Electricity: Hydel schemes for generation of electricity – Royalty for use of water – Demand of – On facts, in terms of the Government policy, the appellant-Captive Power Producers established Hydro Electric Project as Captive Generation Station for its industrial unit – Agreement between the appellant and the State Electricity Board wherein Clause 14 provided that royalty would be charged for controlled supply of water – Appellants paying wheeling charges for consumption of electricity, as also charges for the use of controlled supply of water at the rate specified in Agreement – Appellant then sought exemption from payment of charges for controlled release of water or royalty in respect of electricity generated by it at its Hydel Project – Rejection of the appellant’s claim by the High Court – On appeal, held: Reasonable charges for benefit derived by private entities justified – Since the private entity or agency would stand to gain from and out of the capital outlay and infrastructure put in place by the State, some reasonable charges for such benefit would naturally be imposed – It was only under such Policy that both the appellants were given permissions to set up their electricity generating units and such term was consciously accepted by them – Thus, the concerned Clause in the Agreement as well as the terms of the Policy cannot be termed unconscionable, arbitrary or unreasonable – Furthermore, the royalty would be in terms of the agreement between the parties and normally has direct relationship with the benefit or privilege conferred upon the grantee as against tax which is imposed under a statutory power without reference to any special benefit conferred on the payer of the tax – Whatever be the nomenclature, the charges for use of controlled release of water were for the privilege enjoyed by the CPPs, on basis of the arrangement between the parties. Dismissing the appeals, the Court
HELD: 1.1 The location of the project of CUMI is at a place where the discharge of water from Moozhiyar Power House of the Board is diverted to Kakkad Power House of the Board, which gets steady supply of water in the form of “tail race” benefit of the Moozhiyar Power House. After generation of electricity at the Kakkad Power House, the water is allowed to flow back into the river. The capacity of Kakkad Power House is 50 MW while that of CUMI is 12 MW. The supply of water even if meant for a powerhouse situated at a height and with larger capacity thus definitely ensures consistent and controlled supply of water to the project of CUMI located at a lower altitude. Similarly, the water from a larger reservoir namely, Anayirankal Dam is allowed to flow so as to reach Paniyar Power House having a capacity of
32 MW electricity. Before reaching Paniyar Power House, the water passes through the area where the project of INDSIL is situated, which has a capacity of 21 MW. The location of the project of INDSIL would thus have natural advantage of consistent and controlled supply of water. [Para 31, 32][170-D-G]
1.2 The facts on record thus show that both the projects have certainly derived advantage of controlled supply of water as contemplated in Clause 14 of the Policy. How much benefit of controlled supply of water each of the projects has received or will receive in future would be a matter of computation and calculation. [Para 33][170-G-H]
1.3 The Agreements entered into by CUMI and INDSIL show that the terms and conditions of the Policy including Clause
14 thereof were consciously incorporated in the Agreements. Both CUMI and INDSIL were alive to the fact that because of peculiar location, their units would certainly have the advantage of controlled supply of water. Thus, the absence of a specific clause, akin to Clause 14 of CUMI Agreement, in INDSIL Agreement, would be of no consequence. The relationship between the parties would be governed by Clause 14 of the Policy, as incorporated in the respective Agreements. [Para 34][171-A-B]
1.4 In cases where a term of contract or agreement entered into between the parties is completely one sided, unfair and unreasonable, where the other party having less bargaining power had to accept such term by force of circumstances, the relief in terms of the decision of this Court in Central Inland Water Transport Corporation’s case can be extended. It may be stated that the Agreements were entered into after long deliberations where both CUMI and INDSIL had the advantage of legal counsel. It cannot be said that CUMI and INDSIL were in a position with lesser bargaining power or were so vulnerable that by force of circumstances they were forced to accept such term. Therefore, the concerned Clause 14 in CUMI Agreement as well as the terms of the Clause 14 of the Policy that stood incorporated in the respective Agreements, cannot be termed unconscionable and/or manifestly arbitrary. [Para 40][173-E-G]
1.5 The Policy had made it quite clear that the benefit of controlled supply of water would normally be confined to the electricity generating units or power houses in public sector. The reason for such Policy statement would clearly be that considerable amount of insfrastructure and development had been and would be made by the State in erecting and maintaining dams and reservoirs and as such the incremental advantage or benefit of such investment must go back to the public through units in public sector. If the advantage was, however, allowed to be given to a private entity or agency, the Policy contemplated impostion of charges for the use of such controlled supply of water. There is nothing arbitrary or unreasonable in having such term in the Policy. Since the private entity or agency would stand to gain from and out of the capital outlay and infrastructure put in place by the State, some reasonable charges for such benefit would naturally be imposed. It was only under such Policy that both CUMI and INDSIL were given permissions to set up their electricity generating units and such term was consciously accepted by them. The submission that the relevant Clause 14 of the Policy would be manifestly arbitrary, therefore, does not merit acceptance. [Para 42][175-B-F]
