Supreme Court Deems Delay in Processing Application for Reduction in Maximum Demand as Arbitrary and Unreasonable

In a significant ruling, the Supreme Court of India declared that the Tamil Nadu Electricity Board's considerable delay in processing an application for the reduction of maximum demand in an electricity supply agreement was arbitrary and unreasonable. The court also affirmed the entitlement of The Madras Aluminium Co. Ltd., the appellant in the case, to a refund of the excess amount paid. The judgment, delivered by a bench comprising Justices Sanjay Karol, B.R. Gavai, and Aravind Kumar, highlighted the importance of fairness and reasonableness in contractual matters.

Supreme court stated, "The Board cannot be allowed to take refuge in contractual clauses while the company is burdened with heavy costs during the prolonged decision-making process" (Para 28). The court further emphasized that state actions, including those within the contractual realm, must comply with the requirements of Article 14 of the Constitution of India, ensuring fairness, non-arbitrariness, and equitable treatment (Para 33).

The dispute arose when The Madras Aluminium Co. Ltd., a power-intensive company engaged in aluminum manufacturing, sought a reduction in its contracted maximum demand from 23,000 KVA to 10,000 KVA due to changed circumstances and cost considerations. Despite repeated requests and reminders, the Tamil Nadu Electricity Board took an unreasonably long time to process the application, leaving the company to pay higher charges based on the initial contracted demand. The appellant argued that the board's inaction resulted in unjustified costs for unutilized electricity.

The Supreme Court concurred with the appellant's contention, noting that similar applications from other parties had been processed promptly, and no valid reason was provided for the prolonged delay in this particular case. "Keeping an application pending for such a long period is unquestionably unreasonable and arbitrary," the court stated (Para 36).

The court directed the Tamil Nadu Electricity Board to refund the excess amount paid by The Madras Aluminium Co. Ltd. for the unutilized 13,000 KVA (out of the initially contracted 23,000 KVA) during the period from December 24, 2001, to July 1, 2004. The refund, along with interest at a rate of 6% per annum, is to be calculated within two months from the date of the judgment (Para 40).

Date of Decision: July 6, 2023

THE MADRAS ALUMINIUM CO. LTD.   vs THE TAMIL NADU ELECTRICITY BOARD AND ANR.   

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