Supreme Court of India
THE MADRAS ALUMINIUM CO. LTD.versusTHE TAMIL NADU ELECTRICITY BOARD AND ANR.
- Citation
- 2023 INSC 607
- Decided
- 6 July 2023
- Disposal
- Appeal(s) allowed
Holding
State action in contractual matters must conform to Article 14, and a delay of more than six months in considering the appellant’s request was arbitrary and unreasonable, entitling the appellant to a refund of the excess amount.
Summary
The Madras Aluminium Co. Ltd., a sick industrial unit, applied on 24 December 2001 to reduce its contracted maximum electricity demand from 23,000 KVA to 10,000 KVA. The Tamil Nadu Electricity Board (TNEB) failed to act on the request for over two and a half years, during which the company was forced to pay charges for the higher demand it did not use. The company filed writ petitions seeking a refund of the excess amount paid and alleging that the Board's delay was arbitrary and violated Article 14 of the Constitution. The Supreme Court held that when the State is a party to a contract, its actions must satisfy the requirements of fairness, reasonableness and non‑arbitrariness, and that a six‑month period is a reasonable time to consider such applications. Consequently, the Court set aside the High Court’s judgment, ordered TNEB to refund the amount corresponding to the 13,000 KVA excess with simple interest at 6% per annum, and directed payment within two months. The appeals were allowed.
Issues considered
- Whether the Tamil Nadu Electricity Board’s delay of over two and a half years in processing the application for reduction of maximum demand constitutes an arbitrary and unreasonable exercise of power violative of Article 14.
- Whether the appellant is entitled to a refund of the amount paid for the excess 13,000 KVA demand under protest.
Legislation cited
- Sick Industrial Companies Act, 1985s. 3(1)(O)
Subjects
Article 14reasonable timestate contractelectricity supply agreementrefund of excess paymentunreasonable delaysick industrial companycontract amendment
Judgment
742 [2023] COURT
SUPREME 10 S.C.R.REPORTS
742 : 2023 INSC 607
[2023] 10 S.C.R.
A THE MADRAS ALUMINIUM CO. LTD.
v.
THE TAMIL NADU ELECTRICITY BOARD AND ANR.
(Civil Appeal Nos. 7224-7226 of 2009)
B JULY 06, 2023
[B. R. GAVAI, SANJAY KAROL AND
ARAVIND KUMAR, JJ.]
Contract – State, a party to the contract must abide by Article
14 – Reasonable period to consider an application – Application
C
made by the appellant for reduction to 10000 Kilovolt-Ampere (KVA)
– No steps effectuating such request were taken despite repeated
follow ups by the appellant – Action of the respondents in taking
considerable time from when the said application was made, to when
the revised agreement was entered into, if arbitrary and
D unreasonable – Held: Yes – State action irrespective of being in the
contractual realm must abide by Article 14 – Appellant was
unjustifiably asked to furnish costs for unutilized electricity which
should not have extended beyond six months (considering
‘reasonable period’ to consider an application, to be so), for a
period much larger thereto, rendering such action unreasonable
E
and arbitrary – On facts, it is not 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 KVA – Particularly, when at no point in time, the
appellant neither sought for nor consumed the electricity more than
F 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 six months and not two and a half years as was eventually done
– Judgment passed by High Court set aside – Respondent to return
G
the amount paid by the appellant for 13000 KVA, in excess to its
request of maximum sanctioned demand of 10000 KVA – Constitution
of India – Article 14 – Doctrines/Principles – Sick Industrial
Companies Act, 1985 – s.3(1)(O).
Doctrines/Principles – Principle of reasonable time –
H Discussed – Contract.
742
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 743
ELECTRICITY BOARD AND ANR.
