Case: Kanpur Elect.Supply Co.Ltd Vs. M/S L.M.L.Limited

1. The Respondent No.1 is a Public Limited Company engaged in the manufacture and sale of two-wheelers, scooters and motorcycles, having its registered office at Panaki Industrial Area in Kanpur, U.P. The Company obtained power load from the Kanpur Electricity Supply Administration, hereinafter referred to as "KESA", which was extended from time to time. In the year 2006, the sanctioned load of the Company was 8 MVA from 132 KV line.2. On account of a decreasing market the Company apprehended that its work force would be directly affected and, accordingly, made a representation to the State Government for declaring the Respondent-Company as a "Relief Undertaking" under Section 3(1) of the U.P. Industrial Undertaking (Special Provisions for Prevention of Unemployment) Act, 1966. A Notification was issued by the State Government on 24th June, 2004, suspending all contracts, agreements and other instruments in force under any law, for a period of one year which resulted in a strike disrupting the operations of the company. Consequently, all manufacturing activities of the Respondent-Company came to a halt, ultimately leading to the declaration of a lockout on 7th March, 2006. As a result, on 31st March, 2006, the Respondent-Company applied to the Kanpur Electricity Supply Company, hereinafter referred to as "KESCO", for reduction of the contract load from 8 MVA to 1.25 MVA with effect from 1st April, 2006. On 19th April, 2006, a meeting took place between the officers of KESCO and the Respondent-Company in which a decision was taken for reduction of the load with certain conditions. On the said date itself KESCO conveyed its agreement for reduction of load to the U.P. Electricity Regulatory Commission and sought its formal approval.3. The Commission did not raise any objection regarding the decision to reduce the load but it observed that the agreement which had been reached between the parties was internal to the parties and the same had to be implemented strictly in accordance with the Electricity Supply Code, 2005. Thereafter, the Respondent wrote to KESCO on 17th May, 2006, to reduce the load with effect from 1st April, 2006. However, the electricity bill for the month of May, 2006 based on 8 MVA load was presented to the Respondent on 7th June, 2006. The Respondent immediately sent a letter of protest indicating that the bill amount ought to have been raised on the basis of the agreed load of 1.25 MVA. The respondent paid the bill on the basis of 1.25 MVA load and also invoked the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as the "SICA". The said reference was registered as Case No.80 of 2006 on 15th September, 2006 and, thereafter, on 8th May, 2007, the Respondent-Company was declared as a sick industrial company under section 6(3)(o) of the 1985 Act and the IDBI Bank was appointed as the Operating Agency. On 4th October, 2006, KESCO wrote to the Respondent-Company for submitting a Bank Guarantee for the arrears of the amount as per Clause 4.49 of the U.P. Supply Code, 2005 so that action could be taken to reduce the load from 8 MVA to 1.25 MVA. In response, the Respondent No.1-Company wrote to KESCO indicating that once the normal work of the factory was restored, the payment of arrears of electricity dues would be finalized.4. On 11th March, 2007, the Respondent-Company restarted its manufacturing activities and requested KESCO to increase the load from 1.25 MVA to 2.25 MVA. KESCO, however, responded on 20th March, 2007, informing the Petitioners that the load reduction could not be considered owing to non-submission of the Bank Guarantee by the Respondent-Company for the balance amount of the bill raised for the month of May, 2006. On 3rd August, 2007, a settlement was arrived at with regard to the payment of arrears. As the respondent was registered as a Sick Unit with the Board for Industrial and Financial Reconstruction, hereinafter referred as the "BIFR", the said Board by its order dated 22nd October, 2007 directed KESCO to continue to accept Rs.5 lakhs per month against their arrears, besides payment of current electricity bills on actual consumption basis, and not to adopt coercive measures to disconnect the supply of electricity. However, on 6th April, 2009, a disconnection notice was issued by KESCO against which the Respondent-Company filed Writ Petition No.20499 of 2009 in which an interim order was passed by the Allahabad High Court on 22nd April, 2009, directing that in case the Respondent-Company continued to pay the amount as directed by the BIFR, its electricity supply would not be disconnected. The said writ petition is still pending disposal. However, since, in the meantime, the claim of the Respondent-Company for reduction of the load from 8 MVA to 1.25 MVA with effect from 1st April, 2006, was not decided or implemented, the Respondent-Company filed Writ Petition No.20499 of 2009, inter alia, for an appropriate writ or direction to the effect that the load of the Respondent-Company stood reduced from 8 MVA to 1.25 MVA pursuant to the then prevalent provisions of Clause 4.41(b) of the 2005 Code, with effect from 1st April, 2006, 2.25 MVA with effect from April, 2007 and 2.50 MVA with effect from August, 2007.5. Interpreting the provisions of Clauses 4.41 and 4.49 of the U.P. Electricity Code, 2005, the High Court came to the conclusion that the decision with regard to the reduction of the load of the Respondent-Company stood approved on 19th April, 2006, and, accordingly, the effective date of such reduction would have to be reckoned from the first day of the following month, namely, from 1.5.2006, in terms of Clause 4.41(e) of the Code. The writ petition was, accordingly, allowed and it is against such order of the writ court, that the present Special Leave Petition has been filed.

Reasoning: 24. The facts of this case are relatively simple and straightforward. What is difficult to comprehend is the inscrutable manner in which decisions arrived at in common are sought to be negated on account of bureaucratic lethargy. The case of thewhich is not denied on behalf of the Petitioners, is that owing to market fluctuations thehad to put a halt to its manufacturing activities and to make a representation to the State Government for declaring it to be a "Relief Undertaking" under the relevant provisions of the U.P. Industrial Undertaking (Special Provisions for Prevention of Unemployment) Act, 1966. Responding to the said representation, the State Government issued a notification on 24th June, 2004, suspending all contracts, agreements and other instruments in force for a period of one year leading to strikes and complete disruption of the work of the Respondentany to apply to the Petitioners for reduction of the contracted load from 8 MVA to 1.25 MVA from 1st April, 2006. The materials on record indicate that as a result of such representation a meeting took place between the Managing Director of KESCO and the Executive Director of theon 19th April, 2006, wherein a decision was taken to reduce the load as requested by thewith effect from 1st April, 2006, on certain terms and conditions, which have been set out hereinabove in paragraph 18. Apart from the above, thewas also declared as a "Sick Company" under SICA on 8th May, 2007, and an order was passed by BIFR under Section 22(3) of SICA on 22nd October, 2007, inter alia, directing that KESCO would continue to accept Rs.5 lakhs per month against the arrear dues together with the current dues on the basis of the actual consumption. What is of significance is that despite compliance by the Respondentwith the said order the Petitioners continued to raise bills on theon the basis of 8 MVA load, although, it had agreed to reduce the same from 8 MVA to 1.25 MVA with effect from 1st April, 2006.25. This case is an example of how a positive decision taken to help a struggling industry to find its feet can be scuttled by legalese, although, an agreement had been reached between the parties regarding payment of the arrears in instalments along with the dues, and despite the same being duly followed by one of the parties to the agreement. The threat to yet again disrupt its manufacturing operations looms large on the horizon on account of the inability of the Respondentto comply with the provisions of Clause 4.41 read with Clause 4.49 of the U.P. Electricity Code, 2005. On 31st March, 2006, the outstanding dues of thewas Rs.8.42 crores and when Clause 4.49 was amended, thewas asked to submit a Bank Guarantee/Bond to secure the amount of Rs.10.24 crores outstanding as arrears on that date. In compliance thereof, theduly furnished a Bond on 17th June, 2007, which was not accepted by the Petitioners on the ground that it did not secure the outstanding dues of the Petitioner No.1 and were not to its satisfaction. As a result of the above, although, the Petitioners were fully aware of the precarious financial condition of theand having agreed to reduce the contract load from 8 MVA to 1.25 MVA, it refused to do so on the ground that the Bond provided did not secure the outstanding dues, resulting in a vicious circle of events. On the one hand, the high MVA load continued to contribute to the raising of high electricity bills, which thewas not able to pay, and, on the other