Supreme Court settles dispute on electricity disconnection and minimum guarantee charges: Bihar State Electricity Board vs. M/S Iceberg Industries Ltd. (27 April 2020)

Date of the Judgment: 27 April 2020
Citation: 2020 INSC 348
Judges: Deepak Gupta, J., Aniruddha Bose, J.
Can an electricity board disconnect power supply to a consumer for non-payment of dues, even if the consumer has requested for payment in installments? The Supreme Court addressed this question in a case involving the Bihar State Electricity Board and M/S Iceberg Industries Ltd. The core issue revolved around the legality of power disconnections and the applicability of Annual Minimum Guarantee (AMG) charges during periods of disconnection. This judgment was delivered by a two-judge bench comprising Justice Deepak Gupta and Justice Aniruddha Bose, with the opinion authored by Justice Aniruddha Bose.

Case Background

M/S Iceberg Industries Ltd. (the company) entered into an agreement with the Bihar State Electricity Board (the Board) on 16th April 2004, for a high-tension electricity connection with a contract demand of 1,000 KVA to set up a brewery. The electricity supply was energized on 6th May 2005. A dispute arose when the Board issued a bill for Rs. 27,11,814 on 17th April 2006, towards Annual Minimum Guarantee (AMG) charges, payable by 6th May 2006. The company did not pay this amount within the due date. Subsequently, the Board issued three disconnection notices on 15th May, 26th May, and 29th June 2006, due to non-payment of the AMG and energy charges.

On 29th July 2006, the company requested to pay the dues in ten monthly installments citing business difficulties. They made a partial payment of Rs. 14,71,952. However, the Board issued another disconnection notice on 23rd August 2006, for Rs. 33,38,572, which included unpaid AMG and Delayed Payment Surcharge (DPS). A subsequent bill on 1st September 2006, demanded Rs. 37,00,923, including AMG, DPS, and energy charges. The Board disconnected the company’s electricity supply on 6th September 2006.

Timeline:

Course of Proceedings

The company challenged the disconnection and the bills before the Consumer Grievances Redressal Forum. The Forum initially stayed the demand but later held the company liable to pay minimum charges up to November 2006, declaring charges from December 2006 to April 2007 as invalid. The Board challenged this order in the High Court, but the High Court dismissed the petition. The Board then disconnected the electricity again on 2nd April 2008, despite the Forum’s order. The company filed a writ petition, and the High Court ordered an interim deposit of Rs. 35 lakhs, after which the electricity was restored on 24th May 2008. The Board continued to issue bills including charges for the disconnection period, leading to further disconnections and legal challenges. The High Court directed the Board to revise the bills, excluding charges for the disconnection periods, and not to levy delayed payment charges.

Legal Framework

The primary legal framework for this case is the Electricity Act, 2003, specifically:

• Section 42(5) of the Electricity Act, 2003: This section mandates that every distribution licensee must establish a forum for the redressal of grievances of the consumers. It states: “Every distribution licensee shall, within six months from the appointed date or date of grant of licence, whichever is earlier, establish a forum for redressal of grievances of the consumers in accordance with the guidelines as may be specified by the State Commission.”
• Section 2(15) of the Electricity Act, 2003: This section defines a “consumer” as any person who is supplied with electricity for their own use by a licensee. It states: “’consumer’ means any person who is supplied with electricity for his own use by a licensee or the Government or by any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force and includes any person whose premises are for the time being connected for the purpose of receiving electricity with the works of a licensee, the Government or such other person, as the case may be;”
• Section 56 of the Electricity Act, 2003: This section deals with the disconnection of electricity supply in case of default of payment. It states: “Where any person neglects to pay any charge for electricity or any sum other than a charge for electricity due from him to a licensee or the generating company in respect of supply, transmission or distribution or wheeling of electricity to him, the licensee or the generating company may, after giving not less than fifteen clear days’ notice in writing, to such person and without prejudice to his rights to recover such charge or other sum by suit, cut off the supply of electricity and for that purpose cut or disconnect any electric supply line or other works being the property of such licensee or the generating company through which electricity may have been supplied, transmitted, distributed or wheeled and may discontinue the supply until such charge or other sum, together with any expenses incurred by him in cutting off and reconnecting the supply, are paid, but no longer”

Additionally, the Consumer Grievance Redressal Forum and Electricity Ombudsman Regulation, 2006, defines a consumer in clause 2(1)(g) as: “any person who is supplied with electricity for his own use by a licensee and includes any person whose premises are connected for the purpose of receiving electricity with the works of a licensee or a person whose electricity supply is disconnected by a licensee or the person who has applied for connection for receiving electricity from a licensee, as the case may be.”

