IN CA. 7224 OF 2009 -SC- Madras Aluminium Co. Ltd. unjustifiably asked to furnish costs for unutilized electricity which should not have extended beyond six months, rendering such action unquestionably unreasonable and arbitrary: Supreme Court holds that State action irrespective of being in contractual realm must abide by Article 14
Justice B.R. Gavai, Justice Sanjay Karol and Justice Aravind Kumar  [06-07-2023]

Read More: The Madras Aluminium Co. Ltd v. The Tamil Nadu Electricity Board

Simran Singh

New Delhi, July 7, 2023: Allowing a batch of appeals, the Supreme Court has held that the fact that a dispute fell into the contractual realm did not relieve the State of its obligation to comply with the requirements of Article 14 of the Constitution. The Court directed 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).

In the matter at hand, the appellant had filed an application to reduce the contracted maximum demand (Electricity) to 10000 KVA with effect from 27-02-2002. The issue raised in this appeal was whether such an action of the application remaining pending for an unreasonable period could in itself be classified as an arbitrary and unreasonable act and whether the appellant was entitled to refund of the amount of difference between the amounts payable for 23000 KVA and 10000 KVA which, had been paid under protest?

By way of the impugned judgment, the Court below sitting in Writ Appellate Jurisdiction upheld the judgment passed by the Single Judge which had dismissed the said writ petitions, holding that the appellants were bound to pay charges as per the contract irrespective of the consumption of 23000 KVA being the maximum contracted load of electricity. The High Court, in appeal held that such a dispute was not one to be adjudicated under Article 226 of the Constitution of India.

The appellant was a company which was set up in 1965 for the manufacture of aluminium which was a power and electricity 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 India (the Board /BIFR), vide order dated 08-09-1987.

The Bench after navigating through a catena of cases stated that it was a well established principle that State action irrespective of being in the contractual realm must abide by Article 14, and that

1. 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;
2. irrespective of the amount of reduction in KVA sought other applications were considered within a reasonable period of time;
3. no reason has been put forth for keeping such application pending;
4. that the appellant duly and repeatedly followed up with the authorities to effectuate such reduction; and
5. the appellant had been unjustifiably asked to furnish costs for un-utilised 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.

The Bench stated that it would not be open for the respondents to contend that the appellant was not liable for the refund of the amount deposited under protest towards the bills so generated taking the maximum load to be 23000 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. Acknowledging the financial health of the Appellant, in the 1999 agreement, the respondent ought to have taken a decision on the Appellant request with a reasonable dispatch and terms which ought to have been within a period latest by 6 months and not 2.5 years as was so eventually done.”

In view thereof, the appeal was allowed and the impugned judgment passed by the Madras High Court was set aside.