When auction notice mentions electricity dues as encumbrance, liability to pay the same is on the buyer

 In TELANGANA STATE SOUTHERN POWER DISTRIBUTION COMPANY LIMITED vs M/S. SRIGDHAA BEVERAGES, a property was sold through E-Auction on 'as is where is, what is there is and without any recourse basis' and the auction notice listed electricity dues among the encumbrances on the property. Sale was done and after all formalities were completed when the new buyer applied for a connection to run the plant, the said application was denied by the Power Generation Company on the ground that there were previous electricity dues to the tune of Rs.50,47,715, as on 26.10.2017. Appellant No.1 asserted its right to recover this amount even from the new purchaser (i.e. respondent), based on a reading of Clauses 5.9.6 and 8.4 of the General Terms and Conditions of Supply of Distribution & Retail Supply Licensees in AP. 

The buyer filed a writ petition before the AP High Cour seeking quashing of these demands arguing that as a subsequent purchaser. The High Court referring to judgments of the Supreme Court in Isha Marbles v. Bihar State Electricity Board & Anr. and Southern Power Distribution Company of Telangana Limited (through its CMD) & Ors. v. Gopal Agarwal & Others, allowed the appeal. Appeal by the power company before the Division Bench was rejected and the matter reached Supreme Court.

The Supreme Court noticed that apart from the E-Auction notice which mentions the electricity dues, the sale deed executed in pursuance of the auction, provided for the sale “made free from all encumbrances known to the Secured Creditor.” An indemnity was provided by the vendor to the respondent against “any loss arising out of any defect in the title, including recovery of statutory liabilities taxes, as also litigation expenses arising out of such defects in title.” This indemnity was, thus, confined to aspects mentioned in this clause, but relatable to defects in title, and not to other liabilities like electricity dues.

The Supreme Court further observed that notice that as an auction purchaser bidding in an “as is where is, whatever there is and without recourse basis”, the respondent would have inspected the premises and made inquiries about the dues in all respects. The respondent was, thus, clearly put to notice in this behalf.

Allowing the appeal and referring to judgements in Hyderabad Vanaspathi Ltd. v. A.P. State Electricity Board & Ors., Dakshin Haryana Bijli Vitran Nigam Ltd. v. Paramount Polymers (P) Ltd., Paschimanchal Vidyut Vitran Nigam Limited & Ors. v. DVS Steels and Alloys Pvt. Ltd., the Supreme Court held that from the previous judgments while there may be some differences in the facts, a clear judicial thinking which emerges, which needs to be emphasized:

A. That electricity dues, where they are statutory in character under the Electricity Act and as per the terms & conditions of supply, cannot be waived in view of the provisions of the Act itself more specifically Section 56 of the Electricity Act, 2003 (in pari materia with Section 24 of the Electricity Act, 1910), and cannot partake the character of dues of purely contractual nature.

B. Where, as in cases of the E-auction notice in question, the existence of electricity dues, whether quantified or not, has been specifically mentioned as a liability of the purchaser and the sale is on “AS IS WHERE IS, WHATEVER THERE IS AND WITHOUT RECOURSE BASIS”, there can be no doubtthat the liability to pay electricity dues exists on the respondent (purchaser).

C. The debate over connection or reconnection would not exist in cases like the present one where both aspects are covered as per clause 8.4 of the General Terms & Conditions of Supply.