PNP 1 WP9906--16.9.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.9906 OF 2010 M/s. Namco Industries pvt. Ltd. ..Petitioner. versus The State of Maharashtra and others ..Respondents. ..... Mr. Mohan Jayakar with Mr. Pankaj Sutar and Mr. Kayval Shah i/b M/s. Khaitan & Jayakar for the Petitioner. Mr. Naushad Engineer with Mr. Rahul Sinha i/b DSK Legal for Respondents 2 and 3. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 16 September 2011. ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) : I The Controversy 1. Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2. In these proceedings under Article 226 of the Constitution the Petitioner seeks (i) a direction to the Maharashtra State Electricity Distribution Company Limited and its Superintending Engineer (the Second and Third Respondents) to allow its application dated 7 October 2010 for the grant of a temporary 100 HP load power supply; and (ii) the setting aside of a demand raised in the amount of Rs. PNP 2 WP9906--16.9.sxw 39,57,15,400/- by a letter dated 18 November 2010. 3. The Petitioner is a transferee of the premises in question from the fourth Respondent. The Fourth Respondent purchased the premises in an auction sale conducted in execution of a recovery certificate issued by the Debts Recovery Tribunal. The issue which is raised in the Petition is whether arrears of unpaid electricity charges can be claimed from the Petitioner, who is a subsequent transferee, and if so, what is the quantum of those charges to which the Petitioner is liable. The Petitioner contends that it seeks a fresh electricity connection and not the restoration of the earlier connection which was disconnected for non-payment of charges and is hence not liable to pay the outstandings of the erstwhile owner. The Second Respondent, on the other hand, relies on statutory regulations the – Maharashtra Electricity Regulatory Commission (Electricity Supply Code and Other Conditions of Supply) Regulations 2005. Under Regulation 10.5, unpaid electricity dues constitute a charge on the property and can be recovered from the transferee (subject to a maximum of six months of unpaid charges for electricity supplied). II The Facts 4. In 2001, ICICI Bank Limited filed an application before the Debts Recovery Tribunal against Malhotra Steels (Bombay) Limited, the Fifth Respondent. The debt of the Fifth Respondent was assigned to Kotak Mahindra Bank which became the applicant before the Tribunal. On 22 February 2005 a recovery certificate was issued by the Tribunal and proceedings in execution were initiated against the PNP 3 WP9906--16.9.sxw Fifth respondent. The properties of the Fifth Respondent were attached and the Recovery Officer ordered the sale of the attached property in satisfaction of the recovery certificate. The property in which the Petitioner now claims interest was sold in execution of the recovery certificate. The property is situated at village Horale in the Taluka of Khalapur in the District of Raigad. The terms and conditions governing the sale of the property stipulated in clauses 3 and 4 as follows : 3. “ So far as known to this Tribunal / Recovery Officer, there are no claims, liabilities or encumbrances other than those notified in the schedule. The sale is subject to all such claims, liabilities or encumbrances, known or unknown, and the Tribunal / Recovery Officer undertakes no liability thereunder either to purchaser or to any authority whatever. 4. The properties shall be sold on AS IS WHERE IS AND “ WHAT IS BASIS .” ” 5. A proclamation of sale was issued and an auction sale took place at which the Fourth Respondent was the highest bidder in the amount of Rs.78 lacs. The sale in favour of the Fourth Respondent was confirmed on 7 May 2008 and a certificate of sale was issued on 23 March 2009 and 19 May 2009. The Petitioner acquired the property from the Fourth Respondent under a registered deed of conveyance dated 30 March 2010. 6. The Petitioner submitted an application on 7 October 2010 for the supply of electricity. On 28 October 2010 the Third Respondent pointed out certain discrepancies in the application and sought a PNP 4 WP9906--16.9.sxw disclosure of details on the arrears which were payable by the Fifth Respondent. On 12 November 2010 the Second Respondent submitted a reply to the Third Respondent stating that the discrepancies have been rectified. On 18 October 2010 a notice of demand was issued by the Superintending Engineer of the Second Respondent upon the Petitioner claiming a sum of Rs.14,83,66,626.58 as arrears of electricity charges together with interest from November 2006 to October 2010 in the amount of Rs.24,73,46,773.98. The total outstanding dues thus amounted to Rs.39,57,15,400/-. These proceedings have been initiated in order to challenge the demand. III Submissions 7. Counsel appearing on behalf of the Petitioner submits that (i) The application by the Petitioner to the Second Respondent is for the grant of a fresh connection for electric supply to the premises; (ii) The provisions of Regulation 10 of the Maharashtra Electricity Regulatory Commission (Electricity Supply Code and Other Conditions of Supply) Regulations 2005 govern applications for a change of name and under Regulation 10.1 a connection may be transferred in the name of another person upon death or in the case of transfer of ownership or occupancy, upon an application for change of name by the new owner or occupier; (iii) The Petitioner does not seek a change in name or a transfer of the existing electric connection that was granted by the Second Respondent to the Fifth Respondent, but the issuance of a fresh electric connection. In such an event it is not open to the authorities of the Second Respondent to demand the arrears which were due from the Fifth Respondent, the erstwhile PNP 5 WP9906--16.9.sxw owner; (iv) The demand is barred by limitation by virtue of the provisions of Section 56(2) of the Indian Electricity Act 2003. 