Supreme Court verdict on liability of new owners to clear previous owner's electricity dues

Cause Title : K C Ninan vs Kerala State Electricity Board, Civil Appeal No 2109-2110 of 2004, The Supreme Court

Date of Judgment/Order : 19/5/2023

Corum : Justices Dr Dhananjaya Y Chandrachud, Hima Kohli & Pamidighantam Sri Narasimha

Citied: 

1. Maharashtra State Electricity Board v. Super & Stainless Hi Alloy Ltd, Civil Appeal Nos 5312-5313 of 2005
2. Isha Marbles v. Bihar State Electricity Board, 1995 SCC (2) 648
3. Ahmedabad Electricity Co. Ltd. v. Gujarat Inns (P) Ltd,  (2004) 3 SCC 587
4. Hyderabad Vanaspathi Ltd v. Andhra Pradesh State Electricity Board, (1998) 4 SCC 470
5. Dakshin Haryana Bijli Vitran Nigam Ltd v. M/s Paramount Polymers Pvt Ltd, AIR 2007 SC 2
6. Paschimanchal Vidyut Vitran Nigam Limited v. DVS Steels and Alloys Private Limited, (2009) 1 SCC 210
7. Telangana State Southern Power Distribution Co. Ltd. v. Srigdhaa Beverages, (2020) 6 SCC 404
8. Chandu Khamaru v. Nayan Malik, (2011) 12 SCC 314
9. Brihanmumbai Electric Supply & Transport Undertaking v. Maharashtra Electricity Regulatory Commission, (2015) 2 SCC 438
10. AP TRANSCO v. Sai Renewable Power (P) Ltd, (2011) 11 SCC 34
11. BSES Ltd. v. Tata Power Co. Ltd., (2004) 1 SCC 195
12. Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur (1969) 1 SCC 200a
13. State of AP v. National Thermal Power Corporation Ltd., (2002) 5 SCC 203, paragraph 20
14. Jivendra Nath Kaul v. Collector/District Magistrate, (1992) 3 SCC 576
15. Uttar Pradesh Power Corporation Limited v. Anis Ahmad, (2013) 8 SCC 491
16. State of Uttar Pradesh v. Hindustan Aluminium Corporation, (1979) 3 SCC 229
18. Punjab State Electricity Board v. Bassi Cold Storage, Kharar and Another, 1994 Supp (2) SCC 124
19. Jagdamba Paper Industries (P) Ltd v. Haryana State Electricity Board, (1983) 4 SCC 508
20. Bihar State Electricity Board v. Parmeshwar Kumar Agarwala, (1996) 4 SCC 686
21. Ferro Alloys Corpn. Ltd v. A P State Electricity Board, 1993 Supp (4) SCC 136
22. India Thermal Power Ltd v. State of MP, (2000) 3 SCC 379
23. Deepak Theatre v. State of Punjab, 1992 Supp (1) SCC 684
24. K Ramanathan v. State of Tamil Nadu, (1985) 2 SCC 116
25. V S Rice and Oil Mills v. State of Andhra Pradesh, (1964) 7 SCR 456
26. Haryana State Electricity Board v. Hanuman Rice Mills, Dhanauri, (2010) 9 SCC 145
27. PTC India Ltd. v. Central Electricity Regulatory Commission,  (2010) 4 SCC 603
28. M.L. Abdul Jabbar Sahib v. M.V. Venkata Sastri & Sons, (1969) 1 SCC 573
29. Ahmedabad Municipal Corporation v. Haji Abdulgafur Haji Hussenbha, (1971) 1 SCC 757
30. Dattatreya Shanker Mote v. Anand Chintaman Datar & Ors, (1974) 2 SCC 799
32. State of Karnataka v. Shreyas Papers Pvt. Ltd, 2006 (1) SCC 615
33. AI Champdany Industries Ltd. v. Official Liquidator, (2009) 4 SCC 486
34. Deputy Commercial Tax Officer, Park Town Division v. Sha Sukhraj Peerajee, AIR 1968 SC 67 
35. Indian Council of Legal Aid and Advice v. Bar Council of India, 1995 (1) SCC 732
36. India Cement Ltd & Ors v. State of Tamil Nadu,  (1990) 1 SCC 12
37. Ajmer Vidyut Vitran Nigam Limited v. Rahamatullah Khan, (2020) 4 SCC 650
38. M/s Prem Cortex v. Uttar Haryana Bijli Vitran Nigam Limited, Judgment dt. 5.10.2021 in CA 7235 of 2009
39. State of Kerala v. VT Kallianikutty, (1999) 3 SCC 657
40. Bihar SEB v. Iceberg Industries Ltd., (2020) 20 SCC 745
41. M/s Swastic Industries v. Maharashtra State Electricity Board, (1997) 9 SCC 465
42. Kusumam Hotels Pvt Ltd v. Kerala State Electricity Board, (2008) 12 SCC 213
43. Punjab Urban Planning and Development Authority v. Raghu Nath Gupta, (2012) 8 SCC 197
44. Delhi Development Authority v. Kenneth Builders and Developers Pvt Limited, (2016) 13 SCC 561
45. U.T. Chandigarh Administration v. Amarjeet Singh, (2009) 4 SCC 660
46. Special Officer, Commerce, North Eastern Electricity Supply Company of Orissa vs Raghunath Paper Mills Private Limited, (2012) 13 SCC 479
47. Adoni Cotton Mills Ltd. v. Andhra Pradesh State Electricity Board, (1976) 4 SCC 68
48. Mangalore Electric Supply Co. Ltd. v. The Commissioner of Income Tax, West Bengal, (1978) 3 SCC 248

