LPA 2725/2005 Page 1 of 40 * HIGH COURT OF DELHI AT NEW DELHI + LPA No.2725/2005 % Date of decision : 2nd July, 2009 BSES RAJDHANI POWER LTD .... Appellant Through: Mr.A.S.Chandhiok, Senior Advocate with Mr.Amar Gupta, Mr.Amit Kapur, Mr.Anupam Varma, Mr.Mayank Mishra, Mr.Ritesh Kumar, Mr.Divyam Agarwal, Mr.Arjun Mahajan and Mr.Sandeep Bajaj, Advocates versus SAURASHTRA COLOR TONES PVT.LTD & ANR. ... Respondents Through: Mr.S.C. Nigam with Mr.A.Nayak, Advocates Mr.M.S.Gupta, Dy. Director(Law) DERC in person CORAM: HON’BLE THE CHIEF JUSTICE HON’BLE MR. JUSTICE S.N.AGGARWAL HON’BLE DR. JUSTICE S.MURALIDHAR 1.Whether reporters of the local news papers be allowed to see the judgment? Y 2.To be referred to the Reporter or not ? Y 3. Whether the judgment should be reported in the Digest? Y AJIT PRAKASH SHAH, CHIEF JUSTICE: RELEVANT FACTS 1. The appellant is a distribution company engaged in distribution of electricity in its area of supply under a LPA 2725/2005 Page 2 of 40 statutory licence issued by the respondent No.2, Delhi Electricity Regulatory Commission (DERC for short). The respondent No.2 is constituted and established under Section 17 of the Electricity Regulatory Commissions Act, 1988 (for short the “ERC Act”). The respondent No.1, a company who is the original writ petitioner, purchased an industrial shed being Shed No.1 Category-1, DSIDC Complex, Nangloi, Delhi. Initially connection No.002-156-022/IP was sanctioned for a load of 89.52 KW in the name of the original allottee, Dev Arora. Inspection on April 22, 1997 allegedly revealed a connected load of 169.11 KW and, therefore, certain demands were raised. Dev Arora filed a suit in the civil court, that was eventually dismissed. In this connection a writ petition being CWP 715 of 2003 was also filed by Dev Arora which is pending in this Court. On transfer of the premises in its name, the first respondent applied for resumption of supply of electricity vide applications dated November 30, 2002 and December 30, 2002. The appellant, as required by Clause 2.1(iv) of 'General Conditions of Supply” contained in the Tariff Order issued by the DERC in exercise of its powers under Section 49 of the Electricity Supply Act, 1948 (for short the “Supply Act”) asked the first respondent to deposit development charges, advance LPA 2725/2005 Page 3 of 40 consumption deposit and “all such charges as may be applicable including the outstanding dues against the premises and/or disconnected connections as a condition precedent for resumption of electricity supply. The first respondent therefore approached this Court by filing Writ Petition No.2479 of 2003 contending inter alia that a purchaser of the property cannot be asked or coerced to pay the amount which the appellant as the licencee may be claiming from the former consumer. 2. The writ petition was heard and disposed of by the learned single Judge along with five connected matters by a common judgment dated November 9, 2005. The learned single Judge, following the decisions of the Supreme Court in Isha Marbles v. BSEB, (1995) 2 SCC 648, Ahmedabad Electricity Company Ltd v. Gujarat Inn Pvt. Ltd, (2004) 3 SCC 587, Union of India v. Raman Iron Foundry, (1974) 2 SCC 231 and a judgment of the Gujarat High Court in Sona Cooperative Housing Society v. Gujarat Electricity Board, AIR 2004 Guj 26 and also judgments of Delhi High Court in Inndev Engineers (India) P. Ltd v. Delhi Vidyut Board, AIR 2002 Delhi 478, Shikha Properties Private Ltd v. NDMC, (90) 2001 DLT 18, held, inter alia, that a distribution company is not entitled to recover arrears of LPA 2725/2005 Page 4 of 40 electricity charges pertaining to the electricity connection to the premises from its new owner/occupier who seeks resumption of supply of electricity unless it establishes mala fides of the old and new consumer or the new consumer was in fact a heir or successor of the defaulting party or had actual notice of the existence of arrears. In any event, according to the learned single Judge, disconnection as a stand-alone action without initiation of recovery proceedings against the actual consumer (not the subsequent purchaser) by way of civil suit for recovery of arrears will be illegal. The learned single Judge further held that “General Conditions of Supply”, as contained in the Tariff Order for the years 1997- 98 and 2001-02 cannot form part of “Tariff” as contemplated under Section 49 of the Supply Act but are essentially regulations under Section 79(j) of the Supply Act which must be approved by the State Legislature under Section 79A of the said Act. The learned single Judge, therefore, quashed and set aside the General Conditions of Supply contained in the Tariff Orders of 1997-98 and 