courts, it has not come to this, that the legislative power rests subservient to the discretion of any railroad corporation which may, by exorbitant and unreasonable salaries, or in some other improper way, transfer its earnings into what it is pleased to call ' operating expenses.
15. The pertinence of this to the matter now before us is obvious, if the respondent is justified in his analysis of the balance-sheets and figures, as a basis for his claim that there has been a fanciful or improper diversion of the surplus to certain heads of account, of the nature of capital expenses or capital for expansion, in order to demonstrate a low rate of return, as a justification for the enhanced tariff.
16. In Federal Power Commission v. Natural Gas Pipeline Company 86 L. Ed. 1037, the Commission found that 6 1|2 per cent. was a fair return on rate base allowed. The Court held that the Commission was not bound to permit a higher rate. In Wisconsin v. Federal Power Commission 10 L. Ed. 357, the Court held, with regard to certain spiral escalation clauses in the contract, that ' if the increase is challenged, the producer must still establish its lawfulness, wholly apart from the terms of the contract.' This, again, exemplifies and illustrates the mutual rights and obligations as between a Public Utility, whether State-owned or by a private company, and the consumer, as a relevant section of the public, with regard to the tariff or rates.
17. I shall now proceed to refer to extracts from the main treatises. Here, I confine myself, in the interests of brevity, to the most pertinent passages in the leading treatises; if the entire matter placed before us is to be reproduced, or even a generous cross-section of it, that might fill a volume and, moreover, would be redundant, or even obscuring in its effect.
18. In Halsbury's Laws of England (Third Edition), Volume 7, page 302, there is a reference to the right to take tolls and dues, and it is stated that the charge ' must be for the public advantage and reasonable in amount.' In the same Volume at page 322 (Para 685), there is reference to a grant for the Public Utility, 'and there is a quid pro quo to the public.' All such dues must be fair and moderate;' ' otherwise, the franchise will be void.'
19. In Willoughby on the Constitution of the United States, Second Edition Volume 3, page 1701, there is a section on the reasonableness of the rates charged by Public Utilities, following Munn's case (1876) 94 U.S. 113. Whether the rates are fixed by the Legislature, or fixed by Commissions, acting under legislative mandate, the criteria are the same, and there is no distinction. In the same work, but in Volume 2, at page 820, there is a section on general considerations, which are applicable with regard to reasonableness of rates. In a certain sense the Courts in America would appear to be more restricted in their power of Judicial Review in this matter, than Courts in our country. The ground for this is that such Public Utilities were largely conducted by Private Corporations, acting under Franchise, Charter or Statute; they appealed to the Court and, later, to Commissions legislatively authorised, against what are termed ' confiscatory rates ' which do not ensure a fair return. But, when the prescription of specific rates become distinctly a legislative function, the Courts held that, except where the rates were so extortionate and oppressive, as to constitute a fraud on power, the Courts ought not to interfere. To cite a passage:
A rate so low as to be deemed by the Courts to be confiscatory is unconstitutional....the Legislature cannot, constitutionally, deny to the Courts the jurisdiction to examine whether the legislatively fixed rate is of this character. But, as to the reasonableness of rates above the minimum that would be confiscatory, the Legislature is the sole judge. (Page 8s6).
20. In Willis on 'Constitutional Law' (1936 edition) page 758, there is an analysis of the subject of' Business affected with a Public Interest.'; the Author then proceeds to give the legal history of the Public Utility concept. He points out that the broad criteria are that there is an obligation to serve without discrimination, furnish adequate facilities, and to charge only reasonable rates.
21. In Allnut v. Inglis (1810) K.B. 12 East 527, we have a very early statement of Lord Ellenborough, Ch.J. of the doctrine of Lord Hale, that warehouses claiming monopoly under Crown grants, must charge only reasonable hire.
22. In Phillips 'The Economics of Regulation' (1965 edition), page 55 et seq the case-law is discussed at some length. In ' Public Utility Economics ' by Garfield and Lovejoy, after an elaborate discussion of the rate-base, in relation to Supreme Court decisions, we have the following valuable summary of seven working rules, for rate-making purposes, by the appraisal process:
1. Taking an inventory of the physical property....
2. Costing the inventory thus determined.
3. Adding an amount for overhead construction costs.
4. Deducting from the gross valuation of the physical property, as thus found, an amount for accumulated depreciation.
5. Adding an amount for the value of land.
6. Adding an amount for intangible values.
7. Adding an allowance for working capital.
23. In ' Public Investment Criteria ' by Marglin, (1967 edition), page 91, the Author refers to reinvestment as a factor in settling price policies, and states that ' the rate at which benefits are reinvested, bears on the effectiveness of public investment.' This has relevance to the argument of Mr. Kumaramangalam for the appellant (Department) that, from the surplus, a deversion to expansion of facilities and reinvestment, or ploughing back part of the revenue into the capital programme, is not merely justified and sound sense, but also essential in the public interest.
24. In the ' Working of the Public Sector,' Papers offered at a seminar and edited by V. V. Ramanatham (1964) the Author while on the financing of public enterprise, asserts that, in the United Kingdom, there is a large scale practice of ploughing in of profits for the sake of expansion or development. He sounds a cautionary note that, under democratic planning, this source is likely to be dried up by too much heeding to such slogans as that there should be ' no profit-no loss.' or ' better wages ' and greater amenities.' In ' The Public Sector in India ' by Nabagopal Das (1966 edition), the Author points out (page 81), that ploughed back profit is an important source of capital for an enterprise. In 'Rottschaefer's Handbook of American Constitutional Law ' (1939 edition), page 482, there is a reference to the power of the State to protect the consumer against excessive prices, because of the Common Law doctrine of a reasonable price, stemming from Munn v. Illinois (1876) 94 U.S. 113.
25. What are the broad propositions that can be deduced from this conspectus of the authorities and precedents on the American development, which has necessarily to be brief? I should enunciate them as follows:
Proposition (1)--Public Utilities may be State-owned, or conducted by private companies on Charter, Franchise or Statute; in any event, that makes no essential difference to their character, their duties, and their obligations. Public Utilities are of several kinds; in a modern Welfare State, telecommunications, inclusive of telephones, undoubtedly constitute one vital category of Public Utilities. The two distinguishing characteristics are : (1) Monopoly whether total or almost total, either inhering in the State, or a Corporation; (2) the essential need of the Public, or a large section of the Public, for the enjoyment of the service or utility, as part of the economy of a Welfare State. Since these entities are, beyond doubt, affected, with a public interest, they are in a class apart. Their rights, their obligations, and the power of Courts in judicial review over the tariff charged by them, an : all outgrowths from the Common Law and precedents.
Proposition (2)--Such Public Utilities must provide service without discrimination, and provide adequate facilities, further without withdrawal from the obligation to serve the public; the public, on the other hand, have the legitimate obligations imposed on them by the regulations governing the consumer of the Utility.
Proposition--(3) The charge made by such Public Utilities, in respect of the service or the supply concerned, is essentially a rate or a tariff of rates. It is important to notice that, as the State of Monopoly Characterising such Public utilities excludes competitive, fixation of prices, whether these Utilities arc owned by Government or arc private, the tariff is almost always determined by a process of delegated Legislation. The very concept of a rate brings in several distinctive features. It is not merely a ' fee whatever the nomenclature, may be for it is not exhausted by the quid pro quo element though that is essential. On the other hand, the Department is entitled to a reasonable return on the ratebase, applying all refinements of the economic theory to the determination of this rate. The organization may be entitled to a reasonable return on investment, to part-appropriation of the surplus for capital expansion, and to the employment of all modern accounting techniques with regard to depreciation, reserve, sinking fund, etc. The quid pro quo element is also essential, if there is a monopoly, and the consumer is being deprived of the benefits of competition.
Proposition--(4) For this reason, while the rate can be reasonable, it can never be extortionate or oppressive. The Department is not entitled to speculative profits, or to rates of return disproportionately high, as compared with returns on investments in other fields of economic activities then prevalent. The monopoly cannot be misused to fleece the consumer, served by the Utility; nor can the statistics be juggled with, in order to mask an undue profits-return in thin guises of reduction of return-percentage by artificial heads of appropriation or expenses.
Proposition--(5) The power of judicial review by the Courts, particularly where the actual tariff is determined by some process of subordinate legislation, as in this case, is conceivably wider than the power of the Courts in the United States, but is still restricted. In terms of subordinate legislation, as I shall presently show, the power is limited by the broad principles of ultra vires, a colourable exercise of the rate-making function, or the delegatee altogether exceeding the ambit of the delegation. Certainly, the statute itself could be struck down, for an abdication by the Legislature of the essential and inalienable core of legislative power, or for a wholly unguided and arbitrary delegation; but that is not the argument here.
Proposition--(6) Equally, the Tariff is liable to interference in judicial review, where it impinges on the Fundamental Rights of the citizen, and is injurious to any such right, whether it is under Article 14, or Article 19 (1) (g) or Article 19 (1) (f). I shall separately analyse these problems, relative to Fundamental Rights, in the context of the telephone tariff in this case. But these two aspects, namely, of interference on the grounds relating to subordinate legislation, or on grounds relating to Fundamental Rights, would appear to be exhaustive of our powers of judicial review. In our Jurisdiction under Article 226 of the Constitution, we cannot be called upon to function as a rate-making body, on the merits of a particular tariff; nor would there appear to be any residual Common Law power, in the exercise of which we can re-determine such rates.
Judicial Review--Subordinate Legislation and the Telephone Tariff--Before proceeding into this analysis, I would like to refer to the relevant provisions of the Indian Telegraph Act, XIII of 1885, as modified upto 1st February, 1963, and the Rules made thereunder. This is for the important reason, that theoretically speaking there can be an attack upon the part of the statute itself, which empowers the subordinate legislative process, if it amounts to a total abdication of the legislative-function, or bestows upon the authority empowered to fix the tariff (here, the Government), a totally arbitrary, uncanalised and unguided power. It is perhaps a little unfortunate that this statute, which was enacted in 1885, has not been thoroughly recast or modified, in essential parts, in regard to its phraseology, so that it might be brought up-to-date, in tune with modern ideas of delegated legislation. However, Section 7, as it stands, empowers the Central Government, from time to time, by notification in the Official Gazette to make rules consistent with the Act, for the conduct of all or any telegraphs established, maintained or worked by the Government or by persons licensed under the Act (as the statute is amended, this will include telephones as part of the tele-communications). Under Section 7 (2), the rules which are made under the section could provide for (a) the rates at which, and the other conditions and restrictions subject to which, messages shall be transmitted. Section 7 (2) (h) also refers to the persons who may be made liable for ' the rates, charges and fees mentioned in this sub-section '. Section 7 (5) which is important, as it provides a statutory safeguard of a certain kind, for the rule fixing the tariff, is to the following effect:Every rule made under this section shall be laid as soon as may be after it is made before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two successive sessions, and if, before the expiry of the session in which it is so laid or the session immediately following, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be ; so however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
26. It is under this delegated power that the tariff has been fixed, and this will be clear from a perusal of Rule 434, and the sub-heads thereunder. Though, as I stated earlier, the argument is not sought to be pressed that Section 7 itself is ultra vires, and not merely the rule embodying the tariff made thereunder, it is necessary, at this stage, to refer to the authorities on this important aspect of judicial review.
27. These authorities will be found reviewed, at some length, in Delhi Municipality v. B.G.S. & W. Mills : 3SCR251 . After referring to the fact that the question as to the limits of the permissible delegation of legislative power by a Legislature to a subordinate authority, came up before the Supreme Court, in a number of cases, their Lordships first referred to the Delhi Laws Act case : 2SCR747 . This laid down that the legitimacy of the delegation depended upon its being utilised as an ancillary measure, which the Legislature considered necessary for the efficient exercise of its legislative function. The essential legislative function must be retained by the Legislature, and not itself delegated to any subordinate authority. That must at least consist of the determination of the legislative policy and its formulation, as a binding rule. Raj Narain Singh v. Chairman, Patna Administration Committee : 1SCR290 , also emphasised that there could be no delegation of the essential legislative function or feature. Harishankar Bagla v. State of Madhya Pradesh : 1954CriLJ1322 , upheld Section 3 of the Essential Supplies (Temporary Powers) Act, 1946, as not unconstitutional delegation. Western India Theatres Ltd. v. Municipal Corporation of the City of Poona : AIR1959SC586 , was a case in which it was claimed that there was unconstitutional delegation, as the Legislature had totally abdicated its function, and delegated power to the Municipality to determine the nature of the tax to be imposed on the rate-payers, and ' that power was unguided, uncanalised and vagrant. The delegation was upheld by the Supreme Court, as the obligations and functions were sufficiently defined. Hamdard Dawakhana (Wakf), Lal Kuan v. Union of India : 1960CriLJ671 , is an interesting case as, in the impugned provision, the Legislature had established no criterion or standard upon which the particular disease or condition could be segregated, for being dealt with in respect of advertised remedies. Vasantlal Maganbhai Sanjanwala v. State of Bombay : 1978CriLJ1281 , re-affirms the responsibility of the Legislature in the matter of delegation. Jyoti Pershad v. Administrator for the Union Territory of Delhi : 2SCR125 , is of some importance, as the Supreme Court held that, so long as the policy and purpose of the enactment had been indicated by the Legislature, ' the mere fact that the legislation was skeletal ' or that every detail was not indicated, did not amount to excessive delegation, or the bestowal of unguided discretion. The last case referred to was Devidas Gopal Krishnan v. State of Punjab : 3SCR557 . The other cases discussed are Powell v. Apollo Candle Do 10 AC. 282. J.W. Hampton v. United States 72 L.Ed. 624, and Corporation of Calcutta v. Liberty Cinema : 2SCR477
28. I am referring to these cases, because of a possible argument here that Section 7, that I have earlier set forth, is the bestowal upon Government of an uncanalised and unguided power, arbitrary in its content, and therefore subject to the vice of excessive delegation, or an abdication of legislative function. The decision in Hamdard Dawakhana v. Union of India : 1960CriLJ671 , has been stressed before us for the observation that the subordinate agency may be given a discretion but that ' the discretion should not be so wide that it is impossible to discern its limits. There must instead be definite boundaries within which the powers of the administrative authority are exercisable. Delegation should not be so indefinite as to amount to an abdication of the legislative function.'
