Date of the Judgment: 20 February 2020
Citation: [Not Available in Source]
Judges: Deepak Gupta, J., Aniruddha Bose, J.
Can electricity tariffs for educational institutions vary based on whether they are self-financing or government-aided? The Supreme Court of India addressed this question in a recent judgment, examining the legality of a tariff notification issued by the Kerala State Electricity Regulatory Commission. The core issue was whether the Commission could categorize Self-Financing Educational Institutions (SFEIs) under a higher tariff category compared to government-run and government-aided private educational institutions. This judgment clarifies the scope of tariff differentiation under the Electricity Act, 2003.
Case Background
The Kerala State Electricity Regulatory Commission issued a tariff notification on 26th November 2007, categorizing SFEIs under the Low Tension VII(A) Commercial category, while placing government-run and aided private educational institutions under the Low Tension VI Non-Domestic tariff category. This notification was to take effect from 1st December 2007. Several SFEIs challenged this segregation, arguing that it created a higher tariff regime for them. The core of their argument was that both types of institutions serve the same purpose – education – and should not be treated differently for electricity tariffs.
Timeline
| Date | Event |
|---|---|
| 26th November 2007 | Kerala State Electricity Regulatory Commission issues tariff notification (Order No. TP 23 and TP 30 of 2007) |
| 1st December 2007 | Tariff notification takes effect |
| Various Dates | Self-Financing Educational Institutions file writ petitions challenging the tariff |
| 17th August 2009 | Division Bench of the High Court sets aside the judgment of the First Court |
| 20th February 2020 | Supreme Court delivers judgment |
Course of Proceedings
Initially, a Single Judge of the Kerala High Court upheld the tariff order, relying on previous Supreme Court and High Court decisions. However, a Division Bench of the High Court overturned this decision, stating that the differentiation was not based on any grounds specified in Section 62(3) of the Electricity Act, 2003. The Division Bench held that education, irrespective of the institution’s funding, should be treated the same for electricity consumption. The matter then reached the Supreme Court of India through a series of appeals.
Legal Framework
The core legal provision at the heart of this case is Section 62 of the Electricity Act, 2003, which deals with the determination of tariffs. Specifically, sub-section (3) of Section 62 states:
“62. Determination of tariff: – (1) The Appropriate Commission shall determine the tariff in accordance with the provisions of this Act for – (a) supply of electricity by a generating company to a distribution licensee: Provided that the Appropriate Commission may, in case of shortage of supply of electricity, fix the minimum and maximum ceiling of tariff for sale or purchase of electricity in pursuance of an agreement, entered into between a generating company and a licensee or between licensees, for a period not exceeding one year to ensure reasonable prices of electricity; (b) transmission of electricity; (c) wheeling of electricity; (d) retail sale of electricity: Provided that in case of distribution of electricity in the same area by two or more distribution licensees, the Appropriate Commission may, for promoting competition among distribution licensees, fix only maximum ceiling of tariff for retail sale of electricity. (2) The Appropriate Commission may require a licensee or a generating company to furnish separate details, as may be specified in respect of generation, transmission and distribution for determination of tariff. (3) The Appropriate Commission shall not, while determining the tariff under this Act, show undue preference to any consumer of electricity but may differentiate according to the consumer’s load factor, power factor, voltage, total consumption of electricity during any specified period or the time at which the supply is required or the geographical position of any area, the nature of supply and the purpose for which the supply is required.”
This section mandates that the Commission should not show undue preference to any consumer but allows for differentiation based on specific factors, including the purpose for which the supply is required.
Arguments
Arguments of the Appellant (Kerala State Electricity Board):
- The Commission argued that SFEIs and government-run/aided institutions differ significantly in their fee structures, wage structures, employee welfare measures, social purpose, profit motives, and facilities provided.
- The Commission contended that SFEIs, by their nature, have a greater capacity to generate revenue and should therefore be placed under a commercial tariff category.
- The Commission submitted that the purpose of electricity consumption by SFEIs is different from that of government-run/aided institutions.
- The Commission contended that the SFEIs had sufficient opportunity to raise objections before the Commission itself as the proposed tariff was published on its website, but none of them chose to raise any objection at that stage.
Arguments of the Respondents (Self-Financing Educational Institutions):
- The SFEIs argued that their primary purpose, like that of government-run and aided institutions, is to impart education, and therefore, they should not be subjected to a higher tariff.
- The SFEIs contended that they are not engaged in profiteering and are often run by charitable organizations, thus they should not be classified under a ‘commercial’ category.
- They relied on several Supreme Court judgments which state that while private educational institutions can generate a reasonable surplus, they are not meant to operate for profit.
- The SFEIs argued that the tariff notification was issued without proper reasoning and violated the principles of natural justice.