2001-02. Consequently, the writ petition was allowed and the appellant was directed to restore the electricity supply to the first respondent without insisting on clearance of the arrears of electricity charges. LPA 2725/2005 Page 5 of 40 3. At this stage it may be noted that by the common judgment dated 9th November 2005 the learned Single Judge allowed Writ Petition (C) No. 2479/2003 filed by the Respondent herein (Saurashtra Color Tones Pvt. Limited), the Writ Petition (C) No. 1105/2002 filed by Anil Kumar Singh and Writ Petition (C) No. 3996/2003 by Munni Devi (deceased) through her legal heirs. However, Writ Petition (C) No. 3533/2003 filed by Madhu Garg and J.B. Garg, Writ Petition (C) No. 10586/2004 by Charan Jeet and Writ Petition (C) No. 7638/2003 filed by Meera Devi Jain were dismissed. Writ Petition (Civil) No. 3532 of 2002 by Madhu Garg and J.B. Garg was dismissed by the learned Single Judge on the ground that clause 6 of the sale deed by which she purchased the premises in question from the previous owner clearly stipulated that she would have to bear the liability of clearing the arrears of electricity dues attaching to the premises. 4. Consequently, against the common judgment dated 9th November 2005 of the learned Single Judge, BSES Rajdhani Power Limited (which was aggrieved by the writ petition of the Respondent herein being allowed) filed the present appeal LPA No. 2725 of 2005, and Madhu Garg and JB Garg filed LPA No. 223-24 of 2006. The appeals by Madhu Garg and J.B. Garg were finally heard on the first hearing i.e 1st LPA 2725/2005 Page 6 of 40 February 2006 and judgment reserved. Thereafter the Division Bench heard some of the other appeals, involving a similar question. The present appeal was heard finally on 8th March 2006 and judgment reserved. 5. The Division Bench delivered a judgment in Madhu Garg v. North Delhi Power Limited on 22nd March 2006 [129 (2006) DLT 213 (DB)]. It is plain from para 22 of the judgment that the Division Bench concurred with the judgment of the learned Single Judge as regards dismissal of Madhu Garg’s writ petition. However in the remaining portion of its judgment, the Division Bench disagreed with the learned Single Judge on the interpretation of the relevant statutory provision. The Division Bench categorically held that the new owner can be compelled to pay electricity dues of previous owner on transfer of premises. It was held that there is no distinction between the occupier of the premises who was aware of the outstanding electricity dues against the previous owner/tenant and one who was not aware of it. In either case dues have to be paid by the new owner/occupier before supply can be continued/restored in view of Clause 2.1(iv) of the General Conditions of Supply which are statutory in nature (being a delegated legislation) and question of bona fides or mala fides do not arise. Also, LPA 2725/2005 Page 7 of 40 there is no requirement for a licensee to first initiate recovery proceedings by filing a civil suit against that consumer before disconnecting the supply. The Division Bench further held that there is no illegality in Clause 2.1 of General Conditions of Supply as it comes within the purview of Tariff Order framed by the DERC as well as provisions of Section 21(2) of Indian Electricity Act, 1910 (for short the “1910 Act”) and Section 49 of the Supply Act. General Conditions of Supply do not require approval of State Legislature under Section 79A of the Supply Act as they are not regulations made under Section 79 of the said Act. The Division Bench also held that the electricity dues in respect of the electricity supply to premises, if permitted to be equated with contractual claims of damages, it would encourage dishonest consumers to raise some dispute or other in respect of such arrears and evade consequences of non-payment of electricity charges namely, disconnection/ non-resumption of supply. 6. It appears that although orders were reserved in the present appeal on 8th March 2006 and therefore in view of the opinion already expressed by the Division Bench in its judgment dated 22nd March 2006 in Madhu Garg the present appeal ought to have been allowed, for some reason LPA 2725/2005 Page 8 of 40 the Division Bench did not pass that order. Instead on 23rd March 2006 the Division Bench passed an order directing the present appeal to be listed for further hearing on 26th April 2006. 