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Bihar State Electricity Board And Another v. Umi Special Steel Ltd. .
Factual and Procedural Background
The appellants (electricity supplier) and the respondent (consumer) executed an agreement on 12-1-1972 for supply of 1500 KVA high-tension electricity at 11,000 volts. Key provisions included: (i) payment of “annual minimum charges” even if no energy was consumed (clause 4-a); (ii) an initial lock-in period of three years, renewable yearly thereafter (clause 8); and (iii) termination only after the first three years upon 12 months’ prior written notice (clause 9), with disconnection not amounting to termination.
Between 1973-74, the respondent sought reduction of contract demand and contract period. On 12-2-1974 it asked that the agreement stand “determined” from 1-3-1974 and that only a temporary 500 KVA supply be given, but the appellants refused, and the contract admittedly continued.
By letter dated 24-2-1975 the respondent requested disconnection of supply from 1-3-1975. The appellants disconnected electricity and, in May 1975, billed the respondent for minimum charges for 1-3-1975 to 28-2-1976. Unpaid bills prompted a notice (18-5-1976) and a recovery certificate (2-8-1978).
The respondent sued, contending the contract had terminated on 24-2-1975 and that no minimum charges were payable thereafter. The trial court dismissed the suit on 31-3-1980. On appeal, the High Court (28-1-1989) held the parties had mutually reduced the contract period to two years, treating the disconnection as consensual termination, and remanded for calculation of dues only up to 1-3-1975. Subsequent orders (2-5-1990) directed refund of sums recovered for the later period. A Letters Patent Appeal was summarily dismissed on 14-8-1991. The appellants then appealed to the Supreme Court, which issued the present judgment.
Legal Issues Presented
- Whether the supply agreement was validly terminated on 24-2-1975 or, under clause 9, continued until 28-2-1976.
- Whether mere disconnection of electricity constitutes termination of the agreement.
- Whether the appellants were entitled to recover annual minimum charges for 1-3-1975 – 28-2-1976.
- Whether the High Court erred in treating the parties’ correspondence as a novation reducing the lock-in period from three to two years.
Arguments of the Parties
Appellants’ Arguments
- The agreement expressly barred termination within three years and required 12 months’ written notice thereafter; no such notice was given.
- Disconnection requested by the respondent did not amount to termination; the contract remained operative, triggering minimum-charge liability.
- The High Court erred in finding a novation; the respondent itself admitted the contract subsisted until February 1975.
Respondent’s Arguments
- The correspondence in 1973-74 and the appellants’ act of disconnection established mutual consent to shorten the contract period to two years, thereby terminating the agreement on 24-2-1975.
- Consequently, liability for minimum charges ceased after that date, and the amounts recovered for 1-3-1975 to 28-2-1976 should be refunded.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Supreme Court highlighted that clauses 4-a and 9 envisaged payment of minimum charges even when no electricity was consumed and clearly separated “disconnection” from “termination.” It found:
- The contract “admittedly” remained in force until February 1975; hence the High Court’s inference of a two-year novation was factually and legally untenable.
- Disconnection at the respondent’s request was merely cessation of supply, not contractual termination. Under clause 9, the earliest termination date—absent written notice—would be 12 months after disconnection, i.e., 28-2-1976.
- Because no 12-month written notice had ever been served, the agreement subsisted until 28-2-1976, obliging the respondent to pay minimum charges for 1-3-1975 – 28-2-1976.
- The High Court’s view that clause 9 “perished” with the contract was a misapplication of fundamental contract principles; the clause remains operative until proper termination.
Holding and Implications
HELD: The Supreme Court set aside the High Court’s orders dated 14-8-1991, 20-1-1989, and 2-5-1990, declaring that the respondent is liable to pay the annual minimum charges for 1-3-1975 to 28-2-1976.
Implementation directions: the respondent, having already withdrawn the disputed amount pursuant to prior interim orders, must repay it with 12% interest from the date of withdrawal, in six equal monthly instalments beginning 1-1-2001. Default in any instalment renders the entire balance immediately due. No order as to costs.
Implications: The judgment reinforces that, under supply contracts, disconnection alone does not terminate the agreement; contractual termination procedures must be strictly followed, and minimum-charge clauses remain enforceable until lawful termination. No new precedential rule was announced beyond applying established contractual principles.
