Supreme Court Overrules High Court Mandate on Power Purchase on High Rates, Upholds Consumer Interest in Electricity Contracts

In a noteable judgment, the Supreme Court of India has overruled a previous High Court mandate that directed state instrumentalities to purchase electricity from specific bidders, irrespective of the market alignment of their quoted rates. The apex court's decision reinforces the primacy of consumer interests and public welfare in commercial transactions involving state entities.

The judgment, delivered by a bench comprising Justices B.R. Gavai and Prashant Kumar Mishra, revolved around the purchase of electricity by state distributors from private generators. The High Court had earlier mandated the purchase of power from the respondent, MB Power (Madhya Pradesh) Limited, which the Supreme Court found was not in alignment with prevailing market prices.

Justice Gavai, in his observation, emphasized the critical balance between consumer interest and generator benefits, stating, "It will not be permissible to take a lopsided view only to protect the interest of the generators ignoring the consumers’ interest and public interest." This statement underlines the judgment's focus on safeguarding consumer interests against potentially inflated electricity costs.

The Supreme Court's ruling highlighted the importance of a fair and transparent bidding process in determining power purchase agreements. The judgment noted that state entities, while having the autonomy to choose their commercial transactions, must adhere to the norms and procedures they have established and cannot deviate arbitrarily. The apex court clarified that judicial intervention is warranted only if the decision-making process is vitiated by arbitrariness, unreasonableness, or malafide intent.

The judgment is seen as a significant move in ensuring that power procurement by state entities is conducted in a manner that is both economically viable and in the best interest of consumers. It reiterates the judiciary's role in upholding the principles of fairness and reasonableness in state commercial activities, particularly in sectors as vital as power distribution.

Date of Decision: January 8, 2024

JAIPUR VIDYUT VITRAN NIGAM LTD. & ORS. VS MB POWER (MADHYA PRADESH) LIMITED  & ORS.