IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN WEDNESDAY, THE 14TH DAY OF DECEMBER 2011/23RD AGRAHAYANA 1933 WA.No. 2114 of 2009 -------------- AGAINST THE JUDGMENT IN WPC.19778/2009 DATED 20-07-2009 APPELLANT(S)/PETITIONER: ----------------------- KERALA STATE ELECTRICITY BOARD, VYDHUTHI BHAVANAM, PATTOM THIRUVANANTHAPURAM.695 004. BY ADV. SRI.SANTHALINGAM, SC,KSEB SRI.C.K.KARUNAKARAN, SC FOR KSEB RESPONDENT(S)/RESPONDENT: ------------------------- 1 KERALA STATE ELECTRICITY REGULATORY COMMISSION, KPFC BHAVANAM, C.V.RAMAN PILLAI ROAD, VELLAYAMBALAM, THIRUVANANTHAPURAM 685 010. *ADDL. R2 JOHNY PAUL THOMAS JOHNSON, PROPRIETOR, BULGAR INDUSTRIES, PLOT NO.42, INDUSTRIAL DEVELOPMENT AREA, KOCHUVELI, THIRUVANANTHAPURAM **ADDL.R3 THE KERALA STATE SMALL INDUSTRIES ASSOCIATION, REPRESENTED BY THE GENERAL SECRETARY K.N. SUBHAGAN ***ADDL.R4 MERON BIO PRODUCTS PVT. LTD., DEEPA BUILDINGS CHULLICKAL, COCHIN REPRESENTED BY ITS MANAGING DIRECTOR, KURIAN JOSE (ADDL.R2 IMPLEADED AS PER ORDER DTD. 4.1.2010 IN I.A. 1138/2009 ADDL.R3 IMPLEADED AS PER ORDER DTD. 27.1.2010 IN I.A. 16/2010 ADDL.R4 IMPLEADED AS PER ORDER DTD.1412.2011 IN I.A 947/2011) R,R1 BY SRI.P.NANDAKUMAR,SC,KSEB REGULATORY COM R,R2 BY SRI.G.SASIDHARAN CHEMPAZHANTHIYIL R,R2 BY SRI.S.VISHNU R, BY SRI.P.NANDAKUMAR,SC,KSEB REGULATORY COM R, BY SRI.K.GOPALAKRISHNA KURUP (SR.) R,R1 BY SRI.ANEESH JAMES,SC,KSEB REGULATORY COM R,R2 BY SRI.BECHU KURIAN THOMAS R,R2 BY SRI.PAUL JACOB (P) ADDL. R3 BY SRI. K. GOPALAKRISHNA KURUP (SR.) THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 14-12-2011, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WA.No. 2114 of 2009 APPENDIX APPELLANT'S EXHIBITS ANNEXURE A1: TRUE COPY OF RESPONDENT'S ORDER DTD. 25.2.2009 ANNEXURE A2: TRUE COPY OF RESPONDENT'S RECORD OF ATTENDANCE AT THE PUBLIC HEARING HELD ON 17.9.2008 ANNEXURE A3: TRUE COPY OF DECISION OF APPELLATE TRIBUNAL REPORTED AS 2007 APTEL 65 ANNEXURE A4: TRUE COPY OF DECISION OF APPELATE TRIBUNAL REPORTED AS 2007 APTEL 1134 ANNEXURE A 5: A LIST OF DEFAULTING LT CONSUMERS IN 5 ELECTRICAL CIRCLES ANNEXURE A 6: TABLE SHOWING THE AMOUNTS DUE TO THE BOARD FROM MAJOR HT/EHT CONSUMERS. RESPONDENTS EXHIBITS: EXHIBIT R1(a): TRUE COPY OF ORDER NO.KSERC/SUPPLYCODE/2/140/2006 DT.27.2.2006 EXHIBIT R1(b) TRUE COPY OF THE COMMUNICATION DT.7.2.2006 ADDRESSED TO CHAIRMAN, KSEB EXHIBIT R1(c): TRUE COPY OF THE NOTICE ISSUED TO KSEB ON HEARING ON THE DRAFT REGULATION. EXHIBIT R1(D) TRUE COPY OF THE LIST OF STAKE HOLDERS WHO ATTENDED THE PUBLIC HEARING ON THE DRAFT KERALA ELECTRICITY SUPPLY CODE (4TH AMENDMENT) REGULATION 2008 EXHIBIT R1(E) TRUE COPY OF THE VIEWS FURNISHED BY KSEB ON DRAFT 4TH AMENDMENT REGULATION. EXHIBIT R1(f): TRUE COPY OF THE 4TH AMENDMENT REGULATION 2008 EXHIBIT R1(g): TRUE COPY OF THE ORDER DTD. 9.8.2005, STATING PROCEDURES FOR NOTIFICATION OF REGULATION MADE BY THE COMMISSION. EXHIBIT R1(h): TRUE COY OF THE PROCEEDINGS DTD. 25.2.2009 VACATING THE STAY IMPOSED ON CLAUSE 12 EXHIBIT R1(i)_: TRUE COPY OF THE MINUTES OF THE MEETING HELD ON 25.2.2009 EXHIBIT R1(j) TRUE COPY OF THE COMMUNICAION DT.28.2.2009 ANNEXURE R2(a): TRUE COY OF THE INTERIM ORDER DT. 14.9.2009 IN W.P(C) 25236/2009 //TRUE COPY// // P.A TO JUDGE jma *CR* C.N. RAMACHANDRAN NAIR, & K. VINOD CHANDRAN, JJ ---------------------------------------------------- Writ Appeal No. 2114 of 2009 ---------------------------------------------------- Dated this the 14th day of December, 2011 J U D G M E N T C.N. Ramachandran Nair , J This writ appeal is filed by the Kerala State Electricity Board(for short 'KSEB') challenging the decision of the Kerala State Electricity Regulatory Commission communicated vide Exts.P9 and P11 produced in the writ petition whereunder they refused to modify clause 12 of the Kerala Electricity Supply Code, 2005 framed by Kerala State Electricity Regulatory Commission under section 181 read with section 50 of the Electricity Act, 2003 and incorporated by the KSEB in the Kerala State Electricity Board Terms and Conditions of Supply, 2005. 2. We have heard Senior Counsel Sri. P.Santhalingam, appearing for the appellant, Standing Counsel appearing for the Regulatory Commission and Senior Counsel Sri. Gopalakrishna Kurup appearing for additional respondent No.3 which is Kerala State Small Industries Association and W.A No2114/2009 : 2 : also additional respondent impleaded which is the industry impleaded through I.A No.947/2011. The facts leading to the controversy are the following. 