1988 (7) TMI 367 - SC - Companies Law

Supreme Court Unifies Companies for Electricity Duty, Upholds State Order

State Of UP. Versus Renusagar Power Co.

The Supreme Court held that Renusagar Power Co. Ltd. was considered Hindalco's own source of electricity generation. The Court lifted the corporate veil, ... Whether the Renusagar Power Co. Ltd. was an 'own' source of generation of electricity for the Hindalco? Whether the order passed by the State Government, having regard to the nature of the order passed, was in accordance with the principles of natural justice in so far as the same were applicable to the facts of this case? Held that:- The High Court was in error in setting aside the order of the State Government in its entirety. The High Court should have allowed the claim of Hindalco for the reduced rate of bill on the basis that Renusagar Power Plant was its own source of generation under section 3(1)(c) and the bills should have been made by the Board on that basis. But the High Court was in error in upholding the respondents' contention that the State Government acted improperly and not in terms of section 3(4) of the Act and in gross violation of the principles of natural justice. We, therefore, allow the appeal to the extent indicated above and set aside the judgment of the Allahabad High Court to that extent and restore the State Government's impugned order subject to the modification of the bills on the basis of own source of generation. We, therefore, direct that the electricity bills must be so made as to give Hindalco the benefit of the rate applicable to its own source of generation from Renusagar Plant. Issues Involved:1. Whether Renusagar Power Co. Ltd. was an 'own' source of generation of electricity for Hindalco.2. Whether the order passed by the State Government was in accordance with the principles of natural justice.Issue-Wise Detailed Analysis:1. Whether Renusagar Power Co. Ltd. was an 'own' source of generation of electricity for Hindalco:The Supreme Court examined whether Renusagar Power Co. Ltd. (Renusagar) was an 'own' source of generation for Hindalco under the U.P. Electricity (Duty) Act, 1952. The Court noted that Hindalco had set up Renusagar as a wholly-owned subsidiary to fulfill its electricity needs due to the State's inability to supply sufficient power. The Court emphasized that Renusagar was established exclusively for Hindalco's use, and Hindalco had complete control over Renusagar's operations, including its financing and day-to-day management. The Court further observed that the State and the U.P. State Electricity Board had previously treated Renusagar as Hindalco's own source of generation in other contexts, such as power cuts. The Court concluded that the corporate veil should be lifted, treating Renusagar and Hindalco as one entity, and thus, Renusagar's power plant should be considered Hindalco's own source of generation. Consequently, the consumption of energy by Hindalco from Renusagar fell under section 3(1)(c) of the Act, and the applicable duty rates for own generation should be applied.2. Whether the order passed by the State Government was in accordance with the principles of natural justice:The Supreme Court also addressed whether the State Government's order rejecting Hindalco's application for exemption from electricity duty complied with the principles of natural justice. The High Court had previously quashed the State Government's order, directing it to reconsider Hindalco's application. The Supreme Court examined whether the State Government had considered all relevant factors, such as the cost of power to similar industries in other States, the impact on foreign exchange, and the assurance of cheap power given to Hindalco. The Court noted that the Government had indeed considered these factors and had determined that the imposition of electricity duty would not significantly affect Hindalco's production costs or profitability. The Court emphasized that decisions involving policy and public interest, such as raising revenue for development projects, should be left to the Government's discretion. The Court found no manifest error or arbitrariness in the State Government's decision and held that the principles of natural justice had been adequately adhered to. Consequently, the Supreme Court set aside the High Court's judgment to the extent it had interfered with the State Government's order, but upheld the High Court's finding that Renusagar was Hindalco's own source of generation.Conclusion:The appeal was disposed of with the direction that the electricity bills must be computed based on the rate applicable to Hindalco's own source of generation from Renusagar. The respondents were directed to pay the recomputed bills within two months. The Supreme Court's decision emphasized the importance of lifting the corporate veil to reflect the economic realities and the discretion of the Government in policy matters involving public interest.