8. On the other hand, it has been urged on behalf of the Second Respondent that (i) The Maharashtra Electricity Regulatory Commission (Electricity Supply Code and other conditions of supply) Regulations 2005 came to be framed upon the enactment of the Indian Electricity Act of 2003; (ii) Regulation 10.5 expressly stipulates that any charge for electricity or any other sum which remains unpaid by an erstwhile owner shall constitute a charge on the premises transmitted to the new owner and can be recovered by the distribution licensee from the new owner; (iii) The only restriction is that in the case of a transfer of a connection to a new owner who is not a legal heir or a deceased owner the liability which is transferred under Regulation 10.5 is restricted to a maximum period of six months of the unpaid charges for the electricity supplied to the premises; (iv) In several judgments of the Supreme Court the entitlement of a distribution licensee to demand arrears of electricity charges due from the erstwhile owner of the premises from the subsequent transferee, has been affirmed particularly in the context where either under the terms of the contract or under the statutory rules, the distribution licensee is entitled to demand such arrears from a subsequent transferee. IV The Electricity Act & Regulations 9. The Indian Electricity Act of 2003 provides in sub-section (1) of Section 43 that save as otherwise provided in the Act every PNP 6 WP9906--16.9.sxw distribution licensee shall on an application by the owner or occupier of any premises, give supply of electricity to such premises within one month after receipt of an application requiring such supply. Under Section 45 the prices to be charged by a distribution licensee for the supply of electricity by him in pursuance of Section 43 shall be in accordance with the tariffs prescribed from time to time and the conditions of his license. Section 50 provides that the State Commission shall specify an Electricity Supply Code to provide inter alia for the recovery of electricity charges, intervals for billing of electricity charges, disconnection of supply of electricity for non- payment, restoration of supply of electricity and other specified matters. 10 The Regulations of 2005 have a statutory character. They are inter alia referable to Section 50 under which an Electricity Supply Code can be formulated, and to Section 181 under which the State Commission is entitled to make regulations consistent with the Act and the rules to carry out the provisions of the Act. Under Regulation 3 a distribution licensee is authorized to recover charges for the supply of electricity from any person requiring such supply in accordance with the provisions of the Act and the regulations. Regulation 4 provides for an application for supply, Regulation 5 lays down the procedure for processing of applications and Regulation 6 for an agreement between the distribution licensee and the Applicant. Regulation 10.1 provides that a connection may be transferred in the name of another person upon death of the consumer, or in case of transfer of ownership or occupancy of the premises, upon application for change of name by the new owner or occupier. PNP 7 WP9906--16.9.sxw Regulation 10.5 provides as follows : 10.5 “ Any charge for electricity or any sum other than a charge for electricity due to the Distribution Licensee which remains unpaid by a deceased consumer or the erstwhile owner / occupier of any premises, as a case may be, shall be a charge on the premises transmitted to the legal representatives / successors-in-law or transferred to the new owner / occupier of the premises, as the case may be, and the same shall be recoverable by the Distribution Licensee as due from such legal representatives or successors-in-law or new owner / occupier of the premises, as the case may be; Provided that, except in the case of transfer of connection to a legal heir, the liabilities transferred under this Regulation 10.5 shall be restricted to a maximum period of six months of the unpaid charges for electricity supplied to such premises.” (emphasis supplied). 