S.N Variava, J.— This appeal is against an order dated 14-8-1991 passed in Letters Patent Appeal No. 69 of 1990, by which the appeal has been dismissed in limine. The letters patent appeal was against an order dated 20-1-1989 read with an order dated 2-5-1990, wherein an appeal filed by the respondent had been allowed.
2. Briefly stated the facts are as follows:
On 12-1-1972 the appellants and the respondent entered into an agreement whereunder the appellants were to supply to the respondent high-tension electricity for a contract demand/load of 1500 KVA at 11,000 volts. The relevant clauses of the agreement are 4(a), 8 and 9. They read as under:
“4. (a) The consumer shall pay to the Board for the energy so supplied and registered as aforesaid at the rates given in the schedule, provided that the minimum charge as specified in the schedule appended hereto shall be paid irrespective of whether energy to that extent has been consumed or not.
8. The agreement shall be ordinarily in force for a period of not less than 3 years in the first instance except in exceptional cases in which written consent of the Board will be taken, from the date of commencement of supply i.e … and thereafter shall continue from year to year until the agreement is determined hereinafter provided.
9. The consumer shall not be at liberty to determine this agreement before the expiration of 3 years from the date of commencement of the supply of energy. The consumer may determine this agreement at any time after the said period on giving to the Board not less than twelve calendar month's previous notice in writing in that behalf and upon the expiration of the period of such notice this agreement shall cease and determine without prejudice to any right which may then have accrued to the Board hereunder, provided always that the consumer may at any time with the previous consent of the Board transfer and assign this agreement to any other person and upon subscription of such transfer this agreement shall be binding on the transferee and the Board and take effect in all respects as if the transferee had originally been a party hereto in place of the consumer who shall thenceforth be discharged from all liability under or in respect thereof. If a consumer, whose line has been disconnected does not apply for reconnection, in accordance with the law within the remainder period of the compulsorily availing of supply or that of notice whichever be longer, he will be deemed to have given a notice on the date of disconnection in terms of the aforesaid clause 9 for determination of the agreement.”
Thus it is to be seen that even though energy may not be consumed minimum charges had to be paid. The agreement was to be for a period of 3 years and thereafter to continue from year to year until it was determined. Under clause 9 the consumer could not determine before the expiration of 3 years but could determine, after the expiry of 3 years, on giving a 12 months' previous notice in writing. Also if the line has been disconnected, and the consumer did not apply for reconnection within the remainder period of compulsory availing of supply or of notice then the date of disconnection shall be deemed to be the date of notice for determination of agreement.
3. In 1973-74 the respondent addressed several letters to the appellants to reduce the contract demand from 1500 KVA to 1000 KVA. The respondent also requested the appellants to reduce the period of the agreement from 3 years to 2 years. Ultimately, by a letter dated 12-2-1974 the respondent requested that the agreement be determined with effect from 1-3-1974 and that thereafter they be given a temporary supply of 500 KVA. The appellants did not agree to this. It is an admitted position that, in spite of respondent's letters, the agreement subsisted till February 1975. On 24-2-1975 the respondent addressed a letter to the appellants, which reads as follows:
“This is for your kind information that from 1-3-1975 we shall stop availing construction power being supplied to us at 33 KV 3 phase 50 c/s A.C from your sub-station at Bhurkunda. Please, therefore arrange to disconnect the supply from 1-3-1975 and take charge of your metering equipment installed at our end.”
Pursuant to this request the appellants disconnected the electricity. In May 1975 the appellants submitted to the respondent a bill which, inter alia, contained an amount towards the minimum charges for the period 1-3-1975 to 28-2-1976. As the amounts of the bill were not paid a notice dated 18-5-1976 was addressed by the appellants to the respondents. As the payment was still not made a recovery certificate was issued on 2-8-1978.
4. The respondent then filed a suit claiming that with effect from 24-2-1975 the agreement stood terminated. The respondent claimed that they were not liable to pay the minimum charges for the period from 1-3-1975 to 28-2-1976. The suit came to be dismissed by the trial court on 31-3-1980.