Allowing the appeals, the Court A
HELD: 1.1 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. The Appellant in B
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 C
conditions upon which the same would be granted, no other
communication on part of the board forms the record. [Paras 23,
26][752-H; 753-A, E]
1.2 No reason whatsoever is forthcoming as to why this
particular application required such a vast length of time to be D
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. It is true that the agreement states that the consumer,
(Appellant herein) is bound to pay such maximum demand amount E
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. [Paras 27 and 28][753- F
F-H]
1.3 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, it does not G
supply reason to the act of keeping an application pending for
such a long period of time. [Para 29][754-A-B]
1.4 State action irrespective of being in the contractual realm
must abide by Article 14, and that a) after passage of a considerable
H
744 SUPREME COURT REPORTS [2023] 10 S.C.R.
A 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
B
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
C thereto, rendering such action unquestionably unreasonable and
arbitrary. 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 KVA.
Particularly, when at no point in time, the Appellant neither sought
D
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
E latest by six months and not two and a half years as was so
eventually done. Judgment passed by the High Court is set aside.
[Paras 36-39][756-F-G; 757-A-D]
1.5 The Respondent, The Tamil Nadu Electricity Board is
directed to return the amount as may be calculated and verified,
F 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 commence from 23rd June, 2002 till 1st July,
G 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. [Para 40][757-E-F]
H
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 745
ELECTRICITY BOARD AND ANR.
Natural Resources Allocation, IN Re, Special Reference A
No.1 of 2012 (2012) 10 SCC 1: [2012] 9 SCR 311 –
followed.
Kumari Shrilekha Vidyarthi and Others v. State of U.P.
and Others (1991) 1 SCC 212 : [1990] 1 Suppl. SCR
625; Mansaram v. S.P. Pathak and Ors. (1984) 1 SCC B
125 : [1984] 1 SCR 139; Adjudicating Officer,
Securities and Exchange Board of India v. Bhavesh
Pabari (2019) 5 SCC 90 – relied on.
Ssangyong Engg. & Construction Co. Ltd. v. National
Highways Authority of India (2019) 15 SCC 131 : C
[2019] 7 SCR 522; State of Gujarat v. Patel Raghav
Natha (1969) 2 SCC 187 : [1970] 1 SCR 335 – referred
to.
Case Law Reference
[2019] 7 SCR 522 referred to Para 21 D
[2012] 9 SCR 311 followed Para 31
[1990] 1 Suppl. SCR 625 relied on Para 32
(2019) 5 SCC 90 relied on Para 34
[1984] 1 SCR 139 relied on Para 35 E
[1970] 1 SCR 335 referred to Para 35
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 7224-
7226 of 2009.
From the Judgment and Order dated 15.12.2008 of the High Court F
of Madras in WA Nos. 3806, 3807 and 3808 of 2003.
C A Sundaram, Sr. Adv., Ms. Rohini Musa, Abhishek Gupta, Zafar
Inayat, Ms. Binu Tamta, Advs. for the Appellant.
K. Radhakrishnan, Sr. Adv., D. Kumanan, Sheikh F Kalia,
G
Mrs. Deepa. S, Ms. Divya Singh, Vinodh Kanna B., Advs. for the
Respondents.
H
746 SUPREME COURT REPORTS [2023] 10 S.C.R.
A The Judgment of the Court was delivered by
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
B when the revised agreement was entered into, was arbitrary and
unreasonable? Contingently, whether the Appellant is entitled to refund
of the amount of difference between the amounts payable for 23000
KVA and 10000 KVA which, have been paid under protest?
2. This judgement will dispose of a cluster of appeals arising out
C 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
D 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
E 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
intensive process. With the passage of time, it was declared
F 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
G 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
1
Hereafter, “the impugned judgment’’
2
Kilovolt-ampere.
3
H Abbreviated as BIFR. Hereafter, “the Board”
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 747
ELECTRICITY BOARD AND ANR. [SANJAY KAROL, J.]
dated 21st December 1994 and 37, dated 10th February, 1995 A
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 B
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.
C
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.
D
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.
E
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.
F
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
G
High Court held that it was not open for the Appellant to pay lesser
charges than that of the contracted demand in absence of a sanction in
respect thereof by the board.