3. Large number of electricity consumers industrial and commercial, after incurring huge liability to the Electricity Board towards electricity arrears and other charges go bankrupt leading to sale or transfer of the defaulted premises, whether it be industrial or commercial concerns, leaving it impossible for the KSEB to recover the arrears because in most of the cases the defaulter will not have any other assets. In fact sales are made not only in private deals but through public auctions conducted by Revenue authorities and even Industries Department cancelling allotments and resales to new allotees. The Board faces similar difficulties with respect to domestic consumers also when residential houses are sold through private negotiations or under public auctions conducted by the Government, Financial Institutions etc. 4. Until the new Electricity Act 2003 was enacted, clause 15 (e) of the Conditions of Supply of Electrical Energy W.A No2114/2009 : 3 : provided safety valve wherein Buyers of the defaulted premises would be entitled to electricity connection only if arrears in respect of premises are deposited. Further there was provision for refund of the said amounts to the Buyers if recovery was later made from defaulters. Under the new Act there is no statutory provision creating any charge for the electricity dues on the defaulted premises namely, land and building and only coercive provision is provided for recovery by disconnection of supply; probably even in the residential houses of defaulters; under section 56 of the Act. The Regulatory Commission framed Electricity Supply Code in exercise of powers conferred under section 181 of the Act read with section 50. The other modes provided for recovery is clause 25 of the Kerala Electricity Supply Code, 2005 authorise disconnection of power supply by the licensee in the case of defaulting consumers. However so far as arrears payable by the sellers of defaulted premises are concerned, clause 12 provides that recovery has to be made from the previous owner and not from the purchaser, i.e, only from the defaulter. In other words, purchaser is entitled to W.A No2114/2009 : 4 : acquire the defaulted premises without clearing the arrears due in respect of such defaulted premises. Since KSEB is bound by the terms and conditions of the Supply Code prescribed by the Regulatory Commission they have incorporated clause 12 of the Electricity Supply Code, 2005 in the KSEB Terms and Conditions of Supply, 2005 as Clause 7. The provision contained in clause 12 prescribed by the Regulatory Commission which is incorporated in the KSEB Terms and Conditions is extracted hereunder: 12. Dues of previous consumer:- If a purchaser of a premise requires to have a new connection, as the earlier connection has already dismantled after disconnection, the arrear, if any, shall be realised from the previous owner/occupier or the premises and not from the purchaser. 5. Electricity Board noticed that large number of defaulters are selling the defaulted premises only to get rid of liability due to the KSEB and even under bogus sales to related and interested parties, KSEB is bound to give new connection in the defaulted premises as there is no charge on the property. There is also no disability clause attached W.A No2114/2009 : 5 : to the defaulted premises for getting re connection until arrears due from previous owners are recovered. KSEB therefore represented to the State Regulatory Commission to amend clause 12 of the Electricity Supply Code providing for Buyer Applicant to deposit arrears due from the defaulted premises for getting reconnection or fresh connection on a further condition that deposit amount will be repaid only on recovery from the defaulters. The Commission on being satisfied about the genuine request of the KSEB that the defaulters are misusing clause 12 of the Supply Code, stayed the operation of the said provisions vide Ext.P1 dated 27.2.2006. However, after three years, the Commission vide Ext.P9 dated 28.2.2009 vacated the stay orders earlier issued and restored clause 12 of the Supply Code. Ext.P9 is the communication from the Secretary of the Commission and the actual proceedings Ext.R1(i) is by the Commission itself. On receipt of Ext.P9 order vacating the stay, the KSEB has sent Ext.P10 request, to the Regulatory Commission reiterating their stand that clause 12 of the Supply Code needs to be amended in the lines of the original W.A No2114/2009 : 6 : provision contained in Clause 15(e) of the Conditions of Supply of Electricity Energy which existed under the Electricity Supply Act, 1948. However, the Commission through detailed proceedings rejected the Board's request for amendment. This is produced as Ext.P11; issued by the Secretary of the Commission wherein the reason for declining the Boards' request for amendment are detailed. The reason stated by the Regulatory Commission for rejecting the KSEB's request to amend clause 12 of the Supply Code contained in Ext.P11 are extracted hereunder:- 1. There is provision for collecting sufficient amount out of the security deposit of the consumer collected in advance for non- payment of dues. 2. The service connection of the consumer is to be disconnected for non-payment of dues after giving 15 days clear notice. 3. A disconnected service connection is to be dismantled for non-payment after six months with powers to recover the arrears through revenue recovery. 