The Madras Aluminium Co. Ltd. vs The Tamil Nadu Electricity Board and Anr.

2023INSC607 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLETE JURISDICTION

CIVIL APPEAL NOS.7224-7226 of 2009

THE MADRAS ALUMINIUM CO. LTD. …APPELLANT(S)

VERSUS

THE TAMIL NADU ELECTRICITY BOARD ...RESPONDENT(S) AND ANR.

JUDGMENT

SANJAY KAROL, J.

1. The questions that this Court has been called upon to decide

are, whether the action of the Respondents in taking

considerable time from when the application was made for

reduction to 10000 KVA, to when the revised agreement was

entered into, was arbitrary and unreasonable? Contingently,

whether the Appellant is entitled to refund of the amount of

Signature Not Verified difference between the amounts payable for 23000 KVA and Digitally signed by Anita Malhotra Date: 2023.07.06 15:53:56 IST Reason: 10000 KVA which, have been paid under protest? 2

2. This judgement will dispose of a cluster of appeals arising out

of a judgment and order dated 15th December,2008, in WA

Nos.3806, 3807 and 3808 of 2003 passed by the High Court

of Madras.1

3. By way of the impugned judgment, the Court below sitting in

Writ Appellate Jurisdiction upheld the judgment and order

passed by the Learned Single Judge in WP Nos. 19050-19052

of 2002, dismissing the said writ petitions, holding that the

petitioners (Appellant herein, The Madras Aluminum Co. Ltd.)

were bound to pay charges as per the contract irrespective of

the consumption of 23000 KVA2 being the maximum

contracted load of electricity. The High Court, in appeal held

that such a dispute is not one to be adjudicated under Article

226 of the Constitution of India.

4. Past events require recall to lend context to the instant

appeals.

4.1. The Appellant is a company set up in 1965 for the

manufacture of aluminium, which is a power and electricity

1 Hereafter, “the impugned judgment” 2 Kilovolt-ampere.

3

intensive process. With the passage of time, it was declared a

‘sick industrial unit’ as per Section 3(1)(O) of the Sick

Industrial Companies Act, 1985 by the Board for Industrial

and Financial Reconstruction, Government of India3, vide

order dated 8th September, 1987.

4.2. In 1994, the present management approached the Board with

a plan for revival, pursuant to which a fresh scheme with

certain additional concessions was issued in terms of the

Government Office Memoranda bearing numbers 165 dated

21st December 1994 and 37, dated 10th February, 1995

respectively. With affairs so taken over by the present

management, production commenced in February, 1995.

4.3. Originally, the maximum demand for electricity of the

Appellant’s plant as per the agreement was 67000 KVA. Given

that cost of consumption of such power constituted more than

40 percent of the cost of production, and that the company

itself had established a captive power plant, a request was

made and consequently agreed to, to reduce the contracted

maximum demand to 23000 KVA. This was done vide

agreement 3rd May,19994.

3 Abbreviated as BIFR. Hereafter, “the Board” 4 Hereafter, the “1999 Agreement” 4

4.4. The Appellant then made a further request on 24th December,

2001, to reduce the contracted maximum demand to 10000

KVA with effect from 27th January, 2002, along with an offer

to pay the one-time charge payable on effecting such a

reduction.

4.5. Despite such request being made and some initial

communication, no steps effectuating such request were

taken. Therefore, the Appellant was being forced to pay as per

the contracted demand of 23000 KVA @ 320 Rupees per KVA.

4.6. With the previous concessional power tariffs withdrawn and

repeated high value demands apart from Seventy-Eight Lakhs

(78,00,000) already paid on 25th May, 2002 as also the

amounts paid subsequently, forced the filing of the petitions

before different fora.

The Impugned Judgement

5. The Impugned Judgment records the stand of the

Respondents, placing reliance on various clauses of the 1999

agreement and the Terms and Conditions of Supply of

Electricity to justify their stand as being entirely permissible.

Having referred to the contents of the clauses, the High Court

held that it was not open for the Appellant to pay lesser 5

charges than that of the contracted demand in absence of a

sanction in respect thereof by the board.

5.1 It was further held that simply because the board took time

in consideration of the application of the Appellants, this

would not enable them to begin automatically paying a

reduced amount.

5.2 In respect of the other examples cited by the Appellants where

similar applications by similarly placed persons were

considered and decided upon by the Board with promptitude,

it was held that such a plea was raised for the first time at

the appellate stage. It was further observed that the manner

in which the Appellant’s application was considered was not

arbitrary or unfair and that interpretation of such an

agreement could not be undertaken in writ jurisdiction.

