JUDGMENT

CHINNAPPA REDDY, J. :— These appeals preferred by the Kerala State Electricity Board raise the question of the extent of the authority of the Board to increase the Electricity Tariff under the Electricity (Supply) Act. The upward revision of tariff made by the Board in 1980, 1982 and 1984 was successfully challenged in the Kerala High Court. The first two revisions were struck down by a Full Bench of three judges by a majority of two to one and, later, all three revisions were struck down by a Full Bench of five judges by a majority of four to one. The principal ground of challenge and that which was accepted by the High Court was that the Kerala State Electricity Board acted outside its statutory authority by formulating a price structure intended to yield sufficient revenue to off set not merely the expenditure properly chargeable to the revenue account for the year as contemplated by S. 59 of the Act but also expenditure not so properly chargeable. Had S. 59 been strictly followed and had items of expenditure not chargeable to the revenue account for the year been excluded, the revised tariff would have resulted in the generation of a surplus far beyond the contemplation of S. 59 of the Act. According to the High Court, in the absence of a specification by the Government the Board was not entitled to generate a surplus at all and it acted entirely outside its authority in generating a surplus to be adjusted against items of expenditure not authorised to be met from the revenue receipts. The notifications prescribing revised tariffs were, therefore, struck down. The view of the High Court, as might be seen, was based primarily on their construction of S. 59 of the Electricity (Supply) Act.

2. In order to understand the questions at issue, it is necessary to set out S. 59 as it stood prior to 1978, as amended by Act No. 23 of 1978, and finally as amended by Act No.16 of 1983 :

Section 59 prior to 1978 Section 59 as amended by Act No. 23 of 1978 Section 59 as further amended by Act No. 16 of 1983

(1) (2) (3)

General principles for Boards finance- The Board shall not, as far as practicable and after taking credit for any subventions from the State Government under S. 63, carry on its operations under this Act at a loss, and shall adjust its charge-, accordingly from time to time. General principles for Boards finance- (1) The Board shall after taking credit for any subvention from the State Government under S. 63, carry on its operations under this Act and adjust its tariffs so as to ensure that the total revenues in any year of account shall, after meeting all expenses property chargeable to revenues, including operating, maintenance and management expenses, taxes (if any) on income and profits, depreciation and interest payable on all debentures, bonds and loans, leave such surplus, as the State Government may, from time to time, specify. General Principles for Boards finance- (1) The Board shall after taking credit for any sub-section from the State Government under S. 63, carry on its operations under this Act and adjust its tariffs so as to ensure that the total revenues in any year of account shall, after meeting all expenses property charge able to revenues, including operating, maintenance and management expenses, taxes (if any) on income and profits, depreciation and interest payable on all debentures, bonds and loans leave such surplus as is not less than three per cent or such higher percentage, as the State Government may by notification in the official Gazette specify in this behalf, of the value of the fixed assets of the Board in service at the beginning of such years.

Provided that where necessary any amounts due for meeting the operating, maintenance and management expenses of the Board or for the purposes of clauses, (i) and (ii) of S. 67 may, to such extent as may be sanctioned by the State Government. be paid out of capital. (2) In specifying the surplus under sub-section (1), the State Government s