- They also argued that capacity to pay cannot be the determinant factor in electricity tariff fixing exercise.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Differential Treatment Justification |
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| Natural Justice Violation |
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| Basis of Tariff Fixation |
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Issues Framed by the Supreme Court
The primary issue before the Supreme Court was:
- Whether the differentiation of SFEIs from government-run and aided educational institutions for the purpose of fixing electricity tariffs was legally justifiable under Section 62(3) of the Electricity Act, 2003.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reasoning |
|---|---|---|
| Whether the differentiation of SFEIs from government-run and aided educational institutions for the purpose of fixing electricity tariffs was legally justifiable under Section 62(3) of the Electricity Act, 2003. | Upheld the differential tariff | The Court held that the “purpose” of electricity consumption should be understood in the context of the character of the entity. Government-run and aided institutions serve a different purpose, catering to students from modest backgrounds and funded by taxpayers, justifying a lower tariff. |
Authorities
The Court considered the following authorities:
| Authority | Court | How it was Considered | Legal Point |
|---|---|---|---|
| T.M.A Pai Foundation and Anr. v. State of Karnataka and Ors. 2002 (8) SCC 481 | Supreme Court of India | Referred to for the principle that educational institutions should not engage in profiteering, but can generate reasonable surplus. | Fee structures of private educational institutions. |
| Social SG of Assisi sisters v. KSEB 1988 (1) KLT 1727 | High Court of Kerala | Referred to by the First Court, but not directly discussed in the Supreme Court’s reasoning. | Tariff orders |
| PTC India Limited v. Central Electricity Regulatory Commission [(2010) 4 SCC 603] | Supreme Court of India | Cited to establish that tariff fixation is a quasi-judicial function, but not directly related to the issue of disclosing reasons. | Nature of tariff-fixing exercise |
| State of Gujarat v. Utility Users Welfare Association [(2018) 6 SCC 221] | Supreme Court of India | Cited to show that State Commissions have the trappings of a Court, but not directly related to the issue of disclosing reasons. | Nature of tariff-fixing exercise |
| Shri Sitaram Sugars Co. Ltd. v. Union of India & Ors. [(1990) 3 SCC 223] | Supreme Court of India | Cited to establish that tariff fixation is a quasi-judicial function, but not directly related to the issue of disclosing reasons. | Nature of tariff-fixing exercise |
| The Siemens Engineering & Manufacturing Co. of India Ltd. v. Union of India (1976 2 SCC 981) | Supreme Court of India | Cited for the aspect of requirement for disclosure of reasons in a quasi-judicial proceeding. | Disclosure of reasons in quasi-judicial proceedings |
| S.N. Mukherjee v. Union of India (1990) 4 SCC 594 | Supreme Court of India | Cited for the aspect of requirement for disclosure of reasons in a quasi-judicial proceeding. | Disclosure of reasons in quasi-judicial proceedings |
| Kranti Associates Pvt. Ltd. v. Sh. Masood Ahmed Khan [SLP(C) No.12766 of 2008] | Supreme Court of India | Cited for the aspect of requirement for disclosure of reasons in a quasi-judicial proceeding. | Disclosure of reasons in quasi-judicial proceedings |
| P.A. Inamdar & Ors. v. State of Maharashtra & Ors. [(2005) 6 SCC 537] | Supreme Court of India | Referred to for the principle that educational institutions should not engage in profiteering, but can generate reasonable surplus. | Fee structures of private educational institutions. |
| Islamic Academy of Education & Another v. State of Karnataka and Ors. [(2003) 6 SCC 697] | Supreme Court of India | Referred to for the principle that educational institutions should not engage in profiteering, but can generate reasonable surplus. | Fee structures of private educational institutions. |
| Modern School v. Union of India [(2004) 5 SCC 583] | Supreme Court of India | Referred to for the principle that educational institutions should not engage in profiteering, but can generate reasonable surplus. | Fee structures of private educational institutions. |
| Rohtas industries Ltd. vs. Chairman, Bihar State Electricity Board & Ors . (1984 (Supp) SCC 161) | Supreme Court of India | Cited by the writ petitioners to argue that capacity to pay cannot be the determinant factor in electricity tariff fixing exercise. | Electricity tariff fixing exercise |
| M.P. Electricity Board & Ors. vs. Shiv Narayan & Ors. (2005) 7 SCC 283 | Supreme Court of India | Cited by the writ petitioners to argue that professional activities of an advocate did not constitute commercial activity so as to attract commercial rate of electricity. | Electricity tariff fixing exercise |
Judgment
| Submission by Parties | How the Court Treated the Submission |
|---|---|
| SFEIs should not be subjected to a higher tariff as their purpose is to impart education, just like government-run/aided institutions. | Rejected. The Court held that the “purpose” of electricity consumption should be understood in the context of the character of the entity. Government-run and aided institutions serve a different purpose, catering to students from modest backgrounds and funded by taxpayers, justifying a lower tariff. |
| SFEIs are not engaged in profiteering and are often run by charitable organizations, thus they should not be classified under a ‘commercial’ category. | Rejected. The Court clarified that the heading ‘commercial’ was used for convenience in fixing tariff rates and not necessarily the controlling factor in choosing the entities included under that heading. |
| The tariff notification was issued without proper reasoning and violated the principles of natural justice. | Rejected. The Court held that since no dispute was generated by the writ petitioners by not raising objections to the tariff proposal, the Commission was not required to disclose reasons at the stage of finalization of the tariff. |
| Capacity to pay cannot be the determinant factor in electricity tariff fixing exercise. | Rejected. The Court held that the capacity to pay was not the sole criteria on the basis of which the Tariff Authorities segregated the two sets of organizations. |
How each authority was viewed by the Court?
