Supreme Court clarifies Electricity Load Reduction Rules: Jharkhand State Electricity Board vs. Ramkrishna Forging Ltd. (30 April 2021)

Introduction

Date of the Judgment: 30 April 2021

Citation: (2021) INSC 254

Judges: L. Nageswara Rao, J. and Vineet Saran, J.

Can an electricity consumer reduce their sanctioned load before the expiry of three years from the date of the last load enhancement agreement? The Supreme Court of India recently addressed this question in a case between the Jharkhand State Electricity Board and a small-scale industry, M/s Ramkrishna Forging Limited. The core issue was whether fresh agreements for enhanced electricity load would extend the initial agreement period for the purpose of load reduction requests. The two-judge bench, comprising Justices L. Nageswara Rao and Vineet Saran, delivered the judgment, with Justice Vineet Saran authoring the opinion.

Case Background

M/s Ramkrishna Forging Limited, a small-scale industry, initially entered into an agreement with the Jharkhand State Electricity Board on 14 April 2004, for a High Tension (H.T.) connection with a sanctioned load of 325 KVA. Over time, the company increased its load requirements. On 14 March 2006, the load was enhanced to 1325 KVA. Subsequently, on 26 December 2006, the load was further increased to 3500 KVA, and finally to 4000 KVA on 7 July 2007. For each of these enhancements, fresh agreements were executed between the company and the Board.

The company faced frequent trippings and load shedding after the final enhancement of load, which was affecting its machinery. Consequently, on 20 September 2007, the company applied to the Board to reduce the sanctioned load back to 1325 KVA. The Board rejected this application on 8 November 2007, citing Clause 9B of the agreement, which stipulated that the agreement could not be terminated before three years from the date of the last enhancement (7 July 2007). The Board treated the request for load reduction as a termination of the agreement.

Timeline:

Course of Proceedings

The company challenged the Board’s order dated 8 November 2007 by filing a Writ Petition (No. 6651 of 2007) before the High Court of Jharkhand. The High Court allowed the petition on 23 July 2008, primarily holding that the proviso in Regulation 9.2.1 of the Jharkhand State Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2005, which disallowed load reduction before the expiry of the initial agreement period, was discriminatory, arbitrary, and against public policy. The Jharkhand State Electricity Board then appealed this decision to the Supreme Court.

Legal Framework

The case revolves around the interpretation of the Jharkhand State Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2005, specifically Regulations 2(l), 9.1, and 9.2. These regulations were framed by the Jharkhand State Electricity Regulatory Commission under Section 181(2)(x) read with Section 50 of the Electricity Act, 2003.

✓ Section 181(2)(x) of the Electricity Act, 2003 empowers the State Commissions to make regulations regarding the terms and conditions for the supply of electricity.

✓ Section 50 of the Electricity Act, 2003 deals with the powers of the State Commission to specify the conditions of supply of electricity.

The relevant regulations are:

✓ Regulation 2(l) defines “Contract Demand” as “demand in Kilowatt (KW) or Kilo Volt amperes (KVA) or H.P (Horse Power) mutually agreed between the Distribution Licensee and the consumer as entered into agreement or agreed through other written communication.”

✓ Regulation 9.1 outlines the procedure for the enhancement of contract demand/sanctioned load.

✓ Regulation 9.2 deals with the reduction of contract demand/sanctioned load. Specifically, Regulation 9.2.1 states: “The application for reduction of Contract Demand/Sanctioned Load shall made in the prescribed form specified for the new service connection. Provided that no reduction of load shall be allowed by the Distribution Licensee before expiry of the initial period of agreement.”

✓ Regulation 9.2.6 states: “After the sanction of the reduction of Contract Demand/Sanctioned Load the consumer shall execute a supplementary agreement and the licensee shall recalculate the Security Deposit excess Security Deposit if any shall be refunded by way of adjustment in the minimum number of succeeding bills of the consumer.”

Arguments

Arguments by the Jharkhand State Electricity Board:

• The Board argued that Regulation 9.2.1 of the Regulations of 2005 clearly states that no reduction of load is allowed before the expiry of the agreement period.
• The Board contended that the agreement dated 7 July 2007, for the enhanced load of 4000 KVA, was a fresh agreement.
• Therefore, the application for load reduction filed by the company on 20 September 2007, was within the three-year period from 7 July 2007, and was rightly rejected.

Arguments by M/s Ramkrishna Forging Limited:

• The company argued that the initial agreement was on 14 April 2004, and subsequent agreements were merely extensions or amendments for load enhancements.
• The company submitted that the terms of each agreement were identical, with the only change being the increased contracted load.
• The company contended that the Regulations do not mandate a fresh agreement for each load enhancement, and these should be treated as supplementary agreements.
• The company argued that the application for load reduction should be considered after three years from the initial agreement date of 14 April 2004.

