REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NO. 33984 OF 2009

Kanpur Elect. Supply Co. Ltd. & Anr.  … Petitioners  

Vs.

M/s. L.M.L. Limited & Ors. … Respondents

J U D G M E N T

ALTAMAS KABIR, J.

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  

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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  

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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  

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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,  

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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  

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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.

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6. From what has been indicated hereinabove, it  

will  be  clear  that  the  question  required  to  be  

answered  in  the  present  Petition  involves  the  

interpretation of Clause 4.41 read with Clause 4.49  

of the U.P. Electricity Supply Code, 2005, framed  

under Section 50 of the Electricity Act, 2003.  In  

order  to  appreciate  the  issue  raised,  the  

provisions  of  Clause  4.41  are  reproduced  

hereinbelow :  

“4.41 Reduction in Contracted load.

(a)  Every  application  for  reduction  of  contracted load shall be made in duplicate  to  the  concerned  officer  on  prescribed  form  (Annex-4.10)  along  with  the  prescribed processing fee and charges for  reduction of load alongwith the following  documents:

(i) Work completion certificate and  test  report  from  the  licensed  electrical  contractor  where  alteration  of  the  installation  is involved.

(ii) Maximum demand recorded in the  last two billing cycles if the  meter has the facility to record  

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maximum  demand  and  the  electricity bill of the previous  two billing cycles.

(iii) Letter  of  approval  from  the  Electric-Inspector,  wherever  applicable (or as per rules when  framed under Section 53).

(iv)   Copy  of  the  latest  paid  electricity  bill.   If  matter  related  to  dues  is  pending  in  court,  the  procedure  as  per  Clause 4.49 may be followed.

(b) The  designated  authority  of  the  Licensee shall communicate to the consumer  the  decision  on  his  application  within  thirty  days  of  receipt  of  the  duly  completed application.

(c) A  fresh  agreement  for  reduced  load  shall  be  executed  for  2  years  but  the  period of compulsory agreement 2 years for  the  purpose  of  payment  of  MCG  shall  be  counted  from  the  date  of  original  agreement for the purpose of P.D.

(d) No  refund  shall  be  allowed  for  the  deposited cost of the line and substation.  However, if the security deposited earlier  is in excess of the requirement for the  reduced  load,  the  excess  of  the  requirement  for  the  reduced  load,  the  excess shall be adjusted in future bills.

(e) The effective date of such reduction  shall be reckoned from the first day of  the  following  month  in  which  the  

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application  has  been  sanctioned  by  the  licensee.

(f) ………………”   

7. Clause 4.49 was amended with effect from 14th  

September, 2006.  Accordingly, both the unamended  

provisions  of  Clause  4.49  and  the  amended  

provisions are set out hereinbelow :

Unamended version :

“4.49.  Release  of  Connection/Load  where  arrears disputed are stayed by Court/other  forums :

Where there is stay order by any Court,  Forum, Tribunal, or by Commission, staying  the recovery of any dues by licensee, and  during  the  operating  period  of  any  such  order:

(i) If a consumer sells a premises  and an application for release  of new connection is made by the  purchaser.

Or

(ii) If  any  application  for  enhancement or reduction of load  is made by a consumer.  

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the  licensee  shall  release  the  new  connection  to  such  consumer  and  also  permit reduction or enhancement of loads,

Subject to

• Submission  either  of  Bank  Guarantee,  or  Bonds,  or  any  instruments to the satisfaction of  licensee of equivalent amount of  pending  dues,  by  the  applicant,  and,

• Agreement with licensee on terms  of  extension/invoking  of  guarantee, and,

• Levy  of  surcharge  amount  on  pending dues,

And  the  application  of  such  consumers  shall  not  be  kept  pending  by  the  licensee.”

Amended version :

“4.49. Permanent disconnection/ release of  Connection/Enhancement  and  Reduction  of  Load where arrears disputed are stayed by  Court/other forums :-

Where there is a stay order by any Court,  Forum, Tribunal, or by Commission, staying  the recovery of any dues by licensee, and  during  the  operating  period  of  any  such  order –

(i) If a consumer sells a premises  and an application for release  

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of  new  connection  is  made  by  the purchaser; or

(ii) If  any  application  for  new  connection,  reconnection,  en- hancement or reduction of load  is made by a consumer; or

(iii) If  any  application  for  permanent disconnection is made  by  a  consumer  the  licensee  shall  release  the  new  connection to such consumer and  also  permit  reconnection  reduction  or  enhancement  of  Loads,  as  well  as  allow  permanent disconnection.