The High Court also referred to the circular No. 477 dated 29.10.2002, which specified that if a consumer’s line is disconnected for non-payment and remains disconnected for three months, the agreement is deemed terminated, and the consumer is liable to pay minimum charges for those three months.

Arguments

Arguments of the Bihar State Electricity Board:

• The Board argued that the Consumer Grievances Redressal Forum did not have jurisdiction over the dispute because the company was a high-tension commercial consumer and not using electricity for their own use.
• The Board contended that the company was liable to pay AMG charges for the entire period of disconnection, relying on clauses 9(a) and 9(b) of the supply agreement, which restricted the consumer from terminating the agreement within three years of commencement of supply.
• The Board argued that the company neglected to pay their dues, justifying the disconnection under Section 56 of the Electricity Act, 2003.
• The Board contended that the circular No. 477 was not applicable within the first three years from the date of commencement of the supply of energy as per the Supply Agreement.

Arguments of M/S Iceberg Industries Ltd.:

• The company argued that they were a “consumer” as defined under Section 2(15) of the Electricity Act, 2003, and thus, the Forum had jurisdiction.
• The company contended that the disconnection was illegal as they had requested for payment in installments and made part payments.
• The company argued that they were not liable to pay AMG charges for the period during which the electricity supply was disconnected, referring to the Board’s circular No. 477 dated 29.10.2002.
• The company argued that the disconnection was not justified as they did not “neglect” to pay, given their request for installments and partial payments, and that there was a bona fide dispute regarding the quantum of dues.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. Whether the company could invoke the Redressal Forum’s jurisdiction over the dispute pertaining to AMG and DPS, including the question of disconnection under Section 56 of the Electricity Act, 2003.
2. Whether, after receiving a representation seeking installment payment, supply to a consumer could be disconnected without dealing with such representation.
3. Whether AMG was payable by the company for the entire period during which supply to the consumer remained disconnected.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• Corporation of the City of Nagpur Vs. Nagpur Electric Light and Power Company Limited, AIR 1958 Bom. 498: This case, from the High Court of Judicature at Bombay, dealt with Section 24(1) of the Indian Electricity Act, 1910, which is similar to Section 56 of the Electricity Act, 2003. It held that if there is a bona fide dispute on the quantum of dues, non-payment would not amount to negligence.
• Amalgamated Commercial Traders Vs. A.C.K. Krishnaswami, (1995)(XXV) CC 454: This case, related to the initiation of winding-up proceedings under the Companies Act, 1956, held that if there is a bona fide dispute on the quantum of dues, non-payment would not amount to negligence.
• Laxmikant Revchand Bhojwani and another Vs. Pratapsing Mohansingh Pardeshi, (1995) 6 SCC 576: In this case, the Supreme Court held that if rent is sought to be paid through money order within the specified period, it is not a case of default to pay simpliciter, and the rigors of the default provision leading to eviction stand diluted.

Statutes and Regulations:

• Section 42(5) of the Electricity Act, 2003: Mandates the establishment of consumer grievance redressal forums.
• Section 2(15) of the Electricity Act, 2003: Defines “consumer.”
• Section 56 of the Electricity Act, 2003: Deals with disconnection of electricity supply for non-payment.
• Consumer Grievance Redressal Forum and Electricity Ombudsman Regulation, 2006: Defines “consumer”.

Circulars:

• Circular No. 477 dated 29.10.2002: Issued by the Bihar State Electricity Board, it specifies the conditions for termination of electricity agreements and the charges applicable after disconnection.

Authorities Considered by the Court

Judgment

The Supreme Court dismissed the appeals filed by the Bihar State Electricity Board and upheld the judgment of the Patna High Court. The Court held that:

• The Consumer Grievances Redressal Forum had the jurisdiction to entertain the company’s application as the company was a consumer under Section 2(15) of the Electricity Act, 2003.
• The Board could not have disconnected the electricity supply without considering the company’s representation for installment payments.
• The company was not liable to pay AMG charges for the period during which the electricity supply was disconnected, as per the Board’s circular No. 477.

How each authority was viewed by the Court?

• Corporation of the City of Nagpur Vs. Nagpur Electric Light and Power Company Limited [AIR 1958 Bom. 498]*: The Court relied on this case to support its finding that a bona fide dispute regarding the quantum of dues negates the element of neglect to pay, which is required for disconnection under Section 56 of the Electricity Act, 2003.
• Amalgamated Commercial Traders Vs. A.C.K. Krishnaswami [(1995)(XXV) CC 454]*: This case was used to reinforce the principle that a genuine dispute over dues prevents a finding of neglect to pay.
• Laxmikant Revchand Bhojwani and another Vs. Pratapsing Mohansingh Pardeshi [(1995) 6 SCC 576]*: The Court used this case to support the view that when a party demonstrates a willingness to pay, the strict application of default provisions is not warranted.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The company’s status as a “consumer” under the Electricity Act, 2003, which granted them the right to approach the Redressal Forum.
• The company’s request for installment payments and subsequent part payments, which demonstrated a willingness to pay and negated the element of “neglect” required for disconnection under Section 56 of the Act.
• The Board’s circular No. 477, which limited the liability of a consumer to pay minimum charges for only three months after disconnection.
• The Board’s actions in disregarding the orders of the Redressal Forum and disconnecting the supply multiple times despite ongoing disputes.