6. KSEB has filed writ petition challenging the W.A No2114/2009 : 7 : decisions of the Regulatory Commission to lift the stay against the operation of clause 12 and their decision to reject the Board's request for amendment of clause 12 of the Electricity Supply Code. The learned Single Judge however took the view that KSEB has right to appeal against the Regulatory Commission's order before the National Electricity Commission as provided under Section 111 of the Act and consequently, the learned Single Judge refused to consider the case on merits. It is against this that KSEB has filed writ appeal for appropriate direction to the Regulatory Commission to safeguard it's interest against the defaulters. 7. The question raised by the KSEB in the writ petition filed by them is for a direction to the Regulatory Commission to exercise their powers fairly and reasonably and to safeguard the interest of the distributing licensee to recover the arrears; under section 50 of the Act. In our view High Court would not be justified in rejecting the prayer of the Board on the ground of alternative remedy available before the appellate Commission, which is time consuming. In our view, the grievance of the KSEB has to be redressed urgently W.A No2114/2009 : 8 : and the delay and prejudice occasioned if they are relegated to alternative remedy by way of appeal before the National Commission, is not seen considered. KSEB may not get relief within reasonable time is their case. Moreover, several decisions rendered by the the Hon'ble Supreme Court including the one in Haryana Electricity Board v. Hanuman Rice Mills Dhanauri and others reported in 2010(9)SCC145, approved the authority of the KSEB to recover arrears of electricity dues from purchasers of defaulted premises if there are statutory provisions authorising it. So much so, we feel, the question is one which KSEB is entitled to agitate before the High Court on merits. 8. The first question to be considered is whether KSEB, the distributing licensee has a grievance against clause 12 of the Supply Code and if so, whether they are entitled to modification of the same by the Regulatory Commission in exercise of their powers under Section 181 read with section 50 of the Act. Section 181 details the subjects on which Regulatory Commission has to make W.A No2114/2009 : 9 : regulations and section 50 specifically mentions the purpose of framing of the Supply Code, which is as follows: 50. The electricity Supply Code:- The State Commission shall specify an Electricity Supply Code to provide for recovery of electricity charges, intervals for billing of electricity charges, disconnection of supply of electricity for non- payment thereof, restoration of supply of electricity, measures for preventing tapering, distress or damage to electrical plant or electrical line or meter, entry of distribution licensee or any person acting on his behalf for disconnecting supply and removing the meter, entry for replacing, altering or maintaining electric lines or electrical plants or meter and such other matters. What is clear from the above provision is that it is for the State Regulatory Commission to make regulations for recovery of electricity charges for the period of billing; and consequent upon non payment to provide for disconnection of supply and for taking other consequential measures. Recovery provisions made in exercise of powers conferred under section 50 are contained in Chapter V and Chapter VI of the Supply Code. Clause 22 provides that the consumers W.A No2114/2009 : 10 : shall pay at the specific collection centres of the licensee within the period provided thereunder. Sub-clause 5 of clause 22 provides for payment and detailed provisions contained therein even authorise licensees to limit the instalment facility for clearing the arrears. So far as coercive steps for recovery are concerned clause 25 1(g) authorises the licensee to disconnect supply for nonpayment of electricity charges. However, there is nothing to indicate that consumers are disabled from selling any defaulted premises without clearing the electricity dues. There is also no corresponding provision disqualifying the defaulted premises, to get a new electricity connection without clearing the arrears due from the previous connection. of the purchaser of the defaulted premises. In other words there is no safeguard in the Supply Code to ensure that before the sale of the property, the defaulter consumer and the purchaser arrange for payment of arrears of electricity dues. In fact, it is not uncommon to provide in the statute to clear statutory dues before the properties are sold by the defaulter. Probably, electricity dues could have W.A No2114/2009 : 11 : been made a charge on the defaulted premises in the Act itself which Parliament has not chosen to do. In this context, the question to be considered is whether KSEB's demand to have some provision in the Supply Code to restrict transfer and acquisition of defaulted premises without clearing electricity dues is reasonable and if any such provision is made in the Supply Code, the same would help recovery of