Bhusawal Borough Municipality vs Amalgamated Electricity Co. Ltd.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Civil Appeals Nos. 47 and 48 of 1961

Decision Date: 10 December 1963

Coram: J.R. Mudholkar, Bhuvneshwar P. Sinha, Raghubar Dayal, N. Rajagopala Ayyangar

In the matter titled Bhusawal Borough Municipality versus Amalgamated Electricity Co. Ltd., the Supreme Court of India issued its judgment on 10 December 1963. The opinion was authored by Justice J. R. Mudholkar and the bench comprised Justices J. R. Mudholkar, Bhuvneshwar P. Sinha, Raghubar Dayal, and N. Rajagopala Ayyangar. The case is reported in 1966 AIR 1652 and 1964 SCR (5) 905, with a later citation in 1977 SC 27 (7). The applicable statutory provision was the Bombay Electricity Supply (Licensed Undertakings War Costs) Order, 1944, specifically clause 5 of the Surcharge Order issued that year.

The municipality initiated two separate suits seeking the return of two sums of money that it had paid to the respondent, Amalgamated Electricity Co. Ltd., under protest, alleging that those payments were electricity charges not lawfully due. The defendant contended that the dispute concerning the charges had been settled by the Government of Bombay and that, according to the second proviso to clause 5 of the 1944 Surcharge Order, the government’s decision was final and binding upon both the municipality and the electricity company. The government communicated its decision by a letter dated 22 May 1946, which was served on both parties.

The municipality succeeded in both suits at the trial level and again before the District Court. Upon appeal, the High Court dismissed the two appeals. Consequently, the municipality appealed to this Court by special leave. The Court examined four principal points. First, it held that the municipality was not entitled to recover the funds because the controversy had already been resolved by the Government under the second proviso to clause 5 of the Surcharge Order, rendering that decision final and binding. Second, the Court concluded that the May 22 1946 letter from the government constituted a definitive decision under the same proviso and was not merely the government’s opinion. Third, the Court interpreted the language of the second proviso, observing that it does not require a referral by both parties; a single interested party may invoke the provision, as the phrase “in the event of dispute by any party interested” plainly allows this. Fourth, the Court found that the trial and district courts had mis‑interpreted the 22 May 1946 document, treating it only as evidence rather than as the operative basis for the respondent’s claim of surcharge; such misinterpretation amounted to an error of law that the High Court was authorized to correct on second appeal.

Accordingly, the Court affirmed that the municipality could not claim a refund, affirmed the finality of the government’s decision, clarified the scope of the second proviso to clause 5, and rectified the lower courts’ erroneous construction of the 1946 communication. The judgment covered Civil Appeals Nos. 47 and 48 of 1961, which were appealed by special leave from the Bombay High Court’s decree dated 5 August 1957 in Appeal No. 1085 of 1954 and the related second appeal No. 1086 of 1954.

These proceedings were filed as Civil Appeal No. 47 of 1961 together with Civil Appeal No. 1086 of 1954. Counsel for the appellant, G.S. Pathak and Naunit Lal, appeared on behalf of the Borough Municipality of Bhusawal. Counsel for respondent No. 1, I. N. Shroff, and counsel for respondent No. 2, M.S.K. Sastri and R.H. Dhebar, represented the Bhusawal Electricity Co. Ltd. and the State of Bombay respectively. The judgment was delivered on 10 December 1963 by Justice Mudholkar. The same judgment was held to govern Civil Appeal No. 48 of 1961 as well. Both appeals were taken by special leave from the Bombay High Court decision in a second appeal that disposed of two separate suits originally instituted by the appellant against respondent No. 1, the Bhusawal Electricity Co. Ltd. The State of Bombay was later impleaded as an additional defendant in each suit. In each suit the appellant sought the return of two sums of money that it had paid under protest as electricity charges, sums that respondent No. 1 claimed to be entitled to under the Bombay Electricity Supply (Licensed Undertakings War Costs) Order, 1944, hereinafter referred to as the Surcharge Order. The trial court and subsequently the District Court each ruled in favour of the appellant, granting the refunds claimed. The Bombay High Court, however, in the second appeal set aside both trial court decrees and dismissed the two suits.

