Minimum demand charges cannot be levied where the electricity board never supplied the contracted load.

Mahendra Suting Ltd. applied to the Gujarat Electricity Board (“Board”) for a contracted load of 2,000 KVA. The Board issued an estimate of ₹4,08,320, which was paid, and an agreement was executed for the proposed supply.

Because the required infrastructure was not initially ready, the Board supplied only 500 KVA, principally during night hours, and subsequently offered the additional 1,500 KVA subject to payment of a security deposit of ₹34,41,951 and other conditions.

The company sought reduction of the additional load because a continuous-processing industrial unit could not effectively operate on a limited or night-only supply. The Board made the reduction conditional upon payment of 20% of the estimate charges, amounting to ₹81,664, and thereafter levied minimum demand charges on the basis of the original 2,000 KVA contract.

The Board filed Special Civil Suit No. 373 of 2002 seeking recovery of ₹41,82,789.79 towards minimum and other electricity charges. The trial court dismissed the suit on 1 July 2004. The Board preferred the present First Appeal.

During the appeal, Mahendra Suting Ltd. went into liquidation, and the Official Liquidator was impleaded; the Liquidator stated that any amount found payable would be lodged as a claim in the liquidation proceedings.

Whether the Board was entitled to levy and recover minimum demand charges calculated on the basis of the contracted 2,000 KVA load when it had not supplied that load continuously and round the clock?

Whether the company’s request to reduce the additional 1,500 KVA load, together with the Board’s acceptance of ₹81,664, disentitled the Board from continuing to claim minimum charges on the original 2,000 KVA load?

Whether the trial court’s dismissal of the Board’s recovery suit warranted appellate interference?

The Court applied the contractual principle that a party claiming minimum or guaranteed charges must establish the contractual basis for the claim and fulfilment of the corresponding obligations, including the agreed supply of electricity.

A minimum-charge clause cannot be enforced on the basis of a contracted load that the electricity supplier was admittedly unable to provide in the agreed manner.

The Court considered Bihar State Electricity Board, Patna v. Green Rubber Industries, 1990 (1) SCC 731, concerning enforceability of minimum guaranteed charges where the contracted supply line was available, but distinguished it because the present case involved non-supply of the contracted load.

It also considered Hyderabad Vanaspathi Ltd. v. A.P. State Electricity Board, (1998) 4 SCC 470, regarding the statutory character of electricity-supply terms and conditions, but held that those principles did not resolve the factual issue of non-performance of the agreed supply obligation.

The Court found, on the Board’s own correspondence and the evidence of its Executive Engineer, that the Board was not in a position to supply 2,000 KVA continuously and round the clock during the relevant period; only 500 KVA was initially supplied, while the proposed additional supply was limited to night hours.

Since Mahendra Suting Ltd. was recognised as a continuous-processing industry, night-only or intermittent supply was of little practical utility and did not fulfil the commercial purpose of the agreement.

The company’s request to reduce the additional 1,500 KVA was therefore consistent with the Board’s inability to provide the contracted load.

The Board’s acceptance of ₹81,664 towards the proposed reduction, its failure to produce a contractual provision authorising that demand, and the absence of any competent decision restoring the 2,000 KVA load undermined its subsequent claim for continuing minimum charges on that basis.

The precedents relied upon by the Board were distinguishable because they presupposed the availability or supply of the contracted connection, whereas the present record established non-supply of the contracted load.

The trial court’s dismissal of the recovery suit was affirmed.

The First Appeal was dismissed, any interim relief was vacated, the connected application was disposed of, and the records were directed to be returned.