arrears due to the licensee at the time or before the sale of the property whether such sale takes place in public auction or by agreement between parties. It may be noticed that under the previous regulations clause 15(e) of the Condition of Supply provided for recovery from defaulted premises as follows: “Reconnection or new connection shall not be given to any premises where there are arrears on any account due to the Board pending payment, unless the arrears including penalty, if any, are cleared in advance. If the new owner/occupier/allottee remits the amount due from the previous consumer, the Board shall provide reconnection or a new W.A No2114/2009 : 12 : connection depending on whether the service remains disconnected/dismantled, as the case may be. The amount so remitted will be adjusted against the dues from the previous consumer. If the Board gets the full dues from the previous consumer through R.R. action or other legal proceedings the amount remitted by the new owner/occupier to whom connection has been effected shall be refunded. But the amount already remitted by him/her shall not bear any interest.” 9. In the suggestion made by the Board itself what they have stated is that the liability will continue to be that of the seller who incurred liability and recovery also will be continued against such defaulter. However, the safety provision suggested by them was to the effect that the purchaser applying for new connection in the defaulted premises should deposit the arrears of electricity dues which will be refundable to him in the event of recovery from the defaulter. We feel that without shifting the liability of previous owner to the purchaser or without creating any charge in the defaulted premises at least if a provision could W.A No2114/2009 : 13 : be made to the effect that new connection to the defaulted premises will be given only after recovery of arrears from the previous owner, Buyers of the property will be conscious of it and they will ensure that liability is reckoned or provision is made for payment of arrears of electricity dues at the time of fixing consideration for the property and before purchase of property. In our view this requires serious consideration by the Regulatory Commission. 10. It is also worth noticing that in the decisions of the Hon'ble Supreme Court reported in Isha Marbls v. Bihar State Electricity Board(1995(2)SCC 648), Ahmedabad Electricity Company v. Gujrat Inns P.Ltd.(2004(3) SCC 587) and Hyderabad Vanaspathy Ltd. v. Andra Pradesh State Electricity Board & others(AIR 1998 SC 1715) and in the decision above referred; Supreme Court held that the electricity dues should not be recovered from the purchaser of the defaulted property unless there is statutory provision authorising it . In other words, all the decisions are rendered on the premises that if there is a statutory provision providing for any kind of disability for defaulted W.A No2114/2009 : 14 : premises and recovery from the purchaser of the defaulted property it should be possible for the licensee to exercise such right. So much so, we feel, the Regulatory Commission should consider making a provision under Supply Code keeping in mind the observations of the Hon'ble Supreme Court in the decision reported in Haryana Electricity Board v. Hanuman Rice Mills(2010(9)SCC145. Similarly, Supreme Court also held in Paschimanchal Vidyut Vithan Nigam Ltd., v. DVS Steels & Alloys Pvt. Ltd reported in 2009(1) KLT 253 SC as follows:- “A stipulation by the distributor that the dues in regard to the electricity supplied to the premises should be cleared before electricity supply is restored or a new connection is given to a premises, cannot be termed as unreasonable or arbitrary. In the absence of such a stipulation, an unscrupulous consumer may commit defaults with impunity, an when the electricity supply is disconnected for non-payment may sell away the property and move on to another property, thereby making it difficult, if not impossible for the distributor to recover the dues. Having regard to the very large number of consumers of W.A No2114/2009 : 15 : electricity and the frequent moving or translocating of industrial, commercial and residential establishments, provisions similar to cl. 4.3(g) and (h) of Electricity Supply Code are necessary to safeguard the interests of the distributor. We do not find anything unreasonable in a provision enabling the distributor/supplier, to disconnect electricity supply if dues are not paid, or where the electricity supply has already been disconnected for non-payment, insist upon clearance of arrears before a fresh electricity connection is given to the premises. It is obviously the duty of the purchasers/occupants of premises to satisfy themselves that there are no electricity dues before purchasing/occupying a premises. They can also incorporate in the deed of sale or lease, appropriate clauses making the vendor/lessor responsible for clearing the electricity dues up to the date of sale/lease