29. In T.B. Ibrahim v. Regional Transport Authority : 4SCR290 , there is a distinction made between a by-law and a rule made under a rule making power, conferred by a statute. In the present case, we are confronted, not with a by-law, but with a instance of a rule made under the rule-making power. In Subba Rao v. Income-tax Commissioner : 20ITR337(Mad) , the doctrine of ultra vires with regard to subordinate legislation has been referred to by Viswanatha Sastri, J. If a statutory rule is validly made, it has precisely the same effect, as if it were a part of the Act. Mr. Kumaramangalam contends, in consequence, that the tariff rule in the present case has to be regarded by us, as if it is a part of the Act, But, even so, it is clearly liable to be assailed, with regard to the powers of judicial review, on the following grounds : (1) The statute itself is unconstitutional in respect of the delegation. (2) The exercise of the power is colourable, or, in other words, it amounts to a fraud on the power ; this will vitiate the rule (3). The delegatee has wholly gone beyond the power, and that would also render the rule ultra sires, even if the statute is unassailable.
30. That these are the broad, and undoubted principles will be clear, from the entire passage on ' Control of Statutory Instruments by the Court' in Craies on Statute Law, Sixth Edition, page 306. (Carltona, Ltd. v. Commissioners of Works (1943) 2 All E.R. 540, has been referred to there, as Lord Greene, M.R., laid down therein the limit of interference by Courts. The Court can only see that the power is within the four corners of the endowment by the Legislature, and to see that the power is exercised in good faith. The Court cannot substituted its judgment or assessment for that of the authority, which has been empowered to act. There is a reference here to an expression like ' As if enacted in this Act ', which is not to be found in the case before us. That expression was examined, at some length, in Institute of Patent Agents v. Lockwood (1884) A.C. 347. But it is unnecessary for our present purpose to proceed, into the ramifications of the law here. Certainly, such a clause is not to be found in the statute now under consideration. But, instead, there is a statutory safeguard in Section 7 (5), which makes it mandatory that the rule of the revised tariff should be placed on the table of both the Houses of Parliament, and that it is subject to modification or even total cancellation, if the Parliament so desired. It is only if nothing is done, that the rule becomes effective as formulated. This safeguard is referred to in Maxwell on ' Interpretation of Statutes ' (Eleventh Edition), page 49. But it is not necessary for us to distinguish between this safeguard, and the safeguard of a provision 'as if enacted in this Act ', earlier referred to. The rule is a statutory rule, and the intendment is that, to all effects and purposes, it is to be read as part of the Act. There is some kind of check, upon the exercise of the delegated power in some oppressive or arbitrary manner, in the requirement that the rule must be placed on the table of the Houses of Parliament, for the requisite period. (Vide the decision : D.S. Garewel v. State of Punjab : AIR1959SC512 . I may also refer here to Halsbury's Law of England (Third Edition), Volume II, page 490, in regard to 'Judicial Control'. At page 491 the doctrine of ultra vires is discussed with regard to subordinate legislation. Finally, I may refer to the famous dictum of Lord Shaw in R. v. Halliday L.R. (1917) A.C. 260, which is the quintessence of the doctrine:
The author of the power is Parliament ; the wielder of it is the Government. Whether the Government has exceeded its statutory mandate is a question of ultra vires or intra vires,.... In so far as the mandate has been exceeded, there lurk the elements of a transition to arbitrary Government and therein of grave constitutional and public danger.
31. It is certainly not possible to hold, upon the arguments submitted before us, that Section 7 itself is ultra vires, though I would repeat what I stated earlier about the regrettable absence of a total re-drafting of this Act, of 1885, in the light of modern legal concepts and requirements. But, in the context of the discussion of regulation by Judicial review, or otherwise, of the rates of tariffs determined by a Public Utility owned by the State, it becomes very clear that there is no excessive delegation per se under Section 7, or an abdication of essential legislative functions, or the bestowal on the subordinate authority of an arbitrary or uncanalised power. On the contrary, Section 7, and its sub-sections cannot be torn apart from the Act, and interpreted in isolation, as standing apart from the Act and the complex of the Rules. The Act and the Rules have to be react as a whole, and, indisputably, when this is done, the legislative intent is manifest and undeniable. The Legislature is here making provision for the conduct of a very vital Public Utility, owned by the State as a monopoly and conducted as such, namely, the telephone and tele-communications. It is in that context that the Government is given the delegated power to make rules for the rates and charges. The rules themselves provided elaborately for the several component elements of these rates, to which detailed reference must be made when dealing with the measure rate system, which is now in vogue for telephone installations. This implies that this is an ancillary function, which is delegated, subordinate to the power taken by the Legislature to make a monopoly of this Utility, and to make the Government responsible for the conduct of the monopoly. Part II of the Act, namely, Sections 4 and 5, relate to the exclusive power of the Government in this regard, and the entire Act is thus the creation of a Public Utility, which is State-owned, in the interests of the public. Nor can it be argued that the power is arbitrary and uncanalised, for there is no bestowal of an unlimited power to charge any price. The Act and the Rules make it clear that the power is to fix the rates as telephone tariff in accordance with the well-known economic principles of rate regulation, and the levy of reasonable rates. There is, hence, no vice of excessive delegation in the Act itself, or in the Rules per se.
32. But, certainly, the particular rule, which is now impugned, may have to struck down, if the guidelines, already indicated by the case-law, have been exceeded, and what we have here is not a reasonable tariff with provision for a reasonable return on the rate base, but some tariff, which is unreasonable, inordinate and oppressive ; from the point of view of legal theory, and, apart from semantics, I would consider these terms to be equivalent. They appear to have been so treated in the American precedents. Of course, what is not a reasonable rate of tariff, is a question of fact. That depends on a break-up analysis of the statistics of the gross income and expenditure, and the several heads into which the surplus has been classified, and, finally, what would be the return of net profits, and would it be within reasonable limits. If the tariff imposed can be so justified, it is no function of this Court to reassess the tariff, on the merits, and to make some other rate. Even if we were of the view that, on the measure rate system, the present tariff could well admit of some reduction, which may be in the public interest, that would be a matter for agitation before the concerned Bodies, or on the floor of the Legislature. But, if the tariff, on actual analysis, is found to be inordinate, unreasonable or oppressive, then it is liable to be struck down, on the doctrine of ultra vires. It would amount to a colourable exercise of the power, as the intendment of the Legislature should clearly be interpreted as the bestowal of the power in order to fix reasonable rates. It would also be a case of the agency, to which the power has been delegated, exceeding the ambit of the delegation and, therefore, not acting within the Law in enforcing such a tariff. Upon this purely legal aspect, Mr. Kumaramangalam has no different proposition to urge. He would merely reiterate that where, as in this case, the rule has been made, to all intents and purposes, as though it were a part of the Act, and the precaution has been taken of laying the rule on the table of the Houses of Parliament, for the requisite period, we must not substitute our assessment and judgment, if the tariff could be reasonably maintained, for that of Government., The law thus being clear, it remains for me to proceed to analyse the actual merits of the tariff, in order to determine the issue, whether there has been an inordinate or oppressive fixation or enhancement of the rates.
33. Fundamental Rights and the impugned Telephone Tariff :--Sri Kumaramangalam does not dispute the broad proposition that if, by the enhancement of the rates, which is the subject-matter of the proceeding before us, the Fundamental Rights guaranteed under the Constitution are injuriously affected, that would be justiciable and that the Rates or the Tariff may have to be struck down for that reason. For instance, with regard, to the right guaranteed under Article 19 (1) (g), it is not in dispute that if the Rates are determined, even by a process of subordinate legislation, in such manner as to injure the freedoms guaranteed under this Article, our jurisdiction could be invoked, and redress obtained. It becomes immediately relevant to state that Article 19 (6) was amended by the Constitution (First Amendment) Act, 1951, so that, as the Article now stands, the declaration of a State monopoly in respect of any trade or business, has to be presumed to be reasonable and in the interests of the general public in the context of the rights guaranteed under Article 19 (1) (g). The leading decision on this aspect is Akadasi v. State of Orissa : AIR1963SC1047 . Gajendragadkar, J., (as he then was) observed that the theory underlying the Amendment, in so far as it related to the concept of State monopoly, did not appear to be based on the pragmatic approach, but on the doctrinaire approach accepted by Socialism. Hence, the declaration of State monopoly, in respect of a trade or business, has to be presumed to be reasonable, and in the interests of the public, and that would apply to a Public Utility, like tele-communications, including telephones.
34. Of course, that does not imply that the rates imposed on consumers, in the conduct of such a monopolistic organisation by the State, are wholly immune from judicial Review. With regard to the question, what precisely was implied by A law relating to ' a monopoly, the expression used in the Amendment, the Supreme Court observed as follows (at page 1054):
In our opinion, the said expression should be construed to mean the law relating to the monopoly in its absolutely essential features. If a law is passed creating a State monopoly, the Court should enquire what are the provisions of the said law which are basically and essentially necessary for creating the State monopoly. It is only those essential and basic provisions which are protected by the latter part of Article 19 (6). If there are other provisions made by the Act which are subsidiary, incidental or helpful to the operation of the monopoly, they do not fall under the said part and their validity must be judged under the first part of Article 19 (6). In other words the effect of the amendment made in Article 19 (6) is to protect the law relating to the creation of monopoly and that means that it is only the provisions of the law which are integrally and essentially connected with the creation of the monopoly that are protected. The rest of the provisions which may be incidental do not fall under the latter part of Article 19 (6) and would inevitably have to satisfy the test of the first part of Article 19 (6).
This exposition of the law makes it clear beyond doubt, that the enhancement of telephone tariff could well be the subject of attack, with reference to the rights guaranteed under Article 19 (1) (g), and the scope of reasonable restriction embodied in Article 19 (6).
35. In the present matter, however, though theoretically the position is clear, the question is largely academic. The writ petitioner is a subscriber to a telephone, purporting to be injured by the enhancement. But, all that he has claimed is that, since his retirement, he is a Director in a business concern : consequently, certain of his activities have a bearing upon the use of tele-communications, part from his strictly private living. But, as Sri Kumaramangalam has stressed, he is not a 'business-complex, which can claim that its Fundamental Right to carry on its trade is injuriously affected by the enhancement ; nor is he a business concerned in the utilization of the tele-communications or telephone installations on a large scale, either directly or indirectly. The far more important and interesting question in this case, whether the rights of a subscriber, in respect of the installation and the service rendered, will constitute ' property ' within the meaning of Article 19 (1) (f) of the Constitution, so that, if the enhancement does not amount to a reasonable restriction on those rights, under Article 19 (5), the matter is justiciable from that angle. This takes us to a very interesting issue, which is at least of considerable academic significance, even if it be not strictly relevant, to a material extent, in the present case, whether the vital rights of a subscriber that we are now concerned with, will or will not constitute ' property ' within the meaning of Article 19 (1) (f)?