Logical Reasoning

The Court considered alternative interpretations of the legal provisions and the supply agreement, but rejected them based on the facts of the case and the principles of fairness and equity. The Court emphasized that the Board could not act arbitrarily and had to respect the orders of the statutory forum.

The decision was reached by the two-judge bench unanimously. There were no dissenting opinions.

The Court’s reasoning was based on a combination of statutory interpretation, consideration of the specific facts of the case, and principles of natural justice. The Court emphasized that the Board’s actions were arbitrary and in violation of the principles of fairness.

The Supreme Court quoted the following from the judgment:

• “Every distribution licensee shall, within six months from the appointed date or date of grant of licence, whichever is earlier, establish a forum for redressal of grievances of the consumers in accordance with the guidelines as may be specified by the State Commission.”
• “’consumer’ means any person who is supplied with electricity for his own use by a licensee or the Government or by any other person engaged in the business of supplying electricity to the public under this Act or any other law for the time being in force and includes any person whose premises are for the time being connected for the purpose of receiving electricity with the works of a licensee, the Government or such other person, as the case may be;”
• “Where any person neglects to pay any charge for electricity or any sum other than a charge for electricity due from him to a licensee or the generating company in respect of supply, transmission or distribution or wheeling of electricity to him, the licensee or the generating company may, after giving not less than fifteen clear days’ notice in writing, to such person and without prejudice to his rights to recover such charge or other sum by suit, cut off the supply of electricity and for that purpose cut or disconnect any electric supply line or other works being the property of such licensee or the generating company through which electricity may have been supplied, transmitted, distributed or wheeled and may discontinue the supply until such charge or other sum, together with any expenses incurred by him in cutting off and reconnecting the supply, are paid, but no longer”

Key Takeaways

• Electricity distribution companies cannot disconnect power supply arbitrarily, especially when a consumer has requested for payment in installments and has made part payments.
• Consumer Grievances Redressal Forums have jurisdiction to hear disputes from high-tension commercial consumers if they are using electricity for their own use.
• Consumers are not liable to pay Annual Minimum Guarantee charges for the period during which their electricity supply is disconnected, as per the Board’s circular No. 477.
• Electricity Boards must respect the orders of statutory forums and cannot disregard them based on their own interpretation of the law.

Directions

The Supreme Court did not give any specific directions, but upheld the directions of the High Court, which included:

• The Board must delete charges related to the period of illegal disconnections from the bills.
• The bills must be recast from the initial period, giving due credit to payments made.
• The revised bills should not contain delayed payment charges.

Development of Law

The ratio decidendi of this case is that electricity distribution companies cannot disconnect power supply arbitrarily, especially when a consumer has requested for payment in installments and has made part payments. This case also clarifies that consumers are not liable to pay Annual Minimum Guarantee charges for the period during which their electricity supply is disconnected, as per the Board’s circular No. 477. This ruling reinforces the principle that statutory bodies must respect the orders of statutory forums and cannot act arbitrarily based on their own interpretation of the law. This case does not overrule any previous position of law but clarifies the interpretation of Section 56 of the Electricity Act, 2003, and the applicability of Board’s circulars.

Conclusion

The Supreme Court’s judgment in the case of Bihar State Electricity Board vs. M/S Iceberg Industries Ltd. provides crucial clarity on the rights of electricity consumers and the obligations of electricity distribution companies. The judgment underscores that electricity boards cannot act arbitrarily in disconnecting power supply, particularly when consumers have made efforts to pay their dues and have raised legitimate disputes. The court’s emphasis on the importance of considering consumer representations and adhering to the orders of statutory forums sets a significant precedent for future cases involving similar disputes. The decision also highlights the need for electricity boards to act fairly and reasonably in their dealings with consumers. The ruling reinforces the principle that statutory bodies must respect the orders of statutory forums and cannot act arbitrarily based on their own interpretation of the law. The judgment is a significant win for consumers, ensuring that they are not unfairly penalized for non-payment when they have demonstrated a willingness to pay and have raised legitimate disputes. The ruling also clarifies the interpretation of Section 56 of the Electricity Act, 2003, and the applicability of Board’s circulars.