6. We have heard the Learned Senior Counsel; Mr. C.A.

Sundaram, for the Appellant and Mr. K Radhakrishnan for

the Respondents at length.

7. The 1999 Agreement4 acknowledging the changed scenario

vis-à-vis the allocation and the requirement of the supply of

electricity, more so, in view of the policy framed by the 6

Central Government encouraging the industrial units to have

captive power plants, while reducing the total energy quota

to a maximum of 23000 KVA inter alia contained the following

terms:

“LOAD NOW IT HEREBY DECLARED AND MAXIMUM AGREED AS FOLLOWS: DEMAND

Subject to the provisions hereinafter contained, the Board supply and the consumer shall take from the Board electrical energy for a maximum demand not exceeding 23000 KVA which shall be in contracted load for its exclusive use for the purpose above mentioned at the premises of its factory at P.N. Patty Village, Mettur Tk. Salem Dt. The contracted load shall be 23000 KVA for their Smelter Plant and Extraction Plant HT SC No.20 (illegible). The consumer shall not effect any change in maximum demand as contracted load.”

*** *** *** OBLIGATION 6. From the date this agreement comes OF into force the consumer, shall be bound CONSUMER by and shall pay to the Board, maximum TO PAY ALL demand charges, energy charges, CHARGES surcharges, meter rent and other LEVIED BY charges, if any, in accordance with the BOARD tariff applicable and the terms and conditions of Supply of Electricity notified by the Board from time to time for the appropriate class of consumers to which it belongs.

7

BOARD’S 7. The consumer agrees that the board RIGHT TO shall have the right to vary, from time to VARY time, tariffs, general and miscellaneous TERMS OF charges and the terms and conditions of AGREEMENT supply of electricity under this agreement, by special or general proceedings. The consumer, in particular, agrees that the board shall have the right to enhance the rates etc. chageable for supply of electricity according to exigencies. It is also open to Board to restrict or impose powe cuts totally or partially at any time as it deems fit.

*** *** ***

PERIOD OF 11. This agreement shall remain in force AGREEMENT for a period of five years from the date of its commencement as defined in clause 2 and shall remain in force until it is terminated by either party as provided in the conditions of supply.”

8. Pursuant thereto, the Appellant finding the requirement of

supply of electricity from the Respondents to be reduced, by

a communication dated 24th December 2001 forwarded a

request for reduction of maximum demand of supply of

electricity to 10000 KVA. This was followed vide a reminder

dated 27th January, 2002 which facts were acknowledged by

the Respondents vide their communication dated 22nd

January 2002 informing the Appellant of the matter pending

consideration with the competent authority, awaiting

necessary response.

8

9. Pending such consideration, with the Respondents

generating bills for monthly charges for the demand

stipulated in terms of the 1999 agreement4, the Appellant

being left with no option, was forced to have its rights

adjudicated before different fora, including the High Court,

also in terms of the subject matter of the instant lis.

10. Pending such adjudication, in response to the Appellant’s

request dated 24th December 2001, the Respondents

communicated as under:

“i. Sanction of the proposal for reduction by the competent authority after ascertaining the litigancy with the Board, if any.

ii. Modification of the metering arrangement for the reduced demand it warrants and also after examining the technical necessity for continuance of existing 230 KVA Malco S.S. for the reduced demand.

iii. One time payment of twice the demand charges at the notified rate per KVA for each KVA of the demand reduced as per the clause 22.07 of terms and conditions of supply before effecting reduction in demand.

iv. The company have to execute revised agreement for the Reduced demand and Revised test report has to be taken.

v. The CC bill for the reduced demand will be raised only after completion of the formalities. Until then the CC bill will be levied for the existing sanctioned maximum demand only.” 9

11. It being a matter of record that eventually and

notwithstanding the pending lis, inter se the parties, by way

of its own right, the Respondents by taking a conscious

decision revised the 1999 agreement4 reducing the maximum

required demand from 23000 KVA to 10000 KVA. This was

in July, 2004.

12. It is also a matter of record that vide communication dated

11th August, 1994, the Respondents, in principle, had already

taken a decision of generally accepting the request for

reduction of the load, relevant extract thereof is as under:

“Sub: Reduction of demand requested by H.T. Consumers – Certain Clarifications – Issued _ Reg.