36. We have heard some lengthy arguments upon this question. With reference to the available case-law, I propose to be brief, since many of the landmarks are well-known, but, on an analysis, I shall show that it is practically indisputable that this bundle of rights held by a subscriber will constitute ' property' within the meaning of Article 19 (1) (j) of the Constitution. Definitions of ' property ' are very difficult and, perhaps, should be avoided. Both Bentham (Theory of Legislation) and Cooley (Constitutional Law) appear to favour the description that ' whatever a man produces by the labour of his hand or his brain, whatever he obtains in exchange for something of his own, and whatever is given to him, the law will protect him in the use enjoyment, and disposition of ', as having the attributes of ' property '. In a volume of Studies entitled ' Property relations in Independent India (Constitutional and Legal Implications), The Indian Law Institute,' we find more than one Jurist accepting the expression to be comprehensive enough to take in all categories of property, movable or immovable, corporeal and incorporeal. In the Study by Professor Tewari, it is pointed out that when property is incorporeal, if any right, in the bundle of rights constituting such property, satisfies the test of acquisition, holding, and disposal, separately from the corpus, it would be 'property'. In Kulanthaivelan Chettiar v. Muthu Chellappa Chettiar I.L.R. (1967) 3 Mad. 615, I was concerned with the unsatisfactory state of the Indian Law, in that Section 3 of the General Clauses Act (X of 1897) defined ' immovable property' alone, and ' movable property ' as ' property of every description except immovable property '. This left out of reckoning, altogether, that very valuable species of right, known as forms of incorporeal property, and a passage from Williams on Real Property (23rd Edition) was cited to show that' property ' could either denote an abstract right of ownership, or the object of a right of ownership, or valuable entities or rights which may be exchanged for the ownership of money. In Salmond on Jurisprudence (12th Edition), the broad division is 'corporeal' and ''incorporeal', corporeal property comprising land, chattels, and incorporeal property having two broad division, namely, Jura In Re Propria (Patents, Copyrights, Trade marks) and Jura In Re Aliena (or encumbrances), namely, leases, mortgages and servitudes. The development of the case-law in the Supreme Court, on this aspect, is highly significant, and the following brief Summary of the leading precedents will suffice.
37. In Commissioner, Hindu Religious Endowment v. L.T. Swamiar : 1SCR1005 , Mukherjea, J., observed that the word' property ' as used in Article 19 (1) (f), could be given a liberal and wide meaning, and, in that case, the office of Mahant was held to be ' property '. Saghir Ahmad v. State of U.P. : 1SCR707 , held that the right to ply motor vehicles for gain was an interest in a commercial undertaking, of the nature of ' property'. The controversy originated in the question, whether the guarantee embodied in Article 19 (1) (f) covered both abstract and concrete rights of property. In Chiranjitlal Choudhry v. Union of India (1951) S.C.J. 29 : (1950) S.C.R. 869, Mukherjea, J., pointed out that the freedom guaranteed was not merely that to acquire and possess but also the right to enjoy all the concrete rights which flowed from the ownership of property. A different note was struck in State of West Bengal v. Subodh Gopal (1954) S.C.J. 127 : (1954) S.C.R. 587 : (1954) S.C.A. 65, and there was an observation in the judgment of Sastri, C.J., that Article 19 (1) (f) dealt with the right to own property, and not the right to the property owned, which was strictly within the scope of Article 31. But, in the later case, Commissioner, Hindu Religious Endowments v. Lakshmindra : 1SCR1005 , this statement in Subodh Gopal's case : 1SCR587 , was elucidated, as not amounting to any radical alteration of perspective, so that Article 19 (1) (f) applied equally to concrete as well as to abstract rights of property. It is a well-settled maxim of jurisprudence, on this part of the law, that ' nothing can be subject of property which is not recognised by law to be such ' : Dwarkadas v. Sholapur Co. : 1SCR674 . It follows that, if the law withdraws such a recognition, the thing ceases to have the attributes of property. It is for this reason that a citizen can be inhibited from having a right of property in a public office, or in liquor, or narcotics or smuggled goods. On the question whether a contractual right could be regarded as 'property' or not, the authorities appear to be inclined to the view that it would depend entirely on the further question whether such benefits under the contract could be acquired held, or disposed of. If that test can be satisfied, rights arising under a contract could well be ' property rights '. The following very brief summary of what could be accepted as ' property ' and what may not be, would be here highly relevant.
38. The Shebait of an idol has a right of property in his office. A hereditary trusteeship has an element of property. But a mere custodian of property, such as a Tikait of the Nathadhwara temple, has no such right. Govindalaji v. State of Rajasthan : 1SCR561 . Where a person is deprived of the right of Bare Management of an institution, Article 19 (1) (f) could not be invoked Sidhrajbhai v. State of Gujarat : 3SCR837 , The interest of an allottee under the Evacuees Act, 1947, which arises from a statutory grant, is not property : Amar Singh v. Custodian : 1SCR801 . An incorporeal right which cannot be alienated apart from the corpus, cannot be regarded as 'property', such as right of shareholders to elect Directors, or to apply for winding up : Dwarkadas v. Sholapur Co. : 1SCR674 , Suryapal v. State of U.P. : 1SCR1056 . The right to hold a land revenue free, has been held to be not 'property' within the scope of Article 19(1) (f) : Girijananda v. State of Assam : 1SCR1056 , and the rights of a bare licensee, where the licence is not coupled with a grant, are not property rights : Shantabai v. State of Bombay : 1SCR265 . Per Contra, even a temporary or precarious proprietary interest, such as that of a mortgagee or lessee, is ' property ' within the meaning of Article 19 (1) (f), and the test is not that the person advancing this right should hold the entire proprietary interest. Incorporeal rights can well be forms of property, including decrees of Courts, Patents, Copyrights and even choses in action.
39. It is in this context, and with this background of the development of the law, that we have to view the question, whether the rights of a subscriber in the telephone installations are not a species of property. In Kulanthaivelan Chettiar v. Muthuchellappa Chettiar I.L.R. (1967) 3 Mad. 615, I have pointed out that, in English Law, a judgment debt is a chose in action, and is thus part of the property which is ' personalty.'
40. It is difficult to see how a bundle of rights, which a telephone subscriber has, in respect of the installation, would not come within the definition or description, as Sri T. R. Mani rightly points out. Sri Kumaramangalam also concedes that the rights of a telephone subscriber are really composite, and not a single entity. Actually, the telephone apparatus invariably belongs to the Department; but, once the subscriber has been admitted as such, and furnished with the instrument, he is entitled to its possession and enjoyment, so long as he pays the rents, and there is no disconnection for any of the grounds recognised under the Rules. As I have earlier pointed out, a Public Utility Corporation, whether State-owned or private, being monopolistic, has also certain obligations under the law, particularly in the form of service in equality and without discrimination, and non-withdrawal from such necessary service, unless, indeed, the monopoly itself is to be terminated, and the field laid open for competitive enterprise. Thus, there can be no possible doubt that, in respect of the instrument, the subscriber is the lessee of movable property, with certain rights and obligations. But, even in this material sense, there is another component. There is a part of the Matrix or Exchange, which is segregated for the lines connecting this particular instrument with the Exchange, and the subscriber has an exclusive lease right, to this part of the mechanism of the Exchange, so long as he continues to be a subscriber. The other element of the bundle of rights is, admittedly, the service or facility given, by which the subscriber is thus able to contact millions of other subscribers, who are possessed of telephones. Thus, the two broad divisions of this bundle of rights are (1) a right to hold and enjoy the instrument and the part of the Matrix or Exchange, to which it is linked up, which constitutes some kind of lease and (2) the right to the actual service, which may be over-widening, as the Department expands. We have been taken through the Rules and the Forms, and we have no doubt whatever that the rights are heritable. There is a Form to be used (Form No. 28) by the heir or heirs of the subscriber, for transfer of the telephone on production of the death certificate and other documents. No doubt inter vivos, a subscriber cannot transfer the telephone to another, except as expressly authorised by the Department. But, admittedly, another subscriber can be brought in, as an extension from the same connection or building, and there is also the ' own your telephone Scheme', which certainly does not amount to the acquisition of full proprietary rights, but does involve the grant of a preference for an installation, on acceptance of the terms and payments under the Scheme. All this can lead to only one conclusion, namely, that the bundle of rights here includes a lease of material things or an apparatus, with rights of user and enjoyment therein, and also a right to service, all of which rights have economic value, and could be evaluated as such. It appears to me to be indisputable, as on the earlier discussion, that these rights of a subscriber would amount to ' property ' within the meaning of Article 19 (1) (f).
41. In Raja of Bobbili v. State of Madras (1952) 1 M.L.J. 174, Rajamannar, C.J., and Venkatarama Ayyar, J., dealt with the Sholapur Mills case : 1SCR869 , and pointed out that with regard to the word ' acquisition ' of property, a reduction of the rent payable by a tenant to a landlord, would not be an acquisition by the Government of the property of the landlord. In the context of the American cases, the learned Chief Justice referred to the observations of Justice Brower in Reagan v. Farmers' Loan and Trust Co. 154 U.S. 361, to the effect:
The Courts are not authorised to revise or change the body or rates imposed by a Legislature or a commission, they do not determine whether one rate is : preferable to another, or what under all circumstances would be fair and reasonable...they do not engage in any mere administrative work; but still there can be no doubt of their power and duty to inquire whether a body of rates prescribed by a Legislature or a commission is unjust and unreasonable, and such as to work a practical destruction to rights of property....
42. Covington and L. Turnpike Railroad Company v. Sandford 164 U.S. 578, is another decision referred to in this context, and an earlier case was quoted by the Court for the proposition that 'the Courts will grant relief against legislation establishing the tariffs, which is so unreasonable as to practically destroy the value of the property.' It is really unnecessary, for the present purpose, to review all the precedents. Where the monopoly declared is run by a private company, and if the rates are so low as to be confiscatory, Courts in the United States have interfered to give relief. Again, if the tariff is so high as to be virtually destructive of the concerned right in property, the matter would be justiciable, and the Court could interfere. The question will always be one of fact, whether the tariff is so inordinate and excessive as to constitute an injury to the bundle of the property rights possessed or held by the subscriber, to such a degree as to be virtually destructive of those rights, or a part of those rights. As I have earlier shown, if the tariff amounts to this, on clearer and stronger ground, it should be struck down as a colourable exercise of the delegated power, or on the principle of ultra vires, where the delegatee has altogether exceeded the statutory ambit of delegation.
43. The Merits.--I might immediately proceed to the merits, and it is here that great care is necessary to keep in mind, throughout, the nature of our jurisdiction, and the limits of that jurisdiction. At the outset itself, I may refer to the substance of the case of the petitioner as presented before us, by his learned Counsel Sri T. R. Mani, after obtaining very detailed instructions from his client, and a study of the entire relevant documentation. The question whether the deficiency or deficit incurred in the conduct of the Postal and Telegraph Services could properly be now made up by the enhancement of the tariff and the enhancement of gross revenue, thereby obtained, which loomed large before the learned Judge (Venkatadri, J.), has now become entirely academic. Sri Kumaramangalam has shown, from the documents, and without denial, that the Union Government is making very substantial contributions, each year, from General Revenues, namely, from taxes paid by millions of tax-payers who do not own telephones, for the capital development of telephones and tele-communications. Actually, the subsidy, in this sense, has amounted in one year to about thirty crores. On this aspect of the financing, by Government, of the capital expansion programme of the Department, the Government would appear to be clearly entitled to normal rates of interest on the contributed capital, from telephone revenue. No doubt, in the Fortieth Report of the Public Accounts Committee (1968-69), page 21, paragraph 1.31, there is an observation that 'deficits in the Telegraph Branch should not be indefinitely borne by the Telephone Branch, irrespective of the amount and the circumstances'; but the observation itself is academic, in the present context Sri Kumaramangalam attempts to show that, on a proper analysis of the figures and the balance-sheets, it will be clearly demonstrable that the rate of return does not exceed 7 or 8 per cent. at the utmost. Sri Mani has shown that the British Postal Telephone System has accepted 8 per cent. as a fair return on the 'Rate-base relative to mid-term capital investment.' If the argument of Sri Kumaramangalam is right, the question of the further utilisation of the return by the Union Government, in the form of covering the deficits in the Post or Telegraphic Branch, is really irrelevant. For that matter, the return could be taken into General Revenues, or could influence to diminish the burden of the general tax level. The crux of the argument, now developed, can really be expressed in the following form.
