Bhagwati, J. - (1.) (Civil appeal No. 1457 of 1971) The short but important question which arises for determination in this appeal is whether a State Electricity Board has power to enhance the rates for supply of electricity notwithstanding an agreement binding it to supply electricity at certain rates where it finds that the contractual rates are less than the cost of generation, distribution and supply of electricity and in the result there is loss to the State Electricity Board in its operations In order to appreciate how the question arises, it is necessary to state a few facts giving the of the appeal.
(2.) The petitioner is a limited liability company which carries on business of manufacturing aluminium. The manufacture of aluminium involves three processes, viz., mining of bauxite ore, dressing it and converting it into alumina and reduction of alumina into aluminium. The petitioner carried on bauxite mining at the quarries in Bihar and also set up its factory in Bihar for dressing Bauxite ore and converting it into alumina. So far as the process of reducing alumina into aluminium is concerned, it involves the application of the method of electrolysis in which electrical energy is a primary raw material and, therefore, the petitioner was anxious to set up a factory for this purpose at a place when electric power would be cheap. The Government of the then native State of Travancore offered to supply electric power to the petitioner at reasonable rates for a long period of time if the petitioner established its factory for reducing alumina into aluminium within its territory. An agreement dated 30-7-1941 was accordingly entered into between the petitioner and the Government of the State of Travancore for supply of electrical at certain rates for a period of 34 years from 1-7-1941 with an option of renewal in favour of the petitioner for a further period of 20 years. In view of this agreement, the petitioner established a factory at Alupuram near Alwaye for reducing alumina and converting it into aluminium, though alumina for this purpose had to be brought all the way from Bihar and the aluminium produced at the factory had to be transported outside the State of Travancore for the purpose of sale.
(3.) On the integration of the States of Travancore and Cochin, a new State of Travancore-Cochin was formed in 1948 and the agreement dated 30-7-1941 (hereinafter referred to as the principal Agreement) was accepted by the new State as binding upon it. The terms and conditions of supply of electrical energy laid down in the Principal Agreement were, however, varied and modified by a supplemental agreement (hereinafter referred to us the first Supplemental Agreement) dated 16-8-1955 entered into between the petitioner and the State of Travancore Cochin. On 1-11-1956 a new State of Kerala was formed comprising inter alia the territories of the existing State of Travancore Cochin, barring a small portion transferred to the State of Madras under the States Reorganization Act, 1956, and by reason of Section 87 of that Act, the Principal Agreement as modified by the First Supplemental Agreement was deemed to have been made in the exercise of executive power of the State of Kerala and all rights and obligations under it became the rights and obligations of the State of Kerala. The Kerala Government thereafter by a notification issued under Section 5, sub-section (1) of the Electricity Supply Act, 1948 (hereinafter referred to as the Supply Act), constituted the Kerala State Electricity Board (hereinafter referred to as the Board) with effect from 1-4-1957. Section 60 of the Supply Act provides, inter alia, that all the contracts entered into by or with the State Government for any of the purposes of the Act before the first constitution of the Board shall be deemed to have been entered into by or with the Board. The principal Agreement as modified by the first supplemental Agreement was, therefore, deemed to have been entered into with the petitioner by the Board. The terms and conditions of Agreement were subsequently modified under another supplemental agreement (hereinafter referred to as the Second Supplemental Agreement) dated 4-4-1963 entered into between the petitioner and the Board. This modification did not affect either the rates or the duration of the Principal Agreement.;