hand, thecontinued to suffer further financial losses on account thereof.26. An argument had been advanced on behalf of the Petitioners that in the unamended provisions of Clause 4.49, provision had been made for the defaulting Company to furnish a Bond and as an alternative, to furnish a Bank Guarantee, apparently to assuage the aggravated economic conditions. In the amended provisions of Clause 4.49 the furnishing of a Bond by way of security was excluded. However, the discretion not to accept such Bond always lay with the Petitioners, giving them the discretion not to accept the Bond furnished by theThat is exactly what has happened in the instant case. While agreeing to give thethe benefit of a reduced MVA, the Petitioners had prevented thefrom accessing such privilege by continuing to raise bills on the basis of the high MVA which theapparently was unable to bear on account of its financial conditions. As a result, instead of helping theto come out of its financial crisis, the Petitioners have prevented the Company from doing so by refusing to lower the load from 8 MVA to 1.25 MVA, as agreed upon. It is not the case of the Petitioners that the agreement which had been arrived at between the Managing Director of the Petitioners and the Executive Director of thehad been breached by theOn the other hand, it has been categorically contended by the Company that it had scrupulously given effect to the said agreement as also the order of the BIFR dated 22nd October, 2007 upon the Respondentbeing declared a Sick Industrial Company under Section 3(1)(o) of SICA on 8th May, 2007.27. It is apparent that while passing the impugned order, the High Court lost sight of the said order of the BIFR and confined itself to the provisions of Clauses 4.41 and 4.49 of the U.P. Electricity Supply Code, 2005 framed under Section 50 of the Electricity Code, 2003. If the Respondentis to revive, and, thereafter, survive, a certain amount of consideration has to be shown, which was fully realized by the Petitioners themselves, but they allowed themselves to be tied up in knots over compliance with the provisions of Clauses 4.41 and 4.49 which are Rules framed for application in special cases in order to help industries which had fallen on difficult days, to recoup its losses and to bring its finances on an even keel.28. There is no dispute that pursuant to an application made on 31st March, 2006 by the Respondentpraying for the reduction of the contract load from 8 MVA to 1.25 MVA with effect from 1st April, 2006, a Meeting had been held between the Managing Director of KESCO and the representatives of thein which a decision was taken for reduction of the load with certain conditions. There is also no dispute that on the said date itself KESCO conveyed its agreement for reduction of load to the U.P. Electricity Regulatory Commission and sought its formal approval and that no objection was raised by the Commission with regard to the said decision except to indicate that the said decision would have to be implemented strictly in accordance with the Electricity Supply Code, 2005. There is also no dispute that when the decision was taken on 19th April, 2006 to reduce the contract load, the unamended version of Clause 4.49 of the Code was in existence and that the same provided for submission of either a Bank Guarantee or a Bond or any other instrument to the satisfaction of the licensee of the equal amount of pending dues. The only problem which has arisen is KESCOs decision not to accept the Bond given by theon the ground that it did not provide sufficient security for the outstanding dues. In the totality of the existing circumstances, of which KESCO was fully aware, the decision not to accept the Bond was not in accordance with the decision arrived at on 19th April, 2006 to reduce the contract load from 8 MVA to 1.25 MVA. In fact, thehad been declared to be a Relief Undertaking by the State Government on an application dated 24th June, 2004. Furthermore, soon after the decision was arrived at to lower the contract load, thewas also declared as a Sick Company on 8th May, 2007 and the BIFR, while considering the revival of theby its order dated 22nd April, 2007, directed KESCO to continue to accept Rs.5 lakhs per month against the arrears apart from payment of the current electricity bills on actual consumption basis and also not to adopt coercive measures to disconnect the supply of electricity of theAs indicated hereinabove, the result of the continued insistence of KESCO that a Bank Guarantee should be provided by the Respondentin respect of its outstanding dues, had the effect of negating the decisions to revive the Company.