44. According to Sri Mani, the break-up analysis of figures placed before us, for 1965-66, 1966-67 and 1967-68, cannot be accepted. The major ground of distinction, to take the 1965-66 analysis, is the sum of 11.73 crores, shown by Sri Kumaramangalam as ' cost of departmental works charged under petty and other works, and capital expenditure initially charged to revenue.' Sri Mani, it has to be carefully noted, does not dispute the right of the Government's to undertake ' self-financing,' ' ploughing-back,' ' reinvestment' or capital expansion, so strenuously stressed by Sri Kumaramangalam, as the basis of the policy of the Department. Sri Mani would fully concede the general observations relative to this practice to be found in ' Robson's Nationalized Industry and Public Ownership' under the head 'Self-financing of Development' at page 306, etc. It must be here stressed by us that the Government is diverting sizable amounts from General Revenues, as virtual subsidies, to this Department every year, in order to finance capital expansion. In addition to this, the Department is utilising a part of the surplus, in pursuance, of the same policy, and the sum of Rs. 11.73 crores, that I have just referred to, figures under this head, and, according to Sri Kumaramangalam, such deduction is strictly in consonance with the principles of accountancy and bookkeeping, in respect of public utilities run on a commercial basis. If this is permitted, the net figure is 6.74 crores, inclusive of dividends to General Revenue as interest on borrowed capital. Even if the figure of 6.74 crores is itself taken as the return on the ' Rate-Base ' of the capital outlay (mid-year), the percentage works out to 4.4X per cent. Similarly, for 1966-67, the percentage works out to 8.5 per cent., and for 1967-68 to 5.1 per cent. The point made by Sri Mani can be very simply stated in the following form. According to him, though such ' self-financing' may be legitimate, the return on the ' Rate-Base ' has to be calculated ' without making this deduction.' He further contends that (1) the depreciation figure of 7.34 crores, for instance, for 1965-66 is excessive, as it is only 2 per cent. on buildings, and 4 per cent on installations, even according to the appellant. (2) The figure of 10.73 crores, for instance, includes the item of 8.82 crores for capital works, but without debiting the capital account the cost of labour in the construction and in minor capital works, which, according to him, are ' labour intensive ' in character. Sri Kumaramangalam frankly concedes that an allocation of that kind is almost impossible. (3) Even as regards the general expenditure, the writ petitioner claimed to have obtained expert opinions from at least two Department in the United Kingdom to the effect that a 60 per cent. and 40 per cent. allocation, as between Revenue Works and Capital Works, is justified and desirable. If that is done, according to Sri Mani, and the return is calculated without making a deduction for ' self-financing' before determination of the return, the percentage works out to differing rates, between 19 per cent. and 23 or 24 per cent. Increase of the tariff, by the rates now sought to be enforced, in the context of such a return on the 'Rate-Base ', is excessive, inordinate, and oppressive. As far as the consumer is concerned, it amounts to a fraud on power and, though Sri Mani would concede that the determination is by subordinate legislation, the rates should be struck down.:
45. I have very carefully considered these arguments, and, in the end, I am left with the very clear impression that we cannot interfere with the tariff, under any principle of our Jurisdiction. As Sri Kumaramangalam has stressed, if the Department were to be conducted as a monopoly run by a licensee, as was originally the case, a very considerable part of the surplus would have to be utilise for payment of income-tax on the Revenue, and towards Royalty. When the State is administering the Department, these dues do not exist, but when the State is making capital subsidies, in considerable measure, it would be entitled to dividends. The Extracts placed by Sri Kumaramangalam from Chapter I of the Report of the Telephone Tariff Revision Committee (1964 submitted in 1966), shows very considerable outlays towards capital development, which a private company may be in no position to undertake. Sri Mani has referred to Batliboi's Advanced Accounting,. Chapter III, for the distinction between the Capital Account and the Revenue Account, and how it is a principle of accounting that 'all expenditure which results, in the acquisition of permanent assets ' should be termed as Capital Expenditure, and these items are really chargeable to Capital Account. Actually it appears to emerge, as a very definite conclusion, in my view, that the crux of the matter is not the preference of one principle of book-keeping or accountancy, to another.. Even if that were so, I find it difficult to conceive how the Court could interfere, unless, indeed, the Court is convinced that mere subterfuges are being resorted to by the Department, in order to mask a very highly remunerative return. The crux of the matter is, whether it be that of the State Department, or it is the balance-sheet of any private company, exhibited as Profit and Loss account, there is invariably an ascertainable or ascertained surplus from which any appropriation can be made, and is often made, towards ' self-financing ' invariably, it is only after this is done, that there is an item of appropriation shown for the rate of return or dividend, whatever it might be termed. Again, it is difficult to accept the argument that the Department is in error, in allowing a particular figure for depreciation, or in not following the British practice in making an allocation of 60 per cent. and 40 per cent. as between a Revenue Expenditure and Capital Expenditure even with regard to gross working expenses. With regard to the cost of replacement, the Department appears to make an allowance for increasing cost due to inflationary trends, and what the cost is likely to be in future, as a necessary component of a scientific estimate for depreciation. How is this Court to determine that these principles are erroneous in their application?
46. It cannot be too emphatically asserted that this Court, in exercise of its power under Article 226 of the Constitution, does not function as a Commission in the United States, empowered to determine a tariff. Upon the facts of the record here, it is no mere administrative body that performs this difficult task, as part of the executive conduct of the Department. This tariff is, indisputably, the consequence of subordinate legislation and the result of the legislative process; it is placed on the table of the Houses of Parliament for the requisite period, and may be reviewed, modified, or cancelled by the Legislature. The question of the rates has been we find, very carefully examined, both by the Public Accounts Committee, and by the Posts and Telegraphs Tariff Enquiry Committee, the Committee of 1968, including as its head a non-official, Shri Mahavir Tyagi, and not merely a Departmental Chief, however eminent or notable. It could be argued, no doubt, that there is at least a relative enhancement contemplated and enforced, at a time when the Department does not appear to be in financial difficulties. But this seems, as far as our study indicates, mainly to be due to the future needs of expansion, as envisaged by the several Committees. This is not merely a growing Department, but, if it is to be retained as static, and not permitted dynamic growth, it may well affect the industrial potential of the country, and, indirectly, the entire economic progress of the Nation itself.
47. It is thus difficult to see how we could strike down, or interfere, with the tariff now in force, upon any principles on which Public Utility Rate Regulation has developed in the United States. This is all the more difficult here, as it has neither been shown how, as a kind of subordinate legislation, the rule is ultra vires, or colourable, nor how it injures the Fundamental Rights of the writ petitioner. Emphatically, it would be improper, within the scope of our power under Article 226 of the Constitution, to strike down the tariff, whatever individual opinions we might have of what should be the optimum Tariff, on a balance of the interest of the subscribers as against the interests of the Departmental growth, which ultimately benefits the entire Nation. In any event, we cannot graduate percentages, such as those shown in the balance-sheets, as ranging from 3 or 4 per cent. to a little over 8 per cent. unless we are converting ourselves into a commission for Rate Regulation, which is not our province.
48. It follows that the appeal will have to be allowed and that the judgment of the learned Judge, (Venkatadri, J.), must be set aside. But, before leaving the appeal, and speaking entirely for myself, as one who has gone through the data placed before us, from the point of view of a balance between the growth potential of this Department, and the interests of the subscribers, who include both vast commercial enterprises and individuals I would like to make the following constructive suggestions which, however, already appear to be partly recognised in certain of the Reports.
(1) There is much to be said for a rationalisation of the Department itself, by the conversion of the Department of Tele-communications into a Statutory Corporation, with full power to plan the future, and to conduct its present affairs with fairness to subscribers. This might also mean that the return on the ' ratebase,' after Government's appropriation of dividends on subsidies, could itself be utilised in the best manner possible. (2) It has been brought to our notice that the efficiency of the personnel, judged by relative statistics of similar Departments in foreign countries, would appear to be low, in the sense of a relatively high manpower required for Units of Work; this will have to be the subject of careful study, and attempted improvement, as pointed out by the Public Accounts Committee (1968-69). (3) While not deprecating the ' measure rate system ' now in vogue, 'both for individual subscribers and for concerns, I think that any enhancement of tariff could well be coupled with an increase in the number of ' free calls ' per quarter, say, from 150 to 200, as applicable to all subscribers. That will mean that the individual subscriber, who is certainly harder hit by any increase in tariff than a business or complex of business, particularly if he is of a middle income group, may not have to pay more than the quarterly rents. The Revenues will then be derived, largely, from those subscribers, who make calls in the period far in excess of the allowance, or those who freely utilise the Trunk Telephone System. (4) It would thus appeal to be equitable that there should be a discrimination between individual private subscribers and firms, commercial concerns and Corporation that would be a reasonable discrimination, which is patently equitable. The individual subscriber could be charged at lower rates, and the Corporations of Firms at higher tariffs. This seems to have been contemplated at one stage.
49. In conclusion, both on behalf of myself and my learned brother, I desire to record our obligation to Sri Kumaramangalam for the appellant and Sri Mani for the respondent, both of whom have, by their painstaking labours, placed before us considerable material, in the form of precedents, Articles, and expert, treatises, as well as Reports and analyses of statistical data, illuminating this difficult subject and for their able arguments.
50. In the result, appeal is allowed and the judgment of Venkatadri, J., is set aside. The writ petition is dismissed. Parties will bear their own costs.
M. Natesan, J.
51. I agree with my Lord the Chief Justice that the appeal must be allowed. Having regard to the great importance of the questions raised, particularly in the context of the functions and policies of a welfare State, I shall briefly indicate the reasons for my concurrence.
52. The respondent in the appeal, a telephone user who has a telephone installed in his residence, questions the validity of the enhancement of the telephone tariff as per the Indian Telegraph (Amendment) Rules, 1966. The basis for the challenge before our learned brother Venkatadri, J., was that what is levied and realised for the use of telephone is a fee and, as a fee, there is no reasonable correlation between the increase in the telephone rates and the service rendered. It was urged that one of the grounds for increase in the rates was to make up for loss incurred in the postal Department, and that this was not permissible. Before our learned brother the present appellants attempted to justify the revised rates as a fee and failed. The learned Judge observed that the fee obtained under the impugned rule was not used solely for the Telephone Department, but intended to ward off losses in other connected Departments, that the Telephone Department did not discharge its burden of correlating the levy with the service rendered by it, and that the increased rates were arbitrary, unreasonable and unjust. Before us, the appellants, (hereinafter referred to as the Telephones) sought and obtained leave to vary their answer to the rule nisi on a wholly different basis. The Telephones would withdraw the concession made that the levy was a fee and take the stand that the rate fixed is neither fee nor tax but price determined upon by the State for its services in a commercial enterprise run by it as a monopoly undertaking in the interests of the public. As questions of considerable importance and impact on the running of essential services in which the public may be vitally interested are involved in the case and as it is not in the interests of the public at large to declare unconstitutional rules framed under a legislative provision upon a concession as to the legal character of the levy, we permitted the Telephones to vary their case and raise additional grounds. Both sides have elaborated their respective cases on the fresh stand taken by the Telephones by supplementary affidavits, the subscriber not giving up his stand that the levy is a fee strictly so called.
53. The telephone system in India is maintained and operated under the provisions of the Indian Telegraph Act, 1885. The definition of telegraph is made to include telephones. Section 4 of the Act vests with the Central Government the exclusive, privilege of establishing, maintaining and working telegraphs, empowering the Central Government to grant a licence, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India. Section 7 authorises the Central Government, from time to time, by notification in the Official Gazette to make rules consistent with the Act for the conduct of all or any telegraphs established, maintained or worked by the Government or by persons licensed under the Act, in particular by Section 7 (2) (a) to make rules to provide for ' the rates at which, and the other conditions and restrictions subject to which, messages shall be transmitted.' By Section 7 (5) it is provided that every rule made under the section shall be laid as soon as may be after it is made before the Houses of Parliament for a total period of thirty days which may be comprised in one session or in two successive sessions, and if, before the expiry of the session in which it is so laid or the session immediately following, both Houses agree in making any modification in the rule or both Houses, agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be. Originally, the telephones service was in the hands of private Telephone Companies, the Oriental Telephone Company in 1881 first introducing telephone service in the City of Bombay as a commercial venture with the permission of the Government of India. Telephone Companies soon came up in Calcutta, Madras, Ahmedabad and a few other towns. In 1943 the telephones, it is said, were taken over by the Central Government. Telephone rates have always been regulated by the Government under rules framed under Section 7 (2) of the Telegraph Act, both when the telephone was in private hands and since when the Government took over the telephone. Under the 1960 Tariff Rules, in Madras District, installation charges were fixed at Rs. 40 and rent for a telephone installed in a subscriber's premises at Rs. 50 per quarter with 150 free calls per quarter, charging 10 paise for every extra call over and above the free calls. The impugned tariff, introduced by the Central Government under the Indian Telegraph (Amendment) Rules, 1966 in exercise of the powers under Section 7 of the Telegraph Act, came into force on the 16th day of January, 1966. This raised the installation charges in Madras District to Rs. 50, the rent to Rs. 75 per quarter and the call charge to 15 paise for every extra call over and above 150 free calls per quarter. It is the stand of the Central Government that telephones have been taken over by the State as a commercial undertaking and run on business lines, and, therefore, the Government is entitled to charge subscribers at such rates as may be prescribed in accordance with the rules and, subject to statutory regulation make any profits it can. It is submitted that, so long as there is no violation of any statutory rule in regard to fixation of rates, the reasonableness of the rates is not justiciable under Article 226 of the Constitution of India.