Ref: CE/D/Trichy lr.No.161666/Accts/A1/94 dt.21.7.94.

With reference to the above, it is informed that, (1) As per Clause 21.03 of Terms and Conditions of supply, “No additional load/demand will be sanctioned unless all outstanding dues in the same service connection has been paid”. The same may be adopted while permitting reduction of load.

(2) Reduction of load requested by the disputant H.T. Consumers may be sent to Headquarters office before processing the same. (3) Request for reduction of load within a period of one year from the date of earlier reduction may be permitted” 10

13. A perusal of the record reveals that a request for the

reduction of the contracted demand to 10000 KVA was made

on 24th December,2001 and thereafter, repeated letters and

communications in this regard have been made. Vide letter

dated 30th January, 2002 it was informed to the Appellants

that the assumption in respect of the reduction being

effectuated from 27th January, 2002 was incorrect and the

same would be subject to certain conditions.

14. Further, vide a letter dated 20th May, 2002, a meeting was

requested with the concerned authority. Subsequently,

conceding to the threat of disconnection of the supply a

payment of Rs.78,00,000/- was made under protest. The said

payment was acknowledged vide letter dated 27th May, 2002,

and it was stated that the ‘under protest’ nature of the same

was not acceptable. It was also informed thereby that a

delayed payment surcharge @ 1.5% per month would also be

applicable.

15. Revised bills were requested in line with the interim order of

the High Court dated 28th November,2002, in terms of letter

dated 4th June, 2002, but the same does not appear from the

record to have been responded to.

11

16. The High Court, in appeal, considered at length the various

clauses of the agreement to hold that no such right to pay the

reduced amount arose in the absence of such a request being

sanctioned by the Board.

17. It is submitted that the unilateral call by the Board not to

alter the contract as requested saddles the Appellant with

unfair cost. It is then submitted that the Board is bound to

grant such permission for reduction so long as the payment

as according to Clause 19.02 is being made.

18. As per Clause 13.04 which states that the agreement of

supply may be terminated by any consumer by giving one

month’s notice, it is urged that the Appellant’s application

dated 24th December, 2001 seeking the reduction to 10000

KVA with effect from 27th January, 2002, must be treated a

notice of termination of the agreement with respect to the

13000 KVA that is sought to be reduced.

19. On the basis of certain other instances where similar

applications were decided upon within a short period of time,

it is submitted that taking such a large time to deliberate 12

upon the Appellant’s application is arbitrary and

unreasonable.

20. The primary thrust of the Respondents’ argument is a clause

in the 1999 agreement reproduced Supra. The effect of this

Clause, as per the Respondents, is that the request for a

reduction in maximum demand as made by the Appellant,

does not acquire any status as till the time such request is

processed by the Board, and a decision allowing such

reduction is taken.

21. It is a settled principle of law that a contract cannot be

amended unilaterally. It has been observed by this court in

Ssangyong Engg. & Construction Co. Ltd. v. National

Highways Authority of India5 that, “This being the case, a

fundamental principle of justice has been breached, namely,

that a unilateral addition or alteration of a contract can never

be foisted upon an unwilling party, nor can a party to the

agreement be liable to perform a bargain not entered into with

the other party. Clearly, such a course of conduct would be

5 (2019) 15 SCC 131 13

contrary to fundamental principles of justice as followed in

this country,…”

22. Parties on either side have urged that a unilateral decision

has been taken. The Respondents contend that the Appellant

has unilaterally amended the contract to reduce the

maximum demand to 10000 KVA when no such decision

stands taken by them. The Appellant, per contra, contends

that the unilateral decision on the part of the board not to act

on the application submitted by them has caused prejudice

to them.

23. It is a matter of record that a fresh agreement with the

reduced maximum demand of 10000 KVA was entered into

between the parties in July, 2004. Undisputedly, such fresh

agreement was inked more than two and a half years after

the application was made on 24th December, 2001.

24. The contention that others similar agreements have been

processed by the Respondents with promptitude and it is only

the Appellant whose application was singled out, was rejected

by the High Court on the ground that even the fresh

agreement entered into by the parties in July 2004

specifically indicates that the consumer shall not affect any 14

change in the maximum demand or the contracted demand

and, that the supplemental agreement is subject to and in

addition to the terms of the subsisting agreement.

