U.P HOTELS ETC. versus U.P. STATE ELECTRICITY BOARD

Citation: [1988] SUPP. 3 S.C.R. 670 · Decided: 28-10-1988 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Case Allowed

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Judgment (excerpt)

A 
U.P. HOTELS ETC. 
v. 
U.P. STATE ELECTRICITY BOARD 
OCTOBER 28, 1988 
B 
[SABYASACHI MUKHARJI AND M.H. KANIA, JJ.] 
Arbitration Act, 1940: Sections 14, 17, 30 and 33-Award-
Setting aside of-Wrong proposition of law laid down in award as basis 
of award. 
On taking over the Agra Electric Supply Co. in December i973, 
C the respondent-U.P. State Electricity Board-intimated to the 
appellant-U.P. Hotels-that the Bulk Supply Agreement between the 
appellant and the Agra Electric Supply Co. would continue to be In 
force until such time the agreement was determined in accordance with 
its relevant provisions. The agreement contained terms of rates, 
D discounts, minimum sum payable and increase in the rates and sums 
payable once a yosr on account of increase in cost of production and 
distribution of electrical energy (clause 9) and also contained an arbit-
ration clause (clause 18). 
In November 1976, the appellant received a communication from 
E the respondent informing that uniform tatiff rates issued under section 
49 of the Electricity Supply Act, 1949 wouid be applicable to them. The 
Board also withdrew the contractual discount and rebates. While sub-
sections (1) and (2) of section 49, stipulate a uniform tariff for electric 
supply, sub-section (3) authorises the Board to fix different tariffs for 
F 
the supply of electricity. 
· 
The appellant protested against this unilateral increases and with-
drawal, but 'without success. The appellant then informed the respon-
dent that it was referring the disputes for decision by the arbitrator and 
appointed a retired High Court Judge as its arbitrator. The respondent 
in turn appointed another retired High Court Judge as a joint 
.G 
arbitrator. The joint arbitrators appointed Justice V. Bhargava, a 
retired Judge of the Supreme Court, as the Umpire. The arbitrators 
having failed, the proceedings started before the Umpire. 
The Umpire gave his award in June 1983 and held that the Board 
having accepted the agreement, it became binding on the Board and 
H 
once the agreement was binding, its terms u~der sub-section (3) of 
670 
~-
U.P. HOTELS v. U.P. S.E.B. 
671 
A 
section 49 could not be varied by fixation of uniform tariff under snb· 
sections (1) and (2). The Umpire further held that the present case was 
fully covered by the decision of the Supreme Court in Indian 
Aluminium Co. wherein it was held that where a stipulation in a contract 
was entered into by a public authority in exercise of a statutory power · 
then, even though such stipulation fettered subsequent exercise of the 
same statutory power, it would be valid and the exercise of such statu-
B 
tory power would pro tanto stand restricted. In that view of the matter 
the Umpire held that in terms of clause 9 the Increase in unit rate was 
permissible and the fuel cost variation charges which were variable 
every month was contrary to clause 9 as increase was permitted only 
once in a year of accounts, and further that the appellant was entitled to 
discount of 50% of the charges for electricity and also to discount for C 
prompt payment of bills. 
Objections were filed by the respondent before the Hod Addi· 
tioual District Judge during the proceedings initiated for making the 
award the Rule of the Court. The Ilnd Additional Dist!. Judge set aside 
the award on the ground that the reference made to arbitration was D 
unilateral. In appeal, the High Court, while holding against the above 
finding of the Ilnd Addi. Judge, set aside the award on the ground that 
the Indian Aluminium Co. case was inapplicable to the present case, 
and the mistake committed by the Umpire in this regard was error of law 
apparent on the face of the award. The High Court held that even if the 
stipulation as to the tariff structure in the agreement be taken to have E 
been continued in existence in view of sub-section (3) of section 49 of the 
Act, the same was not unrestricted, and that the stipulation was 
expressly made subject to certain reservations as would be clear from the 
opening sentence of clause 9 of the agreement, the main clause was 
"subject to the provisions hereinafter contained". It was further held 
that in drawing distinction between 'rates' and 'discount' and uphold· f 
ing the right of the Board to tamper with the former . and negating 
similar right in respect of the latter, the Umpire had committed an 
error. 
Before this Court it was contended on behalf of the appellant that 
a specific question 

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