54. For the subscriber, it is contended that, as the telephone service is a public utility undertaking, the Government cannot contend that the telephones could be run purely on business lines and rates charged the reasonableness of which cannot be called in question except for violation of statutory rules in the fixation of rates. The Government which ratains the exclusive privilege of running a public utility service, it is said, cannot claim any arbitrary power in the fixation of rates, not amenable to judicial scrutiny. In particular, it is emphasised that rules fixing rates are made by the Central Government under delegated power, that fixation of price is a legislative act, and, therefore, the delegated power has to be exercised in the public interest in a just and reasonable manner consistent with the accepted canons of price fixing in monopoly undertakings of public utility services. The attack on the validity of the new rates may be summarised under three heads : Firstly, the revision of the rates is ultra vires of the rule making power not having been exercised in a just and reasonable manner with due regard to the various factors that should guide fixation of rates with reference to a monopoly public utility service. In developing the argument under this head, it is inter alia urged that there was excessive delegation of legislative power by Section 7, there being no guide lines whatsoever for fixing rates. Secondly, it is a case of colourable exercise of power and therefore ultra vires. Thirdly, an exorbitant increase in the rates is an imposition of unreasonable restrictions on the subscriber's fundamental rights under Article 19 (1) (f) and Article 19 (1) (g) ; that the restrictions are not in the interests of the general public, viewed from any principle of social economics or public finance, and so are unconstitutional.
55. The State's power to assume monopoly in any trade, business, industry or service either by itself or by a corporation owned or controlled by the State, is protected under Article 19 (6) of the Constitution. The State may take up any industry or business or service for administrative reasons or in the interests of national economy or progress, or with the object of mitigating the evils flowing from competition, or with a view to regulating prices or improving the service. There is nothing in the Constitution precluding the State from entering into business or a commercial service or industry for the purpose of making profits to add to the State's exchequer. No embargo has been placed on the State to carry on business in competition with citizens. Article 298 provides that the executive power of the State shall extend to the carrying on of any trade or business and to the acquisition, holding and disposal of property and the making of contracts for any purpose. The power to make laws with reference to posts and telegraphs, telephones, wireless, broadcasting and other like forms of communication is found in Entry 31 of the Union List. Since the amendment of Article 19(1) (6), State's monopoly in respect of any trade, business, industry or service, complete or partial, must be presumed to be reasonable and in the interests of the general public, so far as Article 19 (1) (g) is concerned. While a law creating State's monopoly is protected, the protection is limited to the laws relating to monopoly in its absolutely essential features. Only the provisions of laws which are integrally and essentially connected with the creation of the monopoly are protected and the rest of the provisions which may be incidental and not basically necessary for the creation of monopoly get no protection. The provisions of the law excepting those relating to monopoly, complete and partial, have to satisfy the test of the first part of Article 19(1) (6), when Article 19 (1) (g) is invoked by a citizen. The Court could enquire and determine, if required, what are the provisions of law that are protected under the later part of Article 19 (1) (6) and adjudge the validity of the rest under Article 19 (1) (g). If a law creating a State monopoly contains incidental and ancillary provisions not essential and not forming an integral part of the monopoly created, and they directly impinge any of the other fundamental rights under Article 19 (1), their validity could be tested tinder the corresponding clauses of the Article. Fixation of price need not always and necessarily be an essential part of law relating to State monopoly. See Akadasi v. State of Orissa : AIR1963SC1047 .
56. The arguments before us proceeded on the common basis that telephone today is not a luxury but a necessity, to the State, to the individual, to commerce and industry, and that telephone service is a. public utility service. It will be convenient therefore to start with an examination of the characteristic of a public utility service or enterprise. Mr. Mohan Kumaramangalam, learned Counsel for the Telephones, referred us to an article under the head public utilities, at page 744 B, in Encyclopaedia Britannica, where it is stated that public utility industries are closely associated with our developing civilisation, supplying wants so. fundamental for communal living that Government has at all times subjected them to some measure of control, and that these industries should be distinguished from State services or public works, which are administered as public functions and hence supported by taxation, and from that variety of industrial, commercial and agricultural undertakings which are usually comprehended under the term ''private business'. The article shows that, in almost every country, a varying number of public utilities are owned and operated by the State, but that these publicly managed enterprises, instead of looking to the State for financial support, sell their services to the general public. Both publicly and privately owned utilities, it is said, sell their services at prices, which arc not fixed in the open market but are governmentally fixed, and this feature is the most important aspect of the process known as public : utility regulation.
57. Counsel draws our attention to passages in Corpus Juris Secundum, Volume 73, under the title Public Utilities and passages from leading text books on the subject and cases decided by the Supreme Court in the United States, where the rights and obligations of a public utility service have received considerable attention. As. pointed out in Corpus Juris Secundum, Volume 73, at page 998 broadly speaking, the primary duty of a public utility is to give reasonable and adequate service at reasonable rates and without delay. A public utility is obliged to furnish its service or commodity to the general public, or that part of public which it has undertaken to serve, without arbitrary discrimination. The term ''rate' as used in connection with public utilities signifies a charge to the public for a service open to all measured by a specified unit or standard. The rates are usually fixed with reference to what is called a rate base or valuation of property devoted to the public use on which the utility is entitled to receive a fair return. In the States the public utility services, including telephones, are owned and run by private corporations and the State's power to regulate the public utility services is founded on the police power of the States. Under this power, the State could regulate the rates and charges of public utility companies and fix the maximum rates to be charged for their services and the use of their facilities, subject to the limitation that such regulations and the rates thereby prescribed are reasonable and non-confiscatory. The power to regulate telephones and telegraph rates is exercised by the Legislature itself or, as in often the case, the power is delegated to a board or commission. In; : Corpus Juri Secundum, Volume, 86, at page 106, the position is thus stated:
It is a universal rule that rates established by a telegraph, telephone, or similar company under the power of regulation, whether directly by the State or through the agency of a municipality or commission to which such power has been delegated, must be reasonable, compensatory, and non-confiscatory. The main elements of reasonable rates are to cost of rendering the service on an economical and efficient basis, a fair eturn to the company on its property used in the performance of the service, and fairness to consumers.
58. The test of reasonableness is said to be whether the revenue produced by such rate yields a profit which, after due allowance is made for depreciation, upkeep, and legitimate cost of operation, is a reasonable return on the value of the company's property. At page 107 of the Volume, it is observed:
It is ordinarily held that telephone and telegraph rates must be just and reasonable both to the company and to subscribers; the rate must not be so low as to be confiscatory, or so high as to be unjust or oppressive or as to exceed the value of the service to consumers while it has been held that the fundamental inquiry is as to the rate necessary to produce a reasonable return to the telephone or telegraph company, the broader view is that the interests of both the company and the public must be considered and that a proper final result is reached by balancing of the investor and consumer interests.
Judicial examination of the validity of legislative regulation of rates and service in respect of public utility service started in the United States with the well-known case of Munn v. Illinois (1877) 94 U.S. 113, by the Supreme Court of the United States. The pegging down of rates under the police power by Legislatures and commissions statutorily constituted to regulate public utilities to just and reasonable price for services rendered were challenged as violative of the Constitutional guarantee of due process of law under the 5th and 14th Amendments. Tracing the power to regulate price to the common law, the Supreme Court held that the Legislature of Illinois could fix, by law, the maximum charges for storage of grains in warehouses of Chicago and other places in the United States. The Supreme Court ruled that fixation of maximum price was due process of law because when ' one devotes his property to a use in which the public has an interest, he, in effect, giants to the public an interest in that use, and must submit to be controlled by the public for the common good, to the extent of the interest he has thus created. 'Reliance was placed on the principle laid down in the Seventeenth Century, about 1670, by Lord Chief Justice Hale of the King's Bench of England in his essay De Portibus Maris in these words:
If the king or subject have a public wharf, unto which all persons that come to that port must come and unlade or lade their goods as for the purpose, because they are the wharfs only licensed by the queen, according to the statute of I.EL.cap. 11. or because there is no other wharf in that port, as it may fall out where a port is newly erected ; in that case there cannot be taken arbitrary and excessive duties for crange, wharfage, pesage, & c. neither can they be inhanced to an immoderate rate, but the duties must be reasonable and moderate, though settled by the kings' licence or charter. For now the wharf and crane and other conveniences are affected with a public interest, and they cease to he juris privati only.
In later cases the view that regulation was permissible only when the business was affected with public interest was given up, the distinction between private trades and business affected with public interest was abrogated and all trades without difference were subjected to State control in the exercise of police power see Nebbih v. New Tork (1934) 291 U. S. 502. It is not necessary to refer at length to the several cases that have been placed before us on the development of law and the pains at which the regulatory commissions and Courts in the United States have been, at evolving some principle for determining what would be a fair and non-confiscatory return. Reference may, however, be made to Wolf Packing Co. v. Court of Industrial Relations (1923) 262 U. S. 522, Lyson v. Banton (1927)273 U. S.418, Missori Ex. Rel. 8. W. Bell Co. v. Public Service Commission (1923) 262 U. S. 276 , and Bluefield Water Works & Improvement Co. v. Public Service Commission (1923) 262 U. S. 679.
59. In Missouri Ex. Re. S.W. Bell Co. v. Public Service Commission (1923) 262 U. S. 276 , it is observed:
The investor agrees, by embarking capital in a utility, that its charges to the public shall be reasonable. His company is the substitute for the State in the performance of the public services, thus becoming a public servant. The compensation which the Constitution guarantees, an opportunity to earn is the reasonable cost of conducting the business. Cost includes not only operating expenses, but also capital charges. Capital charges cover the allowance, by way of interest for the use of the capital, whatever the nature of the security issued therefor ; the allowance for risk incurred ; and enough more to attract capital. The reasonable rate to be prescribed by a commission may allow as efficiently managed utility much more. But a rate is constitutionally compensatory if it allows to the utility the opportunity to earn the cost of the service thus defined.
The decision records that a fair return upon properties devoted to public service cannot be determined without giving consideration to the cost of labour and supplies at the time the investigation is made. In Bluefield Water Works and Improvement Company v. Public Service Commission 262 U.S. 678, it is said that a public utility is entitled to earn a return upon the value of the property which it employs for the convenience public equal to that generally being made at the same time and in the same general part of the country on investments in other business undertakings which are attended by corresponding risks and uncertainties, but that it has no constitutional right to profits such as are realised or anticipated in highly profitable enterprises or speculative ventures. In Federal Power Commission v. Natural Gas Pipeline Co. (1942) 315 U.S. 575, Federal Power Commission v. Hope Natural Gas Co. (1944) 320 US. 591, and in Wiscosin v. Federal Power Commission (1963) 373 U.S. 294, the Supreme Court pointed out that the Federal Commission was not bound to the use of any single formula or combination of formulae in determining rates, and that its rate-making function involved the making of pragmatic adjustments.' It was held that when the Commission's order was challenged in the Courts, the question was whether that order ' viewed in its entirety, met the requirements of the Act, and that under the statutory standard of 'just and reasonable' it was 'the result reached and not the method employed which was controlling. Our attention was drawn to several elements that have been examined in arriving at the proper rates. It is seen from the cases cited above that determination of the rate base-value of the property of the concern used and useful in the public service minus accrued depreciation for which a just and reasonable value has to be provided is an extremely difficult problem dependent on several factors. A reference to the text books and the cases gives us five economic terms; tax, fee, special assessment, rate and price, and, as pointed out by Glaesor in Public Utilities in American Capitalism, at page 7, these ' express as if in a declining magnitude, the social importance of an economic function, while the entire series recapitulate the social process of customary classification in accordance with some scale of social evaluation.' One thing emerges, that the word ' rate ' is not equivalent to ' fee ' strictly so called in taxation parlance, nor is it the commercial ' price.'
60. Now, Section 7 (2) of the Telegraph Act enables the Central Government to make rules providing for the rates at which, and the other conditions and restrictions subject to which, messages shall be transmitted. The crucial question is what does this expression ' rates ' in the Telegraph Act, mean : What are the powers of the Government in this regard under the Act? The Central Government, under Section 4, has assumed monopoly of the service. Fixation of rates is clearly a legislative function. The American cases which provide for a reasonable return to a public utility were concerned with not depriving the owner of property of the due return on his outlay by confiscatory rates in the process of regulation. Our attention has not been drawn to a single case where the rate with reference to a State or nationalised undertaking of public utility had been the subject of judicial scrutiny. The regulatory commissions in the United States guarded the interests of consumers and the public at large. In fact, in some of the cases cited, commissions have taken up the matter to the Supreme Court, when the Court of first instance interfered with the fixation of rates by the Commissions see Federal Power Commission v. Natural Gas Pipeline Co. (1942) 315 U.S. 575, A State may take up public utility enterprise to advance the interest of the public, if need be, ignoring financial tests and safe returns. It is perfectly open to the State to subsidise certain enterprises and projects. In fixing the price of its service, the Government may allow extra commercial considerations to enter into the determination. It may take up an enterprise not with a view to recover costs, but to promote the general welfare. That being so, a price fixed by the State need not necessarily be on a part with the one that would or may properly be charged by a private concern with reference to the same service. The price fixed by the States may be lower or higher. While ordinarily like a private enterprise, a public commercial enterprise should also be self-supporting, at any rate in respect of a public utility service it may not be unbusinesslike, if the Government, having regard to various objectives, in the large interests of the country operates a public utility at a loss. The interests of Government are inevitably broader than those of private enterprise. There can be different views as to how a particular public service should be provided by the Government, whether at an economic price, that is, at a price just covering the cost of production and recoverable allowances for replacement, expansion and maintenance, or at a price that should include something over and above the economic price and to what end. Whether a public utility like the telephone service should be run by the Government on ' no profits no loss ' basis, or as a subsidised enterprise or at marginal profits, or as an earner of substantial profits, is a matter of policy. Whether the expansion programme of a public utility service should rely solely on its own resources or should depend at least partially on the general revenues, is again a matter of policy. The consumer may ask why the State should be motived by the crude economic motives which are supposed to inspire the capitalist. But consistent with the nature of the public utility service and the section of the public it would, in the main, be serving and its place in the economy of the State, a. Government may decide that the service must bring in substantial profits, to be utilised for other Governmental activities. In socialistic States like U.S.S.R... a public enterprise may be called upon to contribute from its profits both for its own expansion and for the State's budget. In the Report of Posts and Telegraphs Tariff Enquiry Committee July 1968, which has been placed on record in this case, it is noticed that in 1924 the Member-in-charge of the Department of Industries and Labour stated in the Legislative Assembly that the Posts and Telegraphs. Department should pay its way and that the Government did not look upon it as, a revenue earning Department. In the same report, at page 37, the Committee observes:
The Committee consider that the tariffs for various telephone services should produce revenues to cover costs of the telephone branch, namely, working expenses, cost of research and development, depreciation and dividend payable. These revenues should provide for an adequate surplus to cover marginal losses, if any, of the other branches and also generate sizable resources for the development of tele-communication services.
