The Madras Aluminium Co. Ltd. vs. The Tamil Nadu Electricity Board & Anr.
Background
The appellant, a financially-troubled aluminium manufacturer that had set up its own captive power plant, asked the Tamil Nadu Electricity Board in December 2001 to reduce its contracted maximum electricity demand from 23,000 KVA to 10,000 KVA. Despite repeated follow-ups, the Board took about two-and-a-half years to act on this request, all the while continuing to bill the company at the higher 23,000 KVA rate; the company paid substantial amounts under protest to avoid disconnection. The Madras High Court held that, absent the Board's formal sanction, the company remained contractually bound to pay at the un-reduced rate, and dismissed the company's challenge.
Decision Breakdown
The Supreme Court held that even when the State or a State instrumentality is acting under a private commercial contract, it remains bound by Article 14's requirement to act fairly, reasonably, and without unreasonable delay: a principle traced through Kumari Shrilekha Vidyarthi and the Natural Resources Allocation reference. Taking two-and-a-half years to process a straightforward demand-reduction request, without any explanation, while similar applications from other consumers were processed promptly, was held to be arbitrary; the Court considered six months a reasonable outer limit for such a decision. The Board was directed to refund, with 6% simple interest, the excess amount the company had paid for the 13,000 KVA differential, calculated from six months after the original application until the date the revised agreement was actually signed in July 2004.
Lesson Learnt
A government body cannot hide behind rigid contractual clauses to justify indefinitely delaying a routine decision affecting a private party: Article 14's guarantee of fair and reasonable State action applies even within ordinary commercial contracts.