Background

In this landmark judgment, the Supreme Court finally settled a two decade old dispute. The pattern in the has been following the same line for decades. The supply of electricity was discontinued due to the failure of the previous owners to pay the dues for consumption of electricity on the premises. The previous owners had borrowed money or raised loans on the security of their premises. In some cases, the erstwhile owner went into liquidation. The premises were sold in auction sales generally on an “as is where is” basis. The new owners, who purchased the properties in auction, applied for new electricity connections for the premises to which electricity had been disconnected for failure to pay the dues. The Electric Utilities refused to provide an electricity connection unless the auction purchaser paid the dues of the previous owner. This refusal was derived from powers conferred under subordinate legislations, notifications, electricity Supply Codes or state regulations. The denial of electricity supply resulted in the institution of petitions under Article 226 before the High Court, leading to the judgments which are in appeal.

Judgment

The primary questions before the SC were :-

a. Whether the Universal Service Obligation under Section 43 of the Electricity Act 2003 is linked to premises to which the connection is sought;

b. Whether a connection of electricity supply sought by an auction- purchaser comprises a reconnection or a fresh connection;

c. Whether the power to recover arrears of a previous owner or occupier from an auction-purchaser of the premises falls within the regulatory regime of the 2003 Act;

d. Whether the power to enable the recovery of arrears of the previous owner or occupier from an auction-purchaser can be provided through subordinate legislation by the State Commissions;

e. Whether the 1910 Act, 1948 Act, and the 2003 Act have express provisions enabling the creation of a charge or encumbrance over the premises;

f. Whether the statutory bar on recovery of electricity dues after the limitation of two years provided under Section 56(2) of the 2003 Act, will have an implication on civil remedies of the Electric Utilities to recover such arrears; and

g. What is the implication of an auction-sale of premises on “as is where is” basis, with or without reference to electricity arrears of the premises?

The Supreme Court decided that :-

• The duty to supply electricity under Section 43 is not absolute, and is subject to the such charges and compliances stipulated by the distribution licensees as part of the application.
• Electricity is a movable good because it can be transmitted, transferred, delivered, and possessed like any other movable property.
• The supply of electricity to a consumer is a sale of goods.
• Electricity arrears do not automatically become a charge over the premises
• It is always the consumer who is supplied electricity and is held liable for defaulting on payment of dues or charges for supply of electricity. Perforce, the premises cannot be held to be a defaulter and no dues can be attached to the premises of the consumer.
• When a new owner or occupier of the premises applies for supply of electricity in terms of Section 43 of the 2003 Act, it will constitute a fresh connection, regardless of the fact that the premises for which the electricity is sought was being supplied with electricity previously. An application for supply of electricity can be categorised as reconnection only when the same owner or occupier of the premises, who was already a consumer, applies for supply of electricity with respect to the same premises in case the electricity supply is disconnected.  Even if the consumer is the same, but the premises are different, it will be considered as a fresh connection and not a reconnection.
• Therefore, even if the premises may be the same to which electricity had already been supplied, it will be considered as a fresh connection in the situation where a different applicant, in that case an auction-purchaser, applies for supply of electricity.
• The conditions of supply stipulated by the licensees or Boards have a statutory character.
• Electricity constitutes a public good
• The scope of the regulatory powers of the State Commission under Section 50 of the 2003 Act is wide enough to stipulate conditions for recovery of electricity arrears of previous owners from new or subsequent owners;
• The Electricity Supply Code providing for recoupment of electricity dues of a previous consumer from a new owner have a reasonable nexus with the objects of the 2003 Act;
• It is just and reasonable for distribution licensees to specify conditions of supply / stipulate in the Electricity Supply Code,  requiring the subsequent owner or occupier of premises to pay the arrears of electricity dues of the previous owner or occupier as a pre-condition for the grant of an electricity connection to protect their commercial interests, as well as the welfare of consumers of electricity.
• The rule making power contained under Section 181 read with Section 50 of the 2003 Act is wide enough to enable the regulatory commission to provide for a statutory charge in the absence of a provision in the plenary statute providing for creation of such a charge;
• The power to initiate recovery proceedings by filing a suit against the defaulting consumer by the Electric Utilities is independent of the power to disconnect electrical supply as a means of recovery.
• The implication of the expression “as is where is” basis is that every intending bidder is put on notice that the seller does not undertake responsibility in respect of the property offered for sale with regard to any liability for the payment of dues, like service charges, electricity dues forpower connection, and taxes of the local authorities
• To understand the implication of an “as is where is” clause in a sale/auction, the facts and circumstances of each case individually, along with the terminology of the clauses governing the auction sales must be taken into consideration