25. It appears that the force of this observation of the High Court

is that the 1999 agreement also stated, as reproduced above,

that the consumer shall not effect any change in maximum

demand; and the same restriction has found its place in the

supplemental agreement as well and so, without approval of

the board no change in the maximum demand is possible,

allegedly done by the Appellant herein.

26. The Appellant in pursuance of the reduction of maximum

demand made its application and followed up repeatedly with

the authorities. Save and except two letters on behalf of the

Board one, acknowledging the said application and stating

that same has been put up before the authorities for

consideration: and two, rejecting the date of such reduction

being effectuated and listing down certain conditions upon

which the same would be granted, no other communication

on part of the board forms the record.

15

27. No reason whatsoever is forthcoming as to why this particular

application required such a vast length of time to be acted

upon. In the mean while the Appellant has been faced with

the threat of disconnection, and has had to pay, due to such

inaction, large amounts of money for electricity which it has

not utilized.

28. It is true that the agreement states that the consumer,

(Appellant herein) is bound to pay such maximum demand

amount irrespective of utilization and also that such an

agreement will be in effect for a period of five years but in the

considered view of this Court, the Board cannot be allowed to

take refuge of these clauses while the company on the other

side is saddled with heavy cost in the interregnum of such

decision. More so in view of the communication dated 11th

August 1994.

29. The Writ Court had observed that in the other instances cited

by the Appellant herein, the reduction sought was a small

amount of KVA as opposed to the 13000 KVA reduction

sought vide the instant application. While that may be true, 16

it does not supply reason to the act of keeping an application

pending for such a long period of time.

30. The above discussion gives way to the question whether such

an action of the application remaining pending for an

unreasonable period could in itself be classified as an

arbitrary and unreasonable act.

31. A Constitution Bench of this Court in Natural Resources

Allocation, IN Re, Special Reference No.1 of 20126

speaking through J.S. Khehar, J. (as His Lordship then was)

observed in regards to contracts having the State as a party,

as hereinunder reproduced:-

“183. The parameters laid down by this Court on the scope of applicability of Article 14 of the Constitution of India, in matters where the State, its instrumentalities, and their functionaries, are engaged in contractual obligations (as they emerge from the judgments extracted in paras 159 to 182, above) are being briefly paraphrased.

For an action to be able to withstand the test of Article 14 of the Constitution of India, it has already been expressed in the main opinion that it has to be fair, reasonable, non-discriminatory, transparent, non-capricious, unbiased, without favouritism or nepotism, in pursuit of promotion of healthy competition and equitable treatment. The judgments referred to, endorse all those requirements where the State, its instrumentalities, and their functionaries, are engaged in contractual transactions. Therefore, all “governmental policy” drawn with reference to

6 (2012) 10 SCC 1 17

contractual matters, it has been held, must conform to the aforesaid parameters. While Article 14 of the Constitution of India permits a reasonable classification having a rational nexus to the object sought to be achieved, it does not permit the power of pick and choose arbitrarily out of several persons falling in the same category. Therefore, criteria or procedure have to be adopted so that the choice among those falling in the same category is based on reason, fair play and non-arbitrariness. Even if there are only two contenders falling in the zone of consideration, there should be a clear, transparent and objective criteria or procedure to indicate which out of the two is to be preferred. It is this, which would ensure transparency.” (emphasis supplied)

32. A Bench of two learned Judges of this Court in Kumari

Shrilekha Vidyarthi and Others v. State of U.P. and

Others7 observed that there exists “an obvious difference”

between contracts concerning private parties to those which

have State as a party. The primary difference being that the

State while exercising its powers and discharging its

functions “acts indubitably, as is expected of it, for public

good and in public interest”. The said factor singularly is

sufficient to bring into any transaction the minimal

requirements of public law, to which the State is a party. The

fact that a dispute falls into the contractual realm does not

7 (1991) 1 SCC 212 18

relieve the State of its obligation to comply with the

requirements of Article 14.