11. Regulation 10.5 provides three consequences in law. First, a charge for electricity or any other sum due to the distribution licensee which remains unpaid constitutes a charge on the premises; second, the charge continues to subsist despite the transmission of the premises upon the death of the consumer or the transfer of the premises to a new owner. Third, the unpaid electricity dues can be recovered by the distribution licensee from the legal representatives of the deceased consumer or successors-in-law or from the new owner or occupier of the premises, as the case may be. The qualification, however, that is imposed is that except in the case of a transfer of a connection to a legal heir, the liabilities which are PNP 8 WP9906--16.9.sxw transferred under Regulation 10.5 are restricted to a maximum period of six months of the unpaid charges for electricity supplied to the premises. IV The position in law before the Act of 2003 & Regulations 12. Prior to the enactment of the Indian Electricity Act, 2003 and statutory regulations of the nature that now exist in Maharashtra, the Supreme Court had occasion to consider whether unpaid electricity dues could be recovered from a subsequent transferee. The Supreme Court was considering a legal regime in which a charge had not been created by statutory regulations or enactment. In Isha Marbles v. Bihar State Electricity Board1 the Supreme Court dealt with the provisions of the Electricity Act of 1910 which was the precursor to the present parliamentary legislation. In the context of the position as it then stood, the Supreme Court held that there was no charge over the property and where the premises devolve upon an auction purchaser who seeks the supply electrical energy, he could not be called upon to clear the past arrears as a condition precedent to the grant of supply. The Supreme Court recognized in paragraph 63 of its judgment that electricity is public property which the law must protect. However, the law as it then stood was inadequate to enforce the liability of a previous contracting party against an auction purchaser who is a third party and who was not connected with the previous owner or occupier. In that context, the Supreme Court held as follows : But, the law, as it stands, is inadequate to enforce the liability “ of the previous contracting party against the auction-purchaser 1 (1995) 2 SCC 648. PNP 9 WP9906--16.9.sxw who is a third party and is in no way connected with the previous owner / occupier. It may not be correct to state, if we hold as we have done above, it would permit dishonest consumers transferring their units from one hand to another, from time to time, infinitum without the payment of the dues to the extent of lakhs and lakhs of rupees and each one of them can easily say that he is not liable for the liability of the predecessor in interest. No doubt, dishonest consumers cannot be allowed to play truant with the public property but inadequacy of the law can hardly be a substitute for overzealousness.” V The present position in law 13. The deficiency in the law which was noticed by the Supreme Court in its decision in Isha Marbles was evidently rectified when statutory regulations came to be framed upon the enactment of the Indian Electricity Act of 2003. Regulation 10.5 in the State of Maharashtra expressly recognises that the unpaid electricity dues will be a charge on the property and can be recovered by the distribution licensee from the new owner subject to the qualification in regard to period as noticed earlier. 14. In a subsequent decision of the Supreme Court in Dakshin Haryana Bijli Vitran Nigam Ltd. vb. M/s. Paramount Polymers Pvt. Ltd.2 a sale had taken place of an asset which was mortgaged to the State Financial Corporation. The sale was on an as is where is ‘ ’ basis. The Supreme Court adverted to the earlier decision in Isha 2 AIR 2007 SC 2. PNP 10 WP9906--16.9.sxw Marbles and noted that Clause 21A of the conditions of supply in the case at hand now stipulated an entitlement in the licensee to demand the arrears of electricity charges from the purchaser for the grant of a reconnection or a fresh connection. The Supreme Court noted that the earlier decision in Isha Marbles had no occasion to consider a provision in the nature of Clause 21A of the conditions of supply. 15. In Paschimanchal Vidyut Vitran Nigam Limited v. DVS Steels and Alloys Private Limited3 the position in law has been considered in the judgment of the Supreme Court once again. The Supreme Court has noticed that the transferee of premises with whom a supplier has no privity of contract, cannot be asked to pay the dues of his predecessor-in-title as the amount payable towards supply of electricity dues does not in common law constitute a charge on the premises. However, this does not preclude the distribution licensee from stipulating in the conditions of supply that the arrears payable by the erstwhile owner should be cleared before electricity supply is restored to the premises or a fresh connection is provided to the new owner. The position in law has been expounded as follows in paragraphs 12 and 13 of the judgment : When the purchaser of a premises approaches the distributor “ seeking a fresh electricity connection to its premises for supply of electricity, the distributor can stipulate the terms subject to which it would supply electricity. It can stipulate as one of the conditions for supply, that the arrears due in regard to the supply of electricity made to the premises when it was in the occupation of the previous owner/occupant, should be cleared 3 (2009) 1 SCC 210. PNP 11 WP9906--16.9.sxw before the electricity supply is restored to the premises or a fresh connection is provided to the premises. If any statutory rules govern the conditions relating to sanction of a connection or supply of electricity, the distributor can insist upon fulfilment of the requirements of such rules and regulations. If the rules are silent, it can stipulate such terms and conditions as it deems fit and proper to regulate its transactions and dealings. So long as such rules and regulations or the terms and conditions are not arbitrary and unreasonable, courts will not interfere with them. 