During the second appeal the High Court admitted certain documents as additional evidence. The only submissions raised before the Supreme Court were presented by counsel for the appellant. First, counsel argued that the High Court was not competent to admit additional evidence on a second appeal because Order XLI, rule 27 of the Code of Civil Procedure does not apply in such appeals. Second, counsel contended that the provisions of Order XLI, rule 27 could not be used to fill any gaps in evidence left by a party. It is noteworthy that when the High Court admitted the additional evidence by its order dated 30 April 1958, no objection was raised by the appellant at that stage. The Court therefore considered it unnecessary to determine whether the High Court possessed the power to admit additional evidence in a second appeal, or whether, assuming such power existed, the admission was appropriate in the present circumstances. The appellant based its claim for refund on a particular interpretation of the agreements concerning payment of electric charges, asserting that it was not liable to pay the surcharge imposed by the Surcharge Order, 1944 for the electricity it had consumed. Respondent No. 1 relied on the substantial defence that the dispute between the parties had been decided by the Government of Bombay and that, under the second proviso to clause 5 of the Surcharge Order, 1944, the Government’s decision was final and binding on both the appellant and respondent No. 1. The relevant provision of clause 5 reads as follows: Clause 5:

The order provided that whenever the Provincial Government fixed the rate of the War Costs Surcharge, the licensee or sanction‑holder could not legally supply electricity at rates other than those that included the surcharge at the rate then fixed. The second proviso to that clause stated that no War Costs Surcharge would apply to the charges for supplying electricity under any contract entered into after 1 May 1942 unless the contract either adopted the same charges that had been used in similar earlier contracts for similar supplies by the same licensee or sanction‑holder, or unless the Provincial Government expressly ordered such application. The proviso further provided that, in the event of any dispute concerning which of these conditions applied, the decision of the Provincial Government would be final and binding.

The counsel for the appellant, Mr Pathak, did not contest that the Government’s decision on the dispute was final and binding on the parties. However, he argued that the trial court had not been shown evidence that the dispute had actually been referred to the Government. He also contended that the communication produced by the respondent, labelled Exhibit 68 and dated 22 May 1946, contained only the Government’s opinion and did not constitute a final decision. Moreover, Mr Pathak submitted that the second proviso effectively made the Government an arbitrator, and consequently, under the Arbitration Act, 1940, both parties should have referred the matter to an arbitrator. The Court noted that this point had not been raised before the lower courts and was absent from the original statement of the case, and therefore Mr Pathak was not permitted to rely upon it at this stage.

The communication dated 22 May 1946, relied upon by the first respondent, read in full as follows: “No. 6404/36‑E1(1). Public Works Department, Bombay Castle, 22nd May, 1946. From the Secretary to the Government of Bombay, Public Works Department (Irrigation) To the President, the Borough Municipality, Bhusawal. Subject: War Costs Surcharge. Dear Sir, With reference to the correspondence ending with Government letter no. 6404/36, dated 10 May 1946, on the subject mentioned above, I am to inform you that the Government has fully considered your case under the second proviso to clause 5 of the Bombay Electricity Supply (Licensed Undertakings War Costs) Order, 1944, and has decided that you should pay the surcharge to the Bhusawal Electricity Co. Ltd. at the rate of 15 percent fixed in Government Order No. 6331/36 (IV) dated 15 August 1944, unless the Company raises its rate of supply of energy for street lighting to more than four annas per unit. Yours faithfully, Sd/ D.N. Daruwala, for Secretary to the Government of Bombay. Copy forwarded for information to: Public Works Department, the Electrical Engineer to the Government.”

With reference to the letter numbered LRM.57/5260 dated 8 March 1946, the Accountant General of Bombay issued a communication identified as No O.A. 2888 dated 2 February 1946. In addition, Messrs The Bhusawat Electricity Co. Ltd., Bombay, sent a correspondence that concluded with Government letter No 6404/36‑El (i) dated 17 May 1946 and was copied to the Electrical Engineer of Bhusawal for information on 25 May 1946. From these documents it was clear that both parties – the appellant and respondent No 1 – had presented their respective cases to the Government. The circumstances indicated that each party was invoking the second proviso to clause 5 of the Bombay Electricity Supply (Licensed Undertakings War Costs) Order, 1944. After reviewing the submissions of both the municipality and the electricity company, the Government recorded in the aforementioned communication that it had decided the municipality should remit a surcharge to the electricity company at the rate of fifteen per cent, as fixed in a specific Government Order, unless the company increased its street‑lighting energy supply rate to more than four annas per unit. The Court observed that the Government’s statement amounted to a definitive decision rather than a mere opinion. If any part of the referenced correspondence or its endorsement demonstrated that the appellant had not referred the dispute to the Government, then the burden lay on the appellant to produce such evidence; the appellant’s failure to do so was to be construed against him.

Subsequently, counsel for the appellant, Mr Pathak, contended that the Surcharge Order required both parties to refer a dispute jointly, and that a single referral was insufficient. The Court found this argument untenable because the language of the second proviso expressly provided that “in the event of dispute by any party interested, the decision of the Provincial Government shall be final.” Consequently, the contention lacked any substantive basis. The Court concluded that the trial court and the District Court had wholly misinterpreted the Government’s communication, which was not merely evidential but formed the foundation of respondent No 1’s claim for the surcharge. Such misinterpretation constituted an error of law, permitting the High Court on second appeal to correct it. Having made this correction, the Court dismissed the appeals with costs, holding that there was no merit in the appellant’s submissions.