1.6 Qualitatively, the Capive Power Producers (CPPs) and Independent Power Producers (IPPs) have a basic distinction. CPPs produce electricity for self consumption. In the instant case, both CUMI and INDSIL generate electricity to be consumed in their factories or industrial units. Under the terms of their Agreements, if anything is produced in excess of their requirements, the surplus or excess electricity would be accepted by the Board. However, the principal purpose and end use would be self consumption. As against that, IPPs produce electricity not for self consumption but for the use of the Board. The electricity generated by IPPs becomes part of the grid of the Board to be supplied by the Board to its consumers like electricity produced by the generating units or power houses of the Board. If the charges towards controlled supply of water were to be imposed uniformly for CPPs and IPPs, the effect would be that the electricity supplied through IPPs to common consumers and general public would necessarily have an additional burden or load towards proportionate element of water charges. In these circumstances, if the Board decided not to apply Clause 14 of the Policy in case of all IPPs, such decision would not be termed as discriminatory. The distinction or classification brought out was based on a clear rationale with the object of reducing the additional burden on the consumers. Since the electricity generated by CPPs would be self consumed, there would be no such question of putting any ultimate or resultant burden on the common consumers. The basis for such distinction or classification was quite correct and as such this question was rightly answered by the Division Bench of the High Court against CUMI and INDSIL. Rather than being unnatural or irrational, the classification had a clear nexus or relationship with the object of reducing resultant burden on the common consumers. This submission therefore, is, meritless and rejected. [Para 44][176-C-H]
1.7 As rightly observed, the basis or genesis of imposition of royalty or charges on controlled supply of water was Clause 14 of the Policy which, as agreed between the parties, stood incorporated in the respective Agreements. The appellants submitted that the royality or charges for controlled supply of water would be nothing but compulsory exaction and in the absence of any statutory sanction behind such imposition, the actions on part of the Board would be without jurisdiction and the case of the State and the Board was that such royalty or charges had the genesis in respective contracts and as such the action on part of the Board was fully justified. [Para 45, 46][177-B-D]
1.8 The expression ‘Royalty’ has consistently been construed to be compensation paid for rights and privileges enjoyed by the grantee and normally has its genesis in the agreement entered into between the grantor and the grantee. As against tax which is imposed under a statutory power without reference to any special benefit to be conferred on the payer of the tax, the royalty would be in terms of the agreement between the parties and normally has direct relationship with the benefit or privilege conferred upon the grantee. Whatever be the nomenclature, the charges for use of controlled release of water in the instant cases were for the privilege enjoyed by INDSIL and CUMI. The controlled release of water made available to INDSIL and CUMI, has always gone a long way in helping them in generation of electricity. For such benefit or privilege conferred upon them, the Agreements arrived at between the parties contemplated payment of charges for such conferral of advantage. Such charges, were perfectly justified. [Para 54][188-E-H; 189-A]
1.9 The submission that it was compulsory exaction and thus assumed the characteristics of a tax was completely incorrect and untenable. It was a pure and simple contractual relationship between the parties and the Division Bench was right in rejecting the submissions advanced by CUMI and INDSIL.[Para 55, 56][189-B-C]
Central Inland Water Transport Corporation v. Brojo Nath Ganguly (1986) 3 SCC 156 : [1986] 2 SCR 278; ICOMM Tele Limited v. Punjab State Water Supply and Sewerage Board and Anr. (2019) 4 SCC 401 : [2019] 2 SCR 984; Pioneer Urban Land and Infrastructure Ltd. v. Govindan Raghavan (2019) 5 SCC 725 : [2019] 5 SCR 1169; State of Maharashtra & Ors. v. Salvation Army, Western India Territory (1975) 1 SCC 509 : [1975] 3 SCR 475; S.K. Jain v. State of Haryana and Another (2009) 4 SCC 357 : [2009] 2 SCR 1080; A.L. Kalra v. Project and Equipment Corporation of India (1984) 3 SCC 316 : [1984] 3 SCR 646; Rajasthan State Industrial Development and Investment Corporation and Another v. Diamond and Gem Development
Corporation Limited and Another (2013) 5 SCC 470 : [2013] 4 SCR 331; Hingir-Rampur Coal Co. Ltd. and Others v. State of Orissa and Others [1961] 2 SCR 537 47; State of West Bengal vs. Kesoram Industries Limited and Ors. (2004) 10 SCC 201 : [2004] 1 SCR 564; India Cement Limited v. State of Tamil Nadu (1990) 1 SCC 12 : [1989] 1 Suppl. SCR 692; Himachal Pradesh and Others v. Gujarat Ambuja Cement Ltd. and Another (2005) 6 SCC 499 : [2005] 1 Suppl. SCR 684; Jindal Stainless Limited and Another v. State of Haryana and Others (2017) 12 SCC 1 : [2016] 10 SCR 1; Mineral Area Development Authority and Others v. Steel Authority of India and Others (2011) 4 SCC 450 : [2011]
4 SCR 19; Inderjeet Singh Sial and another v. Karam Chand Thapar and Others (1995) 6 SCC 166 : [1995]
4 Suppl. SCR 53; Union of India and Others v. Motion Picture Association and Others (1999) 6 SCC 150 : [1999] 3 SCR 875 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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