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, and 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.” 16. The judgment in Paschimanchal Vidyut Vitran Nigam Limited has been followed in a subsequent decision in Haryana State Electricity Board v. Hanuman Rice Mills, Dhanauri4. The position has been summarised as follows : The position therefore may be summarised thus : “ (i) Electricity arrears do not constitute a charge over the 4 (2010) 9 SCC 145. PNP 12 WP9906--16.9.sxw property. Therefore in general law, a transferee of a premises cannot be made liable for the dues of the previous owner / occupier. (ii) Where the statutory rules or terms and conditions of supply which are statutory in character, authorise the supplier of electricity to demand from the purchaser of a property claiming reconnection or fresh connection of electricity, the arrears due by the previous owner / occupier in regard to supply of electricity to such premises, the supplier can recover the arrears from a purchaser.” 17. A Division Bench of this Court has taken a similar view having regard to Clause 10.5 of the Maharashtra Regulations in Akanksha International v. Maharashtra State Electricity Distribution Co. Ltd.5. VI The present case 18. Having regard to the position in law which is now enunciated in Regulation 10.5 of the Regulations, it is evident that the unpaid dues of the Fifth respondent did constitute a charge on the property. These dues could legitimately be recovered by the Second Respondent from the Petitioner, as subsequent transferee. The submission of the Petitioner that the Petitioner is entitled to seek a fresh connection of electricity supply to which the liability to pay the dues of the erstwhile owner will not be attracted is without any substance. The charge attaches to the property and the distribution licensee is 5 2008(1) Mh. L.J. 753. PNP 13 WP9906--16.9.sxw entitled to recover the unpaid dues from the new owner. Acceptance of the submission would result in a situation where an owner of the premises could utilize electricity and upon a subsequent transfer, the transferee would not be liable to pay the arrears. The distribution licensee would be left with virtually no recourse whatsoever and this is exactly the situation which the Supreme Court emphasized in its judgment in Paschimanchal Vidyut Vitran Nigam Limited. 19. There is no merit in the submission which has been urged that the claim is barred by limitation. Sub section (2) of Section 56 of the Electricity Act 2003 provides that notwithstanding anything contained in any other law for the time being in force, no sum due from any consumer under the Section shall be recoverable after a period of two years from the date when such sum became first due unless such sum has been shown continuously as recoverable as arrears of charges for electricity supplied and the licensee shall not cut off the supply of electricity. In the present case the bills which were issued by the distribution licensee did reflect the arrears of electricity charges. In any event, the distribution licensee under Regulation 10.5 is entitled to assert its charge over the property in the hands of the new transferee and to recover unpaid charges subject to the permitted period specified therein. We, therefore, reject the plea that the claim is barred on the ground of limitation. 20. During the pendency of these proceedings, the Division Bench by its interim direction dated 26 April 2011 had directed the Second Respondent to place on the record particulars of the liability for a period of six months of the H.T. electricity charges for the electricity PNP 14 WP9906--16.9.sxw supplied to the premises in question immediately prior to disconnection as contemplated by Clause 10.5 of the Regulations. An affidavit has been filed by the Executive Engineer (Administration) of the Second and Third Respondents. In paragraph 5 of the affidavit it has been stated that the outstanding dues for a period of six months prior to the temporary disconnection of supply amount to Rs. 4,81,96,863/- for the period between June 1993 to November 1993 immediately prior to disconnection. Regulation 10.5 restricts the liability of a subsequent transferee to a maximum period of six months of the unpaid charges for the electricity supplied to the premises. The disconnection of electricity supplied to the premises took place on 7 December 1993 after which no electricity was supplied. Regulation 10.5 refers to the six months of unpaid charges for electricity supplied to such premises and this would obviously be for the period between June and November 1993. 21. Having regard to the provisions of Regulation 10.5 the amount which the Petitioner is liable to pay towards unpaid electricity charges would have to be computed at Rs.4,81,96,863/- as tabulated in the affidavit dated 29 August 2011 filed by the Second and Third Respondents. The demand as contained in the communication dated 18 November 2010 would therefore be modified in the terms as directed hereinabove. Subject to the Petitioner paying the aforesaid amount to the Second Respondent and complying with the other usual terms governing the grant of electric supply, the Second and Third Respondent shall now process the application for the grant of supply in accordance with law. PNP 15 WP9906--16.9.sxw Rule is made absolute in the aforesaid terms. There shall be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.)