33. Further the Court had observed that:

“24. The State cannot be attributed the split personality of Dr Jekyll and Mr Hyde in the contractual field so as to impress on it all the characteristics of the State at the threshold while making a contract requiring it to fulfil the obligation of Article 14 of the Constitution and thereafter permitting it to cast off its garb of State to adorn the new robe of a private body during the subsistence of the contract enabling it to act arbitrarily subject only to the contractual obligations and remedies flowing from it. It is really the nature of its personality as State which is significant and must characterize all its actions, in whatever field, and not the nature of function, contractual or otherwise, which is decisive of the nature of scrutiny permitted for examining the validity of its act. The requirement of Article 14 being the duty to act fairly, justly and reasonably, there is nothing which militates against the concept of requiring the State always to so act, even in contractual matters. There is a basic difference between the acts of the State which must invariably be in pubic interest and those of a private individual, engaged in similar activities, being primarily for personal gain, which may or may not promote public interest. Viewed in this manner, in which we find no conceptual difficulty or anachronism, we find no reason why the requirement of Article 14 should not extend even in the sphere of contractual matters for regulating the conduct of the State activity.” (emphasis supplied)

34. This case hinges on what would be construed to be

‘reasonable time’ to consider any application for reduction in 19

maximum demand, by the authorities. A Three-Judge Bench

of this Court in Adjudicating Officer, Securities and

Exchange Board of India v. Bhavesh Pabari8 has observed

that:

“…There are judgments which hold that when the period of limitation is not prescribed, such power must be exercised within a reasonable time. What would be reasonable time, would depend upon the facts and circumstances of the case, nature of the default/statute, prejudice caused, whether the third-party rights had been created, etc….”

35. In Mansaram v. S.P. Pathak and Ors.9 this Court has

observed that when a power exists to effectuate a purpose it

must be exercised within a reasonable time. It has been

observed that this is all too well-settled principle to require

buttressing precedent. Nonetheless, the Court refers to State

of Gujarat v. Patel Raghav Natha10 wherein the period of one

year was found to be too long for the Commissioner to

exercise revisional jurisdiction under Section 211 of the

Bombay Land Revenue Code. The principle of reasonable

time as mentioned herein was followed recently by a Two-

Judge Bench in Securities and Exchange Board of India v.

Sunil Krishna Khaitan and Ors.11.

8 (2019) 5 SCC 90 9 (1984) 1 SCC 125 10 (1969) 2 SCC 187 11 (2023) 2 SCC 643 20

36. Keeping in view the above-stated well established principles

that State action irrespective of being in the contractual

realm must abide by Article 14, and that a) after passage of a

considerable period of time, in July, 2004 the reduction to

10000 KVA was agreed to and a new agreement to that effect

was entered into; b) irrespective of the amount of reduction

in KVA sought other applications were considered within a

reasonable period of time; c) no reason has been put forth for

keeping such application pending; d) that the Appellant duly

and repeatedly followed up with the authorities to effectuate

such reduction; and e) the Appellant has been unjustifiably

asked to furnish costs for unutilized electricity which, in any

case should not have extended beyond the period of six

months (considering ‘reasonable period’ to consider an

application, to be so), for a period much larger thereto,

rendering such action unquestionably unreasonable and

arbitrary.

37. In view of the factual narrative, it would not be open for the

Respondents to contend that the petitioner is not liable for

the refund of the amount deposited under protest towards

the bills so generated taking the maximum load to be 23000 21

KVA. Particularly, when at no point in time, the Appellant

neither sought for nor consumed the electricity more than the

maximum demand of 10000 KVA.

38. Acknowledging the financial health of the Appellant, in the

1999 agreement4, the Respondent ought to have taken a

decision on the Appellant request with a reasonable dispatch

and terms which ought to have been withing a period latest

by six months and not two and a half years as was so

eventually done.

39. For the aforesaid reasons, the appeals are allowed. Judgment

dated 15th December 2008 in WA 3806-3807 & 3808 of 2003

passed by the High Court of Madras is set aside.

40. We direct the Respondent namely The Tamil Nadu Electricity

Board to return the amount as may be calculated and

verified, paid by the Appellant to it for 13000 KVA, in excess

to its request of maximum sanctioned demand of 10000 KVA

(23000-10000 = 13000 KVA). Such amount shall be

calculable six months post making of application, i.e. on 24th

December, 2001, till the date of execution of the new

agreement in July, 2004. Clarifying that the period is to 22

commence from 23rd June, 2002 till 1st July, 2004 (both

inclusive); interest applicable thereupon would be simple in

nature @ 6 per cent per annum. All payments be made within

two months from today.

41. Questions raised in the instant appeals are answered as

above.

42. The appeals are allowed and pending applications, if any,

stand disposed of.

…….………………J. (B.R. GAVAI)

……..…………..…J. (SANJAY KAROL)

…………………….J. (ARAVIND KUMAR)

DATED : JULY 06, 2023 PLACE : NEW DELHI