There appears to be a view that, while the Postal Department is primarily and essentially a public utility, the tele-communication is not so. The view cannot be said to be devoid of basis.
61. The preceding brief discussion shows that there is no absolute rule that every public utility service ought to be made to earn a reasonable return or only a reasonable return after providing for all reasonable allowances. The question raised, during the course of arguments, whether in the Indian Telegraph Act there is any-clear guidance for the Central Government in the matter of fixing rates may first be disposed of. The Act was passed in 1885 and till about 1943, the telephone service was in the hands of private companies. There has been no substantial amendment to the Act after the Posts and Telegraphs service became a national undertaking. It could with some force be contended that the principle of rate-making applicable to public utilities in private sector should not be engrafted without modification, when the utility has been taken over by the Government both from the standpoint of the utility and the consumer. Where a policy decision is called for, the matter cannot, without any guide-lines, be committed to the executive. It is a well settled principle that the Legislature must retain in its own hand the essential legislative function and what may be delegated is subordinate legislation necessary for implementing the purposes and objects of the Act. The legislative policy must be enunciated, and, if that is done with sufficient clearness or if a standard is laid down in that regard, the delegation would be valid.
62. When a rule is attacked on the ground that there is excessive delegation of legislative power, what has to be examined is whether the rule-making authority has been supplied with proper guidance, or whether there has been abdication by the Legislature of its function, leaving it to the executive to frame rules on its own unguided initiative, in In re The Delhi Laws Act case (1951) S.C.J. 527 : (1951) S.C.R. 747 Mukherjea, J. (as he then was) observed:..it is within powers of Parliament or any competent legislative body when legislating within its legislative field, to confer subordinate administrative and legislative powers upon some other authority. The question is : what are the limits within which such conferment or bestowing of powers could be properly made? ...if the Legislature hands over its essential legislative powers to an outside authority, that would, in my opinion, amount to a virtuel abdication of its powers and such an act would be in excess of the limits of permissible delegation.
The essential legislative function consists in the determination or choosing of the legislative policy and of formally enacting that policy into a binding rule of conduct. It is open to the Legislature to formulate the policy as broadly and with as little or as much details as it thinks proper and it may delegate the rest of the legislative work to a subordinate authority who will work out the details within the frame-work of that policy.
Illustrative of the absence of sufficient guidance to the rule making authority, reference may be made to the decision of the Supreme Court in Devi Das v. State of Punjab : 3SCR557 , where the validity of Section 5 of the Punjab General Sales Tax Act, 1948 as it originally stood which conferred on the Provincial Government power to levy every year on the taxable turnover of a dealer a tax at such rates as the said Government might direct, came up for consideration. The section was declared void, as under the section the Legislature practically effaced itself in the matter of fixation of rates and did not give any guidance either under the section or under any other provisions of the Act. Subba Rao, C.J. delivering the judgment of the Court, points out that, for a statute delegating power to a statutory authority to levy taxes, ' the minimum we expect of the Legislature is to lay down in the Act conferring such a power of fixation of rates, clear legislative policy or guide lines in that regard. Enunciating the principle of excessive delegation, it was said:
The Constitution confers a power and imposes a duty on the Legislature to make laws. The essential legislative function is the determination of the legislative policy and its formulation as a rule of conduct. Obviously it cannot abdicate its functions in favour of another. But in view of the multifarious activities of a welfare State, it cannot presumably work out all the details to suit the varying aspects of a complex situation. It must necessarily delegate the working out of details to the executive or any other agency. But there is a danger inherent in such a process of delegation. An overburdened Legislature or one controlled by a powerful executive may unduly overstep the limits of delegation. It may not lay down any policy at all; it may declare its policy in vague and general terms; it may not set down any standard for the guidance of the executive; it may confer an arbitrary power on the executive to change or modify the policy laid down by it without reserving for itself any control over subordinate legislation. This self-effacement of legislative power in favour of another agency either in whole or in part is beyond the permissible limits of delegation. It is for a Court to hold on a fair, generous and liberal construction of an impugned statute whether the Legislature exceeded such limits. But the said liberal construction should not be carried by the Courts to the extent of always trying to discover a dormant or latent legislative policy to sustain an arbitrary power conferred on executive authorities. It is the duty of the Court to strike down without any hesitation any arbitrary power conferred on the executive by the legislature.
Reference may also be made to J. W. Hampton v. United States 276 U.S. 394, where the power given by the Congress to the President to make changes in the rates provided in the Tariff Act of 1922 was challenged as a forbidden delegation of legislative power to-executive authority. In negativing the challenge, the Supreme Court pointed out that the Congress has laid down by legislative act an intelligible principle to fix the rate of customs duties on imported merchandise. The President could vary the rates with the aid of his advisers after proper investigation on the ground of differences of cost of production in the United States and abroad and he could also make such increases and decreases in rates of duty as were found necessary to equalise the cost of production. The limit of such change was fixed up to 50 per cent of the rates specified in the law. In Delhi Municipality v. B. C S. & W. Mills : 3SCR251 , Wanchoo, C.J., after referring to the above American case, on the form of the guidance may take to a local body in fixing rates, observed:
So long as the Legislature has made provision to achieve that reasonable rates of taxation are fixed by local bodies, whatever may be the method employed for this purpose--provided it is effective--it may be said that there is guidance for the purpose of fixation of rates of taxation. The reasonableness of rates may be ensured by fixing a maximum beyond which the local bodies may not go. It may be ensured by providing safeguards laying down the procedure for consulting the wishes of the local inhabitants, it may consist in the supervision by Government of the rate of taxation by local bodies. So long as the law has provided a method by which the local body can be controlled and there is provision to see that reasonable rates are fixed it can be said that there is guidance in the matter of fixing rates for local taxation.
63. The contention is open in this case that the delegated authority, in this case the executive, is not merely to work, out details but also to determine the policy to be pursued in fixation of rates, and that that is an essential legislative function. It could be urged that, if at least there is indication of maximum and minimum rates, that would provide the necessary guidance, although the policy is not stated. The Act was made in 1885 when the executive was all powerful, and, to adopt the words of Subba Rao, C.J., the Legislature may unduly overstep the limit of delegation. Webstor's New 20th Century Dictionary gives the following among several meanings to the expression ' rate':
Price or amount stated or fixed on anything with relation to a standard; a fixed ratio; a settled proportion; as, the rate of interest is 6 per cent a price or value; specifically, the cost per unit of some commodity, service, etc.; as an electricity rate, insurance rate.
In itself the expression contains no limitation. The amendment of the Act after independence has provided only for laying of the rules before the Houses of Parliament when in session or for a period of thirty days.
64. It is contended for the telephones that there are substantial safeguards in the matter, for Parliament before which the rules have to be laid may annul or vary the rates, if the same is against the policy of the Legislature. Under Section 7 (5) of the Act, every rule has to be laid down before each house of Parliament while it is in session for a total period of thirty days, so that both the Houses may agree in making any modification in the rule or may agree that the rule should not be made. If there is any modification, it has effect only in the modified form. If it is annulled the rule ceases to have any effect : Only modification or annulment shall not prejudice the validity of anything previously done under that rule. In D.S. Garewal v. State of Punjab (1959) S.C.J. 399 : (1959) 1 S.C.R. 792 : A.I.R. 1959 S.C. , it was observed that, where Parliament took care to see that the rules were laid on the table of Parliament for fourteen days before they were to come into force and they were subject to modification, whether by way of repeal or amendment on a motion made by Parliament during the session in which they were so laid, it was perfectly clear that Parliament had in no way abdicated its authority, but was keeping strict vigilance and control over its delegate. In In re The Delhi Laws Act Case : 2SCR747 , Fazl Ali, J. expressed the view that laying rules before Parliament either in draft form or with the condition that they are not to operate till approved by Parliament or with no further direction is a valuable safeguard. It is true that rules under the Act in consideration become effective on publication. Subject to only to modification or annulment by Parliament, and may not, therefore, having regard to the natural of the power to be exercised, be a sufficient safeguard. Counsel are not in a position to say whether there is any Committee of Parliament to scrutinise rules so laid which do not require the approval of Parliament to become effective. But admittedly the revenue and expenditure of the department are the subject of budget proposals. Necessarily the rates are open to examination and discussion by Parliament. Even so, the question of validity of the delegation is not free from difficulty. But I find I need not tarry on this aspect further, since it is unnecessary for us to express any definitive view on the question. The vires of Section 7 (2) (a) as a piece of imperimissible delegation of legislative power was not specifically raised even in the supplemental affidavit and put in issue, though incidentally there was discussion on the question during arguments. The attack on the rule was concentrated on the actual exercise of the delegated power. When Mr. Mohan Kumaramangalam, learned Counsel for the Telephones, was taking this Court through the rate fixing principles for public utilities in the United States, this Court raised the question whether it would not make a difference if a public utility is run by the State itself. We had the astute answer from Mr. Mohan Kumaramangalam, that it would make no difference, and that the principle that a public utility concern can expect only a reasonable return, will apply equally whether the utility is run by the State or by a private corporation. The effect of this concession for that is what the subscriber has been contending for in his supplementary affidavits is to show a well recognised principle for rate fixing and meet the argument that the executive has been invested with unfettered and arbitrary power in fixing rates. In the result, on this part of the case, we have to examine only the due exercise of delegated power in fixing rates. A mass of statistics and budgetary figures have been placed before us to show that the return to the State in the present case is very much less than what the American cases have held to be a reasonable and fair return, warranting an increase in the rates. Mr. Mohan Kumaramangalam, however, questions the very maintainability of the petition by a subscriber challenging the fairness of the rates.
65. The contention for the subscriber is that the expression ' rates ' in Section 7 (2) (a) having a well established significance and well understood with reference to public utility services, such rates fixed have to be viewed in two aspects, namely (1) as they relate to the legitimate interest of the public and (2) as they relate to the public utility concern which provides the service. The rates, it is said, must be fair and not extortionate. It must not be a tribute or exaction which the subscriber has no option but to pay, the service being an essential public service which he cannot give up. In the present case, the executive have been authorised to fix the rates. If the rates do not conform to the requirements as to reasonableness and fairness, it is said, they would cease to be rates and so ultra vires of the rule-making authority. It is urged that, if in the levy of rates, considerations other than a reasonable return to the service on its capital outlay should enter and the subscriber should be fleeced for other Governmental purposes, it would become a tax which the rule-making authority is not entitled to levy. Rating for heavy profits, it is said, is veiled taxation, and so colourable exercise of power, and that it is so in this case.
66. The claim for the Telephones that in no circumstances a subscriber can challenge the rates, is, in my view, untenable. It is a well established principle that rules made under statutory authority can be challenged as not in conformity with the power conferred, that is, ultra vires of the statutory requirements. Certainly it will' be open to the subscriber here to challenge the new tariff as outside the scope of the enabling power and bring the rule under judicial scrutiny. The liability to judicial scrutiny stems here from the concession made on behalf of the Department that the concept and content of the expression ' rates ' in Section 7 (2) (a) finds elucidation in the rate cases in the United States which themselves are founded on the dicta of Lord Hale in his essay De portibus Maris. Lord Hale, with reference to business affected with public interest, said that arbitrary and excessive duties should not be charged, nor could the rates enhanced be immoderate, and that the rates must be reasonable and moderate. We proceed on the basis that the policy which should guide the Central Government in fixing the rates in question is fairly clear and what is left by the Legislature for the executive is to work out the details according to the policy. Learned Counsel for the Telephones submitted that, since statutory rules have been framed, they are as effectual as if enacted by the Legislature and their reasonableness is not a matter for judicial examination. Reference was made to the observations in Subba Rao v. Income-tax Commissioner : 20ITR337(Mad) .