5. The respondent then filed an appeal. By a judgment dated 28-1-1989, the High Court held that the parties had agreed that a period of 3 years be reduced to 2 years and that such a novatio was permissible in law. The High Court held that it was always open to the parties to change the contract by mutual consent and that the appellants' act in disconnecting the electric supply and stopping supply of electricity amounted to bringing the agreement to an end by mutual consent. The High Court held that the appellants had, therefore, terminated the contract and could not have any legal right thereafter to ask for performance of the agreement. The High Court held that, in this view of the matter, clause 9 of the agreement was not of much importance as it was merely an enabling provision which perished along with the contract. The High Court then referred the matter back to the trial court for leading additional evidence and for calculating the amounts payable by the respondent to the appellants for the period up to 1-3-1975.
6. The trial court merely held that the respondent were bound to pay all charges prior to 24-2-1975 and sent the case back to the High Court. The High Court by a judgment dated 2-5-1990 directed the respondent to pay amounts payable up to 1-3-1975 and directed the certificate officer to refund the balance amount to the respondent.
7. Against this order the appellants filed letters patent appeal which was dismissed by the impugned order dated 14-8-1991. Hence this appeal before this Court.
8. As has been seen the agreement was to be for a period of 3 years and was to continue from year to year till determined in the manner provided under the agreement. During the subsistence of the agreement the minimum charges had to be paid. Clause 9 of the agreement clearly provided that during the first 3 years the agreement could not be determined. Thereafter the agreement could be determined only by giving a notice in writing of 12 months. Clause 9 also provided that though there was disconnection of electricity, still the agreement would subsist for a period of 12 months from the date of disconnection.
9. Before us it is admitted that the agreement subsisted till February 1975. Therefore the finding of the High Court that there was novatio by mutual consent and the period was reduced to two years is clearly erroneous. The High Court has also seriously erred in not noting that disconnection of electricity is different from termination of agreement. Even during the subsistence of the agreement there could be disconnection of electricity. The agreement envisaged that the consumer may not consume electricity during the period of the agreement. Such non-consumption may be due to disconnection or for any other reason. It is because of the possibility of consumer not consuming electricity that a provision for an annual minimum charge has been made. Disconnection of electricity does not amount to termination of the agreement. This elementary principle has been completely lost sight of by the High Court.
10. We have set out above the letter dated 24-2-1975. As seen there is no request for termination of the agreement as contemplated by clause 9 of the agreement. In fact, there is no request for termination at all. By this letter all that the respondent is asking the appellants to do is to disconnect the supply. The appellants, pursuant to this request, had disconnected the supply. But this does not mean that the agreement stood terminated. The agreement would continue until it was determined by the parties. The only method of termination was clause 9 of the agreement. As admittedly no notice in writing of 12 months was given, the agreement would terminate, as per clause 9, after a period of 12 months after disconnection. Therefore, the agreement subsisted till 28-2-1976. As the agreement subsisted till this date the appellants were entitled to claim the annual minimum charges for the period from 1-3-1975 to 28-2-1976. The High Court has seriously erred in holding otherwise.
11. In this view of the matter the judgments of the High Court dated 14-8-1991, 20-1-1989 and 2-5-1990 require to be and hereby are set aside. It is held that the respondent is bound to pay to the appellants the annual minimum charges for the period 1-3-1975 to 28-2-1976.
12. It must be mentioned that this Court had by an interim order dated 28-1-1992, as clarified by an order dated 5-2-1992 permitted the respondent to withdraw the amount of the annual minimum charges which had been recovered from them. The respondent were directed to furnish a bank guarantee of a nationalised bank to repay the amount with interest at the rate of 12 per cent per annum. The respondent has since recovered the amount. They are, therefore, bound to repay the amount with interest at the rate of 12 per cent per annum, from the date of recovery of amount from the recovery officer, till payment.
13. Mr Chowdhary requests that the respondent be permitted to repay the amount in six instalments. We, therefore, direct that the annual minimum charges for the period 1-3-1975 to 28-2-1976 with interest thereon at the rate of 12 per cent per annum from the date the amount was recovered by the respondent from the recovery officer till payment shall be paid by the respondent to the appellants in six equal monthly instalments. The first instalment to start with effect from 1-1-2001. Each and every subsequent instalment to be paid by the 1st day of each succeeding month. In the event of any instalment not being paid within time, the entire balance amount, then remaining due and payable, shall become payable forthwith.
14. The appeal stands disposed of accordingly. There will be no order as to costs.
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