Subject to

• Submission of Bank Guarantee to  the satisfaction of licensee, of  equivalent  amount  of  pending  dues, by the applicant or owner,  and,

• Agreement with licensee on terms  of  extension/invoking  of  guarantee, and

• Levy  of  surcharge  amount  on  pending dues,

and  the  application  of  such  consumers  shall  not  be  kept  pending by the licensee.”

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8. As  will  be  seen  from  the  above,  if  any  

application  for  reduction  of  load  is  made  by  a  

consumer, such reduction could be permitted subject  

to :

“Submission either of Bank Guarantee,  or Bonds, or any instruments to the  satisfaction  of  the  licensee  of  equivalent amount of pending dues by  the applicant.”

9. The said condition was replaced in the amended  

provisions by the following condition :

“Subject  to  submission  of  Bank  Guarantee to the satisfaction of the  licensee,  of  equivalent  amount  of  pending  dues,  by  the  applicant  or  owner.”  

10. It  is  the  difference  between  the  said  two  

provisions, whereby the submission of a Bond had  

been excluded from the amended provisions, which  

has given rise to the disputes in the present case.

11. It appears that the outstanding dues of the  

Respondent-Company  were  8.42  crores  as  on  31st  

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March, 2006 and hence the load was not reduced.  In  

the meantime, after the amendment of Clause 4.49 of  

the  Code,  a  letter  was  sent  to  the  Respondent-

Company on 4th October, 2006, asking it to submit a  

Bank Guarantee/Bond securing the amount of Rs.10.24  

crores outstanding as arrears on that date.  The  

Respondent-Company,  accordingly,  by  its  letter  

dated  17th June,  2007,  submitted  a  Bond  stating  

therein  that  the  Company  was  agreeable  to  make  

payment of the arrears, if any, to KESCO upon the  

directions  of  the  Court  and  the  amount  as  was  

decided  by  the  Courts.   However,  since  the  two  

affidavits  and  the  Bond  did  not  secure  the  

outstanding dues of the Petitioners and were also  

not to its satisfaction, the load was not reduced.  

As  indicated  hereinabove,  the  Respondent-Company,  

thereafter,  filed  Civil  Misc.  Writ  Petition  

No.24900 of 2009 before the Allahabad High Court.

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12. Learned ASG, Mr. Parag Tripathy, appearing for  

the Petitioners, submitted that since neither the  

two  affidavits  nor  the  Bond  filed  by  the  

Respondent-Company  were  acceptable  to  the  

Petitioners, the load was not reduced from 8 MVA to  

1.25  MVA,  as  requested,  since  securing  the  

outstanding balance was one of the pre-conditions  

for such reduction.   The learned ASG urged that  

since  securing  the  amount  payable  was  involved,  

neither the affidavits nor the Bond could guarantee  

recovery of the arrear dues in case of breach.  It  

was further urged that even the unamended version  

of  clause  4.49,  on  which  the  Respondent-Company  

relies, makes it very clear that either release of  

a new connection or the reduction or enhancement of  

loads would be subject to submission of either a  

Bank guarantee or Bond or any instrument  to the  satisfaction of the licensee (emphasis added).  The  learned Additional Solicitor General submitted that  

the High Court appears to have lost sight of the  

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said  condition  and  that  the  Petitioner-Company  

could not be compelled to accept the affidavits or  

Bond as security/guarantee for the arrears due.   

13. The learned ASG then submitted that while the  

Respondent-Company had relied upon Annexure 6.5 to  

the U.P. Electricity Supply Code, 2005, the same  

only provides relief to Sick Industrial Companies  

and Relief Undertakings falling under Clause 6.16  

of the said Code, which provides as follows :-

“6.16.  Disconnected  Industrial  Units  seeking  revival  :  For  industries  lying  disconnected over six months and seeking  to revive, the Commission order dated 12th  July,  2005  given  in  Annexure  6.5,  shall  apply  to  the  extent  specified  in  the  order, and if not contrary to any G.O., or  any court order.”   

Mr. Tripathy urged that the said clause would not  

apply to the case of the Respondent-Company since  

it was not the case of a disconnected industrial  

unit seeking revival and hence no reliance could be  

placed on Annexure 6.5 to the above Code.  It was  

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also pointed out that although the load had not  

been  reduced,  as  requested  by  the  Respondent-

Company,  on  13th July, 2007, another request was  

made for increase of the load from 1.25 MVA to 2.25  

MVA, which action was not permissible.  