It is well established law that rules authorised to be made by an enactment, are as effectual as if they were a part of the Act itself, the question of their reasonableness, fairness or propriety not being a matter for the Courts to investigate.
Our attention was also drawn to the dicta of the Supreme Court in T.B. Ibrahim v. Regional Transport Authority : 4SCR290 , that by-laws and rules made under a rule-making power conferred by a statute do not stand on the same footing, as such rules are part and parcel of the statute itself. But the citations proceed on the postulate of the validity of the rule. The observations assume the validity of the rule. Once the rule has been validly made and is not ultra vires of the rule-making power, it becomes as effective as the parent Act. Here the argument for the subscriber is that Parliament has empowered the Central Government to make rules providing for rates at which messages shall be transmitted and that the charges now levied are not in reality ' rates ' as the expression is meant to be understood. It is said that the ' rates ' now fixed under Section 7 (1) (b) which have necessarily to be reasonable and not immoderate are not so, and are therefore invalid.
67. A question has been mooted, in the coarse of arguments whether a common law concept of rating public utility service propounded by Lord Hale can be availed of for interpreting an Indian statute. Here we are interpreting a statute enacted in 1885 by the English Rulers and it is a sound rule to consider the statute in harmony with the common law that could have prompted it rather than against it, except in so far as the statute is plainly intended to alter the course of the common law. Why should we assume that the word ' rates ' was used in vacuum? The American precedents, starting with Munn's case (1877) 94 U.S. 113, relied on the common law of England as a source of the right which the Amercian Constitution protected. Our Courts have freely drawn upon the common law of England, in the absence of any statutory law or personal law governing the matter. The Charter of Charles II and the latter Charters enjoined upon the East India Company and its servants due obedience of the common law and statute law of England. This first introduced the common law of England in this country. Towards the close of the 18th Century, on the establishment of the Supreme Courts in Madras, Calcutta and Bombay, the King's Judges administered the common law of England. The Civil Courts Act of 1873 provided that in cases where no specific rule existed the Court shall act according to justice, equity and good conscience. The English Judges who sat in the Company's Courts were advised by pundits on points of Muhammadan law and Hindu law and outside these jurisdictions they naturally looked for guidance to the principles of the common law of England which was familiar to them and was considered as embodiment of common sense. By practice of Courts a Custom sprang up of looking to the English common law for guidance and precedents where there was no customary Hindu or Muhammadan law or statutory law governing the case. The common law supplied to the Judges here with rules and precedents considered as in accordance with justice, equity and good conscience. Thus the common law of England, to the extent it was not opposed to our statutory laws and recognised customary and personal laws, came to be considered as the law of the land--see Gopal Naidu v. King Emperor ILR(1922)Mad. 605 : 44 M.L.J. 655. To what extent the English common law applies to this country has been the subject-matter of judicial decisions. As pointed out by Satyanarayana Rao, J., in Seethalakshmi v. Veerappa : AIR1952Mad736 , the net result of these decisions is that the English common law does not apply when there is statutory law covering the point, and even when there is no rule of statute, the common law of England is applied suo moto having regard to the conditions of the society and customs and manners of India. We are here not applying the common law of England. We are only on the question whether the English word ' rates ' has a recognised significance in the context of its user. Viscount Simonds in Attorney-General v. Prince Ernest Augustus of Hanover (1957) A.C 436 : (1957) 2 W.L.R. 1 : (1957) 1 All E.R. 49, remarks:
I conceive it to be my right and duty to examine every word of a statute in its context, and I use the word ' context' in its widest sense....as including not only the enacting provisions of the same statute, but its preamble, the existing state of the law, other statutes in pari materia and the mischief which I can, by those and other legitimate means, discern the statute was intended to remedy.
The Telegraph Act is an Act of 1888 and is in respect of a public utility, and charges in respect of public utilities carried certain limitations even at the time the Act was passed. Lord Ellenborough, C.J., said in Allnutt v. Inglis (1810) K.B. East 527 : R.R. Vol. XI 482:
There is no doubt that the general principle is favoured both in law and justice that every man may fix what price he pleases upon his own property or the use of it; but if for a particular purpose, the public have a right to resort to his premises and make use of them, and he have a monopoly in them for that purpose, if he will take the benefit of that monopoly, he must as an equivalent perform the duty attached to it on reasonable terms.
68. The rates fixed under a statute as charge for a public utility service are, therefore, justiciable in the sense that their validity can be challenged as not in accordance with the recognised concept of rates. The statutory mandate to the Executive is to fix rates with reference to a public utility service. These rates have to be reasonable and fair and guard the interests of the public, whom the utility a monopoly concern, is intended to serve. If the charges levied are not in accordance with the provisions of the mandate but unreasonable and extortionate they would be ultra vires the power vested in the executive and so unenforceable.
69. Before I examine the reasonableness of the rates to test its validity as a piece of subordinate legislation, it will be convenient to take up the challenge of the subscriber of the validity of the rates as violative of his fundamental rights under Article 19 (1) (f) and (g) of the Constitution. During the course of arguments, the subscriber has not pressed his claim to protection under Article 19 (1) (g), as the telephone secured by him is obviously used only for domestic purposes, and it is not his contention that he is practising any profession or carrying on any occupation, trade or business. It is said that the charges now levied restrict his property rights under Article 19 (1) (f) in an unreasonable manner. Having regard to the fact that it is a public utility service, the exhorbitant levy which restricts his reasonable enjoyment of telephone facilities, it is contended, cannot be considered to be in the public interest. The unreasonable levy, it is said, is an effective denial of the service he is entitled to from the public utility undertaking. His failure to meet the new demand will result in his being deprived of the telephone. Here two questions arise for consideration : (1) Whether at all the telephone amenity enjoyed by the subscriber is property, and (2) whether any of his fundamental rights in relation thereto is affected.
70. There is no definition of property in the Constitution, and it has been observed by the Supreme Court that the phraseology used in Article 19 (1) (f) is wide and prima facie it takes in its wake both abstract and concrete rights of property. Section 3 (26) of the General Clauses Act (Central Act X of 1897) defines immovable property as including land, and things attached to the earth, or permanently fastened to anything attached to the earth. Section 3 (36) defines movable property as property of every description, except immovable property. What is property, and in what a person may have proprietary right, will necessarily change from age to age. The concept of private property, like that of individual personalty, has had a steady development from the beginnings of law. Our ideas of property and proprietary rights are changing and new forms of property are coming into existence. Article 19 (1) (f) protects rights to acquire, hold and dispose of property and the constitutes an organic law. The language used is perfectly general. It is not restricted to acquisition, holding and disposal of property by particular methods otto particular type of interests. The General Clauses Act, while defining movable and immovable properties, has given no exhaustive definition and placed no limitation as to what all the expression ' property ' could take in. It has only categorised property into movable and immovable. In this age of advancing science and changing political and economic concepts the categorisation is plainly inadequate. Property, it has been said, is nomen generalissimum and extends to several species of valuable rights and interest, including real and personal property, incorporeal hereditaments, such as rents and services, rights of way, rights of profit or use in land of another, and chose in action--see Minister of State for the Army v. Dalziel 68 C.L.R. 251 , in which the above observation is made in interpreting the expression 'property ' in Section 51 (xxxi) of the Australian Constitution. In Salmond's Jurisprudence 12th Edition at page 421, it is said that the subject-matter of right of property is either a material or immaterial thing, and that in the great majority of cases a right of property is a right to the uses of a material object. In the Treatise Jurisprudence and Legal Essays by Ferderick Polock, at page 72, we find the following :
Again we may have rights over tangible things which belong to others ; rights of way over land, right, of using or detaining goods by way of loan, hire, or pledge, and so forth. These rights can be and are regarded in law as having distinct and measurable values, and whatever has such value is a thing, though not a bodily and sensible thing. These benefits can be part of man's inheritance of goods, of his ' estate and effects', to use the large term known to our law ; they are capable of transmission and, for the most part, of voluntary alienation. We must recognise as things, in fact, all objects of exchange and commerce which are recognised by the usage of mankind.
The law of property, according to the learned Jurist, is in the first place the systematic expression of the degrees and forms of control, use and enjoyment, that are. recognised and protected by law. In Paton's Jurisprudence, 3rd Edition, at page 481, we find that property necessarily includes the right to, contract : this may come in under Article 19 (1) (f), the right to acquire. It is said that the term ' property '' is extended to cover whatever has a present or potential material value. The once overwhelming importance of landed property is now eclipsed by the growth of new forms of wealth and the nature of property is being extended economically. While to the logic of the law a share certificate is theoretically mere evidence of a right to receive dividends and to share in the funds of the company if it be dissolved while still solvent, economically the share certificate is itself property. In Corpus Juris Secundum, Volume 73, at page 139, in dealing with property, we find the following stated:
In modern legal systems, property includes practically all valuable rights, the term being indicative and descriptive of every possible interest which a person can have, in any and every thing that is the subject of ownership by man, including every valuable interest which that can be enjoyed as property, and recognised as such, equitable, interests as well as legal interests, and extending to every species of valuable right or interest in either real or personal property, or in easements, franchises, and incorporeal hereditaments.
It is said that the word ' property embraces everything which is or may be the subject of ownership, whether a legal ownership, or whether beneficial to which the right of property may legally attach, no matter how infinitesimal in quantity. A more comprehensive meaning is presumed to have been intended in the use of the word ' property ' in a Constitution than in a statute, for the former being the organic instrument, it is presumed to have been couched in broader language than in the case in a statute, which usually concerns itself with precise matters. In The Commissioner of Hindu Religious Endowment v. L.T. Swamiar : 1SCR1005 , Mukherjee, J., (as he then was) said that there is no reason why the word ' property ' as used in Article 19 (1) (f) of the Constitution should not be given a liberal and wide connotation and so interpreted should not be extended to those well recognised types of interest which have the insignia or characteristic of proprietary rights. Law recognises and protects limited rights with respect to property owned by others to the extent of the limitations. The right to enjoy a thing and use it to one's advantage is a valuable right. Roscoe Pound, in his Jurisprudence, Part 4, at page 129, points out the recognition in legal system of jura in re aliena, limited real rights, rights of definite persons, of a limited and defined nature with respect to property which usually is owned by others but in which, according to recent codes and to some extent in our law, they may have for the time being other proprietary rights also. Of the attributes of property recognised are the right of acquisition the right of dominion, the right of possession, the right of use and enjoyment, the right of exclusion and the right of dispossession.
71. Mr. T.R. Mani, submits that the telephone, which his client has secured with its attendant facilities provided by the undertaking, has all the attributes to be considered as property under Article 19(1) (f). While the telephone apparatus and equipment may belong to the undertaking, subject to availability, a subscriber is. entitled, on payment of the necessary charges, to get a telephone installed at his residence for his use. Rule 429 contemplates limited rights of transfer of telephone by a subscriber. He shall not, without the permission of the Telegraph Authority, assign, sublet or otherwise transfer the telephone. Rule 430 provides that, in the event of the death of a subscriber or a change in the constitution of a subscriber firm or institution, the person claiming to be successor to such subscriber shall immediately give notice thereof to the Telegraph Authority and shall apply for permission to retain the connection or service. The option of the subscriber to surrender the apparatus with all fixtures and accessories is recognised under the rules. A subscriber is enjoined to take good care of the telephone apparatus, all fixtures and accessories connected therewith and if the apparatus on the subscriber's premises is damaged, he has to bear the cost of repairing, renewing or replacing it. Telephone rentals are payable monthly, quarterly or annually. Learned Counsel submits that, having regard to these aspects, the telephone installed at the premises of the subscriber with its attendant service has essential attributes of property under modern conditions. The telephone, it is said, adds to man's wealth and establishment. The property which the subscriber may have in the telephone may be limited or controlled ; still there are certain elements of a proprietary character recognised by the Telegraph Act itself to the subscriber.
72. Mr. Mohan Kumaramangalam for the Telephones referred to the decision of the Supreme Court in Dwarkadas v. Sholapur Spinning and Weaving Co. : 1SCR674 , where it was doubted whether certain rights of a shareholder in a company, viz., the right of voting, the right to elect directors, and the right to apply for the winding up of the company, could be called property within the meaning of Article 31 (2). Its was pointed out that by itself apart from the shares, none of them can be acquired or disposed of. There the rights in question were only incidents of the ownership of shares. The rights and interests in the telephone may be limited but are not of the character of the rights in shares which were doubted to be property. In the other case Amar Singh v. Custodian, Evacuee Property, Punjab : 1SCR801 , cited by learned Counsel, the Supreme Court held that the interest of an allottee under the quasi permanent allotment scheme did not in any sense constitute even qualified ownership of the land allotted. The interest given was provisional and there had to be a series of inter Dominion conferences to settle on Governmental level the problems arising out of evacuee property in either country. The stabilisation had to await the results of such conference. The rights had to be regulated from time to time with reference to various considerations and policies and the external problem of arriving at understandings between the two Governments. An element of unstability was there. In those circumstances, it was said that an interest in land owned by another could not be fitted into any concept of ' property ' itself to attract protection of fundamental rights. Counsel laid emphasis on the following observations of the Supreme Court:
The interest of the quasi permanent allottee arises by statutory grant to a specified class of persons and is not capable of acquisition by the ordinary citizen in any of the normal modes.