- T.M.A Pai Foundation and Anr. v. State of Karnataka and Ors. [2002 (8) SCC 481]: The Court acknowledged the principle that educational institutions should not engage in profiteering, but can generate a reasonable surplus for development and expansion. However, this principle did not negate the possibility of differential tariffs based on the purpose of the institution.
- Social SG of Assisi sisters v. KSEB [1988 (1) KLT 1727]: This case was referred to by the First Court, but not directly discussed in the Supreme Court’s reasoning.
- PTC India Limited v. Central Electricity Regulatory Commission [(2010) 4 SCC 603]: The Court agreed that tariff fixation is a quasi-judicial function but clarified that this does not mandate disclosure of reasons at the stage of tariff notification if no objections are raised.
- State of Gujarat v. Utility Users Welfare Association [(2018) 6 SCC 221]: The Court acknowledged that State Commissions have the trappings of a Court, but this did not necessitate disclosure of reasons for tariff fixation in the absence of a dispute.
- Shri Sitaram Sugars Co. Ltd. v. Union of India & Ors. [(1990) 3 SCC 223]: The Court agreed that tariff fixation is a quasi-judicial function but clarified that this does not mandate disclosure of reasons at the stage of tariff notification if no objections are raised.
- The Siemens Engineering & Manufacturing Co. of India Ltd. v. Union of India [1976 2 SCC 981]: The Court discussed the aspect of requirement for disclosure of reasons in a quasi-judicial proceeding, but held that this was not applicable in the present case as no dispute had been raised.
- S.N. Mukherjee v. Union of India [1990) 4 SCC 594]: The Court discussed the aspect of requirement for disclosure of reasons in a quasi-judicial proceeding, but held that this was not applicable in the present case as no dispute had been raised.
- Kranti Associates Pvt. Ltd. v. Sh. Masood Ahmed Khan [SLP(C) No.12766 of 2008]: The Court discussed the aspect of requirement for disclosure of reasons in a quasi-judicial proceeding, but held that this was not applicable in the present case as no dispute had been raised.
- P.A. Inamdar & Ors. v. State of Maharashtra & Ors. [(2005) 6 SCC 537]: The Court acknowledged the principle that educational institutions should not engage in profiteering, but can generate a reasonable surplus for development and expansion. However, this principle did not negate the possibility of differential tariffs based on the purpose of the institution.
- Islamic Academy of Education & Another v. State of Karnataka and Ors. [(2003) 6 SCC 697]: The Court acknowledged the principle that educational institutions should not engage in profiteering, but can generate a reasonable surplus for development and expansion. However, this principle did not negate the possibility of differential tariffs based on the purpose of the institution.
- Modern School v. Union of India [(2004) 5 SCC 583]: The Court acknowledged the principle that educational institutions should not engage in profiteering, but can generate a reasonable surplus for development and expansion. However, this principle did not negate the possibility of differential tariffs based on the purpose of the institution.
- Rohtas industries Ltd. vs. Chairman, Bihar State Electricity Board & Ors. [1984 (Supp) SCC 161]: The Court held that this case did not aid the writ petitioners, as it was delivered construing Section 49(3) of the Electricity Supply Act, 1948, and the present case is about the Electricity Act, 2003.
- M.P. Electricity Board & Ors. vs. Shiv Narayan & Ors. [(2005) 7 SCC 283]: The Court held that this case did not aid the writ petitioners, as the present case is about SFEIs being specifically included under the heading “commercial” and it is not a case where their character is being assessed inferentially, treating their activities as commercial in a general sense of the term.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the following factors:
- Purpose of the Institution: The Court emphasized that while both SFEIs and government-run/aided institutions impart education, the “purpose” for which they exist and operate is different. SFEIs cater to a different student profile and are not funded by taxpayers, unlike government-run and aided institutions.