14. The learned ASG submitted that till such time  

the  provisions  of  Clause  4.49  were  not  complied  

with  by  the  Respondent-Company,  the  question  of  

reduction of the contracted load from 8 MVA to 1.25  

MVA  did  not  arise  and  the  further  request  to  

increase  the  same  to  2.25  MVA  was  also  not  

maintainable.   The learned ASG submitted that the  

approach  of  the  High  Court  to  the  problem  was  

completely  wrong  and  cannot,  therefore,  be  

sustained.  

15. On  the  other  hand,  appearing  for  the  

Respondent-Company,  Mr.  M.L.  Lahoty,  Advocate,  

reiterated  the  submissions  made  before  the  High  

Court  that  on  account  of  the  deteriorating  

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financial health of the Company and apprehending a  

further adverse effect on its work force, the State  

Government on 24th June, 2004, upon exercise of its  

power  under  Section  3  of  the  U.P.  Industrial  

Undertakings (Special Provisions for Prevention of  

Unemployment)  Act,  1966,  issued  a  notification  

granting  the  Respondent-Company  the  status  of  a  

“Relief Undertaking”.  The notification, which was  

initially  issued  for  a  period  of  one  year,  was  

subsequently extended for two consecutive periods  

of one year each on 14th June, 2005 and 23rd June,  

2006, respectively.   The consequence of the same  

was  that  all  contracts,  agreements,  etc.  stood  

suspended  for  a  period  of  one  year  and  all  

proceedings  pending  before  any  Court,  Tribunal,  

Authority, etc. stood stayed.   

16. On  account  of  the  deteriorating  market  

conditions  and  suspension  of  most  of  its  

manufacturing  activities,  the  Respondent-Company  

applied for reduction of load from 8 MVA to 1.25  

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MVA  and  made  a  formal  application  to  KESCO  to  

reduce its load in the manner indicated above with  

effect from 1st April, 2006.  The said application  

was in the prescribed proforma under Clause 4.41 of  

the U.P. Supply Code, 2005.    

17. In  order  to  prevent  a  stalemate,  the  

Respondent-Company sought the intervention of the  

Member  Secretary  (Energy),  U.P.,  regarding  

reduction of the contracted load from 8 MVA to 1.25  

MVA  on  account  of  the  market  conditions.  

According  to  Mr.  Lahoty,  this  led  to  a  meeting  

between  the  Managing  Director  of  KESCO  and  the  

Executive Director of LML on 19th April, 2006, in  

which a decision was taken to reduce the load from  

8 MVA to 1.25 MVA, as requested by the Respondent-

Company, with effect from 1st April, 2006.  The said  

decision of load reduction was, of course, subject  

to the condition that (i) LML would pay its monthly  

electricity  dues,  (ii)  both  LML  and  KESCO  would  

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accept the decision on dues pending in the Courts  

and (iii) the decision on load reduction would be  

sent  for  approval  to  the  Regulatory  Commission  

(UPERC),  which  would  be  acceptable  to  both  the  

parties.  Mr. Lahoty contended that once a decision  

had been arrived at between the Managing Director  

of  KESCO  and  the  Executive  Director  of  the  

Respondent-Company, KESCO ought not to have raised  

inflated bills based on 8 MVA load thereafter.  

18. Mr.  Lahoty  urged  that  while  the  aforesaid  

controversy was continuing, on 8th May, 2007, the  

Respondent-Company  was  declared  to  be  a  “Sick  

Industrial Company” under Section 3(1)(o) of SICA.  

In addition to the above, the BIFR also invoked its  

jurisdiction  under  Section  22(3)  of  SICA  on  

22.10.2007  directing  that  (i)  against  arrears,  

KESCO  would  continue  to  accept  Rs.5  lakhs  per  

month, (ii) current bills would be paid on actual  

consumption basis and (iii) KESCO would not resort  

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to any coercive measures such as disconnection of  

supply.  According to Mr. Lahoty, the Respondent-  

Company  has  been  strictly  adhering  to  the  said  

order of the BIFR and has in the process already  

liquidated about Rs.3.09 crores of the outstanding  

dues.  Mr.  Lahoty  reiterated  that  although  the  

Respondent-Company had complied with the provisions  

of  the  Supply  Code  and  also  complied  with  the  

payment  schedule  as  per  the  agreement  dated  3rd  

August,  2007,  and  the  order  dated  22nd October,  

2007, passed by the BIFR in the light of Annexure  

6.5  to  the  Supply  Code,  KESCO  went  on  raising  

monthly electricity bills on the basis of 8 MVA  

which compelled the Respondent-Company to file Writ  

Petition (C) No.24900 of 2009 before the Allahabad  

High Court, inter alia, for a direction upon the  

Petitioner-Company that the load stood reduced from  

1st April, 2006.  It was submitted that all the  

submissions made on behalf of KESCO relating to the  

application  for  load  reduction,  were  not  in  

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accordance with the provisions of the Code and in  

the absence of any stay order by any Court or Forum  

in  respect  of  arrears,  the  provisions  of  Clause  

4.49 was not fulfilled.  However, all the issues  

raised by KESCO were negated by the Division Bench  

of the High Court in its impugned judgment.  Mr.  

