The Punjab and Haryana High Court has affirmed that a public utility cannot reclaim interest already paid to a private entity under statutory supply codes, even if the original order did not explicitly direct such payment. The judgment reinforces the principle that interest is compensatory, not discretionary, and its payment fulfills a legal obligation arising from wrongful withholding of funds.
Background & Facts
The Dispute
The petitioner, M/s Essen Auto Forge Pvt. Ltd., a private manufacturing company, was erroneously classified by the Punjab State Power Corporation Limited (PSPCL) as a power-intensive industrial unit. Based on this classification, PSPCL raised a demand of ₹24,87,613/- for electricity charges in 2018. The petitioner challenged this demand before the High Court in CWP No. 25855 of 2018.
Key Facts
- The demand was based on the alleged installation of two Billet Heaters, which the petitioner claimed were never installed.
- On 05.02.2024, the High Court set aside the demand notice, holding that the basis for classification was factually unsustainable.
- The Court directed that the amount already deposited by the petitioner be adjusted against future electricity consumption charges.
- PSPCL did not adjust the excess amount against subsequent bills, despite the order.
- The petitioner’s funds remained locked for over seven years.
- PSPCL, acting under the Punjab Electricity Supply Code, 2014 and 2024, paid interest at 9% on the refunded amount.
- PSPCL subsequently filed an Intra-Court Appeal and a Special Leave Petition (SLP) before the Supreme Court, both of which were dismissed.
- On 24.09.2025, PSPCL issued a fresh notice demanding the refund of the interest already paid, claiming the 2024 order was silent on interest.
Procedural History
- 2018: PSPCL raised demand of ₹24,87,613/- against petitioner.
- 2018: Petitioner filed CWP No. 25855 of 2018 before the High Court.
- 05.02.2024: High Court set aside the demand notice and directed adjustment of excess amount against future consumption.
- 2024: PSPCL filed Intra-Court Appeal against the order - dismissed.
- 2024: PSPCL filed SLP before Supreme Court - dismissed.
- Late 2024/Early 2025: PSPCL refunded principal amount along with 9% interest as per Supply Code.
- 24.09.2025: PSPCL issued notice demanding refund of interest paid.
- 20.03.2026: Petitioner filed present writ petition (CWP No. 5526 of 2026) challenging the notice.
Relief Sought
The petitioner sought quashing of the notice dated 24.09.2025, declaration that the interest paid was lawful and non-recoverable, and costs.
The Legal Issue
Can a public utility, having paid interest to a private entity under a statutory supply code as compensation for wrongful withholding of funds, subsequently demand its refund on the ground that the court order did not expressly direct payment of interest?
Arguments Presented
For the Petitioner
Learned counsel argued that the payment of interest was not a voluntary or mistaken act but a statutory obligation under the Punjab Electricity Supply Code, 2014 and 2024, which mandates interest at 9% for delayed refunds. The petitioner’s funds were unlawfully withheld for over seven years, and the interest compensated for the loss of use of capital. The respondent’s attempt to recover interest after implementing the court order and exhausting all appeals amounted to abuse of process and unjust enrichment. Reliance was placed on the principle that interest is compensatory, not penal, and once paid lawfully, cannot be clawed back.
For the Respondent
The respondent contended that the order dated 05.02.2024 did not specifically direct payment of interest and that the payment was made by mistake. It argued that since the court order was silent on interest, the payment was ultra vires and must be reversed. It relied on the general principle that public authorities cannot be bound by erroneous payments unless expressly authorized.
The Court's Analysis
The Court rejected the respondent’s contention that the payment of interest was a mistake. It observed that the respondent had been legally obligated to pay interest under the Supply Code, 2014 and 2024, which explicitly provides for interest on delayed refunds. The Court emphasized that the petitioner’s funds were wrongfully retained for over seven years, during which time the petitioner was deprived of the use of capital. The payment of interest was not an act of generosity but a legal duty.
"The respondent was bound to adjust excess amount towards subsequent charges. Had the payment been adjusted against subsequent charges, the petitioner would have been in a position to utilize its funds. There is no cavil that as per Supply Code 2014 as well as 2024, the respondent is liable to pay interest."
The Court further held that the respondent’s decision to pay interest was in compliance with law and not an error. The fact that the earlier order did not mention interest does not negate the statutory obligation. The Court noted that the respondent had challenged the order through multiple forums and failed, yet chose to pay the principal and interest only after exhausting all remedies. To now demand the return of interest is an attempt to reverse a lawful discharge of obligation and violates the doctrine of estoppel and the principle of good faith.
The Court also underscored that interest is compensatory in nature, and its purpose is to restore the claimant to the position they would have been in had the funds not been withheld. To permit recovery of such interest would amount to double punishment on the petitioner - first by withholding funds, and second by demanding back compensation for that very withholding.
The Verdict
The petition was allowed. The impugned demand notice dated 24.09.2025 is set aside. The respondent is permanently restrained from recovering the interest already paid at 9% under the Supply Code, 2014 and 2024. The Court awarded costs of ₹50,000 to the petitioner. Compliance with this order is directed within four weeks.
What This Means For Similar Cases
Interest Payments Under Statutory Codes Are Non-Refundable
- Practitioners representing private entities can now assert that interest paid by public utilities under statutory supply codes, even if not explicitly directed by a court order, is lawful compensation and cannot be reclaimed.
- Any demand for refund of such interest constitutes unjust enrichment and violates the principle of compensatory justice.
Public Utilities Cannot Delay Compliance and Then Claw Back Compensation
- Public authorities must act promptly on court orders. Delayed compliance followed by attempts to recover statutory interest will be viewed as mala fide.
- Courts will not permit entities to benefit from their own delay - the doctrine of laches applies equally to public bodies.
Supply Codes Create Independent Obligations
- Statutory codes like the Punjab Electricity Supply Code create binding obligations independent of court orders.
- Legal advisors must advise clients to document and claim interest under applicable supply codes even when court orders are silent on the matter.
The Burden of Proof Shifts to the Authority
- When a public authority pays interest under a statutory provision, the burden shifts to it to prove that the payment was made in error or without legal basis - a high threshold.
- Mere silence in a judgment does not invalidate a statutory payment.
Practical Takeaway for Practitioners
- Always claim interest under applicable supply codes in writ petitions challenging utility demands.
- If interest is paid, retain proof of payment and statutory basis - it becomes a shield against future recovery attempts.
- File applications under Article 226 to restrain recovery of such interest as an abuse of process.