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

✓ Whether the initial agreement for electricity supply should be considered for determining the expiry of the three-year period for load reduction, or whether each subsequent agreement for enhanced load should be treated as a fresh agreement for this purpose.

Treatment of the Issue by the Court

Authorities

Judgment

How each authority was viewed by the Court?

✓ The Court distinguished the cases of Bihar State Electricity Board, Patna and Others v. M/s. Green Rubber Industries and Others, (1990) 1 SCC 731, Orissa State Electricity Board v. Orissa Tiles Limited, (1993) Supp. 3 SCC 481, Andhra Steel Corporation Ltd. and Others v. Andhra Pradesh State Electricity Board and Others, (1991) 3 SCC 263 and Jharkhand State Electricity Board & Others v Laxmi Business and Cement Company Private Limited and Another, (2014) 5 SCC 236, stating that they pertained to minimum guarantee charges under the old Electricity Act of 1910 and were not relevant to the present case.

✓ The Court relied on Regulation 2(l) of the Jharkhand State Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2005, to interpret that a fresh agreement is not essential for variation of contract demand.

✓ The Court interpreted Regulation 9.2.6 of the Jharkhand State Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2005, to mean that even for enhancement of load, fresh agreements are supplementary to the initial agreement.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to interpret the regulations in a manner that is fair and reasonable to the consumer. The Court emphasized that the Electricity Board is a monopoly supplier and must act fairly. The Court also considered the practical implications of its decision, noting that requiring fresh agreements for each load enhancement would be unduly burdensome on consumers. The Court noted that the regulations should be interpreted liberally in favor of the consumer.

Fact:Law Ratio

Logical Reasoning:

The Court considered the argument that each enhancement of load resulted in a fresh agreement, but rejected it by stating that the same electricity connection was continuing, and the fresh agreements were only supplementary to the initial agreement. The Court also considered that the Electricity Board is a monopoly supplier and hence has to be fair and reasonable. The court rejected the interpretation that the three year period should be calculated from the last enhancement agreement by stating that it would be unduly burdensome on the consumer.

The Supreme Court held that the Board was wrong in treating the application for reduction of load as an application for determination of the agreement. The Court stated that the application ought to have been considered under Regulation 9.2 of the Regulations of 2005.

The Court observed: “If the Regulations provide for contract load to be varied even through a written communication, then in our considered view, in all fairness, though fresh agreements may have been executed at the stage of enhancement of load of the same electricity connection, the same cannot be treated as anything but an extension/amendment or modification of the initial agreement granting the electricity connection.”

The Court further noted: “On the dictates of the Board, the consumer may have been required to sign fresh agreements for each enhancement of load, but the enhancement being for the same electricity connection which still continues, it would merely be amendment of the initial agreement. This would also be in consonance with the provisions of the Regulations of 2005, which have to be liberally interpreted in favour of the consumer.”

The Court also stated: “we are of the opinion that the application of the respondent dated 08.11.2007 ought to have been allowed by the Board in terms of Regulation 9.2 of the Regulations of 2005, treating the application to be beyond the period of three years from the date of the execution of the initial agreement dated 14.04.2004, by which the electricity connection of the respondent had been initially granted.”

Key Takeaways

• Subsequent agreements for enhanced electricity load are considered supplementary to the initial agreement, not fresh agreements.
• The three-year period for load reduction requests is calculated from the date of the initial electricity supply agreement, not from the date of any subsequent load enhancement agreement.
• Electricity boards must act fairly and reasonably, especially given their monopoly status.
• Regulations must be interpreted liberally in favor of the consumer.

Directions

The Supreme Court directed that the application of the company dated 20 September 2007, for reduction of contract load/sanctioned load from 4000 KVA to 1325 KVA, would be deemed to have been allowed under the provisions of Regulation 9.2 of the Regulations of 2005. The company was also entitled to all consequential benefits.

Development of Law

The ratio decidendi of this case is that subsequent agreements for the enhancement of electricity load are not to be treated as fresh agreements, and the initial agreement date is to be considered for the purpose of calculating the three-year period for load reduction requests. This clarifies the interpretation of the Jharkhand State Electricity Regulatory Commission (Electricity Supply Code) Regulations, 2005, and provides relief to consumers who have enhanced their load over time. This decision ensures that consumers are not penalized for increasing their load requirements.

Conclusion

The Supreme Court dismissed the appeal filed by the Jharkhand State Electricity Board, affirming the High Court’s decision. The Court held that the company’s application for load reduction should have been allowed, as it was made after three years from the initial agreement date. The judgment clarifies that subsequent agreements for enhanced load are not fresh agreements but supplementary to the initial agreement, and the three-year period for load reduction is calculated from the initial agreement date. This decision provides clarity and fairness to electricity consumers regarding load reduction requests.