Lahoty submitted that having regard to the decision  

of the Rajasthan High Court in  Modern Syntax (I)  

Ltd. Vs.  Debts  Recovery  Tribunal,  Jaipur [AIR  

(2001) Raj. 170) which in its turn is based on the  

judgment of this Court in  Doburg Lager Breweries  

Pvt. Ltd. Vs. Dhariwal Bottle Trading Co. [(1986) 2  

SCC 382], wherein it was held by this Court that  

the object of a Relief Undertaking Act is to sub-

serve  the  public  interest  and  to  prevent  

unemployment in particular, the relevant provisions  

are to be given a liberal interpretation.  

19. Mr. Lahoty also submitted that in clause 4.49  

of the Code prior to its amendment, there was an  

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option  of  furnishing  a  Bond  and  filing  an  

instrument  in  the  nature  of  a  Bond,  apart  from  

furnishing  a  Bank  Guarantee  and  no  fault  could,  

therefore,  be  found  with  the  affidavits  and  the  

Bond submitted on behalf of the Respondent-Company.  

It  was  submitted  that  since  no  shortcoming  or  

illegality was mentioned in the decision taken by  

the Managing Director of KESCO and the Executive  

Director  of  LML  and  since  the  load  reduction  

application  was  to  be  considered  as  per  the  

unamended Code, nothing further was required to be  

done  by  the  Respondent-Company  after  the  said  

decision was taken on 19th April, 2006.   It was  

urged that it was in the said context that the  

Division  Bench  observed  that  KESCO’s  stand  in  

raising the monthly bills on the basis of 8 MVA  

contracted load was wholly unjust and unfair, more  

particularly when the Respondent No.1 Company was  

on  its  part  complying  with  the  conditions  of  

payment  of  the  monthly  bills  based  on  actual  

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consumption and instalments towards the arrears.   

20. Referring to the exercise of power by the UPERC  

under  Section  23  of  the  Electricity  Supply  Act,  

2003 and Clause 9.5 of the Supply Code, it was  

submitted that the same was a separate regime in  

the larger public interest with the sole object of  

preventing unemployment and loss of production in  

order  to  serve  a  social  cause.   It  is  in  that  

context that it was recorded that only current dues  

were to be realized from a “Relief Undertaking” or  

a “Sick Industry” from whom only current dues would  

be  realized  and  as  far  as  the  past  dues  are  

concerned,  the  same  would  be  recovered  in  equal  

monthly instalments.  As far as late payment sur-

charge are concerned, the same would be subject to  

the orders of the BIFR under the SICA or the State  

Government under the 1966 Act.  It was submitted  

that the said provisions of paragraph 8(c) and (d)  

of Annexure 6.5 to the Code squarely applied to the  

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case of the Respondent No.1 Company after it was  

declared  as  a  “Relief  Undertaking”  on  24th June,  

2004, and as a “Sick Industry” by BIFR on 8th May,  

2007, but with effect from 31st August, 2006.

21. It was then submitted that even though KESCO  

was  fully  aware  of  the  pendency  of  arrears,  it  

decided  to  enter  into  an  arrangement  for  load  

reduction  as  it  was  satisfied  that  the  said  

decision was in the interest of both KESCO and LML  

and  was  warranted  by  the  circumstances  then  

existing.  Since the arrangement was to the full  

satisfaction of KESCO it itself recommended to the  

Regulatory Body that KESCO’s decision to reduce the  

load  from  8  MVA  to  1.25  MVA  may  be  approved,  

notwithstanding  the  pendency  of  arrears.   Mr.  

Lahoty submitted that being a public undertaking it  

did not lie in the mouth of KESCO to try to wriggle  

out of a conclusive decision which had been acted  

upon for at least four years.  

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22. A further submission was made by Mr. Lahoty to  

the extent that Respondent No.1 Company had secured  

KESCO by an amount of Rs.64 lakhs approx. which was  

deposited  by  the  Respondent  No.1  Company  as  per  

Clause 4.20 of the Supply Code, and the same could  

be  utilized  by  KESCO  in  any  eventuality.   When  

against the excess security deposit an amount of  

Rs.65 lakhs approximately was found to be surplus,  

the  Respondent-Company  permitted  KESCO  to  adjust  

the  total  amount  of  Rs.84  lakhs  as  late  as  in  

October, 2009, which would show the bonafides of  

the Respondent No.1 Company.  