Mr. T.R. Mani, distinguishing this decision, points out that, subject to availability, every citizen who is prepared to pay the prescribed amount can acquire a telephone. 'With reference to a public utility service, the law requires it to severe (1) all, (2) with reasonable, and adequate facilities, (3) without discrimination and (4) for reasonable compensation. It is relevant, in this connection, to refer to the decision of the Supreme Court in V.S.R. & Oil Mills v. State of Andhra Pradesh : 7SCR456 . In this case the appellants before the Supreme Court were supplied electricity by the State of Andhra Pradesh, the agreements between them prescribing the terms and conditions on which the said supply should be made to the appellant and one of the terms stipulating the rate at which the supply of electricity should be charged. On the 'State Government increasing the rates acting under Section 3 of the Madras Essential Articles Control and Requisitioning (Temporary Powers) Act, 1949 by two notifications, the appellants challenged the validity of the notifications. The said section inter alia provided for controlling the price at which an essential article may be purchased or sold. The Supreme Court examined the question whether the impugned notifications increasing the rates were reasonable and in the interests of the -general public, assuming for the purpose of the case that the right to receive the supply of electricity at the rates specified in the agreement was a right which fell within Article 19 (1) (f) or (g). No decision was given whether the right of the customer under the Electricity Act would fall under Article 19 (1) (f) or (g).
73. In the present case granting that the subscriber has some property in the telephone, let me examine whether any guaranteed freedom of the subscriber is affected. As a subscriber at best he is in the position of a renter of the telephone and a hirer of the attendant services, as the telephone is owned and served by the State. Certain rights that can go with ownership and have the characteristics of property have been carved out in his favour. He may claim protection for those rights, but the rights are jura in aliena and subject to the paramount rights of the owner. Now, apart from any statutory right can a hirer compel the owner to part with the thing hired at any particular rate? Can he compel the owner by legal process to accept lower charges? Has a tenant of a building a right to compel the landlord to reduce the rent except for any statutory provision in this regard? Subject to reasonable restrictions which the State may impose, an owner of property is entitled to exploit it to his maximum advantage. A landlord may complain of unreasonable restriction with reference to his right to property when there is drastic reduction in the rental rates. But I have never heard a tenant claiming that his fundamental rights are violated by an increase in the rates. The State may, in the interests of the public, intervene by appropriate legislation to protect the public from exploitation. Under Entry 34 in the Concurrent List a State has power to control the price and by law it may reduce rates. The State in this case is like any other owner of property. The question is not whether the State can claim fundamental rights, but is whether a citizen can compel the State to part with or hire its property at any particular price or rate. Unless a legal right in this regard is established, one cannot say that there is violation of fundamental rights. Outside the provisions of the Telegraph Act which we have interpreted as enabling the levy only of reasonable rates, I cannot see any right in the subscriber to question the reasonableness of the rates. As the State can own property, it can exercise all rights relating thereto given or protected by law. If the telephone service is run in the private sector under rates regulated by the Government, manifestly the consumer cannot claim that his fundamental right under Article 19 (1) (f) is violated by high rates. He may only say that the rates have not been fixed according to the statutory provision. Does the fact that the service is run by the State make a difference and confer on the citizen a right in the property, fundamental in character, which he does not otherwise possess? If the right to acquire and hold the telephone is under the Telegraph Act, then where is the violation, if rates are claimed in due accordance with the provisions of the Act? The Courts are the constitutional guardians of both powers of the Legislature and of the rights of those affected by legislation. The American cases recognise the right of an owner of property to fix a price at which his property should be sold or used as an attribute of property itself and as such within the protection of the due process clause of the Federal Constitution. Relief was granted to owners of property on the V and XIV amendments to the Federal Constitution, which guaranteed due process of law, the principle evolved from these two amendments being that no regulation by a unit of Government can reduce profits below the confiscatory level. In the States, the citizen's rights are protected from being exploited by monopolies, by commissions which by law regulate public utilities and are required to see that the rates are reasonable. In Corpus Juris Secundum, Vol.. 86, at page 128, it is stated;
Where authority to regulate the rates to be charged for telegraph or telephone service, or the like, has been conferred by law on a public utility commission, a patron asserting that the rates prescribed by a company for its services-are excessive cannot invoke the aid of a Court of equity, but must apply for a. revision of such rates to the commission, except where contractual rights are involved, and except where the rates are applied in a discriminatory manner.
It is pointed out that generally individual subscribers have no direct or immediate interest in the rates prescribed. In England, with reference to nationalised industries, there are Consumers and Consultative Councils to protect the interests of consumers.
74. When invoking protection under Article 19 (1) (f) the subscriber cannot : invoke the common law principle laid down by Lord Hale. The American case and the dicta of Lord Hale may provide a guide to the reasonableness of the rates where they are required to be so but cannot go further. Common law regulation of trade or business may be changed by statute and a person has no vested interest in any rule of common law. And here I would add the note of caution, which I should have done earlier, that we cannot readily and wholly take in the American utility rate cases--all in the private sector--or the principles laid down by Lord Hale, for guidance in this rather difficult and complicated region of law. Any unqualified application of these principles may lead to rather strange and anomalous consequences not in keeping with our Constitutional set up. First, I doubt whether Lord Hale ever meant that the principle he enunciated should apply to the Crown itself. The latter part of the extract from his thesis given supra refers to the public-wharfs as licensed by the Queen. English Judges used Lord Hale's statement in a few cases, but had kept it well within bounds. It has never been interpreted as a principle which could limit the power of Parliament in the regulation of trade and commerce, as in England Parliament is the sole Judge of constitutionality of its Acts. The American and English case law stems from the concept of franchise or privilege. The acquisition of a franchise on privilege was said to impose under the common law corresponding obligation on the holder to deal fairly with the public who would be affected by a monopoly. Under the English law, franchise means a grant made by the sovereign in exercise of the royal prerogative. ' Franchise ' is defined by Blackstone as ' royal privilege or branch of the King's prerogative subsisting in the hands of a subject--Blackstone's 2 Com. 37. Under the American law, the doctrine got well established that, whilesome trades could be carried on by citizens as a matter of common law, there are others which could be carried on only if the State permits. Monopoly rights conferred by statutes came to be treated as in the nature of franchise in American Jurisprudence. In California v. Central Pacific Railway Co. 127 U.S. 1, Bradely, J., explaining franchise, said:
No private person can establish a public High Way or a public ferry or royal road, or charge tolls for the use of the same without authority from the Legislature direct or derived. These are franchises.
The concept of franchise developed in America has not been adopted in our Constitution. Article 19 (1) (g) does not make any distinction between common law trades which could be carried on by all persons and prerogative trades which could be carried on only under State grants. The right of a citizen to carry on any trade 5s subject only to such restrictions as would fall within the scope of Article 19 (6) and the State is empowered also to carry on trade and commerce under Article 298 and Article 19 (6). The law under our Constitution is fundamentally different from that laid down in the American decisions and, the concept of franchise and privileges having their origin in the prerogative of the Crown of England and recognized by the common law, by its very nature, can have no place in our Constitution. Except when enforcing or claiming relief under the statutory regulation of rates and prices, a citizen here cannot approach our Courts for the exercise of any equity jurisdiction or inherent power, for reduction of rates and prices. We have had no citation to that effect.
75. I now address myself to the reasonableness of the rates charged. As the matter has been considered at length by my Lord the Chief Justice, I am not elaborating on the same. The fixation of the impugned rates was preceded by an inquiry conducted by the Tariff Telephone Commission Committee in 1964. Its report has been made available to us. The report starts with the enumeration of the basis objective of tariff structure for telephone service, that it should earn adequate revenue for efficient operation and continuous growth of telephone service on a sound economic basis. The tariff was revised, it is said,- on the basis of the Committee's report. Willoughby in his Constitutional Law of the United States, 2nd Edition, Vol. III at page 1704, says;
As regards the matter of legislatively fixed rates, the judicial function extends no further, under American constitutional principles, than to determine whether these rates are so unreasonably low as to be unjust to the companies rendering the services and thus to operate, as to them, as a taking of property without due process of law. Such legislatively fixed rates may not be questioned by the Courts upon the ground that they are too high, and, therefore, oppressive to the public, for it is the peculiar province of a legislature to determine what is just and reasonable as regards the public. When, however, the Courts are called upon to examine the validity of rates fixed by administrative bodies acting under a legislative authority so to do, but under a legislative mandate that the rates so fixed shall be just and reasonable, the situation is a different one. Here, the Courts may, and, in fact, are obliged, when the matter is presented to them in proper form to examine these rates not only as regards their reasonableness and justness to the companies rendering the services, but as regards also their reasonableness or justness to the public. Thus, it is competent for the Courts to hold a given rates to be illegal because so low, under all the circumstances of the case, as not to yield a reasonable percentage return to the company upon the fairly valued property used by it. The Courts may also hold such an administratively determined rate to be so high as to be unduly oppressive or extortionate to the public. It is, however, to be noted that, in fact, the Courts have seldom, if ever, found it necessary to hold an administratively fixed rate invalid upon this last ground. However their power so to do has been repeatedly asserted.
76. The contention of Mr. T. R. Mani is that the Telephone Department has earned considerable surplus, profits ranging from 16.2 per cent. in 1959-60 to 19.1 per cent. in 1964-65 even under the old rates. Mr. Mohan Kumaramangalam has worked out the rates of return for the years adopting commercial accounting and has shown a return of 2.31 per cent. in 1963-64 and 3.34 percent. in 1964-65. The actual figures regarding income and expenditure are not in dispute. The contention pressed by Mr. Mani seriously is that the percentage of return should be calculated without deducting from the surplus, funds set apart for capital expenditure and expansion. Another point made by Mr. Mani is that labour charges on expansion programmes should be treated as productive wages and capitalised and not treated as revenue charge. Per contra Mr. Mohan Kumaramangalam points out that, if the service is a private concern, a considerable part of the surplus would go towards income-tax and royalties. That being so, it is stated, it stands to reason that the Department can plough back into the service, for development and expansion, a sizable part of the surplus that would otherwise have gone towards taxes and royalties. It is shown that, if so done, the percentage of return would be just about the fair and reasonable return referred to in the American cases. The finances of the Department are the subject of budget proposals presented to Parliament. The revenue and expenditure of the department are placed before Parliament for discussion. Here we have a legislative prescription of rates, no doubt, fixed by the executive under statutory powers. We have to start with an initial presumption of reasonableness. True, the rates are only laid before Parliament and the contention is open that the protection offered is not as high as it ought to be. May be the present method of fixing rates, without a statutory right of hearing, to the consumers, is unsatisfactory. In England, public utility charges are subject to detailed examination and potential opposition by Consumers Councils and many of the public enterprises have a statutory duty to supply their products as cheaply as possible--see Section 1 (6) of the Electricity Act, 1947, Section 1 (8) of Gas Act, 1948 and Section 2(1) of Civil Aviation Act 1946. Here the responsibility to Parliament and Parliamentary vote of the estimate may be expected to secure the necessary social control of the rates in the interest of the public. Counsel are agreed that for efficient service, the enterprise must be run on commercial line and the rates must be framed and based on commercial principles. May be in a highly profitable public enterprise where the demand is high, there will be a veiled element of taxation in the surplus earned. On the materials now placed before us, considerable though they are, notwithstanding the several treatises and decisions of the United States Supreme Court on rate making in respect of public utility service referred to, do not think I can say that the rates are exorbitant or unreasonable. The reasonableness of rates may be referred either to the financial needs of the enterprise or to the necessity of consumers. The telephone service forms a category by itself as every expansion in the network and every improved facility adds to its utility for the individual subscriber. Fixation of rates, particularly in public utility concern, calls for harmonising conflicting demands. Having been taken through the figures, I agree with my Lord the Chief Justice that we cannot see our way to strike down or interfere with the impugned tariff upon any legal principle in the exercise of our jurisdiction under Article 226 of the Constitution. Neither the public utility rate principle, developed in the United States, nor any common law view of public utility rates, calls for holding that the charges now levied are unreasonably high or exorbitant or colourable device and so outside the power conferred under Section 7 (2) (a) of the Indian Telegraph Act. Nor is any fundamental right of the subscriber shown to be adversely affected by the rise in the rates.
77. It follows that the appeal succeeds.