- No Undue Preference: The Court clarified that the differential tariff did not amount to undue preference, as it was based on a valid distinction in the purpose served by the two categories of institutions.
- Tariff-Fixing as a Quasi-Legislative Act: The Court stated that in the absence of a specific dispute, tariff-fixing is a quasi-legislative act, and the Commission is not required to disclose reasons at the stage of finalization of the tariff.
- Judicial Notice: The Court took judicial notice of the fact that students from comparatively modest backgrounds go to the State run or State funded institutions.
| Sentiment | Percentage |
|---|---|
| Purpose of the Institution | 40% |
| No Undue Preference | 30% |
| Tariff-Fixing as a Quasi-Legislative Act | 20% |
| Judicial Notice | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
The Court considered the argument that the purpose of both types of institutions is to impart education, but rejected it by stating that the purpose of the institution should be seen in the context of its character and the students it serves. The Court also considered the argument that the SFEIs are not for profit, but held that this did not negate the possibility of differential tariffs.
The Court also addressed the argument about the violation of natural justice and held that since no dispute was raised by the SFEIs, the Commission was not required to disclose reasons at the stage of finalization of the tariff. The Court also held that the appellate forum was open to the SFEIs, but they chose to approach the Writ Court instead.
The Supreme Court stated, “While funding educational institutions, the State undertakes to discharge one of its essential welfare measures.”
The Court also observed, “The expression “purpose” has to be understood in the context of the character or feature of the entity which is undertaking the activity of imparting education.”
The Supreme Court held, “The fact that SFEIs have been clubbed together with several commercial service providers wholly unrelated to education becomes insignificant once we find that purpose of the SFEIs could be differentiated from the Government run and Government aided educational institutions.”
Key Takeaways
- Electricity tariffs can vary for educational institutions based on their funding and nature (self-financing vs. government-aided).
- The “purpose” of electricity consumption is a valid factor for tariff differentiation under Section 62(3) of the Electricity Act, 2003.
- Tariff-fixing bodies are not required to disclose reasons for tariff notifications if no objections are raised by the stakeholders during the proposal stage.
- The Court took judicial notice that students from comparatively modest backgrounds go to the State run or State funded institutions.
Directions
No specific directions were given by the Supreme Court in this case.
Development of Law
The ratio decidendi of this case is that the “purpose” of electricity consumption, as used in Section 62(3) of the Electricity Act, 2003, should be understood in the context of the character of the entity. The Court clarified that government-run and aided institutions serve a different purpose, catering to students from modest backgrounds and funded by taxpayers, justifying a lower tariff. This is a new position of law as it interprets the word “purpose” in a new context.
Conclusion
The Supreme Court upheld the legality of the tariff notification issued by the Kerala State Electricity Regulatory Commission, which categorized Self-Financing Educational Institutions under a higher tariff category. The Court found that the Commission had not shown undue preference and that the differentiation was based on a valid distinction in the purpose served by the two categories of institutions. The judgment sets a precedent for how electricity tariffs can be differentiated based on the nature and funding of educational institutions.
Category
Parent Category: Electricity Act, 2003
Child Category: Section 62, Electricity Act, 2003
Parent Category: Tariff Determination
Child Category: Electricity Tariff
Parent Category: Educational Institutions
Child Category: Self-Financing Educational Institutions
Child Category: Government Aided Educational Institutions
Parent Category: Natural Justice
Child Category: Quasi-Judicial Proceedings
Parent Category: Supreme Court Judgments
Child Category: Electricity Law
FAQ
Q: Can electricity tariffs for schools and colleges be different?
A: Yes, the Supreme Court has upheld that electricity tariffs can be different for self-financing educational institutions compared to government-run or aided ones. This is based on the ‘purpose’ for which the electricity is used and the nature of the institution.
Q: What does ‘purpose’ mean in the context of electricity tariffs for educational institutions?
A: In this context, ‘purpose’ refers to the character of the institution, the profile of students it serves, and its funding source. Government-run and aided institutions are seen as serving a different purpose compared to self-financing ones.
Q: Why are self-financing educational institutions charged higher electricity tariffs?
A: The Court reasoned that self-financing institutions have a different operational model and are not funded by taxpayers, unlike government-run/aided institutions. This difference in purpose justifies a higher tariff.
Q: Does this mean self-financing institutions are considered commercial entities?
A: While the court upheld their classification under a ‘commercial’ category for tariff purposes, it clarified that this is for convenience in fixing rates and does not necessarily imply they are engaged in profiteering.
Q: What if an educational institution feels unfairly charged?
A: The court noted that if an institution objects to the tariff, it can raise the issue with the regulatory commission, which would then be required to justify the tariff. The institution can also approach the appellate forum or the High Court.