23. Mr.  Lahoty  concluded  his  submissions  by  

submitting that because of the financial hardship  

under  which  the  Respondent  No.1  Company  was  

functioning, both the State Government as well as  

the BIFR had shown a great deal of concern and that  

the Respondent-Company is continuing to pay Rs.5  

lakhs in monthly instalments towards arrears, along  

26

with  the  current  dues,  and  that  it  was  in  no  

position to provide any Bank Guarantee as demanded  

by the Petitioners.  Mr. Lahoty submitted that a  

public  authority  should  not  be  allowed  to  exert  

pressure when the Respondent-Company was complying  

with  its  commitments  and  the  order  passed  under  

Section  22(3)  of  SICA  by  BIFR.   Mr.  Lahoty  

submitted  that  the  Special  Leave  Petition  was  

without any merit and was liable to be dismissed.  

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 the Respondent-Company, which is not denied  

on  behalf  of  the  Petitioners,  is  that  owing  to  

market fluctuations the Respondent-Company had to  

put a halt to its manufacturing activities and to  

make a representation to the State Government for  

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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  

Respondent No.1-Company, impelling the Respondent-

Company 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  the  Respondent-

Company on 19th April, 2006, wherein a decision was  

taken  to  reduce  the  load  as  requested  by  the  

Respondent-Company with effect from 1st April, 2006,  

on certain terms and conditions, which have been  

28

set out hereinabove in paragraph 18.  Apart from  

the above, the Respondent-Company was 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 Respondent No.1-Company  

with the said order the Petitioners continued to  

raise bills on the Respondent-Company on 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  

29

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 Respondent No.1-

Company  to  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 the Respondent-Company was Rs.8.42 crores  

and when Clause 4.49 was amended, the Respondent-

Company was 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,  

the Respondent-Company duly 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  

30

of  the  precarious  financial  condition  of  the  

Respondent-Company and 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 the Respondent-Company was  

not  able  to  pay,  and,  on  the  other  hand,  the  

Respondent-Company  continued  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  

31

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  the  Respondent-Company.   That  is  

exactly  what  has  happened  in  the  instant  case.  

While agreeing to give the Respondent-Company the  

benefit  of  a  reduced  MVA,  the  Petitioners  had  

prevented  the  Respondent-Company  from  accessing  

such privilege by continuing to raise bills on the  

basis of the high MVA which the Respondent-Company  

apparently was unable to bear on account of its  

financial  conditions.   As  a  result,  instead  of  

helping the Respondent-Company to 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  the  Respondent-Company,  had  been  

32

breached by the Respondent-Company.   On 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 Respondent No.1-

Company being 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 Respondent No.1-

Company is 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  

33

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  

Respondent No.1-Company, praying 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 the Respondent-Company in 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  

34

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 KESCO’s decision not to accept  

the  Bond  given  by  the  Respondent-Company  on  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, the Respondent-Company  

had been declared to be a Relief Undertaking by the  

State Government on an application dated 24th June,  

35

2004.   Furthermore,  soon  after  the  decision  was  

arrived  at  to  lower  the  contract  load,  the  

Respondent-Company  was  also  declared  as  a  Sick  

Company  on  8th May,  2007  and  the  BIFR,  while  

considering the revival of the Respondent-Company  

by 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  the  Respondent-

Company.  As indicated hereinabove, the result of  

the  continued  insistence  of  KESCO  that  a  Bank  

Guarantee  should  be  provided  by  the  Respondent  

No.1-Company in respect of its outstanding dues,  

had the effect of negating the decisions to revive  

the Company.

29. We  are,  therefore,  of  the  view  that  no  

interference  is  called  for  in  this  petition  in  

36

regard to the impugned order of the High Court.  

The  Special  Leave  Petition  is,  accordingly,  

dismissed,  but  this  will  not  prevent  the  

Petitioner-Company  from  taking  appropriate  steps  

against  the  Respondent-Company  in  the  event  the  

latter  Company  commits  default  in  paying  the  

instalments  as  directed  by  the  BIFR  towards  the  

arrears or in respect of the current electricity  

bills.

30. There will be no order as to costs.          

………………………………………….J. (ALTAMAS KABIR)

………………………………………….J. (CYRIAC JOSEPH)

………………………………………….J. (C.K. PRASAD)

New Delhi Dated: 07.05.2010

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