4
Hereafter, the “1999 Agreement” H
748 SUPREME COURT REPORTS [2023] 10 S.C.R.
A 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
B 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
C 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-
D à-vis the allocation and the requirement of the supply of electricity, more
so, in view of the policy framed by the 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
E
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
F 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
G
their Smelter Plant and Extraction Plant
HT SC No.20 (illegible). The consumer
shall not effect any change in maximum
demand as contracted load.”
*** *** ***
H
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 749
ELECTRICITY BOARD AND ANR. [SANJAY KAROL, J.]
OBLIGATION OF 6. From the date this agreement comes A
CONSUMER TO into force the consumer, shall be bound by
PAY ALL CHARGES and shall pay to the Board, maximum
LEVIED BY demand charges, energy charges,
BOARD surcharges, meter rent and other charges,
if any, in accordance with the tariff
B
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.
BOARD’S RIGHT 7. The consumer agrees that the board
TO VARY TERMS shall have the right to vary, from time to C
OF AGREEMENT time, tariffs, general and miscellaneous
charges and the terms and conditions of
supply of electricity under this agreement,
by special or general proceedings. The
consumer, in particular, agrees that the
D
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. E
*** *** ***
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
F
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 G
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.
H
750 SUPREME COURT REPORTS [2023] 10 S.C.R.
A 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.
B 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.
C 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
D 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.
E
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.”
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
F
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
th
11 August, 1994, the Respondents, in principle, had already taken a
G 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.
H Ref: CE/D/Trichy lr.No.161666/Accts/A1/94 dt.21.7.94.
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 751
ELECTRICITY BOARD AND ANR. [SANJAY KAROL, J.]
With reference to the above, it is informed that, A
(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. B
(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” C
13. A perusal of the record reveals that a request for the reduction
of the contracted demand to 10000 KVA was made on 24 th
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 D
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 E
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 F
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.
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 G
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 H
752 SUPREME COURT REPORTS [2023] 10 S.C.R.
A 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
B 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
C submitted that taking such a large time to deliberate 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
D 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. &
E 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 contrary to fundamental
F 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,
G 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
5
H (2019) 15 SCC 131
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 753
ELECTRICITY BOARD AND ANR. [SANJAY KAROL, J.]
in July, 2004. Undisputedly, such fresh agreement was inked more than A
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 B
the ground that even the fresh agreement entered into by the parties in
July 2004 specifically indicates that the consumer shall not affect any
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.
C
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. D
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 E
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.
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 F
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 G
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.
H
754 SUPREME COURT REPORTS [2023] 10 S.C.R.
A 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, it does not supply reason to the act
of keeping an application pending for such a long period of time.
B 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
C 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
D 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
E 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
F reference to 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
G 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
H 6
(2012) 10 SCC 1
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 755
ELECTRICITY BOARD AND ANR. [SANJAY KAROL, J.]
to indicate which out of the two is to be preferred. It is this, which A
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 Others 7
observed that there exists “an obvious difference” between contracts B
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 C
which the State is a party. The fact that a dispute falls into the contractual
realm does not 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 D
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 E
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 F
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 G
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
7
(1991) 1 SCC 212 H
756 SUPREME COURT REPORTS [2023] 10 S.C.R.
A 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 maximum demand, by
B 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
C 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
D 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
E 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.
36. Keeping in view the above-stated well established principles
F 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
G such application pending; d) that the Appellant duly and repeatedly
followed up with the authorities to effectuate such reduction; and e) the
8
(2019) 5 SCC 90
9
(1984) 1 SCC 125
10
(1969) 2 SCC 187
11
H (2023) 2 SCC 643
THE MADRAS ALUMINIUM CO. LTD. v. THE TAMIL NADU 757
ELECTRICITY BOARD AND ANR. [SANJAY KAROL, J.]
Appellant has been unjustifiably asked to furnish costs for unutilized A
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 B
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 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.
C
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.
D
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 E
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 commence from 23rd June,
2002 till 1st July, 2004 (both inclusive); interest applicable thereupon would F
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
G
disposed of.
Divya Pandey Appeals allowed.
(Assisted by : Roopanshi Virang, LCRA)
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "Article 14"Sign in to search