7. Meanwhile Writ Petition (Civil) No. 2310/2007 was filed by Suresh Rekhi and Mahesh Kumar, who were subsequent purchasers of a shed in Okhla Industrial Area, Phase-I, New Delhi, challenging the demand raised by the distribution company (BSES Rajdhani Power Limited) that the arrears of electricity dues concerning the said premises should be first paid before a fresh electricity connection could be granted. By an order dated 25th April 2006 the learned Single Judge of this Court, following the judgment of the Division Bench in Madhu Garg v. NDPL dismissed the writ petition. Aggrieved by the dismissal of the writ petition Suresh Rekhi and Mahesh Kumar filed LPA Nos. 1051-52 of 2006. The said LPA was listed before the Division Bench of this Court presided over by Hon’ble the Acting Chief Justice. On 26th May 2006 the following order was passed in the said LPA: “LPA 1051-52/2006 In view of the judgment rendered by the Division Bench in Madhu Garg Vs. North Delhi Power Limited (LPA 223-24/2006), whether LPA 2725/2005 Page 9 of 40 under general condition of supply would also include a previous tenant in the premises or previous owner, notice thereof which has not been received by the present incumbent who seeks to get the electricity supply from the respondent, shall also be covered under the said definition, creates some doubt in our mind. Therefore, in view of the said judgment, we would like this question to be answered by a larger Bench of three Judges. Notice be issued to the respondent to show cause as to why this appeal be not admitted, by ordinary process as well as by registered A.D. cover on filing of process fee returnable on 19.10.2006. In the meanwhile, the impugned order is stayed.” 8. When the present LPA No. 2725 of 2005 was placed for hearing on 19th September 2006 before the Division Bench headed by the Acting Chief Justice, it was also directed to be heard along with LPA Nos. 1051-52 of 2006. The Bench was informed that an SLP had been filed in the Supreme Court against the judgment of the Division Bench in Madhu Garg. LPA 2725/2005 Page 10 of 40 The Bench then directed: “To await the decision of the Supreme Court or the decision of the larger Bench of three judges.” It may be mentioned here that as far as the LPA No. 1051-52 is concerned, learned counsel stated that he did not wish to press the appeal and by an order dated 16th January 2009 the said appeal was dismissed as such. 9. Thereafter the present appeal was kept adjourned awaiting the decision of the Supreme Court in the SLP filed against the judgment of the Division Bench of this Court in Madhu Garg v. NDPL (supra). However, this Court decided to hear the case finally since it appeared that the recent decision of the Supreme Court in Paschimanchal Vidyut Vitaran Nigam Limited v. M/s. DVS Steels & Alloys Pvt. Limited JT (2008) (12) SC 672 covers the issue squarely. 10. For greater clarity the question referred by the order dated 26th May 2006 passed in LPA No. 1051-52 of 2006 may be reframed as under: Whether in terms of clause 2.1 of the General Conditions of Supply contained in the Tariff Order dated 23rd May 2001 issued by Delhi Electricity Regulation Commission (DERC), in terms of powers vested in it under Section 28 (2) of the Delhi Electricity Reforms Act LPA 2725/2005 Page 11 of 40 2000 (Reforms Act), can the distribution company insist that an applicant for a fresh electricity connection should first clear the arrears of the electricity dues attaching to the premises in question notwithstanding the fact that the said arrears accrued on account of the non-payment of the demand by the previous occupant/owner of the premises. ARGUMENTS 11. Mr.A.S.Chandhiok, learned senior counsel representing the appellant strenuously contended that conditions of supply are statutory in character and have statutory force and they are not “regulations” as contemplated by Section 79(j) of the Supply Act. In this connection he relied upon the decision of a three Judge Bench of the Supreme Court in Hyderabad Vanaspati v. APSEB (1998) 4 SCC 470 wherein it was held that even in absence of an individual contract, the terms and conditions of supply notified by the Board will be applicable to the consumer and he would be bound by them. Mr.Chandhiok, relying upon a Division Bench judgment of the Bombay High Court in MSEB v. MERC AIR 2003 Bombay 398 stressed that the General Conditions of Supply are part of a Tariff Order issued by the DERC. He submitted that the General Conditions of Supply LPA 2725/2005 Page 12 of 40 do not require to be placed before the State Legislature under Section 79A of the Supply Act as they are not regulations made under Section 79. Mr.Chandhiok also sought to distinguish the decisions of the Supreme Court in Isha Marbles and Ahmedabad Electricity Company Limited on the ground that in those cases there was no statutory provision which empowered the authorities to refuse electricity supply for outstanding dues of the previous owner. However, he pointed out that, in the present