and for indemnity in the event they are made liable. Be that as it may.” The next question to be considered is whether the reason given by the Regulatory Commission above stated are sufficient to reject the request of the KSEB to have a provision in the Supply Code for recovery from defaulters of W.A No2114/2009 : 16 : electricity dues if they sell defaulted property leaving no other assets to proceed for recovery. Even though, the provisions above stated relied on by the Regulatory Commission to a large extent can help to prevent mounting arrears of electricity bills by immediate disconnection after first default; it is seen that the Supply Code itself provides for granting instalment facility to the defaulter consumer leading to accumulation of arrears. So far as industrial and commercial consumers are concerned even a single monthly bill of arrears incurred immediately prior to the sale of premises may be so huge that the KSEB cannot afford to loose it. So much so, we feel that the grounds relied on by the Regulatory Commission are not adequate safeguards to recover the arrears in the event of sale of defaulted premises by the defaulter, leaving behind no other assets, for the licensee to proceed against for recovery. 11. Board itself has cautioned the Regulatory Commission that the defaulters are likely to enter into various transactions to evade electricity arrears by selling their property including defaulted premises to related W.A No2114/2009 : 17 : persons or through bogus transactions. In such situation, only if the regulations provide some conditions to entitle the purchaser to get new connection; the previous defaulter could not at least easily sell their property and get rid of the liability due to the Electricity Board. So much so, we feel there is an urgent need to have a provision by way of clearance certificate from the KSEB for sale of premises or a provision for disability of defaulted premises to get new electricity connection until arrears are recovered from defaulter or deposited by the purchaser. As already stated if a sufficient safeguard is provided the defaulter seller as well as the buyer will make arrangement for clearing the arrears of electricity bill before the sale is effected. The position remains the same even if the defaulted properties are sold in auction either by Revenue recovery or through any other agency. At least the Buyer based on the statutory provision will take note of the liability remaining over the property and will provide for it while quoting price for the property. 12. We have also heard the counsel appearing for the additional respondents impleaded through I.A No.947/2011 W.A No2114/2009 : 18 : who has raised the contention that charge of defaulted premises can be created only by statutory provision and not through regulation or amendment of the Supply Code by the Regulatory Commission. We notice that the power contained under section 181 read with section 50 of the Act is sufficiently wide which clothe the Regulatory Commission with elaborate powers to ensure smooth implementation of the Act including provisions for recovery of electricity dues. We feel, the Regulatory Commission with the wide powers conferred under the statutory provisions has the authority to provide a safety clause in the Supply Code for recovery from defaulted premises though it cannot provide a statutory charge. To ensure recovery of arrears before or at the time of the sale of the property a statutory charge is not expedient and sufficient safeguards would suffice. As already stated even a provision to alert the purchaser of the disability and the consequences to the Buyer of the defaulted property having electricity dues is sufficient to safeguard and to ensure payments of such dues. Before parting with the matter we shall also consider the scope of W.A No2114/2009 : 19 : section 56 of the Act which is as follows: 56. Disconnection of supply in default of payment:-(1) Where any person neglects to pay any charge for electricity or any sum other than a charge for electricity due from him to a licensee or the generating company in respect of supply, transmission or distribution or wheeling of electricity to him, the licensee or the generating company may, after giving not less than fifteen clear days' notice in writing, to such person and without prejudice to his rights to recover such charge or other sum by suit, cut off the supply of electricity and for that purpose cut or disconnect any electric supply line or other works being the property of such licensee or the generating company through which electricity may have been supplied, transmitted, distributed or wheeled and may discontinue the supply until such charge or other sum, together with any expenses incurred by him in cutting off and reconnecting the supply, are paid, but no longer: The above provision in our view confers the power on the KSEB to disconnect power supply anywhere; given to the defaulter, which may include even domestic supply given to the