case there is a clear statutory provision embodied in the General Conditions of Supply to that effect. According to Mr.Chandhiok DERC being a statutory commission is empowered under Section 28(2) of the Delhi Electricity Reforms Act, 2000 (for short the “Reforms Act”) read with Section 49 of the Supply Act to prescribe the terms and conditions for the determination of supply of electricity. He submitted that the Tariff Order issued by the DERC is statutory in character and as such is binding on the first respondent. He further submitted that the decision in Union of India v. Raman Iron Foundry (supra) stands overruled by subsequent judgment of the Supreme Court in H.M.Kamaluddin Ansari v. Union of India, (1983) 4 SCC 417 and accepted as overruled in Sant Ram & Co v. State LPA 2725/2005 Page 13 of 40 of Rajasthan, (1997) 1 SCC 147 and ONGC v. Saw Pipes, (2003) 5 SCC 705, In any event, according to him, the arrears on account of charges for electricity supply can never be equated and treated at par with contractual claims of damages, which was the subject matter of the decision in Raman Iron Foundry case. This is for the reason that electricity is public property and any arrangement for supply thereof, though in form of a contract, partakes the character of a statutory contract since the terms and conditions thereof are statutory in nature. Finally, he submitted that the issue now stands concluded by a recent decision of the Supreme Court in Paschimanchal Vidyut Vitaran Nigam Ltd v. M/s. DVS Steels & Alloys Pvt. Ltd, JT 2008 (12) SC 672 wherein a two Judge Bench has held that where the purchaser of a premises approaches the distributor seeking a fresh electricity connection to its premises for supply of electricity, the distributor can stipulate as one of the conditions of supply that the arrears due in relation to supply of electricity made to the premises when it was in occupation of the previous owner/occupant should be cleared before the electricity supply is restored to the premises or a fresh connection is provided to the premises. LPA 2725/2005 Page 14 of 40 12. In reply, Mr.S.C.Nigam, learned counsel appearing for the respondent No.1 submitted that law stands settled by the Supreme Court in Isha Marbles case wherein the Court while expounding Sections 2(c), 24 and Clause 6 of Schedule-I of the 1910 Act have categorically ruled that the subsequent purchaser cannot be subject to the condition of discharging the liability of the former owner in respect of supply in the premises before grant of an electricity connection to the subsequent purchaser. According to him Isha Marbles, which was followed in Ahmedabad Electricity Company Limited, is applicable not only to auction purchasers but also to subsequent transferees. Further, according to him the only remedy of the appellant is to enforce its claim by a civil suit against the former owner/consumer and forfeiting the security amount deposited by him. Mr.Nigam contended that the condition contained in Clause 2.1(iv) of the Conditions of Supply is ultra vires the Supply Act and the Reforms Act. He pointed out that the Supply Act in Section 79 gives power to the Electricity Board to make regulations not inconsistent with the Act. While enumerating the matters on which the regulations are to be made, the regulations made in order to be valid are required to be laid before the State Legislature LPA 2725/2005 Page 15 of 40 as per Section 79A of the Act. According to him DERC under the ERC Act is empowered to fix the tariff order which will not include terms and conditions of supply for which the DERC is required to frame regulations under Section 79 of the Supply Act read with Section 28 of the Reform Act. Learned counsel referred to the celebrated judgment in Taylor v. Taylor, (1879) 1 Chancery Division 426 where Justice Jessel M.R. adopted the rule that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all and that other methods of performance are necessarily forbidden. He submitted that the rule laid down in Taylor v. Taylor has been followed by the Supreme Court in Ram Chander v. Govind, AIR 1975 SC 915 and several other cases. LEGISLATIVE FRAMEWORK 13. Before adverting to the rival contentions it is necessary to refer to the relevant provisions in various enactments governing the legal regime of the distribution of electricity. The Electricity Act was passed originally in 1903 but it was repealed by the 1910 Act which amended the law relating to supply and use of electrical energy. The said Act was not a complete code on the subject. It was apparently found to be inadequate for coordinating development of LPA 2725/2005 Page 16 of 40 electricity on the regional basis. Hence the Supply Act was enacted in 1948 to provide for rationalisation of production and supply of electricity and generally for taking measures conducive to electricity development. As part of power sector reforms undertaken since mid 1990s legislative initiatives undertaken which included enactment of the ERC Act, the Reforms Act and the Electricity Act, 2003. We are not concerned in the present case with the Electricity Act of 2003 as the matter pertains to the period prior to the enactment of the said Act. We shall briefly refer to the relevant provisions of the other enactments. Section 21(2) of the 1910 Act empowers the licencee “to regulate” his relations with persons “who are or intend to become consumers”. Section 21(2) is extracted and reproduced hereinbelow: “21(2). A licencee may, with previous sanction of the State Government, given after consulting the State Electricity Board and also the local authority, where the licencee is not the local authority, make conditions not inconsistent with this Act or with his licence or with any rules made under this Act, to regulate his relations with persons who are or intend to become consumers, and, may, with the like sanction given after the like consultation, add to or alter or amend any such conditions; and any conditions made by a licencee without such sanction shall be null and void.” LPA 2725/2005 Page 17 of 40 14. While the 1910 Act deals with supply and use of energy and the rights and obligations of the licencee, the Supply Act deals with statutory powers and functions of the Central Electricity Authority, the State Electricity Boards and generating companies. By virtue of Section 26 of the Supply Act the “State Electricity Board” (Delhi Vidyut Board) was vested with the powers and obligations of licencee under the 1910 Act. Section 49(1) and (4) of the Supply Act empowered the Board to supply electricity to any person other than a licencee – i.e. the real consumer – upon such terms and conditions as the Board thought fit and to frame uniform tariffs for the purposes of such supply. Section 49(1), which is material for our purpose, is extracted and reproduced hereinbelow: “49. Provision for the sale of electricity by the Board to persons other than licencees:- (i) subject to the provisions of this Act and of regulations, if any, made in this behalf, the Board may supply electricity to any person not being a licencee upon such terms and conditions as the Board thinks fit and may for the purposes of such supply frame uniform tariffs.” 15. Under Section 79 of the Supply Act, the Board was empowered to make regulations to provide for various matters set out therein and Clause (j) relates to principles LPA 2725/2005 Page 18 of 40 governing the supply of electricity by the Board to persons other than licencees under Section 49. Regulations framed under Section 79 are required to be placed before the State Legislature by virtue of Section 79A. 16. The ERC Act was enacted pursuant to the Minimum National Action Plan for Power adopted in the Conference of Chief Ministers and Section 22(1)(a) and (b) thereof deals with the Commission's power to fix the tariff and 22(2)(d) deals with licencing. DERC was constituted under the ERC Act in December, 1999. 17. The Reforms Act was also enacted as part of the implementation of reforms in the power sector and was enforced after receiving the assent of the President of India under Article 364 of the Constitution of India. Section 11 of the Reforms Act lays down the functions of the Commission including, inter alia, the determination of the tariff for electricity, wholesale, bulk, grid, or retail, as the case may be. Section 15 of the Reforms Act empowered the Delhi Government and provided for the reorganisation of Delhi Vidyut Board through a Statutory Transfer Scheme. Under sub-section (3) it was stipulated that “such of the rights and powers to be exercised by the Board under the Electricity (supply) Act, 1948 (54 of 1948) as the case may be by LPA 2725/2005 Page 19 of 40 notification in the official gazette, specified, shall be exercisable by a company or companies established as the case may be, under Section 14 for the purposes to discharge all the functions and duties with which it is entrusted.” Section 20 of the Reforms Act relates to grant of licence and the procedure therefor. Section 22 of the Reforms Act lays down the general conditions and powers of the licencee. Section 22 reads as follows: “22. General duties and powers of the licencees.-(1) It shall be the duty of the holder of a supply licence or a transmission licence in respect of a particular area to develop and maintain an